☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2024
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________________to_______________________
Commission file number: 001-33067
SELECTIVE INSURANCE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
New Jersey
22-2168890
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
40 Wantage Avenue, Branchville, New Jersey07890
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(973)
948-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $2 per share
SIGI
The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/1,000th interest in a share of 4.60% Non-Cumulative Preferred Stock, Series B, without par value
SIGIP
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting company common stock held by non-affiliates of the registrant, based on the closing price on the Nasdaq Global Select Market, was $5,667,194,813 on June 30, 2024. As of January 31, 2025, the registrant had outstanding 60,805,019 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2025 Annual Meeting of Stockholders to be held on April 30, 2025, are incorporated by reference into Part III of this report.
Selective Insurance Group, Inc. ("Parent") is a New Jersey insurance holding company incorporated in 1977 that owns ten property and casualty insurance subsidiaries ("Insurance Subsidiaries"). The Insurance Subsidiaries sell products and services only in the United States ("U.S.") and exclusively through independent insurance agents and wholesale brokers. 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. 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 list our common (stock symbol "SIGI") and preferred (stock symbol "SIGIP") stocks on the Nasdaq Global Select Market. In 2024, AM Best Company ("AM Best") ranked us as the 34th largest property and casualty group in its annual "Top 200 U.S. Property/Casualty Writers" list based on 2023 net premiums written ("NPW"). 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. We have five key sustainable competitive advantages:
•A unique operating model that places empowered decision-makers alongside our customers and distribution partners.
•A franchise-value distribution model, defined by our meaningful and close business relationships with a group of high-quality distribution partners.
•An ability to develop and integrate sophisticated technology tools that our front-line employees use to inform risk selection, pricing, and claims decisions.
•A commitment to delivering a superior omnichannel customer experience enhanced by people and technology.
•A highly engaged and aligned team of extremely talented employees.
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. Our independent distribution partners recommend insurance carriers based partly on financial strength ratings to (i) ensure an insurance carrier's ability to pay claims and provide benefits to customers when needed, directly impacting the level of trust a customer has in an insurance carrier and (ii) limit their potential liability for customer error and omission claims. Similarly, many customers consider ratings when purchasing insurance because their loan, mortgage, and other real and personal property security agreements generally require minimum carrier financial strength rating requirements.
These NRSROs also rate our long-term debt creditworthiness and ability to meet our obligations when due. Credit ratings are important factors in our overall funding profile and ability to access certain types of liquidity. Our current senior debt credit ratings are as follows:
NRSRO
Credit Rating
Long-Term Credit Outlook
AM Best
a-
Stable
S&P
BBB
Stable
Moody’s
Baa2
Stable
Fitch
BBB+
Stable
Our S&P, Moody's, and Fitch financial strength and credit ratings influence our ability to advantageously access capital markets more than our AM Best rating.
Segments
We have four reportable segments:
•Standard Commercial Lines, which represented 72% of our 2024 "Total revenues" on our Consolidated Statements of Income and 79% of our 2024 total NPW. 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. 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. 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"). We are the fourth-largest WYO carrier based on 2023 direct premiums written ("DPW") reported in the S&P Market Intelligence platform.
•E&S Lines, which represented 10% of our 2024 "Total revenues" on our Consolidated Statements of Income and 12% of our 2024 total NPW. 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. 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. Our average 2024 E&S lines premium per policyholder was approximately $5,300.
•Investments, which represented 9% (including net realized and unrealized gains and losses) of "Total revenues," invest the (i) premiums our Insurance Subsidiaries collect and (ii) amounts generated through our capital management strategies, including debt and equity securities issuance.
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. NPW are calculated by subtracting premiums ceded to reinsurers from gross premiums. NPE is NPW recognized as revenue ratably over a policy’s term. Underwriting income/loss is NPE minus insurance operations-related expenses incurred.
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. These expenses include, but are not limited to, certain labor expenses, depreciation expense, and policyholder dividends.
Total underwriting expenses are the sum of "Amortization of deferred policy acquisition costs" and "Other insurance expenses", offset by "Other income" on our Consolidated Statements of Income. Other income primarily includes installment fees charged to customers paying their premiums in installments.
•Net investment income earned from our investment segment. We generate income from investing insurance premiums and amounts generated through our capital management strategies. Net investment income consists primarily of (i) interest earned on fixed income investments and commercial mortgage loans, (ii) dividends earned on equity securities, and (iii) income generated from our alternative investments portfolio, partially offset by (iv) investment expenses.
•Net realized and unrealized gains and losses on investment securities from our investments segment. Net realized and unrealized gains and losses from our investment portfolio result from (i) security disposals through sales, calls, and redemptions, (ii) losses on securities that we intend to sell, (iii) credit loss expense or benefit, and (iv) net unrealized gains and losses on equity securities.
Net income (or loss) available to common stockholders on our Consolidated Statements of Income also includes (i) corporate expenses, including long-term employee incentive compensation and other general corporate expenses, (ii) interest on our debt obligations, (iii) federal income taxes, and (iv) dividends to preferred stockholders.
To measure financial performance, we use (i) net income (or loss) available to common stockholders and (ii) a calculation of operating income that does not conform to U.S. generally accepted accounting principles ("non-GAAP"). Non-GAAP operating income differs from net income available to common stockholders by excluding after-tax net realized and unrealized gains and losses on investments. This non-GAAP measure is used as an important financial measure by management, analysts, and investors because the timing of realized and unrealized investment gains and losses on securities in any given period is largely discretionary and including them could distort the analysis of trends.
We use combined ratio as the key performance measure in assessing the underwriting profitability of our insurance operations. The combined ratio is the sum of (i) the loss and loss expense ratio, which is the ratio of net loss and loss expense incurred to NPE, (ii) the expense ratio, which is the ratio of underwriting expenses to NPE, and (iii) the dividend ratio, which is the ratio of policyholder dividends to NPE. A combined ratio under 100% indicates an underwriting profit, and one over 100% indicates an underwriting loss. The combined ratio does not reflect net investment income earned, net realized and unrealized investment gains or losses, federal income taxes, interest expense, or corporate expenses. The loss and loss expense ratio typically has the most significant impact on our combined ratio. 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. 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. Our investment philosophy includes setting specific risk and return objectives for the fixed income, equity, and alternative investment portfolios and comparing each to a weighted-average benchmark of comparable indices.
Other important measures of our overall financial performance that we consider include return on common equity ("ROE") and non-GAAP operating return on common equity ("non-GAAP operating ROE"). We use this non-GAAP measure for the same reason we use non-GAAP operating income, which is to avoid trend analysis distortion from the timing of investment gains and losses, which are largely discretionary. ROE is calculated by dividing net income available to common stockholders by average common stockholders' equity. Non-GAAP operating ROE is calculated by dividing non-GAAP operating income available to common stockholders by average common stockholders' equity. We evaluate our segments, in part, based on their contribution to non-GAAP operating ROE. We strive to achieve a non-GAAP operating ROE of 12% on average over time. Our non-GAAP operating ROE was 7.1% in 2024 and 14.4% in 2023.
For further details about our 2024 results compared to these performance measures, refer to "Financial Highlights of Results for Years Ended December 31, 2024, 2023, and 2022" in Item 7. "Management's Discussion and Analysis of Financial Condition
Our insurance operations generate revenue selling insurance policies and services for insurance premiums. One-year term policies constitute nearly all of our sales, and our most significant associated cost is our loss and loss expense for insured events covered under these policies.
Loss and loss expense reserves are one of our critical accounting estimates and represent the ultimate amounts we will need to pay for incurred covered claims and related expenses in the future for policies we have sold. Estimating reserves as of any given date is inherently uncertain, requiring estimation techniques and a considerable degree of judgment. We regularly analyze our overall reserve position through internal and external actuarial reserve reviews. For a discussion of our loss reserving process, see "Critical Accounting Policies and Estimates" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." and Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
To protect our capital resources and manage the risks associated with our insured risks, we purchase reinsurance from and enter into other risk transfer agreements with third parties. Our Insurance Subsidiaries also transfer risks and share premiums and losses based on percentages specified in an internal reinsurance pooling agreement. For information on our reinsurance treaties and agreements, see "Reinsurance" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K.
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. Casualty claims are long-tailed, and while the majority of these claims are reported within the first few years, they may take many years to fully resolve.
•Property insurance, which generally covers accidental loss to an insured's real property, personal property, and/or property loss-related earnings. Property claims are usually reported and settled in a relatively short period after the date of loss.
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
Flood1
Property
X
X
1Most 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. Our Standard Personal Lines segment results include our WYO policies issued to Standard Personal Lines and Standard Commercial Lines customers.
Product Development and Pricing
Our insurance policies are contracts with our policyholders that specify the losses we cover and the amounts we will pay on a covered claim. 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. In developing products and services, we consider market demands, profitability, competitive research, feedback from our independent distribution partners, and the potential for the product or service to make our customers' commercial or personal endeavors safer.
Our policies insure future covered events, so we do not know an individual policy's actual loss costs when sold and issued. 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. We typically modify these loss costs or factors based on actuarial analyses of our credible historical statistical data, factoring in loss trends and other expected impacts. We combine the resulting loss costs with expense and profit provisions to develop premium rates. We sometimes supplement the indicated rates with market information to determine our final filed rates.
We have developed predictive models for many of our Standard Commercial Lines and Standard Personal Lines products. Predictive models analyze historical statistical data about various risk characteristics that drive loss experience. The predictive capabilities of our models depend on the quantity and quality of available statistical data, which we may supplement with other market information, third-party data, and underwriting judgment to refine statistical rating agencies' rating plans or independently develop proprietary 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.
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. No one customer accounts for 10% or more of our insurance operations DPW in the aggregate.
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. Flood insurance, reported in this segment, is sold in all 50 states and the District of Columbia.
•E&S Lines products and services, in all 50 states and the District of Columbia.
In 2024, we began writing Standard Commercial Lines business in Maine, Nevada, Oregon, Washington, and West Virginia. Our geographic expansion in recent years allows us to compete more effectively against national insurers and diversify our portfolio risk. We expect to enter Kansas, Montana, and Wyoming over the next two years. After that, our pace of geographic expansion should moderate as we move closer to our goal of operating our Standard Commercial Lines business with a near national footprint.
We manage and support our business from offices in (i) Branchville, New Jersey, our corporate headquarters; (ii) Farmington, Connecticut, the principal office for investment operations; (iii) Hartford, Connecticut, used by our information technology ("IT") department and several other corporate functions; (iv) Richmond, Virginia, the location of our underwriting and claims service center; and (v) six regional branches, with the locations listed in the following table:
Region
Office Location
Heartland
Indianapolis, Indiana
New Jersey
Hamilton, New Jersey
Northeast
Branchville, New Jersey
Mid-Atlantic
Allentown, Pennsylvania, and Hunt Valley, Maryland
Southern
Charlotte, North Carolina
West
Scottsdale, Arizona
Our E&S Lines have offices in Scottsdale, Arizona, and Dresher, Pennsylvania. Our Flood business has offices in Branchville, New Jersey, and Miami, Florida. Our Staff Counsel operation, which uses employee-lawyers to defend our policyholders, has twelve leased offices primarily located in the Eastern region of the U.S.
Distribution Channel
The property and casualty insurance market is regulated and highly competitive, with fragmented market share, particularly in standard commercial lines and E&S lines. The market has three main distribution methods: (i) sales through appointed independent insurance agents and wholesale brokers; (ii) direct sales to personal and commercial customers, including Internet-based digital platforms; and (iii) sales through captive insurance agents employed by or contracted to sell exclusively for one insurer.
By segment, we use the following types of independent distribution partners to sell our insurance products and services:
•Standard Personal Lines: Independent retail agents; and
•E&S Lines: Wholesale general agents.
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.
Independent Retail Agents and Standard Lines
A 2024 Independent Insurance Agents & Brokers of America study estimated there are 39,000 independent property/casualty insurance agents and brokers in the U.S., down 3% from its 2022 study. 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.
Approximately 1,640 distribution partners sell our standard lines products and services through approximately 2,840 office locations. About 850 of these distribution partners sell our Standard Personal Lines products. Approximately 6,420 distribution partners sell our flood insurance products.
Wholesale General Agents and E&S Lines
We have approximately 80 wholesale general agents, with an aggregated 270 office locations, selling our E&S Lines business. We have granted these wholesale general agents limited binding authority for risks meeting our prescribed underwriting and pricing guidelines. They refer risks ineligible for binding authority to our underwriters.
Marketing
Our primary marketing strategy is to:
•Use a locally-based, empowered field underwriting model for Standard Commercial Lines, placing decision-makers and resources near our customers and distribution partners. For further discussion on this model, see the "Technology, Innovation, and Operating Model" section below.
•Deploy a distribution model that allows the principals and producers of our high-quality independent insurance agencies to realize the substantial franchise value of our appointment and their right to sell our Insurance Subsidiaries' products and services. To further enhance value and help our distribution partners succeed and grow profitably, we establish meaningful and close business relationships with them by (i) soliciting, gathering, and acting on feedback from them and our mutual customers, including about our products and services and brand, (ii) familiarizing them with our new product offerings, and (iii) providing professional education and development programs focused on producer recruitment, sales training, agency perpetuation, customer experience enhancement, online marketing, and distribution operations.
•Develop and carefully monitor annual goals with each distribution partner on (i) the types and mix of risks they place with us, (ii) new business and renewal retention expectations and pricing, and (iii) the profitability of the business they place with us.
•Leverage people and technology to enhance brand recognition and provide meaningful customer engagement through a data-driven omnichannel marketing strategy focused on delivering a superior customer experience. 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.
Technology, Innovation, and Operating Model
We continue to evolve our technology and operating model, focusing on innovation and providing our customers and distribution partners with a superior omnichannel experience and "around-the-clock" digital access to account information and transactional capabilities. 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. We use traditional artificial intelligence ("AI") methods, such as machine learning, to increase organizational efficiency and speed of decision-making, enabling us to reallocate resources to high-value-driven initiatives. We are increasingly leveraging general-purpose and industry-trained generative AI solutions that use large language models to improve internal process efficiency and effectiveness.
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.
Our digital strategy provides our Standard Commercial Lines and Standard Personal Lines customers with a mobile application and a self-service portal branded MySelective. Our award-winning mobile application continues to satisfy users, achieving a rating of 4.7 out of 5 stars on the Apple App Store. As of December 31, 2024, 54% of our customers registered for MySelective. MySelective gives policyholders on-demand self-service access to account information, electronic bill payment, claims reporting, and an all-in-one risk management center. We continue to provide customers with additional digital value-added services, such as timely messaging about vehicle and product recalls, adverse weather, and claim status.
Our primary technology operations are in Branchville, New Jersey, Hartford, Connecticut, and Charlotte, North Carolina. We have agreements with multiple consulting, IT, and supplemental staffing service providers to augment our internal resources. These providers supply approximately 56% of our skilled technology capacity, with 76% of their resources located overseas. We retain management oversight of all projects and ongoing IT production operations. 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. This team applies proven innovation techniques and methods to identify, prioritize, and advance strategic ideas and opportunities. This team also monitors critical industry and insurance technology trends that impact our customers, distribution partners, and employees. By establishing this team, we have expanded our innovation culture through employee training and skill-building while also facilitating departmental and cross-functional strategy and innovation sessions.
Operating Model
We believe our unique operating model is a competitive advantage. To support and build better and stronger relationships with our independent distribution partners, our Standard Commercial Lines underwriting and risk management personnel are located in the geographic territories they serve. Additionally, our claims operation is organized regionally by specialty, with local personnel managing our customer, claimant, and distribution partner relationships. In addition, our personnel are provided with sophisticated tools and technologies to inform underwriting, pricing, risk management, and claims decisions.
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. 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.
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"). The regions assign AMSs, Production Underwriters, and underwriters to specific distribution partners and the USC assigns underwriters to support specific distribution partners within the USC.
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.
We have 100 Risk Management Specialists in the field supporting our policyholders locally. These specialists regularly interact with current and prospective customers. Their risk management enhancement and best practice recommendations reduce our customers' exposure to property, liability, and workers compensation risks. Their account-specific analyses let our underwriters better understand our customers' exposures, enhancing our new business and renewal underwriting decisions.
Our risk management initiatives include proactively providing policyholders with notifications and alerts, identifying risks, mitigating potential loss occurrences, and providing tools and technologies that improve safety and reduce losses. Examples include:
•Vehicle recall notifications to our policyholders and distribution partners;
•Advance notices to prepare for severe weather conditions, including guides on structural improvements, roof and drainage maintenance, and measures to prevent clogged or frozen plumbing and sprinkler systems;
•Food and product recall notifications to policyholders in food manufacturing, distribution, and preparation; and
•Digital customer self-assessments of workplace hazards, with best practice recommendations tailored to the customer's specific risks.
In 2024, we launched a Risk Management Center ("RMC") to digitally scale our risk management expertise across our Standard Commercial Lines book of business. The RMC offers our Standard Commercial Lines customers seamless, on-demand access to a curated selection of self-service risk management resources. These resources address facets of customers' businesses aligned with the specific insurance coverages we provide them.
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. In recent years, the small business market has become more competitive, with more carriers using technology dedicated to new business generation. We continue to focus on (i) improving small business writing ease and speed for our distribution partners and (ii) offering a best-in-class small business customer experience.
We 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.
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. We are actively repositioning our Standard Personal Lines business for the mass affluent market, where we believe our strong coverage and servicing capabilities make us more competitive. We have multiple initiatives to improve this segment's overall results, including increasing overall rate levels, further refining our pricing factors, and introducing increased risk-sharing through homeowners' policy terms and conditions.
•E&S Lines: Our E&S Relationship and Underwriting Managers promote our products to wholesale general agents, train on underwriting guidelines and automation, and gather market insight. Our wholesale general agents handle new and renewal business within established guidelines, with exceptions or declinations reviewed by our small commercial E&S underwriters based on individual account risk characteristics. Middle market accounts exceed our wholesale general agents' authority and are submitted to our E&S commercial underwriters, who may supplement the information provided with third-party data and business judgment to make their underwriting and pricing decisions.
Our E&S Lines automated small business rate, quote, bind, and issue system reduces manual touchpoints throughout the policy lifecycle and allows our underwriting teams and agents to cost-effectively and efficiently grow their business. Underwriting rules embedded in the system qualify the submissions within an agent’s authority and route accounts requiring additional review directly to an underwriter.
Our continued investment in product, operational, and technological enhancements enable and support growth in our small-commercial and middle-market business. Throughout 2024, we (i) focused on process efficiency, additional
robotic processing automation, and implementing automated submission intake, (ii) launched our in-house inspection process that was previously managed by our agents, and (iii) initiated product development efforts in specialty construction and inland marine.
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. 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. To address the increasing complexity of coverage evaluation, construction methods, and litigation, we have structured our claims organization to emphasize:
•Claims handling by technical areas of expertise, such as automobile liability, general liability, property, and workers compensation, with each business line having a specialized claims unit focused on high severity or technically complex losses and litigation;
•Claims agency executives and managers responsible for (i) enhancing the relationship among our policyholders, distribution partners, and claims operation and (ii) providing a single point-of-contact for our large account customers and distribution partners. They work with our regional underwriters to deliver appropriate claims service, communicate trends, and discuss results and client services;
•Cost-effective delivery of claims services and control of loss and loss expense. Dedicated adjusters manage our high volume, low severity automobile and property claims, leveraging virtual adjusting tools that provide prompt and efficient service to our customers; and
•Timely and adequate claims reserving and resolution.
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. We expect to (i) reduce cycle times and claims adjudication costs and (ii) improve insured and distribution partner customer service. The modernized system will enable expedited low-touch or no-touch claims processing, depending on the type and severity of the exposure. 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 2024, we integrated our claims system with key third-party vendors to (i) enable texting capabilities with claimants and (ii) streamline management of replacement rental vehicles and auto physical damage evaluation and repair estimates. Consequently, our adjusters work in fewer systems, increasing their efficiency, and improving the overall customer experience. We also (i) introduced a digital payment solution allowing direct fund transfer to insureds, claimants, and vendors and (ii) increased our payment functionality to allow digital payments to single, multi-party, lien holder, and mortgage payees. These changes reduce paper check printing and mailing expenses and allow for quicker receipt of claim payments by claimants.
In early 2025, we launched the new, modernized claims system in our commercial and personal automobile line of businesses and will launch our general liability and commercial property lines of business later in 2025. Throughout 2025, we intend to continue integrating our claims system with key third-party vendors to (i) provide state-specific regulatory and compliance claims handling requirements to adjusters, (ii) offer medical canvas, record retrieval, and investigative management tools, (iii) implement an intelligent document processing tool used to index, categorize, and upload claims documents automatically for adjusters, (iv) enhance the functionality of our digital payment solution to attach documents to digital payments, and (v) enhance the First Notice of Loss process. Consequently, these improvements will increase our adjusters' efficiency and enhance overall customer experience through quicker decisions and response times, ensuring an appropriately-skilled adjuster is assigned to each claim based on the skills needed to handle the loss.
Our Special Investigations Unit ("SIU") supports all insurance operations by investigating potential insurance fraud and abuse. The SIU work is governed by applicable law and direction from regulatory bodies and non-profit organizations dedicated to
combating and preventing insurance crime. The SIU adheres to uniform internal procedures to improve detection and act on potentially fraudulent claims. 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.
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. 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. 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.
Investments Segment
Our Investments Segment's objectives are to maximize the economic value of our investment portfolio by achieving stable, risk-adjusted after-tax net investment income and generate long-term growth in book value per share, considering prevailing market conditions, our enterprise risk tolerances, and other risk implications. We aim to accomplish this by:
•Maximizing the portfolio's overall total return by investing (i) the premiums from our insurance operations and (ii) amounts generated through our capital management strategies, including debt and equity security issuances, and
•Maintaining (i) a well-diversified portfolio across issuers, sectors, and asset classes and (ii) a high credit quality fixed income securities portfolio with a duration and maturity profile at an acceptable risk level that provides ample liquidity. Our fixed income securities primarily include corporate, asset-backed and mortgage-backed securities, and state and local municipal obligations. We also invest in public equity securities, commercial mortgage loans, short-term investments, alternative investments, and other investments. Alternative investments primarily include limited partnership investments in private equity, private credit, and real estate strategies. Other investments include Federal Home Loan Bank ("FHLB") stock and tax credit investments.
For further information regarding our risks associated with the overall investment portfolio, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." and Item 1A. "Risk Factors." of this Form 10-K. For additional investment information, see the "Investments Segment" section in Item 7. "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. The primary public policy behind insurance regulation is protecting policyholders and claimants over all other constituencies, including shareholders. 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: 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.
NAIC Financial Monitoring Tools
Our various state insurance regulators are members of the National Association of Insurance Commissioners ("NAIC"), which has established statutory accounting principles ("SAP") and other accounting reporting formats and model insurance laws and regulations governing insurance companies. An NAIC model statute, however, only becomes law after state legislative enactments, and an NAIC model rule only becomes a regulation after state insurance department promulgation. Adopting specific NAIC model laws and regulations is a condition of the NAIC Financial Regulations Standards and Accreditation Program. This program permits state insurance departments to recognize and rely on the financial examinations and other reviews their counterparts conduct, creating efficiencies and limiting overlapping examinations of the same insurance companies.
The NAIC's various financial monitoring tools are generally predicated on NAIC model laws and regulations that have been enacted or adopted by regulators in states in which our Insurance Subsidiaries are organized. The following are among the most material to the operations:
•The Insurance Regulatory Information System ("IRIS"). IRIS identifies thirteen (13) industry financial ratios and specifies "usual values" for each. Departure from the usual values on four or more financial ratios can lead to inquiries from individual state insurance departments about certain aspects of an insurer's business. Our Insurance Subsidiaries have consistently met most IRIS ratio tests.
•Risk-Based Capital ("RBC"). RBC is measured by four major property and casualty insurance risks: (i) asset risk; (ii) credit risk; (iii) underwriting risk; and (iv) off-balance sheet risk. Regulators increase their scrutiny, up to and including intervention, as an insurer's total adjusted capital declines below the NAIC-required capital level. 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"). The GCC expands the existing RBC calculation to include (i) capital requirements for other regulated entities in the group and (ii) defined capital calculations for other group entities that are unregulated. The calculation provides state insurance regulators with additional analytical information for assessing group risks and capital adequacy, complementing the existing holding company disclosures and analyses. 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"). The Model Audit Rule, based closely on the Sarbanes-Oxley Act of 2002, as amended ("Sarbanes-Oxley Act"), regulates (i) auditor independence, (ii) corporate governance, and (iii) internal control over financial reporting. As permitted under the Model Audit Rule, the Audit Committee of our Board of Directors ("Board") serves as the audit committee of each of our Insurance Subsidiaries.
•Own Risk and Solvency Assessment ("ORSA"). ORSA requires an insurer to maintain a framework for identifying, assessing, monitoring, managing, and reporting "material and relevant risks" associated with the insurers' (or insurance groups') current and future business plans. 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.
NRSROs
Rating agencies monitor our capital adequacy but are not formal regulators. Two are (i) AM Best, with its Best Capital Adequacy Ratio ("BCAR") model, and (ii) S&P, with its capital model. Both evaluate the strength of an insurer's balance sheet, comparing available capital to estimated required capital at various probability or rating levels. 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. We regularly evaluate our capital adequacy relative to these capital models to ensure we can effectively pursue our business strategies. Rating agencies also revise their capital adequacy models and requirements more frequently than the NAIC updates its financial monitoring tools.
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. These laws require or permit national stock exchanges or associations, such as the Nasdaq Stock Market LLC, where we list our equity securities, to mandate certain governance practices.
The Dodd-Frank Act, enacted in 2010 in response to the 2008 and 2009 financial markets crises, provided for some public company corporate governance reforms and some oversight of the business of insurance, including:
•Establishing the Federal Insurance Office ("FIO") under the U.S. Department of the Treasury; and
•Granting the Federal Reserve oversight of financial services firms designated as systemically important.
The FIO, consistent with its authority under the Dodd-Frank Act (i) negotiated a covered agreement with the European Union that, among other things, impacted reinsurance collateral requirements for foreign reinsurers and (ii) has been gathering insurance market data.
For additional information on regulation and the potential impact of regulatory changes on our business, refer to the regulation risk factor within Item 1A. "Risk Factors." of this Form 10-K.
Corporate Governance, Sustainability, and Social Responsibility
We strive to maintain high ethics and integrity in our business practices. We are committed to understanding and mitigating risk, serving customers and distribution partners responsibly, enabling our employees’ professional development and work/life balance, and helping the communities where we live, work, and serve while being environmentally responsible.
Corporate Governance
Strong governance, oversight, and transparency are the foundation of our financial and operating success. Our mature risk culture and governance structure are cornerstones of our risk management framework, designed to enhance the decision making process and strengthen risk-reward evaluations.
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. Internal Audit also coordinates risk-based audits, compliance reviews, and other specific initiatives to evaluate and address risk within targeted areas of our business.
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.
Board Oversight
Oversight and guidance are our Board's primary functions. The Board and its committees ("Board Committees") oversee our business performance and the management team ("Management"). The Board reviews and discusses Management reports about our performance, strategy, risks, and significant issues. Twelve of thirteen Board members are independent.
Our Board oversees our Enterprise Risk Management ("ERM") process, and all Board Committees oversee risks specific to their areas of supervision and report their activities and findings to the entire Board. The Board's Risk Committee oversees our ERM framework and practices and assists the Board in overseeing our operational activities and identifying and reviewing related risks.
Management and Operating Committees
Our Chief Executive Officer (“CEO”) directs the implementation of our business strategy. Management regularly reports to the Board on significant events, issues, and risks that may materially affect our business or financial performance. A description of each Management committee and our ERM function follows:
•Management Investment Committee - Responsible for (i) setting and implementing the investment objectives and asset allocation, (ii) approving and overseeing compliance with investment policies, (iii) selecting qualified external investment managers and advisors, and (iv) monitoring performance, transactions, and specific risk metrics. Our investment team and external investment managers execute our investment strategy and objectives. The MIC meets quarterly and more often as needed, and reports quarterly to the Board's Finance and Investment Committee.
•Underwriting Committee - Responsible for (i) establishing and reviewing authority levels of the CUOs and (ii) reviewing and making decisions on any underwriting transaction and/or action outside the CUO's authority. The Underwriting Committee oversees the underwriting authority distribution process across our insurance operations. This committee meets as appropriate and evaluates various information related to specific accounts presented, including underwriting, risk management, claims, and market considerations, as well as projected catastrophe modeling metrics when considering a large property account. Annually, the Board's Risk Committee receives quality assurance reports focused on underwriting guidelines and authority.
•Enterprise Project Management Office ("EPMO") - Responsible for overseeing large-scale projects. Our EPMO framework uses a consistent methodology to review the return on investment for each major capital expenditure, like a significant IT system. Projects above a certain dollar threshold require Board approval. The EPMO includes senior management representatives from all primary business and corporate areas. It meets regularly to review all significant
initiatives and receives status reports on other projects. The EPMO is an important factor in the success of our business strategy and technology implementations. The EPMO meets on a regular basis during the year.
•Large Claims Committee - Reviews and approves all claim loss or loss reserves or payments above the Chief Claims Officer's authority. 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. The Large Claims Committee meets as needed.
•Reserve Committee - Responsible for monitoring loss and loss expense reserve levels and taking management actions on financial recording of reserves. The Reserve Committee reports reserve indications and actions to the Board and its Audit Committee. In addition, key reserve metrics are reported to the ERC and the Board's Risk Committee. The Reserve Committee meets quarterly and as needed.
•Executive Risk Committee - Responsible for the holistic evaluation and supervision of our risk profile and determining future risk management actions supporting our overall risk profile. The ERC provides management oversight of our ERM function. To analyze and manage specific major risks, the ERC relies on several management committees. The ERC meets quarterly, and as needed, to review and discuss various topics and the interrelation of our significant risks, including capital modeling results, capital adequacy, risk metrics, emerging risks, and sensitivity analysis. The Board's Risk Committee receives quarterly reports on enterprise and emerging risks.
•Disclosure Committee - Responsible for establishing and implementing procedures to ensure compliance with Regulation FD and other applicable securities laws. This committee meets quarterly and as needed, and reports quarterly to the Board's Audit Committee.
•Market Security Committee - Responsible for reinsurance purchase decisions, reinsurer counterparty risk assessment, approval of individual reinsurers' placement on our treaties, and catastrophe risk monitoring. The MSC is comprised of executives and senior leaders with diverse financial and underwriting expertise. 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.
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.
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. ORSA includes an internal prospective solvency assessment developed by the Chief Risk Officer ("CRO"), in coordination with the ERC, that our Board reviews.
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;
•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. 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.
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. 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. 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.
Sustainability and Social Responsibility
We integrate sustainability principles into our business and partner with key stakeholders to develop solutions that enhance resilience, well-being, and customer service. 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.
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. In 2024, we were (i) designated as a Great Place to Work CertifiedTM organization for the fifth consecutive year and (ii) recognized by Forbes as one of "America's Best Mid-Size Employers" for the fourth time.
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 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. 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. 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.
Talent Development and Employee Retention
We invest significant time and resources in (i) training and development so our employees can fulfill their professional potential and have rewarding careers and (ii) efforts to retain our best talent and foster a positive work-life balance. We are committed to
ongoing employee learning, personal growth, and continuous improvement. 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. Examples include our (i) Next Generation of Leaders program, which identifies early- and mid-career management opportunities for focused development and future senior leadership preparation, (ii) RISE (Retain Include Support Engage) program, an accelerated professional development program for individual contributors interested in first-level management positions, (iii) Accelerate program, which provides training for new managers on leadership skills and techniques, and (iv) our Ignite Internship and Momentum Trainee programs, which are early career programs that help develop our future talent pipeline.
Of our 2,800 employees at December 31, 2024, 1,300 were home-based; 810 were in our regional offices; and the remainder were in our corporate office. Our Flexible Work Location Policy requires most office-based non-management employees to be in their assigned office 40% of the time. Our 2024 employee turnover rate was approximately 10%, compared to approximately 11% in 2023. Employees with over 20 years of service represented approximately 14% of our workforce.
Engagement and Inclusion
Building a highly engaged team is a core strategic imperative. We employ strategies to create an inclusive workplace culture and attract and retain employees through recruiting, onboarding, training, promotion practices, professional development, engagement surveys, retention interviews, employee resource groups, and competitive compensation and benefits. Collaboration among employees with diverse backgrounds fosters innovation, improving operational performance, product development, customer experience, market opportunities, and profitability. We are committed to initiatives that promote inclusion regardless of ethnicity, race, religion, age, veteran status, sexual orientation, gender identity, disability and socio-economic background. We require training on engagement, inclusive leadership, and psychological safety for officers, managers, and supervisors. These efforts aim to boost engagement and create a workplace where everyone feels valued and empowered. At the Board level, the CGNC manages a robust process to recruit new directors with diverse backgrounds, skills, and experiences.
As of December 31, 2024, women represented (i) 57% of our non-officer workforce, down one point from prior year, and (ii) 36% of our officer workforce, up one point from the year before. Our officer and non-officer ethnic diversity is consistent with the national average for financial services. Approximately 76% of our workforce was White at year-end 2024, compared to 77% at year-end 2023, and 24% were a combination of Black, Latin, Asian, and all other ethnicities combined at year-end 2024, compared to 23% at year-end 2023.
Environmental
Our Insurance Subsidiaries protect thousands of individuals and businesses against the financial impact of covered losses, including from catastrophic events. Climate change increases the unpredictability of weather-related loss frequency and severity, posing a long-term risk to our customers’ businesses and lives – and our profitability. 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. Understanding and helping mitigate climate change perils for our business and customers is core to our operations and strategy. We believe these efforts (i) demonstrate responsible corporate action to mitigate climate change impact and (ii) will contribute to sustained superior financial and operating performance over time that will reward our shareholders.
The ERC identified climate change as a "high" level emerging risk and management reviews it at least quarterly with the Risk Committee of the Board. The ERM unit, the ERC, and Management stay informed on key climate change risk developments through industry publications, webinars, conferences, and regular engagement with outside sources, such as our reinsurance brokers, investment managers, trade associations, lawyers, and consultants.
Our ERM function is responsible for measuring, assessing, and monitoring the mitigation of climate change physical and transition risks. Physical risks arise from the changing frequency, severity, and characteristics of acute events, like severe convective storms, hurricanes, floods, and wildfires. These risks can directly affect our underwriting results, the long-term viability of specific business lines we write, and our investment portfolio. Transition risks arise as the world progresses towards a low-carbon economy, driven by (i) government policy and regulation, (ii) advances in low-carbon technology, and (ii) shifting societal preferences and public sentiment.
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. We seek to manage our exposure to other non-hurricane perils, such as severe convective storms, winter storms, flooding, and wildfires. We do not write crop insurance, have minimal exposure to private flood, and have a limited percentage of our geographic exposures in the Western U.S., all limiting our exposures to other weather-related perils, such as droughts, wildfires, and flooding. We monitor our investment exposure to carbon-intensive industries to measure our vulnerability to climate-related risks involved with the transition to a low-carbon economy.
The ERM unit evaluates our catastrophe risk exposure relative to our established tolerances. 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. "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Managing Climate-related Risks
For information about our risks associated with climate change, refer to risks identified with the symbol "" in Item 1A. "Risk Factors." of this Form 10-K.
Insurance Operations
In managing our insurance operations' physical climate-related risks, we model our property portfolio for (i) hurricanes, winter storms, wildfires, and other wind events semiannually in July and January and (ii) earthquakes, a significantly lower exposure for our portfolio than hurricanes and other wind events, annually in July. 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. 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. 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 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.
Our established catastrophic risk tolerance requires that no more than 10% of stockholders’ equity is exposed to a loss from a hurricane event at a 99.6% confidence level (1-in-250-year event or 0.4% probability) on a net of reinsurance and after-tax basis. 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. However, we have potential climate-related claims under liability policies, such as directors’ and officers’ ("D&O") liability insurance policies. We monitor these liability risks, but we partially mitigate our liability-related climate exposure through our (i) D&O appetite selection, which includes no public companies or financial institutions, (ii) focus on writing business with small regional footprints and avoiding environmentally-hazardous risks, and (iii) reinsurance, which covers claims in excess of our $2 million casualty reinsurance retention.
