# EDGAR Filing Document

**Accession Number:** 0000230557
**File Stem:** 0001104659-23-038205
**Filing Date:** 2023-3
**Character Count:** 326553
**Document Hash:** 95ba2c730fd963bbab9ff341a98b2f87
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001104659-23-038205.hdr.sgml**: 20230329

**ACCESSION NUMBER**: 0001104659-23-038205

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230329

**DATE AS OF CHANGE**: 20230329

**EFFECTIVENESS DATE**: 20230329

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** SELECTIVE INSURANCE GROUP INC
- **CENTRAL INDEX KEY:** 0000230557
- **STANDARD INDUSTRIAL CLASSIFICATION:** FIRE, MARINE & CASUALTY INSURANCE [6331]
- **IRS NUMBER:** 222168890
- **STATE OF INCORPORATION:** NJ
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-33067
- **FILM NUMBER:** 23773658

**BUSINESS ADDRESS:**
- **STREET 1:** 40 WANTAGE AVENUE
- **CITY:** BRANCHVILLE
- **STATE:** NJ
- **ZIP:** 07890
- **BUSINESS PHONE:** 9739483000

**MAIL ADDRESS:**
- **STREET 1:** 40 WANTAGE AVE
- **STREET 2:** 40 WANTAGE AVE
- **CITY:** BRANCHVILLE
- **STATE:** NJ
- **ZIP:** 07890

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SRI CORP
- **DATE OF NAME CHANGE:** 19860508

### Attached PDF Documents

**Attachment 1:** `tm239168d3_ars.pdf`

**SELECTIVE**
BE UNIQUELY INSURED®

![img-0.jpeg](img-0.jpeg)

## OUR BUSINESS

Selective Insurance Group, Inc. (NASDAQ: SIGI) is a New Jersey holding company for ten property and casualty insurance companies with $10.8 billion in assets as of December 31, 2022. A customer-centric company, we are dedicated to serving our customers' unique insurance needs through customized risk management solutions and value-added services. In collaboration with our distribution partners, we offer standard and specialty insurance to businesses, non-profits, public entities, and individuals through the following segments:

![img-1.jpeg](img-1.jpeg)

*Percent of business based on 2022 net premiums written.

## OUR FOOTPRINT

![img-2.jpeg](img-2.jpeg)

## OUR YEAR IN REVIEW

![img-3.jpeg](img-3.jpeg)

# SELECTIVE

BE UNIQUELY INSURED®

^ Non-GAAP (U.S. Generally Accepted Accounting Principles) operating income, non-GAAP operating income per diluted common share, and non-GAAP operating return on common equity are non-GAAP measures. Refer to the section entitled 'Financial Highlights of Results for Years Ended December 31, 2022, 2021, and 2020' in Item 7 'Management's Discussion and Analysis of Financial Condition and Results of Operations' in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a reconciliation of the non-GAAP measures to the equivalent GAAP measures.

# 2022 FINANCIAL HIGHLIGHTS

| ($ in millions, except per share data) | 2022 | 2021 | % or Point Change Better (Worse) |
| --- | --- | --- | --- |
| Insurance Operations |  |  |  |
| Net premiums written | $3,573.6 | $3,189.7 | 12% |
| Combined ratio | 95.1% | 92.8% | 2.3 pts |
| Underwriting income after-tax | $131.8 | $172.7 | (24)% |
| Return on common equity from insurance operations after-tax | 5.4% | 6.5% | (1.1) pts |
| Investments |  |  |  |
| Net investment income after-tax | $232.2 | $263.0 | (12)% |
| Net realized and unrealized investment (losses) gains after-tax | $(90.7) | $13.9 | (752)% |
| Total invested assets | $7,837.5 | $8,027.0 | (2)% |
| Invested assets per dollar of common stockholders' equity | $3.37 | $2.88 | 17% |
| Annual after-tax yield on investment portfolio | 2.9% | 3.4% | (0.5) pts |
| Return on common equity from net investment income after-tax | 9.4% | 9.9% | (0.5) pts |
| Summary Data |  |  |  |
| Total revenues | $3,558.1 | $3,379.2 | 5% |
| Net income available to common stockholders | $215.7 | $394.5 | (45)% |
| Return on common equity | 8.8% | 14.8% | (6.0) pts |
| Non-GAAP operating income* | $306.4 | $380.6 | (19)% |
| Non-GAAP operating return on common equity* | 12.4% | 14.3% | (1.9) pts |
| Operating cash flow as % of net premiums written | 22.5% | 24.2% | (1.7) pts |
| Total assets | $10,802.3 | $10,461.4 | 3% |
| Stockholders' equity | $2,527.6 | $2,982.9 | (15)% |
| Common stockholders' equity | $2,327.6 | $2,782.9 | (16)% |
| Per Common Share Data |  |  |  |
| Diluted net income available to common stockholders | $3.54 | $6.50 | (46)% |
| Diluted non-GAAP operating income* | $5.03 | $6.27 | (20)% |
| Dividends to common stockholders | $1.14 | $1.03 | 11% |
| Book value | $38.57 | $46.24 | (17)% |

## AVERAGE ANNUAL RETURN

![img-4.jpeg](img-4.jpeg)

* Non-GAAP (U.S. Generally Accepted Accounting Principles) operating income, non-GAAP operating income per diluted common share, and non-GAAP operating return on common equity are non-GAAP measures. Refer to the section entitled 'Financial Highlights of Results for Years Ended December 31, 2022, 2021, and 2020' in Item 7 'Management's Discussion and Analysis of Financial Condition and Results of Operations' in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a reconciliation of the non-GAAP measures to the equivalent GAAP measures.

SELECTIVE 2022 ANNUAL REPORT 1

# 2022 ANNUAL REPORT SHAREHOLDER LETTER

Dear Shareholders:

2022 was a remarkable year for Selective. We demonstrated our resiliency and ability to manage effectively through several macroeconomic challenges. We proudly delivered a superior omni-channel service experience to customers and independent insurance agency partners, opportunities for our employees, and strong results for our shareholders.

![img-5.jpeg](img-5.jpeg)

**John J. Marchioni**
Chairman, President and
Chief Executive Officer

Our effective execution enabled us to generate a 12.4% non-GAAP operating return on common equity ("ROE"), our ninth consecutive year of delivering double-digit returns. Very few in our industry can match that track record. Despite elevated catastrophe losses, rising inflation, and capital market volatility over the past nine years, we delivered annualized total shareholder return of approximately 16%. Over that period, we also generated

about 10% annual growth in tangible book value per share plus accumulated dividends, the metric we view as the best long-term indicator of property and casualty industry value creation. Our results reflect the success of our underwriting discipline and profitable growth strategies.

I firmly believe we have the tools, technology, talent, and distribution partner relationships to continue generating strong and sustainable performance - regardless of market conditions - in 2023 and well into the future.

## 2022 FINANCIAL HIGHLIGHTS:

- Strong bottom-line performance: Non-GAAP operating ROE of 12.4% outperformed our full-year 2022 operating ROE target of 11% because of our disciplined underwriting strategy. Net income available to common stockholders was $216 million ($3.54 per diluted common share), and non-GAAP operating income was $306 million ($5.03 per diluted common share).

- Continued financial flexibility: At year-end 2022, our balance sheet remained extremely strong. During the year, we increased our quarterly shareholder dividend by 7%, to $0.30 per share. We also had approximately $84 million in remaining capacity under our Board-authorized $100 million share repurchase program.
- Strong share price outperformance: Selective's 2022 total shareholder return was 9.7%, meaningfully exceeding the S&P 500 Index's 18.1% decline. Over the past ten years, total annualized shareholder returns of 18.4% have exceeded the S&P 500 Index's 12.6% average annual performance.

## HISTORICAL NON-GAAP OPERATING ROEs* RELATIVE TO PEER AVERAGE

![img-6.jpeg](img-6.jpeg)

## HISTORICAL TOTAL RETURN: SIGI VS. BENCHMARKS (DECEMBER 31, 2022)

![img-7.jpeg](img-7.jpeg)

* Non-GAAP (U.S. Generally Accepted Accounting Principles) operating income, non-GAAP operating income per diluted common share, and non-GAAP operating return on common equity are non-GAAP measures. Refer to the section entitled "Financial Highlights of Results for Years Ended December 31, 2022, 2021, and 2020" in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a reconciliation of the non-GAAP measures to the equivalent GAAP measures.

2

## 2022 STRATEGIC AND OPERATING HIGHLIGHTS:

- We advanced our geographic expansion strategy by launching our commercial lines products in Vermont, Idaho, and Alabama. We are on target to open West Virginia and Maine as expected in early 2024. Over time, an expanded footprint will enhance our access to new business, further reduce our geographic concentration risk, and help us better serve our customers and distribution partners.
- We appointed 118 new agencies, bringing the total to approximately 1,500 agencies and 2,600 storefronts.
- We resumed premium growth in our personal lines segment, driven by strong market acceptance of our product designed for mass affluent customers.
- We published our inaugural Task Force for Climate-Related Financial Disclosures (TCFD) report, significantly enhancing our climate strategy disclosure.

## EXECUTION OF KEY STRATEGIC PRIORITIES

Our strong financial performance this past year provides us the financial flexibility to continue executing our strategic objectives that support profitable growth over the long term, despite an uncertain near-term macroeconomic backdrop.

Maintaining underwriting discipline and pricing adequacy is a top priority. We built the organizational muscle and underwriting focus to effectively manage profitability and retention rates, even in the current dynamic loss-trend environment. Our commitment to underwriting discipline has positioned us well in recent years, permitting us to adjust our go-to-market strategy and prices as necessary.

## COMMERCIAL LINES PRICING AND RETENTION

![img-8.jpeg](img-8.jpeg)

We continue to develop and implement new tools and technologies to create operating efficiencies and strengthen our market position. Our recent investments to enhance our small business and E&S technology platforms position us well for the future.

Our commitment to continuous improvement includes enhancing customers' experience with Selective at every touchpoint. This is critical to becoming a stronger competitor. We made significant investments in digital capabilities that enable our customers to engage in their chosen manner and increase the adoption of our self-service platform and value-added services, all expected to increase future retention.

## BOARD MEMBER RETIREMENTS

As we look ahead to our many opportunities, I want to recognize three long-standing Board members - John C. Burville; Michael J. Morrissey; and William M. Rue - who are retiring at the 2023 Annual Meeting of Stockholders, having reached our mandatory retirement age. Each played an integral role in our success, providing valuable insights and guidance throughout their tenure. We thank them for their strategic counsel and wish them the best.

## CONCLUSION

Our outstanding 2022 performance gives us a solid foundation to advance our near-term strategic priorities and position us for consistent long-term growth and value creation. We could not have accomplished this without all our supporters. I want to thank our shareholders for their investment in our business and strategy and their confidence in our management teams' continued execution. I'd also like to thank our customers and distribution partners for their continued trust in our operations.

Most importantly, I want to thank our talented employees, whose dedication and efforts continue to strengthen our customer and distribution partner relationships and drive our organization. I am confident their work furthering our unique culture will drive our success in the future.

Every day, our interactions with our customers and agency partners reinforce the importance of our role in rebuilding lives and businesses, making communities safer, and supporting economic expansion. We recognize and appreciate our responsibilities to the communities we serve as an employer providing a great place to work, as a safety resource helping mitigate risks, and as a neighbor supporting safe, sustainable, just, and diverse communities. Responsibility empowers our people to be and do their very best.

Our 2023 Annual Meeting of Stockholders will be held virtually, allowing attendance from anywhere in the world. We hope you will join us.

**John J. Marchioni**
Chairman, President and
Chief Executive Officer

SELECTIVE 2022 ANNUAL REPORT 3

# UNIQUELY SUPPORTING OUR COMMUNITIES

We are committed to understanding and mitigating risk, serving our customers responsibly, and providing timely claims service, while being environmentally aware.

![img-9.jpeg](img-9.jpeg)

Our unique operating model includes regionally based Underwriting, Claims, and Safety Management professionals with technical expertise to service our policyholders, their claimants, and our distribution partners, helping to mitigate exposure to loss before it happens, and restore lives and businesses after an insured loss occurs.

Our risk management solutions demonstrate to our customers and distribution partners what it means to *Be Uniquely Insured®* with Selective. We carefully develop these solutions to address our customers' needs and seek new, innovative approaches to help them build resilience to, and protect against, risks that could negatively impact their lives and businesses.

Value-added products and services help reduce or mitigate risks, such as the removal of personally identifiable information from passenger vehicles declared a total loss and availability of award-winning home security monitoring tools.

Artificial intelligence-assisted software helps our Commercial Lines customers identify and adjust high-risk body positions or movements that can lead to severe injuries and costly workers compensation claims.

Thermographic infrared surveys for Commercial Lines customers identify potential electrical hazards that could lead to fire risks.

Our proactive notifications, including weather alerts and food, vehicle, and product recalls, help build customers' awareness and prevent losses.

![img-10.jpeg](img-10.jpeg)

Our sophisticated digital and self-service capabilities provide customers with a seamless omni-channel experience. Over half of our customers use our award-winning MySelective mobile app to report claims, pay bills, access auto insurance cards, and view auto insurance policies on demand.

![img-11.jpeg](img-11.jpeg)

Our 3.8-megawatt DC ground-mount and garage canopy solar photovoltaic facilities at our corporate headquarters are expected to generate approximately five million kWh of renewable energy annually that we sell to others.

We understand that climate change increases the unpredictability of weather-related loss frequency and severity. This poses a long-term risk to our customers' lives and businesses. We believe it is our corporate responsibility to help mitigate climate change impacts for all stakeholders. In 2022, we published our Task Force on Climate-Related Financial Disclosures report that focuses on four core elements of our climate approach. To read it, please visit www.Selective.com/about-selective/corporate-social-responsibility.

4

# ... AND DOING SOCIAL GOOD

We are committed to promoting a welcoming culture that celebrates diverse talent, individual identity, different points of view and experiences, and has a positive impact in the communities where we live, work, and serve.

![img-12.jpeg](img-12.jpeg)

**24%**

Percent of employees who participate in one or more employee resource group (ERG), such as our Black, Military and Veterans (launched in 2022), Pride Alliance, Women in IT, and Working Caregivers ERGs or our Women at Work affinity group. Additional groups are expected to launch in 2023.

![img-13.jpeg](img-13.jpeg)

![img-14.jpeg](img-14.jpeg)

**4,800+**

Items donated by employees to benefit charities that support our neighbors in need, including bicycles built and gifted during the holidays.

![img-15.jpeg](img-15.jpeg)

**4,000+**

Hours volunteered by employees to give back to their local community and help make a difference.

Approximately

Donated by the Selective Insurance Group Foundation to charities that help build safe, sustainable, just, and diverse communities.

![img-16.jpeg](img-16.jpeg)

**5,450**

Hours committed by employees for diversity and inclusion training to cultivate a culture that embraces, practices, and monitors the attitudes, values, and goals of acceptance; addresses biases; and fosters diverse viewpoints and opinions.

SELECTIVE 2022 ANNUAL REPORT 5

# MANAGEMENT TEAM

![img-17.jpeg](img-17.jpeg)

**John J. Marchioni**

Chairman of the Board,
President and
Chief Executive Officer

![img-18.jpeg](img-18.jpeg)

**Lucinda (Cyndi) Bennett**

Executive Vice President,
Chief Human Resources Officer

![img-19.jpeg](img-19.jpeg)

**John P. Bresney**

Executive Vice President,
Chief Information Officer

![img-20.jpeg](img-20.jpeg)

**Joseph O. Eppers**

Executive Vice President,
Chief Investment Officer

![img-21.jpeg](img-21.jpeg)

**Brenda M. Hall**

Executive Vice President,
Chief Operating Officer,
Standard Lines

![img-22.jpeg](img-22.jpeg)

**Jeffrey F. Kamrowski**

Executive Vice President,
MUSIC

![img-23.jpeg](img-23.jpeg)

**Paul Kush**

Executive Vice President,
Chief Claims Officer

![img-24.jpeg](img-24.jpeg)

**Michael H. Lanza**

Executive Vice President,
General Counsel and
Chief Compliance Officer

![img-25.jpeg](img-25.jpeg)

**Rohit Mull**

Executive Vice President,
Chief Marketing and
Innovation Officer

![img-26.jpeg](img-26.jpeg)

**Vincent M. Senia**

Executive Vice President,
Chief Actuary

![img-27.jpeg](img-27.jpeg)

**Mark A. Wilcox**

Executive Vice President,
Chief Financial Officer

6

# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

# FORM 10-K

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2022

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

![img-28.jpeg](img-28.jpeg)

SELECTIVE INSURANCE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

New Jersey

(State or Other Jurisdiction of Incorporation or Organization)

22-2168890

(I.R.S. Employer Identification No.)

40 Wantage Avenue, Branchville, New Jersey 07890
(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 |
| Depository 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.

Large accelerated filer ☑ Accelerated filer ☐ Emerging growth company ☐
Non-accelerated filer ☐ Smaller reporting company ☐

1

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 ☑

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 $5,158,579,316 on June 30, 2022. As of January 31, 2023, the registrant had outstanding 60,338,831 shares of common stock.

#### **DOCUMENTS INCORPORATED BY REFERENCE**

Portions of the registrant's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders to be held on May 3, 2023, are incorporated by reference into Part III of this report.

2

# SELECTIVE INSURANCE GROUP, INC.

# Table of Contents

|  | Page No. |
| --- | --- |
| PART I |  |
| Item 1. Business | 4 |
| Item 1A. Risk Factors | 23 |
| Item 1B. Unresolved Staff Comments | 34 |
| Item 2. Properties | 35 |
| Item 3. Legal Proceedings | 35 |
| Item 4. Mine Safety Disclosures | 35 |
| PART II |  |
| Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 35 |
| Item 6. Reserved | 36 |
| Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | 36 |
| Forward-looking Statements | 36 |
| Introduction | 37 |
| Critical Accounting Policies and Estimates | 37 |
| Financial Highlights of Results for Years Ended December 31, 2022, 2021, and 2020 | 45 |
| Results of Operations and Related Information by Segment | 48 |
| Federal Income Taxes | 62 |
| Liquidity and Capital Resources | 62 |
| Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 66 |
| Item 8. Financial Statements and Supplementary Data | 73 |
| Consolidated Balance Sheets as of December 31, 2022 and 2021 | 75 |
| Consolidated Statements of Income for the Years Ended December 31, 2022, 2021, and 2020 | 76 |
| Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021, and 2020 | 77 |
| Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2022, 2021, and 2020 | 78 |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021, and 2020 | 79 |
| Notes to Consolidated Financial Statements | 80 |
| Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 133 |
| Item 9A. Controls and Procedures | 133 |
| Item 9B. Other Information | 135 |
| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 135 |
| PART III |  |
| Item 10. Directors, Executive Officers and Corporate Governance | 135 |
| Item 11. Executive Compensation | 135 |
| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 135 |
| Item 13. Certain Relationships and Related Transactions, and Director Independence | 135 |
| Item 14. Principal Accountant Fees and Services | 135 |
| PART IV |  |
| Item 15. Exhibit and Financial Statement Schedules | 136 |
| Item 16. Form 10-K Summary | 147 |

3

# PART I

# Item 1. Business.

# Overview

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 departments of insurance (i) license nine of our subsidiaries as admitted carriers to write specific lines of property and casualty insurance in the standard marketplace and (ii) authorize the tenth subsidiary as a non-admitted carrier to write property and casualty insurance in the excess and surplus ("E&S") lines market. We refer throughout this document to the Parent and the Insurance Subsidiaries collectively as "we," "us," or "our," using Parent only 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 2022, AM Best Company ("AM Best") ranked us as the 37th largest property and casualty group in its annual "Top 200 U.S. Property/Casualty Writers" list based on 2021 net premiums written ("NPW"). Our current AM Best financial strength rating is "A+" (Superior). Since our founding in 1926, we have a long and successful history in the property and casualty insurance industry.

# Strategic Advantages

We have three key sustainable competitive advantages:

- A distribution model that emphasizes franchise value, meaning we focus on appointing and having meaningful, close business relationships with high-quality, independent distribution partners who value our relationships and provide us the opportunity to grow profitably with them;
- A unique operating model in which we (i) locate our Standard Commercial Lines underwriting and safety management personnel in the geographic territories they serve, (ii) organize our claims operation regionally by specialty, with local personnel managing our customer, claimant, and agency relationships, and (iii) provide our teams with sophisticated tools and technologies to inform underwriting, pricing, safety management, and claims decisions; and
- Our best-in-class employees provide a superior omnichannel customer and agency experience, enhanced by digital platforms and value-added services to increase customer engagement and retention.

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 has the greatest influence on our ability to write insurance business. Our independent distribution partners recommend insurance carriers based partly on financial strength ratings to limit their potential liability for customer error and omission claims. Similarly, most customers consider ratings in their purchasing decisions because they have loans, mortgages, and other real and personal property security agreements that require they purchase insurance from carriers with minimum rating requirements.

4

These NRSROs also rate our long-term debt creditworthiness. Credit ratings indicate our ability to timely meet our obligations, and they 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 ability to access capital markets is most impacted by our S&P, Moody's, and Fitch financial strength and credit ratings.

## Segments

We have four reportable segments:

- Standard Commercial Lines, which represents 77% of Total revenues and 81% of our 2022 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 30 states and the District of Columbia. Our average 2022 Standard Commercial Lines premium per policyholder was approximately $15,300.
- Standard Personal Lines, which represents 9% of Total revenues and 9% of our 2022 total NPW. We sell our Standard Personal Lines property and casualty insurance products and services primarily to individuals in 15 states. Our average 2022 Standard Personal Lines premium per policyholder was approximately $2,600. 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"). Based on 2021 direct premiums written ("DPW") as reported in the S&P Market Intelligence platform, we are the fourth-largest WYO carrier.
- E&S Lines, which represents 9% of Total revenues and 10% of 2022 NPW and is sold in all 50 states and the District of Columbia. We sell our E&S Lines property and casualty insurance products and services to commercial customers unable to obtain coverage in the standard marketplace, generally because of unusual or high-risk exposures. E&S insurers are exempt from many standard market requirements, including form and rate regulation. E&S carriers may write an insurance policy if three separate standard line carriers have rejected the risk to be insured. Our average 2022 E&S lines premium per policyholder was approximately $3,800.
- Investments, which represents 5% (including net realized and unrealized gains and losses) of Total revenues, invests the (i) premiums collected by our Insurance Subsidiaries 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 components of evaluating underwriting income/loss. DPW are what we bill 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 less insurance operations-related expenses.

Insurance operations-related expenses fall into three categories on our Consolidated Statements of Income: (i) "Loss and loss expense incurred," which includes losses associated with claims and loss expenses for adjusting claims incurred during a policy's term, net of losses and loss expenses ceded to reinsurers; (ii) "Amortization of deferred policy acquisition costs," which includes expenses related to the successful acquisition of insurance policies, such as commissions to our distribution partners and premium taxes, recognized ratably over a policy's term; and (iii) "Other insurance expenses," which includes acquisition and other insurance-related expenses not otherwise classified as "Loss and loss expense incurred" or "Amortization of deferred policy acquisition costs" incurred in maintaining policies and policyholder dividends. These expenses include, but are not limited to, certain labor expenses, depreciation expense, and policyholder dividends.

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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, (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.

We use net income (or loss) available to common stockholders and non-U.S. generally accepted accounting principles ("GAAP") operating income as measures of financial performance. 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. We use this non-GAAP measure because it is an important financial measure 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.

We use the combined ratio as the key performance measure in assessing the underwriting profitability of our insurance operations. The combined ratio is calculated by adding (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 estimates, and prior year casualty reserve development.

We use after-tax net investment income earned as the main measure of our investments segment's financial performance. We also assess total return, calculated as the ratio of the sum of pre-tax (i) net investment income, (ii) net realized and unrealized investment gains or losses (including losses on securities we intend to sell and credit loss expense or benefit) in income, and (iii) unrealized investment gains or losses included in accumulated other comprehensive income or loss, to average invested assets. 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"). Our basis for using this non-GAAP measure is consistent with our use of non-GAAP operating income described above. 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 establish our non-GAAP operating ROE target based on the sum of (i) our current estimated weighted average cost of capital and (ii) an appropriate spread over our estimated weighted average cost of capital. We also consider the current interest rate environment and property and casualty insurance industry market conditions. For 2023, we increased our non-GAAP operating ROE target to 12%, from 11% in 2022, to reflect a higher weighted average cost of capital.

For further details about our 2022 results compared to these performance measures, refer to "Financial Highlights of Results for Years Ended December 31, 2022, 2021, and 2020" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K.

Other key financial metrics we measure include operating leverage and investment leverage.

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We define operating leverage as the ratio of NPW to statutory surplus. We target a ratio between 1.35x and 1.55x. Our operating leverage at December 31, 2022 was 1.44x, compared to the U.S. standard commercial and personal lines industry average of approximately 0.8x that Conning, Inc. reported in its Fourth Quarter 2022 Property-Casualty Forecast & Analysis (Source: ©2023 Conning, Inc. Used with permission.). We are comfortable operating our business with operating leverage above the industry average, as we believe we have a lower financial risk profile than the industry, as noted below.

