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What changed in SELECTIVE INSURANCE GROUP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of SELECTIVE INSURANCE GROUP INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+609 added−615 removedSource: 10-K (2025-02-10) vs 10-K (2024-02-09)

Top changes in SELECTIVE INSURANCE GROUP INC's 2024 10-K

609 paragraphs added · 615 removed · 508 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

167 edited+20 added−34 removed45 unchanged
Biggest changeWe enhanced our rating platform's user experience by reducing the amount of required information before quote generation and continuing to improve eligibility of agency-issued business that needs no underwriter involvement ("straight-through processing"). In addition, at the end of 2023, we completed our roll-out of comparative rating tools for specific lines of businesses within Standard Commercial Lines.
Biggest changeWe added additional business capabilities within Standard Commercial Lines small business, such as: • Introducing small business eligibility to new lines of businesses; • Streamlining quoting capabilities through data prefill functionality; • Enhancing our rating platform's user experience by reducing the amount of required information before quote generation; • Improving in-platform user experience to optimize new small business growth and straight-through processing with our distribution partners, which is agency-issued business that needs no underwriter involvement; and • Integrating with comparative rating tools for specific lines of business in Standard Commercial Lines.
We use the combined ratio as the key performance measure in assessing the underwriting profitability of our insurance operations.
We use combined ratio as the key performance measure in assessing the underwriting profitability of our insurance operations.
We expect that independent retail insurance agents – representing most of our independent distribution partners – will remain a significant force in overall insurance industry premium production. Their business model, representing multiple insurance carriers, gives customers a broader choice of insurance products, more competitive pricing, and individualized risk-based consultation.
We expect that independent retail insurance agents – representing most of our distribution partners – will remain a significant force in overall insurance industry premium production. Their business model, representing multiple insurance carriers, gives customers a broader choice of insurance products, more competitive pricing, and individualized risk-based consultation.
Our operating model also focuses on improving insured safety and risk management programs, loss experience, and retention, including: • Risk evaluation and virtual and on-site improvement surveys that evaluate potential exposures and provide solutions for mitigation; • Internet-based safety management educational resources, including an extensive library of coverage-specific safety materials, videos, and online courses, such as defensive driving and employee educational safety courses; • Thermographic infrared surveys that identify potential electrical hazards; and • Occupational Safety and Health Administration construction and general industry certification training.
Our operating model also focuses on improving insured risk management programs, loss experience, and retention, including: • Risk evaluation and virtual and on-site improvement surveys that evaluate potential exposures and provide solutions for mitigation; • Internet-based risk management educational resources, including an extensive library of coverage-specific safety materials, videos, and online courses, such as defensive driving and employee educational safety courses; • Thermographic infrared surveys that identify potential electrical hazards; and • Occupational Safety and Health Administration construction and general industry certification training.
Insurance Operations Competition We face substantial competition in the insurance marketplace from public, private, and mutual insurance companies with varying levels of brand recognition, scale and operational efficiency, capital bases, book of business diversification, and cost of capital. Many competitors rely on independent partners to distribute their products and services like us.
Insurance Operations Competition We face substantial competition in the insurance marketplace from public, private, and mutual insurance companies with varying levels of brand recognition, scale and operational efficiency, capital bases, book of business diversification, and cost of capital. Like us, many competitors rely on independent partners to distribute their products and services.
Major Risk Category Emerging Risk Committee MIC MSC Disclosure Committee EPMO Reserve Committee Large Claims Committee ERC Underwriting Committee Asset Risk X X X Underwriting Risk X X X X X Liquidity Risk X X X Other Risks X X X X Emerging Risks X X Our risk governance structure facilitates effective risk conversations across all levels and disciplines of the organization and promotes strong risk management practices.
Major Risk Category MIC Underwriting Committee EPMO Large Claims Committee Reserve Committee ERC Disclosure Committee MSC Asset Risk X X X Underwriting Risk X X X X X Liquidity Risk X X X Other Risks X X X X Emerging Risks X Our risk governance structure facilitates effective risk conversations across all levels and disciplines of the organization and promotes strong risk management practices.
Our risk governance structure consists of the following major components: Risk Oversight Board of Directors • Executive Committee • Finance and Investments Committee • Corporate Governance and Nominating Committee ("CGNC") • Compensation and Human Capital Committee • Audit Committee • Risk Committee 2 STRATEGY SETTING AND ESTABLISHING RISK TOLERANCE Risk Management Management and Operating Committees • Management Investment Committee ("MIC") • Reserve Committee • Underwriting Committee • Executive Risk Committee • Emerging Risk Committee • Disclosure Committee • Enterprise Project Management Office ("EPMO") • Market Security Committee ("MSC") • Large Claims Committee 2 APPETITE AND LIMIT GOVERNANCE Risk Identification & Reporting Enterprise Risk Management Function • Supported by individual business units and functional areas.
Our risk governance structure consists of the following major components: Risk Oversight Board of Directors • Executive Committee • Finance and Investments Committee • Corporate Governance and Nominating Committee ("CGNC") • Compensation and Human Capital Committee • Audit Committee • Risk Committee 2 STRATEGY SETTING AND ESTABLISHING RISK TOLERANCE Risk Management Management and Operating Committees • Management Investment Committee ("MIC") • Reserve Committee • Underwriting Committee • Executive Risk Committee • Enterprise Project Management Office ("EPMO") • Disclosure Committee • Large Claims Committee • Market Security Committee ("MSC") 2 APPETITE AND LIMIT GOVERNANCE Risk Identification & Reporting Enterprise Risk Management Function • Supported by individual business units and functional areas.
We have been executing a multi-year claims system modernization and process transformation strategy to (i) provide our adjusters with increased quality, real-time data, enabling quicker decisions, (ii) monitor our adjusting team's workflows, (iii) optimize processes, and (iv) deliver an exceptional customer experience. This strategy also ensures each line of business has an efficient workflow tied to each file's complexity.
We have been executing a multi-year claims system modernization and process transformation strategy to (i) provide our adjusters with increased quality, real-time data, enabling quicker decisions, (ii) better monitor our adjusting team's workflows, (iii) optimize processes, and (iv) deliver an exceptional customer experience. This strategy also ensures each line of business has an efficient workflow tied to each file's complexity.
Property and casualty insurance activities regulated by the states include the following: • Protection of claimants: Oversight of financial matters to ensure claims-paying ability, including minimum capital; statutory surplus; solvency standards; accounting methods; form and content of statutory financial statements and other reports; loss and loss expense reserves; investments; reinsurance; dividend payments and other distributions to shareholders; security deposits; and periodic financial examinations. • Protection of policyholders: Oversight of matters including certificates of authority and other insurance company licenses; licensing and compensation of distribution partners; underwriting criteria; premium rates (required not to be excessive, inadequate, or unfairly discriminatory); policy forms; policy terminations; claims handling and related practices; cybersecurity; data protection and customer privacy; reporting of premium and loss statistical information; periodic market conduct examinations; unfair trade practices; mandatory participation in shared market mechanisms, such as assigned risk pools and reinsurance pools; mandatory participation in state guaranty funds; and mandated continuing workers compensation coverage post-termination of employment. • Protection of policyholders, claimants, and shareholders: Related to our ownership of the Insurance Subsidiaries, oversight of matters including registration of insurance holding company systems in states where we have domiciled insurance subsidiaries, reporting about intra-holding company system developments, self-assessment of current and future risks, including cybersecurity and climate change, and required pre-approval of certain transactions that may materially affect the operations, management, or financial condition of the insurers, including dividends and change in control.
Property and casualty insurance activities regulated by the states include the following: • Protection of claimants: Oversight of financial matters to ensure claims-paying ability, including minimum capital; statutory surplus; solvency standards; accounting methods; form and content of statutory financial statements and other reports; loss and loss expense reserves; investments; reinsurance; dividend payments and other distributions to shareholders; security deposits; and periodic financial examinations. • Protection of policyholders: Oversight of matters including certificates of authority and other insurance company licenses; licensing and compensation of distribution partners; underwriting criteria; premium rates (required not to be excessive, inadequate, or unfairly discriminatory); policy forms; policy terminations; claims handling and related practices; cybersecurity; data protection and customer privacy; reporting of premium and loss statistical information; periodic market conduct examinations; unfair trade practices; mandatory participation in shared market mechanisms, such as assigned risk pools and reinsurance pools; mandatory participation in state guaranty funds; and mandated continuing workers compensation coverage post-termination of employment. 14 Table of Contents • Protection of policyholders, claimants, and shareholders: Oversight of matters related to our ownership of the Insurance Subsidiaries, including registration of insurance holding company systems in states where we have domiciled insurance subsidiaries, reporting about intra-holding company system developments, self-assessment of current and future risks, including cybersecurity and climate change, and required pre-approval of certain transactions that may materially affect the operations, management, or financial condition of the insurers, including dividends and change in control.
Federal Regulation While primarily regulated at the state level, our business is subject to federal laws and regulations, including: • The McCarran-Ferguson Act; • The Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA"); • The NFIP, overseen by the Mitigation Division of the Federal Emergency Management Agency ("FEMA"); • The Medicare, Medicaid, and SCHIP Extension Act of 2007, which subjects our workers compensation business to Mandatory Medicare Secondary Payer Reporting; • The economic and trade sanctions of the Office of Foreign Assets Control ("OFAC"); • Various privacy laws related to possessing personal non-public information, including the following: ◦ Gramm-Leach-Bliley Act; ◦ Fair Credit Reporting Act; ◦ Drivers Privacy Protection Act; and ◦ Health Insurance Portability and Accountability Act. • The Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) govern publicly-traded companies.
Federal Regulation While primarily regulated at the state level, our business is subject to federal laws and regulations, including: • The McCarran-Ferguson Act; • The Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA"); • The NFIP, overseen by the Mitigation Division of the Federal Emergency Management Agency; • The Medicare, Medicaid, and SCHIP Extension Act of 2007, which subjects our workers compensation business to Mandatory Medicare Secondary Payer Reporting; • The economic and trade sanctions of the Office of Foreign Assets Control; • Various privacy laws related to possessing personal non-public information, including the following: ◦ Gramm-Leach-Bliley Act; ◦ Fair Credit Reporting Act; ◦ Drivers Privacy Protection Act; and ◦ Health Insurance Portability and Accountability Act. • The Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) govern publicly-traded companies.
Other insurance carriers either employ their agents, who represent only them, or use a combination of distribution partners, captive agents, and direct marketing. The property and casualty insurance market is highly competitive in our insurance segments, with market share fragmented among many companies, particularly in Standard Commercial Lines and E&S Lines.
Other insurance carriers employ their agents, who represent only them, or use a combination of distribution partners, captive agents, and direct marketing. The property and casualty insurance market is highly competitive in our insurance segments, with market share fragmented among many companies, particularly in Standard Commercial Lines and E&S Lines.
Various state departments of insurance (i) license nine of our subsidiaries as admitted carriers to write specific lines of property and casualty insurance in the standard marketplace and (ii) authorize the tenth subsidiary as a non-admitted carrier to write property and casualty insurance in the excess and surplus ("E&S") lines market.
Various state insurance departments (i) license nine of our subsidiaries as admitted carriers to write specific property and casualty lines in the standard market and (ii) authorize the tenth subsidiary as a non-admitted carrier to write property and casualty insurance in the excess and surplus ("E&S") lines market.
An investor should carefully consider the risks and all other information included in Item 1A. "Risk Factors.," Item 7A. "Quantitative and Qualitative Disclosures About Market Risk.," and Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
An investor should carefully consider the risks and all other information in Item 1A. "Risk Factors.," Item 7A. "Quantitative and Qualitative Disclosures About Market Risk.," and Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
For some time, we have not underwritten specific environmentally-hazardous risks related to production from coal mines, thermal coal plants, or oil sands extraction because they are outside our underwriting appetite. Our underwriting controls employ authority levels in writing large individual property risks and large property accounts that could create or exacerbate a property aggregation issue.
For some time, we have not underwritten specific environmentally-hazardous risks related to production from coal mines, thermal coal plants, or oil sands extraction because they are outside our underwriting appetite. Our underwriting controls employ authority levels for large individual property risks and large property accounts that could create or exacerbate a property aggregation issue.
We believe that we have created an effective control environment for managing natural catastrophe risk on a gross exposure basis by (i) setting overall portfolio growth expectations, (ii) monitoring actual results and property aggregations, (iii) having appropriate underwriting authority controls around our largest accounts, and (iv) consistently focusing on appropriate pricing of catastrophe risk.
We believe that we have created an effective control environment for managing gross natural catastrophe risk exposure by (i) setting overall portfolio growth expectations, (ii) monitoring actual results and property aggregations, (iii) having appropriate underwriting authority controls around our largest accounts, and (iv) consistently focusing on appropriate pricing of catastrophe risk.
ORSA, adopted by the state domicile insurance regulators of our Insurance Subsidiaries, requires an insurer to annually file an internal assessment of the adequacy of its risk management framework and current and projected future solvency position. For more information on our internal process of assessing our significant risks, refer to the "Corporate Governance, Sustainability, and Social Responsibility" section below.
ORSA, adopted by the state domicile insurance regulators of our Insurance Subsidiaries, requires an insurer to file an annual internal assessment of the adequacy of its risk management framework and current and projected future solvency position. For more information on our internal process of assessing our significant risks, refer to the "Corporate Governance, Sustainability, and Social Responsibility" section below.
Our internal control framework follows the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model, deploying three lines of defense: • The first line of defense is the individual business functions that deliberately assume, own, and manage the risk on a daily operational basis. • The second line of defense is responsible for risk oversight, supporting the first line in understanding, monitoring, and managing our risk profile through an Executive Risk Committee ("ERC") and dedicated risk team. • The third line of defense is our Internal Audit team, which provides separate, objective assurance in assessing the adequacy and effectiveness of our internal control environment with oversight from our Board's Audit Committee.
Our internal control framework follows the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model, deploying three lines of defense: • The first line of defense is the individual business functions that deliberately assume, own, and manage the risk on a daily operational basis. • The second line of defense is responsible for risk oversight, supporting the first line in understanding, monitoring, and 16 Table of Contents managing our risk profile through an Executive Risk Committee ("ERC") and dedicated risk team. • The third line of defense is our Internal Audit team, which provides separate, objective assurance in assessing the adequacy and effectiveness of our internal control environment with oversight from our Board's Audit Committee.
Claims that (i) have or are likely to exceed a reinsurance policy coverage limit, (ii) have bad faith exposure of $15 million or more, (iii) are likely to generate significant news interest or negative publicity, or (iv) potentially create a significant legal precedent on an insurance coverage issue are reported to the Board's Risk Committee.
Claims that (i) have or are likely to exceed a reinsurance policy coverage limit, (ii) have bad faith exposure of $15 million or more, (iii) are likely to generate significant news interest or negative publicity, or (iv) potentially create a significant legal precedent on an insurance coverage issue are reported to the Board's Audit Committee.
For additional quantitative and qualitative information about our modeled results by scenario on stockholders' equity, refer to the "Reinsurance" section in "Results of Operations and Related Information by Segment" of Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Property insurance is the primary climate-related insurance operations risk.
For additional quantitative and qualitative information about our modeled results by scenario on stockholders' equity, refer to the "Reinsurance" section in "Results of Operations and Related Information by Segment" of Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Property insurance presents the primary climate-related risk in insurance operations.
The following table shows the principal types of property and casualty insurance policies we underwrite and issue: Types of Policies Category of Insurance Standard Commercial Lines Standard Personal Lines E&S Lines Commercial Property (including Inland Marine) Property X X Commercial Automobile Property/Casualty X X General Liability (including Excess Liability/Umbrella) Casualty X X Workers Compensation Casualty X Businessowners' Policy Property/Casualty X Bonds (Fidelity and Surety) Casualty X Homeowners Property/Casualty X Personal Automobile Property/Casualty X Personal Umbrella Casualty X Flood 1 Property X X 1 The majority of our flood loss exposure relates to our participation in the NFIP's WYO program, to which we cede 100% of our flood insurance premiums and losses.
The following table shows the principal types of property and casualty insurance policies we underwrite and issue: Types of Policies Category of Insurance Standard Commercial Lines Standard Personal Lines E&S Lines Commercial Property (including Inland Marine) Property X X Commercial Automobile Property/Casualty X X General Liability (including Excess Liability/Umbrella) Casualty X X Workers Compensation Casualty X Businessowners' Policies Property/Casualty X Bonds (Fidelity and Surety) Casualty X Homeowners Property/Casualty X Personal Automobile Property/Casualty X Personal Umbrella Casualty X Flood 1 Property X X 1 Most of our flood loss exposure relates to our participation in the NFIP's WYO program, to which we cede 100% of our WYO flood insurance premiums and losses.
While many insurers offer digital customer solutions for personal lines, we strive to be a digital and customer experience leader in all three of our insurance operation segments. Technology We leverage technology in our business and invest significantly in IT platforms, integrated systems, and cloud-based solutions.
While many insurers offer digital customer solutions for personal lines, we strive to be a digital and customer experience leader in all three of our insurance operations segments. Technology We leverage technology in our business and invest significantly in IT platforms, integrated systems, and cloud-based solutions.
ERM Function The ERM unit identifies, measures, monitors, and reports key and aggregated enterprise-wide risks to the ERC, the Board and its Risk Committee. The ERM unit works with other functional areas to develop appropriate responses to identified risks and supports the successful execution of our business strategy.
ERM Function The ERM unit identifies, measures, monitors, and reports key and aggregated enterprise-wide risks to the ERC and the Board and its Risk Committee. The ERM unit works with other functional areas to develop appropriate responses to identified risks and support the successful execution of our business strategy.
E&S insurers are exempt from many standard market requirements, including form and rate regulation. E&S carriers may write an insurance policy if three separate standard line carriers have declined to write the risk to be insured.
E&S insurers (i) may write an insurance policy if three separate standard line carriers have declined to write the risk to be insured and (ii) are exempt from many standard market requirements, including form and rate regulation.
Human Capital We recognize that developing and protecting our human capital and providing a beneficial employee experience complements and contributes to superior longer-term financial performance. We are committed to maintaining a safe and inclusive workplace for our approximately 2,650 employees.
Human Capital We recognize that developing and protecting our human capital and providing a beneficial employee experience complements and contributes to superior, longer-term financial performance. We are committed to maintaining a safe and inclusive workplace for our approximately 2,800 employees.
Based on our 2023 statutory financial statements prepared in accordance with SAP, all our Insurance Subsidiaries had total adjusted capital substantially exceeding the regulatory action levels defined by the NAIC. • Group Capital Calculation ("GCC").
Based on our 2024 statutory financial statements prepared in accordance with SAP, all our Insurance Subsidiaries had total adjusted capital substantially exceeding the regulatory action levels defined by the NAIC. • Group Capital Calculation ("GCC").
Our employees have access to a wide range of resources, including live instructor-led training courses and online skills training courses. We also have leadership and talent development programs and initiatives at all levels of the organization.
Our employees have access to a wide range of resources, including live instructor-led and online skills training courses. We also have leadership and talent development programs and initiatives for all levels of the organization.
We sell our Standard Commercial Lines property and casualty insurance products and services to commercial enterprises, typically businesses, non-profit organizations, and local government agencies, primarily in 30 states and the District of Columbia.
We sell our Standard Commercial Lines property and casualty insurance products and services to commercial enterprises, typically businesses, non-profit organizations, and local government agencies, primarily in 35 states and the District of Columbia.
We have procedures to manage an efficient transition to new technology vendors without significantly impacting our operations if we terminate any current service provider. Innovation We have a dedicated innovation team under our Chief Marketing and Innovation Officer to maintain our culture of innovation and long-term value proposition to our customers and distribution partners.
We have procedures to manage an 10 Table of Contents efficient transition to new technology vendors without significantly impacting our operations if we terminate any current service provider. Innovation We have a dedicated innovation team under our Chief Marketing and Innovation Officer to maintain our culture of innovation and long-term value proposition to our customers and distribution partners.
We offer competitive financial benefit programs to support the fiscal well-being of our employees and their families. Among the offerings are a 401(k) plan with non-elective and employer matching contributions, an employee stock purchase plan offering discounted stock purchases, and tuition reimbursement and student loan repayment programs.
We offer competitive financial benefit programs to support the fiscal well-being of our employees and their families. Among our offerings are a 401(k) plan with non-elective and employer matching contributions, an employee stock purchase plan with discounted pricing, and tuition reimbursement and student loan repayment programs.
We expect this integrated marketing and customer engagement approach will position us as a marketplace leader and (i) afford us a dynamic view of the changing marketplace and customer expectations, (ii) provide us insight into unique value-added products and services that might have the greatest impact on each customer, and (iii) help drive brand health and perception leading to increased retention and business acquisition.
We expect this integrated marketing and customer engagement approach will position us as an industry leader and (i) afford us a dynamic view of the changing marketplace and customer expectations, (ii) provide us insight into unique value-added products and services that could have the greatest impact on each customer, and (iii) help drive brand health and perception leading to increased retention and business acquisition.
For our Standard Commercial Lines, we use the output of these models to group existing or potential policies based on our model's view of their expected loss potential. These groupings are inputs in the individual risk underwriting and pricing process. We use these models to develop factors in our filed Standard Personal Lines rating plans.
For our Standard Commercial Lines, we use the output of these models to group existing or potential policies based on expected loss potential. These groupings are inputs in the individual risk underwriting and pricing process. In Standard Personal Lines, we use these models to develop factors in our filed rating plans.
Products and Services Our Insurance Subsidiaries sell insurance that falls into two broad categories: • Casualty insurance, which generally covers the financial consequences of (i) injuries employees suffer in the course of employment, (ii) third-party bodily injury and/or property damage from an insured's negligent acts, omissions, or legal liabilities, and (iii) our obligation to defend our insured(s) for covered claims.
Products and Services Our Insurance Subsidiaries sell two broad categories of insurance policies: • Casualty insurance, which generally covers the financial consequences of (i) third-party bodily injury and/or property damage from an insured's negligent acts, omissions, or legal liabilities, (ii) our obligation to defend our insured(s) for covered claims, and (iii) injuries employees suffer in the course of employment.
Our areas of focus include (i) developing our human capital to create a highly engaged and diverse team of employees and leaders who will guide us into the future, (ii) understanding and attempting to mitigate the environmental impact that climate change has on our business and operations, and (iii) providing customers with empathetic claims service and risk mitigation solutions.
Focus areas include (i) developing our human capital to create a highly engaged and diverse team of employees and leaders who will guide us into the future, (ii) understanding and attempting to mitigate the environmental impact climate change has or could have on our business and operations, and (iii) providing customers with empathetic claims service and risk mitigation solutions.
We sell our E&S Lines property and casualty insurance products and services in all 50 states and the District of Columbia. We sell our E&S Lines property and casualty insurance products and services to commercial customers unable to obtain coverage in the standard marketplace, generally because of unusual or high-risk exposures.
We sell our E&S Lines property and casualty insurance products and services in all 50 states and the District of Columbia. The market for our E&S Lines property and casualty insurance products and services is commercial customers unable to obtain coverage in the standard marketplace, generally because of unusual or high-risk exposures.
Underwriting Process Our underwriting process by segment is as follows: • Standard Commercial Lines : Our Standard Commercial Lines corporate underwriting department oversees our underwriting guidelines and philosophy for each SBU and line of business.
Underwriting Process Our underwriting process by segment is as follows: • Standard Commercial Lines : Our Standard Commercial Lines corporate underwriting department oversees our underwriting philosophy and guidelines for each market size, SBU, and line of business.
For example, we consider (i) heightened levels of economic inflation, (ii) the enactment of reviver statutes for abuse victims, (iii) climate change, (iv) the increased threat of cyber incidents, and (v) the increased use of artificial intelligence all to be emerging risks. The table below maps our management and operating committees to their responsibilities for our five major risks.
For example, we consider emerging risks to include (i) heightened levels of economic and social inflation, (ii) the enactment of reviver statutes for abuse victims, (iii) climate change, (iv) the increased threat of cyber incidents, and (v) the increased use of artificial intelligence. The table below maps our management and operating committees to their responsibilities for our five major risks.
Underwriting income/loss is NPE minus insurance operations-related expenses incurred. 5 Table of Contents Insurance operations-related expenses fall into three categories on our Consolidated Statements of Income: (i) "Loss and loss expense incurred," which includes losses associated with claims and loss expenses for adjusting claims incurred during a policy's term, net of losses and loss expenses ceded to reinsurers; (ii) "Amortization of deferred policy acquisition costs," which includes expenses related to the successful acquisition of insurance policies, such as commissions to our distribution partners and premium taxes, recognized ratably over a policy's term; and (iii) "Other insurance expenses," which includes acquisition and other insurance-related expenses not otherwise classified as "Loss and loss expense incurred" or "Amortization of deferred policy acquisition costs" incurred in maintaining policies and policyholder dividends.
Insurance operations-related expenses fall into three categories on our Consolidated Statements of Income: (i) "Loss and loss expense incurred," which includes losses associated with claims and loss expenses for adjusting claims incurred during a policy's term, net of losses and loss expenses ceded to reinsurers; (ii) "Amortization of deferred policy acquisition costs," which includes expenses related to the successful acquisition of insurance policies, such as commissions to our distribution partners and premium taxes, recognized ratably over a policy's term; and (iii) "Other insurance expenses," which includes acquisition and other insurance-related expenses not otherwise classified as 5 Table of Contents "Loss and loss expense incurred" or "Amortization of deferred policy acquisition costs" incurred in maintaining policies.
