OPERATING SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2013

OPERATING SEGMENT INFORMATION

OPERATING SEGMENT INFORMATION

11. OPERATING SEGMENT INFORMATION

The segments of our insurance operations include casualty, property and surety. The casualty portion of our business consists largely of general liability, personal umbrella, transportation, executive products, commercial umbrella, package business and other specialty coverages, such as our professional liability for design professionals. We also offer fidelity and crime coverage for commercial insureds and select financial institutions and recently expanded our casualty offerings to include medical professional liability coverage in the excess and surplus market. 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, marine, facultative and treaty reinsurance, including crop and select personal lines policies, including recreational vehicle insurance and Hawaii homeowners coverages. Property insurance and reinsurance 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 hurricanes 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 through extensive use of computer-assisted modeling techniques. These techniques provide estimates that help us carefully manage the concentration of risks exposed to catastrophic events. Our assumed multi-peril crop and hail treaty reinsurance business covers revenue shortfalls or production losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects and disease. Significant aggregation of these losses is mitigated by the Federal Government reinsurance program that provides stop loss protection inuring to our benefit.

The surety segment specializes in writing small-to-large commercial and contract surety coverages, as well as those for the energy, petrochemical and refining industries. We 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 is the by-product 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 and other director and shareholder relations costs 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 earnings. We own 40 percent of Maui Jim, a privately held company which operates in the sunglass and optical goods industries. 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)	2013		2012		2011
Casualty	$	324,022	$	267,697	$	236,198
Property	200,141		202,402		203,660
Surety	106,639		106,472		98,594
Segment totals before income taxes	630,802		576,571		538,452
Net investment income	52,763		58,831		63,681
Net realized gains	22,036		25,372		17,036
Total	$	705,601	$	660,774	$	619,169

INSURANCE EXPENSES

(in thousands)	2013		2012		2011
Loss and settlement expenses:
Casualty	$	148,860	$	144,106	$	85,091
Property	96,271		115,707		101,969
Surety	14,670		11,832		13,024
Segment totals before income taxes	$	259,801	$	271,645	$	200,084
Policy acquisition costs:
Casualty	$	93,463	$	76,765	$	67,495
Property	58,650		60,070		57,878
Surety	58,538		59,527		58,495
Segment totals before income taxes	$	210,651	$	196,362	$	183,868
Other insurance expenses:
Casualty	$	26,107	$	21,387	$	22,215
Property	17,616		14,933		13,481
Surety	9,834		8,651		8,616
Segment totals before income taxes	$	53,557	$	44,971	$	44,312
Total	$	524,009	$	512,978	$	428,264

NET EARNINGS (LOSSES)

(in thousands)	2013			2012			2011
Casualty	$	55,592		$	25,439		$	61,397
Property	27,604			11,692			30,332
Surety	23,597			26,462			18,459
Net underwriting income	$	106,793		$	63,593		$	110,188
Net investment income	52,763			58,831			63,681
Net realized gains	22,036			25,372			17,036
General corporate expense and interest on debt	(16,841		)	(13,917		)	(13,816		)
Equity in earnings of unconsolidated investees	10,915			8,853			6,497
Total earnings before incomes taxes	$	175,666		$	142,732		$	183,586
Income taxes	$	49,411		$	39,386		$	56,988
Total	$	126,255		$	103,346		$	126,598

The following table further summarizes net premiums earned by major product type within each segment:

	Year ended December 31,
(in thousands)	2013		2012		2011
CASUALTY
Commercial and personal umbrella	$	85,532	$	68,287	$	63,020
General liability	81,427		84,985		85,020
Commercial transportation	50,287		34,701		34,106
Professional services	42,063		28,018		13,151
P&C package business	30,603		28,497		16,379
Executive products	19,123		17,198		15,472
Medical professional liability	8,626		25		—
Other casualty	6,361		5,986		9,050
Total	$	324,022	$	267,697	$	236,198
PROPERTY
Commercial property	$	76,939	$	74,197	$	80,743
Marine	57,122		56,367		51,654
Crop reinsurance	31,421		24,506		34,935
Property reinsurance	15,770		27,021		19,925
Other property	18,889		20,311		16,403
Total	$	200,141	$	202,402	$	203,660
SURETY
Miscellaneous	$	38,131	$	39,299	$	34,837
Contract	27,176		26,329		24,354
Commercial	23,133		22,107		21,317
Oil and gas	18,199		18,737		18,086
Total	$	106,639	$	106,472	$	98,594
Grand total	$	630,802	$	576,571	$	538,452