Risk Factors Dashboard
Once a year, publicly traded companies issue a comprehensive report of their business, called a 10-K. A component mandated in the 10-K is the ‘Risk Factors’ section, where companies disclose any major potential risks that they may face. This dashboard highlights all major changes and additions in new 10K reports, allowing investors to quickly identify new potential risks and opportunities.
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Risk Factors - SIGI
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Item 1A. "Risk Factors." of this Form 10-K. For additional investment information, see the "Investments Segment" section in Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." and Note 5. "Investments" included in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
We are subject to losses from catastrophic events.
Our ability to reduce our risk exposure depends on the availability and cost of reinsurance.
We are subject to various modeling risks that could have a material adverse impact on our business results.
Our investments are exposed to credit risk, interest rate fluctuation, and changes in value.
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.
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 have a dedicated unit, led by the Senior Vice President ("SVP") of IT Enterprise Strategy and Execution, to implement cybersecurity controls, assess and report on cybersecurity risks, and consult with our ERM unit, which is responsible for identifying, measuring, monitoring, and reporting on key enterprise-wide risks, including cybersecurity risks.
We work with industry-leading security consulting and technology partners, employing a "defense-in-depth" approach that uses multiple security measures to protect the integrity of our proprietary and confidential information. This approach aligns with the National Institute of Standards and Technology Cyber Security Framework and provides preventative, detective, and responsive measures to identify and manage risks. We periodically review our strategy and modify its implementation based on threat trends, program maturity, assessment results, and the advice of third-party security consultants. We have documented information security policies, procedures, and guidelines, known as our "Written Information Security Program." Our program (i) balances responsiveness to rapidly changing threats with ensuring our IT security environment's sustainability and overall
The Executive Vice President ("EVP") & Chief Information Officer ("CIO") and the SVP of Enterprise Strategy and Execution provide quarterly updates on the strength of our cyber risk control environment, emerging cyber threat issues, and the results of external assessments by outside security consultants and assessors to the Board’s Risk Committee. The Board's Risk Committee oversees our ERM framework and practices. The Board's Risk Committee oversees our ERM framework and practices and assists the Board in overseeing our operational activities and identifying and reviewing related risks. It assists the Board in overseeing our operational activities, including the Company's information technology security program, and identifying and reviewing related risks.
actuarial functions in various executive leadership roles. His predecessor was Christopher Cunniff, who worked for us for approximately eight years.
Our IRP describes the circumstances that require internal and external notifications of cybersecurity incidents that (i) relate to any of our computer systems or networks and compromise the confidentiality, integrity, or availability of the systems or networks, (ii) compromise the confidentiality, integrity, or availability of any sensitive data that belongs to us or a third party and is in our care or custody, or (iii) involve one or more third parties with whom we share sensitive data. It describes the (i) involvement of the SVP of Enterprise Strategy and Execution, (ii) escalation process of such incidents to senior management, including the General Counsel, CIO, Chief Financial Officer, CRO, and CEO, (iii) reporting process to the Risk Committee and Board, and (iv) the notification and disclosure process to customers, distribution partners, regulators, and the SEC. It describes the (i) involvement of the SVP of Enterprise Strategy and Execution, (ii) escalation process of such incidents to senior management, 34 Table of Contentsincluding the General Counsel, CIO, Chief Financial Officer, CRO, and Chief Executive Officer, (iii) reporting process to the Risk Committee and Board, and (iv) the notification and disclosure process to customers, distribution partners, regulators, and the SEC. The IRP also provides guidance on evaluating potential cyber events and suspicious cyber occurrences. The IRP also provides guidance on how to evaluate potential cyber events and suspicious cyber occurrences. We engage outside legal counsel and technical experts to regularly review the IRP and use internal teams and outside advisors with specialized skills to support the response and recovery efforts of proprietary and confidential information.
Regulation
Primary Oversight by the States in Which We Operate
State law primarily regulates insurance and insurer taxation, as delegated by the U.S. Congress 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.
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•Protection of policyholders: Oversight of matters including certificates of authority and other insurance company licenses; licensing and compensation of distribution partners; underwriting criteria; premium rates (required not to be excessive, inadequate, or unfairly discriminatory); policy forms; policy terminations; claims handling and related practices; cybersecurity; data protection and customer privacy; reporting of premium and loss statistical information; periodic market conduct examinations; unfair trade practices; mandatory participation in shared market mechanisms, such as assigned risk pools and reinsurance pools; mandatory participation in state guaranty funds; and mandated continuing workers compensation coverage post-termination of employment.
•Protection of policyholders, claimants, and shareholders: Oversight of matters related to our ownership of the Insurance Subsidiaries, including registration of insurance holding company systems in states where we have domiciled insurance subsidiaries, reporting about intra-holding company system developments, self-assessment of current and future risks, including cybersecurity and climate change, and required pre-approval of certain transactions that may materially affect the operations, management, or financial condition of the insurers, including dividends and change in control.
NAIC Financial Monitoring Tools
Our various state insurance regulators are members of the National Association of Insurance Commissioners ("NAIC"), which has established statutory accounting principles ("SAP"), 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 allows state insurance departments to recognize and rely on the financial examinations and other reviews conducted by their counterparts, creating efficiencies and limiting overlapping examinations of the same insurance companies. This program permits state insurance departments to recognize and rely on the financial examinations and other reviews their counterparts conduct, creating efficiencies and limiting overlapping examinations of the same insurance companies.
The NAIC's various financial monitoring tools are generally predicated on NAIC model laws and regulations that have been enacted or adopted by regulators in states in which our Insurance Subsidiaries are organized. The following are among the most material to the operations:
•The Insurance Regulatory Information System ("IRIS"). IRIS identifies thirteen (13) industry financial ratios and specifies "usual values" for each. Departures from the usual values on four or more financial ratios can prompt inquiries from individual state insurance departments about certain aspects of an insurer's business. Departure from the usual values on four or more financial ratios can lead to inquiries from individual state insurance departments about certain aspects of an insurer's business. Our Insurance Subsidiaries have consistently met most IRIS ratio tests.
•Risk-Based Capital ("RBC"). RBC is measured by four major property and casualty insurance risks: (i) asset risk; (ii) credit risk; (iii) underwriting risk; and (iv) off-balance sheet risk. Regulators increase their scrutiny, up to and including intervention, as an insurer's total adjusted capital declines below the NAIC-required capital level. Based on our 2025 statutory financial statements prepared in accordance with SAP, all our Insurance Subsidiaries had total adjusted capital substantially exceeding the regulatory action levels defined by the NAIC.
•Group Capital Calculation ("GCC"). The GCC expands the existing RBC calculation to include (i) capital requirements for other regulated entities in the group and (ii) defined capital calculations for other group entities that are unregulated. The calculation provides state insurance regulators with additional analytical information to assess group risks and capital adequacy, complementing the existing holding company disclosures and analyses. The calculation provides state insurance regulators with additional analytical information for assessing group risks and capital adequacy, complementing the existing holding company disclosures and analyses. Based on our 2025 statutory financial statements prepared in accordance with SAP, our GCC ratio exceeded the regulatory action minimum threshold.
•Annual Financial Reporting Regulation (referred to as the "Model Audit Rule"). The Model Audit Rule, based closely on the Sarbanes-Oxley Act of 2002, as amended ("Sarbanes-Oxley Act"), regulates (i) auditor independence, (ii) corporate governance, and (iii) internal control over financial reporting. As permitted under the Model Audit Rule, the Audit Committee of our Board of Directors ("Board") serves as the audit committee of each of our Insurance Subsidiaries.
•Own Risk and Solvency Assessment ("ORSA"). ORSA requires an insurer to maintain a framework for identifying, assessing, monitoring, managing, and reporting "material and relevant risks" associated with the insurer's (or insurance group's) current and future business plans. ORSA, adopted by the state domicile insurance regulators of our Insurance Subsidiaries, requires an insurer to file an annual internal assessment of the adequacy of its risk management
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framework and its current and projected solvency position. For more information on our internal process of assessing our significant risks, refer to the "Corporate Governance, Sustainability, and Social Responsibility" section below.
NRSROs
Rating agencies, although not formal regulators, monitor our capital adequacy. Two are (i) AM Best, with its Best Capital Adequacy Ratio ("BCAR") model, and (ii) S&P, with its capital model. Both evaluate insurer balance sheet strength, comparing available capital to estimated required capital at various probability or rating levels. Both evaluate the strength of an insurer's balance sheet, comparing available capital to estimated required capital at various probability or rating levels. BCAR and the S&P model differ from the NAIC financial monitoring tools, particularly RBC. While RBC, the BCAR model, and the S&P capital model show similar direction as scenarios change, they react differently to variations in economic conditions, underwriting and investment portfolio mix, and capital. We regularly evaluate our capital adequacy relative to these capital models to ensure we can effectively pursue our business strategies. Rating agencies also revise their capital adequacy models and requirements more frequently than the NAIC updates its financial monitoring tools.
Federal Regulation
While primarily regulated at the state level, our business is subject to federal laws and regulations, including:
•The McCarran-Ferguson Act;
•The Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA");
•The NFIP, overseen by the Mitigation Division of the Federal Emergency Management Agency;
•The Medicare, Medicaid, and SCHIP Extension Act of 2007, which subjects our workers compensation business to Mandatory Medicare Secondary Payer Reporting;
•The economic and trade sanctions of the Office of Foreign Assets Control;
•Various privacy laws related to possessing personal non-public information, including the following:
◦Gramm-Leach-Bliley Act;
◦Fair Credit Reporting Act;
◦Drivers Privacy Protection Act; and
◦Health Insurance Portability and Accountability Act.
•The Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) govern publicly-traded companies. These laws require or permit national stock exchanges or associations, such as the Nasdaq Stock Market LLC, where we list our equity securities, to mandate certain governance practices.
The Dodd-Frank Act, enacted in 2010 in response to the 2008 and 2009 financial market crises, provided for some public company corporate governance reforms and some oversight of the business of insurance, including:
•Establishing the Federal Insurance Office ("FIO") under the U.S. Department of the Treasury; and
•Granting the Federal Reserve oversight of financial services firms designated as systemically important.