As of December 31, 2023, our USC was servicing NPW of about $110 million, representing 3% of our total NPW. Claims Management Timely and appropriate investigation of a claim's facts and circumstances in light of our policy's terms, conditions, and exclusions is an essential service we provide to our policyholders, their claimants, and our distribution partners.
As of December 31, 2024, our USC was servicing NPW of about $118 million, representing 3% of our total NPW. Claims Management Timely and appropriate investigation of a claim's facts and circumstances in light of our policy's terms, conditions, and exclusions is an essential service we provide to our policyholders, their claimants, and our distribution partners.
Under the CUO's delegated authorities, our regional underwriting operations make most individual policyholder underwriting and pricing decisions. New business is underwritten by Agency Management Specialists ("AMSs"), with contributions from Production Underwriters, Small Business Teams, and Large Account Underwriters. Renewal business is primarily handled in each region with support from our USC.
Under the CUO's delegated authorities, our regional underwriting operations make most individual policyholder underwriting and pricing decisions. New business is underwritten by Agency Management Specialists ("AMSs"), Production Underwriters, Small Business Teams, and Large Account Underwriters. Renewal business is primarily handled in each region with support from our underwriting and claims service center ("USC").
We develop our coverages by (i) adopting policy forms created or filed by statistical rating agencies or other third parties, notably Insurance Services Office, Inc. ("ISO"), American Association of Insurance Services, Inc. ("AAIS"), and the National Council on Compensation Insurance, Inc. ("NCCI"), (ii) independently creating our policy forms, or (iii) modifying third-party policy forms.
We develop our coverages by (i) adopting policy forms created or filed by statistical rating agencies or other third parties, including Verisk Analytic's Insurance Services Office, Inc. ("ISO"), American Association of Insurance Services, Inc. ("AAIS"), and the National Council on Compensation Insurance, Inc. ("NCCI"), (ii) independently creating our policy forms, or (iii) modifying third-party policy forms.
We derive nearly all of our income/loss in three ways: • Underwriting income/loss from our insurance operations . DPW, gross premiums, NPW, and net premiums earned ("NPE") are components of evaluating underwriting income/loss. DPW are the amounts billed to policyholders for insurance coverage and services. Gross premiums are DPW plus premiums assumed from other insurers and mandatory pools and associations.
We derive nearly all of our income/loss in three ways: • Underwriting income/loss from our insurance operations . DPW, gross premiums, NPW, and net premiums earned ("NPE") are used to evaluate underwriting income/loss. DPW are the amounts billed to policyholders for insurance coverage and services. Gross premiums are DPW plus premiums assumed from other insurers and mandatory pools and associations.
To support our employees' social and emotional well-being, we encourage connections with their colleagues and communities through various programs, such as paid time off for volunteer work, matching charitable donations, employee engagement events, employee resource groups, and unique programming to meet employee needs.
To support our employees' social and emotional well-being, we encourage connections with their colleagues and communities through various programs, such as paid time off for volunteering, matching charitable donations, employee engagement events, employee resource and affinity groups, and unique programming to meet employee needs.
We consider many variables in determining pricing for coverage. Like most property and casualty insurers, our loss data is not sufficiently credible to independently establish the complex loss cost and rating variable structures our products require. Consequently, we often adopt loss costs and rating structures that statistical rating agencies, such as ISO and NCCI, file with state insurance regulators.
Consequently, we consider many variables when determining policy pricing. Like most property and casualty insurers, our loss data is not sufficiently credible to independently establish the complex loss cost and rating variable structures our products require. We often adopt loss costs and rating structures that statistical rating agencies, such as ISO and NCCI, file with state insurance regulators.
In 2023, we continued to expand capabilities of our new Standard Commercial Lines agency interface platform designed to streamline new small business policy quoting and issuance. Writing small business, which we define as lower hazard risks in specific industry classes with less than $25,000 in policy premium, is a core part of our strategy.
In addition, we continued to modernize and expand capabilities of our new Standard Commercial Lines agency interface platform designed to streamline new small business policy quoting and issuance. Writing small business, which we define as lower hazard risks with policy premiums less than $25,000 in specific industry classes, is a core part of our strategy.
BCAR and the S&P model differ from the NAIC financial monitoring tools, particularly RBC. While RBC, the BCAR model, and the S&P capital model show similar direction as scenarios change, they react differently to variations in economic conditions, underwriting and investment portfolio mix, and capital.
BCAR and the S&P model differ from the NAIC financial monitoring tools, particularly RBC. While RBC, the BCAR model, and the S&P capital model 15 Table of Contents show similar direction as scenarios change, they react differently to variations in economic conditions, underwriting and investment portfolio mix, and capital.
We make these technology investments to provide: • Our distribution partners with accurate business information and seamless integration with our systems, permitting easy policy transaction processing; • Our service representatives with a customer account-centric view of our policyholders, reducing customer inquiry response time and complementing customer access to on-demand digital transactional capabilities; • Our underwriters with advanced underwriting and pricing tools and predictive models that provide guidance and automatic retrieval of relevant public information on existing and potential policyholders, allowing for improved and quicker decisions, contributing to enhanced profitability and premium growth; and • Our claims adjusters with predictive tools to identify specific claims likely to involve escalating losses, fraud, subrogation opportunities, or litigation.
We make these technology investments to provide: • Our distribution partners with accurate business information and seamless integration with our systems, permitting easy policy transaction processing; • Our service representatives with a customer account-centric view of our policyholders, reducing customer inquiry response time and complementing customer access to on-demand digital transactional capabilities; • Our underwriters with advanced underwriting and pricing tools and predictive models that provide guidance and automatically retrieve relevant public information on existing and potential policyholders, allowing for better and quicker decisions and enhanced profitability and premium growth; and • Our claims adjusters with predictive tools to identify specific claims likely to experience escalating losses, fraud, subrogation opportunities, or litigation.
We also assess total return, calculated as the ratio of the sum of pre-tax (i) net investment income, (ii) net realized and unrealized investment gains or losses (including losses on securities we intend to sell and credit loss expense or benefit) in income, and (iii) unrealized investment gains or losses included in accumulated other comprehensive income or loss, to average invested assets.
We also assess total return, which we calculate as the ratio of the sum of the following pre-tax components, to average invested assets: (i) net investment income, (ii) net realized and unrealized investment gains or losses (including losses on securities we intend to sell and credit loss expense or benefit) in income, and (iii) unrealized investment gains or losses included in accumulated other comprehensive income or loss.
Due to our business risk profile and geographic concentration in the Northeast and Mid-Atlantic states, hurricane peril is our most significant natural catastrophe exposure, driving the “tail” of our modeled catastrophe loss distribution. This risk has influenced our decision to diversify our underwriting portfolio geographically and set rigorous coastal property exposure guidelines.
Due to our business risk profile and geographic concentration in the Northeast and Mid-Atlantic states, hurricane peril is our most significant natural catastrophe exposure, driving the "tail" of our modeled catastrophe loss distribution. This risk has influenced our decision to diversify our underwriting portfolio geographically and set rigorous coastal property exposure 20 Table of Contents guidelines.
This evaluation incorporates the results of third-party vendor models and proprietary analysis in its review of exposure to hurricane and other perils on both a gross and net basis. For quantitative information on the modeled results of our underwriting property portfolio by peril, refer to the "Reinsurance" section in "Results of Operations and Related Information by Segment" of Item 7.
This evaluation incorporates the results of third-party vendor models and proprietary analysis of exposure to hurricanes and other perils on a gross and net basis. For quantitative information on the modeled results of our underwriting property portfolio by peril, refer to the "Reinsurance" section in "Results of Operations and Related Information by Segment" of Item 7.
In 2023, we were (i) designated as a Great Place to Work Certified TM organization for the fourth consecutive year and (ii) recognized by Forbes as one of "America's Best Mid-Size Employers" for the third time.
In 2024, we were (i) designated as a Great Place to Work Certified TM organization for the fifth consecutive year and (ii) recognized by Forbes as one of "America's Best Mid-Size Employers" for the fourth time.
We believe that as society transitions to a low-carbon economy, the value of these assets could be at greater risk. Other In addition to mitigating insurance operations and investment risk, we: • Have robust plans to ensure operational continuity if we suffer unforeseen or catastrophic events.
We believe that as the world transitions to a low-carbon economy, the value of these 21 Table of Contents assets could be at greater risk. Other In addition to mitigating insurance operations and investment risk, we: • Have robust plans to ensure operational continuity if we suffer unforeseen or catastrophic events.
The MSC meets semiannually, before each major treaty renewal and more often as needed. At least semiannually, the MSC updates the Board's Risk Committee on reinsurance purchases, including market trends and any changes in treaty structure and terms and conditions. For any reinsurance-related catastrophe bond issuance, the Board’s Finance and Investments Committee reviews and approves related security offerings.
It meets semiannually, before each major treaty renewal and as needed, and updates the Board's Risk Committee at least semiannually on reinsurance purchases, market trends, and changes in treaty structure and terms and conditions. For any reinsurance-related catastrophe bond issuance, the Board’s Finance and Investments Committee reviews and approves any related security offerings.
When considering large property accounts, the Underwriting Committee typically reviews an evaluation of property aggregations in the particular county and state and projections of marginal impact on our aggregate modeled losses, assuming we wrote the risk. The discussion covers our catastrophe risk aggregation appetite and the appropriate pricing for taking the increased risk aggregation.
When considering large property accounts, the Underwriting Committee typically (i) reviews an evaluation of property aggregations in the particular county and state and projections of marginal impact on our aggregate modeled losses, assuming we wrote the risk and (ii) discusses our catastrophe risk aggregation appetite and the appropriate pricing for taking the increased risk aggregation.
We rely on quantitative and qualitative tools to identify, prioritize, and manage our major risks, including proprietary and third-party computer modeling and other analyses. When appropriate, we engage subject matter experts, such as external actuaries, third-party risk modeling firms, and IT and cybersecurity consultants. Our Insurance Subsidiaries annually file an ORSA report with their domiciliary state insurance regulators.
We rely on quantitative and qualitative tools to identify, prioritize, and manage our major risks, including proprietary and third-party computer modeling and other analyses. When appropriate, we engage subject matter experts, such as external actuaries, third-party risk modeling firms, and IT and cybersecurity consultants. Our Insurance Subsidiaries submit an annual ORSA summary report to their domiciliary state insurance regulators.
Through formal letters of authority, our Chief Underwriting Officer ("CUO") delegates underwriting authority after assessing an underwriter's job grade and segment and line of business expertise. Our corporate underwriting department coordinates with our Actuarial Department to determine adequate pricing levels for all Standard Commercial Lines products.
Through formal letters of authority, our Chief Underwriting Officer ("CUO") delegates underwriting authority after assessing an underwriter's job grade and their segment and line of business expertise. Our regional and corporate underwriting teams coordinate with our Actuarial Department to determine adequate pricing levels for all Standard Commercial Lines products.
Our claims adjusters will be able to provide improved visibility and transparency throughout the life cycle of a claim file to our insureds, claimants, and agents.
Our claims adjusters will be able to provide improved visibility and transparency throughout the life cycle of a claim file to our insureds, claimants, and distribution partners.
In addition, we work with our third-party investment managers to ensure they incorporate sustainability guidelines and protocols into their investment process while managing our mandates.
In addition, we work with our third-party investment managers to ensure they incorporate sustainability guidelines and protocols into their investment process for our mandates.
Customers and Customer Markets We categorize our Standard Commercial Lines customers into the following strategic business units ("SBUs"): Percentage of Standard Commercial Lines Description Contractors 44% General contractors and trade contractors Mercantile and Services 25% Retail, office, lessors risk/property owners, automobile services, and golf courses Community and Public Services 16% Public entities, social services, religious institutions, and schools Manufacturing and Wholesale 14% Manufacturers, wholesalers, and distributors Bonds 1% Fidelity and surety Total Standard Commercial Lines 100% We do not categorize Standard Personal Lines or E&S Lines customers into SBUs.
Customers and Customer Markets We categorize our Standard Commercial Lines customers into five strategic business units ("SBUs"): Percentage of Standard Commercial Lines DPW Description Contractors 44% General contractors and trade contractors Mercantile and Services 26% Retail, office, lessors risk/property owners, automobile services, and golf courses Community and Public Services 15% Public entities, social services, religious institutions, and schools Manufacturing and Wholesale 14% Manufacturers, wholesalers, and distributors Bonds 1% Fidelity and surety Total Standard Commercial Lines 100% We do not categorize Standard Personal Lines or E&S Lines customers into SBUs.
We categorize our major risks into five broad categories: • Asset risk, stemming primarily from our investment portfolio and reinsurance recoverables and includes credit and market risk; • Underwriting risk, which is the risk our insured losses exceed our expectations, including: ◦ Losses from inadequate loss reserves; ◦ Larger than expected non-catastrophe current accident year losses; and ◦ Catastrophe losses that exceed our expectations or our reinsurance treaty limits. • Liquidity risk, which is the risk we will be unable to meet our contractual obligations as they become due because we cannot liquidate assets or obtain adequate funding without incurring unacceptable investment losses or borrowing expenses; • Other risks, which include a broad range of operational risks, many challenging to quantify, such as talent/human capital, market conditions, economic, legal, regulatory, reputational, and strategic risks – as well as the risks of fraud, human failure, modeling risks, inadequate business continuity plans, or failure of controls or systems, including cybersecurity risk; and • Emerging risks, which include risks in the other categories that are new, rapidly evolving, or increasing substantially compared to historical levels.
We categorize our major risks into five broad categories: • Asset risk, stemming primarily from our investment portfolio, reinsurance recoverables, and other receivables including credit and market risk; • Underwriting risk, which is the risk our insured losses exceed our expectations, including: ◦ Losses from inadequate loss reserves; ◦ Larger than expected non-catastrophe current accident year losses; and ◦ Catastrophe losses that exceed our expectations or our reinsurance treaty limits. • Liquidity risk, which is the risk we will be unable to meet our contractual obligations as they become due because we cannot liquidate assets or obtain adequate funding without incurring unacceptable investment losses or borrowing expenses; 18 Table of Contents • Other risks, which include a broad range of operational risks, many difficult to quantify, like talent/human capital; market conditions; economic, legal, regulatory, reputational, and strategic risks; and the risks of fraud, human failure, modeling, inadequate business continuity plans, and failure of controls or systems, including over cybersecurity risk; and • Emerging risks, which include risks in any category that are new, known, but evolving rapidly, or increasing substantially compared to historical levels.
All our strategies and controls, however, have inherent limitations. We cannot be 19 Table of Contents sure that an event or series of unanticipated events will (i) occur or not occur and generate losses greater than we expect and (ii) have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
However, all our strategies and controls have inherent limitations. We cannot be certain an event or series of unanticipated events will (i) occur or not occur and generate losses greater than we expect and (ii) have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
Several nationally recognized statistical rating organizations ("NRSROs") issue opinions on our financial strength, operating performance, strategic position, and ability to meet policyholder obligations, as follows: NRSRO Financial Strength Rating Outlook AM Best A+ Stable Standard & Poor’s Global Ratings ("S&P") A Stable Moody’s Investors Services ("Moody’s") A2 Positive Fitch Ratings ("Fitch") A+ Stable We believe our AM Best rating has the most significant influence on our ability to write insurance business.
Several nationally recognized statistical rating organizations ("NRSROs") issue opinions on our financial strength, operating performance, strategic position, and ability to meet policyholder obligations, as follows: NRSRO Financial Strength Rating Outlook AM Best A+ Stable Standard & Poor’s Global Ratings ("S&P") A Stable Moody’s Investors Services ("Moody’s") A2 Stable Fitch Ratings ("Fitch") A+ Stable We believe our AM Best rating most significantly influences our ability to write insurance business.
Based on our 2023 statutory financial statements prepared in accordance with SAP, our GCC ratio exceeds the regulatory action minimum threshold. • Annual Financial Reporting Regulation (referred to as the "Model Audit Rule").
Based on our 2024 statutory financial statements prepared in accordance with SAP, our GCC ratio exceeded the regulatory action minimum threshold. • Annual Financial Reporting Regulation (referred to as the "Model Audit Rule").
Our current AM Best financial strength rating is "A+" (Superior). We have had a long and successful history in the property and casualty insurance industry since our 1926 founding. Strategic Advantages Our market is competitive and crowded, making it critical to clearly demonstrate our value proposition to customers, distribution partners, employees, and investors.
Our current AM Best financial strength rating is "A+" (Superior). We have a long and successful history in the property and casualty insurance industry since our 1926 founding. Strategic Advantages Our competitive and crowded market drives us to clearly demonstrate our value proposition to customers, distribution partners, employees, and investors.
Our average 2023 Standard Personal Lines premium per policyholder was approximately $3,000. Standard Personal Lines includes flood insurance coverage sold in all 50 states and the District of Columbia through the Write Your Own ("WYO") program of the National Flood Insurance Program ("NFIP").
Our average 2024 Standard Personal Lines premium per policyholder, excluding flood premium, was approximately $3,700. Standard Personal Lines includes flood insurance coverage sold in all 50 states and the District of Columbia through the Write Your Own ("WYO") program of the National Flood Insurance Program ("NFIP").
Key inputs in our loss and loss expense ratio include catastrophe and non-catastrophe property loss and loss expenses incurred, current year casualty loss and loss expenses, and prior year casualty reserve development. We use after-tax net investment income earned as the main measure of our investments segment's financial performance.
Key inputs in our loss and loss expense ratio include catastrophe and non-catastrophe property loss and loss expenses incurred, current year casualty loss and loss expenses, and prior year casualty reserve development. We use after-tax net investment income earned to measure our investments segment's financial performance.
"Management’s Discussion and Analysis of Financial Condition and Results of Operations." and Note 5. "Investments" included in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. Regulation Primary Oversight by the States in Which We Operate Insurance regulation and taxation is primarily overseen at the state level because of the U.S. Congress's delegation in the McCarran-Ferguson Act.
"Management’s Discussion and Analysis of Financial Condition and Results of Operations." and Note 5. "Investments" included in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. Regulation Primary Oversight by the States in Which We Operate State law primarily regulates insurance and insurer taxation because of the U.S. Congress's delegation in the McCarran-Ferguson Act.
We have developed a proprietary SIU fraud detection model that identifies potential fraud cases early in a claim's life. We report SIU findings to the proper authorities consistent with legal obligations.
We have developed a proprietary SIU fraud detection model that identifies potential fraud cases early in a claim's life. We report SIU findings to the proper authorities per our legal obligations.
Most new and renewal business is underwritten and priced through an automated system containing our filed rates and rules. Exceptions to our internal underwriting guidelines are approved under the direction of our Standard Personal Lines CUO.
Standard Personal Lines : Our Standard Personal Lines underwriting operations are centralized and highly automated. Most new and renewal business is underwritten and priced through an automated system using our filed rates and rules. Exceptions to our internal underwriting guidelines are approved under the direction of our Standard Personal Lines CUO.
Our independent distribution partners designate Standard Commercial Lines and Standard Personal Lines accounts to be serviced by our USC. All USC employees are licensed agents who respond to policyholder inquiries about insurance coverage, billing transactions, and other matters. For the convenience of us handling USC transactions, our distribution partners agree to receive a slightly lower-than-standard commission on the associated premium.
Our independent distribution partners designate Standard Commercial Lines and Standard Personal Lines accounts for our USC to service. All USC employees are licensed agents who respond to policyholder inquiries about insurance coverage, billing transactions, and other matters. For the convenience of using the USC, our distribution partners agree to receive a slightly lower-than-standard commission on the associated premium.
Physical, Social, and Financial Well-Being of our Employees We invest significantly in our employees' physical, social, and financial well-being, which is essential to attracting and retaining the best talent. We are committed to pay competitively and regularly analyze compensation and take appropriate action to ensure internal equity and external market alignment.
Physical, Social, and Financial Well-Being of our Employees We invest significantly in our employees' physical, social, and financial well-being, which is essential to attracting and retaining the best talent. We are committed to paying competitively, regularly analyzing compensation and taking appropriate action to ensure internal equity and external market alignment.
We seek to compensate our distribution partners fairly and consistently with market practices, generally paying them commissions calculated as a percentage of DPW, with supplemental amounts paid based on profitability and considerations for increased premium or policy counts. No one independent distribution partner is responsible for 10% or more of our combined insurance operations' premium.
We seek to compensate our distribution partners fairly and consistently with market practices, generally paying commissions calculated as a percentage of DPW, with supplemental amounts paid based on profitability and premium growth. No one independent distribution partner is responsible for 10% or more of our insurance operations' premium.
Throughout this document, we refer to the Parent and the Insurance Subsidiaries collectively as "we," "us," or "our." We use the term "Parent" when appropriate to distinguish it from the Insurance Subsidiaries. We also use specific property and casualty industry-related terms defined in a glossary attached as Exhibit 99.1 to this Form 10-K.
Throughout this document, we refer to the Parent and the Insurance Subsidiaries collectively as "we," "us," or "our." We use "Parent" when appropriate to distinguish it from the Insurance Subsidiaries. We also use specific property and casualty industry-related terms defined in a glossary attached as Exhibit 99.1 to this Form 10-K. Our main office is in Branchville, New Jersey.
We compete primarily with regional and national insurers on coverage terms, claims service, customer experience, safety management services, ease of technology use, price, value-added services, and financial strength ratings. We also face increased competition from established direct-to-consumer insurers, existing competitors, and new entrants, many with lower cost structures and digital technology.
We compete primarily with regional and national insurers on coverage terms, claims service, customer experience, risk management services, ease of technology use, price, value-added services, and financial strength ratings. We also face increased competition from established direct-to-consumer insurers, existing competitors, and new entrants.
Geographic Markets We sell our insurance products and services in the following geographic markets: • Standard Commercial Lines products and services primarily in 30 states in the contiguous U.S. and the District of Columbia. • Standard Personal Lines products and services primarily in 15 states in the Eastern, Midwestern, and Southwestern regions of the U.S.
Geographic Markets We sell our insurance products and services by segment in the following geographic markets: • Standard Commercial Lines products and services, primarily in 35 states and the District of Columbia. • Standard Personal Lines products and services, primarily in 15 states in the Eastern, Midwestern, and Southwestern regions of the U.S.
We aim to mitigate the impacts of climate change by (i) prudently overseeing and managing catastrophe risk exposure, (ii) helping our customers through responsive claims handling, safety management services, and proactive weather alerts, (iii) preparing for the continuing transition to clean energy, and (iv) reducing our carbon footprint.
We aim to mitigate climate change impact by (i) prudently overseeing and managing catastrophe risk exposure, (ii) providing our customers responsive claims handling, risk management services, and proactive weather alerts, (iii) preparing for the continuing transition to clean energy, and (iv) reducing our carbon footprint.
They are important factors in our overall funding profile and ability to access certain types of liquidity.
Credit ratings are important factors in our overall funding profile and ability to access certain types of liquidity.
Most employees are eligible to participate in our annual cash incentive program, funded and paid based on the achievement of established financial and strategic objectives. Employees above certain levels are eligible to participate in our long-term stock-based incentive compensation programs. We also offer a wide range of competitive and convenient health and wellness programs.
Most employees are eligible to participate in our annual cash incentive program, funded and paid based on their performance and our achievement of established financial and strategic objectives. Employees of certain levels also are eligible to participate in our long-term stock-based incentive compensation programs. We also offer competitive and convenient health and wellness programs.
Our Scope 1 emissions include consumption of natural gas, diesel, refrigerant, and the fuel employees use for work travel in company cars, and our Scope 2 emissions comprise our electricity usage. • Built ground-mount and garage-canopy solar photovoltaic facilities at our corporate headquarters.
Our Scope 1 emissions include consumption of natural gas, diesel, refrigerant, and the fuel employees use for work travel in company cars, and our Scope 2 emissions comprise our electricity usage. • Built ground-mount and garage-canopy solar photovoltaic facilities at our corporate headquarters. The facilities generated approximately 4.5 million kWh of electricity in 2024.
Our average 2023 Standard Commercial Lines premium per policyholder was approximately $17,000. • Standard Personal Lines, which represented 9% of our 2023 "Total revenues" on our Consolidated Statements of Income and 10% of our 2023 total NPW. We sell our Standard Personal Lines property and casualty insurance products and services primarily to individuals in 15 states.
Our average 2024 Standard Commercial Lines premium per policyholder was approximately $18,700. • Standard Personal Lines, which represented 9% of our 2024 "Total revenues" on our Consolidated Statements of Income and 9% of our 2024 total NPW. We sell our Standard Personal Lines property and casualty insurance products and services primarily to individuals in 15 states.
If any individual location exceeds the CUO's property limit authority, it must be approved by the Underwriting Committee, comprised of the Standard Lines Chief Operating Officer, CFO, Standard Commercial Lines CUO, Executive Vice President of E&S Lines, and CRO.
