SELECTIVE INSURANCE GROUP INC

Previous wording

The terms "Company," "we," "us," and "our" refer to Selective Insurance Group, Inc. (the "Parent"), and its subsidiaries, except as expressly indicated or the context otherwise requires. Certain statements in this Annual Report on Form 10-K, including information incorporated by reference, are “forward-looking statements” defined in the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a forward-looking statement safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements discuss our intentions, beliefs, projections, estimations, or forecasts of future events and financial performance. They involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, activity levels, or performance to materially differ from those in or implied by the forward-looking statements. In some cases, forward-looking statements include the words “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “target,” “project,” “intend,” “believe,” “estimate,” “predict,” “potential,” “pro forma,” “seek,” “likely,” “continue,” or comparable terms. Our forward-looking statements are only predictions; we cannot guarantee or assure that such expectations will prove correct. We undertake no obligation to publicly update or revise any forward-looking statements for any reason except as required by law.

Current wording

The terms "Company," "we," "us," and "our" refer to Selective Insurance Group, Inc. (the "Parent") and its subsidiaries, except as expressly indicated or the context otherwise requires. Certain statements in this Annual Report on Form 10-K, including information incorporated by reference, are “forward-looking statements” defined in the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The PSLRA provides a forward-looking statement safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements discuss our intentions, beliefs, projections, estimations, or forecasts of future events and financial performance. They involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, activity levels, or performance to materially differ from those in or implied by the forward-looking statements. In some cases, forward-looking statements include the words "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "attribute," "confident," "strong," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," "continue," or comparable terms. Our forward-looking statements are only predictions; we cannot guarantee or assure that such expectations will prove correct. We undertake no obligation to publicly update or revise any forward-looking statements for any reason except as required by law.

Previous wording

We discuss factors that could cause our actual results to differ materially from our project, forecasts, or estimates in forward-looking statements in Item 1A. “Risk Factors.” of this form 10-K. These risk factors may not be exhaustive. We operate in a constantly changing business environment, and new risk factors may emerge at any time. We can neither predict these new risk factors nor assess their impact, if any, on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from any forward-looking statements. Given these risks, uncertainties, and assumptions, the forward-looking events we discuss in this report might not occur.

Current wording

We discuss the factors that could cause our actual results to differ materially from our projections, forecasts, or estimates in forward-looking statements in Item 1A. "Risk Factors." of this form 10-K. These risk factors may not be exhaustive. We operate in a constantly changing business environment, and new risk factors may emerge anytime. We cannot predict these new risk factors, their impact on our businesses, or the extent to which one or any combination of factors may cause actual results to differ materially from any forward-looking statements. Given these risks, uncertainties, and assumptions, the forward-looking events we discuss might not occur.

Previous wording

We write our Standard Commercial and Standard Personal Lines products and services through nine of our insurance subsidiaries, some of which participate in the federal government's National Flood Insurance Program's ("NFIP") Write Your Own Program ("WYO"). We write our E&S products through another subsidiary, Mesa Underwriters Specialty Insurance Company, a nationally-authorized non-admitted platform for customers who generally cannot obtain coverage in the standard marketplace. Collectively, we refer to our ten insurance subsidiaries as the "Insurance Subsidiaries."

Current wording

We write our Standard Commercial and Standard Personal Lines products and services through nine of our insurance subsidiaries, some of which participate in the federal government's National Flood Insurance Program's ("NFIP") Write Your Own Program ("WYO"). We write our E&S products through another subsidiary, Mesa Underwriters Specialty Insurance Company ("MUSIC"), a nationally-authorized non-admitted platform for customers who generally cannot obtain coverage in the standard marketplace. Collectively, we refer to our ten insurance subsidiaries as the "Insurance Subsidiaries."