Investments
We incorporate sustainability considerations into our robust investment due diligence processes. To establish appropriate sustainability investment governance, we maintain (i) a well-diversified portfolio across issuers, sectors, and asset classes and (ii) a high credit quality fixed income securities portfolio with a duration and maturity profile at an acceptable risk level that provides ample liquidity. 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. Our investment strategy considers climate change risk by prohibiting any new direct equity or debt investments in thermal coal enterprises, including those generating 30% or more of their (i) revenue from the ownership, exploration, mining, or refining of thermal coal, or (ii) electricity generation from thermal coal. We believe that as the world transitions to a low-carbon economy, the value of these
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 have business continuity plans for our key data processing facility (Disaster Recovery Plan), the leadership team (Executive Crisis Management Plan), and significant operational areas. We review, update, and test these plans at least annually. Our tests include "tabletop" exercises and planned hands-on tests.
•Track our Scope 1 and Scope 2 greenhouse gas ("GHG") emissions, which are low relative to entities in other industries because we are an insurance holding company. 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. We sell the related solar renewable energy credits to others, so our renewable energy production contributes to a cleaner world but does not reduce our GHG emissions.
Ongoing Initiatives
We plan to continue reducing our carbon emissions relative to our revenues over the long term. We develop initiatives that we expect will reduce GHG emissions over time. Some include:
•Upgrades to our corporate headquarters building management system, which should reduce heating and cooling natural gas consumption;
•Making efforts to transition our company cars from gasoline to hybrid vehicles; and
•Migrating our information technology systems from our corporate headquarters' data center to the cloud.
We have also implemented several initiatives at our corporate headquarters to lower our environmental impact, including:
•Enhanced waste management and recycling;
•Reducing the use of paper within our business;
•Conversion of all corporate headquarters light bulbs to LED;
•Hybrid work schedule;
•Repurposing commingled recyclables;
•Installed electric vehicle charging stations for employee use;
•Elimination of Styrofoam products in our cafeteria;
•Recycling and more efficient energy use of electronic equipment; and
•Reducing our water usage through automatic plumbing features.
Reports to Security Holders
We file with the U.S. Securities and Exchange Commission ("SEC") all required disclosures, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements, and any amendments to these reports that we file or furnish pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, which are accessible on the SEC's website, www.SEC.gov. These filings are also available at www.Selective.com shortly after filing such material with the SEC. Our website and the information contained or linked in it are not part of this Annual Report.
Item 1A. Risk Factors.
Certain risk factors can significantly impact our business, liquidity, capital resources, results of operations, financial condition, and debt ratings. These risk factors might affect, alter, or change actions in executing our long-term capital strategy. 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 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.
We are subject to losses from catastrophic events.
Losses from natural and human-made catastrophes can negatively impact our financial results. Examples include hurricanes, tornadoes, windstorms, earthquakes, hail, thunderstorms, severe winter weather, derechos, floods, and fires, some related to climate change, and criminal and terrorist acts, including cyber-attacks, civil unrest, and explosions. The frequency and severity of these catastrophes are inherently unpredictable, and the frequency and severity of catastrophe losses have increased globally in recent years. In many cases, the increase in catastrophe losses relate to small- to- medium-sized events that primary insurers retain and do not cede to reinsurers. 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.
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. 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.
Certain factors can impact our estimates of ultimate costs for natural and/or human-made catastrophes, including:
•Inability to access portions of the affected areas after a catastrophic event;
•Scarcity of necessary labor and materials that delay repairs and increase our loss costs;
•Regulatory uncertainties, including new or expanded interpretations of coverage;
•Residual market assessment-related increases in our catastrophe losses;
•Potential fraud and inflated repair costs, partly driven by (a) demand surge post-event and (b) opportunistic service providers;
•Higher loss expenses due to shortages of claims adjusters available to appraise damage;
•Late claims reporting;
•Escalation of business interruption costs due to infrastructure disruption; and
•Whether the U.S. Secretary of the Treasury certifies an event as a terrorist act under TRIPRA.
Natural catastrophes
Temperature changes can impact weather patterns and the frequency and/or severity of catastrophes, including hurricanes, severe convective storms, wildfires, and flooding – all of which could cause our catastrophe losses to increase relative to historical levels.
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. These global regional differences, whether attributable to nature or human activities, include increases in (i) mean temperature in most land and ocean regions, (ii) hot extremes in most inhabited regions, (iii) heavy precipitation in several regions, and (iv) the probability of drought and precipitation deficits in some regions.
Human-made catastrophes
Cyber Attacks and Incidents
The risk of a wide-scale criminal or terrorist cyber-attack has become more significant and has drawn increased attention from IT and national security experts, U.S. policymakers, the U.S. military, and the insurance industry. There is general recognition that a wide-scale cyber-attack that simultaneously impacts multiple victims is more likely, and insurance industry systemic risk has increased. 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. 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. 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, some of our other insurance policies may provide coverage following a cyber event in certain circumstances:
•We offer limited first-party affirmative cyber coverage in our commercial property and businessowners' policy forms. 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. Over 90% of our policies with virus/harmful code coverage on commercial property, businessowners', commercial output policy, or inland marine forms have sub-limits of $25,000 or lower. For policies effective October 1, 2022 and later, we implemented cyber incident exclusions that exclude malicious cyber except for the sub-limited coverage provided in the base ISO coverage forms and our property and businessowners' property “virus and harmful code” extension endorsements. 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.
Terrorism
We are required to participate in TRIPRA, now extended to December 31, 2027, for our Standard Commercial Lines and E&S Lines business. TRIPRA rescinded all previously approved coverage exclusions for terrorism and requires private insurers and the U.S. government to share the risk of loss on future acts of terrorism certified by the U.S. Secretary of the Treasury. 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%. 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. Secretary of the Treasury does not certify specific terrorist events, we could be required to pay terrorism-related covered losses without TRIPRA's risk-sharing benefits. We also could be required to pay terrorism-related losses for customers who declined terrorism coverage.
Our primary workers compensation policies are required to cover terrorism risk, so TRIPRA applies to those policies. 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. TRIPRA also applies to cyber liability insurance policies reported under a Terrorism Risk Insurance Program-eligible line of insurance.
Many states mandate that commercial property policies cover fire following an act of terrorism - regardless of whether the insured purchased terrorism coverage. We also sometimes elect to provide terrorism coverage for lines of business not included in TRIPRA, such as Commercial Automobile. TRIPRA has never covered personal lines of business. Our Standard Personal Lines homeowner policies exclude nuclear losses but not biological, chemical, or conventional terrorism losses. Our current reinsurance programs cover some losses from conventional foreign and domestic terrorism acts but not NBCR events.
An increase in natural or man-made catastrophe losses, including a systemic cyber-attack that produces an aggregation of property and/or casualty cyber losses, will reduce our net income and stockholders’ equity and could have a material adverse effect on our liquidity, financial strength, and debt ratings. The closer a catastrophe occurs to the end of a reporting period, the more likely we have limited information to estimate loss and loss expense reserves, increasing the uncertainty of our estimates. More comprehensive claims information available after a reporting period may result in reserve changes in subsequent periods.
Our loss and loss expense reserves may not adequately cover actual losses and expenses.
We maintain reserves for our estimated liability for loss and loss expense associated with reported and unreported insurance claims. Estimating loss and loss expense reserves is inherently uncertain, and there is no method for precisely estimating the ultimate liability for the settlement of claims. We base our loss and loss expense reserve estimates on our internal in-depth reserve review, which uses our loss experience, claims payment and reporting patterns, and our view of underlying claims frequency and severity trends. We supplement the estimates with other subjective considerations, including projected impacts
from economic, political, social, and legal developments or trends, such as inflation, judicial trends and tort decisions, and various state legislative initiatives. We cannot predict the timing or impact of these developments or trends with certainty, and we cannot be sure the reserves we establish are adequate or will be so in the future.
We review our reserve position quarterly and adjust the reserve position accordingly. An increase in reserves (i) reduces net income and stockholders' equity, and (ii) could have a material adverse effect on our liquidity, financial strength, and debt ratings. As we underwrite new business and renew existing business, we estimate future loss cost trends in pricing our products to generate an adequate risk-adjusted return. If our future loss cost trend estimates prove to be understated, our pricing of future new and renewal business could be inadequate to cover actual loss costs, and our future loss and loss expense reserves could be understated.
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. 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. 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. If this trend continues and medical care costs increase significantly or persist at a higher level for an extended period, our overall loss and loss expense reserves could be materially impacted. Our short-tail property lines of business are also susceptible to inflation because of their exposure to increased labor and material costs.
•Social inflation refers to the phenomenon where societal factors, such as attitudes, perceptions, and cultural changes, contribute to increased insurance claims costs and litigation. 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. 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. By retroactively permitting previously time-barred claims, these "reviver" laws may result in insurance claims that could significantly increase loss costs and require re-evaluating previously established reserves or creating new reserves. Since reviver statutes have been enacted, we have received some notices of claims or potential claims for acts alleged to have occurred, some dating as far back as the 1950s. Without prior experience, we cannot estimate how many "reviver" claims notices we may receive. Most notices (i) are blanket notices sent by attorneys representing claimants unsure of the alleged assailant or supervising entity's insurer or policy (if any) and (ii) may not implicate any of our or a predecessor's insurance policies. For those we determine implicate one of our or a predecessor's policy, we (i) have investigated or are investigating facts, (ii) have evaluated policy terms, (iii) believe we have appropriate coverage defenses to most of these claims and/or sufficient reinsurance protections, and (iv) have considered these factors in establishing our reserves, which we believe provide a reasonable estimate of the aggregate ultimate net exposure for these claims. We face related litigation risks because policyholders and claimants may challenge our coverage positions. 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. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." and Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Our ability to reduce our risk exposure depends on the availability and cost of reinsurance.
We transfer a significant portion of our underwriting risk to third parties through reinsurance, which are primarily annual contracts that reimburse us for losses exceeding specified thresholds on a per-loss or an aggregate basis. Typically, our
reinsurance coverages align with the coverages in our primary insurance policies, including coverages for catastrophes. Historically, commercial property and homeowners losses have accounted for most of our catastrophe-related reinsurance claims. We determine the amount of reinsurance we purchase by analyzing historical losses and using various modeling software programs that analyze our Insurance Subsidiaries' risks, particularly for catastrophes. Insufficient reinsurance could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
Reinsurance availability; retentions; coverage limits, terms, conditions, and exclusions; and cost depend on market conditions influenced by traditional direct- and broker-placed reinsurance, retrocessional reinsurance, and catastrophe bond market capacity. 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. Reinsurance expense increases that are not considered or approved in our filed rates and rating plans will reduce our earnings. If we cannot negotiate desired reinsurance amounts or terms, we may experience increased reinsurance expense and increased risk retention on individual or aggregate claim losses that could limit our ability to write future business.
The reinsurance market became increasingly challenging and expensive since January 1, 2023, as monetary and social inflation-driven demand for increased reinsurance coverages coincided with reduced reinsurance capacity from poor reinsurance loss experience, particularly for general liability and catastrophe and non-catastrophe property losses, increased reinsurer investment losses, and foreign exchange rate impacts. While reinsurance market conditions have since stabilized, as pricing has moderated and capacity has increased, reinsurance purchasers continue to face higher pricing and more restrictive coverage appetite from reinsurers than they did before January 1, 2023. Our Insurance Subsidiaries face increased underwriting risk and loss exposure for specific primary policy perils, like cyber and communicable diseases, which our reinsurance policies now principally exclude. Our reinsurance contracts also restrict our ability to cede certain types of potential terrorism-related losses. 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.
Even with the benefits of reinsurance, our catastrophe risk exposure could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
We are exposed to credit risk.
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. 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. 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.
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 market and sell our insurance products through independent, non-employee distribution partners. Independent distribution partners have – and we expect they will continue to have – a significant role in overall insurance industry premium production. 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. 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. Continued advancements in "direct-to-customer" distribution models may impact our independent distribution partners' overall market share, make it more difficult for us to grow, or require us to establish relationships with more distribution partners.
•Aggregation and consolidation of our independent distribution partners and their market share. Some publicly traded and private equity-backed independent distribution partners have deployed consolidation strategies to acquire other independent distribution partners and increase their market share ("Aggregators") over the last decade. If more of our independent distribution partners become Aggregators or Aggregators acquire them, Aggregator demands and influence on our business could increase. 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 financial condition and results of operations are impacted by our independent distribution partners' success in marketing and selling our products and services.
National and global economic conditions could adversely and materially affect our business, results of operations, financial condition, and growth.
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. 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. 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, and the Middle East. 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.
A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and have a material adverse effect on our financial condition and results of operations.
A significant financial strength rating downgrade, particularly from AM Best Company ("AM Best"), would affect our ability to write new or renewal business. Most policyholders are required by various third-party agreements, primarily with lenders, to maintain insurance policies from a carrier with a minimum rating from AM Best or Standard & Poor's Global Ratings. Credit rating downgrades could also make it more expensive to access capital markets. 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. 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.
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. Our ability to compete depends heavily on our timely and consistent introduction of innovative new products and services.
We face substantial competition from a wide range of property and casualty insurance companies for customers, distribution partners, and employees. Competitors include public, private, and mutual insurance companies. 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. Consequently, some competitors may be able to price their products more competitively.
The Internet has emerged as a significant competitive digital marketplace for existing and new competitors. Established insurance competitors are beginning to explore broader digital Internet offerings and implement artificial intelligence ("AI"). New competitors with variations on traditional business models have emerged. Because the Internet makes it easier and less expensive to bundle products and services, it is also possible that non-insurance companies conducting business on the Internet could enter the insurance business or form strategic alliances with insurers. Changes in competitors and competition, particularly on the Internet, could cause changes in the supply or demand for insurance and adversely affect our business.
The increasing importance of the Internet, technology, AI, and digital strategies in our industry also demands that we attract and retain employees in difficult-to-fill data science, advanced analytics, and information technology ("IT") roles. 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.
Insurers depend on access to reliable data about their policyholders and loss experience to build complex analytics and predictive models that assess risk profitability, reserve adequacy, adverse claim development potential, recovery opportunities, fraudulent activities, and customer buying habits. Because we use and depend on the aggregated industry loss data assembled by rating bureaus under the antitrust exemptions of the McCarran-Ferguson Act, we likely would be at a competitive disadvantage to larger insurers if Congress repealed the McCarran-Ferguson Act.
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. We supplement our data with industry loss experience from Verisk, American Association of Insurance Services, Inc., the National Council on Compensation Insurance, Inc., and other publicly available sources. While relevant, industry data may not correlate specifically to the performance of our underwritten risks or be as predictive as data on a larger book of our own business.
We are subject to various modeling risks that could have a material adverse impact on our business results.
We rely on complex financial and other statistical models, developed internally and by third parties, to predict (i) underwriting results on individual risks and our overall portfolio, (ii) claims fraud and other claims impacts, such as escalation, (iii) impacts from catastrophes, (iv) enterprise risk management capital scenarios, and (v) investment portfolio changes. We rely on these financial and other statistical models to analyze historical loss costs and pricing, claims severity and frequency trends, catastrophe losses, reinsurance attachment and exhaustion points, investment performance, portfolio risk, and our economic capital position. Flaws or limitations in financial and statistical models and their embedded assumptions could increase losses. For example, 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. 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.
Our investments are exposed to credit risk, interest rate fluctuation, and changes in value.
We depend on income from our investment portfolio for a significant portion of our revenue and earnings. 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.
Our investment portfolio's value is subject to credit risk from our held securities' issuers, guarantors, financial guarantee insurers, and other counterparties in certain transactions. Defaults on any of our investments by any of these parties could reduce our net investment income and increase net realized investment losses. 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. 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.
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. This transition to renewable energy sources may lead to (i) stranded assets in sectors with high carbon footprints or those closely tied to carbon-based economic activity, such as the fossil fuel and automotive industries, (ii) increased costs for infrastructure reinvestment and replacement, and litigation defense of carbon-intensive sectors, (iii) lower corporate profitability, (iv) lower property values, and (v) lower household wealth. 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. 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. 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. 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. For more information regarding market interest rate, credit, and equity price risk, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." of this Form 10-K.
We are subject to the risks inherent in investing in private limited partnerships.
Our alternative investments include private limited partnerships that invest in various strategies, such as private equity, private credit, and real assets. The primary assets and liabilities underlying these limited partnership investments generally do not have quoted prices in active markets for the same or similar assets. Consequently, their valuation is subject to a higher level of subjectivity and unobservable inputs than most of our other investments. We record these limited partnership investments under the equity method of accounting, so valuation decreases could negatively impact our results of operations.
Determining the amount of credit losses taken on our investments is highly subjective and could materially impact our results of operations or our financial position.
The determination of the amount of credit losses taken on our investments is based on our quarterly evaluation and assessment of our investments and known and inherent risks associated with the various asset classes. Our allowance for credit losses is subject to significant judgments and assumptions about 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. 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. "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.
Our 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.
Changes to laws and regulations can adversely affect our business by increasing our costs, limiting our ability to offer a product or service to customers, requiring changes to our business practices, or otherwise making our products and services less attractive.
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. 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. Consequently, we have the risk that one regulator's position or interpretation may conflict with another regulator on the same point. For example, if Congress passed legislation regulating insurer solvency oversight and state regulators remained responsible for rate approval, we could be subject to a conflicting regulatory framework that could impact our profitability and capital adequacy. The cost of complying with various laws and regulations, potentially conflicting laws and regulations, and changes in those laws and regulations, could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
Insurers are subject to regulatory, political, and media scrutiny. 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 activity in the future. 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 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. 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. 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. 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. We could be subject to litigation or governmental actions if we fail to comply with these public statements or federal and state privacy-related and data protection laws and regulations. Such proceedings could impact our reputation and result in penalties, including ongoing audit requirements and significant legal liability.
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.
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. 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.
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.
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. 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.
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.
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. 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. "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 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. These covenants obligate the Parent to, among other things, maintain a minimum consolidated net worth and a maximum ratio of debt to capitalization. Our preferred stock's terms limit the Parent's ability to declare or pay dividends on, or purchase, redeem, or otherwise acquire shares of its common stock or any shares of the Parent that rank junior to, or on parity with, the preferred stock if the Parent does not declare and pay (or set aside) dividends on the preferred stock for the last preceding dividend period. For additional details about the Line of Credit's financial covenants, see Note 11. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data" of this Form 10-K. For additional details about conditions related to our preferred stock, see Note 17. "Equity" in Item 8. "Financial Statements and Supplementary Data" of this Form 10-K.
Because we are a New Jersey corporation and an insurance holding company, we may be less attractive to potential acquirers and our common stock's value could be adversely affected.
We are a New Jersey company, and provisions of the New Jersey Shareholders' Protection Act and our Amended and Restated Certificate of Incorporation may discourage, delay, or prevent us from being acquired. A supermajority of our shareholders must approve (i) certain business combinations with interested shareholders or (ii) any amendment to the related provisions of our Amended and Restated Certificate of Incorporation unless certain conditions are met. These conditions may relate to, among other things, the interested stockholder's acquisition of stock, the approval of the business combination by disinterested members of our Board and disinterested stockholders, and the price and payment of the consideration proposed in the business combination. In addition to considering the effects of any action on our shareholders (including any offer or proposal to acquire the Parent), our Board may consider (i) the long-term, and short-term interests of the Parent and our shareholders, including the possibility that the Parent’s continued independence may best serve these interests, (ii) the effects of the action on the Parent's employees, suppliers, creditors, and customers, and (iii) the effects of the action on the community in which the Parent operates.
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.
Because we own insurance subsidiaries, any party seeking to acquire 10% or more of our common stock must seek prior approval from the subsidiaries' domiciliary insurance regulators and file extensive information about their business operations and finances. The New Jersey Department of Banking and Insurance Commissioner, who regulates seven of our Insurance Subsidiaries, also considers whether (i) the acquisition of control of an insurer would be adverse to the public interest or the protection of existing and future policyholders or (ii) persons seeking control would use control adversely to the public interest or the protection of policyholders.
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. Our systems also house proprietary and confidential information about our operations, employees, agents, and customers and their employees and property, including PII. 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. These potential impacts from a malicious cyber-attack could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
Through encryption and authentication technologies, we have implemented system- and process-based risk mitigations intended to secure our IT systems and prevent unauthorized access to or loss of sensitive data. Cyber-attack sophistication evolves daily, so our security measures may not sufficiently address all eventualities. We may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management, or other irregularities. We implement new technologies, including artificial intelligence, to increase operational efficiencies. These new technologies may increase the risk of cyber-attacks. We also rely on third-party technology providers whose cyber-attack risks may be higher or lower than ours depending on their
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. Any disruption or breach of our systems or data security could damage our reputation, result in monetary damages that are difficult to estimate, and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. 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. We have insurance coverage for certain cybersecurity risks, including privacy breach incidents, which may be insufficient to indemnify against all arising losses or types of claims.
In addition to the risk of cyber-attacks, we face system availability risk. Our business relies heavily on various IT and application systems. We have robust business continuity plans designed to minimize the duration and impact of an unexpected loss of availability of any of these systems. Nevertheless, we could experience an event that impacts one or more of these systems, including those based in facilities where our vendors or we operate. 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. 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. 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.
Item 1C. Cybersecurity.
Risk Management and Strategy
Our business heavily relies on various IT and application systems that contain proprietary and confidential information about our operations, employees, agents, claimants, customers, and their employees and property, including personally identifiable information. These systems are connected to and/or accessed from the Internet, making them susceptible to cyber-attacks. A cyber-attack on our systems, distribution partners and their key operating systems, or any other third-party partners or vendors and their key operating systems may materially affect us. Potential impacts include prolonged interruption of our business operations, reputational harm, or substantial monetary damages. For a detailed description of the risks related to cybersecurity, refer to the "Risks Related to our General Operations" section in Item 1A. "Risk Factors." of this Form 10-K.
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.
We work with industry-leading security consulting and technology partners and employ a "defense-in-depth" approach that uses multiple security measures to protect the integrity of our proprietary and confidential information. This approach aligns with the National Institute of Standards and Technology Cyber Security Framework and provides preventative, detective, and responsive measures to identify and manage risks. 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. 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. 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;
•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. We review third-party control environments when possible and practical, aligning the risk exposure with our business requirements and risk tolerances.
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. The 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.
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.
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. He has worked for us for approximately 31 years, holding various technology and information security roles of increasing responsibility. He has a bachelor’s degree in information systems and business, a Master’s Certificate in Project Management, and a Columbia University CIO Program Certificate.
•Robert McKenna, SVP of Enterprise Strategy and Execution, reports to our CIO and leads the implementation of our cybersecurity program, enforcement of our cybersecurity policies, technology planning, projects driving IT strategy, and enterprise IT risk management. 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. 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. 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.
Our IRP describes the circumstances that require internal and external notifications of cybersecurity incidents that (i) relate to any of our computer systems or networks and compromise the confidentiality, integrity, or availability of the systems or networks, (ii) compromise the confidentiality, integrity, or availability of any sensitive data that belongs to us or a third party and is in our care or custody, or (iii) involve one or more third parties with whom we share sensitive data. 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 the SEC. The IRP also provides guidance on how to evaluate potential cyber events and suspicious cyber occurrences. We engage outside legal counsel and technical experts to regularly review the IRP and use internal teams and outside advisors with specialized skills to support the response and recovery efforts of proprietary and confidential information.
For additional information on our overall corporate governance structure and internal process of assessing our other significant risks, see the "Corporate Governance, Sustainability and Social Responsibility" section in Item 1. "Business." of this Form 10-K.
Item 2. Properties.
Our headquarters is a 315,000-square-foot building on an owned 56-acre site zoned for office and professional use in Branchville, New Jersey. We lease all our other operating facilities from unrelated parties. The principal office locations of our insurance operations are listed in the "Geographic Markets" section of Item 1. "Business." of this Form 10-K. Our Investments operations are principally located in leased space in Farmington, Connecticut. Our facilities provide adequate space for our present needs. Additional space should be available on reasonable terms if needed.
Item 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, 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, 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.
(c) Dividends
Dividends on shares of our common stock are declared and paid at the discretion of the Board of Directors (the "Board") based on our results of operations, financial condition, capital requirements, contractual restrictions, and other relevant factors. We expect to continue to pay quarterly cash dividends on shares of our common stock.
In the fourth quarter of 2024, the Board approved a 9% increase in our common stock dividend to $0.38 per share. 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.
(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
1Includes 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 include stock options, restricted stock units, or restricted stock.
(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.
We have not incorporated this performance graph into any other filings we have made with the SEC. Unless we specifically state otherwise, it will not be incorporated by reference into any future SEC filings. This 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.
(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 Purchased1
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs2
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Announced Programs2
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
1We purchased these shares from employees to satisfy tax withholding obligations associated with the vesting of their restricted stock units.
2On December 2, 2020, we announced our Board authorized a $100 million share repurchase program with no set expiration or termination date. Our repurchase program does not obligate us to acquire any particular amount of our common stock. Management will determine the timing and amount of any share repurchases under the authorization at its discretion based on market conditions and other considerations.
Item 6. Reserved.
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The terms "Company," "we," "us," and "our" refer to Selective Insurance Group, Inc. (the "Parent") and its subsidiaries, except as expressly indicated or the context otherwise requires. 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. These statements discuss our intentions, beliefs, projections, estimations, or forecasts of future events and financial performance. They involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, activity levels, or performance to materially differ from those in or implied by the forward-looking statements. In some cases, forward-looking statements include the words "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "attribute," "confident," "strong," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," "continue," or comparable terms. Our forward-looking statements are only predictions; we cannot guarantee or assure that such expectations will prove correct. 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. 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. 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. "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 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. Collectively, we refer to our ten insurance subsidiaries as the "Insurance Subsidiaries."
The following is Management's Discussion and Analysis ("MD&A") of our financial condition and consolidated results of operations, including an evaluation of the amounts and certainty of cash flows from operations and outside sources, trends, and uncertainties that may have a material impact in future periods. The MD&A discusses and analyzes our 2024 results compared to 2023. Investors should read the MD&A in conjunction with Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. For discussion and analysis of our 2023 results compared to 2022, refer to Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
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.
Critical Accounting Policies and Estimates
We have identified the policies and estimates critical to our business operations and understanding of our results of operations. 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.
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. The following tables provide case and incurred but not reported ("IBNR") reserves for loss and loss expenses and reinsurance recoverable on unpaid loss and loss expense as of December 31, 2024 and 2023:
December 31, 2024
Loss and Loss Expense Reserves
($ in thousands)
Case Reserves
IBNR Reserves
Total
Reinsurance Recoverable on Unpaid Loss and Loss Expense
Net Reserves
General liability
$
515,057
2,391,162
2,906,219
396,702
2,509,517
Workers compensation
347,555
688,323
1,035,878
238,995
796,883
Commercial automobile
343,969
764,709
1,108,678
14,774
1,093,904
Businessowners' policies
46,076
78,048
124,124
2,604
121,520
Commercial property
119,858
71,223
191,081
36,313
154,768
Other
6,497
15,729
22,226
2,612
19,614
Total Standard Commercial Lines
1,379,012
4,009,194
5,388,206
692,000
4,696,206
Personal automobile
75,461
118,355
193,816
35,386
158,430
Homeowners
19,593
37,851
57,444
1,962
55,482
Other1
240,704
49,484
290,188
273,013
17,175
Total Standard Personal Lines
335,758
205,690
541,448
310,361
231,087
E&S casualty lines2
106,178
530,099
636,277
18,903
617,374
E&S property lines3
12,030
11,840
23,870
981
22,889
Total E&S Lines
118,208
541,939
660,147
19,884
640,263
Total
$
1,832,978
4,756,823
6,589,801
1,022,245
5,567,556
1Includes our flood loss exposure related to our participation in the NFIP's WYO program, to which we cede 100% of our WYO flood losses.
2Includes general liability (97% of net reserves) and commercial auto liability coverages (3% of net reserves).
3Includes commercial property (93% of net reserves) and commercial auto property coverages (7% of net reserves).
Reinsurance Recoverable on Unpaid Loss and Loss Expense
Net Reserves
General liability
$
453,520
1,743,885
2,197,405
255,493
1,941,912
Workers compensation
353,448
654,267
1,007,715
203,982
803,733
Commercial automobile
315,116
659,234
974,350
15,683
958,667
Businessowners' policies
39,034
71,159
110,193
5,252
104,941
Commercial property
108,644
66,579
175,223
39,152
136,071
Other
17,260
12,819
30,079
10,241
19,838
Total Standard Commercial Lines
1,287,022
3,207,943
4,494,965
529,803
3,965,162
Personal automobile
68,329
100,036
168,365
38,273
130,092
Homeowners
18,335
44,261
62,596
1,647
60,949
Other1
12,909
34,282
47,191
32,736
14,455
Total Standard Personal Lines
99,573
178,579
278,152
72,656
205,496
E&S casualty lines2
99,690
447,770
547,460
15,686
531,774
E&S property lines3
5,667
10,667
16,334
456
15,878
E&S Lines
105,357
458,437
563,794
16,142
547,652
Total
$
1,491,952
3,844,959
5,336,911
618,601
4,718,310
1Includes our flood loss exposure relates to our participation in the NFIP's WYO program, to which we cede 100% of our flood losses.
2Includes general liability (97% of net reserves) and commercial auto liability coverages (3% of net reserves).
3Includes commercial property (90% of net reserves) and commercial auto property coverages (10% of net reserves).
The Insurance Subsidiaries' net loss and loss expense reserves duration was approximately 3.0 years at December 31, 2024 and 3.1 years at December 31, 2023.
How the reserve is established
Reserve for loss and loss expense include case reserves on reported claims and IBNR reserves. Case reserves are estimated for each individual claim based on facts and circumstances known at the time. Case reserves may be adjusted up or down as the claim's specific facts and circumstances change. IBNR reserves are established at more aggregated levels and include provisions for (i) claims not yet reported, (ii) future development on reported claims, (iii) closed claims that could reopen in the future, and (iv) anticipated salvage and subrogation recoveries.
We perform quarterly internal reserve reviews using our own loss experience, considering various internal and external factors. Changes in claim dynamics may inherently alter paid and reported development patterns. While the selections in our reserve analyses aim to account for these impacts, estimated reserves involve greater risk of variability. In addition to our internal reserve reviews, an external consulting actuary performs an independent semiannual reserve review. We do not rely on the external consulting actuary's report to determine our recorded reserves but we review and discuss our observations on trends, key assumptions, and actuarial methodologies with our consulting actuary. While not required, our independent consulting actuary issues the annual statutory Statements of Actuarial Opinion for our Insurance Subsidiaries. For additional information on our accounting policy for reserve for loss and loss expense, refer to Note. 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Range of Reasonable Reserve Estimates
We have estimated a range of reasonable reserve estimates for net loss and loss expense of $5,003 million to $6,114 million at December 31, 2024. This range reflects low and high reasonable reserve estimates determined after using judgment to adjust the methods, factors, and assumptions selected within the internal reserve review. 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. This increase was primarily related to reserve growth commensurate with (i) our net premiums earned ("NPE") growth and (ii) increased uncertainty in severity due to the impact of social inflation.
Changes in Reserve Estimates (Loss Development)
Our quarterly reserving process may lead to changes in the recorded reserves for prior accident years, referred to as favorable or unfavorable prior year loss and loss expense development. In 2024, we experienced net unfavorable prior year loss
development of $285.3 million, compared to net unfavorable development of $10.0 million in 2023 and net favorable development of $78.9 million in 2022. The following table summarizes prior year development by line of business:
(Favorable)/Unfavorable Prior Year Loss and Loss Expense Development
($ 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.
Standard Market General Liability Line of Business
At December 31, 2024, our general liability line of business had recorded reserves, net of reinsurance, of $2.5 billion, representing 45% of our total net reserves. In 2024, this line experienced unfavorable reserve development of $316.0 million, primarily due to the impact of social inflation that increased loss severities in accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023. We attribute the increased severities to elevated social inflation, which we view as an industry dynamic characterized by higher claimant propensity for attorney representation and litigation, longer settlement times, and higher settlement values. Similarly, this line experienced unfavorable development in 2023 of $55.0 million, attributable to the impact of social inflation driving increased loss severities in accident years 2015 through 2020.
This general liability line of business has experienced a long-term historical trend of meaningful claim severity increases that have been partially offset by claim frequency decreases. In recent years, we have been embedding higher severity assumptions in our initial loss ratio estimates to address social inflation's increasing impacts. Although we planned for higher expected loss trends, 2024's claim emergence exceeded our expectations. If the favorable frequency trend moderates or severities continue to emerge higher than expected, this line's ultimate loss estimates could be adversely impacted.
The general liability line of business presents a diverse set of exposures. Various factors influence losses and loss trends, including legislative enactments, judicial decisions, and economic and social inflation. Economic inflation directly impacts our claims severities by increasing the costs of raw materials, medical procedures, and labor. 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. We have observed the percentage of general liability claims with plaintiff attorney involvement increasing in recent periods. Other social inflationary factors, including the increased prevalence of third-party litigation funding, claimant willingness to undergo surgery, evolving plaintiff attorney strategies and tactics, and broadening liability definitions and interpretations are also impacting claims severities. These trends and post-pandemic court case scheduling continue to affect claim settlement times.
We have exposure to abuse or molestation claims, mainly through policies that we (i) underwrite through our Community and Public Services ("CAPS") strategic business unit and (ii) issue to schools, religious institutions, day-care facilities, and other social services. These CAPS business unit customers represented approximately 10% of our total Standard Commercial Lines NPW in 2024 and 2023. We continue to actively manage policy limits and monitor each jurisdiction's statute of limitations to ensure our rate level reflects increased exposure to the extent regulatorily possible. These underwriting and pricing actions have positioned the portfolio for future profitability but limited our CAPS growth in recent years.
Certain states have enacted state laws that extend the statute of limitations or permit windows for abuse or molestation claims and lawsuits that statutes of limitations previously barred. Consequently, we may receive claims decades after the alleged acts involving complex claims coverage determinations, potential litigation, higher defense costs, and the need to collect from reinsurers under older reinsurance agreements. Our claims and actuarial departments actively monitor these claims to identify changes in frequency or severity and any emerging or shifting trends.
Our active monitoring of claim patterns and emerging or shifting trends should help us better understand this rapidly evolving exposure. However, the ultimate impact of social, political, and legal trends remains highly uncertain and could substantially impact the ultimate settlement values for these claims.
In addition, over the last several years, we have implemented underwriting changes within this line of business that we believe will lead to improved profitability. These changes may impact portfolio composition and may affect paid and reported development patterns. While our reserve analyses incorporate methods that adjust for these changes, our estimated reserves have a greater risk of fluctuation.
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. Similarly, this line experienced favorable reserve development during 2023 of $74.5 million, primarily due to improved loss severities in accident years 2021 and prior. During both 2024 and 2023, the lower-than-expected loss emergence was partly due to (i) lower than initially anticipated medical inflation and (ii) our various implemented claims initiatives. Because of the length of time injured workers can receive related medical treatment, decreases in medical inflation can cause favorable loss development over an extended number of accident years.
A variety of issues can impact the workers compensation line of business, including:
Unexpected changes in medical cost inflation – The industry has experienced an extended period of lower medical claim cost inflation. 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. 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.
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. In 2023, this line experienced unfavorable prior year reserve development of $8.0 million, driven by increased loss expenses in accident years 2022 and prior.
The commercial automobile line has experienced unfavorable trends in recent years that have negatively affected the industry's results and ours. During the pandemic, reduced frequencies were accompanied by significant severity increases, resulting from increased risky driving behaviors, such as speeding, distracted driving, and driving under the influence. Risky driving behaviors and the impacts of social inflation continue to pressure this line's claim severities. As of year-end 2024, frequencies remained somewhat below pre-pandemic levels due to changes in commuting patterns.
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.
Over the last several years, we have implemented underwriting changes within this line of business that we believe will lead to improved profitability. These changes may impact portfolio composition and may affect paid and reported development patterns. While our reserve analyses incorporate methods that adjust for these changes, our estimated reserves have a greater risk of fluctuation.
Standard Market Personal Automobile Line of Business
At December 31, 2024, our personal automobile line of business had recorded reserves, net of reinsurance, of $158 million, representing 3% of our total net reserves. This line experienced unfavorable prior year reserve development of $11.1 million in 2024, primarily due to increased loss severities in accident years 2022 through 2023. This line experienced unfavorable prior year reserve development of $15.3 million in 2023, primarily due to increased loss severities in accident year 2022.