Because we write more longer-tail casualty insurance than shorter-tail property insurance, our operating leverage is higher than the industry average. We also operate with higher investment leverage than the industry. We define investment leverage as invested assets per dollar of common stockholders' equity. Our investment leverage at December 31, 2022 was $3.37, compared to the average invested assets to statutory surplus of $2.27 that Conning, Inc. reported for the U.S. commercial and personal lines in its Fourth Quarter 2022 Property-Casualty Forecast & Analysis (Source: ©2023 Conning, Inc. Used with permission.). To better manage the risks of our higher investment leverage, we have adopted a conservative investment management philosophy, with fixed income securities and short-term investments representing 90% of our invested assets.

As of December 31, 2022, our fixed income securities and short-term investments had a weighted average credit rating of "AA-" and an effective duration of 4.1 years, compared to "A+" and 3.9 years as of December 31, 2021. For additional information about our investments segment's design and credit quality characteristics, see "Credit Risk" in Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." and Note 5. "Investments" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

We believe our financial risk profile is lower than the industry because:

- Our Standard Commercial Lines segment underwriting risk appetite is focused on small-to-medium sized accounts, with risks weighted more towards low- to medium-hazard than high-hazard. Our average premium per policyholder is approximately $15,300, with about 86% of this segment's casualty lines business having limits of $1 million or less (excluding workers compensation policies, which have no limits), and about 92% of this segment's property lines of business having limits of $3 million or less;
- We have sophisticated pricing tools and maintain disciplined financial planning and reserving practices. We conduct quarterly ground-up reserve reviews for most lines of business, with semi-annual reserve reviews by an independent third-party actuary who issues our year-end regulatory actuarial reserve opinions;
- We purchase significant levels of reinsurance, including (i) a property catastrophe reinsurance program that limits the net after-tax impact of a 1-in-250 year catastrophe to about 7% of our GAAP equity, and (ii) property and casualty excess of loss reinsurance agreements that limit our retained losses of individual property claims losses to $3 million per risk and casualty claims to $2 million per occurrence; and
- We maintain a conservative investment portfolio, with high quality and liquid fixed income and short-term investments, and roughly a 10%-14% allocation to risk assets.

Our strong financial strength and lower financial and underwriting risk profile have permitted us to operate with higher operating leverage than most of our industry. This strategy requires us to balance growth and profit, providing us the opportunity to generate higher underwriting and investment portfolio ROEs when profitable. We generate (i) 1.1 points of ROE for each point on the combined ratio and (ii) 2.6 points of ROE for each point of pre-tax investment yield. In 2022, our underwriting and investment income helped generate an 8.8% ROE and a 12.4% non-GAAP operating ROE, with the latter exceeding our 11% ROE target. For further details about our 2022 ROE results, please see "Financial Highlights of Results for Years Ended December 31, 2022, 2021, and 2020" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K.

# Insurance Operations

# Overview

We generate our insurance operations' revenue by selling insurance policies and services in return for insurance premiums. One-year term policies constitute the vast majority of our sales. Our most significant cost associated with the sale of insurance policies 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 in the future to pay covered claims and related expenses that have not yet been settled or reported. Estimating reserves as of any

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given date is an inherently uncertain process, 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 transfer risks through an internal reinsurance pooling agreement by which each shares in premiums and losses based on specified percentages. For information regarding 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 insurance that falls into two broad categories:

- Casualty insurance, which generally covers the financial consequences of (i) injuries employees suffer in the course of employment, (ii) third-party bodily injury and/or property damage from an insured's negligent acts, omissions, or legal liabilities, and (iii) our obligation to defend our insured(s) for covered claims. Casualty claims are long-tailed, regularly taking several years to be reported and settled - and even longer in certain situations.
- 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 from 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' Policy | Property/Casualty | X |  |  |
| Bonds (Fidelity and Surety) | Casualty | X |  |  |
| Homeowners | Property/Casualty |  | X |  |
| Personal Automobile | Property/Casualty |  | X |  |
| Personal Umbrella | Casualty |  | X |  |
| Flood 1 | Property | X | X |  |

$^{1}$The majority of our flood loss exposure relates to our participation in the NFIP's WYO program, to which we cede 100% of our flood insurance premiums and losses. 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, notably Insurance Services Office, Inc. ("ISO"), American Association of Insurance Services, Inc. ("AAIS"), and the National Council on Compensation Insurance, Inc. ("NCCI"), (ii) independently creating our own 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 product or service's potential to make our customers' commercial or personal endeavors safer.

Our policies provide coverage for future events, so we do not know the actual individual policy loss costs at the time of sale. We consider many variables in determining pricing for coverage. Like most property and casualty insurers, our loss data is not sufficiently credible to independently establish the complex sets of loss costs and rating variables that our products require. Consequently, we often adopt loss costs and rating structures that statistical rating agencies, such as ISO and NCCI, file with state insurance regulators. 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.

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We have developed predictive models for many of our Standard Commercial Lines and Standard Personal Lines. We use these models to refine statistical rating agencies' rating plans or independently develop our own rating plans. Predictive models analyze historical statistical data about various risk characteristics that drive loss experience. For our Standard Commercial Lines, we use the output of these models to group existing or potential policies based on their expected loss potential. These groupings are inputs in the individual risk underwriting and pricing process. We use these models to develop factors in our filed Standard Personal Lines rating plans. The predictive capabilities of our models depend on the quantity and quality of available statistical data, and we may supplement them with other market information or underwriting judgment.

### *Customers and Customer Markets*

We categorize our Standard Commercial Lines customers into the following strategic business units ("SBUs"):

|  | Percentage of Standard Commercial Lines | Description |
| --- | --- | --- |
| Contractors | 43% | General contractors and trade contractors |
| Mercantile and Services | 25% | Retail, office, lessors risk/property owners, automobile services, and golf courses |
| Community and Public Services | 16% | Public entities, social services, religious institutions, and schools |
| Manufacturing and Wholesale | 15% | Manufacturers, wholesalers, and distributors |
| Bonds | 1% | Fidelity and surety |
| Total Standard Commercial Lines | 100% |  |

We do not categorize our Standard Personal Lines or E&S Lines customers into SBUs. No one customer accounts for 10% or more of our insurance operations in the aggregate.

We manage our underwriting volatility by focusing on accounts with lower-limits profiles. The following table lists each segment's respective percentage of property and casualty accounts with total insured value and exposure limits of $1 million or less:

|  | Property | Casualty |
| --- | --- | --- |
| Standard Commercial Lines | 76% | 86% 1 |
| Standard Personal Lines | 76% | 96% |
| E&S Lines | 96% | 99% |

$^{1}$Standard Commercial Lines excludes workers compensation policies without statutory policy limits covered by our casualty excess of loss reinsurance treaty, which provides coverage for losses above $2 million.

We also purchase significant levels of reinsurance from reinsurers with an average credit rating of "A" or better. Our reinsurance program supports our ability to write accounts with larger policy limits by limiting individual property and casualty retained losses to $3 million per risk for property claims and $2 million per occurrence for casualty claims. For information regarding 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.

### *Geographic Markets*

We sell our insurance products and services in the following geographic markets:

- Standard Commercial Lines products and services are primarily sold in 30 states in the contiguous U.S. and the District of Columbia.
- Standard Personal Lines products and services are primarily sold 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 are sold in all 50 states and the District of Columbia.

We began writing Standard Commercial Lines business in Vermont in June 2022 and Alabama and Idaho in October 2022. This expansion allows us to issue policies to customers with exposures in these states, permitting us to compete more effectively against nationwide insurers and diversify our portfolio risk. Ultimately, we plan to expand our Standard Commercial Lines footprint to most of the contiguous U.S.

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We manage and support our business from offices in (i) Branchville, New Jersey, where we have our corporate headquarters, (ii) Farmington, Connecticut, the principal office for investment operations, (iii) Glastonbury, Connecticut, used by several corporate areas, but primarily our information technology ("IT") department, (iv) Richmond, Virginia, the location of our underwriting and claims service center ("USC"), and (v) six regional branches, with locations shown 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 defends our policyholders with employee-lawyers, has seven leased offices in the Eastern region of the U.S.

### Distribution Channel

The property and casualty insurance market is highly competitive and regulated, and has fragmented market share, particularly in standard commercial 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 Commercial Lines: Independent retail agents;
- 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 them commissions calculated as a percentage of DPW, with supplemental amounts paid based on profitability and considerations for increased premium or policy counts. No one independent distribution partner is responsible for 10% or more of our combined insurance operations' premium. Our top 20 distribution partners generated approximately 40% of our DPW, excluding E&S Lines and the flood line of business, in 2022.

### Independent Retail Agents and Standard Lines

A 2022 Independent Insurance Agents & Brokers of America study estimated there are 40,000 independent property/casualty insurance agents and brokers in the U.S., up 11% from their 2020 study. We expect that independent retail insurance agents - representing most of our independent distribution partners - will remain a significant force in overall insurance industry premium production. Their business model, representing multiple insurance carriers, gives customers a broader choice of insurance products, more competitive pricing, and individualized risk-based consultation.

We have approximately 1,500 distribution partners selling our standard lines products and services through approximately 2,600 office locations. About 800 of these distribution partners sell our personal lines products. Approximately 6,300 distribution partners sell our flood insurance products.

### Wholesale General Agents and E&S Lines

We have approximately 80 wholesale general agents, with an aggregated 340 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.

### Marketing

Our primary marketing strategy is to:

- Use an empowered field underwriting model for Standard Commercial Lines to provide our distribution partners with resources near their businesses and our mutual customers. For further discussion on this model, see the "Technology, Innovation, and Operating Model" section below.

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- Develop a distribution model that emphasizes the franchise value of appointment to sell our Insurance Subsidiaries' products and services to the principals and producers of our high-quality independent insurance agency partners. To help our agency partners grow profitability and succeed, we establish meaningful and close business relationships by (i) soliciting, gathering, and acting on their feedback and that of our mutual customers on various topics, including our products and services and brand awareness, (ii) advising them on our new product offerings, and (iii) providing education and development programs focused on producer recruitment, sales training, 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, (iii) customer service and engagement rates, (iv) new business and renewal pricing, and (v) the profitability of the business they place with us.
- Develop brand recognition and meaningful customer engagement through a data-driven multi-channel marketing strategy focused on delivering a superior customer experience. We expect this integrated marketing and customer engagement approach will position us as a marketplace leader and (i) afford us a dynamic view of the changing marketplace and customer expectations, (ii) provide us insight into unique value-added products and services with the greatest impact on each customer, and (iii) help drive business acquisition and retention, and brand health.

### *Technology, Innovation, and Operating Model*

We continue to evolve our technology and operating model, maintaining a strong focus on innovation and providing our customers and distribution partners with "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 insurance operation segments.

### *Technology*

We leverage technology in our business and invest significantly in IT platforms, integrated systems, and cloud-based solutions.

We make these technology investments to provide:

- Our distribution partners with accurate business information and seamless integration with our systems, permitting easy policy transaction processing;
- Our service representatives with a customer account-centric view of our policyholders, reducing customer inquiry response time and complementing customer access to on-demand digital transactional capabilities;
- Our underwriters with advanced underwriting and pricing tools and predictive models that provide guidance and automatic retrieval of relevant public information on existing and potential policyholders, enhancing profitability and enabling 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 mobile application (i) received Best Mobile App Awards' Platinum Award for "Best Mobile Design" in the summer of 2020, (ii) received the PropertyCasualty360 Insurance Innovators Award in the area of customer experience in 2021, and (iii) was the Gold Stevie Winner in the "Sales and Marketing Mobile Application - New Version" category in 2021. As of December 31, 2022, 50% of our customers registered for MySelective, compared to 47% as of December 31, 2021. MySelective gives policyholders on-demand self-service access to account information, electronic bill payment, and claims reporting. We continue to provide customers with additional digital value-added services, such as proactive messaging about vehicle and product recalls, adverse weather, and claim status.

Our primary technology operations are in Branchville, New Jersey, and Glastonbury, Connecticut. We have agreements with multiple consulting, IT, and supplemental staffing service providers to augment our internal resources. Collectively, these providers supply approximately 53% of our skilled technology capacity, with 74% of their resources 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.

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### Cybersecurity

Our business relies heavily on IT and application systems connected to or accessed from the Internet. This connection increases the risk that a malicious cyber-attack could impact us. Our systems also contain proprietary and confidential information about our operations, employees, agents, and customers and their employees and property, including personally identifiable information. A dedicated unit implements cybersecurity controls and reports on cybersecurity risks. We work with industry-leading security consulting and technology partners and follow security-minded design principles. The cybersecurity team receives oversight and executive support through engagement with our Executive Risk Committee ("ERC"). Similarly, the team works with our Enterprise Risk Management ("ERM") function on business alignment and cybersecurity insurance purchasing. Our cybersecurity program balances responsiveness to rapidly-changing threats with ensuring the long-term health of our IT security environment. It focuses on six key areas:

- Proactive cybersecurity, including cyber threat hunting, ethical hacking campaigns, and periodic cybersecurity program assessments;
- Reactive cybersecurity processes that we regularly test using incident response and disaster recovery exercises based on realistic scenarios;
- Endpoint controls that provide data encryption, threat detection, malicious software defense, and data backups;
- Identity and access management controls that include multi-factor authentication and additional safeguards for employees with elevated privileges;
- Employee cyber risk awareness programs that leverage general education, role-based training, and simulated phishing attacks; and
- Third-party risk management and security standards, including due diligence, continuous monitoring, and cyber risk scoring.

We monitor various IT performance and security metrics across these six key areas. The Parent's Board of Directors ("Board") receives regular updates on the strength of our cyber risk control environment, emerging cyber threat issues, and the results of external assessments by outside security consultants. Two of the Board's directors have earned cybersecurity oversight certifications from a corporate directors organization.

For further information regarding our risks associated with cyber-attacks, see Item 1A. "Risk Factors." of this Form 10-K. For additional information regarding our ERM function and ERC, see the "Corporate Governance, Sustainability and Social Responsibility" section in Item 1. "Business." of this Form 10-K.

### Innovation

To maintain our culture of innovation and long-term value proposition to our customers and distribution partners, we have the following mechanisms in place:

- A dedicated innovation team under our Chief Marketing and Innovation Officer. We established this team to (i) apply proven innovation techniques and methods for identifying, prioritizing, and advancing strategic, innovative ideas and opportunities, (ii) stay apprised of critical industry and insurance technology trends that impact our customers, distribution partners, and employees, and (iii) expand our innovation culture by providing training and skill-building opportunities, facilitating departmental and cross-functional strategy and innovation sessions, and leading relevant communities of interest that intersect with the lifecycle of innovation.
- An innovation lab at our corporate headquarters to spur innovation and further our efforts to identify and deploy product, agency and customer experience, and operational efficiency improvements. We conduct innovation design work (i) in-person, using our innovation lab at our corporate headquarters, (ii) virtually, combining live facilitation with collaboration software and digital whiteboard and polling capabilities, and (iii) utilizing hybrid capabilities, mixing live attendance and digital capabilities at our innovation lab with attendees at remote locations.
- A Strategic Investment Committee to consider potential investment opportunities, including technology and Insurtech platforms that may positively impact our business or the industry.

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### *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 (i) Standard Commercial Lines underwriting and safety management personnel are located in the geographic territories they serve, (ii) claims operation is organized regionally by specialty, with local personnel managing our customer, claimant, and distribution partner relationships, and (iii) teams are provided with sophisticated tools and technologies to inform underwriting, pricing, safety 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 guidelines and philosophy for each industry segment and line of business. Through formal letters of authority, our Chief Underwriting Officer ("CUO") delegates underwriting authority after assessing an underwriter's job grade, industry, and line of business expertise. Our corporate underwriting department coordinates with our actuarial department to determine adequate pricing levels for all Standard Commercial Lines products.

Under the CUO's delegated authorities, our regional underwriting operations make most individual policyholder underwriting and pricing decisions. New business is underwritten by Agency Management Specialists ("AMSs"), with contributions from Production Underwriters, Small Business Teams, and Large Account Underwriters. Renewal business is primarily handled in each region, with support from our USC, which assigns underwriters to specific distribution partners.

Our operating model also focuses on improving safety and risk management programs, loss experience, and retention, including:

- Risk evaluation and virtual and on-site improvement surveys that evaluate potential exposures and provide solutions for mitigation;
- Internet-based safety management educational resources, including an extensive library of coverage-specific safety materials, videos, and online courses, such as defensive driving and employee educational safety courses;
- Thermographic infrared surveys that identify potential electrical hazards; and
- Occupational Safety and Health Administration construction and general industry certification training.

We brand these services as "Safety Management: Solutions for a safer workplace."SM We have 86 Safety Management Specialists ("SMS") in the field supporting our policyholders locally. These specialists regularly interact with current and prospective customers. Their safety enhancement and best practices recommendations reduce our customers' property, liability, and workers compensation risks, including higher profile risks like sexual abuse. Their account-specific analyses let our underwriters better understand our customers' exposures, enhancing our new business and renewal underwriting decisions.

Over the past three years, we have embarked on safety management initiatives to proactively service policyholders with notifications and alerts, identify risks and mitigate potential loss occurrence, and provide tools and technologies that improve safety and reduce losses. Examples include:

- Vehicle recall notifications to our policyholders and distribution partners;
- Weather preparation notices for large storms or hurricanes, including guides on structural improvements, roof and drainage maintenance, and measures to prevent clogged or frozen plumbing;
- Food and product recall notifications to policyholders in food manufacturing, distribution, and preparation; and
- Customer self-assessments of workplace hazards, with best practices recommendations tailored to the customer's specific risks.

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In 2022, we continued to expand capabilities in our new Standard Commercial Lines agency interface platform designed to streamline new small business policy quoting and issuance. Writing small business - lower hazard risks in specific industry classes with less than $25,000 in premium - 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 execute a multi-year strategy to (i) improve small business writing ease and speed for our distribution partners and (ii) offer a best-in-class small business customer experience. We enhanced our rating platform's user experience by reducing the amount of information required to be inputted before quote generation. In 2023, we plan to add additional business capabilities to help us maximize new small business growth with our distribution partners.

- 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 reflecting our filed rates and rules. Exceptions to our internal underwriting guidelines are approved under the direction of our Standard Personal Lines CUO. For long-term growth, we are actively repositioning our Standard Personal Lines business to better serve the mass affluent market, where we believe our strong coverage and servicing capabilities will be more competitive.
- E&S Lines: Our E&S Relationship and Underwriting Managers focus on marketing our product capabilities to wholesale general agents, training them on underwriting guidelines and automation, and collecting market intelligence from them. In return, our wholesale general agents provide front-line new and renewal underwriting and policy administration services per guidelines we prescribe. Our small commercial E&S underwriters review all requested exceptions or declinations based on individual account risk characteristics. Our middle market E&S commercial underwriters write larger accounts and receive complete submissions for individual account risk characteristics from wholesale general agents, making underwriting and pricing decisions based on them. Wholesale general agents who submit middle market commercial risks do not have the authority to quote or bind accounts on our behalf.

Our independent distribution partners designate Standard Commercial Lines and Standard Personal Lines accounts to be serviced by our USC. All USC employees are licensed agents who respond to policyholder inquiries about insurance coverage, billing transactions, and other matters. For the convenience of us handling USC transactions, our distribution partners agree to receive a slightly lower than standard commission on the associated premium. As of December 31, 2022, our USC was servicing NPW of $99.1 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 auto 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 customer managers and agency executives ("CAEs") who are responsible for enhancing the relationship among our policyholders, distribution partners, and claims operation. The CAEs provide 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. Our Claims Service Center manages 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 strategy to improve the efficiency of our claims organization's processing ability through improved workflows and enhanced capabilities for our employees, customers, and distribution partners. In 2022, we rolled out a new digital claim intake method for our workers' compensation claims. We are actively testing a new unique digital claim intake method for automobile and property claims. It allows claimants to readily provide more robust information, improving our adjuster assignment and overall claims cycle speeds.

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Our Special Investigative Unit ("SIU") supports all insurance operations and investigates potential insurance fraud and abuse, consistent with 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. Our practice (and usually our legal requirement) is to notify the proper authorities of SIU findings.

### *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 either employ their own 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 each of 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, safety management services, ease of technology usage, price, and financial strength ratings. We also face increased competition from established direct-to-consumer insurers, existing competitors, and new entrants, many with lower cost structures and digital technology with enhanced servicing and customer experience capabilities.

### **Investments Segment**

Our investment portfolio's objectives are to maximize after-tax net investment income and generate long-term book value per share growth. We maximize the portfolio's overall total return by investing our insurance operation's premiums and the amounts generated through our capital management strategies, including debt and equity security issuances. We balance those objectives against prevailing market conditions, capital preservation considerations, and our enterprise risk-taking appetite. 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. 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 information about investments, 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*

Insurance regulation and taxation is primarily overseen at the state level 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,

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such as assigned risk pools and reinsurance pools; mandatory participation in state guaranty funds; and mandated continuing workers compensation coverage post-termination of employment.

- Protection of policyholders, claimants, and shareholders: Related to our ownership of the Insurance Subsidiaries, oversight of matters including registration of insurance holding company systems in states where we have domiciled insurance subsidiaries, reporting about intra-holding company system developments, self-assessment of current and future risks, including cybersecurity and climate change, and required pre-approval of certain transactions that may materially affect the operations, management, or financial condition of the insurers, including dividends and change in control.

### 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 reviews their counterparts conduct, creating efficiencies and limiting overlapping examinations of the same insurance companies.

The following are among the NAIC's various financial monitoring tools, most predicated on NAIC model laws and regulations that are material to the regulators in states in which our Insurance Subsidiaries are organized:

- The Insurance Regulatory Information System ("IRIS"). IRIS identifies 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 areas of risk to which property and casualty insurers are exposed: (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 2022 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.
- 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 serves as the audit committee of each of our Insurance Subsidiaries, even though the Parent is not an insurance entity.
- 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, which the state domicile insurance regulators of our Insurance Subsidiaries have adopted, requires an insurer to annually file an internal assessment of the adequacy of its risk management framework and current and projected future solvency position. For more information on our internal process of assessing our significant risks, refer to the "Corporate Governance, Sustainability and Social Responsibility" section below.
- Group Capital Calculation ("GCC"). In the fourth quarter of 2020, the NAIC adopted the basic structure of the GCC, along with a model law to enable the GCC after state legislative enactment. 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. 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. Our New Jersey state insurance regulators adopted the GCC model law in 2022. Based on our 2022 statutory financial statements prepared in accordance with SAP, our GCC ratio exceeds the regulatory action minimum threshold.

### NRSROs

Rating agencies monitor our capital adequacy but are not formal regulators. Two are (i) AM Best, with its Capital Adequacy Ratio ("BCAR"), and (ii) S&P, with its capital model. Both evaluate the strength of an insurer's balance sheet comparing

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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, BCAR, and the S&P capital model show similar direction as simulation 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 each of these capital models to ensure we can effectively pursue our business strategies. Rating agencies also revise and update 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 ("FEMA");
- The Medicare, Medicaid, and SCHIP Extension Act of 2007, which subjects our workers compensation business to Mandatory Medicare Secondary Payer Reporting;
- The economic and trade sanctions of the Office of Foreign Assets Control ("OFAC");
- Various privacy laws related to possessing personal non-public information, including the following:
  - Gramm-Leach-Bliley Act;
  - Fair Credit Reporting Act;
  - Drivers Privacy Protection Act; and
  - Health Insurance Portability and Accountability Act.
- The Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") govern publicly-traded companies and 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 the potential impact of regulation and changes in regulation 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 a high level of ethics and integrity in our business practices. We are committed to understanding and mitigating risk, serving our customers responsibly, enabling our employees' professional success and work/life balance, and helping the communities in which 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. We have a mature risk culture and governance structure that are cornerstones of our risk management framework, and are 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.

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- The second line of defense is responsible for risk oversight, supporting the first line to understand, monitor, and manage our risk profile through an 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:

| Board of Directors |  |  |
| --- | --- | --- |
| Risk Oversight | Executive Committee Corporate Governance & Nominating Committee ("CGNC") Audit Committee | Finance Committee Salary & Employee Benefits Committee |
| ↑ STRATEGY SETTING AND ESTABLISHING RISK TOLERANCE |  |  |
| Management & Operating Committees |  |  |
| Risk Management | Management Investment Committee ("MIC") Underwriting Committee Emerging Risk Committee Enterprise Project Management Office ("EPMO") Large Claims Committee | Reserve Committee Executive Risk Committee ("ERC") Sustainability Committee Disclosure Committee Market Security Committee ("MSC") |
| ↑ APPETITE AND LIMIT GOVERNANCE |  |  |
| Risk Identification & Reporting | Enterprise Risk Management Function |  |
|  | Supported by individual business units and functional areas. |  |

### Board Oversight

Our Board's function is one of oversight and guidance. The Board and its committees ("Board Committees") oversee our business performance and management team ("Management"). The Board reviews and discusses Management reports about our performance and significant issues. The majority of our Board is independent.

Our Board oversees our ERM process, and all Board Committees oversee risks specific to their areas of supervision and report their activities and findings to the entire Board.

### Management and Operating Committees

Our Chief Executive Officer ("CEO") directs our business strategy's implementation. 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:

MIC - Responsible for (i) setting and implementing the investment objectives and asset allocation, (ii) administering investment policies, (iii) selecting qualified external investment managers and advisors, and (iv) monitoring performance, transactions, and specific risk metrics, including ones related to climate change. Our investment team and external investment managers execute our investment strategy and objectives. The MIC meets formally eight times per year, with additional meetings as necessary.

