Operating Segment Information

12 Months Ended

Dec. 31, 2022

Segment Reporting [Abstract]

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. 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, and windstorms 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 insurance 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 medium-sized contract surety coverages, including payment and performance bonds. We offer a variety of commercial surety bonds for medium to large-sized businesses across a broad spectrum of industries, including the financial, healthcare as well as on and offshore energy, petrochemical and refining industries. 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 owned 40 percent of Maui Jim, a privately held company which operates in the sunglass and optical goods industries, which we sold in the third quarter of 2022. See note 13 for more information on the sale. Our investment in Maui Jim was carried at the holding company, as it was unrelated to our core insurance operations. Additionally, we own 23 percent of Prime Holdings Insurance Services, Inc., a privately held insurance company which specializes in hard-to-place risks.

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 costs from various support departments. Assets are not managed at the segment level and therefore are not allocated to segments.

REVENUES

(in thousands)	2022		2021		2020
Casualty	$	711,832	$	633,639	$	569,521
Property		307,886		231,837		183,720
Surety		124,718		115,427		112,506
Net premiums earned	$	1,144,436	$	980,903	$	865,747
Net investment income		86,078		68,862		67,893
Net realized gains		588,515		64,222		17,885
Net unrealized gains (losses) on equity securities		(121,037)		65,258		32,101
Total	$	1,697,992	$	1,179,245	$	983,626

INSURANCE EXPENSES

(in thousands)	2022		2021		2020
Loss and settlement expenses:
Casualty	$	381,436	$	311,627	$	322,099
Property		120,745		129,924		111,356
Surety		12,195		15,051		9,429
Total loss and settlement expenses	$	514,376	$	456,602	$	442,884
Policy acquisition costs:
Casualty	$	204,397	$	179,354	$	162,058
Property		95,203		72,008		59,926
Surety		70,032		66,106		64,454
Total policy acquisition costs	$	369,632	$	317,468	$	286,438
Other insurance expenses:
Casualty	$	52,210	$	47,139	$	40,937
Property		19,416		18,605		15,620
Surety		10,586		11,163		10,271
Total other insurance expenses	$	82,212	$	76,907	$	66,828
Total	$	966,220	$	850,977	$	796,150

NET EARNINGS

(in thousands)	2022		2021		2020
Casualty	$	73,789	$	95,519	$	44,427
Property		72,522		11,300		(3,182)
Surety		31,905		23,107		28,352
Net underwriting income	$	178,216	$	129,926	$	69,597
Net investment income		86,078		68,862		67,893
Net realized gains		588,515		64,222		17,885
Net unrealized gains (losses) on equity securities		(121,037)		65,258		32,101
Interest on debt		(8,047)		(7,677)		(7,603)
General corporate expense		(12,900)		(13,330)		(10,265)
Equity in earnings of unconsolidated investees		9,853		37,060		20,233
Total earnings before incomes taxes	$	720,678	$	344,321	$	189,841
Income tax expense		137,267		64,967		32,750
Net earnings	$	583,411	$	279,354	$	157,091

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

NET PREMIUMS EARNED

	Year ended December 31,
(in thousands)	2022		2021		2020
CASUALTY
Commercial excess and personal umbrella	$	253,921	$	219,437	$	178,214
General liability		100,374		90,853		91,653
Commercial transportation		96,992		83,352		64,624
Professional services		95,187		88,855		85,196
Small commercial		67,673		64,660		63,357
Executive products		26,606		21,873		26,509
Other casualty		71,079		64,609		59,968
Total	$	711,832	$	633,639	$	569,521
PROPERTY
Commercial property	$	163,078	$	107,941	$	79,406
Marine		113,208		97,745		81,852
Other property		31,600		26,151		22,462
Total	$	307,886	$	231,837	$	183,720
SURETY
Commercial	$	47,652	$	43,738	$	42,872
Miscellaneous		45,826		43,982		42,292
Contract		31,240		27,707		27,342
Total	$	124,718	$	115,427	$	112,506
Grand total	$	1,144,436	$	980,903	$	865,747