**EXHIBIT 10.36**

**Safety Insurance Group, Inc.ANNUAL PERFORMANCE INCENTIVE PLAN**

**Section1.  Establishment and Purpose**

Safety Insurance Group, Inc. (hereinafter referred toas the “Company”) hereby establishes a short-term incentive compensation planto be known as the “Safety Insurance Group, Inc. Annual Performance IncentivePlan” (hereinafter referred to as the “Plan”).

The purpose of the Plan is to provide designated keyexecutive employees of the Company with meaningful financial rewards for theaccomplishment of financial and strategic objectives of the Company.  Awards payable under the Plan are intended toconstitute “performance-based compensation” under Section 162(m) of the Codeand regulations promulgated thereunder, and the Plan shall be construed consistentlywith such intention.

**Section2.  Definitions**

Unlessthe context requires otherwise, the following words, when capitalized, shallhave the meanings ascribed below:

(a)                                  “Board”means the Board of Directors of the Company.

(b)                                 “Code”means the Internal Revenue Code of 1986, as amended.

(c)                                  “Committee”means the Compensation Committee of the Board of Directors.

(d)                                 “Company”means Safety Insurance Group, Inc.

(e)                                  “CoveredEmployee” shall have the meaning set forth in Section 162(m) of the Code.

(f)                                    “Participant”means (i) each Covered Employee and (ii) each other executive officer selectedby the Committee to participate in the Plan.

(g)                                 “PerformancePeriod” means the fiscal year of the Company or such other periods as may bedesignated by the Committee.

(h)                                 “Plan”means the Safety Insurance Group, Inc. Annual Performance Incentive Plan, asmay be amended from time to time.

(i)                                     “Subsidiary”means any corporation in which the Company owns, directly or indirectly, atleast fifty percent (50%) of the total combined voting power of all classes ofstock, or any other entity (including, but not limited to, partnerships andjoint ventures) in which the Company owns, directly or indirectly, at leastfifty percent (50%) of the combined equity thereof.

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**Section 3. Administration**

The Plan shall be administered by the CompensationCommittee of the Board of Directors.  TheCommittee shall have responsibility to construe and interpret the Plan;provided, however, that in no event shall the Plan be interpreted in a mannerwhich would cause any award to a Covered Employee to fail to qualify asperformance-based compensation under Section 162(m) of the Code.  The Committee shall establish the performanceobjectives for any Performance Period in accordance with Section 5 and certifywhether such performance objectives have been achieved.  Any determination made or decision or actiontaken or to be taken by the Committee, arising out of or in connection with theconstruction, administration, interpretation and effect of the Plan and of itsrules and regulations, shall, to the fullest extent permitted by law (butsubject to the limitations on the discretion of the Committee applicable toawards intended to qualify as performance-based compensation under Section162(m) of the Code) be within the Committee’s absolute discretion and shall beconclusive and binding on all persons, including the Company, its Subsidiaries,its stockholders, the Participants and their estates and beneficiaries.

TheCommittee may employ such legal counsel, consultants and agents (includingcounsel or agents who are employees of the Company) as it may deem desirable toassist with the administration of the Plan and may rely upon any opinionreceived from any such counsel, consultant or agent and any computationreceived from such consultant or agent. All expenses incurred in the administration of the Plan, including,without limitation, for the engagement of any counsel, consultant or agent,shall be paid by the Company.  No memberor former member of the Board or the Committee shall be liable for any act,omission, interpretation, construction or determination made in connection withthe Plan other than as a result of such individual’s willful misconduct.

**Section 4. Eligibility**

Eligibility under the Plan is limited to Participantsdesignated by the Committee, in its sole and absolute discretion.  In addition to Covered Employees, theCommittee may designate as a Participant in the Plan any “executive officer” ofthe Company, as such term is defined in Rule 3b-7 of the Securities ExchangeAct of 1934.  Members of the Board whoare not employees of the Company shall not be eligible to participate in thePlan.

**Section5.  Determination of Incentive Awards**

(a)                                  *Designation of Participants, Performance Period andPerformance Criteria*.  On orbefore the end of the first 90 days of each Performance Period (or such otherdate as may be required or permitted under Section 162(m) of the Code), theCommittee shall select the Participants to whom incentive awards shall begranted, designate the applicable Performance Period, establish the TargetIncentive Bonus for each Participant, and