Underwriting Committee - Responsible for overseeing authority delegation throughout our underwriting operations and reviewing and making decisions on any underwriting transaction and/or action that is outside of a CUO's authority. This committee meets as appropriate and evaluates a variety of information related to specific accounts presented, including key projected catastrophe modeling metrics when considering a large property account, as well as underwriting and market considerations.

Emerging Risk Committee - Responsible for identifying and monitoring new and evolving risk issues that could significantly impact our financial strength, reputation, or long-term strategy. This committee meets quarterly.

EPMO - Responsible for the oversight of large-scale projects. Our EPMO framework uses a consistent methodology to review the return on investment for each major capital expenditure (such as IT system purchases). Projects above a certain dollar threshold require Board approval. The EPMO is supported by certified project managers who apply methodologies to (i) communicate project management standards, (ii) provide project management training and tools, (iii) manage projects, (iv)

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review project status, including external and internal costs and any associated projected financial benefits, and (v) provide non-technology project management consulting services to the rest of the organization. The EPMO, which includes senior management representatives from all primary business and corporate areas, 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 monthly and as needed.

Large Claims Committee - Responsible for the oversight of claims that: (i) have or are likely to exceed a reinsurance policy coverage limit; (ii) have a bad faith exposure of $15 million or more; (iii) are likely to generate significant bad publicity; or (iv) potentially create a significant legal precedent on an insurance coverage issue. The Large Claims Committee also approves reserves and payments for claims over the Chief Claim Officer’s authority. This committee meets on an as-needed basis.

Reserve Committee - Responsible for monitoring loss and loss expense reserve levels and taking management actions regarding financial recording of reserves. The reserve committee meets quarterly.

ERC - 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. The ERC relies on several management committees to analyze and manage specific major risks, including the Emerging Risk Committee and the Underwriting Committee. At least quarterly, the ERC meets to review and discuss various topics and the interrelation of our significant risks, including, without limitation, capital modeling results, capital adequacy, risk metrics, emerging risks, and sensitivity analysis.

Sustainability Committee - Reports to senior management on significant public issues relating to sustainability. It also develops or opines on ESG-related policies and procedures. The committee meets quarterly.

Disclosure Committee - Responsible for establishing and implementing procedures to ensure compliance with Regulation FD and other applicable securities laws. This committee meets at least two times every quarter.

MSC - Responsible for reinsurance purchase decisions, approval of individual reinsurers on our panel, reinsurer counterparty risk, and monitoring catastrophe risk. The MSC is comprised of executives and senior leaders with diverse financial and underwriting expertise. The MSC meets at least twice a year before each major treaty renewal.

### **ERM Function**

The ERM unit is responsible for identifying, measuring, monitoring, and reporting key and aggregated enterprise-wide risks to the ERC and the Board. The ERM unit works with other functional areas to develop appropriate responses to identified risks and supports 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 annually file with their domiciliary regulators an ORSA report, an internal solvency assessment developed by the Chief Risk Officer ('CRO') in coordination with the ERC and reviewed by our Board.

We categorize our major risks into five broad categories:

- • Asset risk, stemming primarily from our investment portfolio and reinsurance recoverables and includes credit and market risk;
- • Underwriting risk, which is the risk our insured losses exceed our expectations, including:
  - ◦ Losses from inadequate loss reserves;
  - ◦ Larger than expected non-catastrophe current accident year losses; and
  - ◦ Catastrophe losses that exceed our expectations or our reinsurance treaty limits.
- • Liquidity risk, which is the risk we will be unable to meet our contractual obligations as they become due because we cannot liquidate assets or obtain adequate funding without incurring unacceptable investment losses or borrowing expenses;
- • Other risks, which include a broad range of operational risks, many challenging to quantify, such as talent/human capital, market conditions, economic, legal, regulatory, reputational, and strategic risks - as well as the risks of fraud,

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human failure, modeling risks, inadequate business continuity plans, or failure of controls or systems, including cybersecurity risk; and

- Emerging risks, which include risks in the other categories that are new, rapidly evolving, or increasing substantially compared to historical levels. For example, we consider (i) heightened levels of economic inflation, (ii) the enactment of reviver statutes for abuse victims, (iii) climate change, (iv) the increased threat of cyber incidents, and (v) the significant economic impacts from the ongoing Russian war against Ukraine and the economic and societal impacts of the COVID-19 pandemic, including disrupted supply chains and products, services, and labor shortages, and other emerging risk.

The table below maps our management and operating committees to their responsibilities for our five major risks.

| Major Risk Category | Emerging Risk Committee | MIC | MSC | Disclosure Committee | EPMO | Reserve Committee | Large Claims Committee | ERC | Underwriting Committee | Sustainability Committee |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Asset Risk |  | X | X |  |  |  |  | X |  |  |
| Underwriting Risk |  |  | X |  |  | X | X | X | X |  |
| Liquidity Risk |  | X | X |  |  |  |  | X |  |  |
| Other Risks |  |  |  | X | X |  | X | X |  | X |
| Emerging Risks | X |  |  |  |  |  |  | X |  | X |

Our risk governance structure facilitates effective risk conversations across all levels and disciplines of the organization and promotes strong risk management practices. All our strategies and controls, however, have inherent limitations. We cannot be certain that an event or series of unanticipated events will (i) occur or not occur, and generate losses greater than we expect, and (ii) have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. An investor should carefully consider the risks and all other information included in Item 1A. 'Risk Factors.', Item 7A. 'Quantitative and Qualitative Disclosures About Market Risk.', and Item 8. 'Financial Statements and Supplementary Data.' of this Form 10-K.

### *Sustainability and Social Responsibility*

Our sustainability and social responsibility initiatives are focused on (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) helping us understand and attempt to mitigate the environmental impact that climate change has on our business and operations, and (iii) providing customers with empathetic claims service and risk mitigation solutions.

### *Human Capital*

We recognize that developing and protecting our human capital, and providing a mutually beneficial employee experience, complements and contributes to superior longer-term financial performance. We are committed to maintaining a safe and inclusive workplace that promotes diversity and provides attractive benefits to our approximately 2,520 employees. In 2022, we were (i) designated as a Great Place to Work CertifiedTM organization for the third year in a row, (ii) recognized by DiversityJobs as one of their top employers showing continual dedication and commitment to establishing a diverse workforce and culture, and (iii) recognized by Forbes as one of 'America's Best Mid-Size Employers.'

### *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 fair pay and regularly analyze and adjust compensation to ensure internal equity and external market alignment. We offer competitive financial benefit programs to support the financial well-being of our employees and their families. Among the offerings are a 401(k) plan with non-elective and employer matching contributions, an employee stock purchase plan allowing discounted stock purchases, and tuition reimbursement and student loan repayment. Most employees are eligible to participate in our annual cash incentive program, funded and paid based on the achievement of our financial and strategic objectives. Employees above certain levels are eligible to participate in our long-term stock-based incentive compensation program. We also offer a wide range of competitive and convenient health and wellness programs. To support our employees' social well-being, we encourage connections with their colleagues and communities through various programs, such as paid time off for volunteer work and matching charitable donations.

### *Talent Development and Employee Retention*

We invest significant time and resources in (i) training and development to assist our employees in fulfilling their professional potential and having 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

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various live instructor-led training courses and over 26,000 online skills training courses and resources. We also have leadership and talent development programs and initiatives at all levels of the organization. Examples include our (i) Next Generation of Leaders program, which identifies early- and mid-career management for focused development opportunities that prepare them for future senior leadership, (ii) RISE (Retain Include Support Engage) program, which is an accelerated professional development program for diverse individual contributors interested in first-level management positions, and (iii) our Ignite College Internship and Momentum Trainee programs, which provide collaboration and cross-functional events and experiences for interns and early-career employees.

Of our 2,520 employees at December 31, 2022, 980 are normally home-based; 840 are in our regional offices; and the remainder are in our corporate office. Our Flexible Work Location Policy permits most office-based employees to work remotely 60% of the time. Our employee turnover rate in 2022 was approximately 15%. Employees with over 20 years of service represented approximately 16% of our workforce.

#### *Diversity, Equity, and Inclusion*

We recognize that collaboration by employees with diverse backgrounds, ideas, and experiences can foster innovation, improving operational performance, product and service development, customer experience, market opportunities, and revenue. We have initiatives to increase representation and cultivate greater inclusion of people with different ethnicity, race, age, sexual orientation, gender identities and expressions, and socio-economic backgrounds. Recent initiatives include (i) increasing gender and racial diversity through our Next Generation of Leaders program, (ii) sponsoring various employee resource groups for women, Black, LGBTQ+, and military and veteran employees, (iii) introducing a professional development program focused on under-represented groups, (iv) implementing business objectives tied to supporting and participating in diversity, equity, and inclusion initiatives, (v) enhanced hiring, retention, and promotion practices intended to increase diversity at all organizational levels, including expanding university recruiting efforts to include historically Black colleges and universities, (vi) partnering with the National African American Insurance Association for services and employee programming for our employee's use, and (vii) adding new directors with diverse backgrounds, skills, experience, ethnicity, and race to our Board.

As of December 31, 2022, women represented 58% of our non-officer workforce and 33% of our officer workforce, compared to 58% and 32% at December, 31, 2021, respectively. Increasing the representation of women in first-level, middle, and senior management roles is a prioritized goal. Our ethnic diversity for officers and non-officers is consistent with the national average for financial services, but our objective is to increase this representation over time. Approximately 78% of our workforce was White at year-end 2022, compared to 80% at year-end 2021, and 22% were a combination of Black, Latin, Asian, and all other ethnicities combined, compared to 20% at December, 31, 2021. We have a diverse board, with five directors on our Board identifying as part of one or more underrepresented groups.

#### *Environmental*

As a property and casualty insurance company, we understand that climate change creates greater unpredictability of weather-related loss frequency and severity. This poses a long-term risk to the lives and livelihoods of our customers and our business. Our efforts to help address climate change and its associated impacts are centered on (i) prudent oversight and management of catastrophe risk exposure, (ii) helping our customers through responsive claims handling, safety management, and proactive weather alerts, (iii) allocating capital away from specific environmentally hazardous classes through underwriting and investment initiatives, 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) contribute to our corporate responsibility to help mitigate the impact of climate change, and (ii) will reward our shareholders with sustained superior financial and operating performance over time.

The Emerging Risk Committee identified climate change as a high-level emerging risk that it reviews at least quarterly with the ERC and our 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, and trade associations.

Responsibility for measurement, assessment, and monitoring the mitigation of the physical risks and transition risks due to climate change resides with our ERM function. Physical risks arise from the changing frequency, severity, and characteristics of acute events, such as hurricanes, floods, and wildfires. These risks can directly affect our underwriting results, impact the long-term viability of certain business lines we write, and potentially impact our investment portfolio. Transition risks arise from society's transition towards a low-carbon economy, driven by policy and regulations, low-carbon technology advancement, and shifting sentiment and societal preferences.

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

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influenced our decision to geographically diversify our underwriting portfolio and set rigorous coastal property exposure guidelines. In addition to managing our peak hurricane exposure risk, we seek to manage our exposures to other 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 small geographic footprint in the Western U.S., so our exposures to certain weather-related perils, such as droughts, wildfires, and flooding, tend to be relatively modest. We monitor our investment exposure to carbon-intensive industries as a measure of 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 in its review of exposure to hurricane and other perils on both a gross and net basis. For quantitative information on the modeled results of our underwriting property portfolio by peril, refer to the 'Reinsurance' section in 'Results of Operations and Related Information by Segment' of Item 7. 'Management's Discussion and Analysis of Financial Condition and Results of Operations.'

### *Managing Climate-related Risks*

For information regarding our risks associated with climate change, refer to risks identified with the symbol '![,f]()' 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 hurricanes and other wind events semi-annually in July and January. Wildfire risk, which presents significantly lower exposure for our portfolio, is modeled 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 in writing large individual property risks and large property accounts that could create or exacerbate a property aggregation issue. If any individual location exceeds the CUO's property limit authority, it must be approved by the Underwriting Committee, comprised of the Standard Lines Chief Operating Officer, CFO, Commercial Lines CUO, Executive Vice President of E&S Lines, and CRO. When considering large property accounts, the Underwriting Committee typically reviews an evaluation of property aggregations in the particular county and state, and projections of marginal impact on our aggregate modeled losses assuming we wrote the risk. The discussion covers our catastrophe risk aggregation appetite and the appropriate pricing for taking the increased risk aggregation.

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.'

We believe that we have created an effective control environment for managing natural catastrophe risk on a gross exposure basis by (i) setting overall portfolio growth expectations, (ii) monitoring actual results and property aggregations, (iii) having appropriate underwriting authority controls around our largest accounts, and (iv) consistently focusing on appropriate pricing of catastrophe risk.

### *Investments*

We are beginning to incorporate ESG considerations into our investment process. To establish appropriate ESG 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 are working with our third-party investment managers to ensure they incorporate ESG guidelines and protocols into their investment process while managing 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 we transition to a low-carbon economy, the value of these assets could be at greater risk.

### *Other*

In addition to mitigating insurance operations and investment risk, we:

- Have robust plans to ensure operational continuity if we suffer unforeseen or catastrophic events. We have business continuity plans for our key data processing facility (Disaster Recovery Plan), the leadership team (Executive Crisis

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Management Plan), and significant operational areas. We review and update these plans at least annually, the same as other testing, including “tabletop” exercises and planned hands-on tests.

- Track our Scope 1 and Scope 2 carbon (“CO2”) emissions; however, as an insurance holding company, we are not a meaningful greenhouse gas (“GHG”) emitter relative to entities in many other industries. Our Scope 1 emissions include consumption of natural gas, diesel, refrigerant, and fuel usage under our Fleet program, and our Scope 2 emissions comprise our electricity usage.
- Built ground-mount and garage-canopy solar photovoltaic facilities at our corporate headquarters. The facilities are expected to generate approximately five million kWh of electricity annually, and we sell the solar renewable energy credits to others. Since we sell these solar renewable energy credits, our renewable energy production does not reduce our GHG emissions, however, they do contribute to the production of cleaner energy.

# Ongoing Initiatives

Our objective is to continue to reduce our carbon emissions over the long term. We have many 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;
- Transitioning our Fleet from gasoline to hybrid vehicles over the next three to five years;
- Conversion of all corporate headquarters light bulbs to LED;
- Hybrid work schedule going forward; and
- Migration of 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;
- 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 we might take to execute our long-term capital strategy. Examples include, without limitation, contributing capital to any or all of the Insurance Subsidiaries, issuing additional debt and/or equity securities, repurchasing our existing debt and/or equity securities, or increasing or decreasing common stockholders’ dividends. We operate in a continually changing business environment, and new risk factors emerge from time to time. Consequently, we can neither predict such new risk factors nor assess their potential future impact on our business, if any.

# Risks Related to our Insurance Operations

We are subject to losses from catastrophic events.

Losses from natural and human-made catastrophes can negatively impact our financial results. Examples include, without limitation, hurricanes, tornadoes, windstorms, earthquakes, hail, severe convective storms, 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. Although we use sophisticated catastrophe modeling techniques to

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manage our catastrophe exposure, catastrophe models provide estimates, and actual exposure and loss experience may materially differ. For example, catastrophe models did not fully estimate the potential for some recent catastrophe loss activity (such as Hurricane Ida-related severe flooding in the Mid-Atlantic and Northeast in 2021 and Winter Storm Elliott freeze losses in December 2022) and the concurrent recent economic inflation on construction costs. Unmodeled or under-modeled catastrophe risks could result in understated catastrophe exposure, and our actual catastrophe losses could be higher.

Our insurance operations primarily write risks in the Eastern, Midwestern, and Southwestern regions of the U.S. Our most significant natural and/or human-made catastrophe exposures are (i) hurricanes impacting the Eastern U.S., (ii) severe convective storms, including hailstorms and tornadoes, (iii) winter storms, (iv) earthquakes, and (v) terrorism events. Single storms could adversely impact our financial results, but it is also possible that we could experience more than one severe catastrophic event in any given calendar year. We track our severe weather and catastrophe losses using definitions and information we obtain from ISO’s 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 adjustment 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. The United Nation’s Intergovernmental Panel on Climate Change (“IPCC”) is an international body responsible for assessing climate change science. In 2021, the IPCC estimated in its “Sixth Assessment Report: Physical Science Basis” that human activities (i) have caused approximately 1.1°C of global warming to date above pre-industrial levels and (ii) this could rise to an increase between 1.2°C and 3.0°C above pre-industrial levels between 2041 and 2060.

Climate change models also project significant differences in global regional warming above pre-industrial levels, depending on future levels of climate mitigation 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

### *Cybersecurity*

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.

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Beyond our cyber-specific policies, our other insurance policies provide some first- and third-party cyber coverages:

- We offer limited first-party affirmative cyber coverage in our commercial property and businessowners' policy forms. We limited our "silent cyber" exposure through an affirmative coverage grant subject to a sub-limit.
- Our base property forms typically include a coverage grant of $2,000 or $10,000. Most of our property policies also contain an affirmative endorsement providing "virus and harmful code" coverage subject to a sub-limit. 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, 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 specifically 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. However, any related potential exposures are subject to our casualty reinsurance program, which has no cyber-related loss exclusion.
- 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 is responsible for paying a significant deductible of specified losses before federal assistance is available. Our $480 million deductible is based on a percentage of our prior year's applicable Standard Commercial Lines and E&S Lines premiums. In 2023, 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, our deductible could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. If the U.S. Secretary of the Treasury does not certify specific terrorist events (as occurred with the 2013 Boston Marathon bombing and the 2015 San Bernardino shootings), 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 2022, 85% 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 detailed 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 comprehensive reserve review, which uses our own 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, continually evolving trends driven by the post-COVID-19 pandemic environment, judicial trends and tort decisions, and various state legislative

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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.

Two examples of how loss and loss expense reserves might be affected by economic, political, social, or legal developments or trends are:

- If inflation, including medical and social 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 2021. We, however, do not know how long elevated inflation will persist. Our 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 relatively less affected by recent rising inflation rates, these medical care costs could have a more material impact on our overall loss and loss expense reserves if they were to rise significantly or persist for an extended period. Our short-tail property lines of business are also susceptible to inflation because of their exposure to increased labor and material costs.
- 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 a re-evaluation of previously-established reserves or the creation of 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. Our coverage positions may be challenged through litigation or otherwise, so we face litigation risks. These are discussed further below in the Risk Factor entitled, "We are engaged in ordinary routine legal proceedings incidental to our insurance operations that, because litigation outcomes are inherently unpredictable, 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 contracts. These contracts provide reimbursement of losses exceeding specified amounts or percentages of premiums. Typically, our reinsurance coverages align with the coverages offered under our primary insurance policies.

The availability, quality, amount, and cost of reinsurance depend on market conditions, including retrocessional reinsurance market capacity. Most of our reinsurance contracts have annual terms. Consequently, reinsurance costs may fluctuate significantly, not necessarily correlating to the loss experience of our specific book of business. State insurance regulators generally permit us to consider catastrophe reinsurance expense in our filed rates and rating plans. However, the conditions and timing of regulatory approval may not align with the actual expense of new reinsurance terms. Disproportionate increases in our reinsurance expense that we cannot include in our filed rates and rating plans will reduce our earnings. If we are unable to negotiate desired reinsurance amounts or terms, we may experience (i) increased reinsurance expense, (ii) increased risk retention on individual or aggregate claim losses, and (iii) limitations on our ability to write future business.

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Commercial property and homeowners coverages have historically accounted for most of our catastrophe-related claims. To limit our exposure to catastrophe losses, we purchase catastrophe reinsurance. Our reinsurance coverage may prove to be inadequate, particularly if:

- We do not purchase sufficient amounts of reinsurance because of defects or inaccuracies in the various modeling software programs we use to analyze our Insurance Subsidiaries' risk;
- A major catastrophe loss exceeds (i) the purchased reinsurance limit or (ii) the financial capacity of one or more of our reinsurers even if the loss is within the purchased limit;
- The combination of multiple catastrophe events in a single year is such that our Insurance Subsidiaries' insured losses exceed the aggregate limits of the catastrophe reinsurance treaty or our Insurance Subsidiaries experience an unusually large number of catastrophe losses that fall below our per occurrence reinsurance retention;
- Our reinsurance counterparties (i) are unable to access their reinsurance markets, or retrocessions, (ii) suffer significant financial losses, (iii) are sold, (iv) cease writing reinsurance business, or (v) are unable or unwilling to satisfy their contractual obligations to us; or
- The catastrophe losses insured in our primary policies are excluded from coverage in our reinsurance contracts.

Recent economic, geopolitical, and insured loss events have increased global reinsurance market uncertainty. The impacts of (i) higher inflation-related reinsurance demand, (ii) reduced capacity due to reinsurer investment portfolio losses, (iii) weakened Euro-United States dollar currency exchange rates, (iv) recent Hurricane Ian-related reinsurer losses, (v) poor reinsurer profitability over the past six years, and (vi) investor and reinsurer concerns about the potential impacts of climate change have caused an increase in reinsurance prices and reduced the availability of reinsurance. How reinsurance supply and demand will adjust in the coming months and years is uncertain. To the extent we are exposed to primary policy losses from risks, such as cyber and communicable disease, now principally excluded from coverage under our reinsurance treaties, we face increased underwriting risk. Some of our reinsurance contracts also contain coverage wording that restricts our ability to cede potential losses related to terrorism, strikes, riots, or civil unrest. Increased underwriting risk could increase our net loss and loss expense, increasing our underwriting results volatility. Decreased reinsurance capacity also would increase our underwriting risk if we cannot fully place our existing reinsurance treaty coverage on renewal. If our reinsurers have difficulty collecting their retrocession programs or reinstating retrocession coverage after a large loss, our reinsurance claims may not be paid timely or in full.

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:

- 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, about which we do not always have the full details. 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. This means that we have direct and indirect counterparty credit risk to our reinsurers and the reinsurance industry, which is a global but concentrated market.
- Certain life insurance companies, if they fail to fulfill their contractual obligations to our policyholders or claimants under annuities we purchased as part of structured claims settlements.
- Some of our independent distribution partners, who collect premiums from policyholders for us.
- Some policyholders, who are directly obligated to us for premium and/or deductible payments, the timing of which may be impacted by mandated payment moratoriums.

Our exposure to credit risk could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

#### *We depend on distribution partners.*

We market and sell our insurance products through independent, non-employee distribution partners. Insurance law and regulation makes us responsible for our distribution partners' business practices and customer interactions. Independent distribution partners have - and we expect will continue to have - a significant role in overall insurance industry premium

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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 our independent distribution partners who have access to products from multiple carriers and markets.
- • Brand recognition challenges because we closely coordinate marketing with our distribution partners and some customers cannot 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 that emphasize digital ease and efficiencies to address the discrepancy in agency control of standard personal lines business. 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, as 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 are acquired by Aggregators, 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 39% of our DPW at December 31, 2022, up from 33% 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 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. Heightened economic inflation levels could also cause higher interest rates, likely increasing unrealized losses within our portfolio of fixed income securities and lowering total returns from our other invested assets. An economic downturn also could lead to increased credit and premium receivable risk, failure of reinsurance counterparties and other financial institutions, limitations on our ability to issue new debt, reduced liquidity, and declines in our investments' fair value and financial strength ratings. These potential events and other economic factors could adversely and materially affect our business, results of operations, financial condition, and growth. During 2022, 27% 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 or Ukraine. We do not have material exposure to investments subject to embargoes or Russian reinsurance counterparties. However, the ongoing Russian war against Ukraine is impacting global economic, banking, commodity, and financial markets, 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 could have a material adverse effect on our financial condition and results of operations.***

A significant financial strength rating downgrade, particularly from 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 AM Best or S&P rating. Credit rating downgrades could also make it more expensive to access capital markets. We cannot predict the rating actions NRSROs could take that might adversely affect our business or our potential responses. Any significant downgrade in our financial strength and credit ratings below an 'A-' could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. For additional information on our current financial strength and credit ratings, refer to 'Overview' in Item 1. 'Business.' of this Form 10-K.

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# ***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 consumer and business price sensitivity, aggressive price competition and improvements based on performance characteristics and large data sets that can compact underwriting margins, new products and services, evolving industry standards, and rapid adoption of technological advancements. Our ability to compete successfully 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 ROE 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, like The Progressive Corporation, are beginning to explore broader digital Internet offerings. New competitors with variations on traditional business models have emerged, such as Lemonade, Root, and Next. Because the Internet makes it easier and less expensive to bundle products and services, it also is possible that non-insurance companies conducting business on the Internet could enter the insurance business or form strategic alliances with insurers in the future. 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, and digital strategy in our industry also demands that we attract and retain employees in difficult-to-fill data science, advanced analytics, and IT roles - or suffer potential negative impacts.

# ***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 analyze and project our future costs as accurately or granularly. We supplement our data with industry loss experience from Verisk, AAIS, NCCI, 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 in financial and statistical models and their embedded assumptions could lead to increased 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. The increase in the frequency of land-falling hurricanes and tropical storms in the U.S. over the past five years could partly be climate change-related. 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 they are no substitute for senior management's experience or judgment.

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# **Risks Related to Our Investments Segment**

*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 and any ongoing post-COVID-19 pandemic impacts, (vi) political risk, (vii) sovereign risk, (viii) interest rate fluctuations, or (ix) other factors, including climate change risk and civil unrest.

Our investment portfolio's value is subject to credit risk from our held securities' issuers, guarantors, and financial guarantee insurers, and other counterparties in certain transactions. Defaults on any of our investments by any issuer, guarantor, financial guarantee insurer, or other counterparty could reduce our net investment income and increase net realized investment losses. We are subject to the risk that the issuers or guarantors of fixed income securities we own 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 society's transition to a low-carbon economy, driven by policy and regulations, low-carbon technology advances, and shifting public sentiment and societal preferences. 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 risks: oil and gas, coal, power, automotive, cement, aviation, and steel. As of December 31, 2022, carbon intensive sectors within our fixed income securities portfolio represented less than 4% of our total invested assets, down from 5% as of December 31, 2021.
- Physical investment risks include the risk of investment losses on our commercial and residential mortgage-backed securities that are 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, all potentially creating financial and credit market losses impacting insurer asset values. As of December 31, 2022, 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.

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 have securities tied to LIBOR, which will be eliminated on June 30, 2023.*

As of December 31, 2022, approximately 11% of our fixed income securities portfolio had floating rate securities primarily tied to 90-day U.S. dollar-denominated London Interbank Offered Rate ("LIBOR"). Historically, the global banking industry has used LIBOR as a primary metric to calculate interest rates for certain debt obligations, including personal and commercial loans, interest rate swaps, and other derivative products. In anticipation of LIBOR's elimination, the U.S. Federal Reserve established the Alternative Reference Rates Committee ("ARRC") to select a U.S. Dollar replacement index. The ARRC, comprised of a broad group of private-market participants, including banks, asset managers, insurers, and industry regulators, identified the Secured Overnight Financing Rate ("SOFR") as the LIBOR-replacement benchmark rate. SOFR is based on overnight repurchase agreement transactions backed by U.S. Treasury securities. The ARRC announced a paced transition plan for this new rate, including specific steps and timelines designed to encourage the adoption of SOFR. Effective June 30, 2023, LIBOR will cease to exist, requiring remaining floating rate securities to transition to SOFR. Consequently, our fixed income securities portfolio may be subject to (i) interest rate and prepayment risk associated with the resetting of our floating rate coupons from LIBOR to SOFR, (ii) potential rating agency downgrades, (iii) reduced trading liquidity on securities with

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insufficient fallback transition language, and (iv) lower returns associated with basis risk from a reference rate mismatch between liabilities and assets in certain securitized assets. We continue to monitor the potential impact LIBOR's elimination and the transition to SOFR will have on our floating rate investments' performance. We have and will continue to evaluate and monitor other LIBOR risks across the organization.

# ***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 in these limited partnership investments generally do not have quoted prices in active markets for the same or similar assets, so their valuation is subject to a higher level of subjectivity and unobservable inputs than substantially all of our other investments. Because we record these limited partnership investments under the equity method of accounting, any 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. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly, reflecting changes in credit losses. There can be no assurance that management has accurately assessed the level of credit losses recorded in our Financial Statements. For further information about our evaluation and considerations for determining whether a security has a credit loss, please refer to 'Critical Accounting Policies and Estimates' in Item 7. '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 adjustment expense reserves;
- • Exiting geographic markets and/or canceling or non-renewing policies;
- • ESG-related issues, including ESG investment mandates;
- • Climate change, including potential liability for related public disclosures;
- • Assessments for guaranty funds and second-injury funds, and other mandatory assigned risks and reinsurance;
- • The types, quality, and concentration of investments we make;
- • Minimum capital requirements for the Insurance Subsidiaries;
- • Dividends from our Insurance Subsidiaries to the Parent;
- • Privacy and data security;
- • Tax;
- • Antitrust;
- • Consumer protection;
- • Advertising;
- • Sales;
- • Billing and e-commerce;
- • Intellectual property ownership and infringement;
- • Digital platforms;
- • Internet, telecommunications, and mobile communications;
- • Media and digital content;
- • Availability of third-party software applications and services;
- • Labor and employment;
- • Anti-money laundering; and
- • Workplace environmental, health, and safety issues.

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 to customers.

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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.

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. In the fourth quarter of 2020, the NAIC's Group Capital Calculation Working Group adopted the basic structure of its new Group Capital Calculation and drafted model law changes that provide for its adoption as a state law requirement for U.S. insurance groups. Our New Jersey state insurance regulators adopted the GCC model law in 2022. Based on our 2022 statutory financial statements prepared in accordance with SAP, our GCC ratio exceeds the regulatory action minimum threshold. If the GCC requirements or our financial position changes, it could increase the amount of capital our Insurance Subsidiaries are required to hold.

We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations. However, we can provide no assurance that our employees, contractors, or independent distribution partners will not violate such laws and regulations or our policies and procedures. To some degree, we have multiple regulators whose authority may overlap and may have different interpretations and/or regulations related to the same legal issues. Consequently, we have the risk that one regulator's position or interpretation may conflict with another regulator on the same issue. The cost of complying with various, 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 examinations, investigations, or media scrutiny 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 obligations regarding data protection.*

We are subject to federal and state laws relating to the collection, use, retention, security, and transfer of 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 laws in this area, and other jurisdictions are considering imposing additional restrictions or creating new rights concerning PII. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. 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.

The EU adopted the General Data Protection Regulation ("GDPR") in 2016 but it did not become effective until 2018. GDPR regulates data protection and privacy in the EU and transfers of personal data outside the EU. GDPR's main tenet is to give individuals primary control over their personal data. Because we do not write coverages in the EU, GDPR does not directly impact us. Some U.S. states have subsequently incorporated individual-control mechanisms into state privacy laws. Future EU data privacy actions likely will influence U.S. regulators over time.

We make statements about our use and disclosure of PII in our privacy policy, on our website, and in other public venues. If we fail to comply with these public statements or federal and state privacy-related and data protection laws and regulations, we could be subject to litigation or governmental actions. 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:

- Defense of or indemnity for third-party suits brought against our insureds;
- Defense of actions brought against us by our insureds who disagree with our coverage decisions, some of which allege bad faith claims handling and seek extra-contractual damages, punitive damages, or other penalties;
- Actions we file, primarily for declaratory judgment, seeking confirmation that we have made appropriate coverage decisions under our insurance contracts;

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- Actions brought against competitors or us 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 behalf of our insureds.

From time to time, legal proceedings in which we are involved may receive media attention based on their perceived newsworthiness and/or relationship to various broad economic, political, social, and legal developments or trends. Such media stories could negatively impact our reputation.

We expect any potential ultimate liability for ordinary routine legal proceedings incidental to our insurance business will not be material to our consolidated financial condition after considering estimated loss provisions. Litigation outcomes, however, are inherently unpredictable, even with meritorious defenses. The time a case is in litigation also is unpredictable, as state court dockets are increasingly overcrowded. Generally, the longer a case is in litigation, the more expensive it can become. Because the amounts sought in certain actions are large or indeterminate, any adverse outcomes could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

Additionally, we do not have any material litigation risks related to climate change.

### **Risks Related to Our Corporate Structure and Governance**

***We are a holding company, and our ability to declare dividends to our shareholders, pay indebtedness, and enter into affiliate transactions may be limited because our Insurance Subsidiaries are regulated.***

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 stock and common stock, or repay our indebtedness.

Based on these restrictions, the maximum ordinary annual dividends the Insurance Subsidiaries can provide the Parent in 2023 is $283 million. Their ability to pay dividends or make loans or advances, however, is subject to domiciliary state insurance regulators' approval or review. 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 these interests may best be served by the Parent's continued independence; (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.

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These provisions of our Amended and Restated Certificate of Incorporation and New Jersey law could deprive our common shareholders of an opportunity to receive a premium over the prevailing market price in a hostile takeover and could adversely affect the value of our common stock.

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 from the Internet. Consequently, a malicious cyber-attack could affect us. Our systems also house proprietary and confidential information, including PII, about our operations, employees, agents, and customers and their employees and property. A malicious cyber-attack on (i) our systems, (ii) our distribution partners or their key operating systems, and (iii) any other of our third-party partners or vendors and their key operating systems may interrupt our ability to operate, damage our reputation and result in monetary damages that are difficult to quantify, and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

We have implemented systems and processes, through encryption and authentication technologies, intended to mitigate or secure our IT systems and prevent unauthorized access to, or loss of, sensitive data. As cyber-attacks continue to evolve daily, our security measures may not be sufficient for all eventualities. We may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management, or other irregularities. These risks may be higher or lower for our third-party providers depending on the maturity of their security program, and we review their control environments to the extent possible and practical, aligning the risk exposure with our business requirements and risk tolerances. Any disruption or breach of our systems or data security could damage our reputation, result in difficult to quantify monetary damages, 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 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 cyber-attack risk, 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. This may interrupt our ability to operate and negatively impact our results of operations, despite our business continuity plans.

#### ***Our long-term strategy to deploy operational leverage is dependent on the success of our risk management strategies, and their failure could have a material adverse effect on our financial condition or results of operations.***

As an insurer, we assume risk from our policyholders. Our long-term strategy includes using above-average operational leverage, measured as the ratio of NPW to our equity or 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 do this by using 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 losses greater than we expect. Given our higher-than-industry average operating leverage, an event or series of unanticipated events could have a more material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings compared to our industry.

## Item 1B. Unresolved Staff Comments.

None.

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## 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 and, if additional space is needed, should be available on reasonable terms.

## 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, 2022, 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

We had 2,872 common stockholders of record as of January 31, 2023, according to our transfer agent's records.

#### (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 future.

On November 2, 2022, the Board approved a 7% increase in our common stock dividend to $0.30 per share. In addition, on February 2, 2023, the Board declared a $0.30 per share quarterly cash dividend on common stock that is payable March 1, 2023, to stockholders of record as of February 15, 2023.

#### (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, 2022:

| Plan Category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) 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 | - | $ - | 5,142,946 |

$^{1}$Includes 1,116,863 shares available for issuance under our Employee Stock Purchase Plan (2021); 1,551,498 shares available for issuance under the Stock Purchase Plan for Independent Insurance Agencies; and 2,474,585 shares for issuance under the Selective Insurance Group, Inc. 2014 Omnibus Stock Plan ('Stock Plan'). Future grants under the Stock Plan can be made, among other things, as stock options, restricted stock units, or restricted stock.

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# (e) Performance Graph

The following chart, produced by Research Data Group, Inc., depicts our performance for the period beginning December 31, 2017, and ending December 31, 2022, 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.

![img-0.jpeg](img-0.jpeg)

We have not incorporated this performance graph into any other filings we have made with the SEC. Unless we otherwise specifically state, 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 2022:

| Period | Total Number of Shares Purchased 1 | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs 2 | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Announced Programs 2 |
| --- | --- | --- | --- | --- |
| October 1 - 31, 2022 | 686 | $91.01 | - | 84.2 |
| November 1 - 30, 2022 | 294 | 93.17 | - | 84.2 |
| December 1 - 31, 2022 | 1,894 | 91.25 | - | 84.2 |
| Total | 2,874 | $91.39 | - | $84.2 |

$^{1}$We purchased these shares from employees to satisfy tax withholding obligations associated with the vesting of their restricted stock units.

$^{2}$On December 2, 2020, we announced our Board authorized a $100 million share repurchase program with no set expiration or termination date. 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' as defined by the Private Securities Litigation Reform Act of 1995 ('PSLRA'). The PSLRA provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. These statements relate to our intentions, beliefs, projections, estimations, or forecasts

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of future events and financial performance. They involve known and unknown risks, uncertainties, and other factors that may cause our or industry actual results, activity levels, or performance to materially differ from those expressed or implied by the forward-looking statements. In some cases, forward-looking statements include the words “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “target,” “project,” “intend,” “believe,” “estimate,” “predict,” “potential,” “pro forma,” “seek,” “likely,” “continue,” or comparable terms. Our forward-looking statements are only predictions, and we can give no assurance that such expectations will prove correct. We undertake no obligation, other than as federal securities laws may require, to publicly update or revise any forward-looking statements for any reason.

Factors that could cause our actual results to differ materially from what we project, forecast, or estimate in forward-looking statements are discussed in further detail 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 can neither predict these new risk factors nor assess their impact, if any, on our businesses or the extent any factor or 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 in this report might not occur.

## **Introduction**

We classify our business into four reportable segments:

- Standard Commercial Lines;
- Standard Personal Lines;
- Excess and Surplus Lines (“E&S Lines”); and
- Investments.

For more details about these segments, refer to Note 1. “Organization” and Note 12. “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, 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 the consolidated results of operations and financial condition, as well as known trends and uncertainties, that may have a material impact in future periods. The MD&A discusses and analyzes our 2022 results compared to 2021. 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 2021 results compared to 2020, 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, 2021.

In the MD&A, we discuss and analyze the following:

- Critical Accounting Policies and Estimates;
- Financial Highlights of Results for Years Ended December 31, 2022, 2021, and 2020;
- 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 the understanding of our results of operations. The policies and estimates we considered most critical to the preparation of the Financial Statements involved (i) reserves for loss and loss expense, (ii) investment valuation and the allowance for credit losses on available-for-sale (“AFS”) fixed income securities, and (iii) reinsurance.

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### Reserves for Loss and Loss Expense

Significant time can elapse between the occurrence of an insured loss, the reporting of the claim to us, and the final settlement and payment of the claim. To recognize liabilities for unpaid loss and loss expense, insurers establish reserves as balance sheet liabilities. 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, 2022 and 2021:

As of December 31, 2022

| ($ in thousands) | Loss and Loss Expense Reserves |  |  | Reinsurance Recoverable on Unpaid Loss and Loss Expense | Net Reserves |
| --- | --- | --- | --- | --- | --- |
|  | Case Reserves | IBNR Reserves | Total |  |  |
| General liability | $358,967 | 1,624,148 | 1,983,115 | 246,736 | 1,736,379 |
| Workers compensation | 347,992 | 694,777 | 1,042,769 | 199,057 | 843,712 |
| Commercial automobile | 299,444 | 578,283 | 877,727 | 14,271 | 863,456 |
| Businessowners' policies | 43,456 | 89,429 | 132,885 | 19,277 | 113,608 |
| Commercial property | 81,377 | 133,523 | 214,900 | 81,970 | 132,930 |
| Other | 11,030 | 12,576 | 23,606 | 4,443 | 19,163 |
| Total Standard Commercial Lines | 1,142,266 | 3,132,736 | 4,275,002 | 565,754 | 3,709,248 |
| Personal automobile | 61,499 | 79,060 | 140,559 | 36,529 | 104,030 |
| Homeowners | 13,237 | 42,051 | 55,288 | 7,124 | 48,164 |
| Other 1 | 111,355 | 33,100 | 144,455 | 132,525 | 11,930 |
| Total Standard Personal Lines | 186,091 | 154,211 | 340,302 | 176,178 | 164,124 |
| E&S casualty lines 2 | 88,965 | 416,299 | 505,264 | 11,397 | 493,867 |
| E&S property lines 3 | 9,303 | 14,950 | 24,253 | 4,184 | 20,069 |
| Total E&S Lines | 98,268 | 431,249 | 529,517 | 15,581 | 513,936 |
| Total | $1,426,625 | 3,718,196 | 5,144,821 | 757,513 | 4,387,308 |

$^{1}$Includes our flood loss exposure related to our participation in the NFIP's WYO program, to which we cede 100% of our flood losses.

$^{2}$Includes general liability (96% of net reserves) and commercial auto liability coverages (4% of net reserves).

$^{3}$Includes commercial property (90% of net reserves) and commercial auto property coverages (10% of net reserves).

December 31, 2021

| ($ in thousands) | Loss and Loss Expense Reserves |  |  | Reinsurance Recoverable on Unpaid Loss and Loss Expense | Net Reserves |
| --- | --- | --- | --- | --- | --- |
|  | Case Reserves | IBNR Reserves | Total |  |  |
| General liability | $345,996 | 1,427,326 | 1,773,322 | 213,253 | 1,560,069 |
| Workers compensation | 351,705 | 700,304 | 1,052,009 | 196,670 | 855,339 |
| Commercial automobile | 271,729 | 476,176 | 747,905 | 15,480 | 732,425 |
| Businessowners' policies | 41,603 | 67,786 | 109,389 | 6,828 | 102,561 |
| Commercial property | 76,406 | 46,975 | 123,381 | 22,277 | 101,104 |
| Other | 3,671 | 22,474 | 26,145 | 2,136 | 24,009 |
| Total Standard Commercial Lines | 1,091,110 | 2,741,041 | 3,832,151 | 456,644 | 3,375,507 |
| Personal automobile | 60,871 | 82,468 | 143,339 | 40,941 | 102,398 |
| Homeowners | 13,709 | 35,602 | 49,311 | 2,392 | 46,919 |
| Other 1 | 44,301 | 33,115 | 77,416 | 64,975 | 12,441 |
| Total Standard Personal Lines | 118,881 | 151,185 | 270,066 | 108,308 | 161,758 |
| E&S casualty lines 2 | 94,839 | 361,875 | 456,714 | 11,672 | 445,042 |
| E&S property lines 3 | 9,080 | 12,892 | 21,972 | 2,017 | 19,955 |
| E&S Lines | 103,919 | 374,767 | 478,686 | 13,689 | 464,997 |
| Total | $1,313,910 | 3,266,993 | 4,580,903 | 578,641 | 4,002,262 |

$^{1}$Includes our flood loss exposure relates to our participation in the NFIP's WYO program, to which we cede 100% of our flood losses.

$^{2}$Includes general liability (95% of net reserves) and commercial auto liability coverages (5% of net reserves).

$^{3}$Includes commercial property (91% of net reserves) and commercial auto property coverages (9% of net reserves).

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The Insurance Subsidiaries' net loss and loss expense reserves duration was approximately 3.1 years at December 31, 2022, down from 3.5 years at December 31, 2021.

### *How reserves are established*

Reserves for loss and loss expense include case reserves on reported claims and IBNR reserves. Case reserves are estimated on each individual claim based on claim-specific 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 they 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.

Our thorough reserving process relies on quarterly internal reserve reviews, based on our own loss experience, with consideration given to various internal and external factors. Changes in claim dynamics may inherently change paid and reported development patterns. While the selections in our reserve analyses aim to account for these impacts, there remains an increased risk of variability in the estimated reserves. In addition to our internal reserve reviews, we have an external consulting actuary perform an independent review of our reserves semi-annually. We do not rely on the external consulting actuary's report to determine our recorded reserves; however, we review and discuss with the consulting actuary our respective observations regarding trends, key assumptions, and actuarial methodologies. 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 reserves 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 $3,920 million to $4,662 million at December 31, 2022. This range reflects low and high reasonable reserve estimates determined by judgmentally adjusting the methods, factors, and assumptions selected within the internal reserve review. This approach produces a range of reasonable reserve estimates, and does not represent a distribution of all possible outcomes. Therefore, the final outcomes may be greater than or less than these amounts.

The range of reasonable reserve estimates increased as of December 31, 2022, relative to December 31, 2021. This increase primarily relates to the growth in reserves commensurate with our growth in net premiums earned ('NPE').

### *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 2022, we experienced net favorable prior year loss development of $78.9 million, compared to $82.9 million in 2021 and $72.9 million in 2020. The following table summarizes prior year development by line of business:

| (Favorable)/Unfavorable Prior Year Loss and Loss Expense Development |  |  |  |
| --- | --- | --- | --- |
| ($ in millions) | 2022 | 2021 | 2020 |
| General liability | $(5.0) | (29.0) | (35.0) |
| Commercial automobile | 22.5 | 13.3 | 7.1 |
| Workers compensation | (70.0) | (58.0) | (60.0) |
| Businessowners' policies | (7.3) | (0.4) | 3.9 |
| Commercial property | (1.6) | (2.6) | 9.2 |
| Bonds | (10.0) | - | - |
| Homeowners | (0.6) | 1.8 | 7.7 |
| Personal automobile | 0.5 | (0.2) | (1.8) |
| E&S casualty lines | (5.0) | (7.0) | - |
| E&S property lines | (2.5) | (0.8) | (4.0) |
| Other | 0.1 | - | - |
| Total | $(78.9) | (82.9) | (72.9) |

A detailed discussion of recent reserve development by line of business follows.

### *Standard Market General Liability Line of Business*

At December 31, 2022, our general liability line of business had recorded reserves, net of reinsurance, of $1.7 billion, representing 40% of our total net reserves. In 2022, this line experienced favorable development of $5.0 million, attributable to favorable inception-to-date claim frequencies in accident years 2020 and 2021. In 2021, this line experienced favorable development of $29.0 million, attributable to improved loss severities in accident years 2018 and prior.

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By its nature, general liability presents a diverse set of exposures. Losses and loss trends are influenced by various factors, 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 the frequency and severity of claims by affecting (i) the propensity for a claimant to file a claim, (ii) the percentage of claimants who engage lawyers, and (iii) the nature of judicial verdicts and amount of the associated awards, which influence settlement values going forward. We monitor claim litigation rates regularly and have observed modest increases in the percentage of claims with attorney involvement in recent periods. This trend and the impact of previous court closures are affecting the time to settle claims.

We have exposure to abuse or molestation claims, mainly through insurance 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 customers within our CAPS business unit represented approximately 10% of our total Standard Commercial Lines NPW in both 2022 and 2021. Through 2017, our exposure to abuse or molestation risk increased, reflective of our CAPS book's growth. In 2018, we implemented more stringent underwriting eligibility guidelines and partnered with a third party to better assess exposure and enhance loss control measures. In 2019, we filed and approved significant rate increases for this exposure. We continue to monitor each jurisdiction's statute of limitations to ensure our rate level accounts for the changing exposure as best we reasonably can. While these underwriting and pricing actions have been necessary to ensure the profitability of the portfolio going forward, they have limited our CAPS growth in recent years.

We also have exposure to abuse or molestation claims from recently enacted state laws that extend the statute of limitations or permit windows for abuse or molestation claims and lawsuits to be filed that statutes of limitations previously barred. Consequently, we may receive claims decades after the alleged acts occurred that will involve complex claims coverage determinations, potential litigation, higher defense costs, and potentially 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. While this should help us better understand this rapidly evolving exposure, the ultimate impact of social, political, and legal trends remains highly uncertain, and may significantly impact the ultimate settlement values for these claims.

#### Standard Market Workers Compensation Line of Business

At December 31, 2022, our workers compensation line of business had recorded reserves, net of reinsurance, of $844 million, representing 19% of our total net reserves. During 2022, this line experienced favorable reserve development of $70.0 million, due to favorable inception-to-date claim frequencies in accident year 2020, and improved loss severities in accident years 2020 and prior. Similarly, this line experienced favorable reserve development during 2021 of $58.0 million, driven by accident years 2019 and prior. During both 2022 and 2021, the lower loss emergence than expected was partly due to: (i) medical inflation that was lower than originally anticipated; and (ii) various claims initiatives we have implemented. 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, such as:

*Unexpected changes in medical cost inflation* - The industry is currently experiencing a period of lower medical claim cost inflation. However, alongside elevated inflation as measured by the Consumer Price Index, medical costs are also beginning to rise, though to a lesser degree. Changes in our historical workers compensation medical costs, along with potential changes in future medical inflation, can create additional variability in our reserves;

*Changes in statutory workers compensation benefits* - Benefit changes may be enacted that affect all outstanding claims, including claims that have occurred in the past, but have not yet been settled. Depending on the social and political climate, these changes may either increase or decrease associated claim costs;

*Changes in utilization of the workers compensation system* - These changes may be driven by economic, legislative, or other changes, such as increased pharmaceutical prescriptions, 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, 2022, our commercial automobile line of business had recorded reserves, net of reinsurance, of $863 million, which represented 20% of our total net reserves. In 2022, this line experienced unfavorable prior year reserve development of $22.5 million, driven by increased severities in the 2021 accident year. In 2021, this line experienced unfavorable prior year reserve development of $13.3 million, driven by higher loss severities in accident years 2016 through 2019.

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For both us and the industry, the commercial automobile line has experienced unfavorable trends in recent years. Pre-pandemic, increased frequencies were likely due to increased miles driven related to lower unemployment, poor road quality, and an increase in distracted driving. The pandemic and the governmental "stay-at-home" orders issued in early 2020 dramatically reduced miles driven and road traffic, significantly reducing claims frequency in 2020. At the same time, along with industry reporting of dramatic increases in risky driving behaviors, such as speeding, distracted driving, and driving while under the influence, traffic deaths per mile driven increased significantly. As miles driven increased in 2021 and 2022, fatality rates per mile driven have somewhat tempered, but remain well above pre-pandemic levels. This, along with the impacts of social inflation, continue to put pressure on claim severities in this line. As of the end of 2022, frequencies remained somewhat below pre-pandemic levels due to shifts in commuting patterns and fewer low-speed crashes.

Increasing property damage and physical damage severities relate to (i) elevated repair costs for increasingly complex vehicles that incorporate more technology, (ii) longer periods of rental reimbursement costs for claims, and (iii) recent inflationary impacts and disruptions to the supply chain. Continued complications in the supply chain, including labor shortages, increase the risk of longer-term elevated economic inflation.

