OPERATING SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2019

OPERATING SEGMENT INFORMATION

OPERATING SEGMENT INFORMATION

12. OPERATING SEGMENT INFORMATION

The segments of our insurance operations include casualty, property and surety. The casualty portion of our business consists largely of commercial excess, personal umbrella, general liability, transportation and executive products coverages, as well as package business and other specialty coverages, such as professional liability and workers’ compensation for office-based professionals. We also assume a limited amount of hard-to-place risks through a quota share reinsurance agreement. We provided medical and healthcare professional liability coverage in the excess and surplus market, but exited these businesses on

a runoff basis in 2019. The casualty business is subject to the risk of estimating losses and related loss reserves because the ultimate settlement of a casualty claim may take several years to fully develop. The casualty segment is also subject to inflation risk and may be affected by evolving legislation and court decisions that define the extent of coverage and the amount of compensation due for injuries or losses.

Our property segment is comprised primarily of commercial fire, earthquake, difference in conditions and marine coverages. We also offer select personal lines policies, including homeowners’ coverages. Property insurance results are subject to the variability introduced by perils such as earthquakes, fires and hurricanes. Our major catastrophe exposure is to losses caused by earthquakes, primarily on the West Coast. Our second largest catastrophe exposure is to losses caused by wind storms to commercial properties throughout the Gulf and East Coast, as well as to homes we insure in Hawaii. We limit our net aggregate exposure to a catastrophic event by minimizing the total policy limits written in a particular region, purchasing reinsurance and maintaining policy terms and conditions throughout market cycles. We also use computer-assisted modeling techniques to provide estimates that help the Company carefully manage the concentration of risks exposed to catastrophic events.

The surety segment specializes in writing small to large-sized commercial and contract surety coverages, including payment and performance bonds. We also offer miscellaneous bonds including license and permit, notary and court bonds. Often, our surety coverages involve a statutory requirement for bonds. While these bonds typically maintain a relatively low loss ratio, losses may fluctuate due to adverse economic conditions affecting the financial viability of our insureds. The contract surety product guarantees the construction work of a commercial contractor for a specific project. Generally, losses occur due to the deterioration of a contractor’s financial condition. This line has historically produced marginally higher loss ratios than other surety lines during economic downturns.

Net investment income consists of the interest and dividend income streams from our investments in fixed income and equity securities. Interest and general corporate expenses include the cost of debt, other director and shareholder relations costs and other compensation-related expenses incurred for the benefit of the corporation, but not attributable to the operations of our insurance segments. Investee earnings represent our share in Maui Jim and Prime earnings. We own 40 percent of Maui Jim, a privately-held company which operates in the sunglass and optical goods industries, and 23 percent of Prime Holdings Insurance Services, Inc., a privately-held insurance company which specializes in hard-to-place risks. Our investment in Maui Jim, which is carried at the holding company, is unrelated to our core insurance operations.

The following table summarizes our segment data based on the internal structure and reporting of information as it is used by management. The net earnings of each segment are before taxes and include revenues (if applicable), direct product or segment costs (such as commissions and claims costs), as well as allocated support costs from various support departments. While depreciation and amortization charges have been included in these measures via our expense allocation system, the related assets are not allocated for management use and, therefore, are not included in this schedule.

REVENUES
(in thousands)	2019		2018		2017
Casualty	$	558,458	$	523,472	$	478,603
Property		164,022		149,261		138,346
Surety		116,631		118,633		120,988
Net premiums earned	$	839,111	$	791,366	$	737,937
Net investment income		68,870		62,085		54,876
Net realized gains		17,520		63,407		4,411
Net unrealized gains (losses) on equity securities		78,090		(98,735)		—
Total	$	1,003,591	$	818,123	$	797,224

INSURANCE EXPENSES
(in thousands)	2019		2018		2017
Loss and settlement expenses:
Casualty	$	330,156	$	329,763	$	305,679
Property		73,614		83,822		85,027
Surety		9,646		14,608		10,878
Total loss and settlement expenses	$	413,416	$	428,193	$	401,584
Policy acquisition costs:
Casualty	$	166,499	$	151,007	$	136,135
Property		55,986		51,830		51,070
Surety		66,212		64,901		65,310
Total policy acquisition costs	$	288,697	$	267,738	$	252,515
Other insurance expenses:
Casualty	$	41,202	$	31,562	$	32,885
Property		16,279		12,725		14,108
Surety		11,949		9,516		10,001
Total other insurance expenses	$	69,430	$	53,803	$	56,994
Total	$	771,543	$	749,734	$	711,093

NET EARNINGS (LOSSES)
(in thousands)	2019		2018		2017
Casualty	$	20,601	$	11,140	$	3,904
Property		18,143		884		(11,859)
Surety		28,824		29,608		34,799
Net underwriting income	$	67,568	$	41,632	$	26,844
Net investment income		68,870		62,085		54,876
Net realized gains		17,520		63,407		4,411
Net unrealized gains (losses) on equity securities		78,090		(98,735)		—
General corporate expense and interest on debt		(20,274)		(16,864)		(18,766)
Equity in earnings of unconsolidated investees		20,960		16,056		17,224
Total earnings before incomes taxes	$	232,734	$	67,581	$	84,589
Income tax expense (benefit)	$	41,092	$	3,402	$	(20,439)
Total	$	191,642	$	64,179	$	105,028

The following table further summarizes revenues by major product type within each segment:

NET PREMIUMS EARNED	Year ended December 31,
(in thousands)	2019		2018		2017
CASUALTY
Commercial excess and personal umbrella	$	140,483	$	124,350	$	115,543
General liability		98,880		93,928		90,283
Commercial transportation		83,213		81,053		78,061
Professional services		81,329		79,951		78,508
Small commercial		55,701		51,519		49,601
Executive products		27,088		21,326		18,086
Other casualty		71,764		71,345		48,521
Total	$	558,458	$	523,472	$	478,603
PROPERTY
Marine	$	74,887	$	59,795	$	50,931
Commercial property		68,310		71,501		63,117
Specialty personal		19,316		16,901		20,793
Other property		1,509		1,064		3,505
Total	$	164,022	$	149,261	$	138,346
SURETY
Miscellaneous	$	44,721	$	46,968	$	47,237
Commercial		43,553		43,469		45,178
Contract		28,357		28,196		28,573
Total	$	116,631	$	118,633	$	120,988
Grand total	$	839,111	$	791,366	$	737,937