Investments

12 Months Ended

Dec. 31, 2024

Investments Debt And Equity Securities [Abstract]

Investments

2. INVESTMENTS

Our investments are primarily composed of fixed income debt securities and common stock equity securities. All of our debt securities are classified as available-for-sale, which are carried at fair value. Our equity portfolio consists of common stocks and exchange traded funds (ETF), which are carried at fair value.

A summary of net investment income for the years ended December 31 are summarized below.

(in thousands)	2024		2023		2022
Interest on fixed income securities	$	120,561	$	103,446	$	77,164
Dividends on equity securities		13,276		12,238		11,912
Interest on cash, short-term investments and other invested assets		16,017		10,940		2,467
Gross investment income	$	149,854	$	126,624	$	91,543
Less investment expenses		(7,576)		(6,241)		(5,465)
Net investment income	$	142,278	$	120,383	$	86,078

Pretax net realized gains (losses) and net changes in unrealized gains (losses) on investments for the years ended December 31 are summarized below.

(in thousands)	2024		2023		2022
Net realized gains (losses):
Fixed income:
Available-for-sale	$	(5,276)	$	(3,641)	$	(2,997)
Equity securities		30,792		22,232		20,287
Investment in unconsolidated investees		(42)		14,084		570,952
Other		(5,508)		(157)		273
Total net realized gains (losses)	$	19,966	$	32,518	$	588,515
Net changes in unrealized gains (losses) on investments:
Equity securities	$	82,275	$	65,655	$	(118,912)
Other invested assets		(541)		(868)		(2,125)
Total unrealized gains (losses) on equity securities recognized in net earnings	$	81,734	$	64,787	$	(121,037)
Fixed income:
Available-for-sale	$	(16,822)	$	79,782	$	(341,944)
Investment in unconsolidated investees		7,539		(290)		(10,994)
Other		(109)		(33)		(102)
Total unrealized gains (losses) recognized in other comprehensive earnings	$	(9,392)	$	79,459	$	(353,040)
Net realized gains (losses) and changes in unrealized gains (losses) on investments	$	92,308	$	176,764	$	114,438

The change in the portfolio’s unrealized gain (loss) position was due to strong equity market returns during the year, which were partially offset by a decrease in the unrealized value of fixed income securities.

The following is a summary of the disposition of fixed income securities and equities for the years ended December 31, with separate presentations for sales and calls/maturities:

SALES			Gross Realized				Net Realized
(in thousands)	Proceeds		Gains		Losses		Gain (Loss)
2024
Available-for-sale	$	150,884	$	630	$	(4,386)	$	(3,756)
Equities		64,839		31,148		(356)		30,792
2023
Available-for-sale	$	49,960	$	451	$	(2,174)	$	(1,723)
Equities		51,881		23,482		(1,250)		22,232
2022
Available-for-sale	$	51,355	$	287	$	(2,849)	$	(2,562)
Equities		62,212		21,623		(1,336)		20,287

CALLS/MATURITIES			Gross Realized				Net Realized
(in thousands)	Proceeds		Gains		Losses		Gain (Loss)
2024
Available-for-sale	$	323,533	$	134	$	(1,400)	$	(1,266)
2023
Available-for-sale	$	506,910	$	39	$	(162)	$	(123)
2022
Available-for-sale	$	1,393,704	$	196	$	(55)	$	141

FAIR VALUE MEASUREMENTS

Assets measured at fair value on a recurring basis as of December 31, 2024 and 2023, are summarized below:

	2024
	Quoted in Active		Significant Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Fixed income securities - available-for-sale
U.S. government	$	—	$	515,635	$	—	$	515,635
U.S. agency		—		54,338		—		54,338
Non-U.S. government & agency		—		6,898		973		7,871
Agency MBS		—		396,223		—		396,223
ABS/CMBS/MBS*		—		410,248		—		410,248
Corporate		—		1,256,991		89,530		1,346,521
Municipal		—		444,960		—		444,960
Total fixed income securities - available-for-sale	$	—	$	3,085,293	$	90,503	$	3,175,796
Equity securities		731,569		—		4,622		736,191
Total	$	731,569	$	3,085,293	$	95,125	$	3,911,987

	2023
	Quoted in Active		Significant Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Fixed income securities - available-for-sale
U.S. government	$	—	$	308,031	$	—	$	308,031
U.S. agency		—		59,826		—		59,826
Non-U.S. government & agency		—		3,882		—		3,882
Agency MBS		—		425,285		—		425,285
ABS/CMBS/MBS*		—		281,182		—		281,182
Corporate		—		1,164,548		60,471		1,225,019
Municipal		—		552,624		—		552,624
Total fixed income securities - available-for-sale	$	—	$	2,795,378	$	60,471	$	2,855,849
Equity securities		588,416		—		1,625		590,041
Total	$	588,416	$	2,795,378	$	62,096	$	3,445,890

* Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities

The following table summarizes changes in the balance of securities whose fair value was measured using significant unobservable inputs (Level 3).