The FIO, consistent with its authority under the Dodd-Frank Act (i) negotiated a covered agreement with the European Union that, among other things, impacted reinsurance collateral requirements for foreign reinsurers and (ii) has been gathering insurance market data.
For additional information on regulation and the potential impact of regulatory changes on our business, refer to the regulation risk factor within Item 1A. "Risk Factors." of this Form 10-K.
Corporate Governance, Sustainability, and Social Responsibility
We strive to maintain high ethics and integrity in our business practices. Our focus includes understanding and mitigating risk, serving customers and distribution partners responsibly, enabling our employees’ professional development and work/life balance, being environmentally responsible, and helping the communities where we live, work, and serve. We are committed to understanding and mitigating risk, serving customers and distribution partners responsibly, enabling our employees’ professional development and work/life balance, and helping the communities where we live, work, and serve while being environmentally responsible.
Corporate Governance
Strong governance, oversight, and transparency form the foundation of our financial and operating success. Our mature risk culture and governance structure are cornerstones of our risk management framework, designed to enhance decision-making and strengthen risk-reward evaluations.
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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 consists of the individual business functions that deliberately assume, own, and manage the risk on a daily operational basis.
•The second line of defense focuses on risk oversight, supporting the first line in understanding, monitoring, and managing our risk profile through our ERC and dedicated risk team led by our Chief Risk Officer ("CRO").
•The third line of defense is our Internal Audit team, which offers independent, objective assurance regarding 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 targeted initiatives to evaluate and address risk in specific business areas.
Our risk governance structure consists of the following major components:
Board Oversight
Oversight and guidance are our Board's primary functions. The Board and its committees ("Board Committees") oversee our business performance and the management team ("Management"). The Board reviews and discusses Management reports about our performance, strategy, risks, and significant issues. Eleven of twelve Board members are independent. Twelve of thirteen Board members are independent.
Our Board oversees our Enterprise Risk Management ("ERM") process, and all Board Committees oversee risks specific to their areas of supervision and report their activities and findings to the entire Board. The Board's Risk Committee oversees our ERM framework and practices and assists the Board in overseeing our operational activities and identifying and reviewing related risks.
Management and Operating Committees
Our Chief Executive Officer ("CEO") directs the implementation of our business strategy. Management regularly reports to the Board on significant events, issues, and risks that may materially affect our business or financial performance. A description of each Management committee and our ERM function follows:
•Management Investment Committee ("MIC") - Responsible for (i) setting and implementing the investment objectives and asset allocation, (ii) approving and overseeing compliance with investment policies, (iii) selecting qualified external investment managers and advisors, and (iv) monitoring performance, transactions, and specific risk metrics. Our investment team and external investment managers execute our investment strategy and objectives. The MIC meets quarterly and as needed, and provides the Board's Finance and Investments Committee with quarterly reports. The MIC meets quarterly and more often as needed, and reports quarterly to the Board's Finance and Investment Committee.
•Underwriting Committee - Responsible for (i) establishing and reviewing authority levels of the CUOs and (ii) reviewing and making decisions on any underwriting transaction and/or action outside the CUO's authority. The Underwriting Committee oversees the distribution of underwriting authority across our insurance operations. The Underwriting Committee oversees the underwriting authority distribution process across our insurance operations. This committee meets as needed and evaluates various information related to specific accounts, including underwriting, risk management, claims, and market considerations, as well as projected catastrophe modeling metrics when considering a
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large property account. Annually, the Board's Risk Committee receives quality assurance reports focused on underwriting guidelines and authority. The Risk Committee reviews underwriting metrics quarterly.
•Enterprise Project Management Office ("EPMO") - Responsible for the review, approval, and continued oversight of large, strategic, transformational, or high-risk projects. Our EPMO framework is based on the Project Management Institute leading practices. Projects above a certain dollar threshold require Board approval. The EPMO includes senior management representatives from all primary business and corporate areas. It meets regularly to review all significant initiatives, receive status reports, and approve project requests. It meets regularly to review all significant 17 Table of Contentsinitiatives and receives status reports on other projects.
•Large Claims Committee - Reviews and approves all claim loss or loss reserves or payments above the Chief Claims Officer's authority. Claims that (i) have or are likely to exceed a reinsurance policy coverage limit, (ii) have bad faith exposure of $15 million or more, (iii) are likely to generate significant press interest or have a reputational impact, or (iv) potentially create a significant legal precedent on an insurance coverage issue are reported to the Board's Audit Committee. Claims that (i) have or are likely to exceed a reinsurance policy coverage limit, (ii) have bad faith exposure of $15 million or more, (iii) are likely to generate significant news interest or negative publicity, or (iv) potentially create a significant legal precedent on an insurance coverage issue are reported to the Board's Audit Committee. The Large Claims Committee meets as needed.
•Reserve Committee - Responsible for monitoring loss and loss expense reserve levels and taking management actions on financial recording of reserves. The Reserve Committee reports reserve indications and actions to the Board, and its Audit Committee. Key reserve metrics are also reported to the ERC and the Board's Risk Committee. In addition, key reserve metrics are reported to the ERC and the Board's Risk Committee. The Reserve Committee meets quarterly and as needed.
•Executive Risk Committee - Responsible for evaluating and supervising our risk profile and determining future risk management actions supporting our overall risk profile. The ERC provides management oversight of our ERM function and relies on several management committees to analyze and manage specific major risks. The ERC provides management oversight of our ERM function. The ERC meets quarterly and as needed, reviewing various topics and the interrelation of our significant risks, including capital modeling results, capital adequacy, risk metrics, emerging risks, and sensitivity analysis. The ERC meets quarterly, and as needed, to review and discuss various topics and the interrelation of our significant risks, including capital modeling results, capital adequacy, risk metrics, emerging risks, and sensitivity analysis. The Board's Risk Committee receives quarterly reports on enterprise and emerging risks.
•Disclosure Committee - Responsible for establishing and implementing procedures to ensure compliance with Regulation FD and other applicable securities laws. This committee meets quarterly and as needed, and reports quarterly to the Board's Audit Committee.
•Market Security Committee - Responsible for reinsurance purchase decisions, reinsurer counterparty risk assessment, approval of individual reinsurers' placement on our treaties, and catastrophe risk monitoring. The MSC is comprised of executives and senior leaders with diverse financial and underwriting expertise. It meets semiannually, before each major treaty renewal and as needed. The MSC updates the Board's Risk Committee at least semiannually on reinsurance purchases, market trends, and changes in treaty structure, terms, and conditions. For any reinsurance-related catastrophe bond issuance, the Board’s Finance and Investments Committee reviews and approves any related security offerings.
ERM Function
The ERM unit identifies, measures, monitors, and reports key and aggregated enterprise-wide risks to the ERC, the Board and its Risk Committee. The ERM unit collaborates with other functional areas to develop appropriate responses to identified risks and support the successful execution of our business strategies. The ERM unit works with other functional areas to develop appropriate responses to identified risks and support the successful execution of our business strategy.
We rely on quantitative and qualitative tools to identify, prioritize, and manage our major risks, including proprietary and third-party computer modeling and other analyses. When appropriate, we engage subject matter experts, such as external actuaries, third-party risk modeling firms, and IT and cybersecurity consultants. Our Insurance Subsidiaries submit an annual ORSA summary report to their domiciliary state insurance regulators. ORSA includes an internal prospective solvency assessment developed by the CRO, in coordination with the ERC, that our Board reviews. ORSA includes an internal prospective solvency assessment developed by the Chief Risk Officer ("CRO"), in coordination with the ERC, that our Board reviews.
We categorize our major risks into five broad categories:
•Asset risk, arising primarily from our investment portfolio, reinsurance recoverables, and other receivables including credit and market risk;
•Underwriting risk, which is the risk our insured losses exceed our expectations, and includes:
◦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.
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•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 costs;
•Other risks, which include a broad range of risks, many difficult to quantify, like talent/human capital; market conditions; operational, economic, legal, regulatory, reputational, and strategic risks; and the risks of fraud, human failure, modeling, inadequate business continuity plans, and failure of controls or systems, including over cybersecurity risk; and
•Emerging risks, which include risks in any category that are new, known, but evolving rapidly, or increasing substantially compared to historical levels. For example, we consider emerging risks to include (i) heightened levels of economic and social inflation, (ii) the enactment of reviver statutes for abuse victims, (iii) climate change, (iv) the increased threat of cyber incidents, and (v) the increased use of artificial intelligence.
The table below maps our management and operating committees to their responsibilities for our five major risks.
Our risk governance structure facilitates effective risk conversations across all levels and disciplines of the organization, promoting strong risk management practices. However, all our strategies and controls have inherent limitations. We cannot be certain an event or series of unanticipated events will (i) occur or not occur and generate losses greater than we expect and (ii) have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. Investors should carefully consider the risks and all other information in Item 1A. An investor should carefully consider the risks and all other information in Item 1A. "Risk Factors.," Item 7A. "Quantitative and Qualitative Disclosures About Market Risk.," and Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Sustainability and Social Responsibility
We integrate sustainability principles into our business and partner with key stakeholders to develop solutions that enhance resilience, well-being, and customer service. Focus areas include (i) developing our human capital to create a highly engaged and inclusive team of employees and leaders who will guide us into the future, (ii) understanding and addressing the environmental impact climate change has or could have on our business and operations, and (iii) providing customers with empathetic claims service and risk mitigation solutions. Focus areas include (i) developing our human capital to create a highly engaged and diverse team of employees and leaders who will guide us into the future, (ii) understanding and attempting to mitigate the environmental impact climate change has or could have on our business and operations, and (iii) providing customers with empathetic claims service and risk mitigation solutions.
Human Capital
We understand that investing in our workforce and fostering a positive employee experience enhances our team's well-being and contributes to superior, longer-term financial performance. We are committed to maintaining a safe and inclusive workplace for our approximately 2,800 employees. In 2025, we were (i) designated as a Great Place to Work CertifiedTM organization for the sixth consecutive year and (ii) recognized by Forbes as one of "America's Best Mid-Size Employers" for the fifth time.