Some of the same issues affecting the commercial automobile line also impact this line. The COVID-19-related frequency reduction was even more pronounced for the personal automobile line. Frequencies rebounded after the pandemic and now are at pre-pandemic levels. In addition to the COVID-19-related temporary impacts, the underlying trends of increased vehicle repair costs are likely causes of rising severities, exacerbated by riskier driving behaviors, including distracted driving. We continue recalibrating our predictive models and refining our underwriting and pricing approaches, including prioritizing additional rate filings by state and further refining our pricing factors. These filed rate increases began to take effect early in 2023 and increased in volume and magnitude throughout 2023 and 2024. We expect them to remain above loss trends in 2025 but lower than the rate increases in 2023 and 2024. While we believe these underwriting and pricing changes will ultimately lead to improved profitability and greater stability, the resulting changes to our exposure profile may impact paid and reported development patterns, increasing reserve uncertainty in the near term.
E&S Casualty Lines of Business
At December 31, 2024, our E&S casualty lines of business had recorded reserves, net of reinsurance, of $617 million, representing 11% of our total net reserves. In 2024, this line experienced unfavorable prior year reserve development of $20.0 million, primarily due to increased loss severities in accident years 2023 and prior. In 2023, this line experienced favorable prior year reserve development of $5.0 million, primarily due to improved loss severities in accident years 2021 and prior.
Some of the risk factors for the general liability line also affect the E&S casualty lines. These include (i) economic inflation, such as materials and labor costs and (ii) social inflationary trends, such as increased attorney involvement, broader liability findings, and more generous settlement awards. In response to these social inflationary trends, we have been embedding higher severity assumptions in our initial loss ratio estimates, which materialized in 2024.
Over the past several years, we have made operational changes to improve E&S casualty claims processes:
•We created a dedicated E&S claims team, bringing greater expertise and consistency to E&S claims handling.
•We created separate specialized claims teams for "litigated," "non-litigated," and "high exposure" claims.
•We implemented legal operational and expense improvement initiatives, including (i) increasing the use of employed staff counsel lawyers to defend covered claims litigation and (ii) consistent with our duty to defend and manage litigation against our policyholders per the terms and conditions of our policies, we enhanced processes for legal budgeting, expense management, and selection and evaluation of outside policyholder defense counsel.
While we believe these claims operational changes are improving our results and customer experience, they have inherent risks. Changes in claims processes may affect paid and reported development patterns. Our reserve analyses incorporate methods that adjust for these changes, but our estimated reserves have a greater risk of fluctuation.
Other impacts that create additional loss and loss expense reserve uncertainty
Claims Initiative Impacts
Our Claims Department continually identifies areas for improvement and efficiency to increase our policyholder value proposition. 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.
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. Because these projection methods have their own assumptions and judgments, no single method can be considered definitive.
Unanticipated Changes in Economic Inflation
United States ("U.S.") fiscal and monetary policy and global economic conditions bring additional inflationary trend uncertainty. Changes in inflation affect the ultimate settlement costs for many of our lines of business, with the greatest reserve impact on the longer-tailed lines, such as general liability and workers compensation. Uncertainty about future inflation or deflation creates the potential for additional reserve variability in these lines of business.
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.
The importance of any single assumption depends on several considerations, such as line of business and accident year. If the actual experience emerges differently than the assumptions underlying the reserve process, possible changes in our reserve estimates could be material to the results of operations in future periods. 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 results (i) do not constitute an actuarial range, (ii) show possible impacts from variations in certain key assumptions, and (iii) offer no assurance that future loss and loss expense emergence will be consistent with our current or alternative assumptions.
Changes in internal and external trends and operational changes may manifest as changes in loss and loss expense development patterns. 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. The impact of underwriting portfolio and claims handling practice changes is also quantified and reflected where appropriate. Nonetheless, the ultimate loss and loss expense ratios may differ from current estimates.
The two tables below illustrate the sensitivities of loss and loss expense reserves to these key assumptions for the major casualty lines. The first table displays estimated impacts from changes in expected reported loss and loss expense development patterns for our major casualty lines of business. It shows line of business reserve impacts if the actual calendar year incurred amounts are greater or less than current expectations by the selected percentages. While judgmental, the selected percentages by line are based on the reserve range analysis and the actual historical reserve development for the line of business. The second table displays the estimated impacts of changes to the expected loss and loss expense ratios for the current accident year. It shows reserve impacts by line of business if the expected loss and loss expense ratios for the current accident year are greater or less than current expectations by the selected percentages.
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. For example, increases in the calendar year development would ultimately impact our view of the current accident year's loss and loss expense ratios. However, these tables provide perspective on the sensitivity of each key assumption. While the changes represent outcomes based on reasonably likely changes to our underlying reserving assumptions, they do not represent a range of possible outcomes and our reserves could increase or decrease significantly differently.
Asbestos and Environmental Reserves
Our general liability, businessowners' policies, and homeowners reserves include exposure to asbestos and environmental claims. The emergence of these claims occurs over an extended period and can be unpredictable. The total recorded net loss
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.
Environmental claims have arisen primarily from Standard Commercial Lines policies issued to municipal governments and small non-manufacturing commercial customers for landfill exposures, and Standard Personal Lines homeowners policies related to leaking underground storage tanks. Asbestos claims have arisen primarily from Standard Commercial Lines policies issued to (i) various distributors of asbestos-containing products, such as electrical and plumbing materials and (ii) contractors exposed to or handling asbestos-containing products, such as heating, ventilation, and air conditioning contractors. 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. 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. 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. 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. We remove other unusual and highly uncertain exposures, like toxic product claims involving diacetyl, lead paint, and silica, from our traditional reserve analysis and undertake a separate review for them.
Investment Valuation and the Allowance for Credit Losses on AFS Fixed Income Securities
Investment Valuation
Accounting guidance defines the fair value of our investment portfolio as the exit price or amount that would be (i) received to sell an asset or (ii) paid to transfer a liability in an orderly transaction between market participants. When determining an exit price, we must rely on observable market data, if available. Most securities in our equity portfolio have readily determinable fair values and are recorded at fair value with changes in unrealized gains or losses recognized through income. Our AFS fixed income securities portfolio is recorded at fair value, and the related unrealized gains or losses are reflected in stockholders' equity, net of tax. For our AFS fixed income securities portfolios, fair value is a key factor in the measurement of (i) losses on securities for which we have the intent to sell and (ii) changes in the allowance for credit losses.
The fair value of approximately 91% of our investments measured at fair value are classified as either Level 1 or Level 2 in the fair value hierarchy and are priced using observable inputs for identical or similar assets. About 9% are classified as either (i) Level 3 and are based on unobservable market inputs because the related securities are not traded on a public market, or (ii) not leveled because the related securities are measured at fair value using net asset value per share (or its practical expedient). For additional information, refer to the following sections within Item 8. "Financial Statements and Supplementary Data." of this Form 10-K: (i) item (d) of Note 2. "Summary of Significant Accounting Policies" for descriptions of the levels within the fair value hierarchy and the valuation techniques used for our Level 3 securities, and (ii) Note 7. "Fair Value Measurements" for quantitative information on the unobservable inputs in our securities measured using Level 3 inputs.
Allowance for Credit Losses on AFS Fixed Income Securities
When fixed income securities are in an unrealized loss position and we do not intend to sell them, we record an allowance for credit losses for the portion of the unrealized loss related to an expected credit loss. We estimate expected credit losses on these securities by performing a risk-adjusted discounted cash flow ("DCF"). The allowance for credit losses is the excess of amortized cost over the greater of (i) our estimate of the present value of expected future cash flows or (ii) fair value. The allowance for credit losses cannot exceed the unrealized loss, and therefore it may fluctuate with changes in the security's fair value. We also consider the need to record losses on securities in an unrealized loss position for which we have the intent to sell. If we determine that we have the intent or likely requirement to sell the security, we write down its amortized cost to its fair value.
We analyze unrealized losses for credit loss in accordance with our existing accounting policy, which includes performing DCF analyses on securities at the lot level and analyzing these DCFs using various economic scenarios. In performing these DCF analyses, we calculate the present value of future cash flows using various models specific to the major security types in our
portfolio. These models use security-specific information and forecasted macroeconomic data to determine possible expected credit loss scenarios based on projected economic changes. The forecasted economic data incorporated into the models is based on the Federal Reserve Board’s annual supervisory stress test review on certain large banks and financial institutions.
We also can incorporate internally-developed forecast information into the models as we deem appropriate. In developing our best estimate of the allowance for credit losses, we consider our outlook on the probability of the various scenarios occurring.
Based on these analyses, we recorded an allowance for credit losses on our AFS fixed income securities portfolio of $31.9 million at December 31, 2024, and $28.2 million at December 31, 2023. If the security-specific and macroeconomic assumptions in our DCF analyses or our outlook on the occurrence probability of our DCF model scenarios were to change, our allowance for credit losses and the resulting credit loss expense or benefit will negatively or positively impact our results of operations. Factors considered in determining the allowance for credit losses require significant judgment, including our evaluation of the security's projected cash flow stream.
For additional information regarding our allowance for credit losses on AFS fixed income securities, see item (c) of Note 2. "Summary of Significant Accounting Policies" and item (i) of Note 5. "Investments" within Item 8. "Financial Statements and Supplementary Data." of this Form 10-K, respectively.
Reinsurance
Reinsurance recoverables on paid and unpaid loss and loss expense represent our estimates of the amounts we will recover from reinsurers. Each reinsurance contract is analyzed to ensure sufficient risk is transferred to record the transactions appropriately as reinsurance in the Financial Statements. 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. An allowance for credit losses on our reinsurance recoverable balance is recorded based on an evaluation of balances due from reinsurers and other available information, including collateral we hold under the terms and conditions of the underlying agreements. Reinsurers often purchase and rely on their retrocessional reinsurance programs to manage their capital position and improve their financial strength ratings. Details about retrocessional reinsurance programs are not always transparent, making it difficult to assess our reinsurers' exposure to counterparty credit risk. Other factors impact our reinsurer's credit quality, such as their reserve adequacy, investment portfolio, regulatory capital position, catastrophe aggregations, and risk management practices. 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 $1.7 million at December 31, 2023. We continually monitor developments that may impact recoverability from our reinsurers, for which we have contractual remedies, if necessary. For further information regarding reinsurance, see the "Reinsurance" section below in "Results of Operations and Related Information by Segment" and Note 9. "Reinsurance" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Financial Highlights of Results for Years Ended December 31, 2024, 2023, and 20221
2024
2023
($ 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 Information2:
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
%
1Refer to the Glossary of Terms attached to this Form 10-K as Exhibit 99.1 for definitions of terms used in this financial review.
2Non-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). 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 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.
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
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. Our non-GAAP operating ROE of 7.1% in 2024 was below our target non-GAAP operating ROE of 12% and below our 2023 non-GAAP operating ROE of 14.4%. Investment performance was strong in 2024 and contributed 12.8 points to ROE; however, an after-tax underwriting loss reduced our ROE by 3.7 points in 2024, a reduction of 7.9 points when compared to 2023.
The after-tax underwriting loss in 2024 compared to income in 2023 was primarily attributable to unfavorable prior year casualty reserve development in 2024. We recorded $311.0 million of unfavorable prior year casualty reserve development in 2024, compared to $6.5 million of favorable prior year casualty reserve development in 2023. Development in 2024 included $316.0 million in the general liability line of business in our Standard Commercial Lines segment for accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023. We believe that current market conditions and environmental factors, most notably social inflation, are impacting us more than historically. As a commercial lines-focused underwriter with a higher mix of casualty business, we recognize this social inflationary environment has increased loss severities. Reflecting these trends, current year casualty loss costs were 1.4 combined ratio points higher in 2024 compared to 2023.
For additional qualitative discussion on prior year casualty reserve development, refer to the insurance segment sections below.
Outlook
Although our 2024 ROE was below our target, we ended the year with a strong capital position and the financial flexibility to execute our strategy of disciplined, profitable growth. In recent years, we made strategic investments to expand our runway for profitable growth. These included adding eight states to our Standard Commercial Lines footprint, organically growing within our existing footprint, and investing in technology. These investments better position us to scale our business effectively with a focus on operational efficiency. Our reserving actions, pricing response, and progress on our strategic priorities in 2024 have us well-positioned to quickly return to delivering operating ROEs at or better than our 12% target.
Our granular approach to managing renewal pure price and retention coupled with our unique field model, the strength of our distribution partner relationships, and focus on customer experience continue to differentiate us in the market. In this uncertain environment, we are focused on rate and non-rate actions to drive underwriting profitability while prudently growing the business, including:
•Standard Commercial Lines
◦Achieving overall Standard Commercial Lines renewal pure price increases that reflect forward loss trend expectations;
◦Implementing underwriting refinements in our general liability line of business, including managing limits and coverage grants in challenging jurisdictions, driving improved terms and conditions, and focusing production on better-performing classes of business;
◦Continuing to expand our Standard Commercial Lines market share by (i) increasing our share towards a 12% target of our agents' premiums and (ii) strategically appointing new agents; and
◦Expanding our geographic footprint. In 2024, we entered Maine, Nevada, Oregon, Washington, and West Virginia, now covering 35 states and the District of Columbia. We expect to write new business in Kansas, Montana, and Wyoming over the next two years. After that, our pace of geographic expansion should moderate as we move closer to our goal of operating our Standard Commercial Lines business with a near national footprint.
•Standard Personal Lines
◦Continuing to refine our underwriting approach and pricing factors and achieving overall Standard Personal Lines renewal pure price increases that exceed loss trends;
◦Continuing to grow our mass affluent customer base in states where we have filed and obtained approvals of adequate rates; and
◦Continuing to seek improved homeowners line of business profitability by expanding the use of new policy terms and conditions, including (i) coverage for older roofs based on depreciation schedules rather than replacement cost and (ii) implementing mandatory wind/hail deductibles in states exposed to severe convective storms, where law permits.
•E&S Lines
◦Achieving E&S Lines renewal pure price increases that reflect forward loss trend expectations; and
◦Continuing to invest in product expansion, risk evaluation, and operational efficiency for small and middle market E&S lines accounts.
For 2025, our full-year expectations are as follows:
•A GAAP combined ratio of 96% to 97%, including net catastrophe losses of 6 points. Our combined ratio estimate assumes no prior year casualty reserve development;
•After-tax net investment income of $405 million;
•An overall effective tax rate of 21.5%; and
•Weighted average shares of 61.5 million on a fully diluted basis.
Results of Operations and Related Information by Segment
Insurance Operations
The following table provides quantitative information for analyzing the combined ratio:
The NPW growth of 12% in 2024 compared to 2023 included:
($ in millions)
2024
2023
2022
Direct new business premiums
$
994.3
923.5
731.7
Renewal pure price increases
9.5
%
6.8
5.1
Our NPW growth in 2024 also benefited from (i) exposure growth on renewal policies and (ii) stable retention in our Standard Commercial Lines and E&S Lines.
The increase in NPE in 2024 compared to 2023 resulted from the same impacts to NPW described above.
Loss and Loss Expenses
The following table provides quantitative information for analyzing loss and loss expense incurred:
2024 vs. 2023
2023 vs. 2022
($ in thousands)
2024
2023
2022
Loss and Loss Expense Incurred:
(Favorable) unfavorable prior year casualty reserve development
$
311,000
(6,500)
(4,885)
%
(86,000)
(92)
%
Current year casualty loss costs
1,887,374
1,595,891
18
1,433,982
11
Net catastrophe losses
284,503
244,510
16
145,926
68
Non-catastrophe property loss and loss expenses
681,607
650,384
5
617,870
5
Total loss and loss expense incurred
3,164,484
2,484,285
27
2,111,778
18
Impact on Loss and Loss Expense Ratio:
(Favorable) unfavorable prior year casualty reserve development
7.1
%
(0.2)
7.3
pts
(2.5)
2.3
pts
Current year casualty loss costs
43.1
41.7
1.4
42.6
(0.9)
Net catastrophe losses
6.5
6.4
0.1
4.3
2.1
Non-catastrophe property loss and loss expenses
15.6
17.0
(1.4)
18.3
(1.3)
Total loss and loss expense incurred
72.3
64.9
7.4
62.7
2.2
Prior Year Casualty Reserve Development and Current Year Casualty Loss Costs
The loss and loss expense ratio increased 7.4 points in 2024 compared to 2023, primarily driven by:
•An increase of 7.3 points in unfavorable prior year casualty reserve development in 2024 compared to 2023. In 2024, we recorded $311 million of unfavorable prior year casualty reserve development compared to $6.5 million, or 0.2 points, of favorable prior year casualty reserve development in 2023. Our 2024 calendar year actions were predominantly in the general liability line for accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023; and
•An increase of 1.4 points in current year casualty loss costs in 2024 compared to 2023, primarily due to increased loss trend expectations and higher prior-year severity assumptions related to the impacts of social inflation on our general liability and E&S casualty lines of business.
Details of the prior year casualty reserve development by reportable segment and line of business were as follows:
(Favorable)/Unfavorable Prior Year Casualty Reserve Development
($ 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.
Favorable prior year casualty reserve development on our workers' compensation, bonds, and homeowners lines of business provided a partial offset to the items above. The favorable prior year casualty reserve development on the workers compensation line was primarily driven by improved severities in accident years 2022 and prior.
The 2023 favorable prior year casualty reserve development was primarily driven by favorable development on our workers compensation line of business, due to improved loss severities driven by continued favorable medical cost trends in accident years 2021 and prior. Partially offsetting this favorable development was unfavorable development on our general liability and personal automobile lines of business. The unfavorable prior year development on (i) general liability was primarily driven by increased loss severities in accident years 2015 through 2020 attributable to social inflation and (ii) personal automobile was primarily driven by increased loss severities in accident year 2022.
For additional qualitative discussion on prior year casualty reserve development and current year casualty loss costs, refer to the insurance segment sections below.
Property Losses
Net catastrophe and non-catastrophe property losses reduced the loss and loss expense ratio by 1.3 points in the aggregate in 2024 compared to 2023. The non-catastrophe property loss and loss expense ratio was 1.4 points lower in 2024 compared to 2023, reflecting (i) the earned impact of higher renewal pure price increases in 2024, (ii) lower claim frequencies, and (iii) variability from period to period of non-catastrophe weather. Net catastrophe losses were in line with last year, with the single largest event being Hurricane Helene for $85.0 million, or 1.9 points. Hurricane Helene occurred in late September 2024 and primarily impacted states in our Southeastern footprint.
For additional qualitative discussion on non-catastrophe property loss and loss expenses, refer to the insurance segment sections below.
Underwriting Expenses
The underwriting expense ratio was 0.8 points lower in 2024 compared to 2023, primarily due to lower expected profit-based employee compensation and growth in premium outpacing growth in underwriting expenses.
NPW growth of 11% in 2024 compared to 2023 included:
For the Year Ended December 31,
($ in millions)
2024
2023
Direct new business premiums
$
619.1
$
597.5
Retention
85
%
85
Renewal pure price increases on NPW
8.3
7.0
In addition, NPW growth in 2024 benefited from strong exposure growth on renewal policies.
The increase in NPE in 2024 compared to 2023 resulted from the same impacts to NPW described above.
Loss and Loss Expenses
The following table provides quantitative information for analyzing loss and loss expense incurred:
($ in thousands)
2024
2023
Change
Loss and Loss Expense Incurred:
(Favorable) unfavorable prior year casualty reserve development
$
286,000
(15,500)
(1,945)
%
Current year casualty loss costs
1,574,532
1,322,593
19
Net catastrophe losses
181,546
150,518
21
Non-catastrophe property loss and loss expenses
459,537
461,593
—
Total loss and loss expense incurred
2,501,615
1,919,204
30
Impact on Loss and Loss Expense Ratio:
(Favorable) unfavorable prior year casualty reserve development
8.3
%
(0.5)
8.8
pts
Current year casualty loss costs
45.6
43.1
2.5
Net catastrophe losses
5.3
4.9
0.4
Non-catastrophe property loss and loss expenses
13.3
15.0
(1.7)
Total loss and loss expense incurred
72.5
62.5
10.0
Prior Year Casualty Reserve Development and Current Year Casualty Loss Costs
The loss and loss expense ratio increased 10.0 points in 2024 compared to 2023, primarily driven by:
•An increase of 8.8 points in unfavorable prior year casualty reserve development in 2024 compared to 2023. In 2024, we recorded $286.0 million of unfavorable prior year casualty reserve development compared to $15.5 million, or 0.5 points, of favorable prior year casualty reserve development in 2023. Our 2024 calendar year actions were predominantly in the general liability line for accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023; and
•An increase of 2.5 points in current year casualty loss costs in 2024 compared to 2023, primarily due to increased loss trend expectations and higher prior-year severity assumptions related to the impacts of social inflation on our general liability line.
Details of the prior year casualty reserve development by line of business were as follows:
(Favorable)/Unfavorable Prior Year Casualty Reserve Development
($ 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)
Refer to the line of business sections below for qualitative discussion on the significant drivers of unfavorable prior year casualty reserve development and current year casualty loss costs.
Property Losses
Net catastrophe and non-catastrophe property losses reduced the loss and loss expense ratio by 1.3 points in the aggregate in 2024 compared to 2023. The non-catastrophe property loss and loss expense ratio was 1.7 points lower in 2024 compared to 2023, reflecting (i) the earned impact of higher renewal pure price increases in 2024, (ii) lower claim frequencies, and (iii) variability from period to period of non-catastrophe weather. Net catastrophe losses were 0.4 points higher than last year, driven by Hurricane Helene, our single largest event in 2024, resulting in $65.5 million, or 1.9 points.
Refer to the line of business sections below for qualitative discussion on the significant drivers of non-catastrophe property loss and loss expenses.
Underwriting Expenses
The underwriting expense ratio was 0.7 points lower in 2024 compared to 2023, primarily due to lower expected profit-based employee compensation and growth in premium outpacing growth in underwriting expenses.
The following is a discussion of our most significant Standard Commercial Lines of business:
General Liability
($ in thousands)
2024
2023
2024 vs. 20231
2022
2023 vs. 20221
NPW
$
1,183,194
1,087,079
9
%
$
958,121
13
%
Direct new business
179,921
179,047
n/a
151,005
n/a
Retention
86
%
85
n/a
85
%
n/a
Renewal pure price increases
8.6
5.4
n/a
4.5
n/a
NPE
$
1,125,491
1,020,362
10
%
$
902,428
13
%
Underwriting income (loss)
(295,876)
70,806
(518)
104,517
(32)
Combined ratio
126.3
%
93.1
33.2
pts
88.4
%
4.7
pts
% of total Standard Commercial Lines NPW
33
33
33
1n/a: not applicable.
NPW grew 9% in 2024 compared to 2023, benefiting from renewal pure price increases, exposure growth on renewal policies, and strong retention.
The combined ratio was 33.2 points higher in 2024 compared to 2023, primarily driven by the following:
($ in thousands)
2024
2023
Change
Loss and Loss Expense Incurred:
(Favorable) unfavorable prior year casualty reserve development
$
316,000
55,000
475
%
Current year casualty loss costs
754,676
571,207
32
Total loss and loss expense incurred
1,070,676
626,207
71
Impact on Loss and Loss Expense Ratio:
(Favorable) unfavorable prior year casualty reserve development
The general liability line of business has experienced a long-term historical trend of meaningful severity increases that have been partially offset by claim frequency decreases. Prior-year severities have developed adversely. Although we saw these trends primarily impact the pre-pandemic period in 2023, we have seen elevated severity escalation extend into the more recent accident years during 2024. We attribute the increased severities to elevated social inflation, which we view as an industry dynamic characterized by higher claimant propensity for attorney representation and litigation, longer settlement times, and higher settlement values. We are closely monitoring specific jurisdictions with expanded liability definitions and interpretations and higher damage awards for loss trend impact and broader industry trends.
Although we planned for higher expected loss trends, claim emergence in 2024 exceeded our expectations. In response to these unfavorable trends due to the impact of social inflation, we recorded unfavorable prior year casualty reserve development of $316.0 million in 2024 for accident years 2020 and subsequent, with most actions for accident years 2022 and 2023. Additionally, current year casualty loss costs were 11.0 points higher in 2024 compared to 2023, primarily due to increased loss trend expectations and higher prior-year severity assumptions. If severities continue to emerge higher than expected, this line's ultimate loss estimates could be adversely impacted.
We believe that social inflation and elevated loss trends are an industry dynamic, which may lead to an acceleration of rate increases in this line of business for the industry and us. Given the consistency in our underwriting appetite and risk profile over time, we have focused our actions primarily on prudent underwriting and achieving additional rate. Our renewal pure price increase in this line of business accelerated to 8.6% in 2024, up from 5.4% in 2023.
Despite the adverse emergence in general liability, we remain comfortable with the composition and quality of our underwriting portfolio. While rate increases will continue to be the primary focus for profitability improvement, we are also making underwriting refinements, including managing limits and coverage grants in challenging jurisdictions, driving improved terms and conditions, and focusing production on better-performing classes of business.
Commercial Automobile
2024 vs. 20231
2023 vs. 20221
($ 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
1n/a: not applicable.
NPW grew 15% in 2024 compared to 2023, benefiting from renewal pure price increases, strong retention, and higher direct new business. This strong retention and higher direct new business contributed to a 5% growth of in-force vehicle counts as of December 31, 2024, compared to December 31, 2023.
The combined ratio was 3.9 points lower in 2024 compared to 2023, primarily driven by the following:
($ in thousands)
2024
2023
Change
Loss and Loss Expense Incurred:
(Favorable) unfavorable prior year casualty reserve development
$
20,000
4,000
400
%
Current year casualty loss costs
544,691
489,463
11
Net catastrophe losses
8,646
5,038
72
Non-catastrophe property loss and loss expenses
172,094
177,803
(3)
Total loss and loss expense incurred
745,431
676,304
10
Impact on Loss and Loss Expense Ratio:
(Favorable) unfavorable prior year casualty reserve development
Non-catastrophe property loss and loss expenses in 2024 were lower compared to 2023, primarily due to (i) the earned impact of higher renewal pure price increases in 2024 and (ii) lower claim frequencies. In addition, the current year casualty loss costs ratio was 2.0 points lower in 2024 compared to 2023, primarily driven by the earned impact of higher renewal pure price increases in 2024.
Partially offsetting the favorable combined ratio drivers mentioned above, was unfavorable prior year casualty reserve development in 2024, primarily due to increased severities in accident year 2023. The 2023 unfavorable prior year casualty reserve development was primarily due to increased loss expenses in accident years 2022 and prior.
Commercial Property1
2024 vs. 20232
2023 vs. 20222
($ 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
1includes Inland Marine.
2n/a: not applicable.
NPW grew 14% in 2024 compared to 2023 benefiting from renewal pure price increases, strong retention, and exposure growth on renewal policies.
The combined ratio was 6.0 points lower in 2024 compared to 2023, primarily driven by the following:
($ in millions)
Non-Catastrophe Property Loss and Loss Expenses
Net Catastrophe Losses
Total Impact on Loss and Loss Expense Ratio
(Favorable)/Unfavorable Year-Over-Year Change
For the year ended December 31,
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
2024
$
245.0
35.7
pts
$
146.4
21.3
pts
57.0
(4.6)
2023
233.4
39.8
127.9
21.8
61.6
(2.1)
Non-catastrophe property loss and loss expense ratios were lower in 2024 compared to 2023, reflecting (i) the earned impact of higher renewal pure price increases in 2024 and (ii) the continued variability from period to period normally associated with the commercial property line of business. We continue to manage our long-term profitability through (i) price increases and (ii) targeted underwriting actions, including an ongoing focus on appropriate policy terms and conditions and achieving accurate insurance-to-value ratios, in part, by using automated aerial imagery solutions.
In addition, the underwriting expense ratio was 1.4 points lower in 2024 compared to 2023, as discussed in the "Standard Commercial Lines Segment" section above.
Workers Compensation
2024 vs. 20231
2023 vs. 20221
($ in thousands)
2024
2023
2022
NPW
$
320,608
338,123
(5)
%
$
340,802
(1)
%
Direct new business
54,520
63,703
n/a
61,726
n/a
Retention
84
%
84
n/a
86
%
n/a
Renewal pure price increases (decreases)
(2.8)
(1.5)
n/a
(0.5)
n/a
NPE
$
327,725
333,669
(2)
%
$
335,955
(1)
%
Underwriting income (loss)
57,724
95,397
(39)
91,087
5
Combined ratio
82.4
%
71.4
11.0
pts
72.9
%
(1.5)
pts
% of total Standard Commercial Lines NPW
9
12
12
1n/a: not applicable.
NPW decreased 5% in 2024 compared to 2023, primarily due to renewal pure price decreases and a reduction in direct new business.
The combined ratio was 11.0 points higher in 2024 compared to 2023, primarily due to the following:
($ in millions)
(Favorable)/Unfavorable Prior Year Casualty Reserve Development
Unfavorable/(Favorable) Year-Over-Year Change
For the year ended December 31,
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
2024
$
(45.0)
(13.7)
pts
8.6
2023
(74.5)
(22.3)
(1.5)
The favorable prior year casualty reserve development in 2024 was primarily due to improved loss severities in accident years 2022 and prior. The favorable prior year casualty reserve development in 2023 was primarily due to improved loss severities driven by continued favorable medical cost trends in accident years 2021 and prior.
In addition, the combined ratio was adversely impacted by an increase in current year casualty loss costs of 3.2 points in 2024, primarily driven by loss trend outpacing rate level reductions associated with workers compensation rating bureau loss cost reductions.
Standard Personal Lines Segment
2024 vs. 2023
2023 vs. 2022
($ in thousands)
2024
2023
2022
Insurance Segments Results:
NPW
$
430,725
414,585
4
%
$
319,059
30
%
NPE
424,917
365,213
16
299,405
22
Less:
Loss and loss expense incurred
364,601
353,185
3
231,113
53
Net underwriting expenses incurred
99,801
91,291
9
75,485
21
Underwriting income (loss)
$
(39,485)
(79,263)
50
%
$
(7,193)
(1,002)
%
Combined Ratios:
Loss and loss expense ratio
85.8
%
96.7
(10.9)
pts
77.2
%
19.5
pts
Underwriting expense ratio
23.5
25.0
(1.5)
25.2
(0.2)
Combined ratio
109.3
121.7
(12.4)
102.4
19.3
NPW increased 4% in 2024 compared to 2023, primarily due to renewal pure price increases, exposure growth on renewal policies, and higher average policy sizes from our mass affluent market strategy, partially offset by reductions in direct new business and retention. The reduction in direct new business premiums was primarily due to a decrease in new policy counts, which were down 51% in 2024 compared to 2023. These reductions, and the reduction in retention illustrated in the table below, resulted from the rate increases we are implementing as part of our overall profit improvement plan.
($ in millions)
2024
2023
Direct new business premiums1
$
72.6
$
116.5
Retention
77
%
87
Renewal pure price increases on NPW
20.6
5.2
1Excludes our flood direct premiums written, which is 100% ceded to the NFIP and therefore, has no impact on our NPW.
In recent years, we've been taking aggressive actions to improve the profitability of this business by prioritizing additional rate filings to attain premiums in line with current loss costs, and further refining our pricing factors. These filed rate increases began to take effect early in 2023 and increased in number and magnitude throughout 2023 and 2024. In 2025, we expect rate changes to remain above loss trends but will moderate compared to the filed rate increases in 2023 and 2024. Renewal pure prices increased 20.6% in 2024, a direct outcome of these actions. 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.
The increase in NPE in 2024 compared to 2023 resulted from the same impacts on NPW discussed above.
The following table provides quantitative information for analyzing loss and loss expense incurred:
($ in thousands)
2024
2023
Change
Loss and Loss Expense Incurred:
(Favorable) unfavorable prior year casualty reserve development
$
5,000
14,000
(64)
%
Current year casualty loss costs
115,591
112,980
2
Net catastrophe losses
79,965
69,315
15
Non-catastrophe property loss and loss expenses
164,045
156,890
5
Total loss and loss expense incurred
364,601
353,185
3
Impact on Loss and Loss Expense Ratio:
(Favorable) unfavorable prior year casualty reserve development
1.2
%
3.8
(2.6)
pts
Current year casualty loss costs
27.2
30.9
(3.7)
Net catastrophe losses
18.8
19.0
(0.2)
Non-catastrophe property loss and loss expenses
38.6
43.0
(4.4)
Total loss and loss expense incurred
85.8
96.7
(10.9)
Prior Year Casualty Reserve Development and Current Year Casualty Loss Costs
The loss and loss expense ratio decreased 10.9 points in 2024 compared to 2023, primarily driven by (i) a decrease of 2.6 points in unfavorable prior year casualty reserve development in 2024 compared to 2023 and (ii) a decrease of 3.7 points in current year casualty loss costs in 2024 compared to 2023. The decrease in current year casualty loss costs in 2024 compared to 2023 was primarily due to (i) significant rate increases, and (ii) a 1.0-point increase in flood claims handling fees related to Hurricane Helene from our participation in the NFIP.
Details of the prior year casualty reserve development by line of business were as follows:
(Favorable)/Unfavorable Prior Year Casualty Reserve Development
($ in millions)
2024
2023
Homeowners
$
(5.0)
—
Personal automobile
10.0
14.0
Total Standard Personal Lines
5.0
14.0
Prior year casualty reserve development in 2024 included $10.0 million of unfavorable development in personal automobile, primarily driven by increased loss severities in accident years 2022 through 2023. This was partially offset by $5.0 million of favorable development in homeowners, primarily due to lower loss severities in accident years 2021 and prior.
The unfavorable prior year casualty reserve development in 2023 was primarily attributable to increased loss severities in accident year 2022 on our personal automobile line of business.
Property Losses
Net catastrophe and non-catastrophe property losses reduced the loss and loss expense ratio by 4.6 points in the aggregate in 2024 compared to 2023. Non-catastrophe property loss and loss expense ratios were lower in 2024 compared to 2023 due to (i) the earned impact of higher renewal pure price increases in 2024 and (ii) variability from period to period of non-catastrophe weather. Net catastrophe losses were in line with last year and included $17.4 million, or 4.1 points, related to Hurricane Helene.
Underwriting Expenses
The underwriting expense ratio was 1.5 points lower in 2024 compared to 2023, primarily due to lower profit-based employee compensation and growth in premiums earned outpacing growth in underwriting expenses.
NPW growth of 29% in 2024 compared to 2023 included:
($ in millions)
2024
2023
Direct new business premiums
$
302.6
209.5
Renewal pure price increases on NPW
7.2
%
6.9
In addition, NPW growth in 2024 benefited from both property and casualty exposure growth on renewal policies and higher rates per exposure.
The increase in NPE in 2024 compared to 2023 resulted from the same impacts to NPW discussed above.
Loss and Loss Expenses
The following table provides quantitative information for analyzing loss and loss expense incurred:
($ in thousands)
2024
2023
Change
Loss and Loss Expense Incurred:
(Favorable) unfavorable prior year casualty reserve development
$
20,000
(5,000)
(500)
%
Current year casualty loss costs
197,251
160,318
23
Net catastrophe losses
22,992
24,677
(7)
Non-catastrophe property loss and loss expenses
58,025
31,901
82
Total loss and loss expense incurred
298,268
211,896
41
Impact on Loss and Loss Expense Ratio:
(Favorable) unfavorable prior year casualty reserve development
4.0
%
(1.3)
5.3
pts
Current year casualty loss costs
39.1
41.1
(2.0)
Net catastrophe losses
4.6
6.3
(1.7)
Non-catastrophe property loss and loss expenses
11.5
8.2
3.3
Total loss and loss expense incurred
59.2
54.3
4.9
The loss and loss expense ratio increased 4.9 points in 2024 compared to 2023, primarily driven by an increase of 5.3 points in unfavorable prior year casualty reserve development in 2024 compared to 2023. The unfavorable prior year casualty reserve development in 2024 was primarily due to increased loss severities in accident years 2023 and prior, driven by the broad-reaching impacts of social inflation. While we have been embedding higher severity assumptions in our initial loss ratio estimates in response to these inflationary trends, emergence exceeded those levels during the year. The favorable prior year casualty reserve development in 2023 was primarily due to improved loss severities in accident years 2021 and prior.
The loss and loss expense ratio was also unfavorably impacted by property losses as net catastrophe and non-catastrophe property losses increased the ratio by 1.6 points in the aggregate for 2024 compared to 2023. We experienced higher non-catastrophe property loss and loss expense in 2024 compared to 2023 of 3.3 points, primarily due to the impact of large fire losses, reflecting the continued period to period variability normally associated with our E&S property line of business. Partially offsetting the increase in non-catastrophe property losses was a decrease in net catastrophe losses in 2024 compared to 2023 of 1.7 points. While our footprint was impacted by a greater number of Property Claim Services-named events in 2024, we experienced lower claim severities compared to 2023.