(in thousands)	Level 3 Securities
Balance as of January 1, 2024	$	62,096
Net realized and unrealized gains
Included in other comprehensive earnings		1,075
Purchases		34,859
Sales		(2,905)
Balance as of December 31, 2024	$	95,125
Change in unrealized gains during the period for Level 3 assets held at period-end - included in other comprehensive earnings	$	1,075

The amortized cost and estimated fair value of fixed income securities at December 31, 2024, by contractual maturity, are shown as follows:

(in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	256,711	$	255,017
Due after one year through five years		742,187		723,476
Due after five years through 10 years		948,340		914,770
Due after 10 years		574,403		476,062
ABS/CMBS/MBS*		869,518		806,471
Total available-for-sale	$	3,391,159	$	3,175,796

*Asset-backed, commercial mortgage-backed and mortgage-backed securities

Expected maturities may differ from contractual maturities due to call provisions on some existing securities.

The amortized cost and fair value of available-for-sale securities at December 31, 2024 and 2023 are presented in the tables below. Amortized cost does not include the $27 million and $23 million of accrued interest receivable as of December 31, 2024 and 2023, respectively.

	2024
			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized
(in thousands)	Cost		Losses		Gains		Losses		Fair Value
U.S. government	$	525,608	$	—	$	309	$	(10,282)	$	515,635
U.S. agency		55,921		—		261		(1,844)		54,338
Non-U.S. government & agency		8,959		—		—		(1,088)		7,871
Agency MBS		438,545		—		927		(43,249)		396,223
ABS/CMBS/MBS*		430,973		(8)		2,208		(22,925)		410,248
Corporate		1,397,676		(189)		4,737		(55,703)		1,346,521
Municipal		533,477		—		1,003		(89,520)		444,960
Total fixed income	$	3,391,159	$	(197)	$	9,445	$	(224,611)	$	3,175,796

* Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities

	2023
			Allowance		Gross		Gross
	Amortized		for Credit		Unrealized		Unrealized
(in thousands)	Cost		Losses		Gains		Losses		Fair Value
U.S. government	$	312,632	$	—	$	1,257	$	(5,858)	$	308,031
U.S. agency		60,763		—		652		(1,589)		59,826
Non-U.S. government & agency		4,800		—		—		(918)		3,882
Agency MBS		460,551		—		2,636		(37,902)		425,285
ABS/CMBS/MBS*		308,458		(3)		611		(27,884)		281,182
Corporate		1,273,187		(303)		8,766		(56,631)		1,225,019
Municipal		634,000		—		2,238		(83,614)		552,624
Total fixed income	$	3,054,391	$	(306)	$	16,160	$	(214,396)	$	2,855,849

* Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities

ALLOWANCE FOR CREDIT LOSSES AND UNREALIZED LOSSES ON FIXED INCOME SECURITIES

A reversible allowance for credit losses is required to be recognized on available-for-sale fixed income securities. Available-for-sale securities in the fixed income portfolio are subjected to several criteria to determine if those securities should be included in the allowance for expected credit loss evaluation, including:

● Significant or recurring operating losses, poor cash flows and/or deteriorating liquidity ratios,

● Changes in technology that may impair the earnings potential of the investment,

● The discontinuance of a segment of business that may affect future earnings potential,

● Specific concerns related to the issuer’s industry or geographic area of operation,

● Reduction of or non-payment of interest and/or principal and

● Downgrades in credit quality by a major rating agency.

If changes in interest rates and credit spreads do not reasonably explain the unrealized loss for an available-for-sale security, or if any of the criteria above indicate a potential credit loss, the security is subjected to a discounted cash flow analysis. Inputs into the discounted cash flow analysis include prepayment assumptions for structured securities, default rates and recoverability rates based on credit rating. The allowance for any security is limited to the amount that the fair value is below amortized cost. As of December 31, 2024, the discounted cash flow analysis resulted in an allowance for credit losses on eight securities. The following table presents changes in the allowance for expected credit losses on available-for-sale securities:

(in thousands)	2024		2023
Beginning balance	$	306	$	339
Increase to allowance from securities for which credit losses were not previously recorded		55		71
Reduction from securities sold during the period		(89)		(154)
Reductions from intent to sell securities		(47)		—
Net increase (decrease) from securities that had an allowance at the beginning of the period		(28)		50
Ending balance	$	197	$	306

Net realized gains included less than $1 million of losses on fixed income securities for which the cost basis was written down to fair value due to a credit event, restructurings and losses on securities for which we no longer had the intent to hold until recovery. In 2023, $2 million in such losses were recognized. We believe we will recover the amortized cost basis of available-for-sale securities that remain in an unrealized loss position.