Previous wording

The following is Management's Discussion and Analysis ("MD&A") of our consolidated financial condition and results of operations. Included in the MD&A is an evaluation of the amounts and certainty of cash flows from operations and outside sources, trends, and uncertainties that may have a material impact in future periods. The MD&A discusses and analyzes our 2023 results compared to 2022. Investors should read the MD&A in conjunction with Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. For discussion and analysis of our 2022 results compared to 2021, refer to Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Current wording

The following is Management's Discussion and Analysis ("MD&A") of our financial condition and consolidated results of operations, including an evaluation of the amounts and certainty of cash flows from operations and outside sources, trends, and uncertainties that may have a material impact in future periods. The MD&A discusses and analyzes our 2024 results compared to 2023. Investors should read the MD&A in conjunction with Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. For discussion and analysis of our 2023 results compared to 2022, refer to Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Previous wording

We have identified the policies and estimates critical to our business operations and the understanding of our results of operations. The policies and estimates we considered most critical to the preparation of the Financial Statements involved (i) reserves for loss and loss expense, (ii) investment valuation and the allowance for credit losses on available-for-sale ("AFS") fixed income securities, and (iii) reinsurance.

Current wording

We have identified the policies and estimates critical to our business operations and understanding of our results of operations. We consider the policies and estimates most critical to the preparation of the Financial Statements to be (i) reserve for loss and loss expense, (ii) investment valuation and the allowance for credit losses on available-for-sale ("AFS") fixed income securities, and (iii) reinsurance.

Previous wording

Significant time can elapse between the occurrence of an insured loss, the reporting of the claim to us, and the final settlement and payment of the claim. Insurers establish reserves as balance sheet liabilities to recognize liabilities for unpaid loss and loss expense. The following tables provide case and incurred but not reported ("IBNR") reserves for loss and loss expenses and reinsurance recoverable on unpaid loss and loss expense as of December 31, 2023 and 2022:

Current wording

Significant time can elapse between the occurrence of an insured loss, the reporting of a claim to us, and the final claim settlement and payment. Insurers establish reserves as balance sheet liabilities to recognize liabilities for unpaid loss and loss expenses. The following tables provide case and incurred but not reported ("IBNR") reserves for loss and loss expenses and reinsurance recoverable on unpaid loss and loss expense as of December 31, 2024 and 2023:

Previous wording

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

Current wording

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

Previous wording

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

Current wording

3 Includes commercial property (93% of net reserves) and commercial auto property coverages (7% of net reserves).

Previous wording

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

Current wording

2 Includes general liability (97% of net reserves) and commercial auto liability coverages (3% of net reserves).

Previous wording

The Insurance Subsidiaries' net loss and loss expense reserves duration was approximately 3.1 years at both December 31, 2023 and December 31, 2022.

Current wording

The Insurance Subsidiaries' net loss and loss expense reserves duration was approximately 3.0 years at December 31, 2024 and 3.1 years at December 31, 2023.

Previous wording

We perform quarterly internal reserve reviews using our own loss experience, with consideration given to various internal and external factors. Changes in claim dynamics may inherently alter paid and reported development patterns. While the selections in our reserve analyses aim to account for these impacts, estimated reserves involve an increased risk of variability. In addition to our internal reserve reviews, an external consulting actuary performs an independent semiannual review of our reserves. We do not rely on the external consulting actuary's report to determine our recorded reserves; however, we review and discuss our observations on trends, key assumptions, and actuarial methodologies with our consulting actuary. While not required, our independent consulting actuary issues the annual statutory Statements of Actuarial Opinion for our Insurance Subsidiaries. For additional information on our accounting policy for reserve for loss and loss expense, refer to Note. 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

Current wording

We perform quarterly internal reserve reviews using our own loss experience, considering various internal and external factors. Changes in claim dynamics may inherently alter paid and reported development patterns. While the selections in our reserve analyses aim to account for these impacts, estimated reserves involve greater risk of variability. In addition to our internal reserve reviews, an external consulting actuary performs an independent semiannual reserve review. We do not rely on the external consulting actuary's report to determine our recorded reserves but we review and discuss our observations on trends, key assumptions, and actuarial methodologies with our consulting actuary. While not required, our independent consulting actuary issues the annual statutory Statements of Actuarial Opinion for our Insurance Subsidiaries. For additional information on our accounting policy for reserve for loss and loss expense, refer to Note. 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

Previous wording

We have estimated a range of reasonable reserve estimates for net loss and loss expense of $4,253 million to $5,004 million at December 31, 2023. This range reflects low and high reasonable reserve estimates determined by judgmentally adjusting the methods, factors, and assumptions selected within the internal reserve review. This approach produces a range of reasonable reserve estimates but does not represent a distribution of all possible outcomes. Therefore, the final outcomes may be greater than or less than these amounts.

Current wording

We have estimated a range of reasonable reserve estimates for net loss and loss expense of $5,003 million to $6,114 million at December 31, 2024. This range reflects low and high reasonable reserve estimates determined after using judgment to adjust the methods, factors, and assumptions selected within the internal reserve review. This approach produces a range of reasonable reserve estimates but does not represent a distribution of all possible outcomes. Consequently, final outcomes may be greater or less than the estimates.

Previous wording

The range of reasonable reserve estimates increased as of December 31, 2023, relative to December 31, 2022. This increase was primarily related to reserve growth commensurate with our net premiums earned ("NPE") growth.

Current wording

The range of reasonable reserve estimates increased as of December 31, 2024, relative to December 31, 2023. This increase was primarily related to reserve growth commensurate with (i) our net premiums earned ("NPE") growth and (ii) increased uncertainty in severity due to the impact of social inflation.

Previous wording

Our quarterly reserving process may lead to changes in the recorded reserves for prior accident years, referred to as favorable or unfavorable prior year loss and loss expense development. In 2023, we experienced net unfavorable prior year loss development of $10.0 million, compared to net favorable development of $78.9 million in 2022 and $82.9 million in 2021. The following table summarizes prior year development by line of business:

Current wording

Our quarterly reserving process may lead to changes in the recorded reserves for prior accident years, referred to as favorable or unfavorable prior year loss and loss expense development. In 2024, we experienced net unfavorable prior year loss development of $285.3 million, compared to net unfavorable development of $10.0 million in 2023 and net favorable development of $78.9 million in 2022. The following table summarizes prior year development by line of business:

Previous wording

At December 31, 2023, our general liability line of business had recorded reserves, net of reinsurance, of $1.9 billion, representing 41% of our total net reserves. In 2023, this line experienced unfavorable reserve development of $55.0 million, attributable to social inflationary impacts driving increased loss severities in accident years 2015 through 2020. We see these social inflationary impacts as an industry dynamic with higher propensity for attorney representation and litigation, longer settlement times, and higher settlement values. In 2022, this line experienced favorable development of $5.0 million, attributable to favorable inception-to-date claim frequencies in accident years 2020 and 2021.

Current wording

At December 31, 2024, our general liability line of business had recorded reserves, net of reinsurance, of $2.5 billion, representing 45% of our total net reserves. In 2024, this line experienced unfavorable reserve development of $316.0 million, primarily due to the impact of social inflation that increased loss severities in accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023. We attribute the increased severities to elevated social inflation, which we view as an industry dynamic characterized by higher claimant propensity for attorney representation and litigation, longer settlement times, and higher settlement values. Similarly, this line experienced unfavorable development in 2023 of $55.0 million, attributable to the impact of social inflation driving increased loss severities in accident years 2015 through 2020.

Previous wording

This line of business has experienced a long-term historical trend of meaningful severity increases, largely offset by decreases in claim frequencies. In response to potentially increasing social inflationary impacts, we have been embedding higher severity assumptions in our initial loss ratio estimates in recent years, which are materializing in actual results. The trend of lower frequencies has continued, while prior year severities have developed adversely. Despite this, initial estimates for less mature accident years have remained stable. However, if the favorable frequency trend moderates or severities continue to emerge higher than expected, there could be impacts to ultimate loss estimates for this line.

Current wording

This general liability line of business has experienced a long-term historical trend of meaningful claim severity increases that have been partially offset by claim frequency decreases. In recent years, we have been embedding higher severity assumptions in our initial loss ratio estimates to address social inflation's increasing impacts. Although we planned for higher expected loss trends, 2024's claim emergence exceeded our expectations. If the favorable frequency trend moderates or severities continue to emerge higher than expected, this line's ultimate loss estimates could be adversely impacted.

Previous wording

The general liability line of business presents a diverse set of exposures. Various factors influence losses and loss trends, including legislative enactments, judicial decisions, and economic and social inflation. Economic inflation directly impacts our claims severities by increasing the costs of raw materials, medical procedures, and labor. Social inflation may impact both the frequency and severity of claims by affecting (i) the propensity for a claimant to file a claim, (ii) the percentage of claimants who engage lawyers, and (iii) the nature of judicial verdicts, broader liability interpretations, and amounts of associated awards, which influence future settlement values. We monitor claim litigation rates regularly. We have observed modest increases in the percentage of claims with attorney involvement in recent periods, partly due to more litigious coverages, such as management liability coverage. This trend and the impact of previous court closures continue to affect the time to settle claims.

Current wording

The general liability line of business presents a diverse set of exposures. Various factors influence losses and loss trends, including legislative enactments, judicial decisions, and economic and social inflation. Economic inflation directly impacts our claims severities by increasing the costs of raw materials, medical procedures, and labor. Social inflation may impact both claim frequency and severity by affecting (i) claimant propensity to file a claim, (ii) the percentage of claimants who engage lawyers, and (iii) broader liability interpretations and the nature and amounts of judicial verdicts and associated awards, all influencing future settlement values. We monitor claim litigation rates regularly. We have observed the percentage of general liability claims with plaintiff attorney involvement increasing in recent periods. Other social inflationary factors, including the increased prevalence of third-party litigation funding, claimant willingness to undergo surgery, evolving plaintiff attorney strategies and tactics, and broadening liability definitions and interpretations are also impacting claims severities. These trends and post-pandemic court case scheduling continue to affect claim settlement times.

Previous wording

We have exposure to abuse or molestation claims, mainly through insurance policies that we (i) underwrite through our Community and Public Services ("CAPS") strategic business unit and (ii) issue to schools, religious institutions, day-care facilities, and other social services. These customers within our CAPS business unit represented approximately 10% of our total Standard Commercial Lines NPW in 2023 and 2022. We continue to actively manage policy limits and monitor each jurisdiction's statute of limitations to ensure our rate level accounts for the changing exposure, to the extent regulatorily possible. While these underwriting and pricing actions have been necessary to position the portfolio for future profitability, they have limited our CAPS growth in recent years.

Current wording

We have exposure to abuse or molestation claims, mainly through policies that we (i) underwrite through our Community and Public Services ("CAPS") strategic business unit and (ii) issue to schools, religious institutions, day-care facilities, and other social services. These CAPS business unit customers represented approximately 10% of our total Standard Commercial Lines NPW in 2024 and 2023. We continue to actively manage policy limits and monitor each jurisdiction's statute of limitations to ensure our rate level reflects increased exposure to the extent regulatorily possible. These underwriting and pricing actions have positioned the portfolio for future profitability but limited our CAPS growth in recent years.

Previous wording

We also have exposure to abuse or molestation claims from enacted state laws that extend the statute of limitations or permit windows for abuse or molestation claims and lawsuits that statutes of limitations previously barred. Consequently, we may receive claims decades after the alleged acts involving complex claims coverage determinations, potential litigation, higher defense costs, and the need to collect from reinsurers under older reinsurance agreements. Our claims and actuarial departments actively monitor these claims to identify changes in frequency or severity and any emerging or shifting trends.

Current wording

Certain states have enacted state laws that extend the statute of limitations or permit windows for abuse or molestation claims and lawsuits that statutes of limitations previously barred. Consequently, we may receive claims decades after the alleged acts involving complex claims coverage determinations, potential litigation, higher defense costs, and the need to collect from reinsurers under older reinsurance agreements. Our claims and actuarial departments actively monitor these claims to identify changes in frequency or severity and any emerging or shifting trends.

Previous wording

While this should help us better understand this rapidly evolving exposure, the ultimate impact of social, political, and legal trends remains highly uncertain, which could significantly impact the ultimate settlement values for these claims.

