SELECTIVE INSURANCE GROUP INC

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

The NPW growth of 12% in 2024 compared to 2023 included:

Our NPW growth in 2024 also benefited from (i) exposure growth on renewal policies and (ii) stable retention in our Standard Commercial Lines and E&S Lines.

The increase in NPE in 2024 compared to 2023 resulted from the same impacts to NPW described above.

The loss and loss expense ratio increased 7.4 points in 2024 compared to 2023, primarily driven by:

•An increase of 7.3 points in unfavorable prior year casualty reserve development in 2024 compared to 2023. In 2024, we recorded $311 million of unfavorable prior year casualty reserve development compared to $6.5 million, or 0.2 points, of favorable prior year casualty reserve development in 2023. Our 2024 calendar year actions were predominantly in the general liability line for accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023; and

•An increase of 1.4 points in current year casualty loss costs in 2024 compared to 2023, primarily due to increased loss trend expectations and higher prior-year severity assumptions related to the impacts of social inflation on our general liability and E&S casualty lines of business.

Details of the prior year casualty reserve development by reportable segment and line of business were as follows:

The 2024 unfavorable prior year casualty reserve development by line of business was driven by the following:

•General liability - increased severities in accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023, due to impacts from social inflation;

•Commercial automobile - increased severities in accident year 2023;

•Personal automobile - increased severities in accident years 2022 through 2023; and

•E&S casualty - increased severities in accident years 2023 and prior.

Favorable prior year casualty reserve development on our workers' compensation, bonds, and homeowners lines of business provided a partial offset to the items above. The favorable prior year casualty reserve development on the workers compensation line was primarily driven by improved severities in accident years 2022 and prior.

The 2023 favorable prior year casualty reserve development was primarily driven by favorable development on our workers compensation line of business, due to improved loss severities driven by continued favorable medical cost trends in accident years 2021 and prior. Partially offsetting this favorable development was unfavorable development on our general liability and personal automobile lines of business. The unfavorable prior year development on (i) general liability was primarily driven by increased loss severities in accident years 2015 through 2020 attributable to social inflation and (ii) personal automobile was primarily driven by increased loss severities in accident year 2022.

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

Net catastrophe and non-catastrophe property losses reduced the loss and loss expense ratio by 1.3 points in the aggregate in 2024 compared to 2023. The non-catastrophe property loss and loss expense ratio was 1.4 points lower in 2024 compared to 2023, reflecting (i) the earned impact of higher renewal pure price increases in 2024, (ii) lower claim frequencies, and (iii) variability from period to period of non-catastrophe weather. Net catastrophe losses were in line with last year, with the single largest event being Hurricane Helene for $85.0 million, or 1.9 points. Hurricane Helene occurred in late September 2024 and primarily impacted states in our Southeastern footprint.

For additional qualitative discussion on non-catastrophe property loss and loss expenses, refer to the insurance segment sections below.

The underwriting expense ratio was 0.8 points lower in 2024 compared to 2023, primarily due to lower expected profit-based employee compensation and growth in premium outpacing growth in underwriting expenses.

Standard Commercial Lines Segment

NPW growth of 11% in 2024 compared to 2023 included:

In addition, NPW growth in 2024 benefited from strong exposure growth on renewal policies.

The increase in NPE in 2024 compared to 2023 resulted from the same impacts to NPW described above.

The loss and loss expense ratio increased 10.0 points in 2024 compared to 2023, primarily driven by:

•An increase of 8.8 points in unfavorable prior year casualty reserve development in 2024 compared to 2023. In 2024, we recorded $286.0 million of unfavorable prior year casualty reserve development compared to $15.5 million, or 0.5 points, of favorable prior year casualty reserve development in 2023. Our 2024 calendar year actions were predominantly in the general liability line for accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023; and

•An increase of 2.5 points in current year casualty loss costs in 2024 compared to 2023, primarily due to increased loss trend expectations and higher prior-year severity assumptions related to the impacts of social inflation on our general liability line.

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

Refer to the line of business sections below for qualitative discussion on the significant drivers of unfavorable prior year casualty reserve development and current year casualty loss costs.