Over the last several years, we have taken actions to improve the profitability of this line of business, including:

- Taking meaningful rate and underwriting actions on our renewal portfolio. We continue to leverage our predictive modeling and analytical capabilities that provide guidance and automatic retrieval of relevant public information on existing and potential policyholders to provide more granular insights about where we should focus our actions.
- Reducing premium leakage by improving the quality of our rating information, including validating application information with third-party data and obtaining more detailed vehicle usage information.
- Aggressively managing new business pricing and hazard mix while deploying co-underwriting by our regional underwriters and corporate underwriting teams' subject matter experts for selected higher hazard classes to improve risk-driver recognition and exposure-based pricing.

# Standard Market Personal Automobile Line of Business

At December 31, 2022, our personal automobile line of business had recorded reserves, net of reinsurance, of $104 million, which represented 2% of our total net reserves. In 2022, this line experienced unfavorable prior year reserve development of $0.5 million. In 2021, this line experienced favorable prior year reserve development of $0.2 million.

Some of the same issues affecting the commercial automobile line are affecting this line. The COVID-19-related reduction in frequencies was even more pronounced than in the commercial automobile line. As with the commercial automobile line, these frequencies significantly rebounded in 2021 and 2022, yet remain less than pre-pandemic levels. This line has a similar potential for increasing average severities like the commercial automobile line. In addition to the COVID-19-related temporary impacts, the underlying trends of increased vehicle repair costs and poor road quality are likely causes of rising severities, exacerbated by riskier driving behaviors, including distracted driving trends. We continue to recalibrate our predictive models and refine our underwriting and pricing approaches. 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, thereby increasing the uncertainty in the reserves in the near term.

# E&S Casualty Lines of Business

At December 31, 2022, our E&S casualty lines of business had recorded reserves, net of reinsurance, of $494 million, representing 11% of our total net reserves. Our E&S casualty lines results have improved over recent years. In 2022, this line experienced favorable prior year reserve development of $5.0 million, primarily attributable to favorable inception-to-date claim frequencies and lower loss severities in accident years 2020 and 2021. In 2021, this line experienced favorable prior year reserve development of $7.0 million, primarily attributable to lower loss severities in accident years 2016 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 trends, such as increased attorney involvement.

The E&S casualty lines also are impacted by operational changes we have made to improve the portfolio's performance. Prior to 2022, our underwriting operations have substantially exited several targeted business classes that have historically produced volatile results, including commercial automobile liability, liquor liability, and snow removal. In addition, we have shifted more of our sales towards middle market business without materially increasing the overall risk profile of the portfolio.

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Recent E&S casualty claims actions have created further casualty improvements:

- We created a dedicated E&S claims team in our corporate claims function, bringing greater expertise and consistency to E&S claims handling.
- We segregated “litigated,” “non-litigated,” and "high exposure" claims, with separate specialized teams for each.
- We implemented the following operational and expense improvement initiatives for legal counsel:
  - Increased the use of staff counsel, increasing legal staff in their assigned territories to support claims volume;
  - Heightened focus on legal budgeting and expense management; and
  - Implemented a panel counsel review process.

While we believe these underwriting and claims operational changes improved our underwriting experience, there is risk associated with these changes. Most notably, changes in portfolio composition or our claims processes may inherently change paid and reported development patterns. While our reserve analyses incorporate methods that adjust for these changes, there remains a greater risk of fluctuation in the estimated reserves.

*Other impacts creating additional loss and loss expense reserve uncertainty*

*Claims Initiative Impacts*

Consistent with our strategic imperative to optimize operational effectiveness and efficiency, our Claims Department continually identifies areas for improvement and efficiency to increase our value proposition to policyholders. These improvements may lead to claims practice changes that affect average case reserve levels and claims settlement rates, which directly impact the data used to project ultimate loss and loss expense. While these changes may increase uncertainty in our estimates in the short term, we expect refined management of the claims process to be the longer-term benefit.

Our internal reserve analyses incorporate certain 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. These methods, like all projection methods, have their own associated assumptions and judgments. Therefore, no single method can be interpreted as definitive.

*Unanticipated Changes in Inflation*

United States ("U.S.") monetary policy and global economic conditions bring additional uncertainty related to inflationary trends. 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. Therefore, 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 to be 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, changes in our reserve estimates are possible that may be material to the results of operations in future periods. Below are sensitivity tests highlighting potential impacts to loss and loss expense reserves for the major casualty lines of business under different scenarios. These tests consider each assumption and line of business individually, without any consideration of correlation between lines of business and accident years. Therefore, the results do not constitute an actuarial range. While the figures represent possible impacts from variations in certain key assumptions, there is no assurance that future loss and loss expense emergence will be consistent with either our current or alternative sets of assumptions.

While the sources of reserve variability are generated by different internal and external trends and operational changes, they ultimately manifest themselves as changes in the expected loss and loss expense development patterns. These patterns are a key assumption in the reserving process. In addition, the current accident year expected loss and loss expense ratios are a key assumption. These ratios are developed through a rigorous process of projecting recent accident years' experience to an ultimate settlement basis. Then they are adjusted to the current accident year's pricing and loss cost levels. The impact from underwriting portfolio and claims handling practice changes are also quantified and reflected where appropriate. As with all estimates, the ultimate loss and loss expense ratios may differ from those currently estimated.

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The sensitivities of loss and loss expense reserves to these key assumptions are illustrated below 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 from 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 | 10% | $(180) | $180 |
| Workers compensation | 18 | (105) | 105 |
| Commercial automobile liability | 15 | (115) | 115 |
| Personal automobile liability | 15 | (10) | 10 |
| E&S casualty lines | 10 | (50) | 50 |

#### 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 Ratio | Increase to Current Accident Year Expected Loss and Loss Expense Ratio |
| --- | --- | --- | --- |
| General liability | 10 pts | $(90) | $90 |
| Workers compensation | 10 | (35) | 35 |
| Commercial automobile liability | 10 | (60) | 60 |
| Personal automobile liability | 10 | (10) | 10 |
| E&S casualty lines | 10 | (25) | 25 |

Note that there is some overlap between the impacts in the two 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. Our reserves could increase or decrease significantly from what the tables above reflect.

#### Asbestos and Environmental Reserves

Our general liability, excess 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 $20.3 million as of December 31, 2022 and $21.1 million as of December 31, 2021, with asbestos claims constituting approximately 23% of these reserves in both years.

Environmental claims have arisen primarily from insured landfill exposures in municipal government and small non-manufacturing commercial risk, as well as leaking underground storage tanks within our homeowners policies. Asbestos claims have arisen primarily from policies issued to various distributors of asbestos-containing products, such as electrical and plumbing materials. We handle our asbestos and environmental claims in a centralized and specialized asbestos and environmental claim unit. That unit establishes case reserves on individual claims based on the facts and circumstances known at a given point in time, which are supplemented by IBNR reserves.

Estimating IBNR reserves for asbestos and environmental claims is difficult because these claims have delayed and inconsistent reporting patterns. In addition, there are significant uncertainties 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. Limiting our exposure to asbestos and environmental claims are (i) the fuel oil system exclusion on our New Jersey homeowners policies that we introduced in 2007, and (ii) the Insurance Services Office, Inc.'s Total Pollution Exclusion that was introduced in the mid-1980s. Prior to the mid-1980s, we primarily wrote Standard Personal Lines, which has also limited our exposure to asbestos and environmental claims.

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### *Other Latent Exposures*

We also have other latent and continuous trigger exposures in our ongoing portfolio. Examples include claims for construction defect and abuse or molestation, for which states have increased and expanded the statute of limitations. We manage our exposure to these liabilities through our underwriting and claims practices, and a dedicated claims unit, similar to our handling of asbestos and environmental claims. The impact of social, political, and legal trends on these claims remains highly uncertain, so our related loss and loss expense reserves remain highly uncertain. These exposures remain in our ongoing portfolio, and as such, are reserved in aggregate, with other exposures within the line of business reserves.

### **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 the 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 93% 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 7% 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 within Item 8. 'Financial Statements and Supplementary Data.' of this Form 10-K: (i) item (d) of Note 2. 'Summary of Significant Accounting Policies' regarding 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 additional 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.

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 changes in the economy. The models contain forecasted economic data from 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. In developing our best estimate of the allowance for credit losses, we consider our outlook as to the probability of the various scenarios occurring.

Based on these analyses, we recorded an allowance for credit losses of $45.7 million in 2022, and $9.7 million in 2021, on our AFS fixed income securities portfolio. After considering the allowance for credit losses, the remaining unrealized losses on this portfolio were $537.2 million in 2022 and $17.4 million in 2021. The increase in 2022 compared to 2021 was driven by an increase in benchmark U.S. Treasury rates and a widening of credit spreads, with the increase in interest rates having the most significant impact. If the security-specific and macroeconomic assumptions in our DCF analyses or our outlook as to 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.

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## 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 that 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 reinsured 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 own 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. Our reinsurer's credit quality is also impacted by other factors, such as their reserve adequacy, investment portfolio, regulatory capital position, catastrophe aggregations, and risk management expertise. In addition, contractual language interpretations and willingness to pay valid claims can impact our allowance for estimated uncollectible reinsurance. Our allowance for estimated uncollectible reinsurance was $1.6 million at both December 31, 2022, and December 31, 2021. 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, 2022, 2021, and 2020$^{1}$

| ($ in thousands, except per share amounts) | 2022 | 2021 | 2022 vs. 2021 | 2020 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- |
| Financial Data: |  |  |  |  |  |
| Revenues | $3,558,062 | 3,379,164 | 5% | $2,922,274 | 16% |
| After-tax net investment income | 232,199 | 263,000 | (12) | 184,612 | 42 |
| After-tax underwriting income | 131,774 | 172,688 | (24) | 107,716 | 60 |
| Net income before federal income tax | 280,186 | 505,310 | (45) | 302,988 | 67 |
| Net income | 224,886 | 403,837 | (44) | 246,355 | 64 |
| Net income available to common stockholders | 215,686 | 394,484 | (45) | 246,355 | 60 |
| Key Metrics: |  |  |  |  |  |
| Combined ratio | 95.1% | 92.8 | 2.3 pts | 94.9% | (2.1) pts |
| Invested assets per dollar of common stockholders' equity | $3.37 | 2.88 | 17% | $2.96 | (3) % |
| Total return on investments | 2.9% | 3.4 | (0.5) pts | 2.6% | 0.8 pts |
| Return on average common equity ('ROE') | 8.8 | 14.8 | (6.0) | 10.4 | 4.4 |
| Net premiums written to statutory surplus ratio | 1.44 x | 1.33 | 0.11 | 1.30 | 0.03 |
| Per Common Share Amounts: |  |  |  |  |  |
| Diluted net income per share | $3.54 | 6.50 | (46) % | $4.09 | 59% |
| Book value per share | 38.57 | 46.24 | (17) | 42.38 | 9 |
| Dividends declared per share to common stockholders | 1.14 | 1.03 | 11 | 0.94 | 10 |
| Non-GAAP Information: |  |  |  |  |  |
| Non-GAAP operating income 2 | $306,384 | 380,580 | (19) % | $249,686 | 52% |
| Non-GAAP operating income per diluted common share 2 | 5.03 | 6.27 | (20) | 4.15 | 51 |
| Non-GAAP operating ROE 2 | 12.4% | 14.3 | (1.9) pts | 10.5% | 3.8 pts |
| Adjusted book value per common share 2 | $45.49 | 43.23 | 5% | $37.29 | 16% |

$^{1}$Refer to the Glossary of Terms attached to this Form 10-K as Exhibit 99.1 for definitions of terms used in this financial review.

$^{2}$Non-GAAP operating income, non-GAAP operating income per diluted common share, and non-GAAP operating ROE are measures comparable to net income available to common stockholders, net income available to common stockholders per diluted common share, and ROE, respectively, but exclude after-tax net realized and unrealized gains and losses on investments included in net income. Adjusted book value per common share is a measure comparable to book value per common share, but excludes total after-tax unrealized gains and losses on investments included in accumulated other comprehensive (loss) income. 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.

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Reconciliations of our GAAP to non-GAAP measures are provided in the tables below:

| Reconciliation of net income available to common stockholders to non-GAAP operating income |  |  |  |
| --- | --- | --- | --- |
| ($ in thousands) | 2022 | 2021 | 2020 |
| Net income available to common stockholders | $215,686 | 394,484 | 246,355 |
| Net realized and unrealized investment losses (gains) included in net income, before tax | 114,808 | (17,599) | 4,217 |
| Tax on reconciling items | (24,110) | 3,695 | (886) |
| Non-GAAP operating income | $306,384 | 380,580 | 249,686 |
| Reconciliation of net income available to common stockholders per diluted common share to non-GAAP operating income per diluted common share |  |  |  |
|  | 2022 | 2021 | 2020 |
| Net income available to common stockholders per diluted common share | $3.54 | 6.50 | 4.09 |
| Net realized and unrealized investment losses (gains) included in net income, before tax | 1.89 | (0.29) | 0.07 |
| Tax on reconciling items | (0.40) | 0.06 | (0.01) |
| Non-GAAP operating income per diluted common share | $5.03 | 6.27 | 4.15 |
| Reconciliation of ROE to non-GAAP operating ROE |  |  |  |
|  | 2022 | 2021 | 2020 |
| ROE | 8.8% | 14.8 | 10.4 |
| Net realized and unrealized investment losses (gains) included in net income, before tax | 4.7 | (0.7) | 0.2 |
| Tax on reconciling items | (1.1) | 0.2 | (0.1) |
| Non-GAAP operating ROE | 12.4% | 14.3 | 10.5 |
| Reconciliation of book value per common share to adjusted book value per common share |  |  |  |
|  | 2022 | 2021 | 2020 |
| Book value per common share | 38.57 | 46.24 | 42.38 |
| Total unrealized investment losses (gains) included in accumulated other comprehensive (loss) income, before tax | 8.75 | (3.80) | (6.45) |
| Tax on reconciling items | (1.83) | 0.79 | 1.36 |
| Adjusted book value per common share | $45.49 | 43.23 | 37.29 |

The components of our ROE and non-GAAP operating ROE are as follows:

| ROE Components | 2022 |  | 2021 |  | 2020 |  | 2021 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  | vs. 2021 |  |  |  | vs. 2020 |
| Standard Commercial Lines segment | 4.6 | % | 5.9 | (1.3) pts | 5.1 | 0.8 | pts |  |
| Standard Personal Lines segment | (0.2) |  | 0.1 | (0.3) | (0.5) | 0.6 |  |  |
| E&S Lines segment | 1.0 |  | 0.5 | 0.5 | - | 0.5 |  |  |
| Total insurance operations | 5.4 |  | 6.5 | (1.1) | 4.6 | 1.9 |  |  |
| Net investment income | 9.4 |  | 9.9 | (0.5) | 7.8 | 2.1 |  |  |
| Net realized and unrealized investment (losses) gains | (3.6) |  | 0.5 | (4.1) | (0.1) | 0.6 |  |  |
| Total investments segment | 5.8 |  | 10.4 | (4.6) | 7.7 | 2.7 |  |  |
| Other | (2.4) |  | (2.1) | (0.3) | (1.9) | (0.2) |  |  |
| ROE | 8.8 |  | 14.8 | (6.0) | 10.4 | 4.4 |  |  |
| Net realized and unrealized investment losses (gains), after tax | 3.6 |  | (0.5) | 4.1 | 0.1 | (0.6) |  |  |
| Non-GAAP operating ROE | 12.4% |  | 14.3 | (1.9) | 10.5 | 3.8 |  |  |

In 2022, we generated our ninth consecutive year of double-digit non-GAAP operating ROEs, with a 12.4% non-GAAP operating ROE, which was above our full-year 2022 target of 11%, but below our 2021 non-GAAP operating ROE of 14.3%. This was a significant achievement in a year with elevated net catastrophe losses, capital market volatility, and higher loss cost trends driven by elevated inflation, among other factors. Our results reflect the success of our underwriting discipline and profitable growth strategies.

The 1.9-point decrease in non-GAAP operating ROE in 2022 compared to 2021 was primarily driven by a reduction in after-tax underwriting and investment income. After-tax underwriting income decreased $40.9 million, or 1.1 ROE points, in 2022 compared to 2021, primarily from increased non-catastrophe property loss and loss expenses. The higher non-catastrophe property loss and loss expenses were mainly due to the higher inflationary environment that resulted in an increase in the cost

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of materials and labor associated with repairs.

While net catastrophe losses were down slightly in 2022 compared to 2021, these losses included a significant impact from Winter Storm Elliott. This storm, which occurred in late-December 2022, impacted 37 states, 26 of which are in our Standard Commercial Lines footprint. We recorded $135.0 million of gross losses, or $46.1 million net of reinsurance. In addition, we incurred $11.7 million in reinstatement premium, resulting in a total impact of $57.8 million, pre-tax, or 1.9 ROE points and $0.75 per diluted common share.

After-tax net investment income decreased $30.8 million, or 0.5 ROE points, in 2022 compared to 2021, from lower after-tax alternative investment income in 2022. Partially offsetting this decrease was an increase in income earned on fixed income securities, which benefited from higher new purchase yields in 2022 as a result of the rapid rise in benchmark U.S. Treasury rates and slightly wider credit spreads.

In addition, our ROE was reduced by the impact of net realized and unrealized investment gains and losses, which was 3.6 ROE points in 2022. Net realized and unrealized investment losses in 2022 compared to net realized and unrealized investment gains in 2021 drove the reduction in our ROE. The increase in net realized and unrealized losses resulted from (i) a decrease in valuations reflecting the current public equities market, (ii) active trading of our fixed income securities to increase the book yield of our fixed income portfolio due to increasing new purchase yields, resulting in realized losses, and (iii) higher credit loss expense on our AFS fixed income securities portfolio.

### Outlook

For 2023, we established a non-GAAP operating ROE target of 12%. Our 2023 target is based on (i) our current estimated weighted average cost of capital ("WACC"), (ii) an approximate 400 basis point spread over our estimated WACC, (iii) the current interest rate environment, and (iv) property and casualty insurance market conditions. Our 2023 12% non-GAAP operating ROE target sets a high bar for our financial performance, challenges us to perform at our best, and aligns our incentive compensation structure with shareholder interests.

In 2022, the elevated level of economic inflation, the significant increase in interest rates, and predictions of a recession in the near term, which led to a widening of credit spreads, have all contributed to lower investment valuations and significant financial market volatility. The higher interest rates, and to a lesser extent the widening of credit spreads, have reduced the fair value of our fixed income securities, which in turn has negatively impacted our stockholders' equity, which was down 15% in 2022. The higher economic inflation has also negatively impacted our property loss and loss expenses through increased severities in our short-tail property lines, which has reduced our underwriting income. Should these trends continue, and in the absence of taking enough rate and other underwriting actions, our underwriting profitability could be negatively impacted in the near term. We will continue to focus on underwriting improvements, proper insurance-to-value on our property exposures, and achieving written renewal pure price increases that meet or exceed expected loss trend. In 2022, we achieved Standard Commercial Lines renewal pure price increases of 5.4% and exposure growth of 4.0%. These rates were up from 2021, which experienced renewal pure price increases of 5.3% and exposure growth of 2.6%.

While higher interest rates, wider credit spreads, and financial market volatility have negatively impacted our investment valuations and certain key financial metrics, such as stockholders' equity and book value per common share, they have also provided us with the opportunity to invest our cash flows at significantly higher new purchase yields. Our pre-tax new purchase yields for fixed income securities averaged 4.5% in 2022, compared to 2.3% in 2021. The portfolio's net investment income also benefited from our 11% allocation to floating rate fixed income securities, which are primarily tied to 90-day U.S. dollar-denominated London Interbank Offered Rate ("LIBOR"). The 90-day LIBOR increased to 4.77% at December 31, 2022 from 0.21% at December 31, 2021. These floating securities have reset quarterly at higher rates, which combined with our higher new purchase yields for fixed income securities, contributed to higher net investment income from our fixed income securities. Partially offsetting the increase in net investment income from fixed income securities were lower returns from our allocation to alternative investments. We expect these dynamics to continue in 2023, and as such, are factored into our full-year 2023 after-tax net investment income expectations, as discussed below.

Our focus in 2023 will continue to be on several other foundational areas to position us for ongoing success:

- Delivering on our strategy for continued disciplined and profitable growth by:
  - Continuing to expand our Standard Commercial Lines market share by (i) increasing our share towards our 12% target of our agents' premiums, (ii) strategically appointing new agents, and (iii) maximizing new business growth in the small business market through the utilization of our enhanced small business platform;
  - Expanding our geographic footprint. In June 2022, we began writing Standard Commercial Lines business in Vermont. In October 2022, we began writing Standard Commercial Lines business in Alabama and Idaho.

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- We plan to expand our Standard Commercial Lines footprint into other states over time;
- Increasing customer retention by delivering a superior omnichannel experience and offering value-added technologies and services;
- Shifting our Standard Personal Lines products and services towards customers in the mass affluent market, where we believe we can be more competitive with the strong coverage and servicing capabilities that we offer; and
- Deploying our new underwriting platform in our E&S segment and improving agents' ease of interactions with us.
- Continuing to build on a culture centered on the values of diversity, equity, and inclusion that fosters innovation, idea generation, and developing a group of specially trained leaders who can guide us successfully into the future.

As we look ahead to 2023, we believe the elevated level of economic inflation will persist and continue to negatively impact our short-tail property lines of business and may impact our general and administrative expenses. In addition, we expect reduced reinsurance capacity and higher demand for new and expanded reinsurance purchases by U.S. primary insurance companies will result in higher reinsurance prices in 2023 and less favorable terms and conditions for the industry, including us. We experienced reinsurance price increases at our January 1, 2023 renewals, as discussed in the "Reinsurance" section below. While these factors could negatively impact our 2023 combined ratio and underwriting profits, we believe we are well-positioned to navigate these challenges and expect to continue generating strong overall returns.

For 2023, our full-year guidance is as follows:

- A GAAP combined ratio of 96.5%, including net catastrophe losses of 4.5 points. Our combined ratio estimate assumes no prior year casualty reserve development;
- After-tax net investment income of $300 million that includes after-tax net investment income from our alternative investments of $30 million;
- An overall effective tax rate of approximately 21.0%, which assumes an effective tax rate of 20.0% for net investment income and 21.0% for all other items; and
- Weighted average shares of 61 million on a fully diluted basis, which assumes no share repurchases we may make under our authorization.

# **Results of Operations and Related Information by Segment**

# *Insurance Operations*

The following table provides quantitative information for analyzing the combined ratio:

| All Lines ($ in thousands) | 2022 | 2021 | 2022 vs. 2021 | 2020 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- |
| Insurance Operations Results: |  |  |  |  |  |
| Net premiums written ("NPW") | $3,573,590 | 3,189,713 | 12% | $2,773,092 | 15% |
| NPE | 3,373,380 | 3,017,253 | 12 | 2,681,814 | 13 |
| Less: |  |  |  |  |  |
| Loss and loss expense incurred | 2,111,778 | 1,813,984 | 16 | 1,635,823 | 11 |
| Net underwriting expenses incurred | 1,089,942 | 979,537 | 11 | 905,830 | 8 |
| Dividends to policyholders | 4,858 | 5,140 | (5) | 3,812 | 35 |
| Underwriting income | $166,802 | 218,592 | (24) % | $136,349 | 60% |
| Combined Ratios: |  |  |  |  |  |
| Loss and loss expense ratio | 62.7% | 60.1 | 2.6 pts | 61.0% | (0.9) pts |
| Underwriting expense ratio | 32.3 | 32.5 | (0.2) | 33.8 | (1.3) |
| Dividends to policyholders ratio | 0.1 | 0.2 | (0.1) | 0.1 | 0.1 |
| Combined ratio | 95.1 | 92.8 | 2.3 | 94.9 | (2.1) |

The 12% NPW growth in 2022 compared to 2021 reflected (i) overall renewal pure price increases, and (ii) higher direct new business, as shown in the following table:

| ($ in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Direct new business premiums | $731.7 | 648.5 | 579.7 |
| Renewal pure price increases on NPW | 5.1% | 4.9 | 4.3 |

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Our NPW growth in 2022 also benefited from strong retention. In addition, increased economic activity and inflation in the U.S. resulted in our customers increasing their sales, payrolls, and exposure units, all of which favorably impacted our NPW.

The increase in NPE in 2022 compared to 2021 resulted from the same impacts to NPW described above.

### Loss and Loss Expenses

The loss and loss expense ratio increased 2.6 points in 2022 compared to 2021, primarily due to 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 |
| --- | --- | --- | --- | --- | --- | --- |
|  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |  |
| For the year ended December 31, |  |  |  |  |  |  |
| 2022 | $617.9 | 18.3 pts | $145.9 | 4.3 pts | 22.6 | 1.6 |
| 2021 | 471.7 | 15.6 | 164.2 | 5.4 | 21.0 | (2.3) |
| 2020 | 410.0 | 15.3 | 215.4 | 8.0 | 23.3 | 4.4 |

Net catastrophe losses in 2022 were lower than losses in 2021 and 2020; however, 2022 did include gross losses from Winter Storm Elliott of $135.0 million, or net losses of approximately $46.1 million, or 1.6 points. This storm impacted 37 states, 26 of which are in our Standard Commercial Lines footprint, and primarily included property losses from damage to commercial businesses and personal homes. Including the impact of reinstatement premium of $11.7 million for this event, the total impact to the overall combined ratio was 1.7 points.