Partially offsetting these items was a decrease of 2.0 points in current year casualty loss cost in 2024 compared to 2023, primarily due to the mix of business between our property and casualty lines of business. Our E&S property line of business historically has a lower loss ratio compared to our E&S casualty line of business and represented a more significant portion of this segment in 2024 compared to 2023.
Underwriting Expenses
The underwriting expense ratio was 1.2 points lower in 2024 compared to 2023, primarily due to premium growth outpacing underwriting expense.
Reinsurance
We use reinsurance to protect our capital resources and insure against losses on property and casualty risks that we underwrite above the amount of losses we are willing to accept. We use two main reinsurance vehicles: (i) a reinsurance pooling agreement among our Insurance Subsidiaries through which each company agrees to share in premiums and losses based on certain specified percentages; and (ii) reinsurance treaties and arrangements with third parties that cover various policies that we issue to our customers.
Reinsurance Pooling Agreement
The primary purposes of the Insurance Subsidiaries' reinsurance pooling agreement are to:
•Pool or share proportionately the underwriting profit and loss results of property and casualty insurance underwriting operations through reinsurance;
•Reduce administration expenses; and
•Permit all the Insurance Subsidiaries to obtain a uniform rating from AM Best Company ("AM Best").
The following illustrates the pooling percentages by Insurance Subsidiary as of December 31, 2024:
Insurance Subsidiary
Pooling Percentage
Selective Insurance Company of America ("SICA")
32.0%
Selective Way Insurance Company ("SWIC")
21.0%
Selective Insurance Company of South Carolina ("SICSC")
9.0%
Selective Insurance Company of the Southeast ("SICSE")
7.0%
Selective Insurance Company of New York ("SICNY")
7.0%
Selective Casualty Insurance Company ("SCIC")
7.0%
Selective Auto Insurance Company of New Jersey ("SAICNJ")
6.0%
Mesa Underwriters Specialty Insurance Company ("MUSIC")
5.0%
Selective Insurance Company of New England ("SICNE")
3.0%
Selective Fire and Casualty Insurance Company ("SFCIC")
3.0%
Reinsurance Treaties and Arrangements
By entering into reinsurance treaties and arrangements, we can increase our underwriting capacity, accepting larger individual risks and aggregations of risks without directly increasing our capital or statutory surplus. Under our reinsurance treaties, we cede to our reinsurers a portion of our incurred losses from an individual policy or group of policies in exchange for a portion of the premium on those policies. Amounts not reinsured below a specified dollar threshold are known as retention. Reinsurance does not legally discharge us from liability under the terms and limits of our policies, but it does make our reinsurers liable to us for the amount of liability we cede to them. Our reinsurers often rely on their own reinsurance programs, or retrocessions, to manage their large loss exposures. The size of the global reinsurance community is relatively small. If our reinsurers cannot collect on their retrocessional programs, it may impair their ability to pay us for the amounts we cede to them.
Consequently, our reinsurers present us with direct, indirect, and contingent counterparty credit risk. 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 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.
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. 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. 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"). For further information about TRIPRA, see Item 1A. “Risk Factors.” of this Form 10-K.
•Flood Reinsurance, for which all of the premiums and losses related to our participation in the WYO (for which we also receive a servicing fee) are 100% ceded to the federal government.
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. Please see Item 1A. “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. The treaty provides one reinstatement in each of the first three layers and no reinstatement in the fourth layer.
- Personal Lines-only treaty with $20 million of limit excess of $20 million retention and coverage of 97% of losses. This has an annual aggregate limit of $19.4 million, net of the Insurance Subsidiaries' co-participation.
- The per occurrence limit is $965 million, which includes $19.4 million for the new Personal Lines-only treaty. The annual aggregate limit is $1.665 billion.
Property Catastrophe Bond (covers all insurance operations, excluding Florida, California, Louisiana, and Texas)
54% of losses in excess of $800 million up to $1.4 billion that responds on a per occurrence basis. The catastrophe bond provides a single $325 million limit with no reinstatements.
None.
Property Per Risk Excess of Loss (covers all insurance operations)
There are three layers covering 100% of $65 million in excess of $5 million. Losses other than TRIPRA certified losses are subject to the following reinstatements and annual aggregate limits:
All NBCR losses are excluded regardless of whether or not they are certified under the TRIPRA. For non-NBCR losses, the treaty distinguishes between acts committed on behalf of foreign persons or foreign interests ("Foreign Terrorism") and those that are not. The treaty provides annual aggregate limits for Foreign Terrorism (other than NBCR) acts of $15 million for the first layer, $60 million for the second layer, and $40 million for the third layer. 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.
Our 2025 property catastrophe reinsurance program includes a main excess of loss treaty and an indemnity reinsurance agreement with a special purpose insurer that issued a catastrophe bond. This program covers our standard market and E&S business. In addition, we purchased a Personal Lines-only treaty of $20 million in excess of $20 million retention to mitigate Personal Lines-specific catastrophe losses. Effective January 1, 2025, we renewed our main property catastrophe treaty, with additional limit, stable retention and improved terms. Our program now provides coverage of $1.3 billion in excess of a $100 million retention, compared to $1.1 billion in 2024, thereby, extending the exhaustion point by $200 million to respond to our growing property portfolio. The highest layer of the treaty provides coverage for 41% of losses in the $600 million in excess of $800 million layer. 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.
To provide additional, fully collateralized coverage at the top end of our property catastrophe reinsurance program, we secured property catastrophe protection through a per occurrence excess of loss indemnity reinsurance agreement effective December 9, 2023, with High Point Re Ltd. ("High Point Re"), an independent Bermuda special purpose insurer. The reinsurance agreement meets the accounting guidance requirements to be accounted for as reinsurance. In connection with the reinsurance agreement, High Point Re issued Series 2023-1, Class A Principal-at-Risk Variable Rates Notes to unrelated investors totaling $325 million, consistent with the coverage provided under the reinsurance agreement. The proceeds were deposited in a reinsurance trust account. The reinsurance agreement provides us with coverage of up to $325 million for the three-year period from December 9, 2023, through December 31, 2026, for property catastrophe losses from named storms, earthquakes, severe thunderstorms, winter storms, wildfires, meteorite impacts, and volcanic eruptions in all states except California, Florida, Texas, and Louisiana. 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. The reinsurance agreement is collateralized, which is provided by High Point Re using proceeds from the issuance of the Series 2023-1 Notes.
Reinsurance agreements have credit risk associated with collecting amounts due from reinsurers. With High Point Re, that risk is reduced because the collateralized reinsurance trust account is funded with money market funds domiciled in the U.S. The money market funds invest solely in cash or high-quality direct obligations of the U.S. government, such as U.S. Treasury bills and other short-term securities backed by the U.S. government.
In addition to the fully collateralized catastrophe bond, we seek to minimize reinsurance credit risk by transacting with highly-rated reinsurance partners and purchasing collateralized reinsurance products, particularly for high-severity, low-probability events, if feasible. 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.
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 $189.8 million of net limit coverage, which improved our net risk profile. These increases will be partially offset by risk-adjusted price decreases from more favorable reinsurance market conditions.
Catastrophe Models
We model various catastrophic perils, and hurricane risk remains our portfolio's most significant natural catastrophe peril because of the geographic location of the risks we insure. The table below illustrates the impact of the five largest hurricane losses we have experienced in the last 35 years:
($ in millions)
Gross Loss1
Net Loss2
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
1This amount represents reported and unreported gross losses estimated as of December 31, 2024.
2Net loss does not include reinstatement premiums, taxes, or flood claims handling fees.
We review our exposure to hurricane risk by examining third-party vendor models and conducting a proprietary analysis. The third-party vendor models provide both long-term and near-term views with the near-term view conditioned to adjust for
elevated sea surface temperatures. We adjust these models to reflect certain non-modeled cost assumptions, such as the impact of loss expenses, residual market assessments, and automobile-related losses. We believe that modeled estimates provide a range of potential outcomes, and we review multiple estimates to understand our catastrophic risk.
Our established catastrophic risk tolerance requires that no more than 10% of stockholders’ equity is exposed to a loss from a hurricane event at a 99.6% confidence level (1-in-250-year event or 0.4% probability) on a net of reinsurance and after-tax basis. Our property catastrophe reinsurance program limits our net after-tax impact of a 1-in-250-year event to about 4% of our GAAP equity. In addition to the 1-in-250-year modeled event, we evaluate the impact of a number of other scenarios on stockholders’ equity.
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.
Occurrence Exceedance Probability
Hurricane
($ in thousands)
Gross
Losses1
Net
Losses2
Net Losses % of Equity3
4.0% (1 in 25 year event)
$313,990
95,629
3
%
2.0% (1 in 50 year event)
518,000
102,908
3
1.0% (1 in 100 year event)
879,169
117,049
4
0.67% (1 in 150 year event)
1,102,857
126,603
4
0.5% (1 in 200 year event)
1,298,909
132,753
4
0.4% (1 in 250 year event)
1,402,203
137,311
4
0.2% (1 in 500 year event)
1,946,311
495,592
16
Historical recast - 1938 New England Hurricane
615,564
107,547
3
Lloyd's RDS North-East (Category 4 hurricane)
1,099,850
126,893
4
Historical recast - 1954 Hurricane Hazel
402,118
96,182
3
Lloyd's RDS Carolinas (Category 5 hurricane)
596,022
116,590
4
1Gross losses include uncertainty associated with damage/loss estimation, demand and storm surge, and assumptions for certain un-modeled costs, such as the impact of loss expenses, residual market assessments, and automobile-related losses, which collectively increase our gross losses by approximately 13%.
2Net losses are after-tax losses net of catastrophe reinsurance including reinstatement premiums and applicable property per risk and facultative reinsurance based on reinsurance structure effective January 1, 2025.
3GAAP stockholders' equity as of December 31, 2024.
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. Our modeled losses incorporate expected reinsurance recoveries from our per-risk reinsurance treaty and facultative reinsurance in addition to the recoveries from our property catastrophe treaties. 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.
Occurrence Exceedance Probability
Other Wind
Earthquake
($ in thousands)
Gross
Losses1
Net
Losses2
Net Losses % of Equity3
Gross
Losses1
Net
Losses2
Net Losses % of Equity3
4.0% (1 in 25 year event)
$140,132
$79,256
3
%
$11,937
$8,921
—
%
2.0% (1 in 50 year event)
$192,796
$80,416
3
$37,439
$26,047
1
1.0% (1 in 100 year event)
$256,136
$82,298
3
$110,397
$79,907
3
0.67% (1 in 150 year event)
$302,958
$85,193
3
$202,543
$91,742
3
0.5% (1 in 200 year event)
$336,516
$88,109
3
$250,667
$100,341
3
0.4% (1 in 250 year event)
$359,147
$90,290
3
$297,048
$104,306
3
0.2% (1 in 500 year event)
$474,212
$97,020
3
$467,605
$112,344
4
1Gross losses include uncertainty associated with damage/loss estimation, demand and storm surge, and assumptions for certain un-modeled costs, such as the impact of loss expenses, residual market assessments, and automobile-related losses, which collectively increase our gross losses by approximately 13%.
2Net losses are after-tax losses net of catastrophe reinsurance including reinstatement premiums as well as applicable property per risk and facultative reinsurance based on the reinsurance structure effective January 1, 2025.
3GAAP stockholders' equity as of December 31, 2024.
We do not write crop insurance, have minimal exposure to private flood, and have a limited percentage of our insured properties in the Western U.S., all limiting our exposures to certain weather-related perils, such as droughts, wildfires, and flooding. However, as our geographic expansion progresses, we continually evaluate how we consider physical risks from these perils and others in our strategic decision making.
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.
Property Per Risk Excess of Loss Treaty
We renewed the property per risk excess of loss treaty, which covers our standard market and E&S business, on July 1, 2024, with substantially the same structure as the treaty that expired on June 30, 2024, providing coverage of $65 million in excess of a $5 million retention, with an additional reinstatement on the second layer of the program. The treaty year deposit premium increased, reflecting higher projected subject earned premium due to growth of our book of business.
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. Losses other than terrorism losses are subject to the following:
All NBCR losses are excluded. 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.
We renewed the casualty excess of loss treaty, which covers our standard market and E&S Lines business, on July 1, 2024, on substantially the same terms as the treaty expiring June 30, 2024 with a co-participation of 17.5% on the first $3 million in excess of $2 million layer, but with the benefit of additional reinstatements on several of the layers. The treaty year 2024 deposit premium increased, reflecting (i) higher projected subject earned premium due to growth of our book of business, including pure renewal rate increases; and (ii) higher anticipated losses in the excess layers, partially offset by (iii) the
To complement our key reinsurance programs and provide reinsurance protection on specific coverages or programs, we have other reinsurance treaties, such as our (i) Surety and Fidelity Excess of Loss Reinsurance Treaty, (ii) National Workers Compensation Reinsurance Pool Quota Share, which covers business assumed from the involuntary workers compensation pool, (iii) Endurance Specialty Quota share and Loss Development Cover, which protects against losses on policies written before the acquisition and any development on reserves established by MUSIC as of the date of acquisition, (iv) Equipment Breakdown Coverage Reinsurance Treaty, (v) Multi-line Quota Share, which covers additional personal lines coverages, such as personal cyber and home systems protection, (vi) Cyber Liability Quota Share, and (vii) Excess Liability Quota Share, which covers MUSIC's excess liability business.
We continually evaluate our overall reinsurance program and try to develop effective ways to manage the transfer of risk. We base our analysis on a comprehensive process that includes periodic analysis of modeling results, our own loss experience, aggregation of exposures, exposure growth, diversification of risks, limits written, projected reinsurance costs, reinsurer financial strength, and projected impact on earnings, equity, and statutory surplus. We strive to balance reinsurer credit quality, price, terms, and our appetite to retain a certain level of risk.
Investments Segment
Our Investments Segment's objectives are to maximize the economic value of our investment portfolio by achieving stable, risk-adjusted after-tax net investment income and generate long-term growth in book value per share, considering prevailing market conditions, our enterprise risk tolerances, and other risk implications. We aim to accomplish this by:
•Maximizing the portfolio's overall total return by investing (i) the premiums from our insurance operations and (ii) amounts generated through our capital management strategies, including debt and equity security issuances, and
•Maintaining (i) a well-diversified portfolio across issuers, sectors, and asset classes, and (ii) a high credit quality fixed income securities portfolio with a duration and maturity profile at an acceptable risk level that provides ample liquidity.
The effective duration of our fixed income and short-term investments was 4.0 years as of December 31, 2024. We monitor and manage the effective duration to maximize yield while managing interest rate risk at an acceptable level. We buy and sell investments with the intent of maximizing investment returns in the current market environment, while balancing capital preservation.
Our fixed income and short-term investments represented 92% of our invested assets at both December 31, 2024 and December 31, 2023. These investments had (i) a weighted average credit rating of "A+" as of December 31, 2024 and "AA-" at December 31, 2023, and (ii) investment grade holdings representing 97% of the total fixed income and short-term investment portfolio at December 31, 2024, and 96% at December 31, 2023.
For further details on the composition, credit quality, and various risks to which our portfolio is subject, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." of this Form 10-K.
Total Invested Assets
($ in thousands)
2024
2023
Change
Total invested assets
$
9,651,297
8,693,729
11
%
Invested assets per dollar of common stockholders' equity
3.31
3.16
5
Components of unrealized gains (losses) – before tax:
Fixed income securities
(316,796)
(353,253)
(10)
Equity securities
2,116
4,079
(48)
Net unrealized gains (losses) - before tax
(314,680)
(349,174)
(10)
Components of unrealized gains (losses) – after tax:
Fixed income securities
(250,269)
(279,070)
(10)
Equity securities
1,671
3,223
(48)
Net unrealized gains (losses) - after tax
(248,598)
(275,847)
(10)
Invested assets increased by $957.6 million at December 31, 2024, compared to December 31, 2023, reflecting our active investment of operating and investing cash flows. Operating cash flows during 2024 were 24% of NPW.
The components of net investment income earned were as follows:
($ 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. In addition, income earned on our alternative investments portfolio increased in 2024 compared to 2023 as a result of strong capital market performance in 2024.
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. Net realized and unrealized gains and losses for the indicated periods were as follows:
($ in thousands)
2024
2023
2024 vs. 2023
2022
2023 vs. 2022
Net realized gains (losses) on disposals
$
6,276
(24,864)
(125)
%
(31,636)
(21)
%
Net unrealized gains (losses) on equity securities
(1,964)
9,510
(121)
(32,127)
(130)
Net credit loss benefit (expense) on fixed income securities, AFS
(5,628)
12,898
(144)
(39,169)
(133)
Net credit loss benefit (expense) on fixed income securities, held-to-maturity
—
—
—
63
(100)
Net credit loss benefit (expense) on CMLs
217
(175)
(224)
(116)
51
Losses on securities for which we have the intent to sell
(1,248)
(921)
36
(11,823)
(92)
Other realized gains (losses)
(602)
—
—
—
—
Total net realized and unrealized investment gains (losses)
$
(2,949)
(3,552)
(17)
(114,808)
(97)
For additional information regarding our losses on securities we intend to sell and our methodology for estimating the allowance for credit losses, see Note 2. "Summary of Significant Accounting Policies" and Note 5. "Investments" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Federal Income Taxes
The following table provides information regarding federal income taxes.
($ in millions)
2024
2023
2022
Federal income tax expense
$
51.0
93.2
55.3
Effective tax rate1
20.5
%
20.7
20.4
1The 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.
Federal income tax expense decreased $42.2 million in 2024 compared to 2023, primarily due to an underwriting loss from our Insurance Operations this year compared to underwriting income last year. Higher net investment income earned provided a partial offset to the impact of the underwriting loss, driven by increased income from our fixed income securities portfolio. Refer to "Insurance Operations" and "Investments Segment" above for more information.
See Note 14. "Federal Income Taxes" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K for (i) a
reconciliation of our effective tax rate to the statutory rate of 21% and (ii) details regarding our net deferred tax asset and liability.
Liquidity and Capital Resources
Capital resources and liquidity reflect our ability to generate cash flows from business operations, borrow funds at competitive rates, and raise new capital to meet our operating and growth needs.
Liquidity
We manage liquidity by generating sufficient cash flows to meet our business operations' short-term and long-term cash requirements. As discussed further below, we adjust our liquidity requirements based on economic conditions, market conditions, and future cash flow commitments.
Sources of Liquidity
The Parent's sources of cash historically have consisted of dividends from the Insurance Subsidiaries, the Parent's investment portfolio, borrowings under third-party lines of credit, intercompany revolving demand loan agreements with certain Insurance Subsidiaries, and the issuance of equity (common or preferred) and debt securities. We continue to monitor these sources, considering our short-term and long-term liquidity and capital preservation strategies.
The Parent's cash and components of its investment portfolio were as follows:
($ in thousands)
December 31, 2024
December 31, 2023
Fixed income securities
$
268,486
421,089
Equity securities
53,248
50,920
Short-term investments
62,223
17,671
Alternative investments
18,443
18,134
Cash
91
180
Total investments and cash
$
402,491
507,994
Short-term investments have historically been maintained in "AAA" rated money market funds, and fixed income securities are comprised of high-quality, liquid government and corporate securities.
The amount and composition of the Parent's investment portfolio may change over time based on various factors, including the amount and availability of dividends from our Insurance Subsidiaries, investment income, expenses, other Parent cash needs, such as dividends payable to stockholders, asset allocation investment decisions, inorganic growth opportunities, debt retirement, and share repurchases. We have an established target for the Parent to maintain liquid investments of at least twice its expected annual net cash outflow needs, which was met as of December 31, 2024.
Insurance Subsidiary Dividends
The Insurance Subsidiaries generate liquidity through insurance float, created by collecting premiums and earning investment income before paying claims. 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.
The Insurance Subsidiaries paid $44 million in total dividends to the Parent in 2024. As of December 31, 2024, our allowable ordinary maximum dividend is $290 million for 2025. 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. Although domiciliary state insurance regulators have historically approved dividends, there is no assurance they will approve future Insurance Subsidiary dividends.
New Jersey corporate law also limits the maximum amount of dividends the Parent can pay our stockholders if either (i) the Parent would be unable to pay its debts as they become due in the usual course of business, or (ii) the Parent’s total assets would be less than its total liabilities. 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.
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.
Line of Credit
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 that can be increased to $125 million with the Lenders' consent. The Line of Credit will mature on November 7, 2025, and has a variable interest rate based on the Parent’s debt ratings. We expect to continue to maintain a credit facility for liquidity purposes. For additional information regarding the Line of Credit and corresponding representations, warranties, and covenants, refer to Note 11. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Four Insurance Subsidiaries are members of Federal Home Loan Bank ("FHLB") branches, as shown in the following table. Membership requires the ownership of branch stock and includes the right to access liquidity. All Federal Home Loan Bank of Indianapolis ("FHLBI") and Federal Home Loan Bank of New York ("FHLBNY") borrowings are required to be secured by investments pledged as collateral. For additional information regarding collateral outstanding, refer to Note 5. "Investments" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Branch
Insurance Subsidiary Member
FHLBI
SICSC1
SICSE1
FHLBNY
SICA SICNY
1These subsidiaries are jointly referred to as the "Indiana Subsidiaries" because they are domiciled in Indiana.
The Line of Credit permits aggregate borrowings from the FHLBI and the FHLBNY up to 10% of the respective member company’s admitted assets for the previous year. SICNY is domiciled in New York, which limits its FHLBNY borrowings to the lesser of 5% of admitted assets for the most recently completed fiscal quarter or 10% of the previous year-end's admitted assets.
The following table provides information on the remaining capacity for FHLB borrowings based on these restrictions, as well as the additional FHLB stock purchase requirement to allow these member companies to borrow their remaining capacity amounts:
($ in millions)
Admitted Assets
Borrowing Limitation
Amount Borrowed
Remaining Capacity
Additional FHLB Stock Requirements
December 31, 2024
SICSC
$
1,154.9
$
115.5
32.0
83.5
2.3
SICSE
913.1
91.3
28.0
63.3
1.8
SICA
4,211.3
421.1
—
421.1
19.0
SICNY
778.0
38.9
—
38.9
1.7
Total
$
666.8
60.0
606.8
24.8
Short-term Borrowings
We made no short-term borrowings from FHLB branches during 2024.
Intercompany Loan Agreements
The Parent has lending agreements with the Indiana Subsidiaries, approved by the Indiana Department of Insurance, that provide the Parent with additional intercompany liquidity. Like the Line of Credit, these lending agreements limit the Parent's borrowings from the Indiana Subsidiaries to 10% of the admitted assets of the respective Indiana Subsidiary. The following table provides information on the Parent’s borrowings and remaining borrowing capacity from the two Indiana Subsidiaries:
Additionally, we have other insurance regulator-approved intercompany agreements that facilitate liquidity management between the Parent and the Insurance Subsidiaries to enhance flexibility.
Capital Market Activities
The Parent had no private or public stock issuances during 2024. During 2024, we repurchased 103,000 shares of our common stock under our existing share repurchase program for $8.7 million, an $84.34 average price per share, excluding commissions paid. We had $75.5 million of remaining capacity under our share repurchase program as of December 31, 2024. For additional information on the share repurchase program, refer to Note 17. "Equity" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Uses of Liquidity
The Parent uses the liquidity generated from the sources discussed above to pay dividends to our stockholders, among other things. 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. In addition, our Board declared:
•A quarterly cash dividend on common stock of $0.38 per common share, that is payable March 3, 2025, to holders of record on February 14, 2025; and
•A quarterly cash dividend of $287.50 per share on our 4.60% Non-Cumulative Preferred Stock, Series B (equivalent to $0.28750 per depositary share) payable on March 17, 2025, to holders of record as of February 28, 2025.
Our ability to meet our interest and principal repayment obligations on our debt and our ability to continue to pay dividends to our stockholders is dependent on (i) liquidity at the Parent, (ii) the ability of the Insurance Subsidiaries to pay dividends, if necessary, and/or (iii) the availability of other sources of liquidity to the Parent. Our next borrowing principal repayment is $60 million to FHLBI due on December 16, 2026.
Restrictions on the ability of the Insurance Subsidiaries to declare and pay dividends, without alternative liquidity options, could materially affect our ability to service debt and pay dividends on common and preferred stock.
Capital Resources
Capital resources ensure we can pay policyholder claims, furnish the financial strength to support the business of underwriting insurance risks, and facilitate continued business growth. At December 31, 2024, we had GAAP stockholders’ equity of $3.1 billion and statutory surplus of $2.9 billion. With total debt of $508 million at December 31, 2024, our debt-to-capital ratio was 14.0%. For additional information on our statutory surplus, see Note 22. "Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
The following table summarizes current and long-term material cash requirements as of December 31, 2024, which we expect to fund primarily with operating cash flows.
Payment Due by Period
Less than 1 year
1-3 years
3-5 years
More than 5 years
($ in millions)
Total
Notes payable
$
510.0
—
60.0
—
450.0
Interest on debt obligation
508.7
28.3
54.7
52.9
372.8
Subtotal
1,018.7
28.3
114.7
52.9
822.8
Gross loss and loss expense payments
6,589.8
1,957.8
2,074.6
1,066.0
1,491.4
Ceded loss and loss expense payments
1,022.2
417.6
239.1
122.8
242.7
Net loss and loss expense payments
5,567.6
1,540.2
1,835.5
943.2
1,248.7
Total
$
6,586.3
1,568.5
1,950.2
996.1
2,071.5
Our loss and loss expense payments in the table above represent estimated paid amounts by period on our loss and loss expense reserves. These estimates are based on past experience, adjusted for the effects of current developments and anticipated trends, and include considerable judgment. There is no precise method for evaluating the impact of any specific factor on the projected timing of loss and loss expense reserve payments, so the timing and amounts of the actual payments will be affected by many
factors. 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.
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.
For additional information regarding cross-default provisions associated with our notes payable in the table above or our Line of Credit, see Note 11. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." in this Form 10-K.
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.
($ 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. We expect to have the capacity to fund these commitments through our normal operating and investing activities as they come due.
Our other cash requirements include, without limitation, dividends to stockholders, capital expenditures, and other operating expenses, including commissions to our distribution partners, labor costs, premium taxes, general and administrative expenses, and income taxes.
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. "Financial Statements and Supplementary Data." of this Form 10-K, and (iii) material relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Consequently, we are not exposed to any material financing, liquidity, market, or credit risk related to off-balance sheet arrangements.
We continually monitor our cash requirements and the capital resources we maintain at the holding company and Insurance Subsidiary levels. As part of our long-term capital strategy, we strive to maintain capital metrics that support our targeted financial strength relative to the macroeconomic environment. Based on our analysis and market conditions, we may take a variety of actions, including, without limitation, contributing capital to the Insurance Subsidiaries, issuing additional debt and/or equity securities, repurchasing existing debt, repurchasing shares of the Parent’s common stock, and adjusting common stockholders’ dividends.
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.
Book value per common share increased 6% to $47.99 as of December 31, 2024, from $45.42 as of December 31, 2023, driven by $3.23 in net income available to common stockholders per diluted common share and a $0.47 reduction in after-tax net unrealized losses on our fixed income securities portfolio, partially offset by $1.43 in dividends to our common stockholders. 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. 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.
Cash Flows
Net cash provided by operating activities increased to $1.1 billion in 2024, compared to $759 million in 2023, primarily driven by higher levels of cash received for premiums in 2024 compared to 2023, partially offset by higher claim payments made in
2024 compared to 2023. Operating cash flows were 24% of NPW in 2024 compared to 18% of NPW in 2023. For more information on our underwriting results, refer to "Insurance Operations" above in this MD&A.
Net cash used in investing activities increased to $947 million in 2024, compared to $686 million in 2023, as a result of investing more cash from operating activities.
Net cash used in financing activities increased to $103 million in 2024, compared to $84 million in 2023, primarily due to (i) an increase in dividends paid to our common shareholders in 2024 and (ii) greater activity in our share repurchase program in 2024.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
The fair value of our assets and liabilities are subject to market risks — primarily interest rate risk, credit risk, equity price risk, and liquidity risk related to our investment portfolio. 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 have minimal foreign currency fluctuation risk within our alternative investment portfolio. For a discussion of our investment objective and philosophy, see the "Investments Segment" section of Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K.
We manage our investment portfolio to mitigate risks associated with various financial market scenarios. We assume prudent risk to enhance our overall long-term results while managing a conservative, well-diversified investment portfolio to support our underwriting activities.
Interest Rate Risk
Investment Portfolio
We invest in interest rate-sensitive securities, mainly fixed income securities. Our fixed income securities portfolio is comprised of primarily investment grade (investments receiving Standard & Poor's Global Ratings or an equivalent rating of BBB- or above) corporate securities, U.S. government and agency securities, municipal obligations, collateralized loan obligations ("CLO") and other asset-backed securities ("ABS"), and mortgage-backed securities ("MBS"). 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.
Our exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates. Our fixed income securities portfolio contains interest rate-sensitive instruments, and its performance could be adversely affected by changes in interest rates resulting from governmental monetary policies, domestic and international economic and political conditions, and other factors beyond our control. All else being equal, a rise in interest rates will decrease the fair value of our existing fixed income investments, and a decline in interest rates will increase the fair value of our existing fixed income investments. However, new and reinvested money used to purchase fixed income securities would benefit from rising interest rates and be negatively impacted by falling interest rates.
We seek to manage our interest rate risk associated with holding fixed income investments by maintaining an effective duration of our portfolio that balances maximizing yield and total return with our overall enterprise risk tolerance for potential interest rate changes. 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 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. 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. 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.
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. 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.
Details 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 stock1
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
1Includes investments in exchange traded funds, mutual funds, business development corporations, and real estate investment trusts.
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%). 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. 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. 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.
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. 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.
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. 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. 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. 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. These securities are rated "AA+" and had an aggregate unrealized loss of approximately $92.4 million, primarily due to an increase in benchmark U.S. Treasury rates as of December 31, 2024.
Our CMBS portfolio comprises most of our commercial real estate ("CRE") exposure. The following table shows our total exposure to CRE:
December 31, 2024
December 31, 2023
($ 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. 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.
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. 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. 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 tables below provide details on our CLO and other ABS holdings at December 31, 2024, and December 31, 2023:
CLOs represented 8% of our total invested assets as of December 31, 2024. 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. 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. We attempt to minimize equity price risk exposure by maintaining a diversified portfolio and limiting concentrations in any one company or industry. 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. 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. The general partner of each of these partnerships usually reports the change in the value of the interests in the partnership on a one quarter lag because of the nature of the underlying assets or liabilities. As these partnerships' underlying investments consist primarily of assets or liabilities for which there are no quoted prices in active markets for the same or similar assets, the valuation of interests in these partnerships are subject to a higher level of subjectivity and unobservable inputs than substantially all of our other invested assets. Each of these general partners is required to determine the partnerships' value by the price obtainable for the sale of the interest at the time of determination. Valuations based on unobservable inputs are subject to greater scrutiny and reconsideration from one reporting period to the next, and therefore, may be subject to significant fluctuations, which could lead to significant decreases from one reporting period to the next. We record our investments in these various partnerships under the equity method of accounting, so any decreases in these investments' valuations would negatively impact our results of operations. For additional information regarding these alternative investment strategies, see Note 5. "Investments" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
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. 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. In addition to these liquidity sources, we monitor our investment portfolio's liquidity profile to ensure it meets our operational liquidity needs.
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 stress1
23
Generally illiquid assets2
20
Total
100
%
1These exposures are concentrated within CMBS and CLO and other ABS.
2These exposures include our alternative investments and other non-publicly traded securities.
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. 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 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. 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.
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Selective Insurance Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Selective Insurance Group, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2024, and the related notes and financial statement schedules I to V (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 10, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Estimate of reserve for loss and loss expense
As discussed in Notes 2 and 10 to the consolidated financial statements, the Company estimates the reserve for loss and loss expense (reserves) through an internal reserve review that relies upon methods consistent with actuarial standards of practice supplemented with other internal and external information. The Company develops reserve estimates by line of business and, as experience emerges and other information develops, the reserve estimates are assessed in aggregate and adjusted as necessary. As of December 31, 2024, the Company recorded a liability of $6.59 billion for reserves.
We identified the evaluation of the estimate of reserve for loss and loss expense as a critical audit matter. The process to evaluate the Company’s estimate of reserves involved a high degree of subjective auditor judgment due to the inherent uncertainties in adjusting past experience for current development and anticipating trends for predicting future events. These uncertainties may be affected by a number of considerations, including internal factors, such as changes to
underwriting and claim practices, and claim experience; as well as external factors, such as economic conditions, legislative enactments, judicial decisions, and social trends. Evaluating the impact of these factors on the estimate of reserves also required specialized actuarial skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. With the involvement of actuarial professionals, when appropriate, we evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s internal reserve review and determination of the Company’s best estimate of recorded reserves. We also involved actuarial professionals with specialized skills and knowledge, who assisted in:
•evaluating the Company’s actuarial methods by comparing them to methods consistent with actuarial standards of practice
•developing an independent estimate of reserves for certain lines of business using methods consistent with actuarial standards of practice
•for certain other lines of business, assessing the Company's internal reserve review by evaluating the assumptions and actuarial methods used
•developing a consolidated range of reserves and comparing it to the Company's recorded reserves assessing movement of the Company’s recorded reserves within the consolidated range of reserves.
/s/ KPMG LLP
We have served as the Company's auditor since 1964.
Selective Insurance Group, Inc., through its subsidiaries, (collectively referred to as "we," "us," or "our") offers standard commercial, standard personal, and excess and surplus ("E&S") lines property and casualty insurance products. Selective Insurance Group, Inc. (referred to as the "Parent") was incorporated in New Jersey in 1977 and its corporate headquarters is located in Branchville, New Jersey. The Parent’s common and preferred stock are publicly traded on the Nasdaq Global Select Market under the symbols "SIGI" and "SIGIP," respectively. We have provided a glossary of terms as Exhibit 99.1 to this Form 10-K, which defines certain industry-specific and other terms that are used in this Form 10-K.
We classify our business into four reportable segments, which are as follows:
•Standard Commercial Lines – comprised of property and casualty insurance products and services provided in the standard marketplace to commercial enterprises, which are typically businesses, non-profit organizations, and local government agencies.
•Standard Personal Lines – comprised of property and casualty insurance products and services, including flood insurance coverage, provided primarily to individuals acquiring coverage in the standard marketplace.
•E&S Lines – comprised of property and casualty insurance products and services provided to customers who are unable to obtain coverage in the standard marketplace.
•Investments – invests the premiums collected by our insurance operations, as well as amounts generated through our capital management strategies, which may include the issuance of debt and equity securities.
Note 2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements (“Financial Statements”) include the accounts of the Parent and its subsidiaries, and have been prepared in conformity with: (i) United States ("U.S.") generally accepted accounting principles ("GAAP"); and (ii) the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). All significant intercompany accounts and transactions are eliminated in consolidation.
(b) Use of Estimates
The preparation of our Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported financial statement balances, as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
(c) Investments
Portfolio Composition and Presentation in the Consolidated Balance Sheet
Our investment portfolio is primarily comprised of fixed income securities. We also hold commercial mortgage loans ("CMLs"), equity securities, short-term investments, alternative investments, and other investments. A description of our portfolio holdings, and the related presentation in our Consolidated Balance Sheet, is provided below.
Fixed Income Investments
Our fixed income investments include our fixed income securities portfolio and our CML portfolio.
Fixed Income Securities
We hold the following types of securities in our fixed income securities portfolio:
•U.S. government and government agency obligations;
•Foreign government obligations;
•Obligations of states and political subdivisions, including special revenue and general obligation bonds;
•Corporate securities, which may include investment grade and below investment grade bonds, bank loan investments, redeemable preferred stock, and non-redeemable preferred stock with certain debt-like characteristics;
•Collateralized loan obligations ("CLOs") and other asset-backed securities ("ABS");
•Residential mortgage-backed securities ("RMBS"); and
We have designated substantially all of the holdings in our fixed income securities as available-for-sale ("AFS"). These securities are reported at fair value in our Consolidated Balance Sheet. The after-tax difference between fair value and cost or amortized cost is reflected in stockholders’ equity as a component of accumulated other comprehensive income (loss) ("AOCI").
The amortized cost of fixed income securities is adjusted for the amortization of premiums and the accretion of discounts over the expected life of the security using the effective yield method. Callable debt securities held at a premium are amortized to the earliest call date. Premiums and discounts arising from the purchase of RMBS, CMBS, CLO and other ABS are amortized over the expected life of the security based on future principal payments, giving additional consideration to prepayments. These prepayments are estimated based on historical and projected cash flows. Prepayment assumptions are reviewed quarterly and adjusted to reflect actual prepayments and changes in expectations. Future amortization of any premium and/or discount is adjusted to reflect the revised assumptions.
Accrued interest on our fixed income securities is recorded as a component of “Accrued investment income” on our Consolidated Balance Sheet. If accrued interest is due but not paid within 90 days, we reverse the delinquent amount and record this reversal through earnings as a component of “Net investment income earned” on our Consolidated Statement of Income.
CMLs
CMLs are loans secured by commercial property, such as an office building, multi-family apartment complex, industrial warehouse, or shopping center. We may acquire investments in CMLs through (i) direct originations under a loan syndication arrangement or (ii) a marketplace purchase. We record our investment in CMLs on the settlement date of the loan. Our CMLs are reported at amortized cost, net of any allowance for credit losses ("ACL"), on our Consolidated Balance Sheet. Interest is recorded using the effective yield method and accrued interest on our CMLs is recorded as a component of “Accrued investment income” on our Consolidated Balance Sheet.
Other Portfolio Holdings
Equity securities may include common and non-redeemable preferred stocks. Equity securities with readily determinable fair values are reported at fair value. Equity securities without readily determinable fair values are reported at net asset value ("NAV") as a practical expedient.
Short-term investments may include money market instruments, savings accounts, commercial paper, and fixed income securities purchased with a maturity of less than one year. We may also enter into reverse repurchase agreements that are included in short-term investments. These repurchase agreements are fully collateralized by high-quality, readily-marketable instruments that support the principal amount. At maturity, we receive principal and interest income on these agreements. Short-term investments are generally reported at fair value.
Alternative investments are limited partnership investments in private equity, private credit, and real estate strategies. These alternative investments are accounted for using the equity method, with income typically recognized on a one-quarter lag. Because these alternative investments are recorded under the equity method of accounting, with the underlying holdings carried at fair value, the valuation and income recognized on these investments may be impacted by volatility in the financial markets.
We categorize distributions from our equity method investments on our Consolidated Statement of Cash Flows using the cumulative earnings approach. Under this approach, distributions received are classified as cash flows from operating activities until such time that the cumulative distributions exceed cumulative earnings for the investment. When such an excess occurs, the excess portion of the current period distribution is considered a return of investment and is classified as a cash flow from investing activities.
We evaluate our alternative investments to determine whether those investments are variable interest entities ("VIEs") and if so, whether consolidation is required. A VIE is an entity that either has equity investors that lack certain essential characteristics of a controlling financial interest or lack sufficient funds to finance its own activities without financial support provided by other entities. We consider several significant factors in determining if our investments are VIEs and if we are the primary beneficiary, including whether we have (i) the power to direct activities of the VIE, (ii) the ability to remove the decision maker of the VIE, (iii) the ability to participate in making decisions that are significant to the VIE, and (iv) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE. We have reviewed our alternative investments and have concluded that they are VIEs, but that we are not the primary beneficiary and therefore, consolidation is not required.
Our other investment portfolio includes Federal Home Loan Bank stock (“FHLB Stock”) and tax credit investments. The FHLB Stock is reported at cost.
Accounting for our tax credit investments is dependent on the type of credit we have purchased, as follows:
•Federal low income housing tax credits are accounted for under the proportional amortization method; and
•All other tax credits in our investment portfolio are accounted for using the equity method.
For federal tax credits accounted for under the equity method, we use the deferral method for recognizing the benefit of the tax credit with the related deferred revenue being recognized in our Consolidated Income Statement as a component of "Federal income tax expense" proportionately over the life of the investment.
Presentation in the Consolidated Statement of Income
Net Investment Income Earned
Net investment income earned on our Consolidated Statement of Income includes the following:
•Interest income, as well as amortization and accretion, on fixed income securities;
•Interest income on CMLs;
•Dividend income on equity securities;
•Interest income on our short-term investments; and
•Income recognized on our alternative and other investments accounted for under the equity method of accounting, except for federal tax credits, as discussed below.
Income related to federal tax credits (either low income housing tax credits or other federal credits) is recorded in our Consolidated Statement of Income as a component of “Federal income tax expense” proportionately over the life of the investment.
Net Realized and Unrealized Investment Gains (Losses)
Net realized and unrealized investment gains (losses) on our Consolidated Statement of Income include the following:
•Realized gains and losses on the disposal of holdings in our investment portfolio, which are determined on the basis of the cost of the specific investments sold;
•Changes in unrealized gains or losses on our equity securities;
•Losses on investments for which we have the intent to sell, which are discussed further below; and
•Net credit loss expense or benefit resulting from changes in the ACL related to our investment portfolio, which is also discussed further below.
Losses on Investments for which we have the Intent to Sell
For our AFS fixed income securities and short-term investments, we review our fixed income securities in an unrealized loss position to determine (i) if we have the intent to sell the security, or (ii) if it is more likely than not we will be required to sell the security before its anticipated recovery. If we determine that we have the intent or likely requirement to sell the security, we write down its amortized cost to its fair value. In writing down amortized cost, any amount previously recorded as an ACL is reversed and any incremental reduction in amortized cost is recorded directly to earnings as a component of “Net realized and unrealized investment gains (losses)” on our Consolidated Statement of Income.
For our alternative and other investments, if we determine that we intend to sell a holding and the expected proceeds are less than the recorded value of the investment, we will record a loss on those securities we intend to sell in earnings as a component of “Net realized and unrealized investment gains (losses)” on our Consolidated Statement of Income.
After reviewing our portfolio, if (i) we do not have the intent to sell, or (ii) it is more likely than not we will not be required to sell the security before its anticipated recovery, then our intent is to hold the investment securities to recovery, or maturity if necessary to recover the decline in valuation as prices accrete to par. However, our intent may change prior to maturity due to certain types of events, which include, but are not limited to, changes in the financial markets, our analysis of an issuer’s credit metrics and prospects, changes in tax laws or the regulatory environment, or as a result of significant unforeseen changes in liquidity needs. As such, we may, from time to time, sell invested assets subsequent to the balance sheet date that we did not intend to sell at the balance sheet date. Conversely, we may not sell invested assets that we asserted we intended to sell at the balance sheet date. Such changes in intent are due to unforeseen events occurring subsequent to the balance sheet date.
ACL on AFS Fixed Income Securities and Short-Term Investments
When fixed income securities are in an unrealized loss position and we do not record any losses on securities for which we intend to sell, we record an ACL for the portion of the unrealized loss due to an expected credit loss. We estimate expected
credit losses on fixed income securities with certain credit qualities by performing a discounted cash flow (“DCF”). The ACL is equal to the excess of amortized cost over the greater of: (i) our estimate of the present value of expected future cash flows, or (ii) fair value. The ACL is recorded as a contra-asset reflected in the carrying value of the investment on the Consolidated Balance Sheet. The initial ACL and any subsequent changes are recorded to earnings as a component of “Net realized and unrealized investment gains (losses)” on our Consolidated Statement of Income. Any remaining unrealized loss is the non-credit amount and is recorded in AOCI. The ACL cannot exceed the unrealized loss of an AFS security and therefore it may fluctuate with changes in the fair value of the security. The ACL is written off against the amortized cost basis in the period in which it is determined uncollectible.
Our DCF analyses calculate the present value of expected future cash flows using various models specific to the major security types in our portfolio. These models use security-specific information, as well as reasonable and forecasted macroeconomic data, to determine possible expected credit loss scenarios based on projected changes in the economy. The forecasted economic data incorporated into the models is based on the Federal Reserve Board’s annual supervisory stress test review on certain large banks and financial institutions. We also have the ability to incorporate internally-developed forecast information into the models as we deem appropriate.
The discount rate used in a DCF is one of the following:
•The current yield in effect at the reporting date to accrete the beneficial interest for RMBS, CMBS, CLO and other ABS that were not of high credit quality at acquisition;
•The effective interest rate in effect as of the reporting date for non-fixed rate securities; and
•The effective interest rate implicit in the security at the date of acquisition for all other securities.
DCFs may include, but are not necessarily limited to: (i) generating cash flows for each tranche considering tranche-specific data, market data, and other pertinent information, such as the historical performance of the underlying collateral, including net operating income generated by underlying properties, conditional default rate assumptions, loan loss severity assumptions, consensus projections, prepayment projections, and actual pool and collateral information; (ii) identifying applicable benchmark yields; and (iii) applying market-based tranche specific spreads to determine an appropriate yield by incorporating collateral performance, tranche-level attributes, trades, bids, and offers.
We do not record a valuation allowance on the accrued interest balance associated with our fixed income securities as we reverse delinquent amounts on a timely basis. We consider a fixed income security to be past due at the time any principal or interest payments become 90 days delinquent.
ACL on CMLs
We evaluate our CMLs on a quarterly basis for expected credit losses. If we hold a CML with a specific credit concern, we record an individual ACL on that loan. For all other CMLs, we record an ACL on the pool of loans based on lifetime expected credit losses. The ACL is recorded as a contra-asset reflected in the carrying value of our CMLs on the Consolidated Balance Sheet. Our initial ACL and any subsequent changes are recorded to earnings as a component of “Net realized and unrealized investment gains (losses)” on our Consolidated Statement of Income.
We utilize a forecasting model to estimate lifetime expected credit losses at a loan level under multiple economic scenarios. The scenarios apply reasonable and forecasted macroeconomic data such as unemployment, inflation, and rent assumptions to project property-specific operating income and capitalization rates that are used to estimate the value of the future operating income stream. This information, coupled with historical data about mortgage loan performance, is used to project the probability of default, the amount of loss given a default, and the resulting lifetime expected loss.
Credit Losses on Alternative Investments
We review our alternative investment portfolio for potential credit losses through quarterly fund reports and conversations with the general partners of the alternative investments concerning the following:
•The current investment strategy;
•Changes made or future changes to be made to the investment strategy;
•Emerging issues that may affect the success of the strategy; and
•The appropriateness of the valuation methodology used regarding the underlying investments.
Credit Losses on Other Investments
Our evaluation for potential credit loss on tax credits and FHLB Stock include a qualitative assessment of credit indicators, which include, but are not limited to, the following:
•An adverse development of the expected receipt of remaining tax credits and other tax benefits; and
•A significant deterioration in the financial condition or liquidity of the Federal Home Loan Bank of Indiana or New York.
If we do not intend to sell a security, and we expect a credit loss on a holding in our alternative or other investments portfolio, we record a charge to earnings as a component of “Net realized and unrealized investment gains (losses)” on our Consolidated Statement of Income.
(d) Fair Values of Financial Instruments
Assets
The fair values of our investments are generated using various valuation techniques and are placed into the fair value hierarchy considering the following: (i) the highest priority is given to quoted prices in active markets for identical assets (Level 1); (ii) the next highest priority is given to quoted prices in markets that are not active or inputs that are observable either directly or indirectly, including quoted prices for similar assets in markets that are not active and other inputs that can be derived principally from, or corroborated by, observable market data for substantially the full term of the assets (Level 2); and (iii) the lowest priority is given to unobservable inputs supported by little or no market activity and that reflect our assumptions about the exit price, including assumptions that market participants would use in pricing the asset (Level 3). An asset’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation.
The techniques used to value our financial assets are as follows:
Level 1 Pricing
Security Type
Methodology
Equity Securities; U.S. Treasury Notes
Equity and U.S. Treasury Note prices are received from an independent pricing service that are based on observable market transactions. We validate these prices against a second external pricing service, and if established market value comparison thresholds are breached, further analysis is performed to determine the price to be used.
Short-Term Investments, excluding short-term fixed income securities
Short-term investments are recorded at fair value. Given the liquid nature of our short-term investments, we generally validate their fair value by way of active trades within approximately one week of the financial statement close.
Level 2 Pricing
We utilize a market approach for our Level 2 securities, using primarily matrix pricing models prepared by external pricing services. Matrix pricing models use mathematical techniques to value fixed income securities by relying on the securities' relationship to other benchmark quoted securities, and not relying exclusively on quoted prices for specific securities, as the specific securities are not always frequently traded. As a matter of policy, we consistently use one pricing service as our primary source and secondary pricing services if prices are not available from the primary pricing service. Fixed income security pricing is reviewed for reasonableness by (i) comparing our pricing to other third-party pricing services as well as benchmark indexed pricing, (ii) comparing fair value fluctuations between months for reasonableness, (iii) reviewing stale prices, and (iv) internally reviewing prices for reasonableness if a price from another third-party source is not available. If further analysis is needed, a challenge is sent to the pricing service for review and confirmation of the price.
Further information on our Level 2 asset pricing is included in the following table:
Security Type
Methodology
Corporate Securities, including preferred stocks classified as Fixed Income Securities, U.S. Government and Government Agencies and Short-term Corporate and U.S. Government Agency Bonds
Evaluations include obtaining relevant trade data, benchmark quotes and spreads, and incorporating this information into either spread-based or price-based evaluations as determined by the observed market data. Spread-based evaluations include: (i) creating a range of spreads for relevant maturities of each issuer based on the new issue market, secondary trading, and dealer quotes; and (ii) incorporating option-adjusted spreads for issues that have early redemption features. Based on the findings in (i) and (ii) above, final spreads are derived and added to benchmark curves. Price-based evaluations include matching each issue to its best-known market maker and contacting firms that transact in these securities.
Obligations of States and Political Subdivisions
Evaluations are based on yield curves that are developed based on factors such as: (i) benchmarks to issues with interest rates near prevailing market rates; (ii) established trading spreads over widely-accepted market benchmarks; (iii) yields on new issues; and (iv) market information from third-party sources such as reportable trades, broker-dealers, or issuers.
RMBS, CMBS, CLO and other ABS
Evaluations are based on a DCF, including: (i) generating cash flows for each tranche considering tranche-specific data, market data, and other pertinent information, such as historical performance of the underlying collateral, including net operating income generated by the underlying properties, conditional default rate assumptions, loan loss severity assumptions, consensus projections, prepayment projections, and actual pool and loan level collateral information; (ii) identifying applicable benchmark yields; and (iii) applying market-based tranche-specific spreads to determine an appropriate yield by incorporating collateral performance, tranche-level attributes, trades, bids, and offers.
Foreign Government
Evaluations are performed using a DCF model and by incorporating observed market yields of benchmarks as inputs, adjusting for varied maturities.
Level 3 Pricing
Security Type
Methodology
CMLs
Evaluations are performed by a third party and are based on matrix pricing. For fixed rate loans, the matrix process uses a yield build up approach to create a pricing yield, with components for base yield, credit quality spread, property type spread, and a weighted average life spread. Floating rate loans are priced with a target quality spread over the swap curve.
In addition to our CML portfolio, certain securities in our AFS fixed income securities portfolio are priced using (i) unobservable inputs, such as illiquidity spreads, (ii) broker quotes, or (iii) information received from other third-party sources, for which there is a lack of transparency as to the inputs used to generate the valuation. The quantitative detail of these unobservable inputs is neither provided to us, nor reasonably available to us.
Liabilities
The techniques used to value our notes payable are as follows:
Level 2 Pricing
Security Type
Methodology
7.25% Senior Notes;
6.70% Senior Notes;
5.375% Senior Notes
Based on matrix pricing models prepared by external pricing services.
Borrowings from Federal Home Loan Banks
Evaluations are performed using a DCF model based on current borrowing rates provided by the Federal Home Loan Banks that are consistent with the remaining term of the borrowing.
(e) Allowance for Credit Losses on Premiums Receivable
We estimate an ACL on our outstanding premiums receivable balance at each reporting date. In determining this allowance, we use a method that considers the aging of the receivable, based on the effective year of the related policy, along with our historical receivable loss experience. We also contemplate expected macroeconomic conditions over the expected collection period, which are short-term in nature because the majority of the balances are collected within two years of policy issuance.
Changes in our ACL are charged to earnings as credit loss expense or benefit, which is a component of "Other insurance expenses" on our Consolidated Statements of Income, with an offsetting ACL recorded as a contra-asset reflected in the carrying value of the receivable. We charge write-offs against the allowance when we determine the account to be uncollectible after considering information obtained from our collection efforts.
Share-based compensation consists of all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share units, share options, or other equity instruments. The cost resulting from these payment transactions is recognized in the Financial Statements based on the fair value of both equity and liability awards. For equity awards, fair value is measured at the grant date, while liability awards are remeasured at each reporting period. The fair value of both types of awards is expensed over the requisite service period. The requisite service period is typically the lesser of the vesting period or the time from the grant date to the recipient's retirement eligibility date. The expense recognized for share-based awards, which in some cases contain performance criteria, is based on the number of shares or units expected to be issued at the end of the performance period and the grant date fair value.
The grant date fair value of Restricted Stock Units ("RSUs") is based on the market price of our common stock on the grant date, adjusted for the present value of expected dividend payments.
The fair value of the Cash Incentive Units ("CIUs") liability is remeasured at each reporting period through the settlement date of the awards based on an amount expected to be paid. A Monte Carlo simulation is performed to approximate the projected fair value of the CIUs that is adjusted to reflect our performance on specified indicators compared to targeted peer companies.
The grant date fair value of option awards is estimated using the Black Scholes option valuation model ("Black Scholes"). The following are the significant assumptions used in applying Black Scholes: (i) the risk-free interest rate, which is the implied yield currently available on U.S. Treasury zero-coupon issues with an equal remaining term; (ii) the expected term, which is based on historical experience of similar awards; (iii) the dividend yield, which is determined by dividing the expected per share dividend during the coming year by the grant date stock price; and (iv) the expected volatility, which is based on the volatility of the Parent's stock price over a historical period comparable to the expected term.
We repurchase the Parent’s stock from our employees to meet tax withholding obligations, as permitted under our stock-based compensation plans. This activity is disclosed in our Consolidated Statement of Stockholders' Equity.
(g) Reinsurance
The “Reinsurance recoverable” balance on our Consolidated Balance Sheet represents our estimate of amounts that will be recovered from reinsurers under our various treaties. Generally, amounts recoverable from reinsurers are recognized as assets at the same time and in a manner consistent with the paid and unpaid losses associated with the reinsured policies. We would consider a recoverable balance from a reinsurer to be past due if payment is not received by the first day following the invoice due date. We require collateral to secure reinsurance recoverable balances primarily from our reinsurance carriers that are not authorized, otherwise approved, or certified to do business in one or more of our ten insurance subsidiaries' domiciliary states. Our ten insurance subsidiaries are collectively referred to as the "Insurance Subsidiaries." The collateral received is typically in the form of a letter of credit, trust funds, or funds withheld against reinsurance recoverables.
Under our reinsurance arrangements, which are prospective in nature, reinsurance premiums ceded are recorded as prepaid reinsurance and amortized over the remaining contract period in proportion to the reinsurance protection provided, or recorded periodically, as per the terms of the contract, in a direct relationship to the gross premium recording. Reinsurance recoveries are recognized as gross losses are incurred.
We have a reinsurance agreement with a special purpose insurer ("SPI"). The reinsurance agreement meets the requirements to be accounted for as reinsurance in accordance with the guidance for reinsurance contracts. At the time of entering into the agreement, we evaluated the applicability of the VIE accounting guidance. A VIE is an entity that either has equity investors that lack certain essential characteristics of a controlling financial interest or lack sufficient funds to finance its own activities without financial support provided by other entities. We considered several significant factors in determining if the SPI is a VIE and if we are the primary beneficiary, including whether we have (i) the power to direct activities of the VIE, (ii) the ability to remove the decision maker of the VIE, (iii) the ability to participate in making decisions that are significant to the VIE, and (iv) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE. As a result of the evaluation of the reinsurance agreement with the SPI, we concluded that it was a VIE. However, we do not have a variable interest in the entity, as the variability in its results, caused by the reinsurance agreement, is expected to be absorbed entirely by the investors in the senior notes issued by the SPI, and residual amounts earned by it, if any, are expected to be absorbed by the equity investors. We have neither an equity nor a residual interest in the SPI.
Accordingly, we are not the primary beneficiary of the SPI and do not consolidate that entity in our Financial Statements. Additionally, because we have no intention to pursue any transaction that would result in it acquiring interest in and becoming
the primary beneficiary of the SPI, the consolidation of that entity in our Financial Statements in future periods is unlikely. Refer to Note 9. "Reinsurance" for more information on this transaction.
We estimate an ACL on our outstanding reinsurance recoverable balance at each reporting date. Credit risk is mitigated to the extent we have obtained collateral. As part of our estimation of the ACL, we reduce the recoverable balance by the amount of the collateral. We then pool the uncollateralized balances by similar risk characteristics, including the financial strength rating of the reinsurer, and use a probability-of-default methodology to calculate the allowance. Historical default rates are sourced from AM Best Company ("AM Best") and are coupled with severity assumptions in developing a baseline scenario. We then stress this scenario by incorporating forecasts of industry catastrophe losses and economic factors sourced through third-party data providers. In developing our best estimate of the ACL, we consider our outlook as to the probability of each of these scenarios occurring.
Changes in our ACL are charged to earnings as credit loss expense, which is a component of “Loss and loss expense incurred” on our Consolidated Statement of Income, with an offsetting ACL recorded as a contra-asset reflected in the carrying value of the recoverable balance. We charge write-offs against the ACL when we determine the recoverable balance to be uncollectible after considering information obtained from our efforts to collect amounts due or through a review of the financial condition of the reinsurer.
(h) Property and Equipment
Property and equipment used in operations, including certain costs incurred to develop or obtain computer software for internal use, are capitalized and recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The following estimated useful lives can be considered as general guidelines:
Asset Category
Years
Computer hardware
3
Computer software
3
to
5
Software licenses
3
to
5
Internally developed software
5
Furniture and fixtures
10
Buildings and improvements
5
to
40
We recorded depreciation expense of $26.5 million, $24.7 million, and $24.6 million for 2024, 2023, and 2022, respectively.
(i) Deferred Policy Acquisition Costs
Deferred policy acquisition costs are limited to costs directly related to the successful acquisition of insurance contracts. Costs meeting this definition typically include, among other things, sales commissions paid to our distribution partners, premium taxes, and the portion of employee salaries and benefits directly related to time spent on acquired contracts. These costs are deferred and amortized over the life of the contracts.
Accounting guidance requires a premium deficiency analysis to be performed at the level an entity acquires, services, and measures the profitability of its insurance contracts. We currently perform three premium deficiency analyses for our insurance operations, consistent with our reportable segments of Standard Commercial Lines, Standard Personal Lines, and E&S Lines. A combined ratio of over 100% does not necessarily indicate a premium deficiency, as any year's combined ratio includes a portion of underwriting expenses that are expensed at policy inception and therefore are not covered by the remaining unearned premium. In addition, investment income is not contemplated in the combined ratio calculation.
There were no premium deficiencies for any of the reported years, as the sum of the anticipated loss and loss expense, unamortized acquisition costs, policyholder dividends, and other expenses for each segment did not exceed that segment’s related unearned premium and anticipated investment income. The investment yields assumed in the premium deficiency assessment for each reporting period, which were based on our actual average investment yield, before tax, as of the September 30 calculation date, were 4.8% for 2024, 4.8% for 2023, and 3.5% for 2022.
(j) Goodwill
Goodwill results from business acquisitions where the cost of assets and liabilities acquired exceeds the fair value of those assets and liabilities. A quantitative goodwill impairment analysis is performed if our quarterly qualitative analysis indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Goodwill is allocated to the reporting units for purposes of these analyses. Based on our analysis at December 31, 2024, goodwill was not impaired.
Reserve for loss and loss expense includes case reserves on reported claims and reserves for incurred but not reported ("IBNR") losses. Case reserves are estimated for each individual claim based on the facts and circumstances known at the time. Case reserves may be adjusted up or down as the claim's facts and circumstances change. IBNR reserves are established at more aggregated levels and include provisions for (i) claims not yet reported, (ii) future development on reported claims, (iii) previously closed claims that could reopen in the future, and (iv) anticipated salvage and subrogation recoveries.
We evaluate our reserves quarterly, through an in-depth reserve review process, and make adjustments to recorded reserves accordingly. The primary input we use to evaluate reserve levels is the quarterly reserve review prepared by our employee actuaries, which provides comprehensive loss and loss expense projections. We base our reviews primarily on our own loss experience, organized by line of business. Where sufficient statistical credibility exists, we may further segment the loss experience by coverage within a line, or geographic area. Generally accepted actuarial methodologies are applied to these reserve groups to produce ultimate loss and loss expense projections.
Typically, we organize our experience by accident year and age, allowing various loss development methods to be applied. These methods rely on historical claims reporting and payment patterns to project ultimate loss or expense for open accident years. We also consider the initial expectation of ultimate losses, particularly for longer-tailed lines of business and the current accident year. Our detailed actuarial planning process develops the expectation for the current accident year, which is adjusted over time as actual experience emerges.
These methods require judgment and numerous assumptions, like the selection of loss and loss expense development factors and the weight applied to each individual projection method. Consequently, no single method can be interpreted as definitive. Instead, ultimate loss and loss expenses are selected based on the various methods, considering the strengths and weaknesses of each applied to the specific line of business and accident year.
Certain liabilities do not lend themselves to the application of loss development methods, such as property catastrophes (low frequency/high severity, unique events), latent claims (where losses are incurred over an extended period), and unallocated loss expenses (those unattributable to a specific claim). We use alternate estimation techniques for these liabilities, some of which are primarily exposure-based methods. These methods include individual claims reviews, calendar year counts and averages, aggregate benchmark measures, such as paid and incurred "survival ratios," and others. These approaches often require additional assumptions and a greater degree of professional judgment.
The reserve review produces a set of ultimate loss and loss expense estimates by line of business, including current and prior accident years. The selected ultimate losses are separated into their components of claim frequency and severity, along with their associated trends, to provide additional insight. While these ultimate loss and loss expense estimates serve as the primary basis for determining the recorded IBNR reserves, other internal and external factors are considered in our overall reserve review. Internal factors include (i) changes to our underwriting and claims practices, (ii) supplemental data on claims reporting and settlement trends, (iii) exposure estimates for reported claims, (iv) potential large or complex claims, and (v) additional trends observed by claims personnel or defense counsel. External factors considered include (i) legislative and regulatory enactments, (ii) judicial trends and decisions, (iii) social trends, including the impacts of social inflation, and (iv) trends in general economic conditions, including the effects of inflation on medical costs, raw materials, and labor.
The combination of IBNR estimates and case reserve estimates on individual claims results in our total reserve for loss and loss expense. These reserves are expected to be sufficient for settling unpaid loss and loss expense obligations under our policies, including changes in the (i) volume of business written, (ii) claims frequency and severity, (iii) mix of business, (iv) claims processing, and (v) other items that management expects to affect our ultimate settlement of loss and loss expense. However, our loss and loss expense reserves are estimates of future events for which the outcomes are unknown. They carry inherent uncertainty, driven by internal factors, such as changes to our claims or underwriting operations, or external factors, like legislative, judicial, economic, or social trends. Inherent randomness, such as the actual number of accidents/incidents or the occurrence or non-occurrence of a single large event, can also impact actual outcomes. Because of these uncertainties, the reserves established may differ materially from actual outcomes. While this risk cannot be eliminated, we review our reserves quarterly based on available information, and make appropriate adjustments to our ultimate loss and loss expense estimates. These changes in our ultimate loss and loss expense estimates are reflected in the Consolidated Statements of Income for the period in which such estimates are changed. Liability estimate changes could be material to the results of operations in future periods.
Loss reserves are estimates, so we consider a range of possible loss and loss expense reserve estimates. This range is determined at the beginning of each year, using prior year-end data. We use a range because no single precise method for estimating the required reserves exists, as many factors may influence the amounts ultimately paid. We do not discount to
present value that portion of our loss and loss expense reserves expected to be paid in future periods. Our loss and loss expense reserves implicitly include anticipated salvage and subrogation recoveries.
Claims are counted by occurrence and by line of business and policy. For example, if a single occurrence (like an automobile accident) leads to a claim under an automobile and an associated umbrella policy, each claim is counted separately. Conversely, multiple claimants under the same occurrence/line/policy would constitute only one claim. Claim counts are on a reported basis and a claim is considered reported when a reserve is established or a loss payment is made. Claims closed without payment are included in the count if an associated case reserve was established at some point in the claim's life cycle.
(l) Revenue Recognition
Premiums written are recognized as revenue over the period that coverage is provided using the semi-monthly pro-rata method. Unearned premiums and prepaid reinsurance premiums represent that portion of premiums written that are applicable to the unexpired terms of policies in force.
The Insurance Subsidiaries' net premiums written ("NPW") include direct insurance policy writings, plus reinsurance assumed, less reinsurance ceded. Insureds' records within our workers compensation and general liability lines of business are subject to periodic audit for purposes of verifying premium amounts. This premium is referred to as audit premium and is billed or returned on policies subsequent to expiration based on exposure levels (i.e. payroll or sales). We estimate this premium when it is reasonably possible to do so based on historical trends adjusted for the uncertainty of future economic conditions. If we determine it is not reasonably possible to estimate this premium, we do not do so.
(m) Dividends to Policyholders
We establish reserves for dividends to policyholders on certain policies, most significantly workers compensation policies. These dividends are based on the policyholders' loss experience. Dividend reserves are established based on past experience, adjusted for the effects of current developments and anticipated trends. The expense for these dividends is recognized over a period that begins at policy inception and ends with the payment of the dividend. We report these dividends within "Other insurance expenses" on the Consolidated Statement of Income. We do not issue policies that entitle the policyholder to participate in the statutory earnings or surplus of our Insurance Subsidiaries.
(n) Federal Income Tax
We use the asset and liability method of accounting for income taxes. Current federal income taxes are recognized for the estimated taxes payable or refundable on tax returns for the current year. Deferred federal income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. We consider all evidence, both positive and negative, with respect to our federal net operating and capital loss carryback availability, expected levels of pre-tax financial statement income, federal taxable income, liquidity, and prudent and reasonable tax planning strategies when evaluating whether the temporary differences will be realized. In projecting future taxable income, we begin with budgeted pre-tax income adjusted for estimated taxable and non-taxable items. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we use to manage our businesses. A valuation allowance is established when it is more likely than not that some portion of the deferred tax asset will not be realized. The evaluation of a valuation allowance considers the character of the taxable income, ordinary income versus capital income. A liability for uncertain tax positions is recorded when it is more likely than not that a tax position will not be sustained upon examination by taxing authorities. The effect of a change in tax rates is recognized in the period of enactment. If we were to be levied interest and penalties by the Internal Revenue Service, these amounts would be recognized as a component of “Total federal income tax expense” on the Consolidated Statement of Income.
(o) Leases
We have various operating leases for office space, equipment, and fleet vehicles. In addition, we have various finance leases for computer hardware. We determine if an arrangement is a lease on the commencement date of the contract. Lease assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. The lease asset and liability are measured by the present value of the future minimum lease payments over the lease term. Our fleet vehicle leases include a residual value guarantee; however, the residual value guarantee is not probable of being owed. Therefore, there is no impact to the lease liability or lease asset. To measure the present value, we use the discount rate in the contract. If the discount rate is not readily determinable, our incremental borrowing rate is used. The lease asset is then adjusted to exclude lease incentives. We recognize variable lease payments in the periods in which the obligations for those payments are incurred. In calculating a lease liability, we include options to extend or terminate the lease if it is reasonably certain that we will exercise such option. Lease expense is calculated using the straight-line method. In addition, we have adopted accounting policy elections to: (i) aggregate lease and non-lease components into a single lease component; and (ii) expense short-term leases on a straight-line basis over the lease term.
Our pension obligations and related costs are calculated using actuarial methods, within the framework of GAAP. Our pension benefit obligation is determined as the actuarial present value of the vested benefits to which employees are currently entitled, based on the average life expectancy of the employees. Our funding policy provides that payments to our pension trust shall be equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"), plus additional amounts that may be approved from time to time.
Two key assumptions, the benefit obligation discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement. We evaluate these key assumptions annually unless facts indicate that a more frequent review is required. The discount rate enables us to state expected future cash flows at their present value on the measurement date. The purpose of the discount rate is to determine the interest rates inherent in the price at which pension benefits could be effectively settled. Our discount rate selection is based on high-quality, long-term corporate bonds. To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. Other assumptions involve demographic factors such as retirement age and mortality. A portion of our plan assets is allocated to a liability hedging strategy through which we have an expectation that our plan assets will move in tandem with a portion of the plan liabilities, helping to mitigate funding ratio volatility.
Note 3. Adoption of Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03"). ASU 2022-03 clarifies that a contractual sales restriction on an equity security is not considered when determining the security's fair value. This ASU was issued to eliminate diversity in practice by clarifying that contractual arrangements restricting an entity's ability to sell the security for a certain period of time is a characteristic of the reporting entity and should not be contemplated when determining the security's fair value. ASU 2022-03 requires new disclosures that provide investors with information about the restriction, including the nature and remaining duration of the restriction. The ASU is effective for annual periods beginning after December 15, 2023, including interim periods within those annual periods. We adopted this guidance on January 1, 2024 and it did not have a material impact to our financial condition or results of operations.
In March 2023, the FASB issued ASU 2023-02, Investments — Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02"). This ASU allows companies to elect to account for qualifying tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Companies were previously permitted to apply the proportional amortization method only to qualifying tax equity investments in low income housing tax credit structures. ASU 2023-02 extends the application of the proportional amortization method to qualifying tax equity investments that generate tax credits through other programs. It also requires new disclosures that provide a better understanding of the nature of the tax equity investments and the effect the tax equity investments and related income tax credits and other income tax benefits have on a company's financial position and results of operations. The ASU is effective for annual periods beginning after December 15, 2023, including interim periods within those fiscal years. We adopted ASU 2023-02 on January 1, 2024 and it did not have a material impact to our financial condition or results of operations.
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 amends disclosure requirements for segment reporting by modifying and adding disclosure requirements. The additional disclosure requirements include the following on both an interim and annual basis: (i) significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"); (ii) amounts for "other segment items" by reportable segment and a description of its composition; and (iii) the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. In addition, ASU 2023-07 requires all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280, Segment Reporting, to now be disclosed in interim periods. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We adopted ASU 2023-07 for the annual period ending December 31, 2024. As ASU 2023-07 only requires additional disclosure, it did not have a material impact on our financial condition or results of operations.
Pronouncements to be effective in the future
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 amends disclosure requirements to provide greater transparency on income taxes. The following additional disclosures are required annually: (i) specific required categories in the rate reconciliation, (ii) additional information for reconciling items that meet a quantitative threshold, (iii) the amount of income taxes paid disaggregated by jurisdiction, and (iv) income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Amendments can be applied on a prospective basis; however, retrospective
application is permitted. Early adoption is permitted. As ASU 2023-09 only requires additional disclosure, it will not have a material impact on our financial condition or results of operations.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses ("ASU 2024-03"). ASU 2024-03 requires disaggregated disclosure of income statement expenses. This ASU does not change the expense captions currently presented on the income statement; rather it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within fiscal years beginning after December 15, 2027. This ASU can be applied on a prospective basis; however, retrospective application is permitted. Early adoption is permitted. As ASU 2024-03 only requires additional disclosure, it will not have a material impact on our financial condition and results of operations.
Note 4. Statements of Cash Flows
Supplemental cash flow information was as follows:
($ in thousands)
2024
2023
2022
Cash paid (received) during the period for:
Interest
$
28,532
28,359
26,639
Federal income tax
49,000
79,702
75,000
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
8,413
7,409
8,148
Operating cash flows from financing leases
234
66
46
Financing cash flows from finance leases
2,629
2,666
2,438
Non-cash items:
Corporate actions related to fixed income securities, AFS1
43,558
22,741
38,106
Corporate actions related to equity securities1
29,250
—
—
Conversion of AFS fixed income securities to equity securities
—
—
1,463
Conversion of alternative investments to equity securities2
—
50,253
—
Assets acquired under finance lease arrangements
6,275
1,584
707
Assets acquired under operating lease arrangements
11,684
5,885
16,649
Non-cash purchase of property and equipment
53
242
70
1Examples of corporate actions include like-kind exchanges, non-cash acquisitions, and stock-splits.