Current wording

Our active monitoring of claim patterns and emerging or shifting trends should help us better understand this rapidly evolving exposure. However, the ultimate impact of social, political, and legal trends remains highly uncertain and could substantially impact the ultimate settlement values for these claims.

Previous wording

At December 31, 2023, our workers compensation line of business had recorded reserves, net of reinsurance, of $804 million, representing 17% of our total net reserves. During 2023, this line experienced favorable reserve development of $74.5 million, primarily due to improved loss severities in accident years 2021 and prior. Similarly, this line experienced favorable reserve development during 2022 of $70.0 million related to favorable inception-to-date claim frequencies in accident year 2020 and improved loss severities in accident years 2020 and prior. During both 2023 and 2022, the lower-than-expected loss emergence was partly due to (i) medical inflation that was lower than initially anticipated and (ii) various claims initiatives we have implemented. Because of the length of time injured workers can receive related medical treatment, decreases in medical inflation can cause favorable loss development over an extended number of accident years.

Current wording

At December 31, 2024, our workers compensation line of business had recorded reserves, net of reinsurance, of $797 million, representing 14% of our total net reserves. During 2024, this line experienced favorable reserve development of $45.0 million, primarily due to improved loss severities in accident years 2022 and prior. Similarly, this line experienced favorable reserve development during 2023 of $74.5 million, primarily due to improved loss severities in accident years 2021 and prior. During both 2024 and 2023, the lower-than-expected loss emergence was partly due to (i) lower than initially anticipated medical inflation and (ii) our various implemented claims initiatives. Because of the length of time injured workers can receive related medical treatment, decreases in medical inflation can cause favorable loss development over an extended number of accident years.

Previous wording

A variety of issues can impact the workers compensation line of business, such as:

Current wording

A variety of issues can impact the workers compensation line of business, including:

Previous wording

Unexpected changes in medical cost inflation– The industry currently is experiencing an extended period of lower medical claim cost inflation. However, medical costs are beginning to rise, though to a lesser degree than the recent elevated economic inflation measured by the Consumer Price Index. Offering some protection are wage increases, which are used as the rating basis for workers compensation coverage and continue to outpace medical inflation. Changes to our historical workers compensation medical costs and potential changes in future medical inflation can add reserve variability;

Current wording

Unexpected changes in medical cost inflation– The industry has experienced an extended period of lower medical claim cost inflation. Changes to our historical workers compensation medical costs and potential changes in future medical inflation could increase reserve variability;

Previous wording

Changes in utilization of the workers compensation system– These changes may be driven by economic, legislative, or other changes, like increased prescriptions for pharmaceuticals, more complex medical procedures, changes in permanently injured workers' life expectancy, and health insurance availability.

Current wording

Changes in utilization of the workers compensation system– These changes may be driven by economic, legislative, or other changes, like increased use of prescriptions for pharmaceuticals, more complex medical procedures, changes in permanently injured workers' life expectancy, and health insurance availability.

Previous wording

At December 31, 2023, our commercial automobile line of business had recorded reserves, net of reinsurance, of $959 million, representing 20% of our total net reserves. In 2023, this line experienced unfavorable prior year reserve development of $8.0 million, primarily due to increased loss expenses in accident years 2022 and prior. In 2022, this line experienced unfavorable prior year reserve development of $22.5 million, driven by increased severities in the 2021 accident year.

Current wording

At December 31, 2024, our commercial automobile line of business had recorded reserves, net of reinsurance, of $1.1 billion, representing 20% of our total net reserves. In 2024, this line experienced unfavorable prior year reserve development of $19.5 million, primarily due to increased severities in accident year 2023. In 2023, this line experienced unfavorable prior year reserve development of $8.0 million, driven by increased loss expenses in accident years 2022 and prior.