As of December 31, 2024, in addition to the securities included in the allowance for credit losses, the fixed income portfolio contained 1,333 securities with an unrealized loss position for which an allowance for credit losses had not been recorded. The $225 million in associated unrealized losses represents 7 percent of the fixed income portfolio’s cost basis and 5 percent of total invested

assets. Isolated to these securities, unrealized losses at the end of 2024 increased compared to the previous year due to interest rates, beyond two years to maturity, rising over the course of the year. Of the total 1,333 securities, 1,009 have been in an unrealized loss position for 12 consecutive months or longer. The following table illustrates the total value of fixed income securities that were in an unrealized loss position as of December 31, 2024 and 2023. We believe we will recover the amortized cost basis of available-for-sale securities that remain in an unrealized loss position.

	December 31, 2024						December 31, 2023
				12 Mos.						12 Mos.
(in thousands)	< 12 Mos.		& Greater		Total		< 12 Mos.		& Greater		Total
U.S. government
Fair value	$	303,226	$	157,418	$	460,644	$	37,718	$	204,556	$	242,274
Amortized cost		309,836		161,090		470,926		37,950		210,182		248,132
Unrealized loss	$	(6,610)	$	(3,672)	$	(10,282)	$	(232)	$	(5,626)	$	(5,858)
U.S. agency
Fair value	$	24,024	$	18,330	$	42,354	$	8,736	$	29,632	$	38,368
Amortized cost		24,910		19,288		44,198		8,790		31,167		39,957
Unrealized loss	$	(886)	$	(958)	$	(1,844)	$	(54)	$	(1,535)	$	(1,589)
Non-U.S. government & agency
Fair value	$	4,075	$	3,796	$	7,871	$	—	$	3,882	$	3,882
Amortized cost		4,158		4,801		8,959		—		4,800		4,800
Unrealized loss	$	(83)	$	(1,005)	$	(1,088)	$	—	$	(918)	$	(918)
Agency MBS
Fair value	$	108,772	$	233,625	$	342,397	$	61,196	$	275,707	$	336,903
Amortized cost		111,674		273,972		385,646		61,714		313,091		374,805
Unrealized loss	$	(2,902)	$	(40,347)	$	(43,249)	$	(518)	$	(37,384)	$	(37,902)
ABS/CMBS/MBS*
Fair value	$	43,027	$	164,433	$	207,460	$	12,240	$	211,436	$	223,676
Amortized cost		43,395		186,990		230,385		12,367		239,193		251,560
Unrealized loss	$	(368)	$	(22,557)	$	(22,925)	$	(127)	$	(27,757)	$	(27,884)
Corporate
Fair value	$	378,305	$	700,574	$	1,078,879	$	67,402	$	822,731	$	890,133
Amortized cost		389,299		745,283		1,134,582		68,345		878,419		946,764
Unrealized loss	$	(10,994)	$	(44,709)	$	(55,703)	$	(943)	$	(55,688)	$	(56,631)
Municipal
Fair value	$	48,514	$	355,475	$	403,989	$	61,218	$	391,361	$	452,579
Amortized cost		49,491		444,018		493,509		61,697		474,496		536,193
Unrealized loss	$	(977)	$	(88,543)	$	(89,520)	$	(479)	$	(83,135)	$	(83,614)
Total fixed income
Fair value	$	909,943	$	1,633,651	$	2,543,594	$	248,510	$	1,939,305	$	2,187,815
Amortized cost		932,763		1,835,442		2,768,205		250,863		2,151,348		2,402,211
Unrealized loss	$	(22,820)	$	(201,791)	$	(224,611)	$	(2,353)	$	(212,043)	$	(214,396)

* Non-agency asset-backed, commercial mortgage-backed and mortgage-backed securities

OTHER INVESTED ASSETS

We had $58 million of other invested assets at December 31, 2024, compared to $59 million at the end of 2023. Other invested assets include investments in low-income housing tax credit partnerships (LIHTC) and historic tax credit partnerships (HTC), membership stock in the Federal Home Loan Bank of Chicago (FHLBC) and investments in private funds. Our LIHTC and HTC investments are carried at amortized cost and our investment in FHLBC stock is carried at cost. Due to the nature of the LIHTC, HTC and our membership in the FHLBC, their carrying amounts approximate fair value. The private funds are carried at fair value, using each investments’ net asset value.

Our LIHTC interests had a balance of $7 million at December 31, 2024, compared to $10 million at December 31, 2023. Our LIHTC interests recognized amortization of $3 million as a component of income tax expense in 2024, 2023 and 2022 and was included in the net earnings line item of the statement of cash flows. Additionally, our LIHTC recognized a total tax benefit of $3

million during 2024, 2023 and 2022. Our unfunded commitment for our LIHTC investments was less than $1 million at December 31, 2024 and will be paid out in installments through 2035.

Our HTC investment had a balance of $15 million at December 31, 2024, compared to $13 million at December 31, 2023. Through 2022, the investment was accounted for as an investment in unconsolidated investee. Due to the adