MERCURY GENERAL CORP

Previous wording

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. Certain statements contained in this report are forward-looking statements based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the demand for the Company’s insurance products, inflation and general economic conditions, including general market risks associated with the Company’s investment portfolio; the accuracy and adequacy of the Company’s pricing methodologies; catastrophes in the markets served by the Company; uncertainties related to estimates, assumptions and projections generally; the possibility that actual loss experience may vary adversely from the actuarial estimates made to determine the Company’s loss reserves in general, including subrogation recovery estimates; the Company’s ability to obtain and the timing of the approval of premium rate changes for insurance policies issued in the states where it operates; legislation adverse to the automobile or homeowners insurance industry or business generally that may be enacted in the states where the Company operates; the Company’s success in managing its business in non-California states; the presence of competitors with greater financial resources and the impact of competitive pricing and marketing efforts; the Company's ability to successfully allocate the resources used in the states with reduced or exited operations to its operations in other states; changes in driving patterns and loss trends; acts of war and terrorist activities; effects of changing climate conditions; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases; court decisions and trends in litigation and health care and auto repair costs; heightened global trade barriers or restrictions; and legal, cybersecurity, regulatory and litigation risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the "SEC") on February 11, 2025.

Current wording

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. Certain statements contained in this report are forward-looking statements based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the demand for the Company’s insurance products, inflation and general economic conditions, including general market risks associated with the Company’s investment portfolio; the accuracy and adequacy of the Company’s pricing methodologies; catastrophes in the markets served by the Company; uncertainties related to estimates, assumptions and projections generally; the possibility that actual loss experience may vary adversely from the actuarial estimates made to determine the Company’s loss reserves in general, including subrogation recovery estimates; the Company’s ability to obtain and the timing of the approval of premium rate changes for insurance policies issued in the states where it operates; legislation adverse to the automobile or homeowners insurance industry or business generally that may be enacted in the states where the Company operates; the Company’s success in managing its business in non-California states; the presence of competitors with greater financial resources and the impact of competitive pricing and marketing efforts; the Company's ability to successfully allocate the resources used in the states with reduced or exited operations to its operations in other states; changes in driving patterns and loss trends; acts of war and terrorist activities; effects of changing climate conditions; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases; court decisions and trends in litigation and health care and auto repair costs; changes in global trade policies, including trade barriers or restrictions; and legal, cybersecurity, regulatory and litigation risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the "SEC") on February 17, 2026.

Previous wording

The Company is primarily engaged in writing personal automobile insurance through 12 insurance subsidiaries (“Insurance Companies”) in 11 states, principally California. The Company also writes homeowners, commercial automobile, commercial property, mechanical protection, and umbrella insurance. The Company's insurance policies are mostly sold through independent agents who receive a commission for selling policies. The Company believes that it has thorough underwriting and claims handling processes that, together with its agent relationships, provide the Company with competitive advantages.

Current wording

The Company is primarily engaged in writing personal automobile insurance through 12 insurance subsidiaries (“Insurance Companies”) in 11 states, principally California. The Company also writes homeowners, commercial automobile, commercial property, mechanical protection, and umbrella insurance. The Company's insurance policies are mostly sold through independent agents who receive a commission for selling policies. The Company believes that it has thorough underwriting, pricing and claims handling processes that, together with its agent relationships, provide the Company with competitive advantages.

Previous wording

The following tables present direct premiums written, by state and line of insurance business, for the nine months ended September 30, 2025 and 2024:

Current wording

The following tables present direct premiums written, by state and line of insurance business, for the three months ended March 31, 2026 and 2025:

Previous wording

The Department of Insurance (“DOI”) in each state in which the Company operates is responsible for conducting periodic financial, market conduct, and rating and underwriting examinations of the Insurance Companies in their states. Market conduct examinations typically review compliance with insurance statutes and regulations with respect to rating, underwriting, claims handling, billing, and other practices.

Current wording

The DOI in each state in which the Company operates is responsible for conducting periodic financial, market conduct, and rating and underwriting examinations of the Insurance Companies in their states. Market conduct examinations typically review compliance with insurance statutes and regulations with respect to rating, underwriting, claims handling, billing, and other practices. During the course of and at the conclusion of the examinations, the examining DOI generally reports findings to the Company.

Previous wording

In late 2024, as part of the California insurance commissioner’s “Sustainable Insurance Strategy,” the California DOI issued two regulations that may impact how insurers price and write certain of their California property insurance policies: one allowing insurers to incorporate catastrophe modeling into rate-making with a requirement for them to align their share of insured properties in distressed wildfire-prone areas of the state to at least 85% of their state-wide market share, which may be increased by 5% per year, if necessary, until that level is reached; and the other allowing insurers to incorporate reinsurance costs into rate-making for certain specific catastrophe perils and wildfire exposures when meeting the same requirement governing the use of catastrophe modeling. The California insurance commissioner has also implemented changes to the California FAIR Plan, expanding coverage offerings and changing the assessment and recoupment processes in order to enhance market stability: the FAIR Plan’s member insurers may now request the California insurance commissioner’s prior approval to collect temporary supplemental fees from their own policyholders in order to recoup up to 50% of amounts assessed up to $1 billion in aggregate assessments in the industry and 100% of all amounts assessed over that $1 billion threshold for each of personal and commercial lines of insurance business, and 100% of all amounts assessed over $2 billion in aggregate assessments in the industry for the combined personal and commercial lines of insurance business. In August 2025, the

Current wording

In late 2024, as part of the California insurance commissioner’s “Sustainable Insurance Strategy,” the California DOI issued two regulations that may impact how insurers price and write certain of their California property insurance policies: one allowing insurers to incorporate catastrophe modeling into rate-making with a requirement for them to align their share of insured properties in distressed wildfire-prone areas of the state to at least 85% of their state-wide market share, which may be increased by 5% per year, if necessary, until that level is reached; and the other allowing insurers to incorporate reinsurance costs into rate-making for certain specific catastrophe perils and wildfire exposures when meeting the same requirement governing the use of catastrophe modeling. The California insurance commissioner has also implemented changes to the California FAIR Plan, expanding coverage offerings and changing the assessment and recoupment processes in order to enhance market stability: the FAIR Plan’s member insurers may now request the California insurance commissioner’s prior approval to collect temporary supplemental fees from their own policyholders in order to recoup up to 50% of amounts assessed up to $1 billion in aggregate assessments in the industry and 100% of all amounts assessed over that $1 billion threshold for each of personal and commercial lines of insurance business, and 100% of all amounts assessed over $2 billion in aggregate assessments in the industry for the combined personal and commercial lines of insurance business. In December 2025, the California DOI approved the Company's rate application, which incorporates catastrophe modeling and reinsurance costs into its ratemaking in accordance with the new regulations. The Company will adhere to the market-share requirements when the new rating plan is effective in July 2026.

Previous wording

In January 2025, the California DOI approved a 12% rate increase on the California homeowners line of insurance business. This rate increase became effective in March 2025. The California homeowners line of insurance business represented approximately 15% of the Company's total net premiums earned for the nine months ended September 30, 2025.

Current wording

In January 2025, the California DOI approved a 12% rate increase on the California homeowners line of insurance business. This rate increase became effective in March 2025. In addition, in December 2025, the California DOI approved a 6.9% rate increase on the California homeowners line of insurance business. This rate increase is expected to become effective in July 2026. The California homeowners line of insurance business represented approximately 17% of the Company's total net premiums earned for the three months ended March 31, 2026.

Previous wording

In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. For a discussion of any additional regulatory or legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and Note 12. Contingencies of the Notes to Consolidated Financial Statements of this Quarterly Report.

Current wording

In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. For a discussion of any additional regulatory or legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Previous wording

The Company analyzes catastrophe losses separately from non-catastrophe losses. The Company classifies certain losses as catastrophe losses based on catastrophe events designated by Property Claim Services, a unit of Insurance Services Office, Inc. For catastrophe losses, the Company generally determines claim counts based on claims reported and development expectations from previous catastrophes and applies an average expected loss per claim based on loss reserves established by adjusters and average losses on previous similar catastrophes. For those properties that were totally or near totally destroyed, the Company considers insured values by specific coverage types (dwelling, additional replacement cost, contents, debris removal, living expenses, etc.) and to what extent those limits will be utilized, to determine loss amounts on those claims.

Current wording

The Company analyzes catastrophe losses separately from non-catastrophe losses. The Company classifies certain losses as catastrophe losses based on catastrophe events designated by Property Claim Services, a unit of Insurance Services Office, Inc. For catastrophe losses, the Company generally determines claim counts based on claims reported and development expectations from previous catastrophes and applies an average expected loss per claim based on loss reserves established by adjusters and average losses on previous similar catastrophes.

Previous wording

At September 30, 2025 and December 31, 2024, the Company recorded its point estimate of approximately $3.60 billion and $3.15 billion ($3.51 billion and $3.12 billion, net of reinsurance), respectively, in loss reserves, which included approximately $2.09 billion and $1.92 billion ($2.09 billion and $1.92 billion, net of reinsurance), respectively, of incurred but not reported loss reserves (“IBNR”). IBNR includes estimates, based upon past experience, of ultimate developed costs, which may differ from case estimates, unreported claims that occurred on or prior to September 30, 2025 and December 31, 2024, and estimated future payments for reopened claims. Management believes that the liability for loss reserves is adequate to cover the ultimate net cost of losses and loss adjustment expenses incurred to date; however, since the provisions are necessarily based upon estimates, the ultimate liability may be more or less than such provisions.

Current wording

At March 31, 2026 and December 31, 2025, the Company recorded its point estimate of approximately $3.65 billion and $3.63 billion ($3.61 billion and $3.60 billion, net of reinsurance), respectively, in loss reserves, which included approximately $2.16 billion and $2.12 billion ($2.16 billion and $2.12 billion, net of reinsurance), respectively, of incurred but not reported loss reserves (“IBNR”). IBNR includes estimates, based upon past experience, of ultimate developed costs, which may differ from case estimates, unreported claims that occurred on or prior to March 31, 2026 and December 31, 2025, and estimated future payments for reopened claims. Management believes that the liability for loss reserves is adequate to cover the ultimate net cost of losses and loss adjustment expenses incurred to date; however, since the provisions are necessarily based upon estimates, the ultimate liability may be more or less than such provisions.

Previous wording

Net premiums earned increased 6.8% and net premiums written increased 5.3% for the three months ended September 30, 2025, from the corresponding period in 2024. The increases in net premiums earned and net premiums written were primarily due to rate increases in the California homeowners line of insurance business and increases in the number of policies written in the California private passenger automobile and homeowners lines of insurance business, partially offset by increases in ceded premiums earned and ceded premiums written, respectively.

Current wording

Net premiums earned and net premiums written for the three months ended March 31, 2026 increased 13.2% and 17.9%, respectively, from the corresponding period in 2025. The increases in net premiums earned and net premiums written were primarily due to a rate increase in the California homeowners line of insurance business and increases in the number of policies written in the California automobile and homeowners lines of insurance business, combined with decreases in ceded premiums earned and ceded premiums written, respectively.

Previous wording

Net premiums earned included ceded premiums earned of $224.3 million and $104.9 million for the nine months ended September 30, 2025 and 2024, respectively. Net premiums written included ceded premiums written of $224.2 million and $106.1 million for the nine months ended September 30, 2025 and 2024, respectively. The increases in ceded premiums earned and ceded premiums written resulted mostly from reinstatement premiums earned and written of $101 million for use of reinsurance coverages associated with the Palisades and Eaton wildfires as well as higher reinsurance coverage and rates and growth in the covered book of business.

Current wording

Net premiums earned included ceded premiums earned of $62.7 million and $106.7 million for the three months ended March 31, 2026 and 2025, respectively. Net premiums written included ceded premiums written of $62.6 million and $156.8 million for the three months ended March 31, 2026 and 2025, respectively. The decreases in ceded premiums earned and written resulted mostly from reinsurance reinstatement premiums earned and written of $50 million and $101 million, respectively, and the accelerated expensing of the remaining annual reinsurance premiums of $26 million under the Treaty, during the three months ended March 31, 2025, for use of reinsurance coverages associated with the Palisades and Eaton wildfires, partially offset by an increase in the annual reinsurance premium under the Treaty due to higher reinsurance coverage and rates and growth in the covered book of business.

Previous wording

Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned. The loss ratio for the third quarter of 2025 and 2024 was affected by favorable development of approximately $27 million and unfavorable development of approximately $8 million, respectively, on prior accident years' loss and loss adjustment expense reserves. The favorable development for the third quarter of 2025 was primarily attributable to lower than estimated losses and loss adjustment expenses in the automobile line of insurance business. The unfavorable development for the third quarter of 2024 was primarily attributable to higher than estimated losses and loss adjustment expenses in the automobile line of insurance business.

Current wording

Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned. The loss ratio for the first quarter of 2026 and 2025 was affected by favorable development of approximately $9 million and $51 million, respectively, on prior accident years' loss and loss adjustment expense reserves. The favorable development for the first quarter of 2026 was primarily attributable to lower than estimated losses in the automobile line of insurance business, partially offset by adverse development on the homeowners line of insurance business, including adverse development on the prior years' catastrophe losses. The favorable development for the first quarter of 2025 was primarily attributable to lower than estimated losses in the automobile line of insurance business, and the homeowners line of insurance business, including favorable development on the prior years' catastrophe losses.

Previous wording

In addition, the 2025 loss ratio was negatively impacted by approximately $33 million of catastrophe losses net of reinsurance, excluding favorable development of approximately $4 million on prior years' catastrophe losses, primarily due to an increase in estimated net losses and loss adjustment expenses on the Palisades and Eaton wildfires in the third quarter of 2025. See Note 10. Loss and Loss Adjustment Expense Reserves of the Notes to Consolidated Financial Statements for additional information. The 2024 loss ratio was negatively impacted by approximately $41 million of catastrophe losses, excluding favorable development of approximately $2 million on prior years' catastrophe losses, primarily due to the impact of Hurricane Helene in Florida and Georgia.

Current wording

In addition, the 2026 loss ratio was negatively impacted by approximately $36 million of catastrophe losses net of reinsurance, excluding unfavorable development of approximately $57 million on prior years' catastrophe losses, primarily due to storms in California, Texas and Oklahoma. The 2025 loss ratio was negatively impacted by approximately $459 million of catastrophe losses, excluding favorable development of approximately $12 million on prior years' catastrophe losses, primarily due to the Palisades and Eaton wildfires.

Previous wording

Excluding the effects of estimated prior accident years’ loss development and catastrophe losses, the loss ratio was 62.2% and 65.8% for the third quarter of 2025 and 2024, respectively. The decrease in the loss ratio was primarily due to rate increases in several lines of insurance business including California homeowners and a decrease in loss frequency in the California private passenger automobile line of insurance business, partially offset by an increase in loss severity in the California private passenger automobile line of insurance business.

Current wording

Excluding the effects of estimated prior accident years’ loss development and catastrophe losses, the loss ratio was 62.4% and 63.4% for the first quarter of 2026 and 2025, respectively. The decrease in the loss ratio was primarily due to a rate increase and a decrease in ceded premiums earned that are discussed above, partially offset by increases in loss severity and frequency in the private passenger automobile line of insurance business.

Previous wording

Expense ratio is calculated by dividing the sum of policy acquisition costs and other operating expenses by net premiums earned. The expense ratio for the three months ended September 30, 2025 increased slightly compared to the corresponding period in 2024, which was largely attributable to increases in advertising expenses and certain profitability-based accruals, partially offset by the rate increases, as discussed above.

Current wording

Expense ratio is calculated by dividing the sum of policy acquisition costs and other operating expenses by net premiums earned. The expense ratio for the three months ended March 31, 2026 increased from the corresponding period in 2025, which was largely attributable to increases in profitability-based accruals and advertising expenses, partially offset by a rate increase and a decrease in ceded premiums earned that are discussed above.

Previous wording

Income tax expense was $69.9 million and $56.2 million for the three months ended September 30, 2025 and 2024, respectively. The increase in income tax expense was primarily due to a $63.3 million increase in total pre-tax income. The Company’s effective income tax rate can be affected by several factors. These generally relate to large changes in the composition of fully taxable income, including net realized investment gains or losses, tax-exempt investment income, non-deductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. Income tax expense of $69.9 million on pre-tax income of $350.3 million, including tax-exempt investment income of $26.5 million, resulted in an effective tax rate of 20.0%, below the statutory tax rate of 21%, for the three months ended September 30, 2025, and income tax expense of $56.2 million on pre-tax income of $287.1 million, including tax-exempt investment income of $21.3 million, resulted in an effective tax rate of 19.6% for the corresponding period in 2024.

Current wording

Income tax expense (benefit) was $45.2 million and $(34.0) million for the three months ended March 31, 2026 and 2025, respectively. The increase in income tax expense was primarily due to a $377.9 million increase in total pre-tax income. The Company’s effective income tax rate can be affected by several factors. These generally relate to large changes in the composition of fully taxable income, including net realized investment gains or losses, tax-exempt investment income, non-deductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. Income tax expense of $45.2 million on pre-tax income of $235.7 million, including tax-exempt investment income of $31.7 million, resulted in an effective tax rate of 19.2%, below the statutory tax rate of 21%, for the three months ended March 31, 2026, and income tax benefit of $34.0 million on pre-tax loss of $142.3 million, including tax-exempt investment income of $20.9 million, resulted in an effective tax rate of 23.9%, above the statutory tax rate of 21%, for the corresponding period in 2025.

Previous wording

(2)Net investment income includes approximately $12.9 million and $6.8 million of interest income earned on cash (approximately $10.2 million and $5.3 million after tax) for the three months ended September 30, 2025 and 2024, respectively. Average annual yield on investments does not include interest income earned on cash.

Current wording

(2)Net investment income includes approximately $11.2 million and $13.1 million of interest income earned on cash (approximately $8.9 million and $10.3 million after tax) for the three months ended March 31, 2026 and 2025, respectively. Average annual yield on investments does not include interest income earned on cash.

Previous wording

(3)Higher net investment income before and after income taxes for the three months ended September 30, 2025 compared to the corresponding period in 2024 resulted largely from higher average invested assets and cash.

Current wording

(3)Higher net investment income before and after income taxes for the three months ended March 31, 2026 compared to the corresponding period in 2025 resulted largely from higher average invested assets. Average annual yield on investments before income taxes decreased, primarily due to an increase in tax-exempt investments with lower pre-tax yields, combined with lower yields on floating rate investments resulting from lower short-term market interest rates. Average annual yield on investments after income taxes decreased, primarily due to lower yields on floating rate investments resulting from lower short-term market interest rates.

Previous wording

(2)The increases in fair value of fixed maturity securities for the third quarters of 2025 and 2024 primarily resulted from decreases in overall market interest rates.

Current wording

(2)The decrease in fair value of fixed maturity securities for the first quarter of 2026 primarily resulted from increases in overall market interest rates. The increase in fair value of fixed maturity securities for the first quarter of 2025 primarily resulted from decreases in overall market interest rates.

Previous wording

(3)The increases in fair value of equity securities for the third quarters of 2025 and 2024 primarily resulted from the overall improvement in equity markets.

Current wording

(3)The decreases in fair value of equity securities for the first quarters of 2026 and 2025 primarily resulted from the overall decline in equity markets.