Net catastrophe and non-catastrophe property losses reduced the loss and loss expense ratio by 1.3 points in the aggregate in 2024 compared to 2023. The non-catastrophe property loss and loss expense ratio was 1.7 points lower in 2024 compared to 2023, reflecting (i) the earned impact of higher renewal pure price increases in 2024, (ii) lower claim frequencies, and (iii) variability from period to period of non-catastrophe weather. Net catastrophe losses were 0.4 points higher than last year, driven by Hurricane Helene, our single largest event in 2024, resulting in $65.5 million, or 1.9 points.

Refer to the line of business sections below for qualitative discussion on the significant drivers of non-catastrophe property loss and loss expenses.

The underwriting expense ratio was 0.7 points lower in 2024 compared to 2023, primarily due to lower expected profit-based employee compensation and growth in premium outpacing growth in underwriting expenses.

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

NPW grew 9% in 2024 compared to 2023, benefiting from renewal pure price increases, exposure growth on renewal policies, and strong retention.

The combined ratio was 33.2 points higher in 2024 compared to 2023, primarily driven by the following:

The general liability line of business has experienced a long-term historical trend of meaningful severity increases that have been partially offset by claim frequency decreases. Prior-year severities have developed adversely. Although we saw these trends primarily impact the pre-pandemic period in 2023, we have seen elevated severity escalation extend into the more recent accident years during 2024. We attribute the increased severities to elevated social inflation, which we view as an industry dynamic characterized by higher claimant propensity for attorney representation and litigation, longer settlement times, and higher settlement values. We are closely monitoring specific jurisdictions with expanded liability definitions and interpretations and higher damage awards for loss trend impact and broader industry trends.

Although we planned for higher expected loss trends, claim emergence in 2024 exceeded our expectations. In response to these unfavorable trends due to the impact of social inflation, we recorded unfavorable prior year casualty reserve development of $316.0 million in 2024 for accident years 2020 and subsequent, with most actions for accident years 2022 and 2023. Additionally, current year casualty loss costs were 11.0 points higher in 2024 compared to 2023, primarily due to increased loss trend expectations and higher prior-year severity assumptions. If severities continue to emerge higher than expected, this line's ultimate loss estimates could be adversely impacted.

We believe that social inflation and elevated loss trends are an industry dynamic, which may lead to an acceleration of rate increases in this line of business for the industry and us. Given the consistency in our underwriting appetite and risk profile over time, we have focused our actions primarily on prudent underwriting and achieving additional rate. Our renewal pure price increase in this line of business accelerated to 8.6% in 2024, up from 5.4% in 2023.

Despite the adverse emergence in general liability, we remain comfortable with the composition and quality of our underwriting portfolio. While rate increases will continue to be the primary focus for profitability improvement, we are also making underwriting refinements, including managing limits and coverage grants in challenging jurisdictions, driving improved terms and conditions, and focusing production on better-performing classes of business.

NPW grew 15% in 2024 compared to 2023, benefiting from renewal pure price increases, strong retention, and higher direct new business. This strong retention and higher direct new business contributed to a 5% growth of in-force vehicle counts as of December 31, 2024, compared to December 31, 2023.

The combined ratio was 3.9 points lower in 2024 compared to 2023, primarily driven by the following:

Non-catastrophe property loss and loss expenses in 2024 were lower compared to 2023, primarily due to (i) the earned impact of higher renewal pure price increases in 2024 and (ii) lower claim frequencies. In addition, the current year casualty loss costs ratio was 2.0 points lower in 2024 compared to 2023, primarily driven by the earned impact of higher renewal pure price increases in 2024.

Partially offsetting the favorable combined ratio drivers mentioned above, was unfavorable prior year casualty reserve development in 2024, primarily due to increased severities in accident year 2023. The 2023 unfavorable prior year casualty reserve development was primarily due to increased loss expenses in accident years 2022 and prior.

1 includes Inland Marine.

2 n/a: not applicable.

NPW grew 14% in 2024 compared to 2023 benefiting from renewal pure price increases, strong retention, and exposure growth on renewal policies.

The combined ratio was 6.0 points lower in 2024 compared to 2023, primarily driven by the following:

Non-catastrophe property loss and loss expense ratios were lower in 2024 compared to 2023, reflecting (i) the earned impact of higher renewal pure price increases in 2024 and (ii) the continued variability from period to period normally associated with the commercial property line of business. We continue to manage our long-term profitability through (i) price increases and (ii) targeted underwriting actions, including an ongoing focus on appropriate policy terms and conditions and achieving accurate insurance-to-value ratios, in part, by using automated aerial imagery solutions.

