Operating Segment Information

12 Months Ended

Dec. 31, 2024

Segment Reporting [Abstract]

Operating Segment Information

11. OPERATING SEGMENT INFORMATION

The Company’s insurance operations are managed and reported in three operating segments: property, casualty and surety. The casualty portion of our business consists largely of commercial excess, personal umbrella, general liability, transportation and management liability 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 risks through quota share and excess of loss reinsurance agreements. The casualty business is subject to a higher level of risk when estimating losses and related loss reserves because the ultimate settlement of a casualty claim may take several years to fully develop.

Our property segment is comprised primarily of commercial fire, hurricane, earthquake, difference in conditions and marine coverages. We also offer homeowners’ coverages in Hawaii. Property insurance results are subject to the variability introduced by perils such as earthquakes, fires, hurricanes and other storms. Our major catastrophe exposure is to losses caused by windstorms, affecting commercial properties in coastal regions of the United States, and earthquakes, primarily on the West Coast. We limit our net aggregate exposure to a catastrophic event by managing the total policy limits written in a particular region, purchasing reinsurance and maintaining policy terms and conditions throughout all 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, energy and renewable energy industries. We also offer a variety of transactional bonds including, but not limited to 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 commercial contractors’ contractual obligations for a specific construction project. Generally, losses occur due to the deterioration of a contractor’s financial condition.

The Company’s chief operating decision maker (CODM) is the chief executive officer. The Company’s CODM assesses the segments’ performance by using earnings before income taxes (underwriting income) and the combined ratio. Underwriting income and combined ratio are analyzed at the segment level and influence how resources are allocated. Decisions are made based on what is likely to provide the best long-term return to the Company.

The accounting policies of the reporting segments are the same as those described in note 1 to the consolidated financial statements. Expense allocations are based on assumptions primarily related to direct costs, net premiums earned, as well as the level of support required for the products within each segment. Amortization of deferred acquisition costs represents the recognition of commission and premium taxes over the life of insurance polices, in proportion to premium revenue recognized. The other policy acquisition costs line item includes other expenses associated with underwriting, but that cannot be specifically associated with the successful acquisition of a policy, including, but not limited to, employment costs for underwriters and underwriting support as well as costs for policy acquisition systems. Insurance operating expenses reflect allocated costs from various support departments, such as corporate technology, accounting, human resources and facilities, among others.

Net investment income consists of the interest and dividend income streams from our investments in fixed income and equity securities. Interest expense represents the cost of debt and lines of credit. General corporate expenses include director and shareholder relation 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 primarily represents our 23 percent share in earnings of Prime Holdings Insurance Services, Inc., a privately held insurance company which specializes in hard-to-place risks. Assets, and the revenues and expenses associated with investing and financing activities, are not managed at the segment level and therefore are not allocated to segments.

All segment revenues are from external customers and all long-lived assets are held domestically. We have no material foreign operations or customer concentrations and have no intersegment revenues.

The following tables presents our operating results by segment, as evaluated by the CODM.

Year ended December 31, 2024
(in thousands)		Casualty		Property		Surety		Total
Revenue
Net premiums earned	$	852,837	$	531,384	$	142,185	$	1,526,406
Net investment income		-		-		-		142,278
Net realized gains		-		-		-		19,966
Net unrealized gains (losses) on equity securities		-		-		-		81,734
Consolidated revenue	$	852,837	$	531,384	$	142,185	$	1,770,384
Less: Expenses
Losses and settlement expenses	$	524,490	$	198,806	$	15,957
Amortization of deferred acquisition costs		161,532		108,235		48,254
Other policy acquisition costs		83,987		22,936		39,096
Insurance operating expenses		65,040		33,871		13,549
Segment earnings before income taxes	$	17,788	$	167,536	$	25,329	$	210,653
Reconciliation of earnings before income taxes
Segment earnings before income taxes							$	210,653
Net investment income								142,278
Net realized gains								19,966
Net unrealized gains (losses) on equity securities								81,734
Interest expense on debt								(6,331)
General corporate expenses								(15,880)
Equity in earnings of unconsolidated investees								(4,869)
Earnings before income taxes							$	427,551
Depreciation and amortization expense	$	5,705	$	1,924	$	991

Year ended December 31, 2023
(in thousands)		Casualty		Property		Surety		Total
Revenue
Net premiums earned	$	758,346	$	401,530	$	134,430	$	1,294,306
Net investment income		-		-		-		120,383
Net realized gains		-		-		-		32,518
Net unrealized gains (losses) on equity securities		-		-		-		64,787
Consolidated revenue	$	758,346	$	401,530	$	134,430	$	1,511,994
Less: Expenses
Losses and settlement expenses	$	418,032	$	172,062	$	14,319
Amortization of deferred acquisition costs		138,968		94,173		42,754
Other policy acquisition costs		82,621		22,171		37,638
Insurance operating expenses		59,246		26,808		12,329
Segment earnings before income taxes	$	59,479	$	86,316	$	27,390	$	173,185
Reconciliation of earnings before income taxes
Segment earnings before income taxes							$	173,185
Net investment income								120,383
Net realized gains								32,518
Net unrealized gains (losses) on equity securities								64,787
Interest expense on debt								(7,301)
General corporate expenses								(15,917)
Equity in earnings of unconsolidated investees								9,610
Earnings before income taxes								377,265
Depreciation and amortization expense	$	5,991	$	1,807	$	1,648

Year ended December 31, 2022
(in thousands)		Casualty		Property		Surety		Total
Revenue
Net premiums earned	$	711,832	$	307,886	$	124,718	$	1,144,436
Net investment income		-		-		-		86,078
Net realized gains		-		-		-		588,515
Net unrealized gains (losses) on equity securities		-		-		-		(121,037)
Consolidated revenue	$	711,832	$	307,886	$	124,718	$	1,697,992
Less Expenses
Losses and settlement expenses	$	381,436	$	120,745	$	12,195
Amortization of deferred acquisition costs		126,048		67,450		38,907
Other policy acquisition costs		78,349		27,753		31,125
Insurance operating expenses		52,210		19,416		10,586
Segment earnings before income taxes	$	73,789	$	72,522	$	31,905	$	178,216
Reconciliation of earnings before income taxes
Segment earnings before income taxes							$	178,216
Net investment income								86,078
Net realized gains								588,515
Net unrealized gains (losses) on equity securities								(121,037)
Interest expense on debt								(8,047)
General corporate expenses								(12,900)
Equity in earnings of unconsolidated investees								9,853
Earnings before income taxes								720,678
Depreciation and amortization expense	$	4,961	$	1,653	$	1,705

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

NET PREMIUMS EARNED

	Year ended December 31,
(in thousands)	2024		2023		2022
CASUALTY
Commercial excess and personal umbrella	$	354,847	$	286,178	$	253,921
Commercial transportation		120,650		103,719		96,992
General liability		104,423		103,066		100,374
Professional services		103,794		99,596		95,187
Small commercial		78,308		72,920		67,673
Executive products		23,555		24,687		26,606
Other casualty		67,260		68,180		71,079
Total	$	852,837	$	758,346	$	711,832
PROPERTY
Commercial property	$	345,554	$	244,798	$	163,078
Marine		145,706		129,428		113,208
Other property		40,124		27,304		31,600
Total	$	531,384	$	401,530	$	307,886
SURETY
Transactional	$	49,460	$	47,983	$	45,826
Commercial		48,533		49,707		47,652
Contract		44,192		36,740		31,240
Total	$	142,185	$	134,430	$	124,718
Grand total	$	1,526,406	$	1,294,306	$	1,144,436