Any individual location exceeding the CUO's property limit authority must be approved by the Underwriting Committee, comprised of the Standard Lines Chief Operating Officer, Chief Financial Officer, Standard Commercial Lines CUO, Executive Vice President of E&S Lines, and CRO.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur operations are subject to complex and changing state and federal laws, regulations, and public policy debates on subjects, including, without limitation, the following: • Pricing and underwriting practices; • Claims practices; • Loss and loss expense reserves; • Exiting geographic markets and/or canceling or non-renewing policies; • Sustainability-related issues, including sustainability investment mandates; • Climate change, including potential liability for related public disclosures; • Assessments for guaranty funds and second-injury funds, and other mandatory assigned risks and reinsurance; • The types, quality, and concentration of investments we make; • Minimum capital requirements for the Insurance Subsidiaries; • Dividends from our Insurance Subsidiaries to the Parent; • Privacy and data security; • Tax; • Antitrust; • Consumer protection; • Advertising; • Sales; • Billing and e-commerce; • Intellectual property ownership and infringement; • Digital platforms; • Internet, telecommunications, and mobile communications; • Media and digital content; • Availability of third-party software applications and services; • Labor and employment; • Anti-money laundering; and • Workplace environmental, health, and safety issues.
Biggest changeOur operations are subject to complex and changing state and federal laws, regulations, and public policy debates on subjects, including, without limitation, the following: • Pricing and underwriting practices; • Claims practices; • Loss and loss expense reserves; • Exiting geographic markets and/or policy cancellations or non-renewals; • Climate change and sustainability-related issues, including reporting, investment, and other mandated actions; • Assessments for guaranty funds, second-injury funds, and other mandatory assigned risks and reinsurance pools; • The types, quality, and concentration of investments we make; • Minimum capital requirements for the Insurance Subsidiaries; • Dividends from our Insurance Subsidiaries to the Parent; • Privacy, data security, and related public disclosures for breaches; • Tax; • Antitrust; • Consumer protection; • Advertising, media, and digital content; • Sales; • Billing and e-commerce; • Intellectual property ownership and infringement; • Technology, digital platforms, artificial intelligence, and predictive and other modeling types; • Internet, telecommunications, and mobile communications; • Availability of third-party software applications and services; • Employment and workplace rules related to human resources practices and environmental, health, and safety issues; • Anti-money laundering; and • Corporate social responsibility.
Our most significant natural and/or human-made catastrophe exposures are (i) hurricanes impacting the Eastern U.S., (ii) severe convective storms, including hailstorms and tornadoes, (iii) winter storms, (iv) earthquakes, and (v) terrorism events. Single storms could adversely impact our financial results, but it is also possible that we could experience more than one severe catastrophic event in any given calendar year.
Our most significant natural and/or human-made catastrophe exposures are (i) hurricanes impacting the Eastern U.S., (ii) severe convective storms, including hailstorms and tornadoes, (iii) winter storms, (iv) earthquakes, and (v) terrorism events. Single storms could adversely impact our financial results, but it is also possible that we experience more than one severe catastrophic event in any given calendar year.
A significant component of climate change risk is that the frequency and severity of extreme weather events may evolve differently relative to historical levels – leading to greater model uncertainty. Climate change models project significant differences in global regional warming above pre-industrial levels, depending on future levels of climate mitigation and geographic location.
A significant component of climate change risk is that the frequency and severity of extreme weather events may evolve differently relative to historical levels – leading to greater model uncertainty. Climate change models project significant differences in global regional warming above pre-industrial levels, depending on future climate mitigation levels and geographic location.
We limited our "silent cyber" exposure through an affirmative coverage grant subject to a sub-limit. • Our base property forms typically include a coverage grant of $2,000 or $10,000. Most of our property policies also contain an affirmative endorsement providing "virus and harmful code" coverage subject to a sub-limit.
We limited our "silent cyber" exposure through an affirmative coverage grant subject to a sub-limit. • Our base property forms typically include a $2,000 or $10,000 cyber coverage grant. Most of our property policies also contain an affirmative endorsement providing "virus and harmful code" coverage subject to a sub-limit.
We cannot predict rating actions issued by nationally recognized statistical rating organizations that might adversely affect our business or our potential responses. Any significant downgrade in our financial strength and credit ratings below an "A-" could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
We cannot predict rating actions issued by nationally recognized statistical rating organizations that might adversely affect our business or potential responses. Any significant downgrade in our financial strength and credit ratings below an "A-" could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
While we underwrite risks only in the U.S., international regulatory developments, primarily capital adequacy and risk management requirements in the European Union ("EU"), may influence U.S. regulators as they develop or revise domestic regulatory standards. We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations.
While we underwrite risks only in the U.S., international regulatory developments, primarily capital adequacy and risk management requirements in the European Union ("EU"), may influence U.S. regulators as they develop or revise domestic regulatory standards. We have designed and implemented policies and procedures to ensure compliance with applicable laws and regulations.
We are engaged in ordinary routine legal proceedings incidental to our insurance operations that include: • Defense of or indemnity for third-party suits brought against our insureds; • Defense of actions brought against us by our insureds who disagree with our coverage decisions, some of which allege bad faith claims handling and seek extra-contractual damages, punitive damages, or other penalties; • Actions we file, primarily for declaratory judgment, seeking confirmation that we have made appropriate coverage decisions under our insurance contracts; • Actions brought against competitors or us alleging improper business practices and sometimes seeking class status.
We are engaged in ordinary routine legal proceedings incidental to our insurance operations that include: • Indemnity or defense of third-party suits brought against our insureds; • Defense of actions brought against us by our insureds who disagree with our coverage decisions, some of which allege bad faith claims handling and seek extra-contractual damages, punitive damages, or other penalties; • Actions we file, primarily for declaratory judgment, seeking confirmation that we have made appropriate coverage decisions under our insurance contracts; • Actions brought against competitors or us by plaintiffs alleging improper business practices and sometimes seeking class status.
For example, 2022 inflation rates reflected in the overall consumer price index ("CPI"), the Core CPI, and the Producer Price Index, were higher than 2021. While inflation moderated in 2023, it remains elevated relative to the Federal Reserve’s long-term 2% target.
For example, 2022 inflation rates reflected in the overall consumer price index ("CPI"), the Core CPI, and the Producer Price Index, were higher than in 2021. While inflation moderated in 2023 and 2024, it remains elevated relative to the Federal Reserve’s long-term 2% target.
If we are found to have violated laws and regulations, it could materially adversely affect our reputation, financial condition, and operating results. Our business is subject to various state, federal, and other laws, rules, policies, and other obligations regarding data use and protection.
If we are found to have violated laws and regulations, it could materially adversely affect our reputation, financial condition, and operating results. Our business is subject to various state, federal, and other laws, rules, policies, and other data use and protection obligations.
We have identified three primary sources of potential insured exposure to cyber losses: (i) cyber-specific policies designed to cover both first-party and third-party losses; (ii) affirmative cyber coverage grants included in other types of policies, such as commercial property or businessowners policies; and (iii) "silent cyber" exposures, otherwise known as non-affirmative cyber exposures, which describes cyber risk that is neither expressly covered nor excluded in insurance policies.
We have identified three primary sources of potential insured exposure to cyber losses: (i) cyber-specific policies designed to cover both first-party and third-party losses; (ii) affirmative cyber coverage grants included in other types of policies, such as commercial property or businessowners' policies; and (iii) "silent cyber" exposures, otherwise known as non-affirmative cyber exposures, which describes cyber risk that is neither expressly covered nor excluded in insurance policies.
If we cannot attract and retain such employees, our results of operations and financial condition could be materially and adversely affected. We have less loss experience data than our larger competitors.
If we cannot attract and retain such employees, our results of operations and financial condition could be adversely affected. We have less loss experience data than our larger competitors.
Such actions historically have included issues and allegations, without limitation, related to (i) unfairly discriminatory underwriting practices, including the impact of credit score usage, (ii) managed care practices, such as provider reimbursement, and (iii) automobile claims practices; and • Actions we file against third parties and other insurers for subrogation and recovery of other amounts we paid on behalf of our insureds.
Such actions historically have included issues and allegations, without limitation, related to (i) unfairly discriminatory underwriting practices, including the impact of credit score usage, (ii) managed care practices, such as provider reimbursement, and (iii) automobile claims practices; and • Actions we file against third parties and other insurers for subrogation and recovery of other amounts we paid on our insureds' behalf.
We expect the importance of data science and analytics to increase, becoming more complex and accurate with larger sets of relevant data. Some larger competitors have significantly more data about the performance of their underwritten risks. In comparison, we may not have sufficient volumes of loss experience data to analyze and project our future costs as accurately or granularly.
We expect the importance of data science and analytics to increase, becoming more complex and accurate with larger sets of relevant data. Some larger competitors have significantly more data about the performance of their underwritten risks. In comparison, we may not have sufficient volumes of loss experience data to accurately and granularly analyze and project our future costs.
These are discussed further below in the Risk Factor entitled, " We are engaged in ordinary routine legal proceedings incidental to our insurance operations that are inherently unpredictable and could impact our reputation and/or have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods." For further discussion on our loss and loss expense reserves, please see the "Critical Accounting Policies and Estimates" section of Item 7.
We discuss these risks further below in the Risk Factor entitled, " We are engaged in ordinary routine legal proceedings incidental to our insurance operations that are inherently unpredictable and could impact our reputation and/or have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods." For further discussion on our loss and loss expense reserves, please see the "Critical Accounting Policies and Estimates" section of Item 7.
Independent distribution partners have – and we expect will continue to have – a significant role in overall insurance industry premium production.
Independent distribution partners have – and we expect they will continue to have – a significant role in overall insurance industry premium production.
An economic downturn could also lead to increased credit and premium receivable risk, failure of reinsurance counterparties and other financial institutions, limitations on our ability to issue new debt, reduced liquidity, and declines in our investments' fair value and financial strength ratings.
An economic downturn could also lead to increased credit and premium receivable risk, failure of reinsurance counterparties and other financial institutions, limits on our ability to issue new debt, reduced liquidity, and declines in our investments' fair value and financial strength ratings.
This means that we have direct and indirect counterparty credit risk to our reinsurers and the reinsurance industry, which is a global but concentrated market. • Certain life insurance companies, if they fail to fulfill their contractual obligations to our policyholders or claimants under annuities we purchased as part of structured claims settlements. • Some of our independent distribution partners, who collect premiums from policyholders for us. • Some policyholders, who are directly obligated to us for premium and/or deductible payments, the timing of which may be impacted by mandated payment moratoriums.
Consequently, we have direct and indirect counterparty credit risk to our reinsurers and the reinsurance industry, which is a global but concentrated market. • Certain life insurance companies, if they fail to fulfill their contractual obligations to our policyholders or claimants under annuities we purchased as part of structured claims settlements. • Some of our independent distribution partners, who collect premiums for us from policyholders. • Some policyholders, who are directly obligated to us for premium and/or deductible payments, the timing of which may be impacted by mandated payment moratoriums.
These provisions of our Amended and Restated Certificate of Incorporation and New Jersey law could deprive our common shareholders of an opportunity to receive a premium over the prevailing market price in a hostile takeover and could adversely affect the value of our common stock.
These provisions of our Amended and Restated Certificate of Incorporation and New Jersey law could (i) deprive our common shareholders of an opportunity to receive a premium over the prevailing market price in a hostile takeover and (ii) adversely affect the value of our common stock.
These exclusions clarify coverage and have no premium impact. 24 Table of Contents • Most of our general liability and businessowners' policies exclude cyber-related liability losses, except for "bodily injury." Our specific cyber-exclusion and liability forms' lack of affirmative sub-limited cyber coverage, effectively limit most "silent cyber" exposure. • By statute, workers compensation policies do not have cyber exclusions, and a cyber-attack-related workplace injury could trigger coverage.
These exclusions clarify coverage and have no premium impact. • Most of our general liability and businessowners' policies exclude cyber-related liability losses, except for "bodily injury." Our specific cyber-exclusion and liability forms' lack of affirmative sub-limited cyber coverage, effectively limit most "silent cyber" exposure. • By statute, workers compensation policies do not have cyber exclusions, and a cyber-attack-related workplace injury could trigger coverage.
Unfavorable economic developments, such as increased inflation levels, could adversely affect our earnings if our policyholders need less insurance coverage, cancel existing insurance policies, modify coverage, or choose not to renew with us. Inflation could significantly impact our claims severity across multiple lines of business and could result in adverse reserve development.
Unfavorable economic developments, such as a decline in economic growth or increased inflation levels, could adversely affect our earnings if our policyholders need less insurance coverage, cancel existing insurance policies, modify coverage, or choose not to renew with us. Inflation could significantly impact our claims severity across multiple lines of business and could result in adverse reserve development.
"Management’s Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K. 30 Table of Contents Risks Related to Evolving Laws, Regulations, and Public Policy Debates We are subject to complex and changing laws, regulations, and public policy debates that expose us to regulatory scrutiny, potential liabilities, increased costs, reputational harm, and other adverse effects on our business.
"Management’s Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K. Risks Related to Evolving Laws, Regulations, and Public Policy Debates We are subject to complex and changing laws, regulations, and public policy debates that expose us to regulatory scrutiny, potential liabilities, increased costs, reputational harm, and other adverse effects on our business.
As of December 31, 2023 and December 31, 2022, carbon-intensive sectors within our fixed income securities portfolio represented about 4% of our total invested assets. • Physical investment risks include the risk of investment losses on our commercial and residential mortgage-backed securities exposed to climate-related catastrophic losses that can cause business disruption, destroy capital, increase costs to recover from disasters, reduce revenue, and cause population displacement and migration.
Carbon-intensive sectors within our fixed income securities portfolio represented about 5% and 4% of our total invested assets as of December 31, 2024 and December 31, 2023, respectively. • Physical investment risks include the risk of investment losses on our commercial and residential mortgage-backed securities exposed to climate-related catastrophic losses that can cause business disruption, destroy capital, increase costs to recover from disasters, reduce revenue, and cause population displacement and migration.
This exposure may exist if courts, regardless of intent, interpret policy forms without specific related coverage exclusions to provide coverage for a cyber-related incident. We provide cyber-specific policies to our commercial lines and personal lines customers through 100% reinsured solutions with highly-rated specialty cyber markets.
This exposure may exist if courts, regardless of intent, interpret policy forms without specific related coverage exclusions to provide coverage for a cyber-related incident. 23 Table of Contents We provide cyber-specific policies to our commercial lines and personal lines customers through 100% reinsured solutions with highly-rated specialty cyber markets.
Reinsurers generally manage their significant loss exposure through their own reinsurance programs, or retrocessions, and we do not always have the full details about them. If our reinsurers experience difficulty collecting on their retrocession programs or reinstating retrocession coverage after a large loss, we may not receive timely or full payment of our reinsurance claims.
Reinsurers generally manage their significant loss exposure through their own reinsurance programs, or retrocessions, and we do not have complete details about them. If our reinsurers experience difficulty collecting on their retrocession programs or reinstating retrocession coverage after a large loss, we may not receive timely or full payment of our reinsurance claims.
For additional information on our current financial strength and credit ratings, refer to "Overview" in Item 1. "Business." of this Form 10-K. Markets for insurance products and services are highly competitive and subject to rapid technological change, and we may be unable to compete effectively.
For additional information on our 27 Table of Contents current financial strength and credit ratings, refer to "Overview" in Item 1. "Business." of this Form 10-K. Markets for insurance products and services are highly competitive and subject to rapid technological change, and we may be unable to compete effectively.
Risks Related to Our General Operations We and our distribution partners and vendors are subject to attempted cyber-attacks and other cybersecurity and system availability risks. Our business heavily relies on IT and application systems connected to or accessed from the Internet. Consequently, a malicious cyber-attack could affect us.
Risks Related to Our General Operations We and our distribution partners and vendors are subject to attempted cyber-attacks and other cybersecurity and system availability risks. Our business heavily relies on IT and application systems connected to or accessed through a connection to the Internet. Consequently, a malicious cyber-attack could affect us.
However, we can provide no assurance that our employees, contractors, or independent distribution partners will not violate such laws and regulations or our policies and procedures. To some degree, we have multiple regulators whose authority may overlap and may have different interpretations and/or regulations related to the same legal issues.
However, we cannot provide assurance that our employees, contractors, or independent distribution partners will not violate such laws and regulations or our policies and procedures. To some degree, we have multiple regulators whose authority may overlap and may have different interpretations and/or regulations related to the same legal issues.
We are exposed to credit risk. We face credit risk in several areas of our insurance operations, including from: • Our reinsurers, which are obligated to make us payments under our reinsurance agreements. Reinsurance credit risk can fluctuate over time, increasing during periods of high industry catastrophe and liability losses.
We face credit risk in several areas of our insurance operations, including from third parties: • Our reinsurers, which are obligated to make us payments under our reinsurance agreements. Reinsurance credit risk can fluctuate over time, increasing during periods of high industry catastrophe and liability losses.
Three examples of how loss and loss expense reserves might be affected by economic, political, social, or legal developments or trends are: • If economic inflation, including medical inflation, is higher than our assumptions, our loss and loss expense reserves 25 Table of Contents for our longer tail lines of business could be insufficient.
Three examples of how loss and loss expense reserves might be affected by economic, political, social, or legal developments or trends are: • If economic inflation, including medical inflation, is higher than our assumptions, our loss and loss expense reserves for our longer tail lines of business could be insufficient.
Many competitors are larger and may have lower relative operating costs, lower capital costs, or greater capacity to absorb or diversify more risk while maintaining their financial strength ratings. Other competitors, such as mutual or reciprocal companies, are owned by or operated cooperatively for insureds and, unlike us, do not have shareholders who evaluate ROE performance.
Many competitors are larger and may have lower relative operating costs, lower capital costs, or greater capacity to absorb or diversify more risk while maintaining their financial strength ratings. Other competitors, such as mutual or reciprocal companies, are owned by or operated cooperatively for insureds and, unlike us, do not have shareholders who evaluate return on equity performance.
The Paris Agreement Capital Transition Assessment defines the carbon-intensive sectors as the most exposed to transition risks: oil and gas, coal, power, automotive, cement, aviation, and steel.
The Paris Agreement Capital Transition Assessment defines the carbon-intensive sectors as the most exposed to transition risk: oil and gas, coal, power, automotive, cement, aviation, and steel.
Our exposure to credit risk could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. We depend on distribution partners. We market and sell our insurance products through independent, non-employee distribution partners.
Our exposure to credit risk could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. 26 Table of Contents We depend on distribution partners. We market and sell our insurance products through independent, non-employee distribution partners.
We offer our insurance products and services in a highly competitive market characterized by (i) consumer and business price sensitivity, (ii) aggressive price competition, and (iii) improvements based on performance characteristics and large data sets. These factors can compact underwriting margins, new products and services, evolving industry standards, and rapid adoption of 28 Table of Contents technological advancements.
We offer our insurance products and services in a highly competitive market characterized by (i) consumer and business price sensitivity and (ii) aggressive price competition and improvements based on performance characteristics and large data sets. These factors can compact underwriting margins, new products and services, evolving industry standards, and rapid adoption of technological advancements.
Under TRIPRA, each participating insurer must pay a significant deductible of specified losses before federal assistance is available. Our $543 million deductible is based on a percentage of our prior year’s applicable Standard Commercial Lines and E&S Lines premiums. In 2024, the federal government will pay 80% of losses above the deductible, with the insurer retaining 20%.
Under TRIPRA, each participating insurer must pay a significant deductible of specified losses before federal assistance is available. Our $619 million deductible is based on a percentage of our prior year’s applicable Standard Commercial Lines and E&S Lines premiums. In 2025, the federal government will pay 80% of losses above the deductible, with the insurer retaining 20%.
We do not have material exposure to investments subject to embargoes or Russian reinsurance counterparties. However, ongoing wars and conflicts are impacting global economic, banking, commodity, and financial markets by exacerbating ongoing economic challenges, including inflation and supply chain disruption, which influence insurance loss costs, premiums, and investment valuation.
We do not have material exposure to investments subject to embargoes or Russian reinsurance counterparties. However, ongoing wars and conflicts continue to impact global economic, banking, commodity, and financial markets by exacerbating ongoing economic challenges, including inflation and supply chain disruption, which influence insurance loss costs, premiums, and investment valuation.
We generally invest in the top tranches of commercial mortgage-backed securities, which limit potential losses from property value declines. As of December 31, 2023, about 75% of our commercial mortgage-backed securities had "AAA" credit ratings. Significant future investment value declines could require further losses recorded on securities we sell and credit losses.
We generally invest in the top tranches of commercial mortgage-backed securities, which limit potential losses from property value declines. As of December 31, 2024, about 68% of our commercial mortgage-backed securities had "AAA" credit ratings. Significant future investment value declines could require further losses recorded on securities we sell and credit losses.
There can be no assurance that management has accurately assessed the level of credit losses recorded in our Financial Statements. For further information about our evaluation and considerations for determining whether a security has a credit loss, please refer to "Critical Accounting Policies and Estimates" in Item 7.
There can be no assurance that management has accurately assessed the level of credit losses recorded in our Financial Statements. For further details on our evaluation and considerations for determining whether a security has a credit loss, please refer to "Critical Accounting Policies and Estimates" in Item 7.
We are subject to federal and state laws relating to collecting, using, retaining, securing, and transferring personally identifiable 31 Table of Contents information ("PII"). Federal laws include the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, the Drivers Privacy Protection Act, the Health Insurance Portability and Accountability Act, and Unfair and Deceptive Acts and Practices laws.
We are subject to federal and state laws relating to collecting, using, retaining, securing, and transferring personally identifiable information ("PII"). Federal laws include the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, the Drivers Privacy Protection Act, the Health Insurance Portability and Accountability Act, and Unfair and Deceptive Acts and Practices laws.
We track our severe weather and catastrophe losses using definitions and 23 Table of Contents information we obtain from Insurance Services Office, Inc.'s ("ISO") Property Claim Services unit, an internationally recognized authority on insured property losses from catastrophes in the U.S., Puerto Rico, and the U.S. Virgin Islands.
We track our severe weather and catastrophe losses using definitions and information we obtain from Insurance Services Office, Inc.'s ("ISO") Property Claim Services unit, an internationally recognized authority on insured property losses from catastrophes in the U.S., Puerto Rico, and the U.S. Virgin Islands.
These, in turn, can lower residential and commercial property values, household wealth, and corporate profitability, potentially creating financial and credit market losses impacting insurer asset values. As of December 31, 2023, about 70% of our residential mortgage-backed securities were backed by government agencies.
These, in turn, can lower residential and commercial property values, household wealth, and corporate profitability, potentially creating financial and credit market losses impacting insurer asset values. As of December 31, 2024, about 69% of our residential mortgage-backed securities were backed by government agencies.
Although TRIPRA will mitigate some of our loss exposure to a large-scale terrorist attack, our deductible could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. If the U.S.
Although TRIPRA will mitigate some of our loss exposure to a large-scale terrorist attack, the size of our deductible and 20% co-participation could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. If the U.S.
While our customers find advantages in using independent distribution partners, our reliance on independent distribution partners presents risks and challenges, including: • Competition in our distribution channel, as we must market our products and services to independent distribution partners who have access to products from multiple carriers and markets. 27 Table of Contents • Brand recognition challenges because we closely coordinate marketing with our distribution partners and some customers do not differentiate their insurance agent from their insurer. • Our market share growth is tied to our distribution partners' market share.
While our customers find advantages in using independent distribution partners, our reliance on independent distribution partners presents risks and challenges, including: • Competition in our distribution channel, as we must market our products and services to independent distribution partners who can access multiple carriers and markets. • Brand recognition challenges because we closely coordinate marketing with our distribution partners and some customers do not differentiate their insurance agent from their insurer. • Our market share growth is tied to our distribution partners' market share.
Insureds with non-workers compensation commercial policies can accept or decline our terrorism coverage or negotiate with us for other terms. In 2023, 85% of our Standard Commercial Lines non-workers compensation policyholders purchased terrorism coverage that included nuclear, biological, chemical, and radioactive ("NBCR") events.
Insureds with non-workers compensation commercial policies can accept or decline our terrorism coverage or negotiate with us for other terms. In 2024, 84% of our Standard Commercial Lines non-workers compensation policyholders purchased terrorism coverage that included nuclear, biological, chemical, and radioactive ("NBCR") events.
These potential events and other economic factors could adversely and materially affect our business, results of operations, financial condition, and growth. During 2023, 26% of DPW in our Standard Commercial Lines business was based on payroll or sales of our underlying policyholders.
These potential events and other economic factors could adversely and materially affect our business, results of operations, financial condition, and growth. During 2024, 25% of DPW in our Standard Commercial Lines business was based on payroll or sales of our underlying policyholders.
An economic downturn in which our policyholders have declining revenue or employee count could adversely affect our total written premium, including audit and endorsement premium. We write business domestically in the United States, and our insurance operations do not have direct exposure to businesses or individuals in Russia, Ukraine, Israel, or the West Bank.
An economic downturn in which our policyholders have declining revenue or employee count could adversely affect our total written premium, including audit and endorsement premium. We write business domestically in the United States, and our insurance operations do not have direct exposure to businesses or individuals in Russia, Ukraine, and the Middle East.
For example, Aggregators could develop and implement strategies to consolidate their business with fewer insurers and demand higher base and supplemental commissions. Aggregators accounted for approximately 43% of our DPW at December 31, 2023, up from 33% three years ago. No one distribution partner is responsible for 10% or more of our combined insurance operations' premium.
For example, Aggregators could develop and implement strategies to consolidate their business with fewer insurers and demand higher base and supplemental commissions. Aggregators accounted for approximately 46% of our DPW at December 31, 2024, up from 36% three years ago. No one distribution partner is responsible for 10% or more of our combined insurance operations' premium.
Our allowance for credit losses is subject to significant judgments and assumptions regarding changes in economic conditions, estimated future cash flows, and the accuracy of third-party information used in internal assessments. We revise our evaluations and assessments as conditions change and new information becomes available.
Our allowance for credit losses is subject to significant judgments and assumptions about changes in economic conditions, estimated future cash flows, and the 29 Table of Contents accuracy of third-party information used in internal assessments. We revise our evaluations and assessments as conditions change and new information becomes available.
To mitigate this risk, we have and expect to continue to (i) conduct employee education programs and tabletop exercises and (ii) develop and invest in a variety of controls to prevent, detect, and appropriately react to cyber-attacks, including frequently 33 Table of Contents testing our systems' security and access controls.
To mitigate this risk, we have and expect to continue to (i) conduct disaster recovery exercises, employee education programs and tabletop exercises and (ii) develop and invest in a variety of controls to prevent, detect, and appropriately react to cyber-attacks, including frequently testing our systems' security and access controls.
Future fluctuations in the value of our cash, cash equivalents, and marketable and non-marketable securities could result in significant losses that have a material adverse impact on our financial condition and operating results .
Consequently, the amount of our cash and cash equivalents and the value and liquidity of our marketable and non-marketable securities may fluctuate substantially. Future fluctuations in the value of our cash, cash equivalents, and marketable and non-marketable securities could result in significant losses that have a material adverse impact on our financial condition and operating results .
Generally, the longer a case is in litigation, the more expensive it can become. Because the amounts sought in certain actions are large or indeterminate, any adverse outcomes could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.
Generally, the longer a case is in litigation, the more expensive it can become. Because the amounts sought in specific actions are large or indeterminate, any adverse outcomes could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods. We have no material litigation risks related to climate change.
Our investment portfolio is exposed to climate change-related transition and physical investment risks. • Transition risks arise from society’s transition to a low-carbon economy, driven by policy and regulations, low-carbon technology advances, and shifting public sentiment and societal preferences.
Our investment portfolio is exposed to climate change-related transition and physical investment risks. • Transition risks arise from the world’s transition to a low-carbon economy, driven by government policy and regulation, advances in low-carbon technology, and shifting societal preferences and public sentiment.
We are subject to government market conduct reviews and investigations, legal actions, and penalties. There can be no assurance that our business will not be materially adversely affected by the outcomes of such examinations, investigations, or media scrutiny in the future.
We are subject to government market conduct reviews and investigations, legal actions, and penalties. There can be no assurance that our business will not be materially adversely 30 Table of Contents affected by the outcomes of such activity in the future.
"Financial Statements and Supplementary Data." of this Form 10-K. The Parent’s ability to pay dividends to its stockholders is also impacted by covenants in its credit agreement (the "Line of Credit") among the Parent, the named lenders (the "Lenders"), and Wells Fargo Bank, National Association, as Administrative Agent.
The Parent’s ability to pay dividends to its stockholders is also impacted by covenants in its credit agreement (the "Line of Credit") among the Parent, the named lenders (the "Lenders"), and Wells Fargo Bank, National Association, as Administrative Agent.
We expect any potential ultimate liability for ordinary routine legal proceedings incidental to our insurance business will not be material to our consolidated financial condition after considering estimated loss provisions. Litigation outcomes, however, are inherently unpredictable, even with meritorious defenses. The time a case is in litigation also is unpredictable, as state court dockets are increasingly overcrowded.
We expect any potential ultimate liability for ordinary routine legal proceedings incidental to our insurance business will not be material to our consolidated financial condition after considering estimated loss provisions. Litigation outcomes are inherently unpredictable, even with meritorious defenses. The same is true with case-specific litigation duration, as state dockets are often overcrowded.
Consequently, growth in our Standard Personal Lines could be more limited than in our Standard Commercial Lines. Competitors have focused on lower-cost "direct-to-customer" distribution models emphasizing digital ease and efficiencies to address the discrepancy in agency control of standard personal lines business.
Consequently, growth in our Standard Personal Lines could be more limited than in our Standard Commercial Lines. Competitors have focused on lower-cost "direct-to-customer" distribution models emphasizing digital ease and efficiencies to grow standard personal lines business market share.
Additionally, we do not have any material litigation risks related to climate change. Risks Related to Our Corporate Structure and Governance We are a holding company, and our ability to declare dividends to our shareholders, pay indebtedness, and enter into affiliate transactions may be limited because our Insurance Subsidiaries are regulated.
Risks Related to Our Corporate Structure and Governance We are a holding company, and our ability to declare dividends to our shareholders, pay indebtedness, and enter into affiliate transactions may be limited because our Insurance Subsidiaries are regulated.
A malicious cyber-attack on (i) our systems, (ii) our distribution partners or their key operating systems, and (iii) any other of our third-party partners or vendors and their key operating systems may interrupt our ability to operate, damage our reputation and result in monetary damages that are difficult to quantify, and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
A malicious cyber-attack on (i) our systems, (ii) our distribution partners or their key operating systems, and (iii) any other of our third-party partners or vendors and their key operating systems may interrupt our operations, damage our reputation and result in monetary damages that are difficult to quantify.
It often leads to higher payouts in legal settlements and impacts insurance premiums for businesses and individuals. This inflation is driven by various factors, including changing jury attitudes, increased litigation funding, and larger awards in court cases.
It often leads to higher payouts in legal settlements and jury awards, and impacts insurance premiums for businesses and individuals. This inflation is driven by various factors, including changing jury attitudes, increased litigation funding, larger awards in court cases, increased willingness to undergo surgery, and novel interpretations of liability. Social inflation can affect all lines of business.
We supplement the estimates with other subjective considerations, including projected impacts from economic, political, social, and legal developments or trends, such as inflation, continually evolving trends driven by the post-COVID-19 pandemic environment, judicial trends and tort decisions, and various state legislative initiatives.
We supplement the estimates with other subjective considerations, including projected impacts 24 Table of Contents from economic, political, social, and legal developments or trends, such as inflation, judicial trends and tort decisions, and various state legislative initiatives.
We balance and mitigate our operational leverage risk with several risk management strategies within our insurance operations to achieve a balance of growth and profit, including an underwriting risk appetite focused on small-to-medium-sized accounts. We accomplish this by employing significant reinsurance, a disciplined reserving approach, and a conservative investment philosophy. These strategies have inherent limitations.
We define operating leverage as the ratio of NPW to our statutory surplus. We balance and mitigate our operational leverage risk with several risk management strategies within our insurance operations to achieve a balance of growth and profit, including an underwriting risk appetite focused on small-to-medium-sized accounts. We employ significant reinsurance, a disciplined reserving approach, and a conservative investment philosophy.
From time to time, legal proceedings in which we are involved may receive media attention based on their perceived newsworthiness and/or relationship to various broad economic, political, social, and legal developments or trends. Such media stories could negatively impact our reputation.
Some of our legal proceedings may receive media attention because of their perceived newsworthiness and/or relationship to various broad economic, political, social, and legal developments or trends. Such media stories could negatively impact our reputation.
Examples include, without limitation, contributing capital to any or all of our ten property and casualty insurance subsidiaries ("Insurance Subsidiaries"), issuing additional debt and/or equity securities, repurchasing our existing debt and/or equity securities, or increasing or decreasing common stockholders' dividends. We operate in a continually changing business environment, and new risk factors emerge from time to time.
Examples include, without limitation, contributing capital to any or all of our ten property and casualty insurance subsidiaries ("Insurance Subsidiaries"), issuing additional debt and/or equity securities, repurchasing our existing debt and/or equity securities, or increasing or decreasing common stockholders' dividends.
Future EU data privacy actions likely will influence U.S. regulators over time. We make statements about our use and disclosure of PII in our privacy policy on our website, and in other public venues.
Some U.S. states have subsequently incorporated individual-control mechanisms into state privacy laws. Future EU data privacy actions likely will influence U.S. regulators over time. We make statements about our use and disclosure of PII in our privacy notice, published on our website, and in other public venues.
In addition, increasing insurance regulatory interest in data and model use, combined with any potential restrictions on traditional rating factors or model use, could have a material adverse impact on our financial condition and operating results. Our statistical models are extremely useful in monitoring and controlling risk, but are no substitute for senior management's experience or judgment.
In addition, increasing insurance regulatory interest in data and model use, combined with any potential restrictions on traditional rating factors or model use, could have a material adverse impact on our financial condition and operating results.
We cannot be certain that an event or series of unanticipated events will not occur and result in greater than expected losses. Given our higher-than-industry average operating leverage, an event or series of unanticipated events could have a more material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings compared to our industry.
These strategies have inherent limitations. We cannot be certain that an event or series of unanticipated events will not occur and result in greater than expected losses, which could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. Item 1B. Unresolved Staff Comments. None.
This may interrupt our ability to conduct business and negatively impact our results of operations, despite our business continuity plans. Our long-term strategy to deploy operational leverage is dependent on the success of our risk management strategies, and their failure could have a material adverse effect on our financial condition or results of operations.
Such events could interrupt our ability to conduct business and negatively impact our results of operations, despite our business continuity plans. Operational leverage necessitates the success of our risk management strategies, and their failure could have a material adverse effect on our financial condition or results of operations. As an insurer, we assume risk from our policyholders.
The workers compensation line of business is particularly susceptible to inflation because of its extended payment pattern and exposure to medical care services and commodities.
The workers compensation line of business is particularly susceptible to inflation because of its extended payment pattern and exposure to medical care services and commodities. While medical inflation has been low for several years, our workers compensation medical severity trend has risen recently.
Our investments can be negatively affected by (i) liquidity, (ii) credit deterioration, (iii) financial results, (iv) public equity and/or debt market changes, (v) economic conditions, including heightened levels of economic inflation, (vi) political risk, (vii) sovereign risk, (viii) interest rate fluctuations, or (ix) other factors, including climate change risk and civil unrest. 29 Table of Contents Our investment portfolio's value is subject to credit risk from our held securities' issuers, guarantors, and financial guarantee insurers, and other counterparties in certain transactions.
Our investments can be negatively affected by (i) liquidity, (ii) credit deterioration, (iii) financial results, (iv) public equity and/or debt market changes, (v) economic conditions, including heightened levels of economic inflation, (vi) political risk, (vii) sovereign risk, (viii) interest rate fluctuations, or (ix) other factors, including civil unrest and other catastrophic events, some of which may be impacted by climate change risk.
Restrictions on our Insurance Subsidiaries' ability to pay dividends, make loans or advances to the Parent, or enter into transactions with affiliates may materially affect our ability to pay dividends on our preferred and common stock or repay our indebtedness. Based on these restrictions, there is a maximum ordinary annual dividend amount the Insurance Subsidiaries can provide the Parent.
Restrictions on our Insurance Subsidiaries' ability to pay dividends, make loans or advances to the Parent, or enter into 31 Table of Contents transactions with affiliates may materially affect our ability to pay dividends on our preferred and common stock or repay our indebtedness.
Our reserve for loss and loss expense could be insufficient if the social inflation impacts exceed our assumptions. • Various states have expanded or could expand the statute of limitations for civil actions alleging sexual abuse.
However, the automobile liability, general liability, and corresponding umbrella lines of business involving third-party claimants tend to be more susceptible to social inflationary impacts. Our reserve for loss and loss expense could be insufficient if impacts from social inflation exceed our assumptions. • Various states have expanded or could expand the statute of limitations for civil actions alleging sexual abuse.
State insurance regulators generally permit us to consider catastrophe reinsurance expense in our filed rates and rating plans. However, the conditions and timing of regulatory approval may not align with the actual expense of new reinsurance terms. Disproportionate increases in our reinsurance expense that we cannot include in our filed rates and rating plans will reduce our earnings.
These market factors can cause fluctuations in reinsurance costs that do not necessarily correlate to our loss experience. State insurance regulators generally permit us to consider catastrophe reinsurance expense in our filed rates and rating plans. However, the conditions and timing of regulatory approval may not align with the actual reinsurance expense.
GDPR regulates data protection and privacy in the EU and transfers of personal data outside the EU. GDPR’s main tenet is to give individuals primary control over their personal data. Because we do not write coverages in the EU, GDPR does not directly impact us. Some U.S. states have subsequently incorporated individual-control mechanisms into state privacy laws.
Noncompliance could result in significant reputational harm, penalties, and legal liability. General Data Protection Regulation ("GDPR") regulates data protection and privacy in the EU and personal data transfers outside the EU. GDPR’s main tenet is to give individuals primary control over their personal data. Because we do not write coverages in the EU, GDPR does not directly impact us.
Additionally, we are exposed to interest rate risk, primarily related to the market price and cash flow variability associated with changes in interest rates. Consequently, the amount of our cash and cash equivalents and the value and liquidity of our marketable and non-marketable securities may fluctuate substantially.
We are subject to the risk that the issuers or guarantors of our fixed income securities may default on principal and interest payment obligations. Additionally, we are exposed to interest rate risk, primarily related to the market price and cash flow variability associated with changes in interest rates.
We may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management, or other irregularities. These risks may be higher or lower for our third-party providers depending on the maturity of their security program, and we review their control environments to the extent possible and practical, aligning the risk exposure with our business requirements and risk tolerances.
We also rely on third-party technology providers whose cyber-attack risks may be higher or lower than ours depending on their 32 Table of Contents profile and security program's maturity. To the extent possible and practical, we review third-party control environments, aligning the risk exposure with our business requirements and risk tolerances.
Our Insurance Subsidiaries' ability to pay dividends or make loans or advances is subject to the approval or review of our domiciliary state insurance regulators. For additional details regarding dividend restrictions, see Note 22. 32 Table of Contents "Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds" in Item 8.
Based on these restrictions, there is a maximum ordinary annual dividend amount the Insurance Subsidiaries can provide the Parent. Our Insurance Subsidiaries' ability to pay dividends or make loans or advances is subject to the approval or review of our domiciliary state insurance regulators. For additional details regarding dividend restrictions, see Note 22.
These solutions allow us to meet our customers' needs for cyber insurance while mitigating our underwriting risk as we develop our expertise in the cyber insurance market. Beyond our cyber-specific policies, our other insurance policies provide some first- and third-party cyber coverages: • We offer limited first-party affirmative cyber coverage in our commercial property and businessowners' policy forms.
These solutions allow us to meet our customers' needs for cyber insurance while mitigating our underwriting risk as we develop our expertise in the cyber insurance market.
Our reinsurance contracts also contain coverage terms restricting our ability to cede certain types of potential losses related to terrorism. Increased underwriting risk could increase our net loss and loss expense, increasing our underwriting results volatility. Decreased reinsurance capacity would also increase our underwriting risk if we cannot fully place our target reinsurance treaty coverage on renewal.
Increased underwriting risk from these and other risks could increase our net loss and loss expense and the volatility of our underwriting results. Decreased reinsurance availability would also increase our underwriting risk if we cannot fully place our targeted reinsurance treaty coverage on renewal.
Consequently, we can neither predict such new risk factors nor assess their potential future impact on our business, if any. Risks Related to our Insurance Operations We are subject to losses from catastrophic events. Losses from natural and human-made catastrophes can negatively impact our financial results.
We operate in a continually changing business environment, and new risk factors that we cannot predict or assess may emerge at any time. Consequently, we can neither predict such new risk factors nor assess the potential future impact on our business. 22 Table of Contents Risks Related to our Insurance Operations We are subject to losses from catastrophic events.
For example, catastrophe models did not fully estimate the potential for some recent catastrophe loss activity (such as Winter Storm Elliott freeze losses in December 2022) and the concurrent recent economic inflation on construction costs. Our insurance operations primarily write risks in the Eastern, Midwestern, and Southwestern regions of the U.S.
We use sophisticated catastrophe modeling techniques to manage our exposure, but actual exposure and loss experience can materially differ from catastrophe model estimates. For example, catastrophe models did not fully estimate the potential for some recent catastrophe loss activity (such as Winter Storm Elliott freeze losses in December 2022) and the concurrent economic inflation on construction costs.
Several states, like New York, Nevada, Colorado, Virginia, and California, have passed laws in this area, and other jurisdictions are considering imposing additional restrictions or creating new rights concerning PII. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction.
Several states, like New York, Nevada, Colorado, Virginia, and California, have passed similar laws, and others are considering imposing additional restrictions or creating new rights concerning PII. These laws continue to develop and may differ by jurisdiction. Complying with emerging and changing requirements may cause us to incur substantial costs or require us to change our business practices.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeEffective January 1, 2024, the Board created a Risk Committee responsible for oversight of our ERM framework and practices, and to assist the Board in overseeing our operational activities and identifying and reviewing related risks, including our cyber risks and strategy.
Biggest changeThe Board's Risk Committee oversees our ERM framework and practices and assists the Board in overseeing our operational activities, including the Company's information technology security program, and identifying and reviewing related risks.
We have documented policies, procedures, and guidelines related to information security, known as our "Written Information Security Program." Our program (i) balances responsiveness to rapidly changing threats with ensuring our IT security environment's sustainability and overall effectiveness and (ii) is reasonably likely to defend against risks of cybersecurity threats that would have a material impact on our business strategy, results of operations, or financial condition.
We have documented information security policies, procedures, and guidelines, known as our "Written Information Security Program." Our program (i) balances responsiveness to rapidly changing threats with ensuring our IT security environment's sustainability and overall effectiveness and (ii) is reasonably likely to defend against risks of cybersecurity threats that would have a material impact on our business strategy, results of operations, or financial condition.
We have a dedicated unit, led by the Senior Vice President ("SVP") of Enterprise Strategy and Execution, to implement cybersecurity controls, assess and report on cybersecurity risks, and consult with our ERM unit, which is responsible for identifying, measuring, monitoring, and reporting on key enterprise-wide risks, including cybersecurity risks.
We have a dedicated unit, led by the Senior Vice President ("SVP") of IT Enterprise Strategy and Execution, to implement cybersecurity controls, assess and report on cybersecurity risks, and consult with our ERM unit, which is responsible for identifying, measuring, monitoring, and reporting on key enterprise-wide risks, including cybersecurity risks.
This program focuses on the following six key areas used to monitor various IT performance and security metrics: • Proactive cybersecurity processes, including vulnerability scanning, penetration testing, and periodic program assessments by outside security consultants and assessors; • Reactive cybersecurity processes that we regularly evaluate using incident response and disaster recovery exercises based on realistic scenarios; 34 Table of Contents • Endpoint technology that includes encryption, threat management, monitoring, investigation support, and backups; • Identity and access management controls that often include multi-factor authentication and additional safeguards for staff granted elevated privileges; • Employee cyber risk awareness and training that covers cybersecurity threats and actions to prevent or report attacks; and • Third-party risk management and security standards, including due diligence, continuous monitoring, cyber risk scoring, and contractual obligations.
This program focuses on the following six key areas to monitor various IT performance and security metrics: • Proactive cybersecurity processes, including vulnerability scanning, penetration testing, and periodic program assessments by outside security consultants and assessors; 33 Table of Contents • Reactive cybersecurity processes that we regularly evaluate using incident response and disaster recovery exercises based on realistic scenarios; • Endpoint technology that includes encryption, threat management, monitoring, investigation support, and backups; • Identity and access management controls that often include multi-factor authentication and additional safeguards for staff granted elevated privileges; • Employee cyber risk awareness, training, and testing that covers cybersecurity threats and actions to prevent or report attacks; and • Third-party risk management and security standards, including due diligence, continuous monitoring, cyber risk scoring, and contractual obligations.
It describes the (i) involvement of the SVP of Enterprise Strategy and Execution, (ii) escalation process of such incidents to senior management, including the General Counsel, CIO, Chief Financial Officer, CRO, and Chief Executive Officer, (iii) reporting process to the Risk Committee and Board, and (iv) the notification and disclosure process to customers, distribution partners, regulators, and 35 Table of Contents the SEC.
It describes the (i) involvement of the SVP of Enterprise Strategy and Execution, (ii) escalation process of such incidents to senior management, 34 Table of Contents including the General Counsel, CIO, Chief Financial Officer, CRO, and Chief Executive Officer, (iii) reporting process to the Risk Committee and Board, and (iv) the notification and disclosure process to customers, distribution partners, regulators, and the SEC.
We periodically review our strategy and modify its implementation based on threat trends, program maturity, the results of assessments, and the advice of third-party security consultants.
We periodically review our strategy and modify its implementation based on threat trends, program maturity, assessment results, and the advice of third-party security consultants.
The following describes the expertise of key members of management and our committees who are responsible for assessing, managing, and presenting quarterly updates to the Board’s Risk Committee about our cybersecurity risks: • John Bresney, EVP & CIO, reports directly to our Chief Executive Officer and is responsible for all of our IT operations, including oversight of the SVP of Enterprise Strategy and Execution’s implementation of our cybersecurity program and enforcement of our cybersecurity policies.
The expertise of key members of management and our committees responsible for assessing, managing, and presenting quarterly updates to the Board’s Risk Committee about our cybersecurity risks is summarized as follows: • John Bresney, EVP & CIO, reports directly to our Chief Executive Officer and is responsible for all of our IT operations, including oversight of the SVP of Enterprise Strategy and Execution’s implementation of our cybersecurity program and enforcement of our cybersecurity policies.
Board Governance and Management The Executive Vice President ("EVP") & Chief Information Officer ("CIO") and the SVP of Enterprise Strategy and Execution provide quarterly written and in-person updates on the strength of our cyber risk control environment, emerging cyber threat issues, and the results of external assessments by outside security consultants and assessors to the Board’s Audit Committee, which was responsible for the oversight of our ERM process in 2023.
Board Governance and Management The Executive Vice President ("EVP") & Chief Information Officer ("CIO") and the SVP of Enterprise Strategy and Execution provide quarterly written and in-person updates on the strength of our cyber risk control environment, emerging cyber threat issues, and the results of external assessments by outside security consultants and assessors to the Board’s Risk Committee.
We have employed him for approximately six years, and he previously was our SVP of Actuarial Reserving. He has over 32 years of insurance industry experience, serving in various key leadership positions. He has a bachelor’s degree in mathematics, is a fellow of the Casualty Actuarial Society, and is a member of the American Academy of Actuaries.
He has worked for us for approximately seven years, and he previously was our SVP of Actuarial Reserving. He has over 33 years of insurance industry experience, serving in various key leadership positions. He has a bachelor’s degree in mathematics, is a fellow of the Casualty Actuarial Society, and is a member of the American Academy of Actuaries.
He has a master’s degree in business administration, a Certificate in Project Management, and is a Certified Insurance Counselor. • Christopher Cunniff, SVP and CRO, reports formally to the Chief Financial Officer and on an interim-basis to our Chief Executive Officer, leads our Reinsurance and ERM teams, and chairs the ERC and the Emerging Risk Committee.
He has a master’s degree in business administration, a Certificate in Project Management, and is a Certified Insurance Counselor. • Christopher Cunniff, SVP and CRO, reports to our Chief Financial Officer, leads our Reinsurance and ERM teams, and chairs the ERC and the Market Security Committee.
In addition, the cybersecurity team, managed by the SVP of Enterprise Strategy and Execution, receives oversight and executive support through engagement with our ERC. The ERC is responsible for the holistic evaluation, management, and supervision of our aggregate risk profile. Similarly, the team works with our ERM function on business alignment and procuring cybersecurity insurance.
The cybersecurity team, managed by the SVP of IT Enterprise Strategy and Execution, (i) receives oversight and executive support through engagement with our ERC, which is responsible for the holistic evaluation, management, and supervision of our aggregate risk profile and (ii) collaborates with our ERM function on business alignment and cybersecurity insurance procurement.
He also oversees cybersecurity incidents under our Security Incident Response Plan ("IRP"). We have employed him for approximately 21 years in related positions of increasing responsibility. He has over 27 years of technology and information security experience.
He also oversees cybersecurity incidents under our Security Incident Response Plan ("IRP"). He has worked for us for approximately 22 years in related positions of increasing responsibility and has over 28 years of technology and information security experience.
We have employed him for approximately 30 years, and he has held various technology and information security roles of increasing responsibility.
He has worked for us for approximately 31 years, holding various technology and information security roles of increasing responsibility.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. Incidental to our insurance operations, we are routinely engaged in legal proceedings with inherently unpredictable outcomes that could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods. For additional information regarding our legal risks, refer to Item 1A. "Risk Factors." and Note 21.
Biggest changeItem 3. Legal Proceedings. We are routinely engaged in legal proceedings incidental to our insurance operations that have inherently unpredictable outcomes and could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods. For additional information regarding our legal risks, refer to Item 1A. "Risk Factors." and Note 21.
"Litigation" included in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. As of December 31, 2023, we have no material pending legal proceedings that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Item 4. Mine Safety Disclosures. Not applicable. PART II
"Litigation" included in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. As of December 31, 2024, we have no material pending legal proceedings that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Item 4. Mine Safety Disclosures. Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis performance graph shall not be deemed "soliciting material" or be "filed" with the SEC unless we specifically request so or incorporate it by reference in any SEC filings we make. 37 Table of Contents (f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information about our purchases of our common stock in the fourth quarter of 2023: Period Total Number of Shares Purchased 1 Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Programs 2 Approximate Dollar Value of Shares that May Yet Be Purchased Under the Announced Programs 2 October 1 – 31, 2023 884 $ 104.11 — 84.2 November 1 – 30, 2023 35 103.61 — 84.2 December 1 – 31, 2023 310 99.48 — 84.2 Total 1,229 $ 102.93 — $ 84.2 1 We purchased these shares from employees to satisfy tax withholding obligations associated with the vesting of their restricted stock units. 2 On December 2, 2020, we announced our Board authorized a $100 million share repurchase program with no set expiration or termination date.
Biggest changeThis performance graph shall not be deemed "soliciting material" or be "filed" with the SEC unless we specifically request so or incorporate it by reference in any SEC filings we make. 36 Table of Contents (f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information about our purchases of our common stock in the fourth quarter of 2024: Period Total Number of Shares Purchased 1 Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Programs 2 Approximate Dollar Value of Shares that May Yet Be Purchased Under the Announced Programs 2 October 1 – 31, 2024 491 $ 94.81 — $ 75.5 November 1 – 30, 2024 28 101.99 — 75.5 December 1 – 31, 2024 329 94.63 — 75.5 Total 848 $ 94.98 — $ 75.5 1 We purchased these shares from employees to satisfy tax withholding obligations associated with the vesting of their restricted stock units. 2 On December 2, 2020, we announced our Board authorized a $100 million share repurchase program with no set expiration or termination date.
(e) Performance Graph The following chart, produced by Research Data Group, Inc., depicts our performance for the period beginning December 31, 2018, and ending December 31, 2023, comparing total stockholder return on our common stock to the total return of (i) the NASDAQ Composite Index and (ii) a select group of peer companies comprised of NASDAQ-listed companies in SIC Code 6330-6339, Fire, Marine, and Casualty Insurance.
(e) Performance Graph The following chart, produced by Research Data Group, Inc., depicts our performance for the period beginning December 31, 2019, and ending December 31, 2024, comparing total stockholder return on our common stock to the total return of (i) the NASDAQ Composite Index and (ii) a select group of peer companies comprised of NASDAQ-listed companies in SIC Code 6330-6339, Fire, Marine, and Casualty Insurance.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. (a) Market Information Our common stock is traded on the Nasdaq Global Select Market under the symbol "SIGI." (b) Holders Our transfer agent’s records reflect that we had 2,783 common stockholders of record as of January 31, 2024.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. (a) Market Information Our common stock is traded on the Nasdaq Global Select Market under the symbol "SIGI." (b) Holders Our transfer agent’s records reflect that we had 2,720 common stockholders of record as of January 31, 2025.
On January 31, 2024, the Board declared a $0.35 per share quarterly cash dividend on common stock payable March 1, 2024, to stockholders of record as of February 15, 2024. 36 Table of Contents (d) Securities Authorized for Issuance under Equity Compensation Plans The following table provides information about our common stock authorized for issuance under equity compensation plans as of December 31, 2023: (a) (b) (c) Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 1 Equity compensation plans approved by security holders — $ — 4,877,332 1 Includes 1,049,788 shares available for issuance under our Employee Stock Purchase Plan (2021); 1,508,712 shares available for issuance under the Stock Purchase Plan for Independent Insurance Agencies; and 2,318,832 shares for issuance under the Selective Insurance Group, Inc. 2014 Omnibus Stock Plan ("Stock Plan").
The Board declared a $0.38 per share quarterly cash dividend on common stock payable March 3, 2025, to stockholders of record as of February 14, 2025. 35 Table of Contents (d) Securities Authorized for Issuance under Equity Compensation Plans The following table provides information about our common stock authorized for issuance under equity compensation plans as of December 31, 2024: (a) (b) (c) Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 1 Equity compensation plans approved by security holders — $ — 4,411,194 1 Includes 975,358 shares available for issuance under our Employee Stock Purchase Plan (2021); 1,466,600 shares available for issuance under the Stock Purchase Plan for Independent Insurance Agencies; and 1,969,236 shares for issuance under the Selective Insurance Group, Inc. 2024 Omnibus Stock Plan ("Stock Plan").
Future grants under the Stock Plan can be made, among other things, as stock options, restricted stock units, or restricted stock.
Future grants under the Stock Plan can include stock options, restricted stock units, or restricted stock.
On November 1, 2023, the Board approved a 17% increase in our common stock dividend to $0.35 per share.
In the fourth quarter of 2024, the Board approved a 9% increase in our common stock dividend to $0.38 per share.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements and Supplementary Data 76 Consolidated Balance Sheets as of December 31, 2023 and 2022 78 Consolidated Statements of Income for the Years Ended December 31, 2023, 2022, and 2021 79 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022, and 2021 80 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, 2022, and 2021 81 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021 82 Notes to Consolidated Financial Statements 83
Biggest changeFinancial Statements and Supplementary Data 75 Consolidated Balance Sheets as of December 31, 202 4 and 202 3 77 Consolidated Statements of Income for the Years Ended December 31, 202 4 , 202 3 , and 202 2 78 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 202 4 , 202 3 , and 202 2 79 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2024, 2023, and 2022 80 Consolidated Statements of Cash Flows for the Years Ended December 31, 202 4 , 202 3 , and 202 2 81 Notes to Consolidated Financial Statements 82
Quantitative and Qualitative Disclosures About Market Risk 68 Item 8.
Quantitative and Qualitative Disclosures About Market Risk 69 Item 8.
Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Forward-looking Statements 38 Introduction 38 Critical Accounting Policies and Estimates 39 Financial Highlights of Results for Years Ended December 31, 2023, 2022, and 2021 47 Results of Operations and Related Information by Segment 50 Federal Income Taxes 64 Liquidity and Capital Resources 64 Item 7A.
Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Forward-looking Statements 37 Introduction 37 Critical Accounting Policies and Estimates 38 Financial Highlights of Results for Years Ended December 31, 202 4 , 2023, and 2022 46 Results of Operations and Related Information by Segment 48 Federal Income Taxes 64 Liquidity and Capital Resources 65 Item 7A.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDetails of the prior year casualty reserve development were as follows: ($ in millions) (Favorable) Prior Year Casualty Reserve Development (Favorable)/Unfavorable Year-Over-Year Change For the year ended December 31, Loss and Loss Expense Incurred Impact on Loss and Loss Expense Ratio 2023 $ (6.5) (0.2) pts 2.3 2022 (86.0) (2.5) 0.2 2021 (81.0) (2.7) 0.5 (Favorable)/Unfavorable Prior Year Casualty Reserve Development ($ in millions) 2023 2022 2021 General liability $ 55.0 (5.0) (29.0) Commercial automobile 4.0 15.0 15.0 Workers compensation (74.5) (70.0) (58.0) Businessowners' policies — (11.0) (2.0) Bonds — (10.0) — Total Standard Commercial Lines (15.5) (81.0) (74.0) Homeowners — — — Personal automobile 14.0 — — Total Standard Personal Lines 14.0 — — E&S (5.0) (5.0) (7.0) Total (favorable) prior year casualty reserve development $ (6.5) (86.0) (81.0) (Favorable) impact on loss ratio (0.2) pts (2.5) (2.7) In addition, the loss and loss expense ratio was impacted by a decrease in current year casualty loss costs of 0.8 points in 2023, compared to 2022, primarily due to the mix of business from the impact of premium growth in 2023 compared to 2022.
Biggest changeOur 2024 calendar year actions were predominantly in the general liability line for accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023; and • An increase of 1.4 points in current year casualty loss costs in 2024 compared to 2023, primarily due to increased loss trend expectations and higher prior-year severity assumptions related to the impacts of social inflation on our general liability and E&S casualty lines of business. 49 Table of Contents Details of the prior year casualty reserve development by reportable segment and line of business were as follows: (Favorable)/Unfavorable Prior Year Casualty Reserve Development ($ in millions) 2024 2023 2022 General liability $ 316.0 55.0 (5.0) Commercial automobile 20.0 4.0 15.0 Workers compensation (45.0) (74.5) (70.0) Businessowners' policies — — (11.0) Bonds (5.0) — (10.0) Total Standard Commercial Lines 286.0 (15.5) (81.0) Homeowners (5.0) — — Personal automobile 10.0 14.0 — Total Standard Personal Lines 5.0 14.0 — E&S 20.0 (5.0) (5.0) Total (favorable) unfavorable prior year casualty reserve development $ 311.0 (6.5) (86.0) The 2024 unfavorable prior year casualty reserve development by line of business was driven by the following: • General liability - increased severities in accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023, due to impacts from social inflation; • Commercial automobile - increased severities in accident year 2023; • Personal automobile - increased severities in accident years 2022 through 2023; and • E&S casualty - increased severities in accident years 2023 and prior.
Critical Accounting Policies and Estimates We have identified the policies and estimates critical to our business operations and the understanding of our results of operations.
Critical Accounting Policies and Estimates We have identified the policies and estimates critical to our business operations and understanding of our results of operations.
Realized and Unrealized Investment Gains and Losses When evaluating securities for sale, our general philosophy is to reduce our exposure to securities and sectors based on economic evaluations of whether (i) the fundamentals for that security or sector have deteriorated or (ii) the timing is appropriate to opportunistically trade for other securities with better economic-return characteristics.
Realized and Unrealized Investment Gains and Losses When evaluating securities for sale, our general philosophy is to reduce our exposure to securities and sectors based on economic evaluations of whether (i) the fundamentals for that security or sector have deteriorated or (ii) the timing is appropriate to trade opportunistically for other securities with better economic-return characteristics.
For more information on our case reserves and estimates of reserves for loss and loss expense IBNR, refer to the "Reserve for Loss and Loss Expense" section in the "Critical Accounting Policies and Estimates" section of this MD&A and Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
For more information on our case reserves and estimates of reserve for loss and loss expense IBNR, refer to the "Reserve for Loss and Loss Expense" section in the "Critical Accounting Policies and Estimates" section of this MD&A and Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Depending on the social and political climate, these changes may either increase or decrease associated claim costs; and Changes in utilization of the workers compensation system – These changes may be driven by economic, legislative, or other changes, like increased prescriptions for pharmaceuticals, more complex medical procedures, changes in permanently injured workers' life expectancy, and health insurance availability.
Depending on the social and political climate, these changes may either increase or decrease associated claim costs; and Changes in utilization of the workers compensation system – These changes may be driven by economic, legislative, or other changes, like increased use of prescriptions for pharmaceuticals, more complex medical procedures, changes in permanently injured workers' life expectancy, and health insurance availability.
Certain statements in this Annual Report on Form 10-K, including information incorporated by reference, are “forward-looking statements” defined in the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a forward-looking statement safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934.
Certain statements in this Annual Report on Form 10-K, including information incorporated by reference, are “forward-looking statements” defined in the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The PSLRA provides a forward-looking statement safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934.
The table below shows the gross and net losses modeled results for (i) hurricane peril in our underwriting property portfolio and (ii) the gross and net of reinsurance hurricane losses from the following scenarios: • Recasts of two large hurricanes that impacted our geographic footprint: ◦ 1938 New England Hurricane, one of the largest hurricanes to impact the Northeast U.S.; and ◦ Hurricane Hazel, a Category 4 storm that made landfall near the border between North Carolina and South Carolina in 1954; and • Realistic disaster scenarios (“RDS”) for significant potential storms in the Northeast and the Carolinas based on Lloyds of London methodology.
The table below shows the gross and net losses modeled results for (i) hurricane peril in our underwriting property portfolio and (ii) the gross and net of reinsurance hurricane losses from the following scenarios: • Recasts of two large hurricanes that impacted our geographic footprint: ◦ 1938 New England Hurricane, one of the largest hurricanes to impact the Northeast U.S.; and ◦ Hurricane Hazel, a Category 4 storm that made landfall near the border between North Carolina and South Carolina in 1954; and • Realistic disaster scenarios ("RDS") for significant potential storms in the Northeast and the Carolinas based on Lloyds of London ("Lloyds") methodology.
We write our E&S products through another subsidiary, Mesa Underwriters Specialty Insurance Company, a nationally-authorized non-admitted platform for customers who generally cannot obtain coverage in the standard marketplace.
We write our E&S products through another subsidiary, Mesa Underwriters Specialty Insurance Company ("MUSIC"), a nationally-authorized non-admitted platform for customers who generally cannot obtain coverage in the standard marketplace.
We also may use (i) facultative reinsurance, primarily for large individual casualty risks in excess of our treaty capacity and (ii) quota share capacity for certain new or higher severity casualty lines of business. • Terrorism Reinsurance , which provides a federal reinsurance backstop, behind the protection built into our property and casualty reinsurance treaties, for terrorism losses covered under the Terrorism Risk Insurance Program Reauthorization Act (“TRIPRA”).
We also may use (i) facultative reinsurance, primarily for large individual casualty risks in excess of our treaty capacity and (ii) quota share capacity for certain new or higher severity casualty lines of business. • Terrorism Reinsurance , which provides a federal reinsurance backstop, behind the protection built into our property and casualty reinsurance treaties, for terrorism losses covered under the Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA").
In addition, significant uncertainties are associated with estimating critical reserve assumptions, such as average clean-up costs, third-party costs, potentially responsible party shares, allocation of damages, litigation and coverage costs, and potential state and federal legislative changes. Other Latent Exposures We also have other latent and continuous trigger exposures in our ongoing portfolio.
Significant uncertainties are associated with estimating critical reserve assumptions, such as average clean-up costs, third-party costs, potentially responsible party shares, allocation of damages, litigation and coverage costs, and potential state and federal legislative changes. Other Latent Exposures We have other latent and continuous trigger exposures in our ongoing portfolio.
In the MD&A, we will discuss and analyze the following: • Critical Accounting Policies and Estimates; • Financial Highlights of Results for Years Ended December 31, 2023, 2022, and 2021; • Results of Operations and Related Information by Segment; • Federal Income Taxes; and • Liquidity and Capital Resources.
In the MD&A, we will discuss and analyze the following: • Critical Accounting Policies and Estimates; • Financial Highlights of Results for Years Ended December 31, 2024, 2023, and 2022; • Results of Operations and Related Information by Segment; • Federal Income Taxes; and • Liquidity and Capital Resources.
We also purchase a limited amount of facultative reinsurance, primarily for large individual property risks greater than our property excess of loss treaty capacity. • Casualty Reinsurance , which provides protection for both individual large casualty losses and catastrophic casualty losses involving multiple claimants or insureds.
We also purchase a limited amount of facultative reinsurance, primarily for large individual property risks greater than our property per risk excess of loss treaty capacity. • Casualty Reinsurance , which provides protection for both individual large casualty losses and catastrophic casualty losses involving multiple claimants or insureds.
In addition to the above, the following table summarizes certain contractual obligations we had at December 31, 2023 that may require us to invest additional amounts into our investment portfolio, which we would fund primarily with operating cash flows.
In addition to the above, the following table summarizes certain contractual obligations we had at December 31, 2024 that may require us to invest additional amounts into our investment portfolio, which we would fund primarily with operating cash flows.
We attempt to mitigate this credit risk by (i) pursuing relationships with reinsurers rated “A-” or higher by AM Best and/or (ii) obtaining collateral to secure reinsurance obligations. Some of our reinsurance treaties permit us to terminate or commute them – or require the reinsurer to post collateral if the reinsurer's financial condition or rating deteriorates.
We attempt to mitigate this credit risk by (i) pursuing relationships with reinsurers rated "A-" or higher by AM Best and/or (ii) obtaining collateral to secure reinsurance obligations. Some of our reinsurance treaties permit us to terminate or commute them – or require the reinsurer to post collateral if the reinsurer's financial condition or rating deteriorates.
As the table above reflects, we are well within our established tolerance for catastrophic risk. Based on a multi-model view of hurricane risk, our current catastrophe reinsurance program exhausts at an approximately 1-in-260-year return period, or events with 0.4% probability.
As the table above reflects, we are within our established tolerance for catastrophic risk. Based on a multi-model view of hurricane risk, our current catastrophe reinsurance program exhausts at an approximately 1-in-230-year return period, or events with 0.4% probability.
Adjusted book value per common share is a measure comparable to book value per common share, but excludes total after-tax unrealized gains and losses on investments included in accumulated other comprehensive income (loss).
Adjusted book value per common share is comparable to book value per common share, but excludes total after-tax unrealized gains and losses on investments included in accumulated other comprehensive income (loss).
These patterns are a key assumption in the reserving process. In addition, the current accident year expected loss and loss expense ratios are key assumptions. These ratios are developed through a rigorous process of projecting recent accident years' experience to an ultimate settlement basis. They are then adjusted to the current accident year's pricing and loss cost levels.
These patterns are a key assumption in the reserving process, as are the current accident year expected loss and loss expense ratios. These ratios are developed through a rigorous process of projecting recent accident years' experience to an ultimate settlement basis. They then are adjusted to the current accident year's pricing and loss cost levels.
Non-foreign terrorism losses (other than NBCR) are covered to the same extent as non-terrorism losses. - $5 million in excess of $5 million layer provides 15 reinstatements; $80 million in aggregate limits; - $20 million in excess of $10 million layer provides three reinstatements, $80 million in aggregate limits; and - $40 million in excess of $30 million layer provides two reinstatements, $120 million in aggregate limits.
Non-Foreign Terrorism losses (other than NBCR) are covered to the same extent as non-terrorism losses. - $5 million in excess of $5 million layer provides 15 reinstatements; $80 million in aggregate limits; - $20 million in excess of $10 million layer provides four reinstatements, $100 million in aggregate limits; and - $40 million in excess of $30 million layer provides two reinstatements, $120 million in aggregate limits.
Reserves for Loss and Loss Expense Significant time can elapse between the occurrence of an insured loss, the reporting of the claim to us, and the final settlement and payment of the claim. Insurers establish reserves as balance sheet liabilities to recognize liabilities for unpaid loss and loss expense.
Reserve for Loss and Loss Expense Significant time can elapse between the occurrence of an insured loss, the reporting of a claim to us, and the final claim settlement and payment. Insurers establish reserves as balance sheet liabilities to recognize liabilities for unpaid loss and loss expenses.
"Segment Information" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. We write our Standard Commercial and Standard Personal Lines products and services through nine of our insurance subsidiaries, some of which participate in the federal government's National Flood Insurance Program's ("NFIP") Write Your Own Program ("WYO").
"Financial Statements and Supplementary Data." of this Form 10-K. We write our Standard Commercial and Standard Personal Lines products and services through nine of our insurance subsidiaries, some of which participate in the federal government's National Flood Insurance Program's ("NFIP") Write Your Own Program ("WYO").
We undertake no obligation to publicly update or revise any forward-looking statements for any reason except as required by law. We discuss factors that could cause our actual results to differ materially from our project, forecasts, or estimates in forward-looking statements in Item 1A. “Risk Factors.” of this form 10-K. These risk factors may not be exhaustive.
We undertake no obligation to publicly update or revise any forward-looking statements for any reason except as required by law. We discuss the factors that could cause our actual results to differ materially from our projections, forecasts, or estimates in forward-looking statements in Item 1A. "Risk Factors." of this form 10-K. These risk factors may not be exhaustive.
The following table summarizes of our property reinsurance treaties and arrangements covering our Insurance Subsidiaries: PROPERTY REINSURANCE ON INSURANCE PRODUCTS Treaty Name Reinsurance Coverage Terrorism Coverage Property Catastrophe Excess of Loss (covers all insurance operations) $1.1 billion above $100 million retention treaty that responds on per occurrence basis in four layers: All nuclear, biological, chemical, and radioactive ("NBCR") losses are excluded regardless of whether or not they are certified under TRIPRA.
Property Reinsurance The following table summarizes our property reinsurance program: PROPERTY REINSURANCE ON INSURANCE PRODUCTS Treaty Name Reinsurance Coverage Terrorism Coverage Property Catastrophe Excess of Loss (covers all insurance operations) $1.3 billion above $100 million retention treaty that responds on per occurrence basis in four layers: All nuclear, biological, chemical, and radioactive ("NBCR") losses are excluded regardless of whether or not they are certified under TRIPRA.
As of December 31, 2023 and 2022, we had no (i) material guarantees on behalf of others and trading activities involving non-exchange traded contracts accounted for at fair value, (ii) material transactions with related parties other than those disclosed in 67 Table of Contents Note 18. "Related Party Transactions" included in Item 8.
As of December 31, 2024 and 2023, we had no (i) material guarantees on behalf of others and trading activities involving non-exchange traded contracts accounted for at fair value, (ii) material transactions with related parties other than those disclosed in Note 18. "Related Party Transactions" included in Item 8.
We regularly evaluate our overall reinsurance program and try to develop effective ways to manage the transfer of risk.
We continually evaluate our overall reinsurance program and try to develop effective ways to manage the transfer of risk.
In addition, contractual language interpretations and willingness to pay valid claims can impact our allowance for estimated uncollectible reinsurance. Our allowance for estimated uncollectible reinsurance was $1.7 million at December 31, 2023, and $1.6 million at December 31, 2022. We continually monitor developments that may impact recoverability from our reinsurers, for which we have contractual remedies if necessary.
In addition, contractual language interpretations and willingness to pay valid claims can impact our allowance for estimated uncollectible reinsurance. Our allowance for estimated uncollectible reinsurance was $2.0 million at December 31, 2024, and $1.7 million at December 31, 2023. We continually monitor developments that may impact recoverability from our reinsurers, for which we have contractual remedies, if necessary.
The property catastrophe treaty excludes coverage for communicable disease but retains (i) coverage for strike, riot, civil unrest, severe convective storms, and other traditionally-covered property perils, (ii) coverage for conventional terrorism losses in most geographic areas, and (iii) limited coverage for cybersecurity risks.
The property catastrophe treaty excludes coverage for communicable disease but retains (i) coverage for strike, riot, civil unrest, severe convective storms, and other traditionally-covered property perils, (ii) coverage for conventional terrorism losses, and (iii) limited coverage for cybersecurity risks.
($ in millions) 2023 2022 2021 Federal income tax expense $ 93.2 55.3 101.5 Effective tax rate 1 20.7 % 20.4 20.5 1 The effective tax rate is calculated by taking "Total federal income tax expense" divided by "Income before federal income tax" less "Preferred stock dividends" on our Consolidated Statements of Income.
($ in millions) 2024 2023 2022 Federal income tax expense $ 51.0 93.2 55.3 Effective tax rate 1 20.5 % 20.7 20.4 1 The effective tax rate is calculated by taking "Total federal income tax expense" divided by "Income before federal income tax" less "Preferred stock dividends" on our Consolidated Statements of Income.
Given these risks, uncertainties, and assumptions, the forward-looking events we discuss in this report might not occur. Introduction We classify our business into four reportable segments: • Standard Commercial Lines; • Standard Personal Lines; • Excess and Surplus Lines ("E&S Lines"); and • Investments. For more details about these segments, refer to Note 1. "Organization" and Note 12.
Given these risks, uncertainties, and assumptions, the forward-looking events we discuss might not occur. Introduction We classify our business into four reportable segments: • Standard Commercial Lines; • Standard Personal Lines; • Excess and Surplus Lines ("E&S Lines"); and • Investments. For more details about these segments, refer to Note 1. "Organization" and Note 12. "Segment Information" in Item 8.
Social inflation may impact both the frequency and severity of claims by affecting (i) the propensity for a claimant to file a claim, (ii) the percentage of claimants who engage lawyers, and (iii) the nature of judicial verdicts, broader liability interpretations, and amounts of associated awards, which influence future settlement values. We monitor claim litigation rates regularly.
Social inflation may impact both claim frequency and severity by affecting (i) claimant propensity to file a claim, (ii) the percentage of claimants who engage lawyers, and (iii) broader liability interpretations and the nature and amounts of judicial verdicts and associated awards, all influencing future settlement values. We monitor claim litigation rates regularly.
Changes to our historical workers compensation medical costs and potential changes in future medical inflation can add reserve variability; Changes in statutory workers compensation benefits – Statutory benefit changes may affect all outstanding claims, including past and not-yet-settled claims.
Changes to our historical workers compensation medical costs and potential changes in future medical inflation could increase reserve variability; Changes in statutory workers compensation benefits – Statutory benefit changes may affect all outstanding claims, including past and not-yet-settled claims.
Sources of Liquidity Sources of cash for the Parent historically have consisted of dividends from the Insurance Subsidiaries, the investment portfolio held at the Parent, borrowings under third-party lines of credit, intercompany revolving demand loan agreements with certain Insurance Subsidiaries, and the issuance of equity (common or preferred) and debt securities.
Sources of Liquidity The Parent's sources of cash historically have consisted of dividends from the Insurance Subsidiaries, the Parent's investment portfolio, borrowings under third-party lines of credit, intercompany revolving demand loan agreements with certain Insurance Subsidiaries, and the issuance of equity (common or preferred) and debt securities.
Therefore, the projected settlement of the reserves for net loss and loss expense may differ, perhaps significantly, from actual future payments. The Insurance Subsidiaries' net loss and loss expense reserves duration was 3.1 years at December 31, 2023.
Therefore, the projected settlement of the reserves for net loss and loss expense may differ, perhaps significantly, from actual future payments. The Insurance Subsidiaries' net loss and loss expense reserves duration was 3.0 years at December 31, 2024.
Our capital management strategy is intended to protect the interests of the policyholders of the Insurance Subsidiaries and our stockholders and enhance our financial strength and underwriting capacity. We have a profitable underwriting portfolio and solid capital base, positioning us well to take advantage of potential market opportunities.
Our capital management strategy is intended to protect the interests of the policyholders of the Insurance Subsidiaries and our stockholders and enhance our financial strength and underwriting capacity. We have a strong capital base and high-quality underwriting portfolio, positioning us well to take advantage of potential market opportunities.
Increased property damage and physical damage severities relate to (i) elevated repair costs for increasingly complex vehicles that incorporate more technology, (ii) extended periods of rental reimbursement costs for claims, and (iii) inflationary impacts and disruptions to the supply chain, although these have moderated in recent quarters.
Increased property damage and physical damage severities relate to (i) elevated repair costs for increasingly complex vehicles that incorporate more technology, (ii) extended periods of rental reimbursement costs for claims, and (iii) inflationary impacts and disruptions to the supply chain, although these have moderated since their peak in 2022.
The table below illustrates the impact of the five largest hurricane losses we have experienced in the last 35 years: ($ in millions) Gross Loss 1 Net Loss 2 Accident Year Gross Loss Ratio Net Loss Ratio Hurricane Name Superstorm Sandy $125.5 45.6 2012 7.9% 2.9 Hurricane Ida 51.7 40.8 2021 1.7 1.4 Hurricane Irene 44.8 40.2 2011 3.1 2.8 Hurricane Hugo 26.4 3.0 1989 5.9 0.7 Hurricane Isabel 25.1 15.7 2003 2.2 1.4 1 This amount represents reported and unreported gross losses estimated as of December 31, 2023. 2 Net loss does not include reinstatement premiums, taxes, or flood claims handling fees.
The table below illustrates the impact of the five largest hurricane losses we have experienced in the last 35 years: ($ in millions) Gross Loss 1 Net Loss 2 Accident Year Gross Loss Ratio Net Loss Ratio Hurricane Name Superstorm Sandy $125.5 45.6 2012 7.9% 2.9 Hurricane Helene 85.0 85.0 2024 1.9 1.9 Hurricane Ida 53.4 39.7 2021 1.8 1.3 Hurricane Irene 44.8 40.2 2011 3.1 2.8 Hurricane Hugo 26.4 3.0 1989 5.9 0.7 1 This amount represents reported and unreported gross losses estimated as of December 31, 2024. 2 Net loss does not include reinstatement premiums, taxes, or flood claims handling fees.
Examples include claims for construction defect and abuse or molestation, including in states that have increased and expanded the statute of limitations. We manage our exposure to these liabilities through our underwriting and claims practices and a dedicated claims unit, similar to our handling of asbestos and environmental claims.
Examples include claims for construction defect and abuse or molestation, including in states that have increased and expanded the statute of limitations. We manage our exposure to these liabilities through our underwriting and claims practices, which includes a dedicated claims unit, like we do for asbestos and environmental claims.
These non-GAAP measures are important financial measures that we, analysts, and investors use because the timing of realized and unrealized investment gains and losses on securities in any given period is largely discretionary. In addition, net realized and unrealized investment gains and losses on investments could distort the analysis of trends.
These non-GAAP measures are important financial measures used by us, analysts, and investors because the timing of realized and unrealized investment gains and losses on securities in any given period is largely discretionary. In addition, net realized and unrealized investment gains and losses on investments could distort the analysis of trends.
Our adjusted book value per share, which is book value per share excluding total after-tax unrealized gains or losses on investments included in accumulated other comprehensive income (loss), increased to $50.03 as of December 31, 2023, from $45.49 as of December 31, 2022.
Our adjusted book value per share, which is book value per share excluding total after-tax unrealized gains or losses on investments included in accumulated other comprehensive income (loss), increased to $52.10 as of December 31, 2024, from $50.03 as of December 31, 2023.
This approach produces a range of reasonable reserve estimates but does not represent a distribution of all possible outcomes. Therefore, the final outcomes may be greater than or less than these amounts. The range of reasonable reserve estimates increased as of December 31, 2023, relative to December 31, 2022.
This approach produces a range of reasonable reserve estimates but does not represent a distribution of all possible outcomes. Consequently, final outcomes may be greater or less than the estimates. The range of reasonable reserve estimates increased as of December 31, 2024, relative to December 31, 2023.
Dividends on shares of the Parent's common and preferred stock are declared and paid at the discretion of the Board based on our operating results, financial condition, capital requirements, contractual restrictions, and other relevant factors. In November 2023, our Board approved a 17% increase in the quarterly cash dividend on common stock, to $0.35 from $0.30 per share.
Dividends on shares of the Parent's common and preferred stock are declared and paid at the discretion of the Board based on our operating results, financial condition, capital requirements, contractual restrictions, and other relevant factors. In October 2024, our Board approved a 9% increase in the quarterly cash dividend on common stock, to $0.38 from $0.35 per share.
The policies and estimates we considered most critical to the preparation of the Financial Statements involved (i) reserves for loss and loss expense, (ii) investment valuation and the allowance for credit losses on available-for-sale ("AFS") fixed income securities, and (iii) reinsurance.
We consider the policies and estimates most critical to the preparation of the Financial Statements to be (i) reserve for loss and loss expense, (ii) investment valuation and the allowance for credit losses on available-for-sale ("AFS") fixed income securities, and (iii) reinsurance.
Our internal reserve analyses incorporate actuarial projection methods that make adjustments for changes in case reserve adequacy and claims settlement rates. These methods adjust our historical loss experience to the current case adequacy or settlement rate level, providing a more consistent basis for projecting future development patterns. Like all projection methods, these have their own associated assumptions and judgments.
Our internal reserve analyses incorporate actuarial projection methods that make adjustments for changes in case reserve adequacy and claims settlement rates. These methods adjust our historical loss experience to the current case adequacy or settlement rate level, providing a more consistent basis for projecting future development patterns.
All other losses stemming from the acts of terrorism are subject to the following: - $3 million in excess of $2 million layer provides 48 reinstatements, $147 million annual aggregate limit; - $3 million in excess of $2 million layer with $15 million net annual terrorism aggregate limit; - $7 million in excess of $5 million layer provides eight reinstatements, $63 million annual aggregate limit; - $7 million in excess of $5 million layer with $28 million net annual terrorism aggregate limit; - $9 million in excess of $12 million layer provides three reinstatements, $36 million annual aggregate limit; - $9 million in excess of $12 million layer with $27 million net annual terrorism aggregate limit; - $9 million in excess of $21 million layer provides one reinstatement, $18 million annual aggregate limit; - $9 million in excess of $21 million layer with $18 million net annual terrorism aggregate limit; - $20 million in excess of $30 million layer provides one reinstatement, $40 million annual aggregate limit; and - $20 million in excess of $30 million layer with $40 million net annual terrorism aggregate limit; and - $40 million in excess of $50 million layer provides one reinstatement, $80 million annual aggregate limit. - $40 million in excess of $50 million layer with $80 million net annual terrorism aggregate limit.
All other losses stemming from the acts of terrorism are subject to the following: - 82.5% of $3 million in excess of $2 million layer provides 71 reinstatements, $216 million annual aggregate limit; - 82.5% of $3 million in excess of $2 million layer with $15 million net annual terrorism aggregate limit; - 100% of $7 million in excess of $5 million layer provides 12 reinstatements, $91 million annual aggregate limit; - 100% of $7 million in excess of $5 million layer with $28 million net annual terrorism aggregate limit; - 100% of $9 million in excess of $12 million layer provides three reinstatements, $36 million annual aggregate limit; - 100% of $9 million in excess of $12 million layer with $27 million net annual terrorism aggregate limit; - 100% of $9 million in excess of $21 million layer provides one reinstatement, $18 million annual aggregate limit; - 100% of $9 million in excess of $21 million layer with $18 million net annual terrorism aggregate limit; - 100% of $20 million in excess of $30 million layer provides one reinstatement, $40 million annual aggregate limit; and - 100% of $20 million in excess of $30 million layer with $40 million net annual terrorism aggregate limit; and - 100% of $40 million in excess of $50 million layer provides one reinstatement, $80 million annual aggregate limit; - 100% of $40 million in excess of $50 million layer with $80 million net annual terrorism aggregate limit.
The impact of social, political, and legal trends on these claims remains highly uncertain, so the adequacy of our related loss and loss expense reserves to cover these claims remain highly uncertain. These exposures remain in our ongoing portfolio and are reserved in aggregate, with other exposures within the line of business 45 Table of Contents reserves.
The impact of social, political, and legal trends on these claims remains highly uncertain, so the development and adequacy of our related loss and loss expense reserves remain highly uncertain. Some of these exposures remain in our ongoing portfolio and are reserved in aggregate, with other exposures within the line of business reserves.
Reconciliations of our GAAP to non-GAAP measures are provided in the tables below: Reconciliation of net income available to common stockholders to non-GAAP operating income ($ in thousands) 2023 2022 2021 Net income available to common stockholders $ 356,038 215,686 394,484 Net realized and unrealized investment (gains) losses included in net income, before tax 3,552 114,808 (17,599) Tax on reconciling items (746) (24,110) 3,695 Non-GAAP operating income $ 358,844 306,384 380,580 47 Table of Contents Reconciliation of net income available to common stockholders per diluted common share to non-GAAP operating income per diluted common share 2023 2022 2021 Net income available to common stockholders per diluted common share $ 5.84 3.54 6.50 Net realized and unrealized investment (gains) losses included in net income, before tax 0.06 1.89 (0.29) Tax on reconciling items (0.01) (0.40) 0.06 Non-GAAP operating income per diluted common share $ 5.89 5.03 6.27 Reconciliation of ROE to non-GAAP operating ROE 2023 2022 2021 ROE 14.3 % 8.8 14.8 Net realized and unrealized investment (gains) losses included in net income, before tax 0.1 4.7 (0.7) Tax on reconciling items — (1.1) 0.2 Non-GAAP operating ROE 14.4 % 12.4 14.3 Reconciliation of book value per common share to adjusted book value per common share 2023 2022 2021 Book value per common share $ 45.42 38.57 46.24 Total unrealized investment gains losses included in accumulated other comprehensive income (loss), before tax 5.83 8.75 (3.80) Tax on reconciling items (1.22) (1.83) 0.79 Adjusted book value per common share $ 50.03 45.49 43.23 The components of our ROE and non-GAAP operating ROE are as follows: ROE Components 2023 2022 2023 2022 vs. 2022 2021 vs. 2021 Standard Commercial Lines segment 5.0 % 4.6 0.4 pts 5.9 (1.3) pts Standard Personal Lines segment (2.5) (0.2) (2.3) 0.1 (0.3) E&S Lines segment 1.7 1.0 0.7 0.5 0.5 Total insurance operations 4.2 5.4 (1.2) 6.5 (1.1) Investment income 12.4 9.4 3.0 9.9 (0.5) Net realized and unrealized investment gains (losses) (0.1) (3.6) 3.5 0.5 (4.1) Total investments segment 12.3 5.8 6.5 10.4 (4.6) Other (2.2) (2.4) 0.2 (2.1) (0.3) ROE 14.3 8.8 5.5 14.8 (6.0) Net realized and unrealized investment (gains) losses, after tax 0.1 3.6 (3.5) (0.5) 4.1 Non-GAAP operating ROE 14.4 % 12.4 2.0 14.3 (1.9) In 2023, we generated an ROE of 14.3% compared to 8.8% in 2022.
Reconciliations of our GAAP to non-GAAP measures are provided in the tables below: Reconciliation of net income (loss) available to common stockholders to non-GAAP operating income (loss) ($ in thousands) 2024 2023 2022 Net income (loss) available to common stockholders $ 197,812 356,038 215,686 Net realized and unrealized investment (gains) losses included in net income, before tax 2,949 3,552 114,808 Tax on reconciling items (620) (746) (24,110) Non-GAAP operating income (loss) $ 200,141 358,844 306,384 Reconciliation of net income (loss) available to common stockholders per diluted common share to non-GAAP operating income (loss) per diluted common share 2024 2023 2022 Net income (loss) available to common stockholders per diluted common share $ 3.23 5.84 3.54 Net realized and unrealized investment (gains) losses included in net income (loss), before tax 0.05 0.06 1.89 Tax on reconciling items (0.01) (0.01) (0.40) Non-GAAP operating income (loss) per diluted common share $ 3.27 5.89 5.03 Reconciliation of ROE to non-GAAP operating ROE 2024 2023 2022 ROE 7.0 % 14.3 8.8 Net realized and unrealized investment (gains) losses included in net income (loss), before tax 0.1 0.1 4.7 Tax on reconciling items — — (1.1) Non-GAAP operating ROE 7.1 % 14.4 12.4 46 Table of Contents Reconciliation of book value per common share to adjusted book value per common share 2024 2023 2022 Book value per common share $ 47.99 45.42 38.57 Total unrealized investment (gains) losses included in accumulated other comprehensive income (loss), before tax 5.21 5.83 8.75 Tax on reconciling items (1.10) (1.22) (1.83) Adjusted book value per common share $ 52.10 50.03 45.49 The components of our ROE and non-GAAP operating ROE are as follows: ROE Components 2024 2023 2024 2023 vs. 2023 2022 vs. 2022 Standard Commercial Lines segment (4.0) % 5.0 (9.0) pts 4.6 0.4 pts Standard Personal Lines segment (1.1) (2.5) 1.4 (0.2) (2.3) E&S Lines segment 1.4 1.7 (0.3) 1.0 0.7 Total insurance operations (3.7) 4.2 (7.9) 5.4 (1.2) Net investment income earned 12.8 12.4 0.4 9.4 3.0 Net realized and unrealized investment gains (losses) (0.1) (0.1) — (3.6) 3.5 Total investments segment 12.7 12.3 0.4 5.8 6.5 Other (2.0) (2.2) 0.2 (2.4) 0.2 ROE 7.0 14.3 (7.3) 8.8 5.5 Net realized and unrealized investment (gains) losses, after tax 0.1 0.1 — 3.6 (3.5) Non-GAAP operating ROE 7.1 % 14.4 (7.3) 12.4 2.0 In 2024, we generated an ROE of 7.0% compared to 14.3% in 2023.
The following table summarizes prior year development by line of business: (Favorable)/Unfavorable Prior Year Loss and Loss Expense Development ($ in millions) 2023 2022 2021 General liability $ 55.0 (5.0) (29.0) Commercial automobile 8.0 22.5 13.3 Workers compensation (74.5) (70.0) (58.0) Businessowners' policies 7.6 (7.3) (0.4) Commercial property 0.7 (1.6) (2.6) Bonds — (10.0) — Homeowners 4.6 (0.6) 1.8 Personal automobile 15.3 0.5 (0.2) E&S casualty lines (5.0) (5.0) (7.0) E&S property lines (1.6) (2.5) (0.8) Other (0.1) 0.1 — Total $ 10.0 (78.9) (82.9) A detailed discussion of recent reserve development by line of business follows.
The following table summarizes prior year development by line of business: (Favorable)/Unfavorable Prior Year Loss and Loss Expense Development ($ in millions) 2024 2023 2022 General liability $ 316.0 55.0 (5.0) Commercial automobile 19.5 8.0 22.5 Workers compensation (45.0) (74.5) (70.0) Businessowners' policies (1.7) 7.6 (7.3) Commercial property (23.4) 0.7 (1.6) Bonds (5.0) — (10.0) Homeowners (1.4) 4.6 (0.6) Personal automobile 11.1 15.3 0.5 E&S casualty lines 20.0 (5.0) (5.0) E&S property lines (4.9) (1.6) (2.5) Other 0.1 (0.1) 0.1 Total $ 285.3 10.0 (78.9) A detailed discussion of recent reserve development by line of business follows.
The Parent’s ability to pay dividends to stockholders is also impacted by (i) covenants in its credit agreement that obligate it, among other things, to maintain a minimum consolidated net worth and a maximum ratio of consolidated debt to total capitalization, and (ii) the terms of our preferred stock that prohibit dividends from being declared or paid on our common stock if dividends are not declared and paid, or made payable, on all outstanding preferred stock for the latest completed dividend period.
The Parent’s ability to pay dividends to stockholders is also impacted by (i) covenants in its credit agreement that obligate it, among other things, to maintain a minimum consolidated net worth and a maximum ratio of consolidated debt to total capitalization, and (ii) the terms of our preferred stock that prohibit dividends from being declared or paid on our common stock if dividends are not declared and paid, or made payable, on all outstanding preferred stock for the latest completed dividend period. 65 Table of Contents For additional information regarding dividend restrictions and financial covenants, where applicable, see Note 11.
Our actual gross and net losses incurred from hurricanes making U.S. landfall will vary, perhaps materially, from our estimated modeled losses. In addition to hurricane peril, the table below shows gross and net losses modeled by other wind and earthquake perils in our underwriting property portfolio. Other wind perils include the sub-perils of hail, straight-line wind, and tornado.
Our actual gross and net losses incurred from hurricanes making U.S. landfall will vary, perhaps materially, from our estimated modeled losses. 61 Table of Contents In addition to hurricane peril, the table below shows gross and net losses modeled by other wind and earthquake perils in our underwriting property portfolio.
The reinsurance agreement's attachment point and exhaustion limit may be reset annually to adjust the expected loss of the layer within a predetermined range. For the 2024 treaty year, this reinsurance agreement provides us with coverage for 65% of losses in the $500 million in excess of $700 million layer.
The reinsurance agreement's attachment point and exhaustion limit may be reset annually to adjust the expected loss of the layer within a predetermined range. For the 2025 treaty year, this reinsurance agreement provides us with coverage for 54% of losses in the $600 million in excess of $800 million layer.
In addition, we are seeking to improve profitability within our homeowners' line of business by introducing new policy terms and conditions, including (i) coverage for older roofs based on a schedule of factors rather than replacement cost and (ii) implementing mandatory wind/hail deductibles in states exposed to severe convective storms, where allowed by law.
In addition, we are continuing to seek improved profitability within our homeowners line of business by expanding the use of new policy terms and conditions, including (i) coverage for older roofs based on a schedule of factors rather than replacement cost and (ii) implementing mandatory wind/hail deductibles in states exposed to severe convective storms, where allowed by law.
We monitor our reinsurers' financial condition and review the quality of reinsurance recoverables and reserves for uncollectible reinsurance. For additional information regarding our reinsurance counterparty credit risk, see Note 9. "Reinsurance" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
We monitor our reinsurers' financial condition and review the quality of reinsurance recoverables and reserves for uncollectible reinsurance. For additional information regarding our reinsurance counterparty credit risk, see Note 9. "Reinsurance" in Item 8.
“Risk Factors.” of this Form 10-K for discussion regarding TRIPRA. - 100% of losses in excess of $100 million up to $200 million; - 100% of losses in excess of $200 million up to $400 million; - 100% of losses in excess of $400 million up to $700 million; and - 35% of losses in excess of $700 million up to $1.2 billion.
“Risk Factors.” of this Form 10-K for discussion regarding TRIPRA. - 100% of losses in excess of $100 million up to $200 million; - 100% of losses in excess of $200 million up to $400 million; - 100% of losses in excess of $400 million up to $800 million; and - 41% of losses in excess of $800 million up to $1.4 billion.
Reserve Impacts of Changes to Expected Loss and Loss Expense Reporting Patterns ($ in millions) Percentage Decrease/Increase (Decrease) to Future Calendar Year Reported Increase to Future Calendar Year Reported General liability 12 % $ (225) $ 225 Workers compensation 15 (85) 85 Commercial automobile liability 12 (105) 105 Personal automobile liability 20 (20) 20 E&S casualty lines 10 (55) 55 Reserve Impacts of Changes to Current Year Expected Ultimate Loss and Loss Expense Ratios ($ in millions) Percentage Decrease/Increase (Decrease) to Current Accident Year Expected Loss and Loss Expense Increase to Current Accident Year Expected Loss and Loss Expense General liability 10 pts $ (105) $ 105 Workers compensation 10 (35) 35 Commercial automobile liability 10 (65) 65 Personal automobile liability 10 (10) 10 E&S casualty lines 10 (25) 25 There is some overlap between the impacts shown in the two tables.
Reserve Impacts of Changes to Expected Loss and Loss Expense Reporting Patterns ($ in millions) Percentage Decrease/Increase (Decrease) to Future Calendar Year Reported Increase to Future Calendar Year Reported General liability 15 % $ (425) $ 425 Workers compensation 15 (85) 85 Commercial automobile liability 10 (110) 110 Personal automobile liability 15 (20) 20 E&S casualty lines 10 (70) 70 Reserve Impacts of Changes to Current Year Expected Ultimate Loss and Loss Expense Ratios ($ in millions) Percentage Decrease/Increase (Decrease) to Current Accident Year Expected Loss and Loss Expense Increase to Current Accident Year Expected Loss and Loss Expense General liability 15 pts $ (170) $ 170 Workers compensation 10 (35) 35 Commercial automobile liability 10 (75) 75 Personal automobile liability 15 (20) 20 E&S casualty lines 15 (45) 45 There is some overlap between the impacts shown in the tables.
While we regularly experience property losses from winter storms and use third-party vendor models to help us model and manage our exposure to this peril, we also evaluate our winter storm exposure based on our own historical experience, as winter storm third-party vendor models are currently less mature.
While we regularly experience property losses from winter storms and use third-party vendor models to help us model and manage our exposure to this peril, we also evaluate our winter storm exposure based on our own historical experience, as winter storm third-party vendor models are currently less mature than models for other perils such as hurricane wind or severe convective storms.
Sensitivity analysis: Potential impact on reserve estimates due to changes in key assumptions Our process to establish reserves includes a variety of key assumptions, such as: • The selection of loss and loss expense development factors; • The weight applied to each individual actuarial projection method; • Projected future loss trends; and • Expected claim frequencies, severities, and ultimate loss and loss expense ratios for the current accident year.
Uncertainty about future inflation or deflation creates the potential for additional reserve variability in these lines of business. 42 Table of Contents Sensitivity analysis: Potential impact on reserve estimates due to changes in key assumptions Our process to establish reserves includes a variety of key assumptions, such as: • The selection of loss and loss expense development factors; • The weight applied to each individual actuarial projection method; • Projected future loss trends; and • Expected claim frequencies, severities, and ultimate loss and loss expense ratios for the current accident year.
Amounts recovered from reinsurers are recognized as assets contemporaneously and 46 Table of Contents in a manner consistent with the paid and unpaid losses associated with the reinsured policies.
Amounts recovered from reinsurers are recognized as assets contemporaneously and in a manner consistent with the paid and unpaid losses associated with the underlying policies.
We operate in a constantly changing business environment, and new risk factors may emerge at any time. We can neither predict these new risk factors nor assess their impact, if any, on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from any forward-looking statements.
We operate in a constantly changing business environment, and new risk factors may emerge anytime. We cannot predict these new risk factors, their impact on our businesses, or the extent to which one or any combination of factors may cause actual results to differ materially from any forward-looking statements.
See Note 14. "Federal Income Taxes" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K for (i) a reconciliation of our effective tax rate to the statutory rate of 21% and (ii) details regarding our net deferred tax asset and liability.
Refer to "Insurance Operations" and "Investments Segment" above for more information. See Note 14. "Federal Income Taxes" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K for (i) a 64 Table of Contents reconciliation of our effective tax rate to the statutory rate of 21% and (ii) details regarding our net deferred tax asset and liability.
Financial Highlights of Results for Years Ended December 31, 2023, 2022, and 2021 1 2023 2022 ($ in thousands, except per share amounts) 2023 2022 vs. 2022 2021 vs. 2021 Financial Data: Revenues $ 4,232,106 3,558,062 19 % $ 3,379,164 5 % After-tax net investment income 309,535 232,199 33 263,000 (12) After-tax underwriting income 104,911 131,774 (20) 172,688 (24) Net income before federal income tax 458,412 280,186 64 505,310 (45) Net income 365,238 224,886 62 403,837 (44) Net income available to common stockholders 356,038 215,686 65 394,484 (45) Key Metrics: Combined ratio 96.5 % 95.1 1.4 pts 92.8 % 2.3 pts Invested assets per dollar of common stockholders' equity $ 3.16 3.37 (6) % $ 2.88 17 % Annualized after-tax yield on investment portfolio 3.7 % 2.9 0.8 pts 3.4 % (0.5) pts Return on common equity ("ROE") 14.3 8.8 5.5 14.8 (14.7) Net premiums written to statutory surplus ratio 1.51 x 1.44 0.07 1.33 0.11 Per Common Share Amounts: Diluted net income per share $ 5.84 3.54 65 % $ 6.50 (46) % Book value per share 45.42 38.57 18 46.24 (17) Dividends declared per share to common stockholders 1.25 1.14 10 1.03 11 Non-GAAP Information 2 : Non-GAAP operating income $ 358,844 306,384 17 % $ 380,580 (19) % Non-GAAP operating income per diluted common share 5.89 5.03 17 6.27 (20) Non-GAAP operating ROE 14.4 % 12.4 2.0 pts 14.3 % (1.9) pts Adjusted book value per common share $ 50.03 45.49 10 % $ 43.23 5 % 1 Refer to the Glossary of Terms attached to this Form 10-K as Exhibit 99.1 for definitions of terms used in this financial review. 2 Non-GAAP operating income, non-GAAP operating income per diluted common share, and non-GAAP operating ROE are measures comparable to net income available to common stockholders, net income available to common stockholders per diluted common share, and ROE, respectively, but exclude after tax net realized and unrealized gains and losses on investments included in net income.