In addition, the underwriting expense ratio was 1.4 points lower in 2024 compared to 2023, as discussed in the "Standard Commercial Lines Segment" section above.

NPW decreased 5% in 2024 compared to 2023, primarily due to renewal pure price decreases and a reduction in direct new business.

The combined ratio was 11.0 points higher in 2024 compared to 2023, primarily due to the following:

The favorable prior year casualty reserve development in 2024 was primarily due to improved loss severities in accident years 2022 and prior. The favorable prior year casualty reserve development in 2023 was primarily due to improved loss severities driven by continued favorable medical cost trends in accident years 2021 and prior.

In addition, the combined ratio was adversely impacted by an increase in current year casualty loss costs of 3.2 points in 2024, primarily driven by loss trend outpacing rate level reductions associated with workers compensation rating bureau loss cost reductions.

Standard Personal Lines Segment

NPW increased 4% in 2024 compared to 2023, primarily due to renewal pure price increases, exposure growth on renewal policies, and higher average policy sizes from our mass affluent market strategy, partially offset by reductions in direct new business and retention. The reduction in direct new business premiums was primarily due to a decrease in new policy counts, which were down 51% in 2024 compared to 2023. These reductions, and the reduction in retention illustrated in the table below, resulted from the rate increases we are implementing as part of our overall profit improvement plan.

1 Excludes our flood direct premiums written, which is 100% ceded to the NFIP and therefore, has no impact on our NPW.

In recent years, we've been taking aggressive actions to improve the profitability of this business by prioritizing additional rate filings to attain premiums in line with current loss costs, and further refining our pricing factors. These filed rate increases began to take effect early in 2023 and increased in number and magnitude throughout 2023 and 2024. In 2025, we expect rate changes to remain above loss trends but will moderate compared to the filed rate increases in 2023 and 2024. Renewal pure prices increased 20.6% in 2024, a direct outcome of these actions. In addition, we are continuing to seek improved profitability within our homeowners line of business by expanding the use of new policy terms and conditions, including (i) coverage for older roofs based on a schedule of factors rather than replacement cost and (ii) implementing mandatory wind/hail deductibles in states exposed to severe convective storms, where allowed by law.

The increase in NPE in 2024 compared to 2023 resulted from the same impacts on NPW discussed above.

The loss and loss expense ratio decreased 10.9 points in 2024 compared to 2023, primarily driven by (i) a decrease of 2.6 points in unfavorable prior year casualty reserve development in 2024 compared to 2023 and (ii) a decrease of 3.7 points in current year casualty loss costs in 2024 compared to 2023. The decrease in current year casualty loss costs in 2024 compared to 2023 was primarily due to (i) significant rate increases, and (ii) a 1.0-point increase in flood claims handling fees related to Hurricane Helene from our participation in the NFIP.

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

Prior year casualty reserve development in 2024 included $10.0 million of unfavorable development in personal automobile, primarily driven by increased loss severities in accident years 2022 through 2023. This was partially offset by $5.0 million of favorable development in homeowners, primarily due to lower loss severities in accident years 2021 and prior.

The unfavorable prior year casualty reserve development in 2023 wasprimarily attributable to increased loss severities in accident year 2022 on our personal automobile line of business.

Net catastrophe and non-catastrophe property losses reduced the loss and loss expense ratio by 4.6 points in the aggregate in 2024 compared to 2023. Non-catastrophe property loss and loss expense ratios were lower in 2024 compared to 2023 due to (i) the earned impact of higher renewal pure price increases in 2024 and (ii) variability from period to period of non-catastrophe weather. Net catastrophe losses were in line with last year and included $17.4 million, or 4.1 points, related to Hurricane Helene.

The underwriting expense ratio was 1.5 points lower in 2024 compared to 2023, primarily due to lower profit-based employee compensation and growth in premiums earned outpacing growth in underwriting expenses.

E&S Lines Segment

NPW growth of 29% in 2024 compared to 2023 included:

In addition, NPW growth in 2024 benefited from both property and casualty exposure growth on renewal policies and higher rates per exposure.

The increase in NPE in 2024 compared to 2023 resulted from the same impacts to NPW discussed above.