Physical, Social, and Financial Well-Being of our Employees
We prioritize our employees' physical, social, and financial well-being, and in doing so, it helps us attract and retain superior talent. We are committed to paying competitively, regularly analyzing compensation, and taking appropriate action to support internal equity and external market alignment.
Our financial benefit programs are designed to support the fiscal health of our employees and their families. These include a 401(k) plan with non-elective and employer matching contributions, an employee stock purchase plan with discounted pricing, and tuition reimbursement and student loan repayment programs. Among our offerings are a 401(k) plan with non-elective and employer matching contributions, an employee stock purchase plan with discounted pricing, and tuition reimbursement and student loan repayment programs. Most employees are eligible to participate in our annual cash incentive program, funded and paid based on their performance and our achievement of established financial and strategic objectives. Employees of certain levels are also eligible to participate in our long-term stock-based incentive compensation program, and a non-qualified deferred compensation plan. Employees of certain levels also are eligible to participate in our long-term stock-based incentive compensation programs.
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We also offer competitive and convenient health and wellness programs. To support our employees' social and emotional well-being, we encourage connections with their colleagues and communities through various programs, including paid time off for volunteering, matching charitable donations, employee engagement events, employee resource and affinity groups, and unique programming to meet employee needs. To support our employees' social and emotional well-being, we encourage connections with their colleagues and communities through various programs, such as paid time off for volunteering, matching charitable donations, employee engagement events, employee resource and affinity groups, and unique programming to meet employee needs.
Talent Development and Employee Retention
We dedicate significant time and resources to (i) training and development, enabling our employees to fulfill their professional potential and have rewarding careers and (ii) retaining our best talent and fostering a positive work-life balance. We are committed to ongoing employee learning, personal growth, and continuous improvement. We are committed to 19 Table of Contentsongoing employee learning, personal growth, and continuous improvement. Our employees have access to a wide range of resources, including live instructor-led and online skills training courses. We also have leadership and talent development programs and initiatives for all levels of the organization. Examples include our (i) Next Generation of Leaders program, which identifies early- and mid-career management opportunities for focused development and future senior leadership preparation, (ii) RISE (Retain Include Support Engage) program, an accelerated professional development program for individual contributors interested in first-level management positions, (iii) Accelerate program, which provides training for new managers on leadership skills and techniques, and (iv) our Ignite Internship and Momentum Trainee programs, which are early career programs that help develop our future talent pipeline.
As of December 31, 2025, we had approximately 2,800 employees; 1,380 were home-based, 810 were in our regional offices, and the remainder were in our corporate office.Of our 2,800 employees at December 31, 2024, 1,300 were home-based; 810 were in our regional offices; and the remainder were in our corporate office. Our Flexible Work Location Policy requires most office-based non-management employees to be in their assigned office 40% of the time, and management employees in the office 60% of the time. Our Flexible Work Location Policy requires most office-based non-management employees to be in their assigned office 40% of the time. Our 2025 employee turnover rate was approximately 12%, compared to approximately 10% in 2024. Employees with over 20 years of service represented approximately 13% of our workforce. Our 2024 employee turnover rate was approximately 10%, compared to approximately 11% in 2023. Employees with over 20 years of service represented approximately 14% of our workforce.
Engagement and Inclusion
Building a connected, accountable and empowered organization by developing talent and aligning on prioritized goals is one of our organizational priorities. We employ strategies to create an inclusive workplace culture and attract and retain employees through recruiting, onboarding, training, promotion practices, professional development, engagement surveys, retention interviews, employee resource groups, and competitive compensation and benefits. Collaboration among employees with varied backgrounds fosters innovation, improving operational performance, product development, customer experience, market opportunities, and profitability. Collaboration among employees with diverse backgrounds fosters innovation, improving operational performance, product development, customer experience, market opportunities, and profitability. We are committed to initiatives that promote inclusion regardless of ethnicity, race, religion, age, veteran status, sexual orientation, gender identity, disability or socio-economic background. Inclusive leadership training is made available to all newly promoted officers, managers, and supervisors. These efforts aim to enhance engagement and create a workplace where everyone feels valued and empowered. These efforts aim to boost engagement and create a workplace where everyone feels valued and empowered. At the Board level, the CGNC manages a robust process to recruit new directors with a broad range of skills, expertise, industry knowledge, perspectives, and opinions. At the Board level, the CGNC manages a robust process to recruit new directors with diverse backgrounds, skills, and experiences.
As of December 31, 2025, women represented (i) 57% of our non-officer workforce, consistent with the prior year, and (ii) 37% of our officer workforce, up one point from prior year.As of December 31, 2024, women represented (i) 57% of our non-officer workforce, down one point from prior year, and (ii) 36% of our officer workforce, up one point from the year before. Our officer and non-officer ethnic diversity is consistent with the national average for financial services. Approximately 75% of our workforce was White at year-end 2025, compared to 76% at year-end 2024, and 25% were a combination of Black, Latin, Asian, and all other ethnicities at year-end 2025, compared to 24% at year-end 2024.
Environmental
Our Insurance Subsidiaries protect individuals and businesses against the financial impact of covered losses, including from catastrophic events. Climate change increases the unpredictability of weather-related loss frequency and severity, posing a long-term risk to our customers’ businesses and lives – and our profitability. We aim to mitigate climate change impact by (i) prudently overseeing and managing catastrophe risk exposure, (ii) providing our customers with responsive claims handling, risk management services, and proactive weather alerts, (iii) preparing for the continuing transition to clean energy, and (iv) reducing our carbon footprint. We aim to mitigate climate change impact by (i) prudently overseeing and managing catastrophe risk exposure, (ii) providing our customers responsive claims handling, risk management services, and proactive weather alerts, (iii) preparing for the continuing transition to clean energy, and (iv) reducing our carbon footprint. Understanding and helping mitigate climate change risks to our business and customers is core to our operations and strategy. Understanding and helping mitigate climate change perils for our business and customers is core to our operations and strategy. We believe these efforts (i) demonstrate responsible corporate action to mitigate climate change impact and (ii) will contribute to sustained superior financial and operating performance over time that will reward our shareholders.
The ERC identified climate change as a "high" level emerging risk and management reviews it at least quarterly with the Risk Committee of the Board. The ERM unit, the ERC, and Management stay informed about key climate change risk developments through industry publications, webinars, conferences, and regular engagement with outside sources, such as our reinsurance brokers, investment managers, trade associations, lawyers, and consultants. The ERM unit, the ERC, and Management stay informed on key climate change risk developments through industry publications, webinars, conferences, and regular engagement with outside sources, such as our reinsurance brokers, investment managers, trade associations, lawyers, and consultants.
Our ERM function is responsible for measuring, assessing, and monitoring the mitigation of climate change-related physical and transition risks. Physical risks arise from the changing frequency, severity, and characteristics of acute events, like severe
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convective storms, hurricanes, floods, and wildfires. These risks can directly affect our underwriting results, the long-term viability of specific business lines we write, and our investment portfolio. Transition risks arise as the world progresses towards a low-carbon economy, driven by (i) government policy and regulation, (ii) advances in low-carbon technology, and (ii) shifting societal preferences and public sentiment.
Due to our business risk profile and geographic concentration in the Northeast and Mid-Atlantic states, hurricane peril is our most significant natural catastrophe exposure, driving the "tail" of our modeled catastrophe loss distribution. This risk has influenced our decision to diversify our underwriting portfolio geographically and establish rigorous coastal property exposure guidelines. This risk has influenced our decision to diversify our underwriting portfolio geographically and set rigorous coastal property exposure 20 Table of Contentsguidelines. We seek to manage our exposure to other non-hurricane perils, such as severe convective storms, winter storms, flooding, and wildfires. We do not write crop insurance, have minimal exposure to private flood, and have a limited percentage of our geographic exposures in the Western U.S., all limiting our exposures to other weather-related perils, such as droughts, wildfires, and flooding. We monitor our investment exposure to carbon-intensive industries to measure our vulnerability to climate-related risks involved with the transition to a low-carbon economy.
The ERM unit assesses our catastrophe risk exposure relative to our established tolerances.The ERM unit evaluates our catastrophe risk exposure relative to our established tolerances. This evaluation incorporates the results of third-party vendor models and proprietary analysis of exposure to hurricanes and other perils on a gross and net basis. For quantitative information on the modeled results of our underwriting property portfolio by peril, refer to the "Reinsurance" section in "Results of Operations and Related Information by Segment" of Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Managing Climate-related Risks
For information about our risks associated with climate change, refer to risks identified with the symbol "" in Item 1A. "Risk Factors." of this Form 10-K.
" in Item 1A. "Risk Factors." of this Form 10-K.Insurance Operations
In managing our insurance operations' physical climate-related risks, we model our property portfolio for (i) hurricanes, winter storms, wildfires, and other wind events semiannually in January and July and (ii) earthquakes, a significantly lower exposure for our portfolio than hurricanes and other wind events, annually in July. For some time, we have not underwritten specific environmentally-hazardous risks related to production from coal mines, thermal coal plants, or oil sands extraction because they fall outside our underwriting appetite.
Our underwriting controls employ authority levels for large individual property risks and large property accounts that could create or exacerbate a property aggregation issue. Any individual location exceeding the CUO's property limit authority must be approved by the Underwriting Committee, comprised of the Standard Lines Chief Operating Officer, Chief Financial Officer, Standard Commercial Lines CUO, Executive Vice President of E&S Lines, and CRO. When considering large property accounts, the Underwriting Committee typically (i) reviews an evaluation of property aggregations by county and state and projections of marginal impact on our aggregate modeled losses, assuming we wrote the risk and (ii) discusses our catastrophe risk aggregation appetite and the appropriate pricing for taking the increased risk aggregation. When considering large property accounts, the Underwriting Committee typically (i) reviews an evaluation of property aggregations in the particular county and state and projections of marginal impact on our aggregate modeled losses, assuming we wrote the risk and (ii) discusses our catastrophe risk aggregation appetite and the appropriate pricing for taking the increased risk aggregation.
We believe that we have created an effective control environment for managing gross natural catastrophe risk exposure by (i) setting overall portfolio growth expectations, (ii) monitoring actual results and property aggregations, (iii) having appropriate underwriting authority controls around our largest accounts, and (iv) consistently focusing on appropriate pricing of catastrophe risk.