Net catastrophe losses of 5.4 points in 2021 were higher than our longer-term net catastrophe loss averages. Catastrophe losses in 2021 included gross losses of $53 million from Hurricane Ida, or net losses of approximately $41 million, or 1.4 points. The majority of the Hurricane Ida losses, which included meaningful property losses from damage to personal and commercial automobiles, occurred in New Jersey and the surrounding states.

Details of the prior year casualty reserve development were as follows:

| ($ in millions) | (Favorable) Prior Year Casualty Reserve Development |  | (Favorable)/Unfavorable Year-Over-Year Change |
| --- | --- | --- | --- |
|  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |
| For the year ended December 31, |  |  |  |
| 2022 | (86.0) | (2.5) pts | 0.2 |
| 2021 | (81.0) | (2.7) | 0.5 |
| 2020 | (85.0) | (3.2) | (0.9) |

#### (Favorable)/Unfavorable Prior Year Casualty Reserve Development

| ($ in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| General liability | $(5.0) | (29.0) | (35.0) |
| Commercial automobile | 15.0 | 15.0 | 10.0 |
| Workers compensation | (70.0) | (58.0) | (60.0) |
| Businessowners' policies | (11.0) | (2.0) | - |
| Bonds | (10.0) | - | - |
| Total Standard Commercial Lines | (81.0) | (74.0) | (85.0) |
| Homeowners | - | - | - |
| Personal automobile | - | - | - |
| Total Standard Personal Lines | - | - | - |
| E&S | (5.0) | (7.0) | - |
| Total (favorable) prior year casualty reserve development | $(86.0) | (81.0) | (85.0) |
| (Favorable) impact on loss ratio | (2.5) pts | (2.7) | (3.2) |

In addition to the prior year casualty reserve development, current year casualty loss costs increased 0.7 points in 2022 compared to 2021, primarily driven by a higher estimated loss trend.

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For additional qualitative discussion on prior year reserve development, current year casualty loss costs, and non-catastrophe property loss and loss expenses, refer to the insurance segment sections below.

### Standard Commercial Lines Segment

| ($ in thousands) | 2022 | 2021 | 2022 vs. 2021 | 2020 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- |
| Insurance Segments Results: |  |  |  |  |  |
| NPW | $2,901,984 | 2,593,018 | 12% | $2,230,636 | 16% |
| NPE | 2,739,819 | 2,443,885 | 12 | 2,143,184 | 14 |
| Less: |  |  |  |  |  |
| Loss and loss expense incurred | 1,683,988 | 1,426,768 | 18 | 1,245,627 | 15 |
| Net underwriting expenses incurred | 907,277 | 813,381 | 12 | 742,014 | 10 |
| Dividends to policyholders | 4,858 | 5,140 | (5) | 3,812 | 35 |
| Underwriting income | $143,696 | 198,596 | (28) % | $151,731 | 31% |
| Combined Ratios: |  |  |  |  |  |
| Loss and loss expense ratio | 61.5% | 58.4 | 3.1 pts | 58.1% | 0.3 pts |
| Underwriting expense ratio | 33.1 | 33.3 | (0.2) | 34.6 | (1.3) |
| Dividends to policyholders ratio | 0.2 | 0.2 | - | 0.2 | - |
| Combined ratio | 94.8 | 91.9 | 2.9 | 92.9 | (1.0) |

NPW growth of 12% in 2022 compared to 2021 reflected (i) renewal pure price increases, (ii) higher direct new business, and (iii) strong retention as shown in the table below. In addition, NPW growth in 2022 benefited from exposure growth.

| ($ in millions) | For the Year Ended December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Direct new business premiums | $512.5 | $469.9 |
| Retention | 85% | 85 |
| Renewal pure price increases on NPW | 5.4 | 5.3 |

The increase in NPE in 2022 compared to 2021 resulted from the same impacts to NPW described above.

The 3.1-point increase in the loss and loss expense ratio in 2022 compared to 2021 was 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 |
| --- | --- | --- | --- | --- | --- | --- |
|  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |  |
| For the year ended December 31, |  |  |  |  |  |  |
| 2022 | $461.1 | 16.8 pts | $95.6 | 3.5 pts | 20.3 | 2.1 |
| 2021 | 340.7 | 13.9 | 104.1 | 4.3 | 18.2 | (1.1) |

Our loss and loss expenses in 2022 compared to 2021 included (i) elevated non-catastrophe property loss and loss expenses, primarily due to increased severities resulting from inflationary pressures on labor and material costs, and (ii) lower net catastrophe losses, as discussed below and in the 'Insurance Operations' section above.

Our 2022 catastrophe losses were impacted by 48 events designated as catastrophes by Property Claims Services ('PCS'), an internationally recognized authority on insured catastrophe property losses, including (i) several wind and thunderstorm events that occurred throughout the second quarter of 2022, and (ii) Winter Storm Elliott, a cross-country storm that impacted 26 of our footprint states in December 2022. Catastrophe losses in 2021 were impacted by 46 events that PCS designed as catastrophes, including two severe thunderstorms accompanied by wind and hail, Hurricane Ida, and a series of severe tornadoes.

| ($ in millions) | (Favorable) Prior Year Casualty Reserve Development |  | (Favorable)/Unfavorable Year-Over-Year Change |
| --- | --- | --- | --- |
|  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |
| For the year ended December 31, |  |  |  |
| 2022 | $(81.0) | (3.0) pts | - |
| 2021 | (74.0) | (3.0) | 1.0 |

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For quantitative information on favorable prior year casualty reserve development by line of business, see the 'Insurance Operations' section above. For qualitative information about the significant drivers of this development, see the line of business discussions below.

The loss and loss expense ratio increase in 2022 also included an increase in current year casualty loss costs of 0.9 points in 2022 compared to 2021, primarily driven by a higher estimated loss trend.

The following is a discussion of our most significant Standard Commercial Lines of business:

### *General Liability*

| ($ in thousands) | 2022 | 2021 | 2022 vs. 2021 1 | 2020 | 2021 vs. 2020 1 |
| --- | --- | --- | --- | --- | --- |
| NPW | $958,121 | 859,284 | 12% | $716,119 | 20% |
| Direct new business | 151,005 | 139,255 | n/a | 122,159 | n/a |
| Retention | 85% | 85 | n/a | 85% | n/a |
| Renewal pure price increases | 4.5 | 4.4 | n/a | 3.9 | n/a |
| NPE | $902,428 | 807,158 | 12% | $694,019 | 16% |
| Underwriting income | 104,517 | 123,450 | (15) | 103,262 | 20 |
| Combined ratio | 88.4% | 84.7 | 3.7 pts | 85.1% | (0.4) pts |
| % of total Standard Commercial Lines NPW | 33 | 33 |  | 32 |  |

$^{1}$n/a: not applicable.

NPW growth of 12% in 2022 compared to 2021 benefited from exposure growth, strong retention, renewal pure price increases, and direct new business.

The combined ratio increased 3.7 points in 2022 compared to 2021, primarily driven by less favorable prior year casualty reserve development, as follows:

| ($ in millions) | (Favorable) Prior Year Casualty Reserve Development |  | (Favorable)/Unfavorable Year-Over-Year Change |
| --- | --- | --- | --- |
|  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |
| For the year ended December 31, |  |  |  |
| 2022 | $(5.0) | (0.6) pts | 3.0 |
| 2021 | (29.0) | (3.6) | 1.4 |

The favorable prior year casualty reserve development in 2022 was primarily attributable to favorable inception-to-date claim frequencies in accident years 2021 and 2020. The 2021 favorable prior year casualty reserve development was primarily attributable to improved loss severities in accident years 2018 and prior.

The combined ratio increase in 2022 also included an increase in current year casualty loss costs of 1.1 points in 2022 compared to 2021, primarily driven by (i) higher estimated loss trend for this line, and (ii) an increase in ceded casualty reinstatement premium principally due to development on one large loss from the 2018 treaty year and two large losses from the 2020 treaty year. This line is exposed to changes in economic and social trends, including litigation propensity and outcomes, and changes in state laws, such as those that extend the statute of limitations or open windows for previously time-barred actions.

### *Commercial Automobile*

| ($ in thousands) | 2022 | 2021 | 2022 vs. 2021 1 | 2020 | 2021 vs. 2020 1 |
| --- | --- | --- | --- | --- | --- |
| NPW | $860,116 | 767,723 | 12% | $658,930 | 17% |
| Direct new business | 125,129 | 115,088 | n/a | 112,893 | n/a |
| Retention | 86% | 86 | n/a | 86% | n/a |
| Renewal pure price increases | 8.1 | 8.3 | n/a | 8.1 | n/a |
| NPE | $812,306 | 724,398 | 12% | $615,181 | 18% |
| Underwriting loss | (63,112) | (23,335) | (170) | (3,126) | (646) |
| Combined ratio | 107.8% | 103.2 | 4.6 pts | 100.5% | 2.7 pts |
| % of total Standard Commercial Lines NPW | 30 | 30 |  | 30 |  |

$^{1}$n/a: not applicable.

NPW growth of 12% in 2022 compared to 2021 benefited from renewal pure price increases, higher direct new business, and strong retention. NPW also benefited from 5% growth of in-force vehicle counts as of December 31, 2022, compared to December 31, 2021.

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The combined ratio increased 4.6 points in 2022 compared to 2021, 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 |
| --- | --- | --- | --- | --- | --- | --- |
|  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |  |
| For the year ended December 31, |  |  |  |  |  |  |
| 2022 | $172.2 | 21.2 pts | $3.1 | 0.4 pts | 21.6 | 2.9 |
| 2021 | 125.2 | 17.3 | 9.8 | 1.4 | 18.7 | 3.1 |

Loss and loss expenses in 2022 compared to 2021 experienced (i) lower net catastrophe losses, as discussed in the 'Insurance Operations' section above, and (ii) elevated non-catastrophe property loss and loss expenses, primarily due to higher severities from inflationary and supply chain impacts that have increased labor, material, and replacement vehicle costs, as well as the duration of claims, which impacts vehicle rental days.

| ($ in millions) | Unfavorable Prior Year Casualty Reserve Development |  | (Favorable)/ Unfavorable Year-Over-Year Change |
| --- | --- | --- | --- |
|  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |
| For the year ended December 31, |  |  |  |
| 2022 | $15.0 | 1.8 pts | (0.3) |
| 2021 | 15.0 | 2.1 | 0.5 |

The unfavorable prior year casualty reserve development in 2022 was primarily due to increased severities in the 2021 accident year. The 2021 unfavorable prior year casualty reserve development was primarily attributable to unfavorable reserve development on loss severities in accident years 2016 through 2019.

In addition, the combined ratio was impacted by a 1.9-point increase in current year casualty loss costs in 2022 compared to 2021, due to (i) an expected increase in claim frequencies from a more normalized amount of miles driven as COVID-19-related impacts continue to lessen, and (ii) increased loss severity expectations following the unfavorable development for the 2021 accident year.

This line of business remains an area of focus for us and most of the industry, as profitability challenges continue to generate combined ratios higher than targets. We will continue to actively seek price increases on this line and execute on targeted underwriting and claims actions to improve the mix of business and claim outcomes.

### Commercial Property

| ($ in thousands) | 2022 | 2021 | 2022 vs. 2021 1 | 2020 | 2021 vs. 2020 1 |
| --- | --- | --- | --- | --- | --- |
| NPW | $535,666 | 470,043 | 14% | $413,194 | 14% |
| Direct new business | 118,470 | 108,418 | n/a | 94,697 | n/a |
| Retention | 84% | 84 | n/a | 84% | n/a |
| Renewal pure price increases | 6.2 | 6.0 | n/a | 4.6 | n/a |
| NPE | $495,647 | 436,412 | 14% | $388,120 | 12% |
| Underwriting income (loss) | (7,015) | 10,515 | (167) | (21,296) | (149) |
| Combined ratio | 101.4 pts | 97.6 | 3.8 | 105.5 pts | (7.9) |
| % of total Standard Commercial Lines NPW | 18 | 18 |  | 19 |  |

$^{1}$n/a: not applicable.

NPW growth of 14% in 2022 compared to 2021 benefited from renewal pure price increases, exposure growth, strong retention, and higher direct new business.

The combined ratio increased 3.8 points in 2022 compared to 2021, 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 |
| --- | --- | --- | --- | --- | --- | --- |
|  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |  |
| For the year ended December 31, |  |  |  |  |  |  |
| 2022 | $240.5 | 48.5 pts | $75.3 | 15.2 pts | 63.7 | 3.7 |
| 2021 | 182.5 | 41.8 | 79.3 | 18.2 | 60.0 | (6.7) |

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| December 31, 2021 ($ in thousands) | Less than 12 months |  | 12 months or longer |  | Total |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses |
| AFS fixed income securities: |  |  |  |  |  |  |
| U.S. government and government agencies | $34,857 | (746) | 7,827 | (399) | 42,684 | (1,145) |
| Foreign government | 2,000 | (84) | 1,061 | (39) | 3,061 | (123) |
| Obligations of states and political subdivisions | 25,837 | (235) | - | - | 25,837 | (235) |
| Corporate securities | 300,549 | (4,903) | 2,520 | (50) | 303,069 | (4,953) |
| CLO and other ABS | 663,976 | (4,934) | 53,368 | (1,350) | 717,344 | (6,284) |
| RMBS | 236,010 | (2,931) | 20 | (1) | 236,030 | (2,932) |
| CMBS | 112,899 | (1,016) | 20,326 | (666) | 133,225 | (1,682) |
| Total AFS fixed income securities | $1,376,128 | (14,849) | 85,122 | (2,505) | 1,461,250 | (17,354) |

We currently do not intend to sell any of the securities summarized in the tables above, nor will we be required to sell any of them. The increase in gross unrealized losses as December 31, 2022, compared to December 31, 2021, was driven by an increase in benchmark U.S. Treasury rates and a widening of credit spreads, with the increase in interest rates having the most significant impact. The severity of impairment on these securities is less than 10% at both periods. 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 allowance for credit loss is required on these balances beyond the allowance for credit loss recorded as of December 31, 2022. 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 HTM fixed income securities at December 31, 2022, by contractual maturity are shown below. The maturities of mortgage-backed 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.

| ($ in thousands) | AFS | HTM |  |
| --- | --- | --- | --- |
|  | Fair Value | Carrying Value | Fair Value |
| Due in one year or less | $324,394 | 6,093 | 6,090 |
| Due after one year through five years | 2,928,594 | 3,779 | 3,798 |
| Due after five years through 10 years | 2,600,001 | 21,285 | 19,949 |
| Due after 10 years | 759,118 | - | - |
| Total fixed income securities | $6,612,107 | 31,157 | 29,837 |

(e) The following table summarizes our alternative investment portfolio by strategy:

| ($ in thousands) | December 31, 2022 |  |  | December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Carrying Value | Remaining Commitment | Maximum Exposure to Loss | Carrying Value | Remaining Commitment | Maximum Exposure to Loss |
| Alternative investments |  |  |  |  |  |  |
| Private equity | $280,980 | 134,676 | 415,656 | 273,070 | 99,734 | 372,804 |
| Private credit | 54,866 | 89,481 | 144,347 | 63,138 | 92,674 | 155,812 |
| Real assets | 35,470 | 21,945 | 57,415 | 23,524 | 22,579 | 46,103 |
| Total alternative investments | 371,316 | 246,102 | 617,418 | 359,732 | 214,987 | 574,719 |

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 2022 or 2021.

The following is a description of our alternative investment strategies:

Our private equity strategy includes the following:

- *Primary 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.
- *Secondary Private Equity*: This strategy purchases seasoned private equity funds from investors desiring liquidity prior to normal fund termination. Investments are made across all sectors of the private equity market, including leveraged buyouts ("LBO"), venture capital, distressed securities, mezzanine financing, real estate, and infrastructure.

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• 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 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) | 2022 | 2021 |
| Investments | $114,038 | 107,347 |
| Total assets | 128,158 | 112,232 |
| Total liabilities | 15,464 | 12,371 |
| Total partners' capital | 112,694 | 99,861 |

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# **Income Statement Information**  
 **12 months ended September 30,**

| ($ in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Net investment income (loss) | $765 | 653 | (26) |
| Realized gains | 12,590 | 6,121 | 1,452 |
| Net change in unrealized appreciation | (5,215) | 26,877 | 4,898 |
| Net income | $8,140 | 33,651 | 6,324 |
| Alternative investment income included in 'Net investment income earned' on our Consolidated Statements of Income | 23.0 | 117.7 | 26.5 |

(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, 2022 or December 31, 2021.

(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, 2022 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, 2022:

| ($ in millions) | FHLBI Collateral | FHLBNY Collateral | Regulatory Deposits | Total |
| --- | --- | --- | --- | --- |
| U.S. government and government agencies | $ - | - | 19.3 | 19.3 |
| Obligations of states and political subdivisions | - | - | 3.6 | 3.6 |
| RMBS | 61.4 | 28.8 | - | 90.2 |
| CMBS | 4.6 | 9.6 | - | 14.2 |
| Total pledged as collateral | $66.0 | 38.4 | 22.9 | 127.3 |

(h) The components of pre-tax net investment income earned were as follows:

| ($ in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Fixed income securities | $259,918 | 209,709 | 203,926 |
| CMLs | 5,555 | 2,743 | 844 |
| Equity securities | 13,554 | 15,920 | 9,286 |
| Short-term investments | 3,997 | 260 | 1,821 |
| Alternative investments | 23,003 | 117,701 | 26,504 |
| Other investments | 258 | 359 | 418 |
| Investment expenses | (18,130) | (20,103) | (15,692) |
| Net investment income earned | $288,155 | 326,589 | 227,107 |

(i) The following table summarizes net realized and unrealized investment gains and losses for the periods indicated:

| ($ in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Gross gains on sales | $28,419 | 15,284 | 18,893 |
| Gross losses on sales | (60,055) | (8,140) | (9,745) |
| Net realized (losses) gains on disposals | (31,636) | 7,144 | 9,148 |
| Net unrealized (losses) gains on equity securities | (32,127) | 17,881 | 7,939 |
| Net credit loss (expense) on fixed income securities, AFS | (39,169) | (6,858) | (5,042) |
| Net credit loss (expense) benefit on fixed income securities, HTM | 63 | (49) | 4 |
| Net credit loss (expense) on CMLs | (116) | - | - |
| Losses on securities for which we have the intent to sell | (11,823) | (519) | (16,266) |
| Net realized and unrealized investment (losses) gains | $(114,808) | 17,599 | (4,217) |

Net realized and unrealized investment losses in 2022 were primarily driven by (i) a decrease in valuations reflecting the current public equities market, (ii) active trading of our fixed income securities in an effort to opportunistically increase yield given the rising interest rate environment, and (iii) higher credit loss expense on our AFS fixed income securities portfolio.

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Net unrealized losses and gains recognized in income on equity securities, as reflected in the table above, included the following:

| ($ in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Unrealized (losses) gains recognized in income on equity securities: |  |  |  |
| On securities remaining in our portfolio at end of period | $(10,454) | 16,473 | 7,936 |
| On securities sold in period | (21,673) | 1,408 | 3 |
| Total unrealized (losses) gains recognized in income on equity securities | $(32,127) | 17,881 | 7,939 |

Proceeds from the sales of AFS fixed income securities were $1,211.7 million, $502.9 million, and $487.1 million in 2022, 2021, and 2020, respectively. Proceeds from the sales of equity securities were $186.1 million, $99.2 million, and $1.3 million in 2022, 2021, and 2020, respectively.

## Note 6. Comprehensive Income

(a) The components of comprehensive income, both gross and net of tax, for 2022, 2021, and 2020 are as follows:

| 2022 ($ in thousands) | Gross | Tax | Net |
| --- | --- | --- | --- |
| Net income | $280,186 | 55,300 | 224,886 |
| Components of OCI: |  |  |  |
| Unrealized (losses) gains on investment securities: |  |  |  |
| Unrealized holding losses during the year | (668,107) | (140,302) | (527,805) |
| Unrealized losses on securities with credit loss recognized in earnings | (187,968) | (39,473) | (148,495) |
| Amounts reclassified into net income: |  |  |  |
| HTM securities | 4 | 1 | 3 |
| Net realized losses on disposals and intent-to-sell AFS securities | 60,048 | 12,610 | 47,438 |
| Credit loss expense | 39,169 | 8,225 | 30,944 |
| Total unrealized losses on investment securities | (756,854) | (158,939) | (597,915) |
| Defined benefit pension and post-retirement plans: |  |  |  |
| Net actuarial loss | (20,941) | (4,398) | (16,543) |
| Amounts reclassified into net income: |  |  |  |
| Net actuarial loss | 1,668 | 351 | 1,317 |
| Total defined benefit pension and post-retirement plans | (19,273) | (4,047) | (15,226) |
| Other comprehensive loss | (776,127) | (162,986) | (613,141) |
| Comprehensive loss | $(495,941) | (107,686) | (388,255) |

| 2021 ($ in thousands) | Gross | Tax | Net |
| --- | --- | --- | --- |
| Net income | $505,310 | 101,473 | 403,837 |
| Components of OCI: |  |  |  |
| Unrealized (losses) gains on investment securities: |  |  |  |
| Unrealized holding losses during the year | (151,391) | (31,793) | (119,598) |
| Unrealized losses on securities with credit loss recognized in earnings | (9,061) | (1,902) | (7,159) |
| Amounts reclassified into net income: |  |  |  |
| HTM securities | (11) | (2) | (9) |
| Net realized gains on disposals and losses on intent-to-sell AFS securities | (3,825) | (803) | (3,022) |
| Credit loss expense | 6,858 | 1,440 | 5,418 |
| Total unrealized losses on investment securities | (157,430) | (33,060) | (124,370) |
| Defined benefit pension and post-retirement plans: |  |  |  |
| Net actuarial gain | 21,636 | 4,543 | 17,093 |
| Amounts reclassified into net income: |  |  |  |
| Net actuarial loss | 2,772 | 582 | 2,190 |
| Total defined benefit pension and post-retirement plans | 24,408 | 5,125 | 19,283 |
| Other comprehensive loss | (133,022) | (27,935) | (105,087) |
| Comprehensive income | $372,288 | 73,538 | 298,750 |

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| 2020 | Gross | Tax | Net |
| --- | --- | --- | --- |
| ($ in thousands) |  |  |  |
| Net income | $302,988 | 56,633 | 246,355 |
| Components of OCI: |  |  |  |
| Unrealized gains (losses) on investment securities: |  |  |  |
| Unrealized holding gains during the year | 168,487 | 35,383 | 133,104 |
| Unrealized losses on securities with credit loss recognized in earnings | (8,176) | (1,717) | (6,459) |
| Amounts reclassified into net income: |  |  |  |
| HTM securities | (24) | (5) | (19) |
| Net realized losses on disposals and intent-to-sell AFS securities | 5,376 | 1,129 | 4,247 |
| Credit loss expense | 5,042 | 1,058 | 3,984 |
| Total unrealized gains on investment securities | 170,705 | 35,848 | 134,857 |
| Defined benefit pension and post-retirement plans: |  |  |  |
| Net actuarial gain | 1,515 | 318 | 1,197 |
| Amounts reclassified into net income: |  |  |  |
| Net actuarial loss | 3,015 | 633 | 2,382 |
| Total defined benefit pension and post-retirement plans | 4,530 | 951 | 3,579 |
| Other comprehensive income | 175,235 | 36,799 | 138,436 |
| Comprehensive income | $478,223 | 93,432 | 384,791 |

(b) The balances of, and changes in, each component of AOCI (net of taxes) as of December 31, 2022 and 2021 were as follows:

| ($ in thousands) | Net Unrealized (Losses) Gains on Investment Securities |  |  |  | Defined Benefit Pension and Post-retirement Plans | Total AOCI |
| --- | --- | --- | --- | --- | --- | --- |
|  | Credit Loss Related 1 | HTM Related | All Other | Investments Subtotal |  |  |
| Balance, December 31, 2020 | $(2,546) | 6 | 307,790 | 305,250 | (85,064) | 220,186 |
| OCI before reclassifications | (7,159) | - | (119,598) | (126,757) | 17,093 | (109,664) |
| Amounts reclassified from AOCI | 5,418 | (9) | (3,022) | 2,387 | 2,190 | 4,577 |
| Net current period OCI | (1,741) | (9) | (122,620) | (124,370) | 19,283 | (105,087) |
| Balance, December 31, 2021 | (4,287) | (3) | 185,170 | 180,880 | (65,781) | 115,099 |
| OCI before reclassifications | (148,495) | - | (527,805) | (676,300) | (16,543) | (692,843) |
| Amounts reclassified from AOCI | 30,944 | 3 | 47,438 | 78,385 | 1,317 | 79,702 |
| Net current period OCI | (117,551) | 3 | (480,367) | (597,915) | (15,226) | (613,141) |
| Balance, December 31, 2022 | $(121,838) | - | (295,197) | (417,035) | (81,007) | (498,042) |

$^{1}$Represents change in unrealized loss on securities with credit loss recognized in earnings.