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establish the performanceobjective or objectives that must be satisfied in order for a Participant toreceive an incentive award for such Performance Period.  Any such performance objectives will be basedupon the relative or comparative achievement of one or more of the followingcriteria, as determined by the Committee:
|        | (i)     |   | net income,                                                           |
|--------|---------|--------|-----------------------------------------------------------------------|
|   | (ii)    |   | earnings before income taxes,                                         |
|   | (iii)   |   | earnings per share,                                                   |
|   | (iv)    |   | return on shareholders equity,                                        |
|   | (v)     |   | expense management,                                                   |
|   | (vi)    |   | profitability of an identifiable business unit or  product,           |
|   | (vii)   |   | ratio of claims to revenues,                                          |
|   | (viii)  |   | revenue growth,                                                       |
|   | (ix)    |   | earnings growth,                                                      |
|   | (x)     |   | total shareholder return,                                             |
|   | (xi)    |   | cash flow,                                                            |
|   | (xii)   |   | return on assets,                                                     |
|   | (xiii)  |   | pretax operating income,                                              |
|   | (xiv)   |   | net economic profit (operating earnings minus a  charge for capital), |
|   | (xv)    |   | customer satisfaction,                                                |
|   | (xvi)   |   | agency satisfaction,                                                  |
|   | (xvii)  |   | employee satisfaction,                                                |
|   | (xviii) |   | quality of services,                                                  |
|   | (xix)   |   | strategic innovation, or                                              |
|   | (xx)    |   | any combination of the foregoing.                                     |

 

 

(b)           *Target**Incentive Bonus.*  Each Participant will have an incentive awardopportunity (the “Target Incentive Bonus”) that will be based on achieving thetarget performance objectives established by the Committee.  The Target Incentive Bonus will be apercentage of the Participant’s annual salary at the end of the PerformancePeriod.  If the performance objectivesestablished by the Committee are met at the target level, the Participant willreceive an incentive award equal to 100% of the Target Incentive Bonus.

(c)           *Range ofIncentive Payouts. *Theincentive awards under this Plan can range between 50% and 150% of the TargetIncentive Bonus; provided, however, that the maximum incentive award that maybe paid to a Participant for any calendar year shall not exceed$1,200,000.  This range will beassociated with the actual performance achieved by the Participant and theCompany as reviewed and approved by the Committee.

(d)           *Determinationof Performance. *TheParticipant will have a portion of his or her award linked to the financial andbusiness performance of the Company and a portion linked to his or herindividual performance and/or the performance of his or her correspondingbusiness unit.  The weighting

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and goals will beestablished by the Committee pursuant to Section 5(a) above; provided, however,that except with respect to award opportunities for the Chief Executive Officer(the “CEO”) of the Company, the Committee may receive input from the CEO withrespect to the foregoing.

(e)           *CommitteeCertification and Approval of Awards.*  As soon as reasonably practicable after theend of each Performance Period, the Committee will (i) determine whether theperformance objectives for the Performance Period have been satisfied, (ii)determine the amount of the incentive award to be paid to each Participant forsuch Performance Period and (iii) certify such determination in writing.  If the individual or Company does not meetthe minimum performance requirements, the Participant will receive no incentiveaward for the specified Performance Period.

(f)            *CommitteeDiscretion.*  Notwithstandingthe foregoing, with respect to a Participant who is a Covered Employee, theCommittee retains the discretion to reduce or eliminate the amount of theincentive award otherwise payable to such Participant under this Section5.  In addition, with respect to aParticipant who is not a Covered Employee, the Committee retains the discretionto increase, reduce or eliminate the amount of the incentive award otherwisepayable to such Participant under this Section 5.

(g)           *Methodologyfor Determinations.*  In makinga determination under any part of this Section 5, the Committee shall giveconsideration to such factors as it deems appropriate, including, withoutlimitation, the degree to which the established performance objectives havebeen obtained and whether the Participant has materially contributed to theoverall results of the Company.  Toassist in making such determinations, the Committee may seek input from the CEO(except with respect to the CEO’s own award) and may request such other adviceand recommendations as it deems appropriate.

**Section6.  Payment of Incentive Awards**

(a)           *GeneralRule. *Except as otherwiseexpressly provided hereunder, payment of any incentive amount determined underSection 5 shall be made to each Participant as soon as practicable after theCommittee certifies that one or more of the applicable performance objectiveshave been attained.  Any such paymentsshall be made in cash or, at the discretion of the Committee, in an equivalentvalue of shares of common stock of the Company.

(b)           *VoluntaryDeferral. *NotwithstandingSection 6(a), the Committee may permit a Participant to defer all or a portionof an incentive award otherwise payable pursuant to the Participant’s timelyand validly made election made in accordance with such terms as the Company,the Board or committee thereof may determine.

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(c)           *Change inControl*.  Upon the occurrenceof a Change in Control (as such term is defined in a Participant’s employmentagreement with the Company, or in the absence of such agreement, in the SafetyInsurance Group, Inc. 2002 Management Omnibus Incentive Plan, as amended fromtime to time), all performance objectives for the then current PerformancePeriod shall be deemed to have been achieved at target levels of performanceand the Committee shall cause each Participant to be paid an amount in cashbased on such assumed performance prorated for the Performance Period as soonas practicable but in no event later than 30 business days following theoccurrence of such Change in Control.