Our established catastrophic risk tolerance requires that no more than 10% of stockholders’ equity be exposed to a loss from a hurricane event at a 99.6% confidence level (1-in-250-year event or 0.4% probability), on a net-of-reinsurance and after-tax basis. For additional quantitative and qualitative information about our modeled results by scenario on stockholders' equity, refer to the "Reinsurance" section in "Results of Operations and Related Information by Segment" of Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Property insurance presents the primary climate-related risk in insurance operations. However, we have potential climate-related claims under liability policies, such as directors' and officers' ("D&O") liability insurance policies. We monitor these liability risks, but we partially mitigate our liability-related climate exposure through our (i) D&O appetite selection, which includes no public companies or financial institutions, (ii) focus on writing business with small regional footprints and avoiding environmentally-hazardous risks, and (iii) reinsurance, which covers claims in excess of our $3 million casualty reinsurance retention.
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Investments
We incorporate sustainability considerations into our robust investment due diligence processes. To establish appropriate sustainability investment governance, we maintain (i) a well-diversified portfolio across issuers, sectors, and asset classes and (ii) a high credit quality fixed income securities portfolio with a duration and maturity profile at an acceptable risk level that provides ample liquidity. In addition, we collaborate with our third-party investment managers to ensure they incorporate sustainability guidelines and protocols into their investment processes for our mandates. In addition, we work with our third-party investment managers to ensure they incorporate sustainability guidelines and protocols into their investment process for our mandates. Our investment strategy considers climate change risk by prohibiting any new direct equity or debt investments in thermal coal enterprises, including those generating 30% or more of their (i) revenue from the ownership, exploration, mining, or refining of thermal coal, or (ii) electricity generation from thermal coal. We believe that as the world transitions to a low-carbon economy, the value of these assets could be at greater risk. We believe that as the world transitions to a low-carbon economy, the value of these 21 Table of Contentsassets 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 in place for our key data processing facility (Disaster Recovery Plan), the leadership team (Executive Crisis Management Plan), and significant operational areas. We have business continuity plans for our key data processing facility (Disaster Recovery Plan), the leadership team (Executive Crisis Management Plan), and significant operational areas. We review, update, and test these plans at least annually. Our tests include "tabletop" exercises and planned hands-on tests.
•Track our Scope 1 and Scope 2 greenhouse gas ("GHG") emissions, which are low relative to entities in other industries because we are an insurance holding company. Our Scope 1 emissions include consumption of natural gas, diesel, refrigerant, and the fuel used by employees for work-related travel in company cars. Our Scope 1 emissions include consumption of natural gas, diesel, refrigerant, and the fuel employees use for work travel in company cars, and our Scope 2 emissions comprise our electricity usage. Our Scope 2 emissions are tied to our electricity use.
•Built solar photovoltaic systems mounted on the ground and the garage at our Branchville office. In 2025, these systems generated approximately 3.3 million kWh of electricity, which we sell to others, together with the right to state that we use renewable energy.
Ongoing Initiatives
We plan to continue reducing our carbon emissions relative to our revenues over the long term. We develop initiatives that we expect will reduce GHG emissions over time. Some include:
•Upgrading our Branchville office building management system, which should reduce heating and cooling natural gas consumption;
•Making efforts to transition our company cars from gasoline to hybrid vehicles; and
•Migrating our information technology systems from our Branchville data center to the cloud.
We have also implemented several initiatives at our Branchville office to lower our environmental impact, including:
•Enhanced waste management and recycling;
•Reducing the use of paper within our business;
•Conversion of all Branchville office light bulbs to LED;
•Hybrid work schedule;
•Repurposing commingled recyclables;
•Installed electric vehicle charging stations for employee use;
•Elimination of Styrofoam products in our cafeteria;
•Recycling and more efficient energy use of electronic equipment; and
•Reducing our water usage through automatic plumbing features.
Reports to Security Holders
We file with the U.S. Securities and Exchange Commission ("SEC") all required disclosures, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements, and any amendments to these reports that we file or furnish pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, which are accessible on the SEC's website, www.SEC.gov. These filings are also available at www.Selective.com shortly after filing such material with the SEC. Our website and the information contained or linked in it are not part of this Annual Report.
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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 take to execute our long-term capital strategy. These risk factors might affect, alter, or change actions in executing our long-term capital strategy. Examples include, without limitation, contributing capital to any or all of our ten property and casualty insurance subsidiaries ("Insurance Subsidiaries"), issuing additional debt and/or equity securities, repurchasing our existing debt and/or equity securities, or increasing or decreasing common stockholders' dividends. We operate in a continually changing business environment, and new risk factors that we cannot predict or assess may emerge at any time. Consequently, we cannot predict these new risk factors or assess their potential future impact on our business. Consequently, we can neither predict such new risk factors nor assess the potential future impact on our business.
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 hurricanes, tornadoes, windstorms, earthquakes, hail, thunderstorms, severe winter weather, derechos, floods, and fires, some of which are related to climate change, as well as criminal and terrorist acts, including cyber-attacks, civil unrest, and explosions. Examples include hurricanes, tornadoes, windstorms, earthquakes, hail, thunderstorms, severe winter weather, derechos, floods, and fires, some related to climate change, and criminal and terrorist acts, including cyber-attacks, civil unrest, and explosions. The frequency and severity of these catastrophes are inherently unpredictable, and both have increased globally in recent years. The frequency and severity of these catastrophes are inherently unpredictable, and the frequency and severity of catastrophe losses have increased globally in recent years. In many cases, the increase in catastrophe losses relates to small- to- medium-sized events that primary insurers retain rather than cede to reinsurers. In many cases, the increase in catastrophe losses relate to small- to- medium-sized events that primary insurers retain and do not cede to reinsurers. We use sophisticated catastrophe modeling techniques to manage our exposure, but actual exposure and loss experience can materially differ from catastrophe model estimates. For example, catastrophe models did not fully estimate the potential for some recent catastrophe losses (such as Winter Storm Elliott freeze losses in December 2022) and the concurrent economic inflation on construction costs. For example, catastrophe models did not fully estimate the potential for some recent catastrophe loss activity (such as Winter Storm Elliott freeze losses in December 2022) and the concurrent economic inflation on construction costs.
Our most significant natural and/or human-made catastrophe exposures are (i) hurricanes impacting the Eastern U.S., (ii) severe convective storms, including hailstorms and tornadoes, (iii) winter storms, (iv) wildfires, (v) earthquakes, and (vi) terrorism events. Single storms could adversely impact our financial results; however, we could experience more than one severe catastrophic event in any given calendar year. Single storms could adversely impact our financial results, but it is also possible that we experience more than one severe catastrophic event in any given calendar year. We track our severe weather and catastrophe losses using definitions and information from Insurance Services Office, Inc.'s ("ISO") Property Claim Services unit, an internationally recognized authority on insured property losses from catastrophes in the U.S., Puerto Rico, and the U.S. Virgin Islands.
Certain factors can impact our estimates of ultimate costs for natural and/or human-made catastrophes, including:
•Inability to access portions of the affected areas after a catastrophic event;
•Scarcity of necessary labor and materials that delay repairs and increase our loss costs;
•Regulatory uncertainties, including new or expanded interpretations of coverage;
•Residual market assessment-related increases in our catastrophe losses;
•Potential fraud and inflated repair costs, partly driven by (a) demand surge post-event and (b) opportunistic service providers;
•Higher loss expenses due to shortages of claims adjusters available to appraise damage;
•Late claims reporting;
•Escalation of business interruption costs due to infrastructure disruption; and
•Whether the U.S. Secretary of the Treasury certifies an event as a terrorist act under TRIPRA.
Natural catastrophes
Temperature changes can affect weather patterns and the frequency and/or severity of catastrophes, including hurricanes, severe convective storms, wildfires, and flooding – all of which could increase our catastrophe losses relative to historical levels.
A significant component of climate change risk is that the frequency and severity of extreme weather events may evolve differently relative to historical levels – leading to greater model uncertainty. Climate change models project significant differences in global regional warming above pre-industrial levels, depending on future climate mitigation levels and geographic location. These global regional differences, whether attributable to nature or human activities, include increases in (i) mean temperature in most land and ocean regions, (ii) hot extremes in most inhabited regions, (iii) heavy precipitation in several regions, and (iv) the probability of drought and precipitation deficits in some regions.
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Human-made catastrophes
Cyber Attacks and Incidents
The risk of a wide-scale criminal or terrorist cyber-attack has become more significant and has drawn increased attention from IT and national security experts, U.S. policymakers, the U.S. military, and the insurance industry. There is general recognition that a wide-scale cyber-attack simultaneously impacting multiple victims is more likely, and systemic risk in the insurance industry has increased. 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.
Our cyber-specific policies for commercial lines and personal lines customers are 100% reinsured with highly-rated specialty cyber markets. These solutions allow us to meet our customers' cyber insurance needs while mitigating our underwriting risk as we develop our expertise in the cyber insurance market. These solutions allow us to meet our customers' needs for cyber insurance while mitigating our underwriting risk as we develop our expertise in the cyber insurance market.
Beyond our cyber-specific policies, some of our other insurance policies may provide coverage following a cyber event in certain circumstances:
•We offer limited first-party affirmative cyber coverage in our commercial property and businessowners' policy forms. Our base property and businessowners' forms typically include a $2,500 or $10,000 cyber coverage grant that includes "virus and harmful code." 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. In addition, we apply cyber incident exclusions that eliminate coverage for malicious cyber except for the sub-limited coverage in the base ISO coverage forms and our property and businessowners' property “virus and harmful code” extension endorsements.
•Most of our general liability and businessowners' policies exclude cyber-related liability losses, except for "bodily injury." Our specific cyber-exclusion and liability forms' lack of affirmative sub-limited cyber coverage effectively limits most "silent cyber" exposure. For new and renewal policies effective October 1, 2025, and later, we implemented ISO's cyber incident exclusion for general liability, which eliminates coverage for "bodily injury" and "property damage."
•By statute, workers compensation policies cannot include cyber exclusions, and a cyber-attack-related workplace injury could trigger coverage.