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The reclassifications out of AOCI are as follows:

| ($ in thousands) | Year ended December 31, 2022 | Year ended December 31, 2021 | Affected Line Item in the Consolidated Statements of Income |
| --- | --- | --- | --- |
| HTM related |  |  |  |
| Unrealized gains on HTM disposals | $(7) | (14) | Net realized and unrealized investment (losses) gains |
| Amortization of net unrealized losses on HTM securities | 11 | 3 | Net investment income earned |
|  | 4 | (11) | Income before federal income tax |
|  | (1) | 2 | Total federal income tax expense |
|  | 3 | (9) | Net income |
| Net realized losses (gains) on disposals and losses on intent-to-sell AFS securities |  |  |  |
| Net realized losses (gains) on disposals and losses on intent-to-sell AFS securities | 60,048 | (3,825) | Net realized and unrealized investment (losses) gains |
|  | 60,048 | (3,825) | Income before federal income tax |
|  | (12,610) | 803 | Total federal income tax expense |
|  | 47,438 | (3,022) | Net income |
| Credit loss related |  |  |  |
| Credit loss expense | 39,169 | 6,858 | Net realized and unrealized investment (losses) gains |
|  | 39,169 | 6,858 | Income before federal income tax |
|  | (8,225) | (1,440) | Total federal income tax expense |
|  | 30,944 | 5,418 | Net income |
| Defined benefit pension and post-retirement life plans |  |  |  |
| Net actuarial loss | 359 | 638 | Loss and loss expense incurred |
|  | 1,309 | 2,134 | Other insurance expenses |
| Total defined benefit pension and post-retirement life | 1,668 | 2,772 | Income before federal income tax |
|  | (351) | (582) | Total federal income tax expense |
|  | 1,317 | 2,190 | Net income |
| Total reclassifications for the period | $79,702 | 4,577 | 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, 2022 and 2021:

| ($ in thousands) | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Carrying Amount | Fair Value | Carrying Amount | Fair Value |
| Financial Liabilities |  |  |  |  |
| Long-term debt: |  |  |  |  |
| 7.25% Senior Notes | $49,921 | 51,705 | 49,917 | 63,719 |
| 6.70% Senior Notes | 99,542 | 99,264 | 99,520 | 127,574 |
| 5.375% Senior Notes | 294,424 | 258,459 | 294,330 | 395,652 |
| 3.03% Borrowings from FHLBI | 60,000 | 57,175 | 60,000 | 64,126 |
| Subtotal long-term debt | 503,887 | 466,603 | 503,767 | 651,071 |
| Unamortized debt issuance costs | (2,929) |  | (3,167) |  |
| Finance lease obligations | 3,718 |  | 5,450 |  |
| Total long-term debt | $504,676 |  | $506,050 |  |

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.

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The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at December 31, 2022 and 2021:

| December 31, 2022 ($ in thousands) | Assets Measured at Fair Value | Fair Value Measurements Using |  |  |
| --- | --- | --- | --- | --- |
|  |  | 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 | $189,239 | 109,240 | 79,999 | - |
| Foreign government | 9,608 | - | 9,608 | - |
| Obligations of states and political subdivisions | 918,018 | - | 911,357 | 6,661 |
| Corporate securities | 2,335,025 | - | 2,147,045 | 187,980 |
| CLO and other ABS | 1,485,973 | - | 1,332,631 | 153,342 |
| RMBS | 1,059,832 | - | 1,059,832 | - |
| CMBS | 614,412 | - | 614,037 | 375 |
| Total AFS fixed income securities | 6,612,107 | 109,240 | 6,154,509 | 348,358 |
| Equity securities: |  |  |  |  |
| Common stock 1 | 160,355 | 55,846 | - | 897 |
| Preferred stock | 1,645 | 1,645 | - | - |
| Total equity securities | 162,000 | 57,491 | - | 897 |
| Short-term investments | 440,456 | 418,199 | 22,257 | - |
| Total assets measured at fair value | $7,214,563 | 584,930 | 6,176,766 | 349,255 |

| December 31, 2021 ($ in thousands) | Assets Measured at Fair Value | Fair Value Measurements Using |  |  |
| --- | --- | --- | --- | --- |
|  |  | 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 | $130,458 | 60,615 | 69,843 | - |
| Foreign government | 15,860 | - | 15,860 | - |
| Obligations of states and political subdivisions | 1,189,308 | - | 1,181,563 | 7,745 |
| Corporate securities | 2,573,603 | - | 2,459,476 | 114,127 |
| CLO and other ABS | 1,350,814 | - | 1,225,905 | 124,909 |
| RMBS | 776,252 | - | 776,007 | 245 |
| CMBS | 673,681 | - | 669,425 | 4,256 |
| Total AFS fixed income securities | 6,709,976 | 60,615 | 6,398,079 | 251,282 |
| Equity securities: |  |  |  |  |
| Common stock 1 | 333,449 | 249,846 | - | - |
| Preferred stock | 2,088 | 2,088 | - | - |
| Total equity securities | 335,537 | 251,934 | - | - |
| Short-term investments | 447,863 | 442,723 | 5,140 | - |
| Total assets measured at fair value | $7,493,376 | 755,272 | 6,403,219 | 251,282 |

$^{1}$Investments amounting to $103.6 million and $83.6 million at December 31, 2022 and December 31, 2021, respectively, 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.

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The following tables provide a summary of Level 3 changes for the years indicated:

| 2022 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | Obligations of states and political subdivisions | Corporate Securities | CLO and Other ABS | RMBS | CMBS | Common Stock | Total |
| Fair value, December 31, 2021 | $7,745 | 114,127 | 124,909 | 245 | 4,256 | - | 251,282 |
| Total net (losses) gains for the period included in: |  |  |  |  |  |  |  |
| OCI | (985) | (23,624) | (11,287) | (17) | (481) | - | (36,394) |
| Net realized and unrealized investment (losses) gains | (99) | (2,414) | (876) | - | - | - | (3,389) |
| Net investment income earned | - | 68 | 229 | - | 45 | - | 342 |
| Purchases | - | 99,868 | 100,406 | - | - | - | 200,274 |
| Sales | - | - | - | - | - | - | - |
| Issuances | - | - | - | - | - | - | - |
| Settlements | - | (10,148) | (12,361) | (11) | (15) | - | (22,535) |
| Transfers into Level 3 | - | 19,214 | 502 | - | - | 897 | 20,613 |
| Transfers out of Level 3 | - | (9,111) | (48,180) | (217) | (3,430) | - | (60,938) |
| Fair value, December 31, 2022 | $6,661 | 187,980 | 153,342 | - | 375 | 897 | 349,255 |
| Change in unrealized losses for the period included in earnings for assets held at period end | (99) | (2,399) | (876) | - | - | - | (3,374) |
| Change in unrealized losses for the period included in OCI for assets held at period end | (985) | (23,630) | (11,246) | (17) | (481) | - | (36,359) |

| 2021 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| ($ in thousands) | Obligations of states and political subdivisions | Corporate Securities | CLO and Other ABS | RMBS | CMBS | Total |  |
| Fair value, December 31, 2020 | $2,894 | 70,700 | 56,375 | - | - | 129,969 |  |
| Total net (losses) gains for the period included in: |  |  |  |  |  |  |  |
| OCI | (239) | 1,636 | (520) | - | (196) | 681 |  |
| Net realized and unrealized investment (losses) gains | (11) | (50) | (214) | - | 5 | (270) |  |
| Net investment income earned | - | 27 | 16 | - | 19 | 62 |  |
| Purchases | - | 64,813 | 76,731 | 249 | 98 | 141,891 |  |
| Sales | - | - | - | - | - | - |  |
| Issuances | - | - | - | - | - | - |  |
| Settlements | - | (544) | (5,161) | (4) | (52) | (5,761) |  |
| Transfers into Level 3 | 5,101 | 981 | 11,344 | - | 4,382 | 21,808 |  |
| Transfers out of Level 3 | - | (23,436) | (13,662) | - | - | (37,098) |  |
| Fair value, December 31, 2021 | $7,745 | 114,127 | 124,909 | 245 | 4,256 | 251,282 |  |
| Change in unrealized (losses) gains for the period included in earnings for assets held at period end | (11) | (50) | (214) | - | 5 | (270) |  |
| Change in unrealized (losses) gains for the period included in OCI for assets held at period end | (239) | 1,636 | (520) | - | (196) | 681 |  |

The following tables present quantitative information about the significant unobservable inputs used in the fair value measurements of Level 3 assets at December 31, 2022 and 2021:

| December 31, 2022 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
| ($ in thousands) | Assets Measured at Fair Value | Valuation Techniques | Unobservable Inputs | Range | Weighted Average |
| Internal valuations: |  |  |  |  |  |
| Corporate securities | $81,867 | Discounted Cash Flow | Illiquidity Spread | (4.4)% - 5.3% | 1.3% |
| CLO and other ABS | 59,452 | Discounted Cash Flow | Illiquidity Spread | 0.01% - 19.6% | 2.5% |
| Total internal valuations | 141,319 |  |  |  |  |
| Other 1 | 207,936 |  |  |  |  |
| Total Level 3 securities | $349,255 |  |  |  |  |

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| December 31, 2021 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
| ($ in thousands) | Assets Measured at Fair Value | Valuation Techniques | Unobservable Inputs | Range | Weighted Average |
| Internal valuations: |  |  |  |  |  |
| Corporate securities | $54,135 | Discounted Cash Flow | Illiquidity Spread | 0.3% - 3.0% | (1.2)% |
| CLO and other ABS | 34,903 | Discounted Cash Flow | Illiquidity Spread | 0.7% - 8.0% | (2.1)% |
| Total internal valuations | 89,038 |  |  |  |  |
| Other 1 | 162,244 |  |  |  |  |
| Total Level 3 securities | $251,282 |  |  |  |  |

$^{1}$Other 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 discounted cash flow 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, 2022 and 2021:

| December 31, 2022 | Assets/Liabilities Disclosed at Fair Value | Fair Value Measurements Using |  |  |
| --- | --- | --- | --- | --- |
|  |  | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| ($ in thousands) |  |  |  |  |
| Financial Assets |  |  |  |  |
| HTM: |  |  |  |  |
| Obligations of states and political subdivisions | $3,405 | - | 3,405 | - |
| Corporate securities | 26,432 | - | 26,432 | - |
| Total HTM fixed income securities | $29,837 | - | 29,837 | - |
| CMLs | $139,243 | - | - | 139,243 |
| Financial Liabilities |  |  |  |  |
| Long-term debt: |  |  |  |  |
| 7.25% Senior Notes | $51,705 | - | 51,705 | - |
| 6.70% Senior Notes | 99,264 | - | 99,264 | - |
| 5.375% Senior Notes | 258,459 | - | 258,459 | - |
| 3.03% Borrowings from FHLBI | 57,175 | - | 57,175 | - |
| Total long-term debt | $466,603 | - | 466,603 | - |

| December 31, 2021 | Assets/Liabilities Disclosed at Fair Value | Fair Value Measurements Using |  |  |
| --- | --- | --- | --- | --- |
|  |  | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| ($ in thousands) |  |  |  |  |
| Financial Assets |  |  |  |  |
| HTM: |  |  |  |  |
| Obligations of states and political subdivisions | $3,576 | - | 3,576 | - |
| Corporate securities | 25,884 | - | 25,884 | - |
| Total HTM fixed income securities | $29,460 | - | 29,460 | - |
| CMLs | $97,598 | - | - | 97,598 |
| Financial Liabilities |  |  |  |  |
| Long-term debt: |  |  |  |  |
| 7.25% Senior Notes | $63,719 | - | 63,719 | - |
| 6.70% Senior Notes | 127,574 | - | 127,574 | - |
| 5.375% Senior Notes | 395,652 | - | 395,652 | - |
| 3.03% Borrowings from FHLBI | 64,126 | - | 64,126 | - |
| Total long-term debt | $651,071 | - | 651,071 | - |

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### **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 2022 and 2021:

| ($ in thousands) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Balance at beginning of year | $13,600 | 21,000 |
| Current period change for expected credit losses | 6,065 | 1,291 |
| Write-offs charged against the allowance for credit losses | (4,978) | (9,343) |
| Recoveries | 1,413 | 652 |
| ACL, end of year | $16,100 | 13,600 |

In 2022, we recognized an additional allowance for credit losses on premiums receivable of $7.5 million, excluding the impact of write-offs. The additional allowance consisted of a reserve of $9.3 million on 2022 premiums based on our historical write-off percentages and assumptions, partially offset by a $1.8 million allowance reduction on 2021 and older policies, primarily impacted by the COVID-19 pandemic, for which the credit loss did not fully materialize.

In 2021, we recognized an additional allowance for credit losses on premiums receivable of $1.9 million, excluding the impact of write-offs. The additional allowance consisted of a reserve of $8.3 million on 2021 premiums based on our historical write-off percentages and assumptions, partially offset by a $6.4 million allowance reduction on older policies, primarily impacted by the COVID-19 pandemic, for which the credit loss did not fully materialize, as mentioned above.

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 prepared to accept. Our major treaties covering property, property catastrophe, and casualty business are excess of loss contracts. In addition, we have an intercompany quota share (proportional) pooling arrangement and other minor reinsurance treaties.

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 2023, our deductible, before tax, is approximately $480 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.

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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, 2022 and 2021:

| ($ in thousands) | December 31, 2022 |  |  |
| --- | --- | --- | --- |
|  | Current | Past Due | Total Reinsurance Recoverables |
| Financial strength rating of rated reinsurers |  |  |  |
| A++ | $46,282 | $1 | $46,283 |
| A+ | 425,395 | 3,191 | 428,586 |
| A | 106,102 | 1,315 | 107,417 |
| A- | 7,148 | 89 | 7,237 |
| Total rated reinsurers | $584,927 | $4,596 | $589,523 |
| Non-rated reinsurers |  |  |  |
| Federal and state pools | $180,794 | $ - | $180,794 |
| Other than federal and state pools | 13,678 | 415 | 14,093 |
| Total non-rated reinsurers | $194,472 | $415 | $194,887 |
| Total reinsurance recoverable, gross | $779,399 | $5,011 | $784,410 |
| Less: ACL |  |  | (1,600) |
| Total reinsurance recoverable, net |  |  | $782,810 |

| ($ in thousands) | December 31, 2021 |  |  |
| --- | --- | --- | --- |
|  | Current | Past Due | Total Reinsurance Recoverables |
| Financial strength rating of rated reinsurers |  |  |  |
| A++ | $38,601 | $9 | $38,610 |
| A+ | 339,857 | 1,520 | 341,377 |
| A | 95,675 | 1,227 | 96,902 |
| A- | 3,209 | 145 | 3,354 |
| Total rated reinsurers | $477,342 | $2,901 | $480,243 |
| Non-rated reinsurers |  |  |  |
| Federal and state pools | $116,378 | $ - | $116,378 |
| Other than federal and state pools | 4,597 | 450 | 5,047 |
| Total non-rated reinsurers | $120,975 | $450 | $121,425 |
| Total reinsurance recoverable, gross | $598,317 | $3,351 | $601,668 |
| Less: ACL |  |  | (1,600) |
| Total reinsurance recoverable, net |  |  | $600,068 |

The $109.3 million increase in 'Total rated reinsurers' as of December 31, 2022, compared to December 31, 2021, was primarily due to reserves recorded for Winter Storm Elliott, which impacted 37 states, 26 of which are in our Standard Commercial Lines footprint. Additionally, the $64.4 million increase in 'Federal and state pools' as of December 31, 2022, compared to December 31, 2021, was primarily due to NFIP reserves recorded for flood losses in Florida and surrounding states as a result of Hurricane Ian, which are 100% ceded to the NFIP.

The following table provides a roll forward of the allowance for credit losses on our reinsurance recoverable balance for 2022 and 2021:

| ($ in thousands) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Balance at beginning of year | $1,600 | $1,777 |
| Current period change for expected credit losses | - | (177) |
| Write-offs charged against the allowance for credit losses | - | - |
| Recoveries | - | - |
| ACL, end of year | $1,600 | $1,600 |

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.'

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The following table represents our total reinsurance balances segregated by reinsurer to illustrate our concentration of risk throughout our reinsurance portfolio:

| ($ in thousands) | As of December 31, 2022 |  | As of December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Reinsurance Balances | % of Reinsurance Balance | Reinsurance Balances | % of Reinsurance Balance |
| Total reinsurance recoverables, net of allowance for credit losses | $782,810 |  | $600,068 |  |
| Total prepaid reinsurance premiums | 172,371 |  | 183,007 |  |
| Total reinsurance balance | 955,181 |  | 783,075 |  |
| Federal and state pools 1 : |  |  |  |  |
| NFIP | 276,541 | 29% | 223,845 | 29% |
| New Jersey Unsatisfied Claim Judgment Fund | 45,496 | 5 | 49,738 | 6 |
| Other | 3,488 | - | 2,385 | - |
| Total federal and state pools | 325,525 | 34 | 275,968 | 35 |
| Remaining reinsurance balance | $629,656 | 66 | $507,107 | 65 |
| Munich Re Group (AM Best rated 'A+') | $127,106 | 13 | $108,381 | 14 |
| Hannover Ruckversicherungs AG (AM Best rated 'A+') | 124,706 | 13 | 107,110 | 14 |
| AXIS Reinsurance Company (AM Best rated 'A') | 70,957 | 8 | 70,814 | 9 |
| Swiss Re Group (AM Best rated 'A+') | 36,525 | 4 | 29,186 | 4 |
| Transatlantic Reinsurance Company (AM Best rated 'A+') | 32,730 | 3 | 26,490 | 3 |
| All other reinsurers | 239,232 | 25 | 166,726 | 21 |
| Total reinsurers | 631,256 | 66% | 508,707 | 65% |
| Less: ACL | (1,600) |  | (1,600) |  |
| Reinsurers, net of ACL | 629,656 |  | 507,107 |  |
| Less: collateral 2 | (126,167) |  | (128,699) |  |
| Reinsurers, net of collateral | $503,489 |  | $378,408 |  |

$^{1}$Considered to have minimal risk of default.

$^{2}$Includes letters of credit, trust funds, and funds held 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.

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) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Premiums written: |  |  |  |
| Direct | $4,068,518 | 3,656,537 | 3,204,512 |
| Assumed | 32,320 | 22,664 | 24,288 |
| Ceded | (527,248) | (489,488) | (455,708) |
| Net | $3,573,590 | 3,189,713 | 2,773,092 |
| Premiums earned: |  |  |  |
| Direct | $3,880,522 | 3,472,715 | 3,108,687 |
| Assumed | 30,742 | 21,550 | 25,010 |
| Ceded | (537,884) | (477,012) | (451,883) |
| Net | $3,373,380 | 3,017,253 | 2,681,814 |
| Loss and loss expense incurred: |  |  |  |
| Direct | $2,537,638 | 2,096,512 | 1,822,034 |
| Assumed | 23,160 | 13,813 | 17,201 |
| Ceded | (449,020) | (296,341) | (203,412) |
| Net | $2,111,778 | 1,813,984 | 1,635,823 |

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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:

| Ceded to NFIP ($ in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Ceded premiums written | $(259,246) | (284,311) | (274,042) |
| Ceded premiums earned | (274,100) | (274,384) | (271,598) |
| Ceded loss and loss expense incurred | (200,467) | (215,224) | (78,993) |

#### **Note 10. Reserve for Loss and Loss Expense**

(a) The table below provides a roll forward of reserves for loss and loss expense for beginning and ending reserve balances:

| ($ in thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Gross reserves for loss and loss expense, at beginning of year | $4,580,903 | 4,260,355 | 4,067,163 |
| Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year 1 | 578,641 | 554,269 | 547,066 |
| Net reserves for loss and loss expense, at beginning of year | 4,002,262 | 3,706,086 | 3,520,097 |
| Incurred loss and loss expense for claims occurring in the: |  |  |  |
| Current year | 2,190,668 | 1,896,837 | 1,708,755 |
| Prior years | (78,890) | (82,853) | (72,932) |
| Total incurred loss and loss expense | 2,111,778 | 1,813,984 | 1,635,823 |
| Paid loss and loss expense for claims occurring in the: |  |  |  |
| Current year | 768,583 | 676,331 | 642,586 |
| Prior years | 958,149 | 841,477 | 807,248 |
| Total paid loss and loss expense | 1,726,732 | 1,517,808 | 1,449,834 |
| Net reserves for loss and loss expense, at end of year | 4,387,308 | 4,002,262 | 3,706,086 |
| Add: Reinsurance recoverable on unpaid loss and loss expense, at end of year | 757,513 | 578,641 | 554,269 |
| Gross reserves for loss and loss expense at end of year | $5,144,821 | 4,580,903 | 4,260,355 |

$^{1}$2020 includes an adjustment of $2.9 million related to our adoption of ASU 2016-13, *Financial Instruments - Credit Losses*.

Our net loss and loss expense reserves increased by $385.0 million in 2022, $296.2 million in 2021, and $183.1 million in 2020. The loss and loss expense reserves are net of anticipated recoveries for salvage and subrogation claims, which amounted to $91.3 million for 2022, $87.0 million for 2021, and $80.9 million for 2020. The increase in net loss and loss expense reserves in 2022 was primarily driven by increases in exposure due to premium growth.

This increase in our net loss and loss expense reserves was partially offset by favorable prior year loss reserve development. In 2022, we experienced overall net favorable prior year loss reserve development of $78.9 million, compared to $82.9 million in 2021 and $72.9 million in 2020.

The following table summarizes the prior year reserve development by line of business:

| (Favorable)/Unfavorable Prior Year Development ($ in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| General Liability | $(5.0) | (29.0) | (35.0) |
| Commercial Automobile | 22.5 | 13.3 | 7.1 |
| Workers Compensation | (70.0) | (58.0) | (60.0) |
| Businessowners' Policies | (7.3) | (0.4) | 3.9 |
| Commercial Property | (1.6) | (2.6) | 9.2 |
| Bonds | (10.0) | - | - |
| Homeowners | (0.6) | 1.8 | 7.7 |
| Personal Automobile | 0.5 | (0.2) | (1.8) |
| E&S Casualty Lines | (5.0) | (7.0) | - |
| E&S Property Lines | (2.5) | (0.8) | (4.0) |
| Other | 0.1 | - | - |
| Total | $(78.9) | (82.9) | (72.9) |

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 largely driven by the workers compensation line of business, which was impacted by continued favorable medical trends in accident years 2020 and prior, and favorable inception-to-date claim frequencies in accident year 2020. Partially offsetting this net favorable reserve development was $15.0 million of unfavorable casualty

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reserve development in the commercial auto line of business ($22.5 million net of property reserve development), primarily driven by increased loss severities in accident year 2021.

The Insurance Subsidiaries had $82.9 million of favorable prior year reserve development during 2021, which included $81.0 million of net favorable casualty reserve development and $1.9 million of favorable property reserve development. The net favorable casualty reserve development was largely driven by the workers compensation and general liability lines of business. Workers compensation was impacted by continued favorable medical trends in accident years 2019 and prior, and general liability development was attributable to lower loss severities in accident years 2018 and prior. In addition, our E&S casualty lines experienced favorable reserve development of $7.0 million in 2021. Partially offsetting this net favorable reserve development was $15.0 million of unfavorable casualty reserve development in the commercial auto line of business ($13.3 million net of property reserve development), driven by unfavorable reserve development on loss severities in accident years 2016 through 2019.

The Insurance Subsidiaries had $72.9 million of favorable prior year reserve development during 2020, which included $85.0 million of net favorable casualty reserve development and $12.1 million of unfavorable property reserve development. The net favorable casualty reserve development was largely driven by the workers compensation and general liability lines of business. Workers compensation was impacted by continued favorable medical trends in accident years 2018 and prior, and general liability development was attributable to lower loss severities in accident years 2017 and prior. Partially offsetting this net favorable reserve development was $10.0 million of unfavorable casualty reserve development in the commercial auto line of business ($7.1 million net of property reserve development), driven by unfavorable reserve development on loss severities in accident years 2016 through 2019, and higher than expected frequencies in accident year 2019.

(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. We also have exposure to abuse or molestation claims from recently enacted 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 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.