2This non-cash exchange represents our investment in a private fund that was initially classified as an alternative investment accounted for using the equity method. The fund was later reclassified as an equity security when the fund transitioned to an Investment Company Act of 1940 fund.
The following table provides a reconciliation of cash and restricted cash reported within the Consolidated Balance Sheets that equate to the amount reported in the Consolidated Statements of Cash Flows:
($ in thousands)
December 31, 2024
December 31, 2023
Cash
$
91
180
Restricted cash
62,933
13,092
Total cash and restricted cash shown in the Statements of Cash Flows
$
63,024
13,272
Amounts in restricted cash represent cash received from the National Flood Insurance Program ("NFIP") that can only be used to pay flood claims under the Write Your Own program.
(a) Net unrealized gains and losses on investments included in "Other comprehensive income (loss)" ("OCI") in the Consolidated Statements of Stockholders' Equity by asset class were as follows for the years ended December 31, 2024, 2023, and 2022:
($ in thousands)
2024
2023
2022
AFS securities:
Fixed income securities
$
(316,796)
(353,288)
(527,926)
Total AFS securities
(316,796)
(353,288)
(527,926)
Short-term securities
8
35
35
Total net unrealized gains (losses)
(316,788)
(353,253)
(527,891)
Deferred income tax
66,526
74,184
110,857
Net unrealized gains (losses), net of deferred income tax
(250,262)
(279,069)
(417,034)
Increase (decrease) in net unrealized gains (losses) in OCI, net of deferred income tax
$
28,807
137,965
(597,915)
(b) Information regarding our AFS securities as of December 31, 2024 and December 31, 2023 were as follows:
The following tables provide a roll forward of the ACL on our AFS fixed income securities for the years indicated:
2024
Beginning Balance
Current Provision for Securities without Prior Allowance
Initial Allowance for Purchased Credit Deteriorated Assets with Credit Deterioration
Increase (Decrease) on Securities with Prior Allowance, excluding intent (or Requirements) to Sell Securities
Reductions for Securities Sold
Reductions for Securities Identified as Intent (or Requirement) to Sell during the Period
Ending Balance
($ in thousands)
Foreign government
$
35
—
—
(7)
(7)
—
21
Obligations of states and political subdivisions
669
222
—
(275)
(46)
—
570
Corporate securities
12,999
4,952
—
(1,861)
(1,157)
(9)
14,924
CLO and other ABS
2,854
1,376
—
846
(187)
—
4,889
RMBS
11,649
11
—
370
(486)
—
11,544
CMBS
6
—
—
(6)
—
—
—
Total AFS fixed income securities
$
28,212
6,561
—
(933)
(1,883)
(9)
31,948
2023
Beginning Balance
Current Provisions for Securities without Prior Allowance
Initial Allowance for Purchased Credit Deteriorated Assets with Credit Deterioration
Increase (Decrease) on Securities with Prior Allowance, excluding intent (or Requirements) to Sell Securities
Reductions for Securities Sold
Reductions for Securities Identified as Intent (or Requirement) to Sell during the Period
Ending Balance
($ in thousands)
Foreign government
$
284
—
—
(249)
—
—
35
Obligations of states and political subdivisions
1,024
48
—
(281)
(122)
—
669
Corporate securities
30,330
3,457
—
(16,879)
(3,638)
(271)
12,999
CLO and other ABS
2,375
619
—
(116)
(24)
—
2,854
RMBS
11,597
17
—
447
(412)
—
11,649
CMBS
111
1
—
38
(144)
—
6
Total AFS fixed income securities
$
45,721
4,142
—
(17,040)
(4,340)
(271)
28,212
During 2024 or 2023, we had no write-offs or recoveries of our AFS fixed income securities.
As disclosed in Note 2. "Summary of Significant Accounting Policies," we do not evaluate accrued interest on our AFS securities for expected credit loss as we write-off these balances in a timely manner. Accrued interest on AFS securities was $74.3 million as of December 31, 2024, and $64.6 million as of December 31, 2023. We did not record any material write-offs of accrued interest during 2024 or 2023.
(c) Quantitative information about unrealized losses on our AFS portfolio follows:
We currently do not intend to sell any of the securities summarized in the tables above, nor do we believe we will be required to sell any of them. The decrease in gross unrealized losses at December 31, 2024, compared to December 31, 2023, was driven by a tightening of credit spreads, partially offset by an increase in benchmark U.S. Treasury rates. Considering these factors and our review of these securities under our credit loss policy as described in Note 2. “Summary of Significant Accounting Policies” of this Form 10-K, we have concluded that no ACL is required on these balances beyond the ACL recorded as of December 31, 2024. This conclusion reflects our current judgment about the financial position and future prospects of the entities that issued the investment security and underlying collateral.
(d) AFS and held-to-maturity ("HTM") fixed income securities at December 31, 2024, by contractual maturity are shown below. The maturities of RMBS, CMBS, CLO and other ABS securities were calculated using each security's estimated average life. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
AFS
HTM
($ in thousands)
Fair Value
Carrying Value
Fair Value
Due in one year or less
$
593,487
1,152
1,176
Due after one year through five years
3,556,760
15,767
15,461
Due after five years through 10 years
3,024,602
8,456
8,098
Due after 10 years
952,485
—
—
Total fixed income securities
$
8,127,334
25,375
24,735
(e) The following table summarizes our alternative investment portfolio by strategy:
December 31, 2024
December 31, 2023
($ in thousands)
Carrying Value
Remaining Commitment
Maximum Exposure to Loss
Carrying Value
Remaining Commitment
Maximum Exposure to Loss
Alternative investments
Private equity
$
346,020
182,355
528,375
301,759
131,885
433,644
Private credit
52,100
99,185
151,285
54,500
89,401
143,901
Real assets
42,776
38,950
81,726
39,520
33,040
72,560
Total alternative investments
$
440,896
320,490
761,386
395,779
254,326
650,105
We are contractually committed to make additional investments up to the remaining commitments stated above. We did not provide any non-contractual financial support during 2024 or 2023.
The following is a description of our alternative investment strategies:
Our private equity strategy includes the following:
•Private Equity: This strategy makes private equity investments, primarily in established large and middle market companies across diverse industries globally, with an emphasis on North America.
•Venture Capital: In general, these investments are made principally by investing in equity securities of startup companies and small-to-medium sized privately-held corporations with strong long-term growth potential. This strategy makes private equity investments in seed stage, early stage, late stage, and growth equity partnerships.
Our private credit strategy includes the following:
•Direct Lending: This strategy provides privately negotiated loans to U.S. middle market companies. Typically, these are floating rate, senior secured loans diversified across industries. Loans are made to companies that may or may not have private equity sponsors to finance leveraged buyouts ("LBOs"), recapitalizations, and acquisitions.
•Mezzanine Financing: This strategy provides privately-negotiated fixed income securities, generally with an equity component, to LBO firms and private and publicly-traded large, mid, and small-cap companies to finance LBOs, recapitalizations, and acquisitions.
•Opportunistic and Distressed Debt: This strategy makes investments in debt and equity securities of companies that are experiencing financial distress, operational issues, or dislocated pricing of publicly-traded securities. Investments include buying indebtedness of bankrupt or financially-troubled companies, small balance loan portfolios, special situations and capital structure arbitrage trades, commercial real estate mortgages, and similar non-U.S. securities and debt obligations.
Our real assets strategy includes the following:
•Infrastructure: This strategy invests in the equity or debt of cash flow generating assets, diversified across a variety of industries, including transportation, energy infrastructure, renewable power, such as wind and solar, social infrastructure, power generation, water, telecom, and other regulated entities principally located in North America and Western Europe.
•Real Estate: This strategy invests in real estate in North America, Europe, and Asia via direct property ownership, joint ventures, mortgages, and investments in equity and debt instruments.
Our alternative investment strategies may employ leverage and may use hedging to reduce foreign exchange or interest rate volatility. At this time, our alternative investment strategies do not include hedge funds. We typically cannot redeem our investments with the general partners of these investments; however, occasionally these partnership positions can be sold on the secondary market. Once liquidation is triggered by clauses within the limited partnership agreements or at the funds’ stated end date, we receive our final allocation of capital and any earned appreciation of the underlying investments, assuming we have not divested ourselves of our partnership interests prior to that time. We currently receive distributions from these alternative investments through the realization of the underlying investments of, or income generated by, the limited partnerships.
The following tables show gross summarized financial information for our alternative investments portfolio, including the portion we do not own. As the majority of these investments report results to us on a one quarter lag, the summarized financial statement information is as of, and for the 12-month period ended, September 30:
Balance Sheet Information
December 31,
($ in millions)
2024
2023
Investments
$
165,301
142,411
Total assets
173,694
146,844
Total liabilities
26,713
15,854
Total partners’ capital
146,981
130,990
Income Statement Information
($ in millions)
2024
2023
2022
Net investment income (loss)
$
186
178
765
Realized gains
7,099
5,845
12,590
Net change in unrealized appreciation (depreciation)
9,745
5,810
(5,215)
Net income
$
17,030
11,833
8,140
Alternative investment income included in "Net investment income earned" on our Consolidated Statements of Income
37.1
26.8
23.0
(f) We did not have exposure to any credit concentration risk of a single issuer greater than 10% of our stockholders' equity, other than to certain U.S. government agencies, as of December 31, 2024, or December 31, 2023.
(g) We have pledged certain AFS fixed income securities as collateral related to our borrowing relationships with the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"). In addition, we had certain securities on deposit with various state and regulatory agencies at December 31, 2024 to comply with insurance laws. We retain all rights regarding all securities pledged as collateral.
The following table summarizes the market value of these securities at December 31, 2024:
($ in millions)
FHLBI Collateral
FHLBNY Collateral
Regulatory Deposits
Total
U.S. government and government agencies
$
—
—
21.4
21.4
Obligations of states and political subdivisions
—
—
3.0
3.0
RMBS
63.6
21.7
—
85.3
CMBS
1.5
8.1
—
9.6
Total pledged as collateral
$
65.1
29.8
24.4
119.3
(h) The components of pre-tax net investment income earned were as follows:
($ in thousands)
2024
2023
2022
Fixed income securities
$
389,198
345,886
259,918
CMLs
12,448
9,336
5,555
Equity securities
18,295
9,395
13,554
Short-term investments
20,274
14,818
3,997
Alternative investments
37,053
26,777
23,003
Other investments
864
650
258
Investment expenses
(21,081)
(18,212)
(18,130)
Net investment income earned
$
457,051
388,650
288,155
(i) The following table summarizes net realized and unrealized investment gains and losses for the periods indicated:
($ in thousands)
2024
2023
2022
Gross gains on sales
$
12,839
5,896
28,419
Gross losses on sales
(6,563)
(30,760)
(60,055)
Net realized gains (losses) on disposals
6,276
(24,864)
(31,636)
Net unrealized gains (losses) on equity securities
(1,964)
9,510
(32,127)
Net credit loss benefit (expense) on fixed income securities, AFS
(5,628)
12,898
(39,169)
Net credit loss benefit (expense) on fixed income securities, HTM
—
—
63
Net credit loss benefit (expense) on CMLs
217
(175)
(116)
Losses on securities for which we have the intent to sell
(1,248)
(921)
(11,823)
Other realized gains (losses)
(602)
—
—
Net realized and unrealized investment gains (losses)
$
(2,949)
(3,552)
(114,808)
The decrease in net realized and unrealized investment losses in 2023 compared to 2022 was primarily due to (i) a credit loss benefit recorded on our AFS fixed income securities portfolio in 2023 compared to credit loss expense recorded in 2022, and (ii) an increase in valuations in the public equities market. The credit loss benefit in 2023 reflected a decrease in benchmark U.S. Treasury rates and a tightening of credit spreads, with the decrease in interest rates having the most significant impact.
Net unrealized gains and losses recognized in income on equity securities, as reflected in the table above, included the following:
($ in thousands)
2024
2023
2022
Unrealized gains (losses) recognized in income on equity securities:
On securities remaining in our portfolio at end of period
$
(66)
3,593
(10,454)
On securities sold in period
(1,898)
5,917
(21,673)
Total unrealized gains (losses) recognized in income on equity securities
$
(1,964)
9,510
(32,127)
Proceeds from the sales of AFS fixed income securities were $917.3 million, $1,221.9 million, and $1,211.7 million in 2024, 2023, and 2022, respectively. Proceeds from the sales of equity securities were $19.4 million, $53.3 million, and $186.1 million in 2024, 2023, and 2022, respectively.
(b) The balances of, and changes in, each component of AOCI (net of taxes) as of December 31, 2024, and 2023, were as follows:
Net Unrealized Gains (Losses) on Investment Securities
Defined Benefit Pension and Post-retirement Plans
($ in thousands)
Credit Loss Related1
All Other
Investments Subtotal
Total AOCI
Balance, December 31, 2022
$
(121,838)
(295,197)
(417,035)
(81,007)
(498,042)
OCI before reclassifications
47,585
84,407
131,992
(15,315)
116,677
Amounts reclassified from AOCI
(10,189)
16,162
5,973
2,391
8,364
Net current period OCI
37,396
100,569
137,965
(12,924)
125,041
Balance, December 31, 2023
(84,442)
(194,628)
(279,070)
(93,931)
(373,001)
OCI before reclassifications
7,790
18,075
25,865
4,293
30,158
Amounts reclassified from AOCI
4,446
(1,504)
2,942
3,056
5,998
Net current period OCI
12,236
16,571
28,807
7,349
36,156
Balance, December 31, 2024
$
(72,206)
(178,057)
(250,263)
(86,582)
(336,845)
1Represents change in unrealized gains (losses) on securities with credit loss recognized in earnings.
The reclassifications out of AOCI were as follows:
($ in thousands)
Year ended December 31, 2024
Year ended December 31, 2023
Affected Line Item in the Consolidated Statements of Income
Net realized (gains) losses on disposals and intent-to-sell AFS securities
Net realized (gains) losses
$
(1,903)
20,458
Net realized and unrealized investment gains (losses)
Tax (benefit) expense
399
(4,296)
Total federal income tax expense
Net of taxes
(1,504)
16,162
Net income
Credit loss related
Credit loss (benefit) expense
5,628
(12,898)
Net realized and unrealized investment gains (losses)
Tax (benefit) expense
(1,182)
2,709
Total federal income tax expense
Net of taxes
4,446
(10,189)
Net income
Defined benefit pension and post-retirement life plans
Net actuarial loss
890
695
Loss and loss expense incurred
Net actuarial loss
2,978
2,331
Other insurance expenses
Total
3,868
3,026
Income before federal income tax
Tax (benefit) expense
(812)
(635)
Total federal income tax expense
Net of taxes
3,056
2,391
Net income
Total reclassifications for the period
$
5,998
8,364
Net income
Note 7. Fair Value Measurements
The financial assets in our investment portfolio are primarily measured at fair value as disclosed on the Consolidated Balance Sheets. The following table presents the carrying amounts and estimated fair values of our financial liabilities as of December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
($ in thousands)
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Financial Liabilities
Long-term debt:
7.25% Senior Notes
$
49,931
54,657
49,926
53,047
6.70% Senior Notes
99,590
103,057
99,565
104,039
5.375% Senior Notes
294,627
273,464
294,523
288,787
3.03% Borrowings from FHLBI
60,000
58,516
60,000
57,932
Subtotal long-term debt
504,148
489,694
504,014
503,805
Unamortized debt issuance costs
(2,492)
(2,704)
Finance lease obligations
6,282
2,636
Total long-term debt
$
507,938
$
503,946
For discussion regarding the fair value techniques of our financial instruments, refer to Note 2. "Summary of Significant Accounting Policies" of this Form 10-K.
The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at December 31, 2024 and 2023:
December 31, 2024
Fair Value Measurements Using
($ in thousands)
Assets Measured at Fair Value
Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies
$
120,155
35,518
84,637
—
Foreign government
9,302
—
9,302
—
Obligations of states and political subdivisions
451,230
—
443,804
7,426
Corporate securities
3,068,180
—
2,825,501
242,679
CLO and other ABS
2,033,149
—
1,665,155
367,994
RMBS
1,692,358
—
1,692,358
—
CMBS
752,960
—
752,620
340
Total AFS fixed income securities
8,127,334
35,518
7,473,377
618,439
Equity securities:
Common stock1
211,767
41,445
—
808
Preferred stock
1,834
1,834
—
—
Total equity securities
213,601
43,279
—
808
Short-term investments
509,318
474,225
35,093
—
Total assets measured at fair value
$
8,850,253
553,022
7,508,470
619,247
December 31, 2023
Fair Value Measurements Using
($ in thousands)
Assets Measured at Fair Value
Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies
$
205,035
34,056
170,979
—
Foreign government
9,803
—
9,803
—
Obligations of states and political subdivisions
585,965
—
578,131
7,834
Corporate securities
2,711,239
—
2,413,907
297,332
CLO and other ABS
1,834,827
—
1,589,514
245,313
RMBS
1,477,483
—
1,477,483
—
CMBS
674,845
—
674,489
356
Total AFS fixed income securities
7,499,197
34,056
6,914,306
550,835
Equity securities:
Common stock1
185,339
20,582
—
854
Preferred stock
1,816
1,816
—
—
Total equity securities
187,155
22,398
—
854
Short-term investments
309,317
308,512
805
—
Total assets measured at fair value
$
7,995,669
364,966
6,915,111
551,689
1Investments amounting to $169.5 million at December 31, 2024 and $163.9 million at December 31, 2023, were measured at fair value using the net asset value per share (or its practical expedient) and have not been classified in the fair value hierarchy. These investments are not redeemable and the timing of liquidations of the underlying assets is unknown at each reporting period. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to total assets measured at fair value.
The following tables provide a summary of Level 3 changes for the years indicated:
2024
($ in thousands)
Obligations of states and political subdivisions
Corporate Securities
CLO and Other ABS
RMBS
CMBS
Common Stock
Total
Fair value, December 31, 2023
$
7,834
297,332
245,313
—
356
854
551,689
Total net gains (losses) for the period included in:
OCI
(143)
10,790
3,920
77
(6)
—
14,638
Net realized and unrealized investment gains (losses)
(127)
881
(223)
—
—
(46)
485
Net investment income earned
—
(429)
653
1
(3)
—
222
Purchases
—
28,226
181,920
4,888
—
—
215,034
Sales
—
—
—
—
—
—
—
Issuances
—
—
—
—
—
—
—
Settlements
(138)
(29,624)
(51,188)
(255)
(7)
—
(81,212)
Transfers into Level 3
—
30,380
20,088
—
—
—
50,468
Transfers out of Level 3
—
(94,877)
(32,489)
(4,711)
—
—
(132,077)
Fair value, December 31, 2024
$
7,426
242,679
367,994
—
340
808
619,247
Change in unrealized gains (losses) for the period included in earnings for assets held at period end
(127)
891
(223)
—
—
146
687
Change in unrealized gains (losses) for the period included in OCI for assets held at period end
(143)
10,193
4,525
77
(6)
—
14,646
2023
($ in thousands)
Obligations of states and political subdivisions
Corporate Securities
CLO and Other ABS
CMBS
Common Stock
Total
Fair value, December 31, 2022
$
6,661
187,980
153,342
375
897
349,255
Total net gains (losses) for the period included in:
OCI
1,111
10,645
2,974
49
—
14,779
Net realized and unrealized investment gains (losses)
62
419
(5)
—
(235)
241
Net investment income earned
—
621
(30)
(265)
—
326
Purchases
—
97,547
104,134
—
—
201,681
Sales
—
—
—
—
—
—
Issuances
—
—
—
—
—
—
Settlements
—
(10,254)
(16,737)
(25)
—
(27,016)
Transfers into Level 3
—
21,297
14,148
2,848
192
38,485
Transfers out of Level 3
—
(10,923)
(12,513)
(2,626)
—
(26,062)
Fair value, December 31, 2023
$
7,834
297,332
245,313
356
854
551,689
Change in unrealized gains (losses) for the period included in earnings for assets held at period end
62
419
(5)
—
(235)
476
Change in unrealized gains (losses) for the period included in OCI for assets held at period end
1,111
10,634
2,858
49
—
14,652
The following tables present quantitative information about the significant unobservable inputs used in the fair value measurements of Level 3 assets at December 31, 2024, and 2023:
1Other is comprised of broker quotes or other third-party pricing for which there is a lack of transparency into the inputs used to develop the valuations. The quantitative details of these unobservable inputs is neither provided to us, nor reasonably available to us, and therefore are not included in the tables above.
For the securities in the tables above valued using a DCF analysis, we apply an illiquidity spread in our determination of fair value. An increase in this assumption would result in a lower fair value measurement.
The following tables provide quantitative information regarding our financial assets and liabilities that were not measured at fair value, but were disclosed as such at December 31, 2024, and 2023:
December 31, 2024
Fair Value Measurements Using
($ in thousands)
Assets/Liabilities Disclosed at Fair Value
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Financial Assets
HTM:
Corporate securities
$
24,735
—
24,735
—
Total HTM fixed income securities
24,735
—
24,735
—
CMLs
$
224,842
—
—
224,842
Financial Liabilities
Long-term debt:
7.25% Senior Notes
$
54,657
—
54,657
—
6.70% Senior Notes
103,057
—
103,057
—
5.375% Senior Notes
273,464
—
273,464
—
3.03% Borrowings from FHLBI
58,516
—
58,516
—
Total long-term debt
$
489,694
—
489,694
—
December 31, 2023
Fair Value Measurements Using
($ in thousands)
Assets/Liabilities Disclosed at Fair Value
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)
Note 8. Allowance for Credit Losses on Premiums Receivable
The following table provides a roll forward of the ACL on our premiums receivable balance for 2024 and 2023:
($ in thousands)
December 31, 2024
December 31, 2023
Balance at beginning of year
$
18,900
16,100
Current period change for expected credit losses
6,934
6,124
Write-offs charged against the allowance for credit losses
(7,146)
(5,080)
Recoveries
1,712
1,756
ACL, end of year
$
20,400
18,900
For a discussion of the methodology used to evaluate our estimate of expected credit losses on premiums receivable, refer to Note 2. "Summary of Significant Accounting Policies."
Note 9. Reinsurance
Our Financial Statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the acceptance of certain insurance risks that other insurance entities have underwritten. Ceded reinsurance involves transferring certain insurance risks (along with the related written and earned premiums) that we have underwritten to other insurance companies that agree to share these risks. The primary purpose of ceded reinsurance is to protect the Insurance Subsidiaries from potential losses in excess of the amount that we are willing to accept. Our major treaties covering property, property catastrophe, and casualty business are excess of loss contracts. We also entered into a catastrophe bond transaction to protect against certain named loss events, and use an intercompany quota share (proportional) pooling arrangement and other minor reinsurance treaties.
Effective December 9, 2023, we secured property catastrophe protection through a per occurrence excess of loss indemnity reinsurance agreement with High Point Re Ltd. ("High Point Re"), an independent Bermuda special purpose insurer. The reinsurance agreement meets the requirements to be accounted for as reinsurance in accordance with the guidance for reinsurance contracts. In connection with the reinsurance agreement, High Point Re issued Series 2023-1, Class A Principal-at-Risk Variable Rates Notes (“catastrophe bonds”) to unrelated investors totaling $325 million, consistent with the amount of coverage provided under the reinsurance agreement. Under the terms of the reinsurance agreement, we pay annual reinsurance premiums to High Point Re for the reinsurance coverage, which are included in our ceded premiums. The principal amount of the catastrophe bonds will be reduced by any amounts paid to us under the reinsurance agreement.
As a Standard Commercial Lines and E&S Lines writer, we are subject to the Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA"), which was extended by Congress to December 31, 2027. TRIPRA requires private insurers and the U. S. government to share the risk of loss on future acts of terrorism certified by the U.S. Secretary of the Treasury. Under TRIPRA, each participating insurer is responsible for paying a deductible of specified losses before federal assistance is available. This deductible is based on a percentage of the prior year’s applicable Standard Commercial Lines and E&S Lines premiums. In 2025, our deductible, before tax, is approximately $619 million. For losses above the deductible, the federal government will pay 80% of losses to an industry limit of $100 billion, and the insurer retains 20%.
The Insurance Subsidiaries remain liable to policyholders to the extent that any reinsurer becomes unable to meet their contractual obligations. In addition to this direct counterparty credit risk, we have indirect counterparty credit risk as our reinsurers often enter into their own reinsurance programs, or retrocessions, as part of managing their exposure to large losses and improving their financial strength ratings. The credit quality of our reinsurers is also impacted by other factors, such as their reserve adequacy, investment portfolio, regulatory capital position, catastrophe aggregations, and risk management expertise. We evaluate and monitor the financial condition of our reinsurers under voluntary reinsurance arrangements to minimize our exposure to significant losses from reinsurer insolvencies.
The following tables provide (i) a disaggregation of our reinsurance recoverable balance by financial strength rating, and (ii) an aging analysis of our past due reinsurance recoverable balances as of December 31, 2024 and 2023:
December 31, 2024
($ in thousands)
Current
Past Due
Total Reinsurance Recoverables
Financial strength rating of rated reinsurers
A++
$
111,481
$
225
$
111,706
A+
483,317
5,205
488,522
A
131,087
819
131,906
A-
5,421
149
5,570
Total rated reinsurers
$
731,306
$
6,398
$
737,704
Non-rated reinsurers
Federal and state pools
$
318,785
$
—
$
318,785
Other than federal and state pools
6,647
9
6,656
Total non-rated reinsurers
$
325,432
$
9
$
325,441
Total reinsurance recoverable, gross
$
1,056,738
$
6,407
$
1,063,145
Less: ACL
(2,000)
Total reinsurance recoverable, net
$
1,061,145
December 31, 2023
($ in thousands)
Current
Past Due
Total Reinsurance Recoverables
Financial strength rating of rated reinsurers
A++
$
82,466
$
21
$
82,487
A+
371,132
2,887
374,019
A
111,883
1,380
113,263
A-
3,596
89
3,685
Total rated reinsurers
$
569,077
$
4,377
$
573,454
Non-rated reinsurers
Federal and state pools
$
80,506
$
—
$
80,506
Other than federal and state pools
4,488
77
4,565
Total non-rated reinsurers
$
84,994
$
77
$
85,071
Total reinsurance recoverable, gross
$
654,071
$
4,454
$
658,525
Less: ACL
(1,700)
Total reinsurance recoverable, net
$
656,825
The $238.3 million increase in "Federal and state pools" as of December 31, 2024, compared to December 31, 2023, was primarily due to an increase in the NFIP reserves recorded as of December 31, 2024, for flood losses related to Hurricane Helene, which mainly affected the Southeastern part of our footprint. These losses are 100% ceded to the NFIP and continue to be paid as the associated claims are settled. In addition, the $164.3 million increase in "Total rated reinsurers" as of December 31, 2024, compared to December 31, 2023, was primarily related to an increase in incurred but not reported recoverable balances related to unfavorable prior year casualty reserve development.
The following table provides a roll forward of the allowance for credit losses on our reinsurance recoverable balance for the indicated periods:
($ in thousands)
December 31, 2024
December 31, 2023
Balance at beginning of year
$
1,700
$
1,600
Current period change for expected credit losses
300
100
Write-offs charged against the allowance for credit losses
—
—
Recoveries
—
—
ACL, end of year
$
2,000
$
1,700
For a discussion of the methodology used to evaluate our estimate of expected credit losses on our reinsurance recoverable balance, refer to Note 2. "Summary of Significant Accounting Policies."
The following table represents our total reinsurance balances segregated by reinsurer to illustrate our concentration of risk throughout our reinsurance portfolio:
December 31, 2024
As of December 31, 2023
($ in thousands)
Reinsurance Balances
% of Reinsurance Balance
Reinsurance Balances
% of Reinsurance Balance
Total reinsurance recoverables, net of allowance for credit losses
$
1,061,145
$
656,825
Total prepaid reinsurance premiums
235,378
203,320
Total reinsurance balance
1,296,523
860,145
Federal and state pools1:
NFIP
471,696
36
%
203,273
24
%
New Jersey Unsatisfied Claim Judgment Fund
44,089
3
46,715
5
Other
2,418
—
1,779
—
Total federal and state pools
518,203
39
251,767
29
Remaining reinsurance balance
$
778,320
61
$
608,378
71
Hannover Ruck SE (AM Best rated "A+")
$
198,966
15
$
135,564
16
Munich Reinsurance America Inc. (AM Best rated "A+")
151,516
12
132,831
15
AXIS Reinsurance Company (AM Best rated "A")
91,862
7
76,286
9
Endurance Assurance Corporation (AM Best rated “A+”)
40,717
3
27,246
3
Ace Property & Casualty Insurance Company (AM Best rated “A++”)
30,166
2
13,602
2
All other reinsurers
267,093
22
224,549
26
Total reinsurers
780,320
61
%
610,078
71
%
Less: ACL
(2,000)
(1,700)
Reinsurers, net of ACL
778,320
608,378
Less: collateral2
(93,842)
(126,418)
Reinsurers, net of collateral
$
684,478
$
481,960
1Considered to have minimal risk of default.
2Includes letters of credit, trust funds, and funds held against reinsurance recoverables.
The following table lists direct, assumed, and ceded reinsurance amounts for premiums written, premiums earned, and loss and loss expense incurred for the indicated periods:
($ in thousands)
2024
2023
2022
Premiums written:
Direct
$
5,319,457
4,725,459
4,068,518
Assumed
27,557
23,999
32,320
Ceded
(717,013)
(614,926)
(527,248)
Net
$
4,630,001
4,134,532
3,573,590
Premiums earned:
Direct
$
5,034,952
4,386,556
3,880,522
Assumed
26,450
25,027
30,742
Ceded
(684,955)
(583,977)
(537,884)
Net
$
4,376,447
3,827,606
3,373,380
Loss and loss expense incurred:
Direct
$
3,909,463
2,738,301
2,537,638
Assumed
21,540
19,581
23,160
Ceded
(766,519)
(273,597)
(449,020)
Net
$
3,164,484
2,484,285
2,111,778
Ceded premiums written, ceded premiums earned, and ceded loss and loss expense incurred related to our participation in the NFIP, to which we cede 100% of our NFIP flood premiums, losses, and loss expenses, were as follows:
(a) The table below provides a roll forward of the reserve for loss and loss expense for beginning and ending reserve balances:
($ in thousands)
2024
2023
2022
Gross reserve for loss and loss expense, at beginning of year
$
5,336,911
5,144,821
4,580,903
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year
618,601
757,513
578,641
Net reserve for loss and loss expense, at beginning of year
4,718,310
4,387,308
4,002,262
Incurred loss and loss expense for claims occurring in the:
Current year
2,879,213
2,474,331
2,190,668
Prior years
285,271
9,954
(78,890)
Total incurred loss and loss expense
3,164,484
2,484,285
2,111,778
Paid loss and loss expense for claims occurring in the:
Current year
1,001,792
922,641
768,583
Prior years
1,313,446
1,230,642
958,149
Total paid loss and loss expense
2,315,238
2,153,283
1,726,732
Net reserve for loss and loss expense, at end of year
5,567,556
4,718,310
4,387,308
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of year
1,022,245
618,601
757,513
Gross reserve for loss and loss expense at end of year
$
6,589,801
5,336,911
5,144,821
Our net loss and loss expense reserves increased by $849.2 million in 2024, $331.0 million in 2023, and $385.0 million in 2022. The loss and loss expense reserves are net of anticipated recoveries for salvage and subrogation claims, which amounted to $133.7 million for 2024, $116.0 million for 2023, and $91.3 million for 2022.
The increase in net loss and loss expense reserves in 2024 was primarily driven by increases in exposure due to premium growth and unfavorable prior year loss reserve development. In 2024, we experienced overall net unfavorable prior year loss reserve development of $285.3 million, compared to net unfavorable development of $10.0 million in 2023 and net favorable development of $78.9 million in 2022.
The following table summarizes the prior year reserve development by line of business:
(Favorable)/Unfavorable Prior Year Development
($ 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)
The Insurance Subsidiaries had $285.3 million of unfavorable prior year reserve development during 2024, which included $311.0 million of net unfavorable casualty reserve development and $25.7 million of favorable property reserve development.
The net unfavorable 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.
Favorable prior year casualty reserve development on our workers compensation, bond, and homeowners lines of business provided a partial offset to the items above. The favorable prior year development on workers compensation was primarily driven by improved loss severities in accident years 2022 and prior.
The Insurance Subsidiaries had $10.0 million of unfavorable prior year reserve development during 2023, which included $6.5
million of net favorable casualty reserve development and $16.5 million of unfavorable property reserve development. The net favorable casualty reserve development was due to improved loss severities on our workers compensation line of business driven by continued favorable medical cost trends in accident years 2021 and prior. This was partially offset by unfavorable prior year casualty reserve development on our general liability and commercial automobile lines of business. The unfavorable prior year development on (i) general liability was primarily driven by increased loss severities in accident years 2015 through 2020 and (ii) commercial automobile was primarily driven by increased loss expenses in accident years 2022 and prior.
The Insurance Subsidiaries had $78.9 million of favorable prior year reserve development during 2022, which included $86.0 million of net favorable casualty reserve development and $7.1 million of unfavorable property reserve development. The net favorable casualty reserve development was due to improved loss severities on our workers compensation line of business driven by continued favorable medical trends in accident years 2020 and prior, and favorable inception-to-date claim frequencies in accident year 2020. This was partially offset by unfavorable prior year casualty reserve development on our commercial automobile line of business, primarily driven by increased loss severities in accident year 2021.
(b) We have exposure to abuse or molestation claims within our general liability line of business, primarily through insurance policies that we issue to schools, religious institutions, day-care facilities, and other social services. Claims reporting patterns have been significantly impacted by state laws that extend the statute of limitations or permit windows to be opened for abuse or molestation claims and lawsuits that were previously barred by statutes of limitations. The emergence of these claims is highly unpredictable and may be reported over an extended period of time. In addition to legislative changes that increase our exposure, there are significant uncertainties in estimating our exposure to abuse or molestation claims (for both case and IBNR reserves) resulting from (i) lack of relevant historical data, (ii) the delayed and inconsistent reporting patterns associated with these claims, (iii) the obligation of an insurer to defend a claim, (iv) the extent to which a party can prove the existence of coverage, and (v) uncertainty as to the number and identity of claimants. It is possible, as a result, that we may receive claims decades after the allegations occurred from coverages provided by us or our predecessor companies, that will require complex claims coverage determinations, potential litigation, and the need to collect from reinsurers under older reinsurance agreements.
(c) Reserves established for liability insurance include exposure to asbestos and environmental claims. These claims have arisen primarily from insured exposures in municipal government, small non-manufacturing commercial risk, and homeowners policies. The emergence of these claims is highly unpredictable and may be reported over an extended period of time. There are significant uncertainties in estimating our exposure to asbestos and environmental claims (for both case and IBNR reserves) resulting from (i) lack of relevant historical data, (ii) the delayed and inconsistent reporting patterns associated with these claims, and (iii) uncertainty as to the number and identity of claimants and complex legal and coverage issues. Legal issues that arise in asbestos and environmental cases include federal or state venue, choice of law, causation, admissibility of evidence, allocation of damages and contribution among joint defendants, successor and predecessor liability, and whether direct action against insurers can be maintained. Coverage issues that arise in asbestos and environmental cases include the interpretation and application of policy terms, conditions, and exclusions, the determination and calculation of policy limits, the determination of the ultimate amount of a loss, the extent to which a loss is covered by a policy, if at all, the obligation of an insurer to defend a claim, and the extent to which a party can prove the existence of coverage. Courts have reached different and sometimes inconsistent conclusions on these legal and coverage issues.
Traditional accident year loss development methods cannot be applied because past loss history is not necessarily indicative of future behavior. Instead, we review the experience by calendar year and rely on alternative metrics, such as paid and incurred survival ratios. As a result, reserves for asbestos and environmental require a high degree of judgment.
The following table details our loss and loss expense reserves for various asbestos and environmental claims showing gross and net of reinsurance:
2024
($ in millions)
Gross
Net
Asbestos
$
13.3
12.0
Landfill sites
11.2
7.4
Underground storage tanks
10.1
8.0
Total
$
34.6
27.4
Historically, our asbestos and environmental claims have been significantly lower in volume than many other Standard Commercial Lines carriers as, prior to the introduction of the absolute pollution exclusion endorsement in the mid-1980s, we primarily wrote Standard Personal Lines, and therefore, our exposure to asbestos and environmental claims has been limited.