The loss and loss expense ratio increased 4.9 points in 2024 compared to 2023, primarily driven by an increase of 5.3 points in unfavorable prior year casualty reserve development in 2024 compared to 2023. The unfavorable prior year casualty reserve development in 2024 was primarily due to increased loss severities in accident years 2023 and prior, driven by the broad-reaching impacts of social inflation. While we have been embedding higher severity assumptions in our initial loss ratio estimates in response to these inflationary trends, emergence exceeded those levels during the year. The favorable prior year casualty reserve development in 2023 was primarily due to improved loss severities in accident years 2021 and prior.

The loss and loss expense ratio was also unfavorably impacted by property losses as net catastrophe and non-catastrophe property losses increased the ratio by 1.6 points in the aggregate for 2024 compared to 2023. We experienced higher non-catastrophe property loss and loss expense in 2024 compared to 2023 of 3.3 points, primarily due to the impact of large fire losses, reflecting the continued period to period variability normally associated with our E&S property line of business. Partially offsetting the increase in non-catastrophe property losses was a decrease in net catastrophe losses in 2024 compared to 2023 of 1.7 points. While our footprint was impacted by a greater number of Property Claim Services-named events in 2024, we experienced lower claim severities compared to 2023.

Partially offsetting these items was a decrease of 2.0 points in current year casualty loss cost in 2024 compared to 2023, primarily due to the mix of business between our property and casualty lines of business. Our E&S property line of business historically has a lower loss ratio compared to our E&S casualty line of business and represented a more significant portion of this segment in 2024 compared to 2023.

The underwriting expense ratio was 1.2 points lower in 2024 compared to 2023, primarily due to premium growth outpacing underwriting expense.

Reinsurance

We use reinsurance to protect our capital resources and insure against losses on property and casualty risks that we underwrite above the amount of losses we are willing to accept. We use two main reinsurance vehicles: (i) a reinsurance pooling agreement among our Insurance Subsidiaries through which each company agrees to share in premiums and losses based on certain specified percentages; and (ii) reinsurance treaties and arrangements with third parties that cover various policies that we issue to our customers.

Reinsurance Pooling Agreement

The primary purposes of the Insurance Subsidiaries' reinsurance pooling agreement are to:

•Pool or share proportionately the underwriting profit and loss results of property and casualty insurance underwriting operations through reinsurance;

•Reduce administration expenses; and

•Permit all the Insurance Subsidiaries to obtain a uniform rating from AM Best Company ("AM Best").

The following illustrates the pooling percentages by Insurance Subsidiary as of December 31, 2024:

Reinsurance Treaties and Arrangements

By entering into reinsurance treaties and arrangements, we can increase our underwriting capacity, accepting larger individual risks and aggregations of risks without directly increasing our capital or statutory surplus. Under our reinsurance treaties, we cede to our reinsurers a portion of our incurred losses from an individual policy or group of policies in exchange for a portion of the premium on those policies. Amounts not reinsured below a specified dollar threshold are known as retention. Reinsurance does not legally discharge us from liability under the terms and limits of our policies, but it does make our reinsurers liable to us for the amount of liability we cede to them. Our reinsurers often rely on their own reinsurance programs, or retrocessions, to manage their large loss exposures. The size of the global reinsurance community is relatively small. If our reinsurers cannot collect on their retrocessional programs, it may impair their ability to pay us for the amounts we cede to them.

Consequently, our reinsurers present us with direct, indirect, and contingent counterparty credit risk. We attempt to mitigate this credit risk by (i) pursuing relationships with reinsurers rated "A-" or higher by AM Best and/or (ii) obtaining collateral to secure reinsurance obligations. Some of our reinsurance treaties permit us to terminate or commute them – or require the reinsurer to post collateral if the reinsurer's financial condition or rating deteriorates. We monitor our reinsurers' financial condition and review the quality of reinsurance recoverables and reserves for uncollectible reinsurance. For additional information regarding our reinsurance counterparty credit risk, see Note 9. "Reinsurance" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

Our reinsurance program has contracts that separately cover our property and casualty insurance business and can be categorized as follows:

•Property Reinsurance, which includes our (i) property per risk excess of loss treaties purchased for protection against large individual property losses and (ii) property catastrophe treaties and a property catastrophe bond transaction to provide protection for the overall property portfolio against severe catastrophic events. We also purchase a limited amount of facultative reinsurance, primarily for large individual property risks greater than our property per risk excess of loss treaty capacity.