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The following table details our loss and loss expense reserves for various asbestos and environmental claims showing gross and net of reinsurance:

| ($ in millions) | 2022 |  |
| --- | --- | --- |
|  | Gross | Net |
| Asbestos | $5.9 | 4.7 |
| Landfill sites | 11.8 | 7.5 |
| Underground storage tanks | 10.1 | 8.1 |
| Total | $27.8 | 20.3 |

Historically, our asbestos and environmental claims have been significantly lower in volume than many other Standard Commercial Lines carriers since, prior to the introduction of the absolute pollution exclusion endorsement in the mid-1980's, 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:

| ($ in thousands) | 2022 |  | 2021 |  | 2020 |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Gross | Net | Gross | Net | Gross | Net |
| Asbestos |  |  |  |  |  |  |
| Reserves for loss and loss expense at beginning of year | $6,115 | 4,884 | 6,254 | 5,023 | 6,288 | 5,057 |
| Incurred loss and loss expense | 8 | 8 | 51 | 51 | 320 | 320 |
| Less: loss and loss expense paid | (232) | (232) | (190) | (190) | (354) | (354) |
| Reserves for loss and loss expense at the end of year | $5,891 | 4,660 | 6,115 | 4,884 | 6,254 | 5,023 |
| Environmental |  |  |  |  |  |  |
| Reserves for loss and loss expense at beginning of year | $21,658 | 16,191 | 22,276 | 16,398 | 22,413 | 16,532 |
| Incurred loss and loss expense | 696 | (213) | (613) | (14) | (447) | (474) |
| Less: loss and loss expense paid | (477) | (309) | (5) | (193) | 310 | 340 |
| Reserves for loss and loss expense at the end of year | $21,877 | 15,669 | 21,658 | 16,191 | 22,276 | 16,398 |
| Total Asbestos and Environmental Claims |  |  |  |  |  |  |
| Reserves for loss and loss expense at beginning of year | $27,773 | 21,075 | 28,530 | 21,421 | 28,701 | 21,589 |
| Incurred loss and loss expense | 704 | (205) | (562) | 37 | (127) | (154) |
| Less: loss and loss expense paid | (709) | (541) | (195) | (383) | (44) | (14) |
| Reserves for loss and loss expense at the end of year | $27,768 | 20,329 | 27,773 | 21,075 | 28,530 | 21,421 |

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(d) The following is information about incurred and paid claims development as of December 31, 2022, 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 occurring naturally through our portfolio 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 are updated with information available as of December 31, 2022. 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)

| Accident Year | Incurred Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  | As of December 31, 2022 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Unaudited |  |  |  |  |  |  |  |  |  | IBNR | Cumulative Number of Reported Claims |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |  |  |
| 2013 | $1,044,142 | 1,062,045 | 1,047,230 | 1,021,007 | 1,002,316 | 987,763 | 984,858 | 973,739 | 957,958 | 951,813 | 33,631 | 91,959 |
| 2014 |  | 1,107,513 | 1,133,798 | 1,146,990 | 1,124,014 | 1,104,218 | 1,100,208 | 1,089,529 | 1,094,367 | 1,090,345 | 42,087 | 95,835 |
| 2015 |  |  | 1,114,081 | 1,130,513 | 1,144,830 | 1,138,313 | 1,119,441 | 1,108,860 | 1,103,592 | 1,103,543 | 45,698 | 95,173 |
| 2016 |  |  |  | 1,188,608 | 1,203,634 | 1,227,142 | 1,199,734 | 1,180,829 | 1,171,273 | 1,167,539 | 67,934 | 95,944 |
| 2017 |  |  |  |  | 1,270,110 | 1,313,372 | 1,313,585 | 1,288,526 | 1,268,941 | 1,273,039 | 84,415 | 99,877 |
| 2018 |  |  |  |  |  | 1,413,800 | 1,461,603 | 1,457,415 | 1,441,303 | 1,425,540 | 153,214 | 107,095 |
| 2019 |  |  |  |  |  |  | 1,483,945 | 1,523,041 | 1,526,566 | 1,529,859 | 272,639 | 104,096 |
| 2020 |  |  |  |  |  |  |  | 1,591,972 | 1,587,607 | 1,550,195 | 395,519 | 94,752 |
| 2021 |  |  |  |  |  |  |  |  | 1,784,661 | 1,781,054 | 636,984 | 97,914 |
| 2022 |  |  |  |  |  |  |  |  |  | 2,073,343 | 1,089,571 | 94,382 |
|  |  |  |  |  |  |  |  |  |  | Total | 13,946,270 |  |

**All Lines**
(in thousands)

| Accident Year | Cumulative Paid Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Unaudited |  |  |  |  |  |  |  |  |  |  |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |  |
| 2013 | $335,956 | 518,872 | 644,475 | 748,758 | 833,823 | 872,331 | 891,841 | 904,825 | 911,657 |  | 916,769 |
| 2014 |  | 405,898 | 614,075 | 736,154 | 855,959 | 936,425 | 981,868 | 1,002,157 | 1,020,961 |  | 1,032,400 |
| 2015 |  |  | 376,641 | 581,203 | 725,385 | 845,868 | 929,222 | 967,857 | 1,000,509 |  | 1,018,023 |
| 2016 |  |  |  | 387,272 | 617,958 | 764,331 | 892,390 | 983,852 | 1,025,264 |  | 1,061,952 |
| 2017 |  |  |  |  | 433,440 | 678,453 | 829,134 | 954,792 | 1,050,258 |  | 1,116,336 |
| 2018 |  |  |  |  |  | 511,271 | 779,466 | 942,893 | 1,083,556 |  | 1,187,744 |
| 2019 |  |  |  |  |  |  | 510,091 | 781,462 | 949,996 |  | 1,109,628 |
| 2020 |  |  |  |  |  |  |  | 572,302 | 831,976 |  | 988,463 |
| 2021 |  |  |  |  |  |  |  |  | 609,889 |  | 934,965 |
| 2022 |  |  |  |  |  |  |  |  |  |  | 699,789 |
|  |  |  |  |  |  |  |  |  |  | Total | 10,066,069 |
|  |  |  |  |  |  |  |  |  |  | All outstanding liabilities before 2013, net of reinsurance | 379,073 |
|  |  |  |  |  |  |  |  |  |  | Liabilities for loss and loss expenses, net of reinsurance | 4,259,274 |

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# **General Liability**

(in thousands, except for claim counts)

| Incurred Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  |  | As of December 31, 2022 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | IBNR | Cumulative Number of Reported Claims |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |  |  |
| 2013 | $250,609 | 251,421 | 239,776 | 225,709 | 210,785 | 203,831 | 202,697 | 195,697 | 192,782 | 189,594 | 12,561 | 10,462 |
| 2014 |  | 244,312 | 249,946 | 257,132 | 239,333 | 234,082 | 237,125 | 229,679 | 230,247 | 228,933 | 18,901 | 10,704 |
| 2015 |  |  | 254,720 | 245,710 | 246,990 | 233,249 | 219,204 | 214,176 | 211,768 | 210,137 | 19,932 | 10,565 |
| 2016 |  |  |  | 277,214 | 272,048 | 277,986 | 263,245 | 252,733 | 246,643 | 243,669 | 30,556 | 10,825 |
| 2017 |  |  |  |  | 293,747 | 293,128 | 301,384 | 289,883 | 278,607 | 283,379 | 46,761 | 11,324 |
| 2018 |  |  |  |  |  | 317,934 | 336,326 | 345,224 | 332,013 | 324,567 | 92,627 | 11,802 |
| 2019 |  |  |  |  |  |  | 347,150 | 356,363 | 358,301 | 366,184 | 154,311 | 11,575 |
| 2020 |  |  |  |  |  |  |  | 361,554 | 360,302 | 352,834 | 201,089 | 9,645 |
| 2021 |  |  |  |  |  |  |  |  | 422,748 | 414,279 | 287,278 | 10,136 |
| 2022 |  |  |  |  |  |  |  |  |  | 482,590 | 409,505 | 8,988 |
|  |  |  |  |  |  |  |  |  | Total | 3,096,166 |  |  |

# **General Liability**

(in thousands)

| Cumulative Paid Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  |  | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  |  |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |  |
| 2013 | $12,789 | 35,113 | 72,127 | 104,587 | 139,114 | 153,628 | 163,764 | 169,847 | 172,983 | 174,987 |  |
| 2014 |  | 14,901 | 46,825 | 79,972 | 121,969 | 154,957 | 179,192 | 187,352 | 198,772 | 204,212 |  |
| 2015 |  |  | 14,665 | 39,978 | 78,668 | 116,804 | 144,216 | 157,071 | 173,697 | 179,117 |  |
| 2016 |  |  |  | 15,684 | 46,549 | 89,431 | 133,757 | 164,136 | 181,770 | 199,032 |  |
| 2017 |  |  |  |  | 17,366 | 49,470 | 92,355 | 131,980 | 167,002 | 201,948 |  |
| 2018 |  |  |  |  |  | 19,531 | 60,784 | 108,421 | 155,538 | 197,286 |  |
| 2019 |  |  |  |  |  |  | 18,097 | 58,284 | 100,206 | 160,680 |  |
| 2020 |  |  |  |  |  |  |  | 21,858 | 58,699 | 100,356 |  |
| 2021 |  |  |  |  |  |  |  |  | 28,069 | 71,664 |  |
| 2022 |  |  |  |  |  |  |  |  |  | 31,502 |  |
|  |  |  |  |  |  |  |  |  | Total | 1,520,784 |  |
|  |  |  |  |  |  |  |  |  | All outstanding liabilities before 2013, net of reinsurance | 113,263 |  |
|  |  |  |  |  |  |  |  |  | Liabilities for loss and loss expenses, net of reinsurance | 1,688,645 |  |

# **Workers Compensation**

(in thousands, except for claim counts)

| Incurred Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  |  | As of December 31, 2022 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | IBNR | Cumulative Number of Reported Claims |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |  |  |
| 2013 | $199,794 | 194,318 | 187,658 | 173,160 | 166,662 | 162,787 | 159,767 | 157,645 | 153,436 | 149,975 | 16,818 | 11,385 |
| 2014 |  | 199,346 | 187,065 | 182,579 | 172,515 | 164,420 | 160,646 | 159,604 | 161,021 | 158,479 | 17,598 | 10,498 |
| 2015 |  |  | 193,729 | 194,639 | 183,604 | 179,642 | 176,242 | 172,572 | 170,577 | 169,008 | 18,790 | 10,554 |
| 2016 |  |  |  | 196,774 | 184,946 | 176,248 | 166,009 | 156,540 | 155,210 | 151,961 | 21,205 | 10,586 |
| 2017 |  |  |  |  | 195,202 | 184,306 | 175,853 | 162,672 | 154,159 | 151,221 | 19,961 | 10,813 |
| 2018 |  |  |  |  |  | 193,894 | 193,818 | 181,151 | 173,428 | 167,974 | 25,963 | 11,133 |
| 2019 |  |  |  |  |  |  | 188,625 | 188,596 | 174,912 | 164,940 | 32,088 | 10,324 |
| 2020 |  |  |  |  |  |  |  | 168,643 | 168,594 | 159,229 | 44,323 | 7,534 |
| 2021 |  |  |  |  |  |  |  |  | 185,198 | 185,151 | 74,474 | 8,547 |
| 2022 |  |  |  |  |  |  |  |  |  | 207,206 | 116,968 | 8,517 |
|  |  |  |  |  |  |  |  |  | Total | 1,665,144 |  |  |

109

# **Workers Compensation**  
(in thousands)

# **Cumulative Paid Loss and Allocated Loss Expenses, Net of Reinsurance**

| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |  |  |
| 2013 | $36,829 | 74,568 | 96,376 | 109,739 | 118,669 | 124,130 | 126,822 | 129,224 | 130,467 |  | 131,390 |
| 2014 |  | 35,924 | 78,944 | 100,876 | 113,626 | 119,392 | 124,077 | 127,858 | 130,726 |  | 132,809 |
| 2015 |  |  | 33,857 | 77,320 | 98,195 | 112,601 | 120,097 | 124,046 | 129,019 |  | 132,235 |
| 2016 |  |  |  | 34,525 | 78,531 | 98,037 | 109,166 | 115,159 | 119,800 |  | 122,186 |
| 2017 |  |  |  |  | 40,375 | 82,216 | 100,645 | 110,645 | 116,426 |  | 120,468 |
| 2018 |  |  |  |  |  | 41,122 | 84,780 | 105,903 | 119,904 |  | 126,206 |
| 2019 |  |  |  |  |  |  | 37,826 | 77,878 | 100,812 |  | 112,649 |
| 2020 |  |  |  |  |  |  |  | 29,559 | 68,277 |  | 87,211 |
| 2021 |  |  |  |  |  |  |  |  | 32,918 |  | 76,015 |
| 2022 |  |  |  |  |  |  |  |  |  |  | 45,814 |
|  |  |  |  |  |  |  |  |  |  | Total | 1,086,983 |
| All outstanding liabilities before 2013, net of reinsurance |  |  |  |  |  |  |  |  |  |  | 230,858 |
| Liabilities for loss and loss expenses, net of reinsurance |  |  |  |  |  |  |  |  |  |  | 809,019 |

# **Commercial Automobile**  
(in thousands, except for claim counts)

| Incurred Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  |  | As of December 31, 2022 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | IBNR | Cumulative Number of Reported Claims |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |  |  |
| 2013 | $188,289 | 205,282 | 209,197 | 207,994 | 210,410 | 207,975 | 209,602 | 208,040 | 207,554 | 207,564 | 535 | 26,221 |
| 2014 |  | 200,534 | 212,725 | 216,824 | 219,925 | 218,172 | 217,334 | 216,461 | 214,992 | 214,816 | 516 | 28,263 |
| 2015 |  |  | 220,994 | 240,958 | 253,074 | 259,495 | 260,565 | 261,386 | 262,054 | 262,766 | 1,627 | 30,085 |
| 2016 |  |  |  | 255,187 | 274,367 | 285,302 | 285,304 | 290,359 | 291,674 | 294,297 | 2,635 | 32,041 |
| 2017 |  |  |  |  | 301,274 | 329,389 | 324,291 | 322,197 | 326,461 | 325,654 | 4,664 | 33,345 |
| 2018 |  |  |  |  |  | 347,908 | 352,487 | 345,547 | 350,310 | 348,202 | 11,375 | 36,002 |
| 2019 |  |  |  |  |  |  | 385,212 | 398,346 | 404,854 | 407,051 | 32,019 | 36,375 |
| 2020 |  |  |  |  |  |  |  | 381,654 | 381,163 | 375,636 | 70,872 | 30,343 |
| 2021 |  |  |  |  |  |  |  |  | 483,831 | 512,673 | 155,984 | 36,843 |
| 2022 |  |  |  |  |  |  |  |  |  | 572,421 | 278,004 | 36,909 |
|  |  |  |  |  |  |  |  |  |  | Total | 3,521,080 |  |

# **Commercial Automobile**  
(in thousands)

# **Cumulative Paid Loss and Allocated Loss Expenses, Net of Reinsurance**

| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |  |  |
| 2013 | $76,469 | 109,893 | 140,015 | 169,850 | 189,626 | 200,750 | 202,622 | 205,064 | 206,162 |  | 206,641 |
| 2014 |  | 80,810 | 117,169 | 148,884 | 180,701 | 202,821 | 209,655 | 212,481 | 213,689 |  | 213,847 |
| 2015 |  |  | 91,347 | 132,260 | 175,866 | 211,515 | 238,142 | 249,905 | 255,600 |  | 257,668 |
| 2016 |  |  |  | 106,022 | 155,720 | 200,701 | 233,939 | 264,858 | 277,242 |  | 284,870 |
| 2017 |  |  |  |  | 117,287 | 178,823 | 220,422 | 262,349 | 296,600 |  | 309,810 |
| 2018 |  |  |  |  |  | 134,867 | 193,788 | 243,713 | 291,725 |  | 319,819 |
| 2019 |  |  |  |  |  |  | 149,538 | 221,590 | 283,410 |  | 331,152 |
| 2020 |  |  |  |  |  |  |  | 139,016 | 198,034 |  | 254,365 |
| 2021 |  |  |  |  |  |  |  |  | 187,200 |  | 283,411 |
| 2022 |  |  |  |  |  |  |  |  |  |  | 216,180 |
|  |  |  |  |  |  |  |  |  |  | Total | 2,677,763 |
| All outstanding liabilities before 2013, net of reinsurance |  |  |  |  |  |  |  |  |  |  | 4,650 |
| Liabilities for loss and loss expenses, net of reinsurance |  |  |  |  |  |  |  |  |  |  | 847,967 |

110

# **Businessowners' Policies**  
(in thousands, except for claim counts)

| Incurred Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  |  | As of December 31, 2022 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | IBNR | Cumulative Number of Reported Claims |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |  |  |
| 2013 | $49,617 | 42,618 | 41,005 | 40,624 | 41,369 | 39,709 | 39,699 | 39,358 | 38,930 | 38,984 | 169 | 3,484 |
| 2014 |  | 55,962 | 60,949 | 62,548 | 59,806 | 58,517 | 58,093 | 57,302 | 57,483 | 57,355 | 96 | 4,067 |
| 2015 |  |  | 52,871 | 53,768 | 57,245 | 55,925 | 54,454 | 52,325 | 52,200 | 52,514 | 608 | 3,968 |
| 2016 |  |  |  | 52,335 | 53,792 | 54,993 | 53,835 | 53,367 | 53,147 | 53,201 | 828 | 3,854 |
| 2017 |  |  |  |  | 46,624 | 48,698 | 51,524 | 48,067 | 43,606 | 42,374 | 879 | 3,895 |
| 2018 |  |  |  |  |  | 55,024 | 57,202 | 62,427 | 60,393 | 56,625 | 3,125 | 4,262 |
| 2019 |  |  |  |  |  |  | 53,531 | 59,466 | 64,667 | 65,762 | 8,181 | 3,639 |
| 2020 |  |  |  |  |  |  |  | 71,836 | 73,680 | 73,077 | 7,630 | 5,421 |
| 2021 |  |  |  |  |  |  |  |  | 66,312 | 63,648 | 10,539 | 3,454 |
| 2022 |  |  |  |  |  |  |  |  |  | 86,194 | 33,995 | 3,074 |
|  |  |  |  |  |  |  |  |  | Total | 589,734 |  |  |

# **Businessowners' Policies**  
(in thousands)

| Cumulative Paid Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| 2013 | $17,412 | 26,592 | 30,845 | 34,760 | 37,993 | 38,464 | 39,085 | 39,212 | 39,440 | 39,445 |
| 2014 |  | 28,914 | 40,584 | 44,911 | 49,460 | 52,940 | 55,458 | 55,708 | 55,729 | 56,861 |
| 2015 |  |  | 24,189 | 36,014 | 42,710 | 46,571 | 49,073 | 49,839 | 50,005 | 51,120 |
| 2016 |  |  |  | 24,655 | 36,848 | 39,973 | 45,308 | 48,786 | 50,536 | 52,070 |
| 2017 |  |  |  |  | 21,865 | 31,337 | 36,950 | 40,359 | 39,940 | 40,845 |
| 2018 |  |  |  |  |  | 29,995 | 39,791 | 44,316 | 48,144 | 51,239 |
| 2019 |  |  |  |  |  |  | 27,718 | 41,587 | 46,113 | 52,887 |
| 2020 |  |  |  |  |  |  |  | 43,376 | 57,210 | 60,596 |
| 2021 |  |  |  |  |  |  |  |  | 34,412 | 47,436 |
| 2022 |  |  |  |  |  |  |  |  |  | 36,421 |
|  |  |  |  |  |  |  |  |  | Total | 488,920 |
|  |  |  |  |  |  |  |  |  | All outstanding liabilities before 2013, net of reinsurance | 9,657 |
|  |  |  |  |  |  |  |  |  | Liabilities for loss and loss expenses, net of reinsurance | 110,471 |

# **Commercial Property**  
(in thousands, except for claim counts)

| Incurred Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  |  | As of December 31, 2022 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | IBNR | Cumulative Number of Reported Claims |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |  |  |
| 2013 | $88,101 | 90,639 | 90,103 | 90,005 | 90,436 | 90,278 | 90,218 | 90,486 | 90,461 | 90,799 | 4 | 5,716 |
| 2014 |  | 141,192 | 136,249 | 136,820 | 138,751 | 138,155 | 136,212 | 136,237 | 136,151 | 136,112 | 5 | 6,517 |
| 2015 |  |  | 110,270 | 109,513 | 111,750 | 111,566 | 112,496 | 112,582 | 112,937 | 112,915 | 9 | 6,407 |
| 2016 |  |  |  | 121,927 | 126,185 | 125,937 | 124,487 | 123,567 | 123,005 | 123,126 | 14 | 6,743 |
| 2017 |  |  |  |  | 138,773 | 149,106 | 149,044 | 153,664 | 154,119 | 154,942 | 20 | 6,906 |
| 2018 |  |  |  |  |  | 183,177 | 190,834 | 192,558 | 194,016 | 196,413 | 47 | 8,293 |
| 2019 |  |  |  |  |  |  | 173,826 | 177,075 | 179,574 | 180,605 | 230 | 7,315 |
| 2020 |  |  |  |  |  |  |  | 232,060 | 225,278 | 226,107 | 2,023 | 10,147 |
| 2021 |  |  |  |  |  |  |  |  | 246,319 | 239,822 | 4,672 | 7,942 |
| 2022 |  |  |  |  |  |  |  |  |  | 297,318 | 56,716 | 7,224 |
|  |  |  |  |  |  |  |  |  | Total | 1,758,159 |  |  |

111

**Commercial Property**
(in thousands)

**Cumulative Paid Loss and Allocated Loss Expenses, Net of Reinsurance**

| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |  |  |
| 2013 | $60,244 | 87,874 | 90,446 | 90,350 | 90,840 | 90,696 | 90,646 | 90,917 | 90,891 |  | 91,206 |
| 2014 |  | 101,131 | 132,909 | 136,634 | 137,883 | 137,418 | 136,008 | 135,928 | 136,141 |  | 136,107 |
| 2015 |  |  | 79,048 | 106,182 | 109,829 | 110,994 | 110,969 | 112,117 | 112,410 |  | 112,391 |
| 2016 |  |  |  | 83,966 | 118,789 | 122,930 | 123,828 | 123,601 | 122,909 |  | 123,265 |
| 2017 |  |  |  |  | 99,047 | 142,338 | 148,589 | 152,018 | 153,750 |  | 154,689 |
| 2018 |  |  |  |  |  | 135,416 | 184,813 | 192,698 | 193,487 |  | 196,376 |
| 2019 |  |  |  |  |  |  | 130,891 | 172,768 | 177,825 |  | 179,538 |
| 2020 |  |  |  |  |  |  |  | 164,613 | 215,107 |  | 220,953 |
| 2021 |  |  |  |  |  |  |  |  | 161,757 |  | 227,259 |
| 2022 |  |  |  |  |  |  |  |  |  |  | 186,677 |
|  |  |  |  |  |  |  |  |  |  | Total | 1,628,461 |
|  |  |  |  |  |  |  |  |  |  | All outstanding liabilities before 2013, net of reinsurance | 579 |
|  |  |  |  |  |  |  |  |  |  | Liabilities for loss and loss expenses, net of reinsurance | 130,277 |

**Personal Automobile**
(in thousands, except for claim counts)

| Incurred Loss and Allocated Loss Expenses, Net of Reinsurance |  |  |  |  |  |  |  |  |  |  | As of December 31, 2022 |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | IBNR | Cumulative Number of Reported Claims |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |  |  |
| 2013 | $108,417 | 109,620 | 106,225 | 106,703 | 107,759 | 107,680 | 107,916 | 107,803 | 107,754 | 107,758 | 57 | 22,376 |
| 2014 |  | 102,250 | 109,325 | 106,757 | 107,452 | 106,821 | 107,104 | 107,106 | 107,566 | 107,543 | 47 | 22,509 |
| 2015 |  |  | 96,387 | 99,698 | 100,214 | 99,570 | 98,718 | 98,588 | 98,596 | 98,669 | 117 | 20,865 |
| 2016 |  |  |  | 92,727 | 98,032 | 100,202 | 101,140 | 99,544 | 99,858 | 100,395 | 409 | 19,827 |
| 2017 |  |  |  |  | 101,880 | 105,139 | 103,653 | 103,260 | 103,557 | 105,079 | 710 | 20,748 |
| 2018 |  |  |  |  |  | 111,594 | 113,569 | 112,030 | 112,418 | 113,647 | 2,098 | 22,684 |
| 2019 |  |  |  |  |  |  | 114,043 | 115,688 | 115,993 | 118,669 | 4,163 | 22,860 |
| 2020 |  |  |  |  |  |  |  | 95,625 | 94,532 | 90,179 | 6,584 | 17,533 |
| 2021 |  |  |  |  |  |  |  |  | 108,244 | 102,777 | 10,411 | 19,672 |
| 2022 |  |  |  |  |  |  |  |  |  | 121,030 | 26,632 | 20,345 |
|  |  |  |  |  |  |  |  |  |  | Total | 1,065,746 |  |

**Personal Automobile**
(in thousands)

**Cumulative Paid Loss and Allocated Loss Expenses, Net of Reinsurance**

| Accident Year | Unaudited |  |  |  |  |  |  |  |  |  | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |  |  |
| 2013 | $61,384 | 80,861 | 92,637 | 100,528 | 105,131 | 106,679 | 106,876 | 107,419 | 107,423 |  | 107,417 |
| 2014 |  | 62,519 | 83,739 | 92,589 | 99,173 | 104,055 | 105,709 | 106,478 | 107,108 |  | 107,325 |
| 2015 |  |  | 58,725 | 76,470 | 87,163 | 92,102 | 95,997 | 97,275 | 97,761 |  | 97,920 |
| 2016 |  |  |  | 57,961 | 76,823 | 86,752 | 94,372 | 98,080 | 98,977 |  | 99,656 |
| 2017 |  |  |  |  | 62,854 | 82,730 | 91,479 | 97,628 | 100,521 |  | 103,556 |
| 2018 |  |  |  |  |  | 69,721 | 89,628 | 99,982 | 107,026 |  | 109,644 |
| 2019 |  |  |  |  |  |  | 69,699 | 92,162 | 102,930 |  | 109,844 |
| 2020 |  |  |  |  |  |  |  | 53,407 | 68,691 |  | 76,710 |
| 2021 |  |  |  |  |  |  |  |  | 65,325 |  | 84,743 |
| 2022 |  |  |  |  |  |  |  |  |  |  | 75,994 |
|  |  |  |  |  |  |  |  |  |  | Total | 972,809 |
|  |  |  |  |  |  |  |  |  |  | All outstanding liabilities before 2013, net of reinsurance | 7,045 |
|  |  |  |  |  |  |  |  |  |  | Liabilities for loss and loss expenses, net of reinsurance | 99,982 |

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