Terrorism
We are required to participate in TRIPRA, now extended to December 31, 2027, for our Standard Commercial Lines and E&S Lines business. TRIPRA rescinded all previously approved coverage exclusions for terrorism and requires private insurers and the U.S. government to share the risk of loss on future acts of terrorism certified by the U.S. Secretary of the Treasury. Under TRIPRA, each participating insurer must pay a significant deductible of specified losses before federal assistance is available. Our $684 million deductible is based on a percentage of our prior year’s applicable Standard Commercial Lines and E&S Lines premiums. In 2026, the federal government will pay 80% of losses above the deductible, with the insurer retaining 20%. Although TRIPRA will mitigate some of our loss exposure to a large-scale terrorist attack, the size of our deductible and 20% co-participation could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. If the U.S. Secretary of the Treasury does not certify specific terrorist events, we could be required to pay terrorism-related covered losses without TRIPRA's risk-sharing benefits. We could also 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 2025, 83% 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.
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An increase in natural or man-made catastrophe losses, including a systemic cyber-attack that results in 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 are to have limited information to estimate loss and loss expense reserves, increasing the uncertainty of our estimates. The closer a catastrophe occurs to the end of a reporting period, the more likely we have limited information to estimate loss and loss expense reserves, increasing the uncertainty of our estimates. More comprehensive claims information available after a reporting period may result in reserve changes in subsequent periods.
Our loss and loss expense reserves may not adequately cover actual losses and expenses.
We maintain reserves for our estimated liability for loss and loss expense associated with reported and unreported insurance claims. Estimating loss and loss expense reserves is inherently uncertain, and there is no method for precisely determining the ultimate liability for claims settlement. We base our loss and loss expense reserve estimates on our internal in-depth reserve review, which uses our loss experience, claims payment and reporting patterns, and our assessment of underlying claims frequency and severity trends. We supplement the estimates with other subjective considerations, including projected impacts from economic, political, social, and legal developments or trends, such as inflation, judicial trends and tort decisions, and various state legislative initiatives. We supplement the estimates with other subjective considerations, including projected impacts 24 Table of Contentsfrom economic, political, social, and legal developments or trends, such as inflation, judicial trends and tort decisions, and various state legislative initiatives. We cannot predict the timing or impact of these developments or trends with certainty; nor can we be certain that the reserves we establish are adequate or will remain so in the future. 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 it as determined appropriate.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 to inform our product pricing, aimed at generating an adequate risk-adjusted return. As we underwrite new business and renew existing business, we estimate future loss cost trends in pricing our products to generate an adequate risk-adjusted return. If our future loss cost trend estimates prove to be understated, our pricing of future new and renewal business could be inadequate to cover actual loss costs, and our future loss and loss expense reserves could be understated.
Three examples of how loss and loss expense reserves might be affected by economic, political, social, or legal developments or trends are:
•If economic inflation, including medical inflation, is higher than our assumptions, our loss and loss expense reserves for our longer tail lines of business could be insufficient. For example, 2022 inflation rates reflected in the overall consumer price index ("CPI"), the Core CPI, and the Producer Price Index, were higher than in 2021. While inflation moderated in subsequent years, it remains elevated relative to the Federal Reserve’s long-term 2% target. For example, 2022 inflation rates reflected in the overall consumer price index ("CPI"), the Core CPI, and the Producer Price Index, were higher than in 2021. While inflation moderated in 2023 and 2024, it remains elevated relative to the Federal Reserve’s long-term 2% target. The workers compensation line of business is particularly susceptible to inflation due to its extended payment pattern and exposure to medical care services and commodities. The workers compensation line of business is particularly susceptible to inflation because of its extended payment pattern and exposure to medical care services and commodities. While medical inflation has been low for several years, it has risen recently and, in combination with rising utilization, is driving increases in workers compensation medical severities. While medical inflation has been low for several years, our workers compensation medical severity trend has risen recently. If this trend continues and medical care costs increase significantly or persist at a higher level for an extended period, our overall loss and loss expense reserves could be materially impacted. Our short-tail property lines of business are also susceptible to inflation due to their exposure to increased labor and material costs. Our short-tail property lines of business are also susceptible to inflation because of their exposure to increased labor and material costs.
•Social inflation refers to the phenomenon where societal factors, such as attitudes, perceptions, and cultural changes, contribute to increased insurance claims costs and litigation. It often results in higher payouts in legal settlements and jury awards, and affects insurance premiums for businesses and individuals. It often leads to higher payouts in legal settlements and jury awards, and impacts insurance premiums for businesses and individuals. This inflation is driven by various factors, including changing jury attitudes, increased litigation funding, larger awards in court cases, legal system abuse, insurance coverage gaps, increased willingness to undergo surgery, and novel interpretations of liability. This inflation is driven by various factors, including changing jury attitudes, increased litigation funding, larger awards in court cases, increased willingness to undergo surgery, and novel interpretations of liability. Social inflation can affect all lines of business. However, the automobile liability, general liability, and corresponding umbrella lines of business involving bodily injury to third-party claimants tend to be more susceptible to social inflationary impacts. However, the automobile liability, general liability, and corresponding umbrella lines of business involving third-party claimants tend to be more susceptible to social inflationary impacts. Our reserve for loss and loss expense could be insufficient if impacts from social inflation exceed our assumptions.
•Various states have expanded or could expand the statute of limitations for civil actions alleging sexual abuse. By retroactively permitting previously time-barred claims, these "reviver" laws may result in insurance claims that could significantly increase loss costs and require new reserves or re-evaluation of previously established reserves. Since reviver statutes have been enacted, we have received some notices of claims or potential claims for alleged acts, some that may have occurred several decades ago. 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 the number of "reviver" claims notices we may receive. 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
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these claims. We face related litigation risks because policyholders and claimants may challenge our coverage positions. We discuss these risks further below in the Risk Factor entitled, "We are engaged in ordinary routine legal proceedings incidental to our insurance operations that are inherently unpredictable and could impact our reputation and/or have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods."
For further discussion on our loss and loss expense reserves, please see the "Critical Accounting Policies and Estimates" section of Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." and Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
Our ability to reduce our risk exposure depends on the availability and cost of reinsurance.We transfer a significant portion of our underwriting risk to third parties through reinsurance, primarily in the form of annual contracts that reimburse us for losses exceeding specified thresholds on a per-loss or aggregate basis.We transfer a significant portion of our underwriting risk to third parties through reinsurance, which are primarily annual contracts that reimburse us for losses exceeding specified thresholds on a per-loss or an aggregate basis. Typically, our reinsurance coverages align with the coverages in our primary insurance policies, including coverages for catastrophes. Typically, our 25 Table of Contentsreinsurance coverages align with the coverages in our primary insurance policies, including coverages for catastrophes. Historically, commercial property and homeowners losses have accounted for most of our catastrophe-related reinsurance claims. We determine the amount of reinsurance we purchase by analyzing historical losses and outputs from various modeling software programs that analyze our Insurance Subsidiaries' risks, particularly for catastrophes. We determine the amount of reinsurance we purchase by analyzing historical losses and using various modeling software programs that analyze our Insurance Subsidiaries' risks, particularly for catastrophes. Insufficient reinsurance could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
Reinsurance availability, retentions, coverage limits, terms, conditions, exclusions, and cost depend on market conditions, which are influenced by traditional direct- and broker-placed reinsurance, retrocessional reinsurance, and catastrophe bond market capacity.Reinsurance availability; retentions; coverage limits, terms, conditions, and exclusions; and cost depend on market conditions influenced by traditional direct- and broker-placed reinsurance, retrocessional reinsurance, and catastrophe bond market capacity. These market factors can cause reinsurance costs to fluctuate, which may not correlate with our loss experience. These market factors can cause fluctuations in reinsurance costs that do not necessarily correlate to our loss experience. State insurance regulators generally permit us to consider catastrophe reinsurance expense in our filed rates and rating plans. However, the conditions and timing of regulatory approval may not align with the actual reinsurance expense. Reinsurance expense increases that are not considered or approved in our filed rates and rating plans will reduce our earnings. If we cannot negotiate desired reinsurance amounts or terms, we may experience increased reinsurance expenses and increased risk retention on individual or aggregate claim losses, which could limit our ability to write future business. If we cannot negotiate desired reinsurance amounts or terms, we may experience increased reinsurance expense and increased risk retention on individual or aggregate claim losses that could limit our ability to write future business.
Our Insurance Subsidiaries face increased underwriting risk and loss exposure for specific primary policy perils, like cyber and communicable diseases, which our reinsurance policies now principally exclude. Our reinsurance contracts also restrict our ability to cede certain types of potential terrorism-related losses. Increased underwriting risk from these and other risks could lead to higher net loss and loss expense and underwriting results volatility. Increased underwriting risk from these and other risks could increase our net loss and loss expense and the volatility of our underwriting results. Decreased reinsurance availability would also increase our underwriting risk if we cannot fully place our targeted reinsurance treaty coverage on renewal.
Even with the benefits of reinsurance, our catastrophe risk exposure could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
We are exposed to credit risk.
We encounter credit risk in various areas of our insurance operations, particularly from third parties:
•Our reinsurers, which have payment obligations under our reinsurance agreements. Reinsurance credit risk can fluctuate over time, increasing during periods of high industry catastrophe and liability losses. Reinsurers generally manage their significant loss exposure through their own reinsurance programs, or retrocessions, and we do not have complete details about them. If our reinsurers have trouble 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. If our reinsurers experience difficulty collecting on their retrocession programs or reinstating retrocession coverage after a large loss, we may not receive timely or full payment of our reinsurance claims. Consequently, we have direct and indirect counterparty credit risk to our reinsurers and the reinsurance industry, which is a global yet 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 our premiums from policyholders.
•Some policyholders, who are directly obligated to us for premium and/or deductible payments, may have their payment timing altered by regulator-granted 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.
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We depend on distribution partners.
We market and sell our insurance products through independent, non-employee distribution partners. Independent distribution partners have – and we expect they will continue to have – a significant role in the overall production of insurance industry premium. While our customers find advantages in using independent distribution partners, our reliance on independent distribution partners presents risks and challenges, including:
•Competition within our distribution channel, as we must market our products and services to independent distribution partners who can access multiple carriers and markets.