Previous wording

The commercial automobile line has experienced unfavorable trends in recent years that has negatively affected results for us and the industry. Pre-pandemic, increased frequencies were attributable to increased miles driven, likely related to lower unemployment, poor road quality, and increased distracted driving. The pandemic and the governmental "stay-at-home" orders issued in early 2020 dramatically reduced miles driven and road traffic, significantly reducing claims frequency that year. At the same time, the industry reported dramatic increases in risky driving behaviors, such as speeding, distracted driving, and driving under the influence. In addition, traffic deaths per mile driven increased significantly. With increased miles driven in subsequent years, fatality rates per mile driven have tempered but remain well above pre-pandemic levels. Risky driving behaviors and the impacts of social inflation continue to pressure this line's claim severities. As of year-end 2023, frequencies remained somewhat below pre-pandemic levels due to changes in commuting patterns.

Current wording

The commercial automobile line has experienced unfavorable trends in recent years that have negatively affected the industry's results and ours. During the pandemic, reduced frequencies were accompanied by significant severity increases, resulting from increased risky driving behaviors, such as speeding, distracted driving, and driving under the influence. Risky driving behaviors and the impacts of social inflation continue to pressure this line's claim severities. As of year-end 2024, frequencies remained somewhat below pre-pandemic levels due to changes in commuting patterns.

Previous wording

Increased property damage and physical damage severities relate to (i) elevated repair costs for increasingly complex vehicles that incorporate more technology, (ii) extended periods of rental reimbursement costs for claims, and (iii) inflationary impacts and disruptions to the supply chain, although these have moderated in recent quarters.

Current wording

Increased property damage and physical damage severities relate to (i) elevated repair costs for increasingly complex vehicles that incorporate more technology, (ii) extended periods of rental reimbursement costs for claims, and (iii) inflationary impacts and disruptions to the supply chain, although these have moderated since their peak in 2022.

Previous wording

At December 31, 2023, our personal automobile line of business had recorded reserves, net of reinsurance, of $130 million, representing 3% of our total net reserves. This line experienced unfavorable prior year reserve development of $15.3 million in 2023, primarily due to increased loss severities in accident year 2022. This line experienced modest unfavorable prior year reserve development of $0.5 million in 2022.

Current wording

At December 31, 2024, our personal automobile line of business had recorded reserves, net of reinsurance, of $158 million, representing 3% of our total net reserves. This line experienced unfavorable prior year reserve development of $11.1 million in 2024, primarily due to increased loss severities in accident years 2022 through 2023. This line experienced unfavorable prior year reserve development of $15.3 million in 2023, primarily due to increased loss severities in accident year 2022.

Previous wording

Some of the same issues affecting the commercial automobile line also impact this line. The COVID-19-related frequency reduction was even more pronounced for the personal automobile line than the commercial automobile line. Frequencies rebounded post-pandemic and have nearly returned to pre-pandemic levels. In addition to the COVID-19-related temporary impacts, the underlying trends of increased vehicle repair costs and poor road quality are likely causes of rising severities, exacerbated by riskier driving behaviors, including distracted driving trends. We continue recalibrating our predictive models and refining our underwriting and pricing approaches, including prioritizing rate filings state-by-state, to mitigate these rising severities. These filed rate increases began to take effect on a written basis during the first quarter of 2023 and continued to take effect through the end of 2023. We expect the number of rate filings and their rate impacts to continue to increase throughout 2024. While we believe these underwriting and pricing changes will ultimately lead to improved profitability and greater stability, the resulting changes to our exposure profile may impact paid and reported development patterns, increasing the uncertainty in the reserves in the near-term.

Current wording

Some of the same issues affecting the commercial automobile line also impact this line. The COVID-19-related frequency reduction was even more pronounced for the personal automobile line. Frequencies rebounded after the pandemic and now are at pre-pandemic levels. In addition to the COVID-19-related temporary impacts, the underlying trends of increased vehicle repair costs are likely causes of rising severities, exacerbated by riskier driving behaviors, including distracted driving. We continue recalibrating our predictive models and refining our underwriting and pricing approaches, including prioritizing additional rate filings by state and further refining our pricing factors. These filed rate increases began to take effect early in 2023 and increased in volume and magnitude throughout 2023 and 2024. We expect them to remain above loss trends in 2025 but lower than the rate increases in 2023 and 2024. While we believe these underwriting and pricing changes will ultimately lead to improved profitability and greater stability, the resulting changes to our exposure profile may impact paid and reported development patterns, increasing reserve uncertainty in the near term.