"Financial Statements and Supplementary Data." of this Form 10-K. 45 Table of Contents Financial Highlights of Results for Years Ended December 31, 2024, 2023, and 2022 1 2024 2023 ($ in thousands, except per share amounts) 2024 2023 vs. 2023 2022 vs. 2022 Financial Data: Revenues $ 4,861,664 4,232,106 15 % $ 3,558,062 19 % After-tax net investment income 362,616 309,535 17 232,199 33 After-tax underwriting income (loss) (104,745) 104,911 (200) 131,774 (20) Net income (loss) before federal income tax 258,034 458,412 (44) 280,186 64 Net income (loss) 207,012 365,238 (43) 224,886 62 Net income (loss) available to common stockholders 197,812 356,038 (44) 215,686 65 Key Metrics: Combined ratio 103.0 % 96.5 6.5 pts 95.1 % 1.4 pts Invested assets per dollar of common stockholders' equity $ 3.31 3.16 5 % $ 3.37 (6) % Annualized after-tax yield on investment portfolio 4.0 % 3.7 0.3 pts 2.9 % 0.8 pts Return on common equity ("ROE") 7.0 14.3 (7.3) 8.8 5.5 Net premiums written to statutory surplus ratio $ 1.60 1.51 6 % $ 1.44 5 % Per Common Share Amounts: Diluted net income (loss) per share $ 3.23 5.84 (45) % $ 3.54 65 % Book value per share 47.99 45.42 6 38.57 18 Dividends declared per share to common stockholders 1.43 1.25 14 1.14 10 Non-GAAP Information 2 : Non-GAAP operating income (loss) $ 200,141 358,844 (44) % $ 306,384 17 % Non-GAAP operating income (loss) per diluted common share 3.27 5.89 (44) 5.03 17 Non-GAAP operating ROE 7.1 % 14.4 (7.3) pts 12.4 % 2.0 pts Adjusted book value per common share $ 52.10 50.03 4 % $ 45.49 10 % 1 Refer to the Glossary of Terms attached to this Form 10-K as Exhibit 99.1 for definitions of terms used in this financial review. 2 Non-GAAP operating income (loss), non-GAAP operating income (loss) per diluted common share, and non-GAAP operating ROE are comparable to net income (loss) available to common stockholders, net income (loss) available to common stockholders per diluted common share, and ROE, respectively, but exclude after tax net realized and unrealized gains and losses on investments included in net income (loss).
In 2023, we experienced net unfavorable prior year loss 40 Table of Contents development of $10.0 million, compared to net favorable development of $78.9 million in 2022 and $82.9 million in 2021.
In 2024, we experienced net unfavorable prior year loss 39 Table of Contents development of $285.3 million, compared to net unfavorable development of $10.0 million in 2023 and net favorable development of $78.9 million in 2022.
($ in millions) 2023 2022 Direct new business premiums 1 $ 116.5 $ 62.9 Retention 87 % 85 Renewal pure price increases on NPW 5.2 0.7 1 Excludes our flood direct premiums written, which is 100% ceded to the NFIP and therefore, has no impact on our NPW.
($ in millions) 2024 2023 Direct new business premiums 1 $ 72.6 $ 116.5 Retention 77 % 87 Renewal pure price increases on NPW 20.6 5.2 1 Excludes our flood direct premiums written, which is 100% ceded to the NFIP and therefore, has no impact on our NPW.
As of December 31, 2023, our allowable ordinary maximum dividend is $316 million for 2024. All Insurance Subsidiary dividends to the Parent are (i) subject to the approval and/or review of its domiciliary state insurance regulator, and (ii) generally payable only from earned statutory surplus reported in its annual statements as of the preceding December 31.
All Insurance Subsidiary dividends to the Parent are (i) subject to the approval and/or review of its domiciliary state insurance regulator, and (ii) generally payable only from earned statutory surplus reported in its annual statements as of the preceding December 31.
Standard Market Workers Compensation Line of Business At December 31, 2023, our workers compensation line of business had recorded reserves, net of reinsurance, of $804 million, representing 17% of our total net reserves. During 2023, this line experienced favorable reserve development of $74.5 million, primarily due to improved loss severities in accident years 2021 and prior.
Standard Market Workers Compensation Line of Business At December 31, 2024, our workers compensation line of business had recorded reserves, net of reinsurance, of $797 million, representing 14% of our total net reserves. During 2024, this line experienced favorable reserve development of $45.0 million, primarily due to improved loss severities in accident years 2022 and prior.
These improvements may lead to claims practice changes affecting average case reserve levels and claims settlement rates, directly impacting the data used to project ultimate loss and loss expense. While these changes may increase uncertainty in our estimates in the short term, we expect refined claims process management to be the longer-term benefit.
These improvements may lead to changes in claims practice that affect average case reserve levels and claims settlement rates, which directly impact the data we use to project ultimate loss and loss expense. While these changes may increase uncertainty in our estimates in the short term, we expect refined claims process management to create longer-term benefits.
For additional information regarding dividend restrictions and financial covenants, where applicable, see Note 11. "Indebtedness," Note 17. "Equity," and Note 22. "Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
"Indebtedness," Note 17. "Equity," and Note 22. "Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
The following table summarizes our casualty reinsurance treaties and arrangements covering our Insurance Subsidiaries: CASUALTY REINSURANCE ON INSURANCE PRODUCTS Treaty Name Reinsurance Coverage Terrorism Coverage Casualty Excess of Loss (covers all insurance operations) There are six layers covering 100% of $88 million in excess of $2 million.
Casualty Reinsurance The following table summarizes our casualty reinsurance program: CASUALTY REINSURANCE ON INSURANCE PRODUCTS Treaty Name Reinsurance Coverage Terrorism Coverage Casualty Excess of Loss (covers all insurance operations) There are six layers covering $88 million in excess of $2 million on a per occurrence basis.
($ in millions) Amount of Obligation Alternative investments $ 254.3 Non-publicly traded collateralized loan obligations in our fixed income securities portfolio 86.7 Non-publicly traded common stock within our equity portfolio 40.0 CMLs 0.8 Privately-placed corporate securities 32.0 Total $ 413.8 There is no certainty (i) that any such additional investments will be required and (ii) about the timing of funding.
($ in millions) Amount of Obligation Alternative investments $ 320.5 Non-publicly traded collateralized loan obligations in our fixed income securities portfolio 143.4 Non-publicly traded common stock within our equity portfolio 22.1 CMLs 18.4 Privately-placed corporate securities 57.0 Total $ 561.4 There is no certainty (i) that any such additional investments will be required and (ii) about the timing of funding.
Our current reinsurance program includes $417.5 million in collateralized limit of the total $500 million for that layer of the catastrophe program, including the $325 million secured through High Point Re, compared to $216 million in collateralized limit under the prior year's reinsurance program.
Our current reinsurance program includes $450 million in collateralized limit of the total $570 million limit in place for the highest layer of the catastrophe program, including the $325 million secured through High Point Re, compared to $417.5 million in collateralized limit under the 2024 reinsurance program.
Below are sensitivity tests highlighting potential impacts to loss and loss expense reserves for the major casualty lines of business under different scenarios. These tests consider each assumption and line of business individually without considering the correlation between lines of business and accident years. Therefore, the results do not constitute an actuarial range.
We conduct sensitivity tests highlighting potential impacts to loss and loss expense reserves for the major casualty lines of business under different scenarios. These tests consider each assumption and line of business individually without considering correlation between lines of business and accident years.
The decrease in net unrealized losses on our fixed income securities was driven by a decrease in benchmark U.S. Treasury rates and, to a lesser extent, a tightening of credit spreads.
The decrease in net unrealized losses on our fixed income securities was primarily driven by a tightening of credit spreads, partially offset by an increase in benchmark U.S. Treasury rates.
That unit establishes case reserves on individual claims based on the then-known facts and circumstances, which IBNR reserves supplement. Estimating IBNR reserves for asbestos and environmental claims is difficult because these claims have delayed and inconsistent reporting patterns.
These claims are handled in a centralized and specialized asbestos and environmental claim unit that establishes case reserves based on each claim's then-known facts and circumstances, which IBNR reserves supplement. Estimating IBNR reserves for asbestos and environmental claims is difficult because these claims have delayed and inconsistent reporting patterns.
For further information regarding reinsurance, see the "Reinsurance" section below in "Results of Operations and Related Information by Segment" and Note 9. "Reinsurance" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
For further information regarding reinsurance, see the "Reinsurance" section below in "Results of Operations and Related Information by Segment" and Note 9. "Reinsurance" in Item 8.
Commercial Property 2023 vs. 2022 1 2022 vs. 2021 1 ($ in thousands) 2023 2022 2021 NPW $ 648,753 535,666 21 % $ 470,043 14 % Direct new business 147,358 118,470 n/a 108,418 n/a Retention 84 % 84 n/a 84 % n/a Renewal pure price increases 9.8 6.2 n/a 6.0 n/a NPE $ 586,267 495,647 18 % $ 436,412 14 % Underwriting income (loss) 10,765 (7,015) 253 10,515 (167) Combined ratio 98.2 pts 101.4 (3.2) 97.6 pts 3.8 % of total Standard Commercial Lines NPW 20 18 18 1 n/a: not applicable.
Commercial Property 1 2024 vs. 2023 2 2023 vs. 2022 2 ($ in thousands) 2024 2023 2022 NPW $ 739,500 648,753 14 % $ 535,666 21 % Direct new business 152,248 147,358 n/a 118,470 n/a Retention 84 % 84 n/a 84 % n/a Renewal pure price increases 10.0 9.8 n/a 6.2 n/a NPE $ 685,568 586,267 17 % $ 495,647 18 % Underwriting income (loss) 53,331 10,765 395 (7,015) 253 Combined ratio 92.2 pts 98.2 (6.0) 101.4 pts (3.2) % of total Standard Commercial Lines NPW 20 20 18 1 includes Inland Marine. 2 n/a: not applicable.
Our investment portfolio consists of securities with maturity dates that continually provide a source of cash flow for claims payments in the ordinary course of business. To protect our Insurance Subsidiaries' capital, we purchase reinsurance coverage for significantly large claims or catastrophes that may occur. The Insurance Subsidiaries paid $80 million in total dividends to the Parent in 2023.
The period of float can extend over many years. Our investment portfolio consists of securities with maturity dates that continually provide a source of cash flow for claims payments in the ordinary course of business. To protect our Insurance Subsidiaries' capital, we purchase reinsurance coverage for significantly large claims or catastrophes that may occur.
Overall, ceded premium for our property catastrophe reinsurance program will increase considerably in 2024 due to three factors: (i) increases in underlying property exposures in line with our growing property insurance portfolio; (ii) the addition of $290 million of net limit coverage, which improved our net risk profile; and (iii) moderate-risk adjusted price increases from our reinsurers.
Overall, ceded premium for our property catastrophe reinsurance program will increase in 2025 due to: (i) increases in underlying property exposures in line with our growing property insurance portfolio; and (ii) the addition of $189.8 million of net limit coverage, which improved our net risk profile.
We have reinsurance contracts that separately cover our property and casualty insurance business that can be categorized as follows: • Property Reinsurance, which includes our (i) property excess of loss treaties purchased for protection against large individual property losses and (ii) property catastrophe treaties and a property catastrophe bond transaction to provide protection for the overall property portfolio against severe catastrophic events.
"Financial Statements and Supplementary Data." of this Form 10-K. 58 Table of Contents Our reinsurance program has contracts that separately cover our property and casualty insurance business and can be categorized as follows: • Property Reinsurance, which includes our (i) property per risk excess of loss treaties purchased for protection against large individual property losses and (ii) property catastrophe treaties and a property catastrophe bond transaction to provide protection for the overall property portfolio against severe catastrophic events.
Standard Market Commercial Automobile Line of Business At December 31, 2023, our commercial automobile line of business had recorded reserves, net of reinsurance, of $959 million, representing 20% of our total net reserves. In 2023, this line experienced unfavorable prior year reserve development of $8.0 million, primarily due to increased loss expenses in accident years 2022 and prior.
Standard Market Commercial Automobile Line of Business At December 31, 2024, our commercial automobile line of business had recorded reserves, net of reinsurance, of $1.1 billion, representing 20% of our total net reserves. In 2024, this line experienced unfavorable prior year reserve development of $19.5 million, primarily due to increased severities in accident year 2023.
Commercial Automobile 2023 vs. 2022 1 2022 vs. 2021 1 ($ in thousands) 2023 2022 2021 NPW $ 976,888 860,116 14 % $ 767,723 12 % Direct new business 147,242 125,129 n/a 115,088 n/a Retention 86 % 86 n/a 86 % n/a Renewal pure price increases 9.8 8.1 n/a 8.3 n/a NPE $ 916,140 812,306 13 % $ 724,398 12 % Underwriting loss (33,724) (63,112) 47 (23,335) (170) Combined ratio 103.7 % 107.8 (4.1) pts 103.2 % 4.6 pts % of total Standard Commercial Lines NPW 30 30 30 1 n/a: not applicable.
Commercial Automobile 2024 vs. 2023 1 2023 vs. 2022 1 ($ in thousands) 2024 2023 2022 NPW $ 1,121,488 976,888 15 % $ 860,116 14 % Direct new business 164,329 147,242 n/a 125,129 n/a Retention 86 % 86 n/a 86 % n/a Renewal pure price increases 10.7 9.8 n/a 8.1 n/a NPE $ 1,058,228 916,140 16 % $ 812,306 13 % Underwriting income (loss) 2,474 (33,724) 107 (63,112) 47 Combined ratio 99.8 % 103.7 (3.9) pts 107.8 % (4.1) pts % of total Standard Commercial Lines NPW 31 30 30 1 n/a: not applicable.
Net Investment Income The components of net investment income earned were as follows: ($ in thousands) 2023 2022 2023 vs. 2022 2021 2022 vs. 2021 Fixed income securities $ 345,886 259,918 33 % 209,709 24 % Commercial mortgage loans ("CMLs") 9,336 5,555 68 2,743 103 Equity securities 9,395 13,554 (31) 15,920 (15) Short-term investments 14,818 3,997 271 260 1,437 Alternative investments 26,777 23,003 16 117,701 (80) Other investments 650 258 152 359 (28) Investment expenses (18,212) (18,130) — (20,103) 10 Net investment income earned – before tax 388,650 288,155 35 326,589 (12) Net investment income tax expense 79,115 55,956 41 63,589 (12) Net investment income earned – after tax $ 309,535 232,199 33 263,000 (12) Effective tax rate 20.4 % 19.4 1.0 pts 19.5 (0.1) pts Annual after-tax yield on fixed income investments 3.9 3.1 0.8 2.6 0.5 Annual after-tax yield on investment portfolio 3.7 2.9 0.8 3.4 (0.5) After-tax net investment income earned increased 33% in 2023, compared to 2022, primarily driven by higher interest rates, active portfolio management, and operating and investing cash flow deployment.
Operating cash flows during 2024 were 24% of NPW. 63 Table of Contents Net Investment Income The components of net investment income earned were as follows: ($ in thousands) 2024 2023 2024 vs. 2023 2022 2023 vs. 2022 Fixed income securities $ 389,198 345,886 13 % 259,918 33 % Commercial mortgage loans ("CMLs") 12,448 9,336 33 5,555 68 Equity securities 18,295 9,395 95 13,554 (31) Short-term investments 20,274 14,818 37 3,997 271 Alternative investments 37,053 26,777 38 23,003 16 Other investments 864 650 33 258 152 Investment expenses (21,081) (18,212) (16) (18,130) — Net investment income earned – before tax 457,051 388,650 18 288,155 35 Net investment income tax expense 94,435 79,115 19 55,956 41 Net investment income earned – after tax $ 362,616 309,535 17 232,199 33 Effective tax rate 20.7 % 20.4 0.3 pts 19.4 1.0 pts Annual after-tax yield on fixed income investments 4.0 3.9 0.1 3.1 0.8 Annual after-tax yield on investment portfolio 4.0 3.7 0.3 2.9 0.8 After-tax net investment income earned increased 17% in 2024, compared to 2023, primarily driven by higher interest rates, active portfolio management, and operating cash flow deployment.
The total recorded net loss and loss expense reserves for these claims were $19.1 million as of December 31, 2023, and $20.3 million as of December 31, 2022, with asbestos claims constituting approximately 18% of these reserves in 2023 and 23% in 2022.
The total recorded net loss 43 Table of Contents and loss expense reserves for these claims were $27.4 million as of December 31, 2024, and $19.1 million as of December 31, 2023, with asbestos claims constituting approximately 44% of these reserves in 2024 and 18% in 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeNon-investment grade exposure represented approximately 4% of the total fixed income and short-term investments at both December 31, 2023 and December 31, 2022. 69 Table of Contents Details on the credit quality of our invested assets at December 31, 2023 are provided below: December 31, 2023 Credit Rating ($ in millions) Amortized Cost Fair Value % of Invested Assets Yield to Worst Effective Duration in Years Average Life in Years AAA AA A BBB Non-Investment Grade Not Rated Fixed income securities: U.S. government obligations $ 223 $ 205 2.4 % 4.7 % 4.7 7.2 $ — $ 205 $ — $ — $ — $ — Foreign government obligations 11 10 0.1 5.0 6.0 7.2 1 2 4 3 — — State and municipal obligations 613 586 6.7 4.1 5.3 6.6 92 261 212 21 — — Corporate securities 2,857 2,733 31.5 5.5 4.4 6.0 51 306 1,157 1,035 182 1 MBS: Residential mortgage-backed securities ("RMBS"): Agency RMBS 1,098 1,036 11.9 4.8 5.1 8.0 — 1,036 — — — — Non-agency RMBS 471 441 5.1 5.8 4.0 6.0 383 27 22 9 — — Total RMBS 1,569 1,477 17.0 5.1 4.8 7.4 383 1,063 22 9 — — Commercial mortgage-backed securities ("CMBS") 719 675 7.8 6.8 3.2 4.0 498 158 17 2 — — Total MBS 2,288 2,152 24.8 5.6 4.3 6.3 882 1,220 39 11 — — CLO and other ABS: Auto 139 140 1.6 6.9 1.9 2.0 135 1 4 — — — Aircraft 49 43 0.5 10.1 2.7 3.1 — — 21 17 5 — CLOs 863 825 9.5 7.7 2.3 4.6 394 270 52 39 56 14 Credit cards 16 16 0.2 5.0 3.0 3.3 16 — 1 — — — Other ABS 844 811 9.3 6.2 4.9 6.2 247 115 358 63 7 19 Total CLOs and Other ABS 1,912 1,835 21.1 7.0 3.4 5.1 792 386 436 119 68 33 Total securitized assets 4,199 3,987 45.9 6.3 3.9 5.8 1,674 1,607 475 130 68 33 CMLs 189 179 2.1 5.7 3.4 5.1 — 11 71 94 3 — Total fixed income investments 8,092 7,700 89 5.8 4.2 5.9 1,817 2,391 1,919 1,284 253 35 Short-term investments 309 309 3.6 5.1 — — 296 13 — — — — Total fixed income and short-term investments 8,401 8,009 92.2 5.8 4.0 5.7 2,114 2,404 1,919 1,284 253 35 Total fixed income and short-term investments by credit rating percentage 26.4 % 30.0 % 24.0 % 16.0 % 3.2 % 0.5 % Equity securities: Common stock 1 181 185 2.1 0.9 — — — — — — — 185 Preferred stock 2 2 — 9.3 — — — — — 2 — — Total equity securities 183 187 2.2 0.9 — — — — — 2 — 185 Alternative investments: Private equity 302 302 3.5 — — — — — — — — 302 Private credit 54 54 0.6 — — — — — — — — 54 Real assets 40 40 0.5 — — — — — — — — 40 Total alternative investments 396 396 4.6 — — — — — — — — 396 Other investments 91 91 1 — — — — — — — — 91 Total invested assets $ 9,071 $ 8,683 100 % — % — — $ 2,114 $ 2,404 $ 1,919 $ 1,286 $ 253 $ 707 1 Includes investments in exchange traded funds, mutual funds, business development corporations, and real estate investment trusts.
Biggest changeDetails on the credit quality of our invested assets at December 31, 2024 are provided below: December 31, 2024 Credit Rating ($ in millions) Amortized Cost Fair Value % of Invested Assets Yield to Worst Effective Duration in Years Average Life in Years AAA AA A BBB Non-Investment Grade Not Rated Fixed income securities: U.S. government obligations $ 140 $ 120 1.2 % 5.0 % 6.4 9.9 $ — $ 120 $ — $ — $ — $ — Foreign government obligations 11 9 0.1 5.4 5.1 6.1 1 2 4 3 — — State and municipal obligations 484 451 4.7 4.5 5.9 8.6 69 209 156 17 — — Corporate securities 3,206 3,093 32.1 5.5 4.4 5.7 39 338 1,353 1,174 187 1 MBS: Residential mortgage-backed securities ("RMBS"): Agency RMBS 1,247 1,155 12.0 5.4 5.7 8.3 — 1,155 — — — — Non-agency RMBS 566 538 5.6 5.8 4.1 5.7 465 45 26 2 — — Total RMBS 1,813 1,692 17.6 5.5 5.2 7.5 465 1,199 26 2 — — Commercial mortgage-backed securities ("CMBS") 783 753 7.8 5.8 3.3 4.2 514 202 31 — 5 — Total MBS 2,595 2,445 25.4 5.6 4.6 6.5 980 1,402 57 2 5 — CLO and other ABS: CLOs 864 851 8.8 6.3 2.8 5.0 432 267 50 38 33 31 Commercial ABS 524 512 5.3 6.1 2.6 3.1 102 68 278 61 4 — Consumer ABS 403 396 4.1 6.4 0.9 1.5 264 76 50 6 1 — Other ABS 275 274 2.8 7.6 7.2 10.5 10 1 140 80 16 27 Total CLOs and Other ABS 2,066 2,033 21.1 6.5 3.6 5.3 807 412 517 184 54 59 Total securitized assets 4,661 4,478 46.4 6.0 4.1 5.9 1,787 1,814 574 186 59 59 CMLs 234 225 2.3 7.6 2.7 3.6 — 12 87 124 2 — Total fixed income investments 8,735 8,377 87 5.8 4.3 6 1,895 2,495 2,175 1,504 248 60 Short-term investments 509 509 5.3 4.3 — — 508 — 1 — 1 — Total fixed income and short-term investments 9,245 8,886 92.2 5.7 4.0 5.6 2,403 2,495 2,175 1,504 249 60 Total fixed income and short-term investments by credit rating percentage Equity securities: Common stock 1 210 212 2.2 — — — — — — — — 212 Preferred stock 2 2 — — — — — — — 2 — — Total equity securities 211 214 2.2 — — — — — — 2 — 212 Alternative investments: Private equity 346 346 3.6 — — — — — — — — 346 Private credit 52 52 0.5 — — — — — — — — 52 Real assets 43 43 0.4 — — — — — — — — 43 Total alternative investments 441 441 4.6 — — — — — — — — 441 Other investments 101 101 1 — — — — — — — — 101 Total invested assets $ 9,998 $ 9,642 100 % — % — — $ 2,403 $ 2,495 $ 2,175 $ 1,506 $ 249 $ 814 1 Includes investments in exchange traded funds, mutual funds, business development corporations, and real estate investment trusts.
We also purchase substantial reinsurance to mitigate exposure to significant loss events and we have access to various borrowing facilities if the need to raise capital arises. See the "Liquidity and Capital Resources" section in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K for additional information regarding our available borrowing capacity.
We also purchase substantial reinsurance to mitigate exposure to significant loss events and we have access to various borrowing facilities if the need to raise capital arises. See the "Liquidity and Capital Resources" section in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K for additional information on our available borrowing capacity.
Our debt is not exposed to material changes in interest rates because the interest rates are fixed. (b) Short-Term Debt On November 7, 2022, the Parent entered into a Credit Agreement (the "Line of Credit") among the Parent, the lenders named therein (the "Lenders"), and Wells Fargo Bank, National Association, as Administrative Agent.
Our debt is not exposed to material changes in interest rates because the interest rates are fixed. (b) Short-Term Debt On November 7, 2022, the Parent entered into a Credit Agreement with the lenders named therein (the "Lenders") and Wells Fargo Bank, National Association, as Administrative Agent ("Line of Credit").
Under the Line of Credit, the Lenders have agreed to provide the Parent with a $50 million revolving credit facility, which can be increased to $125 million with the Lenders' consent. The Line of Credit will mature on November 7, 2025, and has a variable interest rate based on the Parent’s debt ratings.
Under the Line of Credit, the Lenders have agreed to provide the Parent with a $50 million revolving credit facility that can be increased to $125 million with the Lenders' consent. The Line of Credit will mature on November 7, 2025, and has a variable interest rate based on the Parent’s debt ratings.
Investment grade CLOs accounted for the majority of this portfolio at 8% of invested assets, while non-investment grade CLOs represented only 1% of invested assets. The CLO portfolio is well diversified by issuer, manager, vintage year, and underlying corporate borrowers and sectors.
Investment grade CLOs accounted for the majority of this portfolio at 7% of invested assets, while non-investment grade CLOs represented only 1% of invested assets. The CLO portfolio is well diversified by issuer, manager, vintage year, and underlying corporate borrowers and sectors.
For additional information regarding the Line of Credit agreement and corresponding representations, warranties, and covenants, refer to Note 11. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. 75 Table of Contents
For additional information regarding the Line of Credit agreement and corresponding representations, warranties, and covenants, refer to Note 11. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. 74 Table of Contents
Liquidity Risk As a property and casualty insurer, we meet our liquidity needs generally through the cash flow provided by our on going operations, as premium collections and investment income generated from our portfolio provide a significant flow of cash to support policyholder claims and other payment obligations.