•Casualty Reinsurance, which provides protection for both individual large casualty losses and catastrophic casualty losses involving multiple claimants or insureds. We also may use (i) facultative reinsurance, primarily for large individual casualty risks in excess of our treaty capacity and (ii) quota share capacity for certain new or higher severity casualty lines of business.

•Terrorism Reinsurance, which provides a federal reinsurance backstop, behind the protection built into our property and casualty reinsurance treaties, for terrorism losses covered under the Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA"). For further information about TRIPRA, see Item 1A. “Risk Factors.” of this Form 10-K.

•Flood Reinsurance, for which all of the premiums and losses related to our participation in the WYO (for which we also receive a servicing fee) are 100% ceded to the federal government.

Property Reinsurance

The following table summarizes our property reinsurance program:

Property Catastrophe Reinsurance Program

Our 2025 property catastrophe reinsurance program includes a main excess of loss treaty and an indemnity reinsurance agreement with a special purpose insurer that issued a catastrophe bond. This program covers our standard market and E&S business. In addition, we purchased a Personal Lines-only treaty of $20 million in excess of $20 million retention to mitigate Personal Lines-specific catastrophe losses. Effective January 1, 2025, we renewed our main property catastrophe treaty, with additional limit, stable retention and improved terms. Our program now provides coverage of $1.3 billion in excess of a $100 million retention, compared to $1.1 billion in 2024, thereby, extending the exhaustion point by $200 million to respond to our growing property portfolio. The highest layer of the treaty provides coverage for 41% of losses in the $600 million in excess of $800 million layer. The property catastrophe treaty excludes coverage for communicable disease but retains (i) coverage for strike, riot, civil unrest, severe convective storms, and other traditionally-covered property perils, (ii) coverage for conventional terrorism losses, and (iii) limited coverage for cybersecurity risks.

To provide additional, fully collateralized coverage at the top end of our property catastrophe reinsurance program, we secured property catastrophe protection through a per occurrence excess of loss indemnity reinsurance agreement effective December 9, 2023, with High Point Re Ltd. ("High Point Re"), an independent Bermuda special purpose insurer. The reinsurance agreement meets the accounting guidance requirements to be accounted for as reinsurance. In connection with the reinsurance agreement, High Point Re issued Series 2023-1, Class A Principal-at-Risk Variable Rates Notes to unrelated investors totaling $325 million, consistent with the coverage provided under the reinsurance agreement. The proceeds were deposited in a reinsurance trust account. The reinsurance agreement provides us with coverage of up to $325 million for the three-year period from December 9, 2023, through December 31, 2026, for property catastrophe losses from named storms, earthquakes, severe thunderstorms, winter storms, wildfires, meteorite impacts, and volcanic eruptions in all states except California, Florida, Texas, and Louisiana. The reinsurance agreement's attachment point and exhaustion limit may be reset annually to adjust the expected loss of the layer within a predetermined range. For the 2025 treaty year, this reinsurance agreement provides us with coverage for 54% of losses in the $600 million in excess of $800 million layer. The reinsurance agreement is collateralized, which is provided by High Point Re using proceeds from the issuance of the Series 2023-1 Notes.

Reinsurance agreements have credit risk associated with collecting amounts due from reinsurers. With High Point Re, that risk is reduced because the collateralized reinsurance trust account is funded with money market funds domiciled in the U.S. The money market funds invest solely in cash or high-quality direct obligations of the U.S. government, such as U.S. Treasury bills and other short-term securities backed by the U.S. government.

In addition to the fully collateralized catastrophe bond, we seek to minimize reinsurance credit risk by transacting with highly-rated reinsurance partners and purchasing collateralized reinsurance products, particularly for high-severity, low-probability events, if feasible. Our current reinsurance program includes $450 million in collateralized limit of the total $570 million limit in place for the highest layer of the catastrophe program, including the $325 million secured through High Point Re, compared to $417.5 million in collateralized limit under the 2024 reinsurance program.

Overall, ceded premium for our property catastrophe reinsurance program will increase in 2025 due to: (i) increases in underlying property exposures in line with our growing property insurance portfolio; and (ii) the addition of $189.8 million of net limit coverage, which improved our net risk profile. These increases will be partially offset by risk-adjusted price decreases from more favorable reinsurance market conditions.