**Section7.  Termination of Employment**

Unless otherwisedetermined by the Committee, a Participant shall have no right to an incentiveaward under the Plan for any Performance Period in which the Participant is notactively employed by the Company or a Subsidiary on the last day of thePerformance Period to which such award relates.

**Section8. Amendment or Termination of the Plan**

TheBoard or the Committee may at any time amend, suspend, discontinue or terminatethe Plan; provided, however, that no such action shall be effective withoutapproval by the shareholders of the Company to the extent necessary to continueto qualify the amounts payable to Covered Employees as performance-basedcompensation under Section 162(m). Notwithstanding the foregoing, no amendment, suspension, discontinuanceor termination of the Plan shall adversely affect the rights of any Participantor beneficiary in respect of any award that the Committee has determined to bepayable to a Participant in accordance with the terms hereof or as to anyamounts awarded.

**Section9. General Provisions**

(a)           *EffectiveDate and Duration of the Plan. *ThePlan shall be effective with respect to calendar years beginning on or afterJanuary 1, 2006, subject to approval of the Plan by the shareholders of theCompany at the 2006 Annual Meeting.  ThePlan will remain in effect until such time as it shall be terminated by theBoard, pursuant to Section 8 above.

(b)           *Designationof Beneficiary.* EachParticipant may designate a beneficiary or beneficiaries (which beneficiary maybe an entity other than a natural person) to receive any payments which may bemade following the Participants death. Such designation may be changed or canceled at any time without theconsent of any such beneficiary.  Anysuch designation, change or cancellation must be made in a form approved by theCommittee and shall not be effective until received by the Committee.  If no beneficiary has been named, or thedesignated beneficiary or beneficiaries shall have predeceased the Participant,the beneficiary shall

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be the Participant’sspouse or, if no spouse survives the Participant, the Participant’sestate.  If a Participant designates morethan one beneficiary, the rights of such beneficiaries shall be payable inequal shares, unless the Participant has designated otherwise.

(c)           *No Right ofContinued Employment.*Nothing contained in the Plan shall create anyrights of employment in any Participant or in any way affect the right andpower of the Company to discharge any Participant or otherwise terminate theParticipant’s employment at any time with or without cause or to change theterms of employment in any way.

(d)           *NoLimitations on Corporate Actions.*Nothing contained in the Planshall be construed to prevent the Company from taking any corporate action(including, without limitation, making provision for the payment of otherincentive compensation, whether payable in cash or otherwise, or whetherpursuant to a plan or otherwise) which is deemed by it to be appropriate or inits best interest, whether or not such action would have an adverse effect onany awards made under the Plan.  Noemployee, beneficiary or other person shall have any claim against the Companyas a result of any such action.

(e)           *No Right toSpecific Assets.*  Nothingcontained in the Plan (including, without limitation, the provisions of Section6 hereof) shall be construed to create in any Participant or beneficiary anyclaim against, right to or lien on any particular assets of the Company or torequire the Company to segregate or otherwise set aside any assets or createany fund to meet any of its obligations hereunder.

(f)            *NoContractual Right to Incentive.* Nothing in this Plan shall be construed to give any Participant anyright, whether contractual or otherwise, to receive any incentive with respectto any Performance Period unless and until the Committee shall have expresslydetermined that such a Participant is entitled to receive such an awardpursuant to the terms of the Plan.

(g)           *Non-alienationof Benefits. *Except asexpressly provided herein, no Participant or beneficiary shall have the poweror right to sell, transfer, assign, pledge or otherwise encumber theParticipant’s interest under the Plan.

(h)           *Withholding.*  Any amount payable to a Participant or abeneficiary under this Plan shall be subject to any applicable Federal, stateand local income and employment taxes and any other amounts that the Company isrequired at law to deduct and withhold from such payment.

(i)            *Severability.*  If any provision of this Plan is heldunenforceable, the remainder of the Plan shall continue in full force andeffect without regard to such unenforceable provision and shall be applied asthough the unenforceable provision were not contained in the Plan.

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(j)            *GoverningLaw.*  To the extent notpreempted by federal law, the Plan shall be construed in accordance with andgoverned by the laws of the state of New York, excluding any conflicts orchoice of law rule or principle that might otherwise refer construction orinterpretation of this Plan to the substantive law of another jurisdiction.

(k)           *Code Section 409A Compliance*.  To the extent applicable, it is intended thatthis Plan and any incentive awards granted hereunder comply with therequirements of Section 409A of the Code and any related regulations or otherguidance promulgated with respect to such Section by the U.S. Department of theTreasury or the Internal Revenue Service (“Section 409A”).  Any provision that would cause the Plan orany incentive award granted hereunder to fail to satisfy Section 409A shallhave no force or effect until amended to comply with Section 409A, whichamendment may be retroactive to the extent permitted by Section 409A.

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