Previous wording

At December 31, 2023, our E&S casualty lines of business had recorded reserves, net of reinsurance, of $532 million, representing 11% of our total net reserves. Our E&S casualty lines results have improved over recent years. In 2023, this line experienced favorable prior year reserve development of $5.0 million, primarily due to improved loss severities in accident years 2021 and prior. In 2022, this line experienced favorable prior year reserve development of $5.0 million, primarily attributable to favorable policy inception-to-date claim frequencies and improved loss severities in accident years 2020 and 2021.

Current wording

At December 31, 2024, our E&S casualty lines of business had recorded reserves, net of reinsurance, of $617 million, representing 11% of our total net reserves. In 2024, this line experienced unfavorable prior year reserve development of $20.0 million, primarily due to increased loss severities in accident years 2023 and prior. In 2023, this line experienced favorable prior year reserve development of $5.0 million, primarily due to improved loss severities in accident years 2021 and prior.

Previous wording

Some of the risk factors for the general liability line also affect the E&S casualty lines. These include (i) economic inflation, such as materials and labor costs and (ii) social inflationary trends, such as increased attorney involvement, broader liability findings, and more generous settlement awards.

Current wording

Some of the risk factors for the general liability line also affect the E&S casualty lines. These include (i) economic inflation, such as materials and labor costs and (ii) social inflationary trends, such as increased attorney involvement, broader liability findings, and more generous settlement awards. In response to these social inflationary trends, we have been embedding higher severity assumptions in our initial loss ratio estimates, which materialized in 2024.

Previous wording

•We created a dedicated E&S claims team in our corporate claims function, bringing greater expertise and consistency to E&S claims handling.

Current wording

•We created a dedicated E&S claims team, bringing greater expertise and consistency to E&S claims handling.

Previous wording

•We implemented the following legal operational and expense improvement initiatives:

Current wording

•We implemented legal operational and expense improvement initiatives, including (i) increasing the use of employed staff counsel lawyers to defend covered claims litigation and (ii) consistent with our duty to defend and manage litigation against our policyholders per the terms and conditions of our policies, we enhanced processes for legal budgeting, expense management, and selection and evaluation of outside policyholder defense counsel.

Previous wording

While we believe these underwriting and claims operational changes have improved our underwriting experience, these changes have inherent risks. Changes in portfolio composition or our claims processes may affect paid and reported development patterns. While our reserve analyses incorporate methods that adjust for these changes, estimated reserves have a greater risk of fluctuation.

Current wording

While we believe these claims operational changes are improving our results and customer experience, they have inherent risks. Changes in claims processes may affect paid and reported development patterns. Our reserve analyses incorporate methods that adjust for these changes, but our estimated reserves have a greater risk of fluctuation.

Previous wording

Our Claims Department continually identifies areas for improvement and efficiency to increase our value proposition to policyholders. These improvements may lead to claims practice changes affecting average case reserve levels and claims settlement rates, directly impacting the data used to project ultimate loss and loss expense. While these changes may increase uncertainty in our estimates in the short term, we expect refined claims process management to be the longer-term benefit.

Current wording

Our Claims Department continually identifies areas for improvement and efficiency to increase our policyholder value proposition. These improvements may lead to changes in claims practice that affect average case reserve levels and claims settlement rates, which directly impact the data we use to project ultimate loss and loss expense. While these changes may increase uncertainty in our estimates in the short term, we expect refined claims process management to create longer-term benefits.

Previous wording

Our internal reserve analyses incorporate actuarial projection methods that make adjustments for changes in case reserve adequacy and claims settlement rates. These methods adjust our historical loss experience to the current case adequacy or settlement rate level, providing a more consistent basis for projecting future development patterns. Like all projection methods, these have their own associated assumptions and judgments. Accordingly, no single method can be considered definitive.