Catastrophe Models

We model various catastrophic perils, and hurricane risk remains our portfolio's most significant natural catastrophe peril because of the geographic location of the risks we insure. The table below illustrates the impact of the five largest hurricane losses we have experienced in the last 35 years:

1 This amount represents reported and unreported gross losses estimated as of December 31, 2024.

2 Net loss does not include reinstatement premiums, taxes, or flood claims handling fees.

We review our exposure to hurricane risk by examining third-party vendor models and conducting a proprietary analysis. The third-party vendor models provide both long-term and near-term views with the near-term view conditioned to adjust for elevated sea surface temperatures. We adjust these models to reflect certain non-modeled cost assumptions, such as the impact of loss expenses, residual market assessments, and automobile-related losses. We believe that modeled estimates provide a range of potential outcomes, and we review multiple estimates to understand our catastrophic risk.

Our established catastrophic risk tolerance requires that no more than 10% of stockholders’ equity is exposed to a loss from a hurricane event at a 99.6% confidence level (1-in-250-year event or 0.4% probability) on a net of reinsurance and after-tax basis. Our property catastrophe reinsurance program limits our net after-tax impact of a 1-in-250-year event to about 4% of our GAAP equity. In addition to the 1-in-250-year modeled event, we evaluate the impact of a number of other scenarios on stockholders’ equity.

The table below shows the gross and net losses modeled results for (i) hurricane peril in our underwriting property portfolio and (ii) the gross and net of reinsurance hurricane losses from the following scenarios:

•Recasts of two large hurricanes that impacted our geographic footprint:

◦1938 New England Hurricane, one of the largest hurricanes to impact the Northeast U.S.; and

◦Hurricane Hazel, a Category 4 storm that made landfall near the border between North Carolina and South Carolina in 1954; and

•Realistic disaster scenarios ("RDS") for significant potential storms in the Northeast and the Carolinas based on Lloyds of London ("Lloyds") methodology.

1 Gross losses include uncertainty associated with damage/loss estimation, demand and storm surge, and assumptions for certain un-modeled costs, such as the impact of loss expenses, residual market assessments, and automobile-related losses, which collectively increase our gross losses by approximately 13%.

2 Net losses are after-tax losses net of catastrophe reinsurance including reinstatement premiums and applicable property per risk and facultative reinsurance based on reinsurance structure effective January 1, 2025.

3 GAAP stockholders' equity as of December 31, 2024.

As the table above reflects, we are within our established tolerance for catastrophic risk. Based on a multi-model view of hurricane risk, our current catastrophe reinsurance program exhausts at an approximately 1-in-230-year return period, or events with 0.4% probability. Our modeled losses incorporate expected reinsurance recoveries from our per-risk reinsurance treaty and facultative reinsurance in addition to the recoveries from our property catastrophe treaties. Our actual gross and net losses incurred from hurricanes making U.S. landfall will vary, perhaps materially, from our estimated modeled losses.

In addition to hurricane peril, the table below shows gross and net losses modeled by other wind and earthquake perils in our underwriting property portfolio. Other wind perils include the sub-perils of hail, straight-line wind, and tornado.

1 Gross losses include uncertainty associated with damage/loss estimation, demand and storm surge, and assumptions for certain un-modeled costs, such as the impact of loss expenses, residual market assessments, and automobile-related losses, which collectively increase our gross losses by approximately 13%.

2 Net losses are after-tax losses net of catastrophe reinsurance including reinstatement premiums as well as applicable property per risk and facultative reinsurance based on the reinsurance structure effective January 1, 2025.

3 GAAP stockholders' equity as of December 31, 2024.

We do not write crop insurance, have minimal exposure to private flood, and have a limited percentage of our insured properties in the Western U.S., all limiting our exposures to certain weather-related perils, such as droughts, wildfires, and flooding. However, as our geographic expansion progresses, we continually evaluate how we consider physical risks from these perils and others in our strategic decision making.

While we regularly experience property losses from winter storms and use third-party vendor models to help us model and manage our exposure to this peril, we also evaluate our winter storm exposure based on our own historical experience, as winter storm third-party vendor models are currently less mature than models for other perils such as hurricane wind or severe convective storms.

Property Per Risk Excess of Loss Treaty

We renewed the property per risk excess of loss treaty, which covers our standard market and E&S business, on July 1, 2024, with substantially the same structure as the treaty that expired on June 30, 2024, providing coverage of $65 million in excess of a $5 million retention, with an additional reinstatement on the second layer of the program. The treaty year deposit premium increased, reflecting higher projected subject earned premium due to growth of our book of business.