Liquidity Risk As a property and casualty insurer, we meet our liquidity needs generally through the cash flow provided by our ongoing operations, as premium collections and investment income generated from our portfolio provide a significant flow of cash to support policyholder claims and other payment obligations.
These analyses include reviews of loan-to-value ratios, geographic spread of the assets securing the bond, delinquencies in payments on the underlying mortgages, gains/losses on sales, evaluations of projected cash flows, as well as other information that aids in determination of the health of the underlying assets.
These analyses include reviews of loan-to-value ratios, geographic spread of the assets securing the bond, delinquencies in payments on the underlying mortgages, gains/losses on sales, evaluations of projected cash flows, as well as other information that aids in determination of the health of the underlying 71 Table of Contents assets.
These are investments in private limited partnerships that invest in various strategies such as private equity, private credit, and real assets. As of December 31, 2023, alternative investments represented 5% of our total invested assets and 13% of our stockholders’ equity. These investments are subject to risks arising from their valuation being inherently subjective.
These are investments in private limited partnerships that invest in various strategies such as private equity, private credit, and real assets. As of December 31, 2024, alternative investments represented 5% of our total invested assets and 14% of our stockholders’ equity. These investments are subject to risks arising from their valuation being inherently subjective.
Our portfolio allocation was 86% fixed income securities, 2% commercial mortgage loans ("CML"), 2% equity securities, 4% short-term investments, 5% alternative investments, and 1% other investments as of December 31, 2023. Alternative investments are limited partnership investments in private equity, private credit, and real estate strategies. We do not directly hold derivatives, commodities, or other investments denominated in foreign currency.
Our portfolio allocation was 85% fixed income securities, 2% commercial mortgage loans ("CML"), 2% equity securities, 5% short-term investments, 5% alternative investments, and 1% other investments as of December 31, 2024. Alternative investments are limited partnership investments in private equity, private credit, and real estate strategies. We do not directly hold derivatives, commodities, or other investments denominated in foreign currency.
We consider the overall credit environment, economic conditions, the investment's total projected return, and overall portfolio asset allocation in deciding to purchase or sell these securities. Agency RMBS represented approximately 70% of our RMBS allocation and 12% of our total invested assets as of December 31, 2023.
We consider the overall credit environment, economic conditions, the investment's total projected return, and overall portfolio asset allocation in deciding to purchase or sell these securities. Agency RMBS represented approximately 68% of our RMBS allocation and 12% of our total invested assets as of December 31, 2024.
No individual CLO comprised more than 1% of our fixed income securities portfolio at December 31, 2023, and this portfolio had an average credit quality of "AA-." Equity Price Risk Our equity securities portfolio is exposed to risk from potential volatility in equity market prices.
No individual CLO comprised more than 1% of our fixed income securities portfolio at December 31, 2024, and this portfolio had an average credit quality of "A+." Equity Price Risk Our equity securities portfolio is exposed to risk from potential volatility in equity market prices.
In addition to this, we monitor our investment portfolio's liquidity profile to ensure it meets our operational liquidity needs. 74 Table of Contents The liquidity characteristics of our portfolio are illustrated below: Asset Category Percentage of Invested Assets Highly-liquid assets 59 % Generally liquid assets, may become less liquid with market stress 1 23 Generally illiquid assets 2 18 Total 100 % 1 These exposures are concentrated within CMBS and CLO and other ABS. 2 These exposures include our alternative investments and other non-publicly traded securities.
In addition to these liquidity sources, we monitor our investment portfolio's liquidity profile to ensure it meets our operational liquidity needs. 73 Table of Contents The liquidity characteristics of our portfolio are illustrated below: Asset Category Percentage of Invested Assets Highly-liquid assets 57 % Generally liquid assets, may become less liquid with market stress 1 23 Generally illiquid assets 2 20 Total 100 % 1 These exposures are concentrated within CMBS and CLO and other ABS. 2 These exposures include our alternative investments and other non-publicly traded securities.
We use fair values to measure the potential loss. This analysis is not intended to provide a precise forecast or range of the effect of changes in market interest rates and equity prices on our income or stockholders’ equity. However, it provides insight into the portfolio's sensitivity.
This analysis is not intended to provide a precise forecast or range of the effect of changes in market interest rates and equity prices on our income or stockholders’ equity. However, it provides insight into the portfolio's sensitivity.
The remaining 75% was high-quality non-agency backed securities, with 92% rated "AAA" and an aggregate net unrealized losses of $34.6 million. Our CML portfolio represented 2% of invested assets as of December 31, 2023, and is focused on multi-family and industrial property types, representing more than half of the exposure.
The remaining 78% was high-quality non-agency backed securities, with 84% rated "AAA" and an aggregate net unrealized loss of $20.6 million. Our CML portfolio represented 2% of invested assets as of December 31, 2024, and is focused on multi-family and industrial property types, representing more than half of the exposure.
The primary risk related to non-investment grade corporate bonds is credit risk. A weak financial profile can lead to credit rating downgrades, which can put further downward pressure on bond prices. Valuations on these bonds are related more directly to underlying operating performance than to general interest rates.
A weak financial profile can lead to credit rating downgrades, which can put further downward pressure on bond prices. Valuations on these bonds are related more directly to underlying operating performance than to general interest rates.
The following table shows our total exposure to CRE: December 31, 2023 December 31, 2022 ($ in millions) Fair Value Weighted Average Credit Rating % of Invested Assets Fair Value Weighted Average Credit Rating % of Invested Assets CMBS: Agency $ 169.4 AA+ 2 % $ 96.0 AAA 1 % Non-agency 505.4 AAA 6 % 518.4 AA+ 7 % CMLs 178.9 A- 2 % 139.2 A- 2 % Real Estate Investment Trusts: Corporate securities 109.9 BBB+ 1 % 93.1 BBB+ 1 % Equity securities 33.6 — 0.4 % 20.9 0 — — % Alternative investments 28.9 — 0.3 % 26.4 — — % Total CRE exposure $ 1,026.1 12 % $ 894.0 11 % Agency-backed securities represented 25% of our CMBS portfolio as of December 31, 2023.
The following table shows our total exposure to CRE: December 31, 2024 December 31, 2023 ($ in millions) Fair Value Weighted Average Credit Rating % of Invested Assets Fair Value Weighted Average Credit Rating % of Invested Assets CMBS: Agency $ 164.0 AA+ 2 % $ 169.4 AA+ 2 % Non-agency 589.0 AA+ 6 % 505.4 AAA 6 % CMLs 224.8 BBB+ 2 % 178.9 A- 2 % Real Estate Investment Trusts: Corporate securities 120.8 BBB+ 1 % 109.9 BBB+ 1 % Equity securities 34.1 — 0.4 % 33.6 — 0.4 % Alternative investments 32.4 — 0.3 % 28.9 — 0.3 % Total CRE exposure $ 1,165.1 12 % $ 1,026.1 12 % Agency-backed securities represented 22% of our CMBS portfolio as of December 31, 2024.
We use an interest rate sensitivity analysis to measure the potential loss or gain in future earnings, fair values, or cash flows of market-sensitive fixed income securities. The sensitivity analysis hypothetically assumes an instant parallel 200 basis point shift in interest rates up and down, in 100 basis point increments from the date of the Financial Statements.
The sensitivity analysis hypothetically assumes an instant parallel 200 basis point shift in interest rates up and down, in 100 basis point increments from the date of the Financial Statements. We use fair values to measure the potential loss.
These holdings represented 15% of our total investment portfolio. The corporate securities portfolio allocation to financials is well-diversified by issuer and has a weighted average credit rating of "A-." No individual issuer comprised more than 1% of our fixed income securities portfolio at December 31, 2023. MBS (RMBS and CMBS Portfolios) MBS represent our most significant exposure to real estate.
These holdings represented 14% of our total investment portfolio. The corporate securities portfolio allocation to financials is well-diversified by issuer and has a weighted average credit rating of "A-." No individual issuer comprised more than 1% of our fixed income securities portfolio at December 31, 2024.
These securities are rated “AA+" and had an aggregate unrealized loss of approximately $61.6 million, primarily due to a decrease in benchmark U.S. Treasury rates as of December 31, 2023. 72 Table of Contents Our CMBS portfolio comprises most of our commercial real estate ("CRE") exposure.
These securities are rated "AA+" and had an aggregate unrealized loss of approximately $92.4 million, primarily due to an increase in benchmark U.S. Treasury rates as of December 31, 2024. Our CMBS portfolio comprises most of our commercial real estate ("CRE") exposure.
The tables below provide details on our CLO and other ABS holdings at December 31, 2023, and December 31, 2022: December 31, 2023 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) Investment grade: CLO $ 754.6 754.6 (33.1) AA+ Other ABS 978.9 978.9 (36.8) AA- Total investment grade 1,733.5 1,733.5 (69.9) AA Non-investment grade: CLO 70.0 70.0 (3.4) B Other ABS 31.3 31.3 (0.9) CCC Total non-investment grade 101.3 101.3 (4.3) B Total CLO and other ABS $ 1,834.8 1,834.8 (74.2) A- 73 Table of Contents December 31, 2022 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) Investment grade: CLO $ 732.6 732.6 (49.6) AA+ Other ABS 658.0 658.0 (60.9) A+ Total investment grade 1,390.6 1,390.6 (110.5) AA Non-investment grade: CLO 76.1 76.1 (6.9) B Other ABS 19.3 19.3 (1.9) CCC+ Total non-investment grade 95.4 95.4 (8.8) B Total CLO and other ABS $ 1,486.0 1,486.0 (119.3) AA- CLOs represented 9% of our total invested assets as of December 31, 2023.
The tables below provide details on our CLO and other ABS holdings at December 31, 2024, and December 31, 2023: December 31, 2024 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) Investment grade: CLO $ 786.3 786.3 (9.1) AA+ Other ABS 1,134.4 1,134.4 (20.9) A+ Total investment grade 1,920.7 1,920.7 (30.0) AA- Non-investment grade: CLO 64.7 64.7 0.7 CCC+ Other ABS 47.7 47.7 1.7 CCC- Total non-investment grade 112.4 112.4 2.4 CCC Total CLO and other ABS $ 2,033.1 2,033.1 (27.6) A+ 72 Table of Contents December 31, 2023 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) Investment grade: CLO $ 754.6 754.6 (33.1) AA+ Other ABS 978.9 978.9 (36.8) AA- Total investment grade 1,733.5 1,733.5 (69.9) AA Non-investment grade: CLO 70.0 70.0 (3.4) B Other ABS 31.3 31.3 (0.9) CCC Total non-investment grade 101.3 101.3 (4.3) B Total CLO and other ABS $ 1,834.8 1,834.8 (74.2) A- CLOs represented 8% of our total invested assets as of December 31, 2024.
Our holdings of non-investment grade corporate bonds, which typically exhibit weaker credit profiles and are subject to more risk of credit loss, represent 2% of our overall investment portfolio. 71 Table of Contents The tables below provide details on our corporate bond holdings at December 31, 2023 and 2022: December 31, 2023 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) Investment grade $ 2,549.8 2,550.5 (112.6) A- Non-investment grade 183.4 183.4 2.0 B+ Total corporate securities $ 2,733.2 2,733.9 (110.6) A- December 31, 2022 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) Investment grade $ 2,201.1 2,202.4 (189.8) A- Non-investment grade 160.4 160.4 (4.8) B+ Total corporate securities $ 2,361.5 2,362.8 (194.6) A- The following tables provide the sector composition of this portfolio at December 31, 2023 and 2022: December 31, 2023 December 31, 2022 ($ in millions) Fair Value Weighted Average Credit Rating % of Fixed Income Securities Fair Value Weighted Average Credit Rating % of Fixed Income Securities Financials $ 1,284.4 A- 17 % $ 1,194.3 A- 18 % Consumer non-cyclicals 221.7 A- 3 178.5 BBB+ 3 Communications 130.7 BBB+ 2 136.2 A- 2 Utilities 142.3 A- 2 97.7 A- 1 Consumer cyclicals 115.5 BBB 1 81.4 BBB 1 Energy 96.9 BBB 1 77.0 BBB 1 Technology 88.1 BBB 1 77.1 BBB+ 1 Basic Materials 23.4 BBB 1 23.7 BBB- 1 Bank Loans 19.6 B+ 1 37.6 B 1 Other 342.6 A- 4 251.7 A- 4 Other industrials 268.0 BBB 3 206.3 BBB 3 Total corporate securities $ 2,733.2 A- 36 $ 2,361.5 A- 36 As illustrated in the table above, within our allocation to corporate securities, financials is our most significant industry concentration at 17% of our fixed income securities portfolio at December 31, 2023.
The tables below provide details on our corporate bond holdings at December 31, 2024 and 2023: December 31, 2024 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) Investment grade $ 2,905.0 2,905.6 (100.5) A- Non-investment grade 187.9 187.9 1.9 B+ Total corporate securities $ 3,092.9 3,093.5 (98.6) A- December 31, 2023 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) Investment grade $ 2,549.8 2,550.5 (112.6) A- Non-investment grade 183.4 183.4 2.0 B+ Total corporate securities $ 2,733.2 2,733.9 (110.6) A- The following tables provide the sector composition of this portfolio at December 31, 2024 and 2023: December 31, 2024 December 31, 2023 ($ in millions) Fair Value Weighted Average Credit Rating % of Fixed Income Securities Fair Value Weighted Average Credit Rating % of Fixed Income Securities Financials $ 1,365.8 A- 16 % $ 1,284.4 A- 17 % Consumer non-cyclicals 265.4 BBB+ 3 221.7 A- 3 Utilities 221.4 A- 2 142.3 A- 2 Energy 142.1 BBB 2 96.9 BBB 1 Consumer cyclicals 119.5 BBB 1 115.5 BBB 2 Communications 118.5 BBB+ 1 130.7 BBB+ 1 Technology 87.7 BBB 1 88.1 BBB 1 Basic materials 34.5 BBB 1 23.4 BBB 1 Bank loans 15.0 B 1 19.6 B+ 1 Other 426.1 A- 5 342.6 A- 4 Other industrials 296.9 BBB+ 4 268.0 BBB 3 Total corporate securities $ 3,092.9 A- 37 $ 2,733.2 A- 36 As illustrated in the table above, within our allocation to corporate securities, financials is our most significant industry concentration at 16% of our fixed income securities portfolio at December 31, 2024.
Indebtedness (a) Long-Term Debt As of December 31, 2023, we had outstanding long-term debt of $503.9 million that matures as shown in the following table: 2023 ($ in thousands) Year of Maturity Carrying Amount Fair Value Financial liabilities Long-term debt 3.03% Borrowings from FHLBI 2026 60,000 57,932 7.25% Senior Notes 2034 49,926 53,047 6.70% Senior Notes 2035 99,565 104,039 5.375% Senior Notes 2049 294,523 288,787 Subtotal 504,014 503,805 Unamortized debt issuance costs (2,704) Finance lease obligations 2,636 Total notes payable $ 503,946 The weighted average effective interest rate for our outstanding long-term debt was 5.5% at December 31, 2023.
Indebtedness (a) Long-Term Debt As of December 31, 2024, we had outstanding long-term debt of $507.9 million that matures as shown in the following table: 2024 ($ in thousands) Year of Maturity Carrying Amount Fair Value Financial liabilities Long-term debt 3.03% Borrowings from FHLBI 2026 60,000 58,516 7.25% Senior Notes 2034 49,931 54,657 6.70% Senior Notes 2035 99,590 103,057 5.375% Senior Notes 2049 294,627 273,464 Subtotal 504,148 489,694 Unamortized debt issuance costs (2,492) Finance lease obligations 6,282 Total notes payable $ 507,938 The weighted average effective interest rate for our outstanding long-term debt was 5.5% at December 31, 2024.
Further breakdown of this exposure is provided in the table above that shows details on the credit quality of our invested assets. To manage and mitigate exposure on our RMBS and CMBS portfolios, we perform analyses at the time of purchase and as part of the ongoing portfolio evaluation.
To manage and mitigate exposure on our RMBS and CMBS portfolios, we perform analyses at the time of purchase and as part of the ongoing portfolio evaluation.
Amounts may not foot due to rounding. Every quarter, we review our invested assets for concentrations of credit risk. The sectors representing 10% or more of our invested assets at December 31, 2023 were (i) agency RMBS within our RMBS allocation (12%) and (ii) the financial sector within corporate securities (15%).
Amounts may not foot due to rounding. 70 Table of Contents Every quarter, we review our invested assets for concentrations of credit risk. The reporting categories representing 10% or more of our invested assets at December 31, 2024 were (i) corporate securities (32%) (ii) MBS (25%), and (ii) CLO's and Other ABS (21%).
CLO and Other ABS Portfolio For CLO and other ABS, the primary risk is credit risk. We manage this risk by evaluating several factors, including the deal's structure, the credit quality of underlying loans or assets, the composition of the underlying portfolio, and the portfolio manager's track record and capabilities.
We manage this risk by evaluating several factors, including the deal's structure, the credit quality of underlying loans or assets, the composition of the underlying portfolio, and the portfolio manager's track record and capabilities. We monitor key performance metrics, including over-collateralization, interest coverage, and cash flows, on an on-going basis.
Our strategy to manage interest rate risk is to purchase intermediate-term fixed income investments that are priced attractively in relation to perceived credit risks. Our exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates.
Our exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates.
As of December 31, 2023, approximately 7% (11% at December 31, 2022) of our fixed income securities portfolio was floating rate securities, 68 Table of Contents primarily tied to the 90-day U.S. dollar-denominated Secured Overnight Financing Rate.
As of December 31, 2024, approximately 7% of our fixed income securities portfolio was floating rate securities, primarily tied to the 90-day U.S. dollar-denominated Secured Overnight Financing Rate. Our strategy to manage interest rate risk is to purchase intermediate-term fixed income investments that are priced attractively in relation to perceived credit risks.
The following table presents the hypothetical increases and decreases in 10% increments in the market value of the equity portfolio as of December 31, 2023: Change in Equity Values in Percent ($ in thousands) (30)% (20)% (10)% 0% 10% 20% 30% Fair value of equity securities portfolio $ 131,008 149,724 168,439 187,155 205,871 224,586 243,302 Fair value change (56,147) (37,431) (18,716) 18,716 37,431 56,147 In addition to our equity securities, we invest in alternative investments that are subject to price risk.
The following table presents the hypothetical increases and decreases in 10% increments in the market value of the equity portfolio as of December 31, 2024: Change in Equity Values in Percent ($ in thousands) (30)% (20)% (10)% 0% 10% 20% 30% Fair value of equity securities portfolio $ 149,521 170,881 192,241 213,601 234,961 256,321 277,681 Fair value change (64,080) (42,720) (21,360) 21,360 42,720 64,080 In addition to our equity securities, we invest in alternative investments that are subject to price risk.
Because of the quality of these dedicated revenue streams, we believe our special revenue bond portfolio is appropriate for the current environment. Corporate Securities Our corporate securities represented 31% of our invested assets at December 31, 2023. For investment-grade corporate bonds, we address the risk of an individual issuer's default by maintaining a diverse portfolio.
We discuss each of these categories in more detail below. Corporate Securities Our corporate securities represented 32% of our invested assets at December 31, 2024. For investment-grade corporate bonds, we address the risk of an individual issuer's default by maintaining a diverse portfolio by sector and issuer. The primary risk related to non-investment grade corporate bonds is credit risk.
Other ABS includes structured note obligations and securities collateralized by loans and other financial assets, including, without limitation, auto loans, credit card receivables, equipment leases, and student loans.
When deciding to purchase or sell CLO and other ABS, we consider the overall credit environment, economic conditions, the investment's total projected return, and overall portfolio asset allocation. Other ABS includes structured note obligations and securities collateralized by loans and other financial assets, including, auto loans, credit card receivables, equipment leases, and student loans.
The effective duration of the fixed income securities portfolio, including short-term investments, at December 31, 2023, was 4.0 years, which is within our historical range. The Insurance Subsidiaries’ net loss and loss expense reserves duration was approximately 3.1 years at December 31, 2023.
The effective duration of the fixed income securities portfolio, including short-term investments, at December 31, 2024, was 4.0 years, which is within our historical range. We use an interest rate sensitivity analysis to measure the potential loss or gain in future earnings, fair values, or cash flows of market-sensitive fixed income securities.
The following table presents the sensitivity analysis of interest rate risk as of December 31, 2023: 2023 Interest Rate Shift in Basis Points ($ in thousands) -200 -100 — 100 200 Fixed income securities Fair value of fixed income securities portfolio $ 8,107,686 7,814,361 7,521,120 7,226,181 6,931,379 Fair value change 586,566 293,241 (294,939) (589,741) Fair value change from base (%) 7.8 % 3.9 % (3.9) % (7.8) % Credit Risk Our most significant credit risk is within our fixed income securities portfolio, which had an overall credit quality of "AA-" as of December 31, 2023 and December 31, 2022.
These calculations do not consider (i) any actions we may take in response to market fluctuations and (ii) changes to credit spreads, liquidity spreads, and other risk factors that may also impact the value of the fixed income securities portfolio. 69 Table of Contents The following table presents the sensitivity analysis of interest rate risk as of December 31, 2024: 2024 Interest Rate Shift in Basis Points ($ in thousands) -200 -100 — 100 200 Fixed income securities Fair value of fixed income securities portfolio $ 8,791,854 8,471,983 8,152,069 7,832,188 7,512,433 Fair value change 639,785 319,914 (319,881) (639,636) Fair value change from base (%) 7.8 % 3.9 % (3.9) % (7.8) % Credit Risk Our most significant credit risk is within our fixed income securities portfolio, which had an overall credit quality of "A+" as of December 31, 2024 and "AA-" as of December 31, 2023.
Removed
These calculations do not consider (i) any actions we may take in response to market fluctuations and (ii) changes to credit spreads, liquidity spreads, and other risk factors that may also impact the value of the fixed income securities portfolio.
Added
Non-investment grade exposure represented approximately 3% of the total fixed income and short-term investments at December 31, 2024 and 4% at December 31, 2023.
Removed
We discuss each of these sector holdings in more detail below. 70 Table of Contents State and Municipal Obligations Our state and municipal obligations represented 12% of our invested assets at December 31, 2023.
Added
Our holdings of non-investment grade corporate bonds, which typically exhibit weaker credit profiles and are subject to more risk of credit loss, represent 2% of our overall investment portfolio.
Removed
The tables below provide details on this portfolio at December 31, 2023, and 2022: December 31, 2023 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) General obligation state & local $ 68.7 68.7 (3.2) AA- Special revenue 517.3 517.3 (23.1) AA- Total state and municipal obligations $ 586.0 586.0 (26.3) AA- December 31, 2022 Fair Value Carry Value Net Unrealized/ Unrecognized Gain (Loss) Weighted Average Credit Quality ($ in millions) General obligation state & local $ 148.6 148.6 (5.8) AA+ Special revenue 772.8 772.8 (40.4) AA- Total state and municipal obligations $ 921.4 921.4 (46.2) AA- The following table details the top 10 state exposures of this portfolio at December 31, 2023: State Exposures of Municipal Bonds General Obligation State & Local Special Revenue Fair Value Weighted Average Credit Quality ($ in thousands) % of Total California $ 36,933 59,353 96,286 17% A+ New York 1,739 43,328 45,067 8% AA- Texas 7,109 37,009 44,118 8% AA- Colorado 1,142 35,247 36,389 6% AA- New Jersey — 31,329 31,329 5% A Pennsylvania — 25,056 25,056 4% A+ Florida — 24,767 24,767 4% AA- Louisiana — 22,627 22,627 4% AA+ Massachusetts 4,870 16,654 21,524 4% AA Oklahoma 3,738 15,624 19,362 3% AA+ Other 9,087 177,893 186,980 32% AA- 64,618 488,887 553,505 94% AA- Pre-refunded/escrowed to maturity bonds 4,036 28,424 32,460 6% AAA Total $ 68,654 517,311 585,965 100% AA- % of Total Municipal Portfolio 12 % 88 % 100 % % of Total Investment Portfolio 1 % 6 % 7 % Special revenue fixed income securities of municipalities (“special revenue bonds”) represented 6% of our total invested assets at December 31, 2023.
Added
MBS (RMBS and CMBS Portfolios) Our MBS portfolios represented 25% of our invested assets at December 31, 2024. MBS represent our most significant exposure to real estate. Further breakdown of this exposure is provided in the table above that shows details on the credit quality of our invested assets.
Removed
Special revenue bonds generally do not have the “full faith and credit” backing of the municipal or state governments like general obligation bonds. However, they have a dedicated revenue stream for repayment.
Added
CLO and Other ABS Portfolio Our CLO and Other ABS portfolio represented 21% of our invested assets at December 31, 2024. The primary risk associated with these holdings is credit risk.
Removed
For our special revenue bonds, 63% of the dedicated revenue stream is comprised of the following: (i) essential services (53%), which is comprised of transportation, water and sewer, and electric; and (ii) education (10%), which includes school districts and higher education, including state-wide university systems.
Removed
We monitor key performance metrics, including over-collateralization, interest coverage, and cash flows, on an on-going basis. When deciding to purchase or sell CLO and other ABS, we consider the overall credit environment, economic conditions, the investment's total projected return, and overall portfolio asset allocation.

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