Current wording

Our internal reserve analyses incorporate actuarial projection methods that make adjustments for changes in case reserve adequacy and claims settlement rates. These methods adjust our historical loss experience to the current case adequacy or settlement rate level, providing a more consistent basis for projecting future development patterns. Because these projection methods have their own assumptions and judgments, no single method can be considered definitive.

Previous wording

United States ("U.S.") monetary policy and global economic conditions bring additional uncertainty related to inflationary trends. Changes in inflation affect the ultimate settlement costs for many of our lines of business, with the greatest reserve impact on the longer-tailed lines, such as general liability and workers compensation. Uncertainty about future inflation or deflation creates the potential for additional reserve variability in these lines of business.

Current wording

United States ("U.S.") fiscal and monetary policy and global economic conditions bring additional inflationary trend uncertainty. Changes in inflation affect the ultimate settlement costs for many of our lines of business, with the greatest reserve impact on the longer-tailed lines, such as general liability and workers compensation. Uncertainty about future inflation or deflation creates the potential for additional reserve variability in these lines of business.

Previous wording

The importance of any single assumption depends on several considerations, such as line of business and accident year. If the actual experience emerges differently than the assumptions underlying the reserve process, possible changes in our reserve estimates could be material to the results of operations in future periods. Below are sensitivity tests highlighting potential impacts to loss and loss expense reserves for the major casualty lines of business under different scenarios. These tests consider each assumption and line of business individually without considering the correlation between lines of business and accident years. Therefore, the results do not constitute an actuarial range. While the figures represent possible impacts from variations in certain key assumptions, there is no assurance that future loss and loss expense emergence will be consistent with our current or alternative assumptions.

Current wording

The importance of any single assumption depends on several considerations, such as line of business and accident year. If the actual experience emerges differently than the assumptions underlying the reserve process, possible changes in our reserve estimates could be material to the results of operations in future periods. We conduct sensitivity tests highlighting potential impacts to loss and loss expense reserves for the major casualty lines of business under different scenarios. These tests consider each assumption and line of business individually without considering correlation between lines of business and accident years. The results (i) do not constitute an actuarial range, (ii) show possible impacts from variations in certain key assumptions, and (iii) offer no assurance that future loss and loss expense emergence will be consistent with our current or alternative assumptions.

Previous wording

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

Current wording

Changes in internal and external trends and operational changes may manifest as changes in loss and loss expense development patterns. These patterns are a key assumption in the reserving process, as are the current accident year expected loss and loss expense ratios. These ratios are developed through a rigorous process of projecting recent accident years' experience to an ultimate settlement basis. They then are adjusted to the current accident year's pricing and loss cost levels. The impact of underwriting portfolio and claims handling practice changes is also quantified and reflected where appropriate. Nonetheless, the ultimate loss and loss expense ratios may differ from current estimates.

Previous wording

The sensitivities of loss and loss expense reserves to these key assumptions are illustrated below for the major casualty lines. The first table displays estimated impacts from changes in expected reported loss and loss expense development patterns for our major casualty lines of business. It shows line of business reserve impacts if the actual calendar year incurred amounts are greater or less than current expectations by the selected percentages. While judgmental, the selected percentages by line are based on the reserve range analysis and the actual historical reserve development for the line of business. The second table displays the estimated impacts of changes to the expected loss and loss expense ratios for the current accident year. It shows reserve impacts by line of business if the expected loss and loss expense ratios for the current accident year are greater or less than current expectations by the selected percentages.

Current wording

The two tables below illustrate the sensitivities of loss and loss expense reserves to these key assumptions for the major casualty lines. The first table displays estimated impacts from changes in expected reported loss and loss expense development patterns for our major casualty lines of business. It shows line of business reserve impacts if the actual calendar year incurred amounts are greater or less than current expectations by the selected percentages. While judgmental, the selected percentages by line are based on the reserve range analysis and the actual historical reserve development for the line of business. The second table displays the estimated impacts of changes to the expected loss and loss expense ratios for the current accident year. It shows reserve impacts by line of business if the expected loss and loss expense ratios for the current accident year are greater or less than current expectations by the selected percentages.