•Brand recognition challenges because we closely coordinate marketing with our distribution partners and some customers do not differentiate their insurance agent from their insurer.
•Our market share growth is tied to our distribution partners' market share. Consequently, growth in our Standard Personal Lines could be more limited than in our Standard Commercial Lines. Competitors have focused on lower-cost "direct-to-customer" distribution models emphasizing digital ease and efficiencies to grow market share in standard personal lines. Continued advancements in "direct-to-customer" distribution models may impact our independent distribution partners' overall market share, make it more difficult for us to grow, or require us to establish relationships with more distribution partners.
•Aggregation and consolidation of our independent distribution partners and their market share. Some publicly traded and private equity-backed independent distribution partners have deployed consolidation strategies to acquire other independent distribution partners and increase their market share ("Aggregators") over the last decade. If more of our independent distribution partners become Aggregators or Aggregators acquire them, the demands and influence of Aggregators on our business could increase. If more of our independent distribution partners become Aggregators or Aggregators acquire them, Aggregator demands and influence on our business could increase. For example, certain aggregators are pursuing strategies to consolidate their business with fewer insurers and demanding customized compensation agreements. Aggregators accounted for approximately 51% of our DPW at December 31, 2025, up from 46% in the prior year. Aggregators accounted for approximately 46% of our DPW at December 31, 2024, up from 36% three years ago. No single distribution partner is responsible for 10% or more of our combined insurance operations' premium. 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 the success of our independent distribution partners in marketing and selling our products and services.Our financial condition and results of operations are impacted by our independent distribution partners' success in marketing and selling our products and services.
National and global economic conditions could adversely and materially affect our business, results of operations, financial condition, and growth.
Unfavorable economic developments, such as a decline in economic growth or an increase in inflation levels, could adversely affect our earnings if our policyholders require less insurance coverage, cancel existing insurance policies, modify coverage, or choose not to renew with us.Unfavorable economic developments, such as a decline in economic growth or increased inflation levels, could adversely affect our earnings if our policyholders need less insurance coverage, cancel existing insurance policies, modify coverage, or choose not to renew with us. Inflation could significantly affect our claims severity across multiple lines of business potentially leading to adverse reserve development. Inflation could significantly impact our claims severity across multiple lines of business and could result in adverse reserve development. An economic downturn could also lead to increased credit and premium receivable risk, failure of reinsurance counterparties and other financial institutions, limitations on our ability to issue new debt, reduced liquidity, and declines in the fair value and financial strength ratings of our investments. An economic downturn could also lead to increased credit and premium receivable risk, failure of reinsurance counterparties and other financial institutions, limits on our ability to issue new debt, reduced liquidity, and declines in our investments' fair value and financial strength ratings. These potential events and other economic factors could adversely and materially affect our business, results of operations, financial condition, and growth. During 2025, 24% 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 premiums.
We write business domestically in the United States, and our insurance operations do not have direct exposure to insureds in Russia, Ukraine, or the Middle East.We write business domestically in the United States, and our insurance operations do not have direct exposure to businesses or individuals in Russia, Ukraine, and the Middle East. We do not have material exposure to investments subject to embargoes or Russian reinsurance counterparties. However, ongoing wars and conflicts continue to impact global economic, banking, commodity, and financial markets by exacerbating economic challenges, including inflation and supply chain disruptions, which influence insurance loss costs, premiums, and investment valuations. However, ongoing wars and conflicts continue to impact global economic, banking, commodity, and financial markets by exacerbating ongoing economic challenges, including inflation and supply chain disruption, which influence insurance loss costs, premiums, and investment valuation.
A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and have a material adverse effect on our financial condition and results of operations.
A significant downgrade in our financial strength rating, particularly from AM Best Company ("AM Best"), would impact our ability to write new or renewal business.A significant financial strength rating downgrade, particularly from AM Best Company ("AM Best"), would affect our ability to write new or renewal business. Most policyholders are required by various third-party agreements, primarily with lenders, to maintain insurance policies from a carrier with a minimum rating from AM Best or Standard & Poor's Global Ratings. Credit rating downgrades could also make it more expensive to access capital markets. We cannot predict rating actions issued by nationally recognized statistical rating organizations that might adversely affect our business or potential responses. Any significant downgrade in our financial strength and credit ratings below an "A-" could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. For additional information
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on our current financial strength and credit ratings, refer to "Overview" in Item 1. "Business." of this Form 10-K.
Markets for insurance products and services are highly competitive and subject to rapid technological advancement, and we may struggle to compete effectively.Markets for insurance products and services are highly competitive and subject to rapid technological change, and we may be unable to compete effectively.
We offer our insurance products and services in a highly competitive market characterized by (i) consumer and business price sensitivity and (ii) aggressive price competition based on performance characteristics, insights gained through larger data sets, and rapid adoption of technological advancements.We offer our insurance products and services in a highly competitive market characterized by (i) consumer and business price sensitivity and (ii) aggressive price competition and improvements based on performance characteristics and large data sets. These factors can compress underwriting margins, impact new products and services, and evolve industry standards. Our ability to compete depends heavily on our timely and consistent introduction of innovative new products and services.
We face substantial competition from a wide range of property and casualty insurance companies for customers, distribution partners, and employees. Competitors include public, private, and mutual insurance companies. Many competitors are larger and may have lower relative operating costs, lower capital costs, or greater capacity to absorb or diversify more risk while maintaining their financial strength ratings. Other competitors, such as mutual or reciprocal companies, are owned by or operated cooperatively for insureds and, unlike us, do not have shareholders who evaluate return on equity performance. Consequently, some competitors may be able to price their products more competitively.
The Internet is a significant competitive digital marketplace for existing and new competitors. Established insurance competitors are exploring broader digital Internet offerings and artificial intelligence ("AI") tools. Established insurance competitors are beginning to explore broader digital Internet offerings and implement artificial intelligence ("AI"). New competitors with variations on traditional business models have emerged. Because the Internet makes it easier and less expensive to bundle products and services, it is also possible that non-insurance companies conducting business online could enter the insurance business or form strategic alliances with insurers. Changes in competitors and the competitive landscape, particularly on the Internet, could shift the supply or demand for insurance and adversely affect our business. Changes in competitors and competition, particularly on the Internet, could cause changes in the supply or demand for insurance and adversely affect our business.
The increasing importance of the Internet, technology, AI, and digital strategies in our industry also demands that we attract and retain employees in difficult-to-fill data science, advanced analytics, and IT roles. If we cannot attract and retain such employees, our results of operations and financial condition could be adversely affected.
We have less loss experience data than our larger competitors.
Insurers depend on access to reliable data about their policyholders and loss experience to build complex analytics and predictive models that assess loss costs, expected profitability, reserve adequacy, adverse claim development potential, recovery opportunities, fraudulent activities, and customer buying habits.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.
We expect the importance of data science and analytics to increase, becoming more complex and accurate as larger sets of more relevant data become available. Some larger competitors have significantly more data about the performance of their underwritten risks. In comparison, we may not have sufficient volumes of loss experience data to accurately and granularly analyze and project our future costs. We supplement our data with industry loss experience from Verisk, AAIS, NCCI, and other publicly available sources. We supplement our data with industry loss experience from Verisk, American Association of Insurance Services, Inc. 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. 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. 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 are subject to various modeling risks that could have a material adverse impact on our business results.We rely on complex financial and other statistical models, developed internally and by third parties, to predict (i) underwriting results on individual risks and our overall portfolio, (ii) claims fraud and other claims impacts, such as escalation, (iii) impacts from catastrophes, (iv) enterprise risk management capital scenarios, and (v) investment portfolio changes. We rely on these financial and other statistical models to analyze historical loss costs and pricing, claims severity and frequency trends, catastrophe losses, reinsurance attachment and exhaustion points, investment performance, portfolio risk, and our economic capital position. Flaws or limitations in financial and statistical models, as well as their embedded assumptions could understate estimated losses. Flaws or limitations in financial and statistical models and their embedded assumptions could increase losses. For example, a significant component of climate change risk is that the frequency and severity of extreme weather events may evolve differently relative to historical levels – leading to greater model uncertainty. In addition, increasing insurance regulatory interest in data and model use, combined with any potential restrictions on traditional rating factors or model use, could have a material adverse impact on our financial condition and operating results. In recognition of this risk, management's experience and sound business judgment must be used to interpret and apply model results.
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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 and private market volatility, (v) economic conditions, including heightened levels of economic inflation, (vi) political risk, (vii) sovereign risk, (viii) interest rate fluctuations, (ix) international trade policies and tariffs, or (x) other factors, including civil unrest and other catastrophic events, some of which may be impacted by climate change risk. Our investments can be negatively affected by (i) liquidity, (ii) credit deterioration, (iii) financial results, (iv) public equity and/or debt market changes, (v) economic conditions, including heightened levels of economic inflation, (vi) political risk, (vii) sovereign risk, (viii) interest rate fluctuations, or (ix) other factors, including civil unrest and other catastrophic events, some of which may be impacted by climate change risk.
Our investment portfolio's value is subject to credit risk from the issuers, guarantors, financial guarantee insurers, and other counterparties to the securities we hold or transactions we enter.Our investment portfolio's value is subject to credit risk from our held securities' issuers, guarantors, financial guarantee insurers, and other counterparties in certain transactions. Defaults by any of these parties could reduce our net investment income and increase net realized investment losses. Defaults on any of our investments by any of these parties could reduce our net investment income and increase net realized investment losses. We are also subject to the risk that the issuers or guarantors of our fixed income securities may default on principal and interest payment obligations. We are subject to the risk that the issuers or guarantors of our fixed income securities may default on principal and interest payment obligations.
Additionally, we are exposed to interest rate risk, primarily related to the market price and cash flow variability associated with interest rate changes. Consequently, the amount of our cash and cash equivalents and the value and liquidity of our marketable and non-marketable securities may fluctuate substantially. Future fluctuations in the value of our cash, cash equivalents, and marketable and non-marketable securities could result in significant losses that have a material adverse impact on our financial condition and operating results.
Our investment portfolio is exposed to climate change-related transition and physical investment risks.
•Transition risks arise from the world’s transition to a low-carbon economy, driven by government policy and regulation, advances in low-carbon technology, and shifting societal preferences and public sentiment. This transition to renewable energy sources may lead to (i) stranded assets in sectors with high carbon footprints or those closely tied to carbon-based economic activity, such as the fossil fuel and automotive industries, (ii) increased costs for infrastructure reinvestment and replacement, and litigation defense of carbon-intensive sectors, (iii) lower corporate profitability, (iv) lower property values, and (v) lower household wealth. The Paris Agreement Capital Transition Assessment defines the carbon-intensive sectors as the most exposed to transition risk: oil and gas, coal, power, automotive, cement, aviation, and steel. Carbon-intensive sectors within our fixed income securities portfolio represented about 4% and 5% of our total invested assets as of December 31, 2025 and December 31, 2024, respectively.
•Physical investment risks include the risk of investment losses on our commercial and residential mortgage-backed securities exposed to climate-related catastrophic losses that can cause business disruption, destroy capital, increase costs to recover from disasters, reduce revenue, and cause population displacement and migration. These, in turn, can lower residential and commercial property values, household wealth, and corporate profitability, potentially creating financial and credit market losses impacting insurer asset values. As of December 31, 2025, about 76% 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 declines in property value. As of December 31, 2025, about 71% of our commercial mortgage-backed securities had "AAA" credit ratings. As of December 31, 2024, about 68% of our commercial mortgage-backed securities had "AAA" credit ratings.
Significant future declines in investment values could require further losses recorded on securities we sell and credit losses.Significant future investment value declines could require further losses recorded on securities we sell and credit losses. For more information regarding market interest rate, credit, and equity price risk, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." of this Form 10-K.
We are subject to the risks inherent in investing in private limited partnerships.
Our alternative investments include private limited partnerships that invest in various strategies, such as private equity, private credit, and real assets. The primary assets and liabilities underlying these limited partnership investments generally do not have quoted prices in active markets for the same or similar assets. Consequently, their valuation is subject to a higher level of subjectivity and unobservable inputs than most of our other investments. We record these limited partnership investments under the equity method of accounting, so valuation decreases could negatively impact our results of operations.
Determining the amount of credit losses taken on our investments is highly subjective and could materially impact our results of operations or our financial position.
The determination of the amount of credit losses taken on our investments is based on our quarterly evaluation and assessment of our investments, as well as the known and inherent risks associated with the various asset classes. Our allowance for credit losses is subject to significant judgments and assumptions about changes in economic conditions, estimated future cash flows,
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and the accuracy of third-party information used in internal assessments. We revise our evaluations and assessments as conditions change and new information becomes available. There can be no assurance that management has accurately assessed the level of credit losses recorded in our Financial Statements. For further details on our evaluation and considerations for determining whether a security has a credit loss, please refer to "Critical Accounting Policies and Estimates" in Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K.
Risks Related to Evolving Laws, Regulations, and Public Policy Debates
We are subject to complex and changing laws, regulations, and public policy debates that expose us to regulatory scrutiny, potential liabilities, increased costs, reputational harm, and other adverse effects on our business.Our operations are subject to complex and changing state and federal laws, regulations, and public policy debates on subjects, including, without limitation, the following:
•Pricing and underwriting practices;
•Claims practices;
•Loss and loss expense reserves;
•Exiting geographic markets and/or policy cancellations or non-renewals;
•Climate change and sustainability-related issues, including reporting, investment, and other mandated actions;
•Assessments for guaranty funds, second-injury funds, and other mandatory assigned risks and reinsurance pools;
•The types, quality, and concentration of investments we make;
•Minimum capital requirements for the Insurance Subsidiaries;
•Dividends from our Insurance Subsidiaries to the Parent;
•Privacy, data security, and related public disclosures for breaches;
•Tax;
•Antitrust;
•Consumer protection;
•Advertising, media, and digital content;
•Sales;
•Billing and e-commerce;
•Intellectual property ownership and infringement;
•Technology, digital platforms, artificial intelligence, and predictive and other modeling types;
•Internet, telecommunications, and mobile communications;
•Availability of third-party software applications and services;
•Employment and workplace rules related to human resources practices and environmental, health, and safety issues;
•Anti-money laundering; and
•Corporate social responsibility.
Changes to laws and regulations can adversely affect our business by increasing our costs, limiting our ability to offer products or services to customers, requiring changes to our business practices, or otherwise making our products and services less attractive.
In addition to regulatory changes, broader public policy changes and political uncertainties can have an impact on our business results. For example, (i) tariffs and related trade policy shifts can disrupt supply chains and increase costs, creating uncertainty for pricing and loss cost assumptions, and (ii) prolonged government shutdowns result in a lapse in the National Flood Insurance Program ("NFIP"), which would impact our Standard Personal Lines results.
While we underwrite risks only in the U.S., international regulatory developments, primarily capital adequacy and risk management requirements in the European Union ("EU"), may influence U.S. regulators as they develop or revise domestic regulatory standards.
We have designed and implemented policies and procedures to ensure compliance with applicable laws and regulations. However, we cannot provide assurance that our employees, contractors, or independent distribution partners will not violate such laws, regulations, or our policies and procedures. To some degree, we have multiple regulators whose authority may overlap and whose interpretations and/or regulations related to the same legal issues may differ. 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, there is a risk that one regulator's position or interpretation may conflict with another regulator on the same point. Consequently, we have the risk that one regulator's position or interpretation may conflict with another regulator on the same point. For example, (i) if Congress passed legislation regulating insurer solvency oversight and state regulators remained responsible for rate approval, we could be subject to an inconsistent regulatory framework that could impact our profitability and capital adequacy or (ii) the difference between California's more expansive view of required climate disclosures as compared to those of the SEC. The cost of complying with various laws and regulations, potentially conflicting laws and regulations, and changes in those laws and
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regulations, could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. Insurers are subject to regulatory, political, and media scrutiny. We are subject to government market conduct reviews and investigations, legal actions, and penalties. There can be no assurance that our business will not be materially adversely affected by the outcomes of such activity in the future. There can be no assurance that our business will not be materially adversely 30 Table of Contentsaffected by the outcomes of such activity in the future. If we are found to have violated laws and regulations, it could materially adversely affect our reputation, financial condition, and operating results.
Our business is subject to various state, federal, and other laws, rules, policies, and other data use and protection obligations.
We are subject to federal and state laws governing the collection, use, retention, security, and transfer of personally identifiable information ("PII").We are subject to federal and state laws relating to collecting, using, retaining, securing, and transferring personally identifiable information ("PII"). Federal laws include the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, the Drivers Privacy Protection Act, the Health Insurance Portability and Accountability Act, and Unfair and Deceptive Acts and Practices laws. Several states, like New York, Nevada, Colorado, Virginia, and California, have passed similar laws, and others are considering imposing additional restrictions or creating new rights concerning PII. These laws continue to develop and may differ by jurisdiction. Complying with emerging and changing requirements may result in substantial costs or necessitate us to change our business practices. Complying with emerging and changing requirements may cause us to incur substantial costs or require us to change our business practices. Noncompliance could result in significant reputational harm, penalties, and legal liability.
General Data Protection Regulation ("GDPR") regulates data protection and privacy in the EU, including personal data transfers outside the EU. GDPR’s central tenet is to give individuals primary control over their personal data. GDPR’s main tenet is to give individuals primary control over their personal data. Because we do not write coverages in the EU, GDPR does not directly impact us. Some U.S. states have subsequently incorporated individual-control mechanisms into state privacy laws. Future EU data privacy actions likely will influence U.S. regulators over time.
We make statements about our use and disclosure of PII in our privacy notice, published on our website, and in other public venues. We may be subject to litigation or governmental actions if we fail to comply with these public statements or federal and state privacy-related and data protection laws and regulations. We could be subject to litigation or governmental actions if we fail to comply with these public statements or federal and state privacy-related and data protection laws and regulations. Such proceedings could impact our reputation and result in penalties, including ongoing audit requirements and significant legal liability.
We are engaged in ordinary, routine legal proceedings incidental to our insurance operations that are inherently unpredictable and could impact our reputation and/or have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.We are engaged in ordinary routine legal proceedings incidental to our insurance operations that include:
•Indemnity or defense of third-party suits brought against our insureds;
•Defense of actions brought against us by our insureds who disagree with our coverage decisions, some of which allege bad faith claims handling and seek extra-contractual damages, punitive damages, or other penalties;
•Actions we file, primarily for declaratory judgment, seeking confirmation that we have made appropriate coverage decisions under our insurance contracts;
•Actions brought against competitors or us by plaintiffs alleging improper business practices and sometimes seeking class status. Such actions historically have included issues and allegations, without limitation, related to (i) unfairly discriminatory underwriting practices, including the impact of credit score usage, (ii) managed care practices, such as provider reimbursement, and (iii) automobile claims practices; and
•Actions we file against third parties and other insurers for subrogation and recovery of other amounts we paid on our insureds' behalf.
Some of our legal proceedings may receive media attention due to their perceived newsworthiness and/or their relationship to various broad economic, political, social, and legal developments or trends.Some of our legal proceedings may receive media attention because of their perceived newsworthiness and/or relationship to various broad economic, political, social, and legal developments or trends. Such media stories could negatively impact our reputation.
We expect any potential ultimate liability for ordinary routine legal proceedings incidental to our insurance business will not be material to our consolidated financial condition after considering estimated loss provisions. Litigation outcomes are inherently unpredictable, even with meritorious defenses. The same is true with case-specific litigation duration, as state dockets are often overcrowded. Generally, the longer a case is in litigation, the more expensive it can become. Because the amounts sought in specific actions are large or indeterminate, any adverse outcomes could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.
We have no material litigation risks related to climate change.