The following table provides a roll forward of asbestos and environmental incurred loss and loss expense and related reserves thereon showing gross and net of reinsurance:
2024
2023
2022
($ in thousands)
Gross
Net
Gross
Net
Gross
Net
Asbestos
Reserve for loss and loss expense at beginning of year
$
4,856
3,537
5,891
4,660
6,115
4,884
Incurred loss and loss expense
32,721
19,634
603
515
8
8
Less: loss and loss expense paid
(24,261)
(11,202)
(1,638)
(1,638)
(232)
(232)
Reserve for loss and loss expense at the end of year
$
13,316
11,969
4,856
3,537
5,891
4,660
Environmental
Reserve for loss and loss expense at beginning of year
$
21,553
15,606
21,877
15,669
21,658
16,191
Incurred loss and loss expense
332
120
461
233
696
(213)
Less: loss and loss expense paid
(552)
(255)
(785)
(296)
(477)
(309)
Reserve for loss and loss expense at the end of year
$
21,333
15,471
21,553
15,606
21,877
15,669
Total Asbestos and Environmental Claims
Reserve for loss and loss expense at beginning of year
$
26,409
19,143
27,768
20,329
27,773
21,075
Incurred loss and loss expense
33,053
19,754
1,064
748
704
(205)
Less: loss and loss expense paid
(24,813)
(11,457)
(2,423)
(1,934)
(709)
(541)
Reserve for loss and loss expense at the end of year
$
34,649
27,440
26,409
19,143
27,768
20,329
The asbestos activity in 2024 was primarily attributable to claims related to a single insured. A settlement for exposure related to this insured was reached during the year.
(d) The following is information about incurred and paid claims development as of December 31, 2024, net of reinsurance, as well as the associated IBNR liabilities. During the experience period we implemented a series of underwriting and claims-related initiatives, including claims management changes. These initiatives focused on general underwriting and claims improvements and may impact some relationships in the tables below. As a result, several historical patterns have changed and may no longer be appropriate to use as the sole basis for projections.
The tables below also include information regarding reported claims. Claims are counted at the occurrence, line of business, and policy level. For example, if a single occurrence (e.g. an automobile accident) leads to a claim under an automobile and an associated umbrella policy, they are each counted separately. Conversely, multiple claimants under the same occurrence/line/policy would contribute only a single count. A claim is considered reported when a reserve is established or a payment is made. Therefore, claims closed without payment are included in the count as long as there was an associated case reserve at some point in its life cycle. The cumulative number of reported claims for each accident year in the tables below were updated with information available as of December 31, 2024. Therefore, the claim counts presented for the more recent accident years may not be representative of the ultimate claim counts, as they are for the more mature accident years presented.
All Lines
(in thousands, except for claim counts)
As of December 31, 2024
Incurred Loss and Allocated Loss Expenses, Net of Reinsurance
(e) The reconciliation of the net incurred and paid claims development tables to the liability for loss and loss expenses in the Consolidated Balance Sheet is as follows:
(in thousands)
December 31, 2024
Net outstanding liabilities:
Standard Commercial Lines
General liability
$
2,432,883
Workers compensation
757,202
Commercial automobile
1,073,194
Businessowners' policies
117,985
Commercial property
151,963
Other Standard Commercial Lines
18,378
Total Standard Commercial Lines net outstanding liabilities
4,551,605
Standard Personal Lines
Personal automobile
154,177
Homeowners
53,380
Other Standard Personal Lines
16,877
Total Standard Personal Lines net outstanding liabilities
224,434
E&S Lines
Casualty lines
601,439
Property lines
20,258
Total E&S Lines net outstanding liabilities
621,697
Total liabilities for unpaid loss and loss expenses, net of reinsurance
5,397,736
Reinsurance recoverable on unpaid claims:
Standard Commercial Lines
General liability
396,702
Workers compensation
238,995
Commercial automobile
14,774
Businessowners' policies
2,604
Commercial property
36,313
Other Standard Commercial Lines
2,612
Total Standard Commercial Lines reinsurance recoverable on unpaid loss
692,000
Standard Personal Lines
Personal automobile
35,386
Homeowners
1,962
Other Standard Personal Lines
273,013
Total Standard Personal Lines reinsurance recoverable on unpaid loss
310,361
E&S Lines
Casualty lines
18,903
Property lines
981
Total E&S Lines reinsurance recoverable on unpaid loss
19,884
Total reinsurance recoverable on unpaid loss
1,022,245
Unallocated loss expenses
169,820
Total gross liability for unpaid loss and loss expenses
(f) The table below reflects the historical average annual percentage payout of incurred claims by age, net of reinsurance. For example, the general liability line of business averages payout of 5.8% of its ultimate losses in the first year, 11% in the second year, and so forth. The following is supplementary information about average historical claims duration as of December 31, 2024:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years
1
2
3
4
5
6
7
8
9
10
General liability
5.8%
11.0
14.0
16.2
14.1
10.3
8.9
5.0
3.0
1.3
Workers compensation
23.3
27.2
13.1
8.4
4.1
2.9
2.4
1.4
0.9
0.7
Commercial automobile
36.4
18.0
14.3
12.4
9.6
4.3
2.1
1.1
0.7
0.3
Businessowners’ policies
49.5
22.0
8.2
8.4
5.9
1.9
1.9
1.0
0.5
0.2
Commercial property
68.3
26.8
3.1
0.8
0.3
0.2
0.1
0.1
0.1
0.1
Personal automobile
58.8
19.2
9.2
6.1
3.5
1.6
0.4
0.8
0.2
0.1
Homeowners
71.2
22.9
3.3
1.1
1.0
0.2
0.1
0.1
0.1
0.1
E&S Lines - casualty
3.6
11.0
17.2
19.3
14.9
8.2
8.4
8.1
2.0
1.8
Note 11. Indebtedness
The table below provides a summary of our outstanding debt at December 31, 2024 and 2023:
Outstanding Debt
2024
Carry Value
Issuance Date
Maturity Date
Interest Rate
Original Amount
Unamortized Issuance Costs
Debt Discount
December 31, 2024
December 31, 2023
($ in thousands)
Description
Long term
(1) Senior Notes
3/1/2019
3/1/2049
5.375
%
300,000
$
2,193
5,373
292,434
292,159
(2) FHLBI
12/16/2016
12/16/2026
3.03
%
60,000
—
—
60,000
60,000
(3) Senior Notes
11/3/2005
11/1/2035
6.70
%
100,000
200
410
99,391
99,339
(4) Senior Notes
11/16/2004
11/15/2034
7.25
%
50,000
99
69
49,831
49,812
Finance lease obligations
6,282
2,636
Total long-term debt
$
2,492
5,852
507,938
503,946
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 (the “Line of Credit”). 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. No borrowings were made under the Line of Credit in 2024 or 2023. The Line of Credit will mature on November 7, 2025, and has a variable interest rate based on the Parent’s debt ratings.
Our Line of Credit contains representations, warranties, and covenants that are customary for credit facilities of this type, including, without limitation, financial covenants under which we are obligated to maintain a minimum consolidated net worth, a maximum ratio of consolidated debt to total capitalization, and covenants limiting our ability to: (i) merge or liquidate; (ii) incur debt or liens; (iii) dispose of assets; (iv) make investments and acquisitions; and (v) engage in transactions with affiliates.
The table below outlines information regarding certain covenants in the Line of Credit:
Required as of
Actual as of
December 31, 2024
December 31, 2024
Consolidated net worth1
Not less than
$2.3 billion
$3.5 billion
Debt to total capitalization ratio1
Not to exceed
35%
12.8%
1Calculated in accordance with the Line of Credit.
In addition to the above requirements, the Line of Credit contains a cross-default provision that provides that the Line of Credit will be in default if we fail to comply with any condition, covenant, or agreement (including payment of principal and interest when due on any debt with an aggregate principal amount of at least $30 million), which causes or permits the acceleration of principal. Additionally, the Line of Credit limits borrowings from the FHLBI and the FHLBNY to 10% of the respective member company's admitted assets for the previous year.
(1) In the first quarter of 2019, we issued $300 million of 5.375% Senior Notes due 2049 at a discount of $5.9 million which, when coupled with debt issuance costs of approximately $3.3 million, resulted in net proceeds from the offering of $290.8 million. The 5.375% Senior Notes pay interest on March 1 and September 1 of each year. There are no financial debt covenants to which we are required to comply in regards to the 5.375% Senior Notes.
(2) In the fourth quarter of 2016, we borrowed $60 million from the FHLBI with a 3.03% interest rate, due 2026. Selective Insurance Company of South Carolina ("SICSC") and Selective Insurance Company of the Southeast ("SICSE"), which are collectively referred to as the "Indiana Subsidiaries" as they are domiciled in Indiana, joined and invested in FHLBI in 2009, which provides them with access to additional liquidity. The Indiana Subsidiaries’ aggregate investment in the FHLBI was $5.2 million at both December 31, 2024 and December 31, 2023. Our investment provides us the ability to borrow approximately 20 times the total amount of the FHLBI common stock. All borrowings from the FHLBI require securities pledged as collateral. There are no financial debt covenants to which we are required to comply in regards to these borrowings. For information on investments that are pledged as collateral for these borrowings, see Note 5. "Investments" above.
(3) In November 2005, we issued $100 million of 6.70% Senior Notes due 2035. These notes were issued at a discount of $0.7 million resulting in an effective yield of 6.754%. The agreements covering these notes contain a standard default cross-acceleration provision that provides the 6.70% Senior Notes will enter a state of default upon the failure to pay principal when due or upon any event or condition that results in an acceleration of principal of any other debt instrument in excess of $10 million that we have outstanding concurrently with the 6.70% Senior Notes. There are no financial debt covenants to which we are required to comply in regards to these notes.
(4) In November 2004, we issued $50 million of 7.25% Senior Notes due 2034. These notes were issued at a discount of $0.1 million, resulting in an effective yield of 7.27%. The agreements covering these notes contain a standard default cross-acceleration provision that provides the 7.25% Senior Notes will enter a state of default upon the failure to pay principal when due or upon any event or condition that results in an acceleration of principal of any other debt instrument in excess of $10 million that we have outstanding concurrently with the 7.25% Senior Notes. There are no financial debt covenants to which we are required to comply in regards to these notes.
Note 12. Segment Information
We report our results of operations for our reportable segments consistent with the manner in which our chief operating decision maker ("CODM") reviews the business to assess performance and allocate resources. We identify our CODM to be a group consisting of our Chairman of the Board, President and Chief Executive Officer, and our Chief Financial Officer.
We evaluate the results of our four reportable segments as follows:
•Our Standard Commercial Lines, Standard Personal Lines, and E&S Lines (collectively, "Insurance Operations") are evaluated on (i) underwriting results (net premiums earned, incurred loss and loss expense, policyholder dividends, policy acquisition costs, and other underwriting expenses), (ii) their return on equity ("ROE") contribution, and (iii) their combined ratios.
•Our Investments segment is primarily evaluated on after-tax net investment income and its ROE contribution. After-tax net realized and unrealized gains and losses are also included in our Investment segment results.
Our CODM uses these measures of profit or loss to allocate resources for each segment predominantly in the annual budget and forecasting process, considering budget-to-actual variances when allocating capital and personnel to the segments throughout the year. The CODM also uses these profit measures for evaluating (i) segment performance, (ii) pricing in our Insurance Operations, and (iii) employee compensation.
We do not allocate interest expense, corporate expenses, and assets to our segments. We allocate taxes to our investments segment as we manage that segment on after-tax results. While we allocate taxes to our Insurance Operations, we do not manage those segments on after-tax results.
Our combined insurance operations have some geographic concentrations, particularly in certain states in the Northeastern region of the country. In 2024, approximately 34% of NPW were related to insurance policies written in New Jersey (16%), Pennsylvania (10%), and New York (8%).
We had a goodwill balance of $7.8 million at both December 31, 2024, and 2023, on our Consolidated Balance Sheets that relates to our Standard Commercial Lines reporting unit.
(b) The following tables present information about our segments' pre- and after-tax income, significant expenses, and reconciliations to consolidated results for the periods indicated.
2024
Standard Commercial Lines
Standard Personal Lines
E&S
Lines
Total Insurance Operations
Investments
Total Reportable Segments
($ in thousands)
Total segment revenues
$
3,475,950
427,483
504,129
4,407,562
454,102
4,861,664
Loss and loss expense incurred:
Net catastrophe losses
181,546
79,965
22,992
284,503
—
284,503
Non-catastrophe property loss and loss expense
459,537
164,045
58,025
681,607
—
681,607
(Favorable)/unfavorable prior year casualty reserve development
286,000
5,000
20,000
311,000
—
311,000
Current year casualty loss costs
1,574,532
115,591
197,251
1,887,374
—
1,887,374
Total loss and loss expense incurred
2,501,615
364,601
298,268
3,164,484
—
3,164,484
Net underwriting expenses incurred:
Commissions to distribution partners
639,180
30,270
111,349
780,799
—
780,799
Salaries and employee benefits
290,880
37,024
25,547
353,451
—
353,451
Other segment expenses
182,754
35,073
17,085
234,912
—
234,912
Total net underwriting expenses incurred
1,112,814
102,367
153,981
1,369,162
—
1,369,162
Dividends to policyholders
6,504
—
—
6,504
—
6,504
Segment income (loss), before federal income tax
(144,983)
(39,485)
51,880
(132,588)
454,102
321,514
Federal income tax (expense) benefit
27,843
(93,815)
(65,972)
Segment income (loss), after federal income tax
(104,745)
360,287
255,542
Reconciliation of segment income (loss) to consolidated income before and after federal income tax
Total segment income (loss), before federal income tax
321,514
Interest expense
(28,878)
Corporate expenses
(34,602)
Income before federal income tax
258,034
Federal income tax (expense) benefit on segment income (loss)
(65,972)
Federal income tax (expense) benefit on interest and corporate expenses
(Favorable)/unfavorable prior year casualty reserve development
(81,000)
—
(5,000)
(86,000)
—
(86,000)
Current year casualty loss costs
1,208,269
73,229
152,484
1,433,982
—
1,433,982
Total loss and loss expense incurred
1,683,988
231,113
196,677
2,111,778
—
2,111,778
Net underwriting expenses incurred:
Commissions to distribution partners
515,938
13,379
74,883
604,200
—
604,200
Salaries and employee benefits
245,339
34,045
18,128
297,512
—
297,512
Other segment expenses
155,519
29,877
14,169
199,565
—
199,565
Total net underwriting expenses incurred
916,796
77,301
107,180
1,101,277
—
1,101,277
Dividends to policyholders
4,858
—
—
4,858
—
4,858
Segment income (loss), before federal income tax
143,696
(7,193)
30,299
166,802
173,347
340,149
Federal income tax (expense) benefit
(35,028)
(31,846)
(66,874)
Segment income (loss), after federal income tax
131,774
141,501
273,275
Reconciliation of segment income (loss) to consolidated income before and after federal income tax
Total segment income (loss), before federal income tax
340,149
Interest expense
(28,847)
Corporate expenses
(31,116)
Income before federal income tax
280,186
Federal income tax (expense) benefit on segment income (loss)
(66,874)
Federal income tax (expense) benefit on interest and corporate expenses
11,574
Total federal income tax (expense) benefit
(55,300)
Net income
224,886
Preferred stock dividends
(9,200)
Net income available to common stockholders
215,686
The "Other segment expenses" primarily consist of (i) fees paid for licenses, (ii) depreciation expense, and (iii) general overhead items to operate our business operations, including travel expenses, postage and telephone expenses, and utility expenses. "Loss and loss expense incurred" includes a portion of salaries and employee benefits related to claims personnel.
The following table presents the calculations of earnings per common share ("EPS") on a basic and diluted basis:
($ in thousands, except per share amounts)
2024
2023
2022
Net income available to common stockholders:
$
197,812
356,038
215,686
Weighted average common shares outstanding:
Weighted average common shares outstanding - basic
60,869
60,631
60,407
Effect of dilutive securities - stock compensation plans
405
338
468
Weighted average common shares outstanding - diluted
61,274
60,969
60,875
EPS:
Basic
$
3.25
5.87
3.57
Diluted
3.23
5.84
3.54
Note 14. Federal Income Taxes
(a) A reconciliation of federal income tax on income at the corporate rate (21.0%) to the effective tax rate is as follows:
($ in thousands)
2024
2023
2022
Tax at statutory rate
$
54,187
96,267
58,839
Tax-advantaged interest
(1,332)
(2,229)
(4,087)
Dividends received deduction
(214)
(273)
(469)
Executive compensation
2,452
1,989
1,848
Stock-based compensation
(1,482)
(1,804)
(893)
Other
(2,589)
(776)
62
Federal income tax expense
51,022
93,174
55,300
Income before federal income tax, less preferred stock dividends
248,834
449,212
270,986
Effective tax rate
20.5
%
20.7
%
20.4
%
(b) The tax effects of the significant temporary differences that gave rise to deferred tax assets and liabilities were as follows:
($ in thousands)
2024
2023
Deferred tax assets:
Net loss reserve discounting
$
89,653
73,175
Net unearned premiums
100,053
89,413
Employee benefits
13,226
13,777
Long-term incentive compensation
7,106
6,736
Unrealized losses on fixed income securities
66,525
74,183
Temporary investment write-downs
7,987
7,560
Other
5,751
8,080
Total deferred tax assets
290,301
272,924
Deferred tax liabilities:
Deferred policy acquisition costs
100,654
89,221
Other investment-related items, net
34,951
33,309
Accelerated depreciation and amortization
7,908
10,157
Total deferred tax liabilities
143,513
132,687
Net deferred federal income tax assets (liabilities)
$
146,788
140,237
After considering all evidence, both positive and negative, with respect to our federal tax loss carryback availability, expected levels of pre-tax financial statement income, federal taxable income, liquidity, and prudent and reasonable tax planning strategies, we believe it is more likely than not that the existing deductible temporary differences will reverse during periods in which we generate net federal taxable income or have adequate federal carryback availability. As a result, we had no valuation allowance recognized for federal deferred tax assets at December 31, 2024 or 2023. We did not have unrecognized tax expense or benefit as of December 31, 2024.
We have analyzed our tax positions in all open tax years, which as of December 31, 2024 were 2021 through 2024. We believe our tax positions will more likely than not be sustained upon examination, including related appeals or litigation. In the event we had a tax position that did not meet the more likely than not criteria, any tax, interest, and penalties incurred related to such a position would be reflected in "Total federal income tax expense" on our Consolidated Statements of Income.
(a) Selective Insurance Retirement Savings Plan (“Retirement Savings Plan”) and Selective Insurance Company of America Deferred Compensation Plan ("Deferred Compensation Plan")
Selective Insurance Company of America ("SICA") offers a voluntary defined contribution 401(k) plan that is available to most of our employees and is a tax-qualified retirement plan subject to ERISA. In addition, SICA offers a Deferred Compensation Plan to a group of management or highly compensated employees as a method of recognizing and retaining such employees. Expenses recorded for these plans were $23.5 million in 2024, $21.5 million in 2023, and $19.8 million in 2022.
(b) Retirement Income Plan
SICA maintains a defined benefit pension plan, the Retirement Income Plan for Selective Insurance Company of America (the "Pension Plan"). This qualified, noncontributory plan is closed to new entrants, and existing participants ceased accruing benefits after March 31, 2016.
The following tables provide details on the Pension Plan for 2024 and 2023:
December 31,
Pension Plan
($ in thousands)
2024
2023
Change in Benefit Obligation:
Benefit obligation, beginning of year
$
325,476
311,945
Interest cost
15,552
15,465
Actuarial gains (losses)
(22,402)
12,890
Benefits paid
(16,009)
(14,824)
Benefit obligation, end of year
$
302,617
325,476
Change in Fair Value of Assets:
Fair value of assets, beginning of year
$
345,132
342,974
Actual return on plan assets, net of expenses
3,632
16,982
Benefits paid
(16,009)
(14,824)
Fair value of assets, end of year
$
332,755
345,132
Funded status
$
30,138
19,656
Amounts Recognized in the Consolidated Balance Sheet:
Net pension assets, end of year
$
30,138
19,656
Amounts Recognized in AOCI:
Net actuarial loss
$
108,234
116,558
Other Information as of December 31:
Accumulated benefit obligation
$
302,617
325,476
Weighted-Average Liability Assumptions as of December 31:
Discount rate
5.69
%
5.02
When determining the most appropriate discount rate to be used in the valuation at December 31, 2024, we consider, among other factors, our expected payout patterns of the Pension Plan's obligations as well as our investment strategy. We ultimately select the rate that we believe best represents our estimate of the inherent interest rate at which our pension benefits can be effectively settled. The approach we utilize discounts the individual expected cash flows using the applicable spot rates derived from the yield curve over the projected cash flow period. Our discount rate increased 67 basis points, to 5.69% as of December 31, 2024, from 5.02% as of December 31, 2023, which drove the decrease in the benefit obligation for the period.
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income:
Net Periodic Benefit Cost (Benefit):
Interest cost
$
15,552
15,465
9,944
Expected return on plan assets
(21,529)
(23,091)
(22,147)
Amortization of unrecognized actuarial loss
3,820
3,001
1,465
Total net periodic pension cost (benefit)1
$
(2,157)
(4,625)
(10,738)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Net actuarial loss (gain)
$
(4,504)
18,998
23,722
Reversal of amortization of net actuarial loss
(3,820)
(3,001)
(1,465)
Total recognized in other comprehensive income
$
(8,324)
15,997
22,257
Total recognized in net periodic benefit cost and other comprehensive income
$
(10,481)
11,372
11,519
1The components of net periodic pension cost (benefit) are included within "Loss and loss expense incurred" and "Other insurance expenses" on the Consolidated Statements of Income.
Pension Plan
2024
2023
2022
Weighted-Average Expense Assumptions for the years ended December 31:
Discount rate
5.02
%
5.21
%
2.98
%
Interest rate
4.91
%
5.09
%
2.48
%
Expected return on plan assets
6.40
6.90
5.00
Pension Plan Assets
Assets of the Pension Plan are invested to adequately support the liability associated with the Pension Plan's defined benefit obligation. Our return objective is to exceed the returns of the plan's policy benchmark, which is the return the plan would have earned if the assets were invested according to the target asset class weightings and earned index returns shown below. Over time, the target and actual asset allocations may change based on the funded status of the Pension Plan and market return expectations.
The Pension Plan’s target ranges, as well as the actual weighted average asset allocation by strategy, at December 31, 2024 and 2023 were as follows:
2024
2023
Target Percentage
Actual Percentage
Actual Percentage
Minimum
Maximum
Return seeking assets1
28
%
58
%
54
%
52
%
Liability hedging assets
42
%
72
%
44
%
45
%
Short-term investments
-
-
2
%
3
%
Total
100
%
100
%
1Includes limited partnerships.
The use of derivative instruments is permitted under certain circumstances for the Pension Plan portfolio, but may not be used for unrelated speculative purposes or to create exposures that are not permitted in the Pension Plan's investment guidelines. We currently invest in a U.S. Treasury overlay derivative strategy, within the funds in our liability hedging assets, to manage the interest rate duration mismatch between the assets and liabilities of the Pension Plan to help insulate the funded status of the plan. Considering the impact of this derivative overlay, the liability hedging assets provide for an approximate 91% hedge against the projected benefit obligation.
The Pension Plan had no investments in the Parent’s common stock as of December 31, 2024 or 2023. For information on Pension Plan investments in funds of entities deemed related parties, refer to Note 18. "Related Party Transactions" below.
The techniques used to determine the fair value of the Pension Plan's invested assets that appear below are as follows:
•The investments in the equities and liability hedging funds include collective investment funds and fund of funds that utilize a market approach wherein the published prices in the active market for identical assets are used. These
investments are traded at their net asset value per share. These investments are classified as Level 1 in the fair value hierarchy.
•The investments in private limited partnerships are valued utilizing net asset value as a practical expedient for fair value. These investments are not classified in the fair value hierarchy.
•Short-term investments are recorded at fair value. Given that these investments are listed on active exchanges, coupled with their liquid nature, these investments are classified as Level 1 in the fair value hierarchy.
•The deposit administration contract is recorded at cost, which approximates fair value. Given the liquid nature of the underlying investments in overnight cash deposits and other short-term duration products, we have determined that a correlation exists between the deposit administration contract and other short-term investments, such as money market funds. As such, this investment is classified as Level 2 in the fair value hierarchy.
For discussion regarding the levels within the fair value hierarchy, see Note 2. "Summary of Significant Accounting Policies." In addition, refer to Note 5. "Investments" for discussion on the private equity, venture capital, and real asset limited partnership investment strategies included in the Pension Plan's portfolio.
The following tables provide quantitative disclosures of the Pension Plan’s invested assets that are measured at fair value on a recurring basis:
December 31, 2024
Fair Value Measurements at 12/31/24 Using
($ in thousands)
Assets Measured at Fair Value At 12/31/2024
Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)
Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Description
Return seeking assets:
Equities:
Global equity
$
39,038
39,038
—
—
Diversified credit
42,630
42,630
—
—
Real assets
59,603
59,603
—
—
Liquid diversifiers1
40,095
40,095
—
—
Total equities
181,366
181,366
—
—
Limited partnerships (at net asset value)2:
Real assets
27
—
—
—
Private equity
311
—
—
—
Total limited partnerships
338
—
—
—
Total return seeking assets
181,704
181,366
—
—
Liability hedging assets:
Fixed income
79,632
79,632
—
—
U.S. Treasury overlay
75,198
75,198
—
—
Total liability hedging assets
154,830
154,830
—
—
Cash and short-term investments:
Short-term investments
9,015
9,015
—
—
Deposit administration contracts
2,391
—
2,391
—
Total cash and short-term investments
11,406
9,015
2,391
—
Total invested assets
$
347,940
345,211
2,391
—
1 Liquid diversifiers are investments that unbundle return drivers from hedge funds, providing investors access to liquid, diversifying returns.
2These investments were measured at fair value using the net asset value per share (or its practical expedient) and have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to total Pension Plan invested assets.
Contributions
We presently do not anticipate contributing to the Pension Plan in 2025, as we have no minimum required contribution amounts.
Benefit Payments
($ in thousands)
Pension Plan
Benefits Expected to be Paid in Future
Fiscal Years:
2025
$
18,659
2026
18,846
2027
19,778
2028
20,710
2029
21,687
2030-2034
114,673
Note 16. Share-Based Payments
Active Plans
As of December 31, 2024, the following four plans were available for the issuance of share-based payment awards:
•The 2024 Omnibus Stock Plan, effective May 1, 2024 (the "Stock Plan");
•The Cash Incentive Plan, As Amended and Restated as of May 1, 2014 (the "Cash Plan");
•The Employee Stock Purchase Plan, As Amended and Restated as of July 1, 2021 ("ESPP"); and
•The Amended and Restated Stock Purchase Plan for Independent Insurance Agencies (2010), Amended and Restated as of November 1, 2020 (the "Agent Plan").
The following table provides information regarding the approval of these plans:
Plan
Approvals
Stock Plan
Approved effective May 1, 2024 by stockholders on the effective date.
Cash Plan
Approved effective April 1, 2005 by stockholders on April 27, 2005. Most recently amended and restated plan was approved effective May 1, 2014 by stockholders on April 23, 2014.
ESPP
Approved effective July 1, 2009 by stockholders on April 29, 2009. Most recently amended and restated plan was approved effective July 1, 2021 by stockholders on April 28, 2021.
Agent Plan
Approved by stockholders on April 26, 2006.
Most recently amended and restated plan was approved effective November 1, 2020 by the Salary and Employee Benefits Committee (now known as the Compensation and Human Capital Committee) of the Parent's Board on October 26, 2020.
The types of awards that can be issued under each of these plans are as follows:
Plan
Types of Share-Based Payments
Stock Plan
Qualified and nonqualified stock options, stock appreciation rights ("SARs"), restricted stock, RSU's, stock grants, and other awards valued in whole or in part by reference to the Parent's common stock. The maximum exercise period for an option grant under this plan is 10 years from the date of the grant. Dividend equivalent units ("DEUs") are earned during the vesting period on RSU grants. The DEUs are reinvested in the Parent's common stock at fair value on each dividend payment date. The requisite service period for grants to employees under this plan is the lesser of: (i) the stated vested date, which is typically three years from issuance; or (ii) the date the employee becomes eligible to retire.
Cash Plan
CIUs. The initial dollar value of each CIU will be adjusted to reflect the percentage increase or decrease in the total shareholder return on the Parent's common stock over a specified performance period. In addition, for certain grants, the number of CIUs granted will be increased or decreased to reflect our performance on specified performance indicators compared to targeted peer companies. The requisite service period for grants under this plan is the lesser of: (i) the stated vested date, which is typically three years from issuance; or (ii) the date the employee becomes eligible to retire.
ESPP
Enables employees to purchase shares of the Parent’s common stock. The purchase price is the lower of: (i) 85% of the closing market price at the time the option is granted; or (ii) 85% of the closing price at the time the option is exercised. Shares are generally issued on June 30 and December 31 of each year.
Agent Plan
Quarterly offerings to purchase the Parent's common stock at a 10% discount with a one-year restricted period during which the shares purchased cannot be sold or transferred. Only our independent retail insurance agencies and wholesale general agencies, and certain eligible persons associated with the agencies, are eligible to participate in this plan.
Shares authorized and available for issuance as of December 31, 2024 were as follows:
Authorized
Available for Issuance
Awards Outstanding
Stock Plan
2,000,000
1,969,236
28,216
ESPP
5,500,000
975,358
—
Agent Plan
3,000,000
1,466,600
—
Retired Plans
The following plans are closed for the issuance of new awards as of December 31, 2024, although awards outstanding continue in effect according to the terms of the applicable award agreements:
Plan
Types of Share-Based Payments Available Under Plan
Reserve Shares
Awards Outstanding
2014 Omnibus Stock Plan ("2014 Stock Plan")1
Qualified and nonqualified stock options, SARs, restricted stock, RSUs, stock grants, and other awards valued in whole or in part by reference to the Parent's common stock. The maximum exercise period for an option grant under this plan is 10 years from the date of the grant. DEUs are earned during the vesting period on RSU grants. The DEUs are reinvested in the Parent's common stock at fair value on each dividend payment date. The requisite service period for grants to employees under this plan is the lesser of: (i) the stated vested date, which is typically three years from issuance; or (ii) the date the employee becomes eligible to retire.
2,667,681
545,586
2005 Omnibus Stock Plan ("2005 Stock Plan")2
Qualified and nonqualified stock options, SARs, restricted stock, RSUs, phantom stock, stock bonuses, and other awards in such amounts and with such terms and conditions as it determined, subject to the provisions of the 2005 Stock Plan. The maximum exercise period for an option grant under this plan is 10 years from the date of the grant. DEUs are earned during the vesting period on RSU grants. The DEUs are reinvested in the Parent's common stock at fair value on each dividend payment date.
1,942,226
16,826
Parent's Stock Compensation Plan for Non-employee Directors2
Directors could elect to receive a portion of their annual compensation in shares of the Parent's common stock.
28,707
28,707
1Awards outstanding represent RSUs granted to our employees and shares deferred by our non-employee directors prior to May 1, 2024.
2Awards outstanding represent shares deferred by our non-employee directors.
A summary of the RSU transactions under our share-based payment plans is as follows:
Number of Shares
Weighted Average Grant Date Fair Value
Unvested RSU awards at December 31, 2023
551,221
$
79.23
Granted 2024
227,350
96.61
Vested 2024
(211,214)
67.98
Forfeited 2024
(9,913)
91.00
Unvested RSU awards at December 31, 2024
557,444
$
90.40
As of December 31, 2024, total unrecognized compensation expense related to unvested RSU awards granted under our stock plans was $11.0 million. That expense is expected to be recognized over a weighted-average period of 1.8 years. The total intrinsic value of RSUs vested was $20.4 million for 2024, $23.3 million for 2023, and $18.1 million for 2022. In connection with vested RSUs, the total value of the DEUs that vested was $0.7 million in 2024, $0.9 million in 2023, and $0.7 million in 2022.
CIU Transactions
The liability recorded in connection with our Cash Plan was $9.4 million as of December 31, 2024, and $10.5 million as of December 31, 2023. The remaining cost associated with the CIUs is expected to be recognized over a weighted average period of 0.8 years. The CIU payments made in connection with the CIU vestings were $2.9 million in 2024, $3.0 million in 2023, and $2.9 million in 2022.
ESPP and Agent Plan Transactions
A summary of ESPP and Agent Plan share issuances is as follows:
2024
2023
2022
ESPP Issuances
74,430
67,075
67,986
Agent Plan Issuances
42,112
42,786
56,736
Fair Value Measurements
The weighted average assumptions used to value the ESPP option awards were as follows:
ESPP
2024
2023
2022
Risk-free interest rate
5.31
%
5.14
1.42
Expected term
6 months
6 months
6 months
Dividend yield
1.4
%
1.3
1.3
Expected volatility
19
%
26
21
The weighted-average fair value per share of options and stock, including RSUs granted under the Parent's stock plans, during 2024, 2023, and 2022 was as follows:
The following table provides share-based compensation expense in 2024, 2023, and 2022:
($ in millions)
2024
2023
2022
Share-based compensation expense, pre-tax
$
26.5
23.0
23.6
Income tax benefit, including the benefit related to stock grants that vested during the year
(6.7)
(6.4)
(5.6)
Share-based compensation expense, after-tax
$
19.8
16.6
18.0
Note 17. Equity
Preferred Stock
We have 5,000,000 shares of preferred stock authorized, with no par value, of which (i) 300,000 shares are designated Series A junior preferred stock, which have not been issued, and (ii) 8,000 shares were issued as Series B in 2020 as discussed below.
On December 2, 2020, we issued 8 million depository shares, each representing a 1/1,000th interest in a share of our perpetual 4.60% Non-Cumulative Preferred Stock, Series B, without par value, with a liquidation preference of $25,000 per share (equivalent to $25.00 per depository share) (“Preferred Stock”), for net proceeds of $194.6 million. Dividends are recorded when declared and, if declared, are payable quarterly in arrears on the 15th day of March, June, September, and December. If a dividend is not declared and paid or made payable on all outstanding shares of the Preferred Stock for the latest completed dividend period, no dividends may be declared or paid on our common stock and we may not purchase, redeem, or otherwise acquire our outstanding common stock.
The Preferred Stock is redeemable at our option in whole or in part, from time to time, on or after December 15, 2025 at a redemption price equal to $25,000 per share of Preferred Stock (equivalent to $25.00 per depository share), plus unpaid dividends attributable to the then current dividend period. Prior to December 15, 2025, the Preferred Stock is redeemable at the Company’s option, in whole but not in part, within 90 days of the occurrence of (a) a rating agency event at a redemption price equal to $25,500 per share of Preferred Stock (equivalent to $25.50 per depository share), plus unpaid dividends attributable to the current dividend period in circumstances where a rating agency changes its criteria used to assign equity credit to securities like the Preferred Stock; or (b) a regulatory capital event at a redemption price equal to $25,000 per share of Preferred Stock (equivalent to $25.00 per depository share), plus unpaid dividends attributable to the current dividend period in circumstances where a capital regulator such as a state insurance regulator changes or proposes to change capital adequacy rules.
Share Repurchase Program
On December 2, 2020, we announced that our Board authorized a $100 million share repurchase program, with no set expiration or termination date. Our repurchase program does not obligate us to acquire any particular amount of our common stock. Management will determine the timing and amount of any share repurchases under the authorization at its discretion based on market conditions and other considerations. For the year ended December 31, 2024, 103,000 shares were repurchased under the share repurchase program for a total cost of $8.7 million, including commissions. We had no common stock share repurchases in 2023. As of December 31, 2024 and December 31, 2023, we had $75.5 million and $84.2 million of remaining capacity under our share repurchase program, respectively.
Note 18. Related Party Transactions
In 2005, we established a private foundation, now named The Selective Insurance Group Foundation (the "Foundation"), under Section 501(c)(3) of the Internal Revenue Code. The Board of the Foundation is comprised of some of the officers of the Parent and the Insurance Subsidiaries. We made $1.0 million of contributions to the Foundation in 2024. We did not make any contributions to the Foundation in 2023 and contributed $0.3 million in 2022.