Casualty Reinsurance

The following table summarizes our casualty reinsurance program:

We renewed the casualty excess of loss treaty, which covers our standard market and E&S Lines business, on July 1, 2024, on substantially the same terms as the treaty expiring June 30, 2024 with a co-participation of 17.5% on the first $3 million in excess of $2 million layer, but with the benefit of additional reinstatements on several of the layers. The treaty year 2024 deposit premium increased, reflecting (i) higher projected subject earned premium due to growth of our book of business, including pure renewal rate increases; and (ii) higher anticipated losses in the excess layers, partially offset by (iii) the introduction of the first layer co-participation.

To complement our key reinsurance programs and provide reinsurance protection on specific coverages or programs, we have other reinsurance treaties, such as our (i) Surety and Fidelity Excess of Loss Reinsurance Treaty, (ii) National Workers Compensation Reinsurance Pool Quota Share, which covers business assumed from the involuntary workers compensation pool, (iii) Endurance Specialty Quota share and Loss Development Cover, which protects against losses on policies written before the acquisition and any development on reserves established by MUSIC as of the date of acquisition, (iv) Equipment Breakdown Coverage Reinsurance Treaty, (v) Multi-line Quota Share, which covers additional personal lines coverages, such as personal cyber and home systems protection, (vi) Cyber Liability Quota Share, and (vii) Excess Liability Quota Share, which covers MUSIC's excess liability business.

We continually evaluate our overall reinsurance program and try to develop effective ways to manage the transfer of risk. We base our analysis on a comprehensive process that includes periodic analysis of modeling results, our own loss experience, aggregation of exposures, exposure growth, diversification of risks, limits written, projected reinsurance costs, reinsurer financial strength, and projected impact on earnings, equity, and statutory surplus. We strive to balance reinsurer credit quality, price, terms, and our appetite to retain a certain level of risk.

Investments Segment

Our Investments Segment's objectives are to maximize the economic value of our investment portfolio by achieving stable, risk-adjusted after-tax net investment income and generate long-term growth in book value per share, considering prevailing market conditions, our enterprise risk tolerances, and other risk implications. We aim to accomplish this by:

•Maximizing the portfolio's overall total return by investing (i) the premiums from our insurance operations and (ii) amounts generated through our capital management strategies, including debt and equity security issuances, and

•Maintaining (i) a well-diversified portfolio across issuers, sectors, and asset classes, and (ii) a high credit quality fixed income securities portfolio with a duration and maturity profile at an acceptable risk level that provides ample liquidity.

The effective duration of our fixed income and short-term investments was 4.0 years as of December 31, 2024. We monitor and manage the effective duration to maximize yield while managing interest rate risk at an acceptable level. We buy and sell investments with the intent of maximizing investment returns in the current market environment, while balancing capital preservation.

Our fixed income and short-term investments represented 92% of our invested assets at both December 31, 2024 and December 31, 2023. These investments had (i) a weighted average credit rating of "A+" as of December 31, 2024 and "AA-" at December 31, 2023, and (ii) investment grade holdings representing 97% of the total fixed income and short-term investment portfolio at December 31, 2024, and 96% at December 31, 2023.

For further details on the composition, credit quality, and various risks to which our portfolio is subject, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." of this Form 10-K.

Total Invested Assets

Invested assets increased by $957.6 million at December 31, 2024, compared to December 31, 2023, reflecting our active investment of operating and investing cash flows. Operating cash flows during 2024 were 24% of NPW.

Net Investment Income

The components of net investment income earned were as follows:

After-tax net investment income earned increased 17% in 2024, compared to 2023, primarily driven by higher interest rates, active portfolio management, and operating cash flow deployment. In addition, income earned on our alternative investments portfolio increased in 2024 compared to 2023 as a result of strong capital market performance in 2024.

Realized and Unrealized Investment Gains and Losses

When evaluating securities for sale, our general philosophy is to reduce our exposure to securities and sectors based on economic evaluations of whether (i) the fundamentals for that security or sector have deteriorated or (ii) the timing is appropriate to trade opportunistically for other securities with better economic-return characteristics. Net realized and unrealized gains and losses for the indicated periods were as follows:

For additional information regarding our losses on securities we intend to sell and our methodology for estimating the allowance for credit losses, see Note 2. "Summary of Significant Accounting Policies" and Note 5. "Investments" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.