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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 transactions with affiliates may materially affect our ability to pay dividends on our preferred and common stock or repay our indebtedness.Restrictions on our Insurance Subsidiaries' ability to pay dividends, make loans or advances to the Parent, or enter into 31 Table of Contentstransactions with affiliates may materially affect our ability to pay dividends on our preferred and common stock or repay our indebtedness. Based on these restrictions, there is a maximum ordinary annual dividend the Insurance Subsidiaries can provide to the Parent. Based on these restrictions, there is a maximum ordinary annual dividend amount the Insurance Subsidiaries can provide the Parent. Our Insurance Subsidiaries' ability to pay dividends or make loans or advances is subject to the approval or review by our domiciliary state insurance regulators. For additional details regarding dividend restrictions, see Note 22. "Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.
The Parent’s ability to pay dividends to its stockholders is also impacted by covenants in its credit agreement (the "Line of Credit") among the Parent, the named lenders (the "Lenders"), and Wells Fargo Bank, National Association, as Administrative Agent. These covenants obligate the Parent to, among other things, maintain a minimum consolidated net worth and a maximum debt-to-capitalization ratio. Our preferred stock's terms limit the Parent's ability to declare or pay dividends on, or purchase, redeem, or otherwise acquire shares of its common stock or any shares of the Parent that rank junior to, or on parity with, the preferred stock if the Parent does not declare and pay (or set aside) dividends on the preferred stock for the last preceding dividend period. For additional details about the Line of Credit's financial covenants, see Note 11. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data" of this Form 10-K. For additional details about conditions related to our preferred stock, see Note 17. "Equity" in Item 8. "Financial Statements and Supplementary Data" of this Form 10-K.
Because we are a New Jersey corporation and an insurance holding company, we may be less attractive to potential acquirers, and our common stock's value could be adversely affected.
We are a New Jersey company, and provisions of the New Jersey Shareholders' Protection Act and our Amended and Restated Certificate of Incorporation may discourage, delay, or prevent us from being acquired. A supermajority of our shareholders must approve (i) certain business combinations with interested shareholders or (ii) any amendment to the related provisions of our Amended and Restated Certificate of Incorporation unless certain conditions are met. These conditions may relate to, among other things, the interested stockholder's acquisition of stock, the approval of the business combination by disinterested members of our Board and disinterested stockholders, and the price and payment of the consideration proposed in the business combination. In addition to considering the effects of any action on our shareholders (including any offer or proposal to acquire the Parent), our Board may consider (i) the long-term, and short-term interests of the Parent and our shareholders, including the possibility that the Parent’s continued independence may best serve these interests, (ii) the effects of the action on the Parent's employees, suppliers, creditors, and customers, and (iii) the effects of the action on the community in which the Parent operates.
These provisions of our Amended and Restated Certificate of Incorporation and New Jersey law could (i) deprive our common shareholders of an opportunity to receive a premium over the prevailing market price in a hostile takeover and (ii) adversely affect the value of our common stock.
Because we own insurance subsidiaries, any party seeking to acquire 10% or more of our common stock must seek prior approval from the subsidiaries' domiciliary insurance regulators and file extensive information about their business operations and finances. The New Jersey Department of Banking and Insurance Commissioner, who regulates seven of our Insurance Subsidiaries, also considers whether (i) the acquisition of control of an insurer would be adverse to the public interest or the protection of existing and future policyholders or (ii) persons seeking control would use control adversely to the public interest or the protection of policyholders.
Risks Related to Our General Operations
We, our distribution partners, and vendors are subject to attempted cyber-attacks and other cybersecurity and system availability risks.
Our business heavily relies on IT and application systems connected to or accessed through 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. Our systems also house proprietary and confidential information about our operations, employees, agents, and customers and their employees and property, including PII. A malicious cyber-attack on (i) our systems, (ii) our distribution partners or their key operating systems, and (iii) any other of our third-party partners or vendors and their key operating systems may interrupt our operations, damage our reputation, and result in monetary damages that are difficult to quantify. These potential impacts from a malicious cyber-attack could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
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Through encryption and authentication technologies, we have implemented system- and process-based risk mitigations intended to secure our IT systems and prevent unauthorized access to or loss of sensitive data. Cyber-attack sophistication evolves daily, so our security measures may not sufficiently address all eventualities. We may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management, or other irregularities. We implement new technologies, including AI, to increase operational efficiencies. We implement new technologies, including artificial intelligence, to increase operational efficiencies. These new technologies may increase the risk of cyber attacks. We also rely on third-party technology providers whose cyber-attack risks may be higher or lower than ours, depending on their profile and the maturity of their security programs. To the extent possible and practical, we review third-party control environments and align their risk exposure with our business requirements and risk tolerances. To the extent possible and practical, we review third-party control environments, aligning the risk exposure with our business requirements and risk tolerances. Any disruption or breach of our systems or data security could damage our reputation, result in monetary damages that are difficult to estimate, and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. To mitigate this risk, we have and expect to continue to (i) conduct disaster recovery exercises, employee education programs, and tabletop exercises, and (ii) develop and invest in a variety of controls to prevent, detect, and appropriately react to cyber-attacks, including frequently testing our systems' security and access controls. We have insurance coverage for certain cybersecurity risks, including privacy breach incidents, which may be insufficient to indemnify against all arising losses or types of claims.
In addition to the risk of cyber-attacks, we face system availability risk. Our business relies heavily on various IT and application systems. We have robust business continuity plans designed to minimize the duration and impact of an unexpected loss of availability of any of these systems. Nevertheless, we could experience an event that impacts one or more of these systems, including those based in facilities where our vendors or we operate. Such events could disrupt our ability to conduct business and negatively impact our results of operations, despite our business continuity plans. Such events could interrupt our ability to conduct business and negatively impact our results of operations, despite our business continuity plans.
Operational leverage relies 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.Operational leverage necessitates the success of our risk management strategies, and their failure could have a material adverse effect on our financial condition or results of operations.
As an insurer, we assume risk from our policyholders. We define operating leverage as the ratio of NPW to our statutory surplus. We balance and mitigate our operational leverage risk through 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 balance and mitigate our operational leverage risk with several risk management strategies within our insurance operations to achieve a balance of growth and profit, including an underwriting risk appetite focused on small-to-medium-sized accounts. We employ significant reinsurance, a disciplined reserving approach, and a conservative investment philosophy. These strategies have inherent limitations. We cannot be certain that an event or series of unanticipated events will not occur and result in greater-than-expected losses, which could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. We cannot be certain that an event or series of unanticipated events will not occur and result in greater than expected losses, which could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk Management and Strategy
Our business heavily relies on various IT and application systems that contain proprietary and confidential information about our operations, employees, agents, claimants, customers, and their employees and property, including personally identifiable information. These systems are connected to and/or accessed from the Internet, making them susceptible to cyber-attacks. A cyber-attack on our systems, distribution partners and their key operating systems, or any other third-party partners or vendors and their key operating systems, may materially affect us. Potential impacts include prolonged interruption of our business operations, reputational harm, or substantial monetary damages. For a detailed description of the risks related to cybersecurity, refer to the "Risks Related to our General Operations" section in Item 1A. "Risk Factors." of this Form 10-K.
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effectiveness, and (ii) is reasonably likely to defend against risks of cybersecurity threats that would have a material impact on our business strategy, results of operations, or financial condition. This program focuses on the following six key areas to monitor various IT performance and security metrics:
•Proactive cybersecurity processes, including vulnerability scanning, penetration testing, and periodic program assessments by outside security consultants and assessors;
•Reactive cybersecurity processes that we regularly evaluate using incident response and disaster recovery exercises based on realistic scenarios;
•Endpoint technology that includes encryption, threat management, monitoring, investigation support, and backups;
•Identity and access management controls that often include multi-factor authentication and additional safeguards for staff granted elevated privileges;
•Employee cyber risk awareness, training, and testing that covers cybersecurity threats and actions to prevent or report attacks; and
•Third-party risk management and security standards, including due diligence, continuous monitoring, cyber risk scoring, and contractual obligations. We review third-party control environments when practical and align the risk exposure with our business requirements and risk tolerances. We review third-party control environments when possible and practical, aligning the risk exposure with our business requirements and risk tolerances.
Board Governance and Management
The cybersecurity team, managed by the SVP of IT Enterprise Strategy and Execution, (i) receives oversight and executive support through engagement with our ERC, which is responsible for the holistic evaluation, management, and supervision of our aggregate risk profile and (ii) collaborates with our ERM function on business alignment and cybersecurity insurance procurement.
The expertise of key members of management and our committees responsible for assessing, managing, and presenting quarterly updates to the Board’s Risk Committee about our cybersecurity risks is summarized as follows:
•John Bresney, EVP & CIO, reports directly to our Chief Executive Officer and is responsible for all of our IT operations, including oversight of the SVP of Enterprise Strategy and Execution’s implementation of our cybersecurity program and enforcement of our cybersecurity policies. He has worked for us for approximately 32 years, holding various technology and information security roles of increasing responsibility. He has a bachelor’s degree in information systems and business, a Master’s Certificate in Project Management, and a Columbia University CIO Program Certificate.
•Robert McKenna, SVP of Enterprise Strategy and Execution, reports to our CIO and leads the implementation of our cybersecurity program, enforcement of our cybersecurity policies, technology planning, projects driving IT strategy, and enterprise IT risk management. He also oversees cybersecurity incidents under our Security Incident Response Plan ("IRP"). He has worked for us for approximately 23 years in related positions of increasing responsibility and has over 28 years of technology and information security experience. He has worked for us for approximately 22 years in related positions of increasing responsibility and has over 28 years of technology and information security experience. He has a master’s degree in business administration, a Certificate in Project Management, and is a Certified Insurance Counselor.
•Ari Moskowitz SVP, Chief Risk and Reinsurance Officer, reports to our CFO and leads our Reinsurance and ERM teams, and chairs the ERC and the Market Security Committee. He has a bachelor's degree in mathematics from Touro College in New York, is an Associate of the Casualty Actuarial Society, and is a member of the American Academy of Actuaries. He has a bachelor’s degree in mathematics, is a fellow of the Casualty Actuarial Society, and is a member of the American Academy of Actuaries. Before joining Selective in mid-2025, he spent seven years at Everest Group, leading risk and
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For additional information on our overall corporate governance structure and internal process of assessing our other significant risks, see the "Corporate Governance, Sustainability and Social Responsibility" section in Item 1. "Business." of this Form 10-K.
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