Previous wording

The Company has generated positive cash flow from operations in each full year since the public offering of its common stock in November 1985. The Company does not attempt to match the duration and timing of asset maturities with those of liabilities; rather, it manages its portfolio with a view towards maximizing total return with an emphasis on after-tax income. With combined cash and short-term investments of $1,725.5 million at September 30, 2025, the Company believes its cash flow from future operations is adequate to satisfy its liquidity requirements. Investment maturities are also available to meet the Company’s liquidity needs. However, the Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that the Company’s sources of funds will be sufficient to meet its liquidity needs or that the Company will not be required to raise additional funds to meet those needs or for future business expansion, through the sale of equity or debt securities or from credit facilities with lending institutions.

Current wording

The Company has generated positive cash flow from operations in each full year since the public offering of its common stock in November 1985. The Company does not attempt to match the duration and timing of asset maturities with those of liabilities; rather, it manages its portfolio with a view towards maximizing total return with an emphasis on after-tax income. With combined cash and short-term investments of $1,792.7 million at March 31, 2026, the Company believes its cash flow from future operations is adequate to satisfy its liquidity requirements. Investment maturities are also available to meet the Company’s liquidity needs. However, the Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that the Company’s sources of funds will be sufficient to meet its liquidity needs or that the Company will not be required to raise additional funds to meet those needs or for future business expansion, through the sale of equity or debt securities or from credit facilities with lending institutions.

Previous wording

Net cash provided by operating activities for the nine months ended September 30, 2025 was $799.3 million, an increase of $10.5 million compared to the corresponding period in 2024. The increase was primarily due to increases in reinsurance and subrogation recoveries, an increase in premium collections, a decrease in payments for income taxes, and an increase in investment income received, partially offset by increases in payments for losses and loss adjustment expenses and commissions and other acquisition costs. The Company utilized the cash provided by operating activities during the nine months ended September 30, 2025 primarily for the net purchases of investment securities and payment of dividends to its shareholders, with the remaining invested in cash accounts for future liquidity needs, including additional payment for losses from the Palisades and Eaton wildfires.

Current wording

Net cash provided by operating activities for the three months ended March 31, 2026 was $325.6 million, an increase of $394.3 million from the corresponding period in 2025. The increase was primarily due to an increase in premium collections and a decrease in payments for losses and loss adjustment expenses, partially offset by an increase in payments for commissions and other acquisition costs. The Company utilized the cash provided by operating activities during the three months ended March 31, 2026 primarily for the net purchases of investment securities and payment of dividends to its shareholders, with the remaining invested in cash accounts.

Previous wording

The Company is the assuming reinsurer under a Catastrophe Participation Reinsurance Contract (the "Contract") effective through December 31, 2025. The Company reimburses a group of affiliates of a ceding company for a proportional share of a portfolio of catastrophe losses based on the premiums ceded to the Company under the Contract, to the extent the actual loss ratio exceeds the threshold loss ratio of 73.5%. The total assumed premium under the Contract is $15.0 million for each of the 12-month periods ending December 31, 2023 through 2025. The total amount of losses that can be ceded to the Company under the Contract is $30.0 million for each of the 12-month periods ending December 31, 2023 through 2025. The Company recognized $4.1 million and $11.3 million in earned premiums and $1.3 million and $(0.8) million in incurred losses for the three and nine months ended September 30, 2025, respectively, and $3.8 million and $11.3 million in earned premiums and $2.1 million and $(0.3) million in incurred losses for the three and nine months ended September 30, 2024, respectively, under the Contract. The negative incurred losses for the nine months ended September 30, 2025 and 2024 resulted primarily from favorable development on prior years' catastrophe losses that were ceded to the Company under the Contract.

Current wording

The Company is the assuming reinsurer under a Catastrophe Portfolio Participation Reinsurance Contract (the "Contract") effective through December 31, 2028. The Company reimburses a group of affiliates of a ceding company for a proportional share of a portfolio of catastrophe losses based on the premiums ceded to the Company under the Contract, to the extent the actual loss ratio exceeds the threshold loss ratio of 73.5%. The total assumed premium under the Contract is $15.0 million for each of the 12-month periods ending December 31, 2025 through 2028. The total possible amount of losses for the Company under the Contract is $30.0 million for each of the 12-month periods ending December 31, 2025 through 2028. The Company recognized $(5.2) million and $(1.7) million in incurred losses for the three months ended March 31, 2026 and 2025, respectively, under the Contract. The negative incurred losses for the three months ended March 31, 2026 and 2025 resulted primarily from favorable development on prior years' catastrophe losses that had previously been ceded to the Company under the Contract.

Previous wording

The Company is the assuming reinsurer under a Property Quota Share Reinsurance Contract ("Quota Share") and reimburses ceding companies for a proportional share of losses based on the premiums ceded to the Company under the Quota Share. The total annual assumed premium under the Quota Share is approximately $11 million. The total annual amount of losses that can be ceded to the Company under the Quota Share is approximately $32 million. The Company recognized $2.6 million in earned premiums and $2.1 million in incurred losses for the three months ended September 30, 2025, and $7.9 million in earned premiums and $6.2 million in incurred losses for the nine months ended September 30, 2025, under the Quota Share. The Quota Share commenced on January 1, 2025 and is effective through December 31, 2025.

Current wording

The Company is the assuming reinsurer under a Property Quota Share Reinsurance Contract ("Quota Share Contract") effective through December 31, 2026 and reimburses ceding companies for a proportional share of losses based on the premiums ceded to the Company under the Quota Share Contract. The total annual assumed premium under the Quota Share Contract is approximately $17 million and $11 million for the 12 months ending December 31, 2026 and 2025, respectively. The total annual possible amount of losses that can be ceded to the Company under the Quota Share Contract is approximately $60 million and $32 million for the 12 months ending December 31, 2026 and 2025, respectively. The Company recognized approximately $3.4 million and $2.1 million in incurred losses for the three months ended March 31, 2026 and 2025, respectively, under the Quota Share Contract.

Previous wording

The catastrophe events that occurred in 2024 caused approximately $245 million in losses to the Company before reinsurance as of September 30, 2025, resulting primarily from tornadoes, hailstorms and convective storms in Texas and Oklahoma, winter storms, rainstorms and wildfires in California, and the impact of Hurricane Helene in Florida and Georgia. No reinsurance benefits were available under the Treaty for these losses as none of the 2024 catastrophe events individually resulted in losses in excess of the Company’s per-occurrence retention limit of $150 million and $100 million under the Treaty for the 12 months ended June 30, 2025 and 2024, respectively.

Current wording

The catastrophe events that occurred in 2026 caused approximately $28 million in losses and loss adjustment expenses to the Company before reinsurance, resulting primarily from storms in California, Texas and Oklahoma. None of the 2026 catastrophe events individually resulted in losses in excess of the Company's per-occurrence retention limit of $200 million under the Treaty for the 12 months ending June 30, 2026.

Previous wording

The catastrophe events that occurred in 2025 caused approximately $1,811 million in losses and loss adjustment expenses to the Company before reinsurance, resulting primarily from the Palisades and Eaton wildfires in California and severe storms in Texas and Oklahoma. Catastrophe losses incurred for the nine months ended September 30, 2025 was reduced by approximately $574 million of subrogation recorded on the Palisades and Eaton wildfires. All of the reinsurance benefits available for the 12 months ending June 30, 2025 under the Treaty, approximately $1,290 million, were used up for losses from the Palisades and Eaton wildfires in the first quarter of 2025, and limits totaling $1,238 million were reinstated. See Note 10. Loss and Loss Adjustment Expense Reserves of the Notes to Consolidated Financial Statements for additional information. None of the 2025 catastrophe events, other than the Palisades and Eaton wildfires, individually resulted in losses in excess of the Company's per-occurrence retention limit of $200 million and $150 million under the Treaty for the 12 months ending June 30, 2026 and 2025, respectively.

Current wording

The catastrophe events that occurred in 2025 caused approximately $1,868 million in losses and loss adjustment expenses net of subrogation to the Company before reinsurance as of March 31, 2026, resulting primarily from the Palisades and Eaton wildfires in California and severe storms in Texas, Oklahoma and California. Catastrophe losses for the events that occurred in 2025 was reduced by approximately $609 million of subrogation recorded on the Palisades and Eaton wildfires. All of the reinsurance benefits available for the 12 months ending June 30, 2025 under the Treaty, approximately $1,290 million, were used for losses from the Palisades and Eaton wildfires in the first quarter of 2025, and limits totaling $1,238 million were reinstated. See Note 10. Loss and Loss Adjustment Expense Reserves of the Notes to Consolidated Financial Statements for additional information. None of the 2025 catastrophe events, other than the Palisades and Eaton wildfires, individually resulted in losses in excess of the Company’s per-occurrence retention limit of $200 million and $150 million under the Treaty for the 12 months ending June 30, 2026 and 2025, respectively.

Previous wording

At September 30, 2025, 40.8% of the Company’s total investment portfolio at fair value and 50.5% of its total fixed maturity securities at fair value were invested in tax-exempt state and municipal bonds. Equity holdings consist of non-redeemable preferred stocks, dividend-bearing common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds. At September 30, 2025, 98.1% of short-term investments consisted of highly rated short-duration securities redeemable on a daily or weekly basis.

Current wording

At March 31, 2026, 43.8% of the Company’s total investment portfolio at fair value and 54.4% of its total fixed maturity securities at fair value were invested in tax-exempt state and municipal bonds. Equity holdings consist of non-redeemable preferred stocks, dividend-bearing common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds. At March 31, 2026, 92.3% of short-term investments consisted of highly rated short-duration securities redeemable on a daily or weekly basis.

Previous wording

Another exposure related to the fixed maturity securities is credit risk, which is managed by maintaining a weighted-average portfolio credit quality rating of A+, at fair value, at September 30, 2025, consistent with the average rating at December 31, 2024. The Company's municipal bond holdings, of which 79.2% were tax exempt, represented 50.5% of its fixed maturity securities portfolio at September 30, 2025, at fair value, and are broadly diversified geographically. See Part I-Item 3. Quantitative and Qualitative Disclosures About Market Risks for a breakdown of municipal bond holdings by state.

Current wording

Another exposure related to the fixed maturity securities is credit risk, which is managed by maintaining a weighted-average portfolio credit quality rating of AA- and, A+, at fair value, at March 31, 2026 and December 31, 2025, respectively. The Company's municipal bond holdings, of which 83.3% were tax exempt, represented 54.4% of its fixed maturity securities portfolio at March 31, 2026, at fair value, and are broadly diversified geographically. See Part I-Item 3. Quantitative and Qualitative Disclosures About Market Risks for a breakdown of municipal bond holdings by state.

Previous wording

Taxable holdings consist principally of investment grade issues. At September 30, 2025, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $6.9 million and $35.4 million, respectively, at fair value, and represented 0.1% and 0.7%, respectively, of total fixed maturity securities. At December 31, 2024, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $6.2 million and $62.3 million, respectively, at fair value, and represented 0.1% and 1.3%, respectively, of total fixed maturity securities.

Current wording

Taxable holdings consist principally of investment grade issues. At March 31, 2026, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $9.1 million and $32.3 million, respectively, at fair value, and represented 0.2% and 0.6%, respectively, of total fixed maturity securities. At December 31, 2025, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $10.1 million and $50.6 million, respectively, at fair value, and represented 0.2% and 0.9%, respectively, of total fixed maturity securities.

Previous wording

The overall credit ratings for the Company’s fixed maturity securities portfolio were relatively stable during the nine months ended September 30, 2025, with 93.4% of fixed maturity securities at fair value experiencing no change in their overall rating. 5.0% and 1.6% of fixed maturity securities at fair value experienced upgrades and downgrades, respectively, during the nine months ended September 30, 2025.

Current wording

The overall credit ratings for the Company’s fixed maturity securities portfolio were relatively stable during the three months ended March 31, 2026, with 98.8% of fixed maturity securities at fair value experiencing no change in their overall rating. 0.5% and 0.7% of fixed maturity securities at fair value experienced upgrades and downgrades, respectively, during the three months ended March 31, 2026.

Previous wording

The Company had $63.7 million and $93.8 million, or 1.2% and 1.9% of its fixed maturity securities portfolio, at fair value, in U.S. government bonds and agencies at September 30, 2025 and December 31, 2024, respectively. Moody's and Fitch ratings for U.S. government-issued debt were Aa1 and AA+, respectively, at September 30, 2025, and Aaa and AA+, respectively, at December 31, 2024. The Company understands that market participants continue to use rates of return on U.S. government debt as a risk-free rate and have continued to invest in U.S. Treasury securities. The modified duration of the U.S. government bonds and agencies portfolio reflecting anticipated early calls was 1.2 years and 1.3 years at September 30, 2025 and December 31, 2024, respectively.

Current wording

government-issued debt were Aa1 and AA+, respectively, at March 31, 2026 and December 31, 2025. The Company understands that market participants continue to use rates of return on U.S. government debt as a risk-free rate and have continued to invest in U.S. Treasury securities. The modified duration of the U.S. government bonds portfolio reflecting anticipated early calls was 4.4 years and 2.9 years at March 31, 2026 and December 31, 2025, respectively.

Previous wording

The Company had $3.29 billion and $2.99 billion, or 63.8% and 60.8% of its fixed maturity securities portfolio, at fair value, in municipal securities at September 30, 2025 and December 31, 2024, respectively. At September 30, 2025 and December 31, 2024, the weighted-average rating of the Company’s total municipal securities was AA- and A+, respectively.20.8% and 26.0% of the Company's municipal securities, at fair value, were subject to federal taxes at September 30, 2025 and December 31, 2024, respectively. The modified duration of the municipal securities portfolio reflecting anticipated early calls was 4.5 years and 3.6 years at September 30, 2025 and December 31, 2024, respectively.

Current wording

The Company had $3.59 billion and $3.54 billion, or 65.3% and 65.2% of its fixed maturity securities portfolio, at fair value, in municipal securities at March 31, 2026 and December 31, 2025, respectively. At each of March 31, 2026 and December 31, 2025, the weighted-average rating of the Company’s total municipal securities was AA-.16.7% and 18.9% of the Company's municipal securities, at fair value, were subject to federal taxes at March 31, 2026 and December 31, 2025, respectively. The modified duration of the municipal securities portfolio reflecting anticipated early calls was 5.0 years and 4.9 years at March 31, 2026 and December 31, 2025, respectively.

Previous wording

At September 30, 2025 and December 31, 2024, $466.6 million and $492.7 million, respectively, of the Company's municipal securities, at fair value, were insured. The Company considers the strength of the underlying credit as a buffer against potential market value declines which may result from future rating downgrades of the bond insurers. In addition, the Company has a long-term time horizon for its municipal bond holdings, which generally allows it to recover the full principal amounts upon maturity and avoid forced sales prior to maturity of bonds that have declined in market value due to the bond insurers’ rating downgrades. Based on the uncertainty surrounding the financial condition of these insurers, it is possible that there will be future downgrades to below investment grade ratings by the rating agencies in the future, and such downgrades could impact the estimated fair value of municipal bonds.

Current wording

At March 31, 2026 and December 31, 2025, $450.7 million and $456.8 million, respectively, of the Company's municipal securities, at fair value, were insured. The Company considers the strength of the underlying credit as a buffer against potential market value declines which may result from future rating downgrades of the bond insurers. In addition, the Company has a long-term time horizon for its municipal bond holdings, which generally allows it to recover the full principal amounts upon maturity and avoid forced sales prior to maturity of bonds that have declined in market value due to the bond insurers’ rating downgrades. Based on the uncertainty surrounding the financial condition of these insurers, it is possible that there will be future downgrades to below investment grade ratings by the rating agencies in the future, and such downgrades could impact the estimated fair value of municipal bonds.

Previous wording

The Company had mortgage-backed securities portfolio of $281.9 million and $259.4 million, or 5.5% and 5.3% of the Company's fixed maturity securities portfolio at fair value, at September 30, 2025 and December 31, 2024, respectively. Substantially all of the Company's mortgage-backed securities portfolio at those dates was categorized as loans to “prime” residential and commercial real estate borrowers. The Company had holdings of $13.2 million and $16.0 million at fair value ($13.3 million and $16.3 million at amortized cost) in commercial mortgage-backed securities at September 30, 2025 and December 31, 2024, respectively.

Current wording

The Company had mortgage-backed securities portfolio of $404.5 million and $297.4 million, or 7.4% and 5.5% of the Company's fixed maturity securities portfolio at fair value, at March 31, 2026 and December 31, 2025, respectively. Substantially all of the Company's mortgage-backed securities portfolio at those dates was categorized as loans to “prime” residential and commercial real estate borrowers. The Company had holdings of $16.4 million and $11.2 million at fair value ($16.7 million and $11.3 million at amortized cost) in commercial mortgage-backed securities at March 31, 2026 and December 31, 2025, respectively.

Previous wording

The weighted-average rating of the entire mortgage-backed securities portfolio was AA+ at each of September 30, 2025 and December 31, 2024. The modified duration of the mortgage-backed securities portfolio reflecting anticipated early calls was 3.3 years and 4.9 years at September 30, 2025 and December 31, 2024, respectively.

Current wording

The weighted-average rating of the entire mortgage-backed securities portfolio was AA+ at each of March 31, 2026 and December 31, 2025. The modified duration of the mortgage-backed securities portfolio reflecting anticipated early calls was 3.8 years and 3.4 years at March 31, 2026 and December 31, 2025, respectively.

Previous wording

Equity holdings of $746.2 million and $879.2 million at fair value, as of September 30, 2025 and December 31, 2024, respectively, consisted of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds. The Company had a net gain of $19.1 million and $39.6 million due to changes in fair value of the Company’s equity securities portfolio for the nine months ended September 30, 2025 and 2024, respectively. The primary cause for the increases in fair value of the Company’s equity securities portfolio for the nine months ended September 30, 2025 and 2024 was the overall improvement in equity markets.

Current wording

Equity holdings of $883.6 million and $812.8 million at fair value, as of March 31, 2026 and December 31, 2025, respectively, consisted of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds. The Company had a net loss of $2.4 million and $26.8 million due to changes in fair value of the Company’s equity securities portfolio for the three months ended March 31, 2026 and 2025, respectively. The primary cause for the decreases in fair value of the Company’s equity securities portfolio for the three months ended March 31, 2026 and 2025 was the overall decline in equity markets.

Previous wording

The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At September 30, 2025, 11.7% of the total investment portfolio at fair value was held in equity securities, compared to 14.5% at December 31, 2024. The Company reduced its equity security holdings in January 2025 to ensure ample liquidity for losses from the Palisades and Eaton wildfires and to reduce volatility in the investment portfolio (see "Equity Price Risk" under Item 3 below).

Current wording

The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At March 31, 2026, 12.9% of the total investment portfolio at fair value was held in equity securities, compared to 12.4% at December 31, 2025. The Company reduced its equity security holdings in January 2025 to ensure ample liquidity for losses from the Palisades and Eaton wildfires and to reduce volatility in the investment portfolio (see "Equity Price Risk" under Item 3 below).

Previous wording

Among other considerations, industry and regulatory guidelines suggest that the ratio of a property and casualty insurer’s annual net premiums written to statutory policyholders’ surplus should not exceed 3.0 to 1. Based on the combined surplus of all the Insurance Companies of $2.24 billion at September 30, 2025, and net premiums written of $5.61 billion for the twelve months ended on that date, the ratio of net premiums written to surplus was 2.51 to 1 at September 30, 2025.

Current wording

Among other considerations, industry and regulatory guidelines suggest that the ratio of a property and casualty insurer’s annual net premiums written to statutory policyholders’ surplus should not exceed 3.0 to 1. Based on the combined surplus of all the Insurance Companies of $2.58 billion at March 31, 2026, and net premiums written of $5.96 billion for the twelve months ended on that date, the ratio of net premiums written to surplus was 2.31 to 1 at March 31, 2026.