BlackRock, Inc., a leading publicly-traded investment management firm (“BlackRock”), has purchased our common shares in the ordinary course of its investment business and has previously filed Schedules 13G/A with the SEC. On January 23, 2024, BlackRock filed a Schedule 13G/A reporting beneficial ownership as of December 31, 2023, of 12.8% of our common stock. In connection with purchasing our common shares, BlackRock filed the necessary filings with insurance regulatory authorities. On the basis of those filings, BlackRock is deemed not to be a controlling person for the purposes of applicable insurance law.
We are required to disclose related party information for our transactions with BlackRock. BlackRock is highly regulated, serves its clients as a fiduciary, and has a diverse platform of active (alpha) and index (beta) investment strategies across asset classes that enables it to tailor investment outcomes and asset allocation solutions for clients. BlackRock also offers the BlackRock Solutions® investment and risk management technology platform, Aladdin®, risk analytics, advisory, and technology services and solutions to a broad base of institutional and wealth management investors. We incurred expenses related to
BlackRock for services rendered of $2.0 million in 2024, $2.1 million in 2023, and $1.8 million in 2022. Amounts payable for such services were $0.7 million at December 31, 2024, $0.6 million at December 31, 2023, and $0.8 million at December 31, 2022.
As part of our overall investment diversification, we invest in various BlackRock funds from time to time. These funds accounted for less than 1% of our invested assets at December 31, 2024 and December 31, 2023, and are predominately reflected in "Fixed income securities" on our Consolidated Balance Sheet. During 2024, with regard to BlackRock funds, we (i) purchased $5.7 million in securities, (ii) sold $10.8 million, (iii) recognized net realized and unrealized gains of $1.1 million, and (iv) recorded $2.1 million in income. During 2023, we (i) purchased $7.9 million in securities, (ii) sold $2.8 million, (iii) recognized net realized and unrealized gains of $1.7 million, and (iv) recorded $2.5 million in income. During 2022, we (i) purchased $18.5 million in securities, (ii) sold $32.3 million, (iii) recognized net realized and unrealized losses of $6.9 million, and (iv) recorded $1.8 million in income. There were no amounts payable on the settlement of these investment transactions at December 31, 2024 and December 31, 2023.
Our Pension Plan's investment portfolio contained investments in BlackRock funds of $87.9 million at December 31, 2024 and $114.2 million at December 31, 2023. During 2024, with regard to BlackRock funds, the Pension Plan (i) did not purchase any securities, (ii) sold $18.1 million, and (iii) recorded net investment losses of $8.2 million. During 2023, with regard to BlackRock funds, the Pension Plan (i) purchased $19.9 million in securities, (ii) sold $35.1 million, and (iii) recorded net investment income of $9.3 million. During 2022, with regard to BlackRock funds, the Pension Plan (i) purchased $56.4 million in securities, (ii) sold $65.7 million, and (iii) recorded net investment losses of $80.5 million. In addition, our Deferred Compensation Plan and Retirement Savings Plan may offer our employees the option to invest in various BlackRock funds. All contracts and transactions with BlackRock were consummated in the ordinary course of business on an arm's-length basis.
Vanguard, one of the world’s largest investment management companies, has purchased our common shares in the ordinary course of its investment business and has previously filed Schedules 13G/A with the SEC. Vanguard offers low-cost mutual funds and exchange-traded funds, as well as other investment related services. On February 13, 2024, Vanguard filed a Schedule 13G/A reporting beneficial ownership of 10.24% of our common stock as of December 29, 2023. In connection with purchasing our common shares, Vanguard filed the necessary filings with insurance regulatory authorities. On the basis of those filings, we do not expect Vanguard to be deemed a controlling person for the purposes of applicable insurance law.
As part of our overall investment diversification, we may invest in various Vanguard funds from time to time. These funds accounted for less than 1% of our invested assets at December 31, 2024 and December 31, 2023, and are predominately reflected in "Equity securities" on our Consolidated Balance Sheet. During 2024, with regard to Vanguard funds, we (i) purchased $16.1 million in securities, (ii) sold $7.0 million, (iii) recognized net realized and unrealized losses of $1.0 million, and (iv) recorded $1.2 million in income. During 2023, we (i) purchased $0.5 million in securities, (ii) sold $32.9 million, (iii) recognized net realized and unrealized gains of $0.1 million, and (iv) recorded $0.7 million in income. During 2022, we (i) purchased $3.5 million in securities, (ii) sold $125.2 million, (iii) recognized net realized and unrealized losses of $10.4 million, and (iv) recorded $4.7 million in income. There were no amounts payable on the settlement of these investment transactions at December 31, 2024 and December 31, 2023.
Our Deferred Compensation Plan offers our employees investment options based on the notional value of various Vanguard funds. Our Retirement Savings Plan offers our employees the option to invest in a Vanguard fund. All transactions with Vanguard are consummated in the ordinary course of business on an arm’s-length basis.
William M. Rue, a former Director of the Parent, is Chairman of, and owns more than 10% of the equity of Rue Holding Company, which owns 100% of Chas. E. Rue & Son, Inc., t/a Rue Insurance, a general independent retail insurance agency ("Rue Insurance"). Rue Insurance is an appointed distribution partner of the Insurance Subsidiaries on terms and conditions similar to those of our other distribution partners, which includes the right to participate in the Agent Plan. Until his retirement from the Parent's Board in May 2023, Mr. Rue was considered a related party. During his tenure on the Board, Mr. Rue’s son was President, and an employee, of Rue Insurance, and owned more than 10% of the equity of Rue Holding Company. Additionally, during his tenure, Mr. Rue’s daughter was an employee of Rue Insurance and owned less than 10% of the equity of Rue Holding Company. Our relationship with Rue Insurance has existed since 1928.
Direct premiums written associated with policies placed when Mr. Rue was a related party were $15.7 million in 2023 and $14.3 million in 2022. In return, the Insurance Subsidiaries paid standard market commissions, including supplemental commissions, to Rue Insurance of $2.9 million in 2023 and $2.7 million in 2022. As of December 31, 2023, amounts payable to Rue Insurance were $0.7 million. All contracts and transactions with Rue Insurance were consummated in the ordinary course of business on an arm's-length basis.
We have various operating leases for office space, equipment, and fleet vehicles. In addition, we have various finance leases for computer hardware. Such lease agreements, which expire at various dates through 2035, are generally renewed or replaced by similar leases.
The components of lease expense for the years ended December 31, 2024 and 2023 were as follows:
($ in thousands)
2024
2023
Operating lease cost, included in Other insurance expenses on the Consolidated Statements of Income
$
8,413
7,409
Finance lease cost:
Amortization of assets, included in Other insurance expenses on the Consolidated Statements of Income
2,707
2,692
Interest on lease liabilities, included in Interest expense on the Consolidated Statements of Income
234
66
Total finance lease cost
2,941
2,758
Variable lease cost, included in Other insurance expenses on the Consolidated Statements of Income
763
996
Short-term lease cost, included in Other insurance expenses on the Consolidated Statements of Income
$
294
411
The following table provides supplemental information regarding our operating and finance leases.
December 31, 2024
December 31, 2023
Weighted-average remaining lease term
Operating leases
6
7
years
Finance leases
2
2
Weighted-average discount rate
Operating leases
3.4
2.8
%
Finance leases
4.9
3.5
Operating and finance lease asset and liability balances are included within the following line items on the Consolidated Balance Sheets:
($ in thousands)
December 31, 2024
December 31, 2023
Operating leases
Other assets
$
45,072
41,256
Other liabilities
47,732
43,675
Finance leases
Property and equipment - at cost, net of accumulated depreciation and amortization
6,173
2,605
Long-term debt
6,282
2,636
The maturities of our lease liabilities at December 31, 2024 were as follows:
($ in thousands)
Finance Leases
Operating Leases
Total
Year ended December 31,
2025
$
2,957
9,675
12,632
2026
2,579
9,260
11,839
2027
973
8,408
9,381
2028
97
7,134
7,231
2029
62
6,764
6,826
Thereafter
—
12,267
12,267
Total lease payments
6,668
53,508
60,176
Less: imputed interest
386
5,207
5,593
Less: leases that have not yet commenced
—
569
569
Total lease liabilities
$
6,282
47,732
54,014
Refer to Note 4. "Statements of Cash Flows" in Item 8. "Financial Statements and Supplementary Data." of Form 10-K for supplemental cash and non-cash transactions included in the measurement of operating and finance lease liabilities.
(a) We purchase annuities from life insurance companies to fulfill obligations under claim settlements that provide for periodic future payments to claimants. As of December 31, 2024, we had purchased such annuities with a present value of $32.4 million for settlement of claims on a structured basis for which we are contingently liable. To our knowledge, there are no material defaults from any of the issuers of such annuities.
(b) As of December 31, 2024, we have made commitments that may require us to invest additional amounts into our investment portfolio, which are as follows:
($ in millions)
Amount of Obligation
Alternative investments
$
320.5
Non-publicly traded CLOs 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 that any such additional investment will be required. We expect to have the capacity to repay or refinance these obligations as they come due.
Note 21. Litigation
As of December 31, 2024, we do not believe we are involved in any legal action that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
In the ordinary course of conducting business, we are parties in various legal actions. Most are claims litigation involving our Insurance Subsidiaries as (i) liability insurers defending or providing indemnity for third-party claims brought against our customers, (ii) insurers defending first-party coverage claims brought against them, or (iii) liability insurers seeking declaratory judgment on our insurance coverage obligations. We account for such activity by establishing unpaid loss and loss expense reserves. Considering potential losses and defense costs reserves, we expect that any potential ultimate liability for ordinary course claims litigation will not be material to our consolidated financial condition, results of operations, or cash flows.
From time to time, our Insurance Subsidiaries are named as defendants in other legal actions, some asserting claims for substantial amounts. Plaintiffs may style these actions as class actions and seek judicial certification of a state or national class for allegations involving our business practices, such as improper medical provider reimbursement under workers compensation and personal and commercial automobile insurance policies or improper reimbursement for automobile parts. Similarly, our Insurance Subsidiaries can be named defendants in individual actions seeking extra-contractual damages, punitive damages, or penalties, often alleging bad faith in handling insurance claims. We believe that we have valid defenses to these allegations and account for such activity by establishing unpaid loss and loss expense reserves. Considering estimated losses and defense costs reserves, we expect that any potential ultimate liability for these other legal actions will not be material to our consolidated financial condition. Litigation outcomes are inherently unpredictable, and the amounts sought in certain actions are large or indeterminate. Adverse outcomes could have a material adverse effect on our consolidated results of operations or cash flows in the quarterly or annual period in which they occur.
Note 22. Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds
(a) Statutory Financial Information
The Insurance Subsidiaries prepare their statutory financial statements in accordance with accounting principles prescribed or permitted by the various state insurance departments of domicile. Prescribed statutory accounting principles include state laws, regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (“NAIC"). Permitted statutory accounting principles encompass all accounting principles that are not prescribed; such principles differ from state to state, may differ from company to company within a state and may change in the future. The Insurance Subsidiaries do not utilize any permitted statutory accounting principles that affect the determination of statutory surplus, statutory net income, or risk-based capital (“RBC”). As of December 31, 2024, the various state insurance departments of domicile have adopted the March 2024 version of the NAIC Accounting Practices and Procedures manual in its entirety, as a component of prescribed or permitted practices.
The following table provides statutory data for each of our Insurance Subsidiaries:
State of Domicile
Unassigned Surplus
Statutory Surplus
Statutory Net Income
($ in millions)
2024
2023
2024
2023
2024
2023
2022
SICA
New Jersey
$
832.3
773.6
997.5
938.8
76.8
120.4
103.1
Selective Way Insurance Company ("SWIC")
New Jersey
537.1
513.5
593.1
569.3
36.3
64.1
69.6
SICSC
Indiana
219.9
201.3
254.1
235.6
13.3
26.0
17.0
SICSE
Indiana
171.9
155.1
199.5
182.7
11.2
21.6
14.2
SICNY
New York
162.0
152.4
189.7
180.1
7.1
16.4
13.2
Selective Insurance Company of New England ("SICNE")
New Jersey
49.2
45.5
80.3
76.7
3.3
8.3
5.1
Selective Auto Insurance Company of New Jersey ("SAICNJ")
New Jersey
127.5
119.3
172.4
164.2
7.4
16.2
12.7
Mesa Underwriters Specialty Insurance Company ("MUSIC")
New Jersey
72.3
64.3
141.8
133.7
8.7
14.4
9.7
Selective Casualty Insurance Company ("SCIC")
New Jersey
117.2
107.8
193.6
184.3
10.7
24.0
14.0
Selective Fire and Casualty Insurance Company ("SFCIC")
New Jersey
47.8
43.9
80.8
76.9
3.5
7.4
5.8
Total
$
2,337.2
2,176.7
2,902.8
2,742.3
178.3
318.8
264.4
(b) Capital Requirements
The Insurance Subsidiaries are required to maintain certain minimum amounts of statutory surplus to satisfy the requirements of their various state insurance departments of domicile. RBC requirements for property and casualty insurance companies are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. The Insurance Subsidiaries' combined total adjusted capital exceeded the required level of capital as defined by the NAIC based on their 2024 statutory financial statements. In the fourth quarter of 2020, the NAIC adopted the basic structure of Group Capital Calculation ("GCC"), along with a model law to enable the GCC after state legislative enactment. The GCC expands the existing RBC calculation to include (i) capital requirements for other regulated entities in the group, and (ii) defined capital calculation for other group entities that are unregulated. Our New Jersey state insurance regulators, our lead state, adopted the GCC model law in 2022. Based on our 2024 statutory financial statements, our GCC ratio exceeds the regulatory action minimum threshold. In addition to statutory capital requirements, we are impacted by various rating agency requirements related to certain rating levels. These required capital levels may be higher than statutory requirements.
(c) Restrictions on Dividends and Transfers of Funds
Our ability to declare and pay dividends on the Parent's common stock is dependent on liquidity at the Parent coupled with the ability of the Insurance Subsidiaries to declare and pay dividends, if necessary, and/or the availability of other sources of liquidity to the Parent.
In addition to regulatory restrictions on the availability of dividends that our Insurance Subsidiaries can pay to the Parent, the maximum amount of dividends the Parent can pay our shareholders is limited by certain New Jersey corporate law provisions that limit dividends if either: (i) the Parent would be unable to pay its debts as they became due in the usual course of business; or (ii) the Parent’s total assets would be less than its total liabilities. The Parent’s ability to pay dividends to shareholders also are impacted by (i) covenants in its Line of Credit 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 to be 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.
As of December 31, 2024, the Parent had an aggregate of $402.5 million in investments and cash available to fund future dividends and interest payments. These amounts are not subject to any regulatory restrictions other than the standard state insolvency restrictions noted above, whereas our consolidated retained earnings of $3.1 billion are predominately restricted due to regulations applicable to our Insurance Subsidiaries. In 2025, the Insurance Subsidiaries have the ability to provide for $290.3 million in annual dividends to the Parent; however, as regulated entities, these dividends are subject to certain restrictions, which are further discussed below. The Parent also has other potential sources of liquidity, such as: (i) borrowings from our Indiana Subsidiaries; (ii) debt issuances; (iii) common and preferred stock issuances; and (iv) borrowings under our Line of Credit. Borrowings from our Indiana Subsidiaries are governed by approved intercompany lending agreements with the Parent that provide for additional capacity of $171.8 million as of December 31, 2024, based on restrictions in these agreements that limit borrowings to 10% of the admitted assets of the Indiana Subsidiaries. For additional restrictions on the Parent's debt, see Note 11. "Indebtedness" in this Form 10-K.
As noted above, the restriction on our net assets and retained earnings is predominantly driven by our Insurance Subsidiaries' ability to pay dividends to the Parent under applicable laws and regulations. Under the insurance laws of the domiciliary states of the Insurance Subsidiaries, New Jersey, Indiana, and New York, an insurer can potentially make an ordinary dividend payment if its statutory surplus following such dividend is reasonable in relation to its outstanding liabilities, is adequate to its financial needs, and the dividend does not exceed the insurer's unassigned surplus. In general, New Jersey defines an ordinary dividend as a dividend whose fair market value, together with other dividends made within the preceding 12 months, is less than the greater of 10% of the insurer's statutory surplus as of the preceding December 31, or the insurer's net income (excluding capital gains) for the 12-month period ending on the preceding December 31. Indiana's ordinary dividend calculation is consistent with New Jersey's, except that it does not exclude capital gains from net income. In general, New York defines an ordinary dividend as a dividend whose fair market value, together with other dividends made within the preceding 12 months, is less than the lesser of 10% of the insurer's statutory surplus, or 100% of adjusted net investment income.
New Jersey and Indiana require notice of the declaration of any ordinary dividend distribution. During the notice period, the relevant state regulatory authority may disallow all or part of the proposed dividend if it determines that the dividend is not appropriate given the above considerations. New York does not require notice of ordinary dividends. Dividend payments exceeding ordinary dividends are referred to as extraordinary dividends and require review and approval by the applicable domiciliary insurance regulatory authority prior to payment.
The table below provides the following information: (i) quantitative data regarding all Insurance Subsidiaries' dividends paid to the Parent in 2024, which was used for debt service, shareholder dividends, and general operating purposes; and (ii) the maximum ordinary dividends that can be paid to the Parent by the Insurance Subsidiaries in 2025, based on the 2024 statutory financial statements.
Dividends
Twelve Months ended December 31, 2024
2025
($ in millions)
State of Domicile
Ordinary Dividends Paid
Maximum Ordinary Dividends
SICA
New Jersey
$
20.0
$
99.7
SWIC
New Jersey
15.0
59.3
SICSC
Indiana
—
25.4
SICSE
Indiana
1.3
20.0
SICNY
New York
0.9
19.0
SICNE
New Jersey
0.5
8.0
SAICNJ
New Jersey
1.1
17.2
MUSIC
New Jersey
2.2
14.2
SCIC
New Jersey
2.8
19.4
SFCIC
New Jersey
—
8.1
Total
$
43.8
$
290.3
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are: (i) effective in recording, processing, summarizing, and reporting information on a timely basis that we are required to disclose in the reports that we file or submit under the Exchange Act; and (ii) effective in ensuring that information that we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) is a process designed by, or under the supervision of, a company's principal executive and principal financial officers and effected by the Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework ("COSO Framework") in 2013.
Based on this assessment, our management believes that, as of December 31, 2024, our internal control over financial reporting is effective. No changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during the fourth quarter of 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Independent Registered Public Accounting Firm
Our independent registered public accounting firm, KPMG, LLP, has issued their attestation report on our internal control over financial reporting which is set forth below.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Selective Insurance Group, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Selective Insurance Group, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and December 31, 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes and financial statement schedules I to V (collectively, the consolidated financial statements), and our report dated February 10, 2025 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
New York, New York
February 10, 2025
Item 9B. Other Information.
During the three months ended December 31, 2024, no director or officer of the Company adopted, modified, or terminated any contract, instruction, or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) (a "Rule 10b5-1 trading arrangement") or any "non-Rule 10b5-1 trading arrangement" (as defined in Item 408(c) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Because we will file a Proxy Statement within 120 days after the end of the fiscal year ending December 31, 2024, this Annual Report on Form 10-K omits certain information required by Part III and incorporates by reference certain information included in the Proxy Statement.
Item 10. Directors, Executive Officers and Corporate Governance.
Information about our executive officers, directors, and all other matters required to be disclosed in Item 10. "Directors, Executive Officers and Corporate Governance." appears under the "Executive Officers," "Information About Proposal 1 - Election of Directors," "Board Meetings and Committees," and "Insider Trading Policy" sections of the Proxy Statement. These portions of the Proxy Statement are hereby incorporated by reference.
Item 11. Executive Compensation.
Information about compensation of our named executive officers appears under the "Executive Compensation," including, without limitation, the Compensation Discussion and Analysis and related tabular disclosures, the "CEO Pay Ratio," "Pay versus Performance," and the "Compensation Committee Report" sections of the Proxy Statement and is hereby incorporated by reference. Information about compensation of the Board appears under the "Director Compensation" section of the Proxy Statement and is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information about security ownership of certain beneficial owners and management appears under the "Security Ownership of Management and Certain Beneficial Owners" section of the Proxy Statement and is hereby incorporated by reference. Information about securities authorized for issuance under the Company’s equity compensation plans is set forth under Item 5. "Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities." in this Form 10-K and is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information about certain relationships and related transactions, and director independence appears under “Transactions with Related Persons” section of the Proxy Statement and is hereby incorporated by reference.
Item 14. Principal Accountant Fees and Services.
Information about the fees and services of our principal accountants, KPMG LLP (Public Company Accounting Oversight Board ID No. 185), appears under the "Fees of Independent Registered Public Accounting Firm" section of the Proxy Statement and is hereby incorporated by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
The Financial Statements listed below are included in Item 8. "Financial Statements and Supplementary Data."
Form 10-K
Page
Consolidated Balance Sheets as of December 31, 2024 and 2023
The financial statement schedules, with Independent Auditors' Report thereon, required to be filed are listed below by page number as filed in this report. All other schedules are omitted as the information required is inapplicable, immaterial, or the information is presented in the Financial Statements or related notes.
Form 10-K
Page
Schedule I
Summary of Investments – Other than Investments in Related Parties at December 31, 2024
The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index, which is incorporated by reference and immediately precedes the exhibits filed with or incorporated by reference in this Form 10-K.
See accompanying Report of Independent Registered Public Accounting Firm. Information should be read in conjunction with the Notes to Consolidated Financial Statements of Selective Insurance Group, Inc. and its subsidiaries. Both items are in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K.
Net realized and unrealized investment gains (losses)
596
996
(17,855)
Total revenues
65,417
101,168
120,774
Expenses:
Interest expense
30,213
29,824
28,897
Other expenses
34,602
30,686
31,116
Total expenses
64,815
60,510
60,013
Income before federal income tax
602
40,658
60,761
Federal income tax (benefit) expense:
Current
(7,466)
(9,618)
(9,381)
Deferred
(851)
1,650
(2,189)
Total federal income tax benefit
(8,317)
(7,968)
(11,570)
Net income before equity in undistributed income of subsidiaries
8,919
48,626
72,331
Equity in undistributed income of subsidiaries, net of tax
198,093
316,612
152,555
Net income
$
207,012
365,238
224,886
Preferred stock dividends
9,200
9,200
9,200
Net income available to common stockholders
$
197,812
356,038
215,686
See accompanying Report of Independent Registered Public Accounting Firm. Information should be read in conjunction with the Notes to Consolidated Financial Statements of Selective Insurance Group, Inc. and its subsidiaries. Both items are in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K.
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed income of subsidiaries, net of tax
(198,093)
(316,612)
(152,555)
Stock-based compensation expense
22,763
18,346
18,428
Net realized and unrealized investment (gains) losses
(596)
(996)
17,855
Undistributed (gains) losses of equity method investments
2,709
(279)
(2,240)
Disbursements in excess of current year income of equity method investments
—
766
—
Amortization – other
(28)
(1,020)
(154)
Changes in assets and liabilities:
Increase (decrease) in accrued long-term stock compensation
(1,148)
(579)
136
(Increase) decrease in net federal income taxes
(520)
1,538
(3,875)
(Increase) decrease in other assets
2,064
963
(1,961)
Increase (decrease) in other liabilities
(4,976)
1,375
(2,813)
Net cash provided by (used in) operating activities
29,187
68,740
97,707
Investing Activities:
Purchases of fixed income securities, available-for-sale
(15,925)
(72,328)
(208,512)
Purchases of equity securities
(2,153)
(743)
(1,647)
Purchases of short-term investments
(516,183)
(233,129)
(362,213)
Purchases of alternative investments
(3,018)
(53,262)
(4,149)
Redemption and maturities of fixed income securities, available-for-sale
31,826
29,619
35,527
Sales of fixed income securities, available-for-sale
138,546
20,314
66,725
Sales of equity securities
—
48,960
77,971
Sales of short-term investments
471,650
248,588
385,254
Proceeds from alternative investments
—
20
—
Net cash provided by (used in) investing activities
104,743
(11,961)
(11,044)
Financing Activities:
Dividends to preferred stockholders
(9,200)
(9,200)
(9,200)
Dividends to common stockholders
(84,936)
(73,827)
(66,920)
Acquisition of treasury stock
(15,620)
(7,930)
(18,344)
Net proceeds from stock purchase and compensation plans
9,630
9,133
9,086
Proceeds from borrowings from subsidiaries
—
27,000
—
Principal payment on borrowings from subsidiaries
(33,893)
(1,801)
(1,714)
Net cash provided by (used in) financing activities
(134,019)
(56,625)
(87,092)
Net increase (decrease) in cash
(89)
154
(429)
Cash, beginning of year
180
26
455
Cash, end of year
$
91
180
26
See accompanying Report of Independent Registered Public Accounting Firm. Information should be read in conjunction with the Notes to Consolidated Financial Statements of Selective Insurance Group, Inc. and its subsidiaries. Both items are in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K.
Amended and Restated Certificate of Incorporation of Selective Insurance Group, Inc., filed May 4, 2010, as amended by Certificate of Correction thereto, dated August 17, 2020 and effective May 4, 2010 (incorporated by reference herein to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed October 29, 2020, File No. 001-33067).
Certificate of Amendment of the Restated Certificate of Incorporation of Selective Insurance Group, Inc., with respect to the 4.60% Non-Cumulative Preferred Stock, Series B of Selective Insurance Group, Inc., filed with the State of New Jersey Department of Treasury and effective December 7, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A, filed December 8, 2020, File No. 001-33067).
By-Laws of Selective Insurance Group, Inc., effective January 1, 2024 (incorporated by reference herein to Exhibit 3.1 of the Company's Current Report on Form 8-K, filed December 15, 2023, File No. 001-33067).
Indenture, dated as of September 24, 2002, between Selective Insurance Group, Inc. and National City Bank, as Trustee, relating to the Company's 1.6155% Senior Convertible Notes due September 24, 2032 (incorporated by reference herein to Exhibit 4.1 of the Company's Registration Statement on Form S-3, filed November 26, 2002 File No. 333-101489).
Indenture, dated as of November 16, 2004, between Selective Insurance Group, Inc. and Wachovia Bank, National Association, as Trustee, relating to the Company's 7.25% Senior Notes due 2034 (incorporated by reference herein to Exhibit 4.1 of the Company's Current Report on Form 8-K, filed November 18, 2004, File No. 000-08641).
Indenture, dated as of November 3, 2005, between Selective Insurance Group, Inc. and Wachovia Bank, National Association, as Trustee, relating to the Company’s 6.70% Senior Notes due 2035 (incorporated by reference herein to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed November 9, 2005, File No. 000-08641).
Indenture, dated as of February 8, 2013, between Selective Insurance Group, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference herein to Exhibit 4.1 of the Company's Current Report on Form 8-K, filed February 8, 2013, File No. 001-33067).
Second Supplemental Indenture, dated as of March 1, 2019 between Selective Insurance Group, Inc. and U.S. Bank National Association, as Trustee, relating to the Company’s 5.375% Senior Notes due 2049 (incorporated by reference herein to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed March 1, 2019 File No. 001-33067).
Deposit Agreement, dated as of December 9, 2020, among the Company and Equiniti Trust Company, acting as Depositary, Registrar and Transfer Agent, and the holders from time to time of the depositary receipts described therein (incorporated by reference herein to Exhibit 4.2 of the Company’s Current Report on Form 8-K, filed December 9, 2020, File No. 001-33067).
Description of the Company's Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference herein to Exhibit 4.9 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed February 12, 2021, File No. 001-33067).
Selective Insurance Supplemental Pension Plan, As Amended and Restated Effective January 1, 2005 (incorporated by reference herein to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed October 31, 2008, File No. 001-33067).
Amendment No. 1 to Selective Insurance Supplemental Pension Plan, As Amended and Restated Effective January 1, 2005 (incorporated by reference herein to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed March 25, 2013, File No. 001-33067).
Amendment No. 2 to Selective Insurance Supplemental Pension Plan, As Amended and Restated Effective January 1, 2005 (incorporated by reference herein to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed May 5, 2020, File No. 001-33067).
Selective Insurance Company of America Deferred Compensation Plan (2005), As Amended and Restated Effective as of January 1, 2010 (incorporated by reference herein to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed October 27, 2011, File No. 001-33067).
Amendment No 1. to Selective Insurance Company of America Deferred Compensation Plan (2005) (incorporated by reference herein to Exhibit 10.2a of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed October 27, 2011, File No. 001-33067).
Amendment No. 2 to Selective Insurance Company of America Deferred Compensation Plan (2005), as Amended and Restated Effective as of January 1, 2010 (incorporated by reference herein to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed March 25, 2013, File No. 001-33067).
Selective Insurance Group, Inc. 2014 Omnibus Stock Plan, effective May 1, 2014 (incorporated by reference herein to Appendix A-1 to the Company’s Definitive Proxy Statement for its 2014 Annual Meeting of Stockholders, filed April 3, 2014, File No. 001-33067).
Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Director Stock Option Agreement (incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed April 24, 2014, File No. 001-33067).
Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Stock Option Agreement (incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed April 24, 2014, File No. 001-33067).
Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Service-Based Restricted Stock Agreement (incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed April 24, 2014, File No. 001-33067).
Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Performance-Based Restricted Stock Agreement (incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed April 24, 2014, File No. 001-33067).
Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Service-Based Restricted Stock Unit Agreement (incorporated by reference herein to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed April 24, 2014, File No. 001-33067).
Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Performance-Based Restricted Stock Unit Agreement (incorporated by reference herein to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed April 24, 2014, File No. 001-33067).
Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Director Restricted Stock Unit Agreement (incorporated by reference herein to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed April 24, 2014, File No. 001-33067).
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan As Amended and Restated Effective as of May 1, 2010 (incorporated by reference herein to Appendix C of the Company’s Definitive Proxy Statement for its 2010 Annual Meeting of Stockholders, filed March 25, 2010, File No. 001-33067).
Selective Insurance Group, Inc. 2014 Omnibus Stock Plan, as Amended and Restated Effective as of May 2, 2018 (incorporated by reference herein to Appendix A of the Company’s Definitive Proxy Statement for its 2018 Annual Meeting of Stockholders, filed March 26, 2018, File No. 001-33067).
Selective Insurance Group, Inc. Non-Employee Directors’ Compensation and Deferral Plan, as Amended and Restated Effective as of January 1, 2017 (incorporated by reference herein to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed February 22, 2017, File No. 001-33067).
Deferred Compensation Plan for Directors of Selective Insurance Group, Inc. and Subsidiaries, Amended and Restated as of May 8, 1996 (incorporated by reference herein to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed February 9, 2024, File No. 001-33067).
Selective Insurance Group, Inc. Employee Stock Purchase Plan (2021), Amended and Restated Effective July 1, 2021 (incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed April 29, 2021, File No. 001-33067).
Selective Insurance Group, Inc. Cash Incentive Plan As Amended and Restated as of May 1, 2014 (incorporated by reference herein to Appendix B to the Company’s Definitive Proxy Statement for its 2014 Annual Meeting of Stockholders, filed March 24, 2014, File No. 001-33067).
Selective Insurance Group, Inc. Cash Incentive Plan Service-Based Cash Incentive Unit Award Agreement (incorporated by reference herein to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed April 24, 2014, File No. 001-33067).
Selective Insurance Group, Inc. Cash Incentive Plan Performance-Based Cash Incentive Unit Award Agreement (incorporated by reference herein to Exhibit 10.9 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed April 24, 2014, File No. 001-33067).
Amended and Restated Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies (2010), Amended and Restated as of November 1, 2020 (incorporated by reference herein to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed October 29, 2020, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and John J. Marchioni, dated as of February 10, 2020 (incorporated by reference herein to Exhibit 10.32 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed February 12, 2020, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and Mark A. Wilcox, dated as of October 28, 2016 (incorporated by reference herein to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed October 31, 2016, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and Michael H. Lanza, dated as of March 2, 2020 (incorporated by reference herein to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed March 2, 2020, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and Brenda M. Hall, dated as of September 30, 2019 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed October 28, 2021, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and Paul Kush, dated as of December 5, 2019 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed October 28, 2021, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and Vincent M. Senia, dated as of June 6, 2017 (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed October 28, 2021, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and Anthony D. Harnett, dated as of November 1, 2023 (incorporated by reference herein to Exhibit 10.1 of the Company’s Current Report on Form 8-K/A, filed November 3, 2023, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and Joseph Owen Eppers, dated as of February 28, 2022 (incorporated by reference herein to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed February 9, 2024, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and Jeffrey F. Kamrowski, dated as of March 1, 2020 (incorporated by reference herein to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed February 9, 2024, File No. 001-33067).
Credit Agreement among Selective Insurance Group, Inc., the Lenders Named Therein and Wells Fargo Bank, National Association, as Administrative Agent, dated as of November 7, 2022 (incorporated by reference herein to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed November 11, 2022, File No. 001-33067).
Form of Indemnification Agreement between Selective Insurance Group, Inc. and each of its directors and executive officers, as adopted on May 19, 2005 (incorporated by reference herein to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed May 20, 2005, File No. 000-08641).
Selective Insurance Group, Inc. 2024 Omnibus Stock Plan, effective May 1, 2024 (incorporated by reference herein to Exhibit 4.4 to the Company’s Registration Statement on Form S-8, filed May 2, 2024, File No. 333-279060).
Selective Insurance Group, Inc. 2024 Omnibus Stock Plan Service-Based Restricted Stock Unit Agreement (incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed May 2, 2024, File No. 001-33067).
Selective Insurance Group, Inc. 2024 Omnibus Stock Plan Performance-Based Restricted Stock Unit Agreement (incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed May 2, 2024, File No. 001-33067).
Selective Insurance Group, Inc. 2024 Omnibus Stock Plan Non-Employee Director Restricted Stock Unit Agreement (incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed May 2, 2024, File No. 001-33067).
Amendment No. 1 to Employment Agreement between Selective Insurance Company of America and Joseph Owen Eppers, dated as of June 3, 2024 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed July 26, 2024, File No. 001-33067).
Amendment No. 1 to Employment Agreement between Selective Insurance Company of America and Brenda M. Hall, dated as of June 3, 2024 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed July 26, 2024, File No. 001-33067).
Amendment No. 1 to Employment Agreement between Selective Insurance Company of America and Anthony D. Harnett, dated as of June 3, 2024 (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed July 26, 2024, File No. 001-33067).
Amendment No. 1 to Employment Agreement between Selective Insurance Company of America and Jeffrey F. Kamrowski, dated as of June 3, 2024 (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed July 26, 2024, File No. 001-33067).
Amendment No. 1 to Employment Agreement between Selective Insurance Company of America and Paul Kush, dated as of June 3, 2024 (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed July 26, 2024, File No. 001-33067).
Amendment No. 1 to Employment Agreement between Selective Insurance Company of America and Michael H. Lanza, dated as of June 3, 2024 (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed July 26, 2024, File No. 001-33067).
Amendment No. 1 to Employment Agreement between Selective Insurance Company of America and John J. Marchioni, dated as of June 3, 2024 (incorporated by reference to Exhibit 10.7 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed July 26, 2024, File No. 001-33067).
Amendment No. 1 to Employment Agreement between Selective Insurance Company of America and Vincent M. Senia, dated as of June 3, 2024 (incorporated by reference to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed July 26, 2024, File No. 001-33067).
Employment Agreement between Selective Insurance Company of America and Patrick S. Brennan, dated as of September 23, 2024 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed September 23, 2024, File No. 001-33067).
Selective Insurance Group, Inc. Compensation Recoupment Policy (incorporated by reference herein to Exhibit 97.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed February 9, 2024, File No. 001-33067).
The following financial statements from the Company's Annual report on Form 10-K for the year ended December 31, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (II) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
** 104
The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2024, formatted in iXBRL.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SELECTIVE INSURANCE GROUP, INC.
By: /s/ John J. Marchioni
February 10, 2025
John J. Marchioni
Chairman of the Board, President and Chief Executive Officer
(principal executive officer)
By: /s/ Patrick S. Brennan
February 10, 2025
Patrick S. Brennan
Executive Vice President and Chief Financial Officer
(principal financial officer)
By: /s/ Anthony D. Harnett
February 10, 2025
Anthony D. Harnett
Senior Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
By: /s/ John J. Marchioni
February 10, 2025
John J. Marchioni
Chairman of the Board, President and Chief Executive Officer
" in Item 1A. "Risk Factors." of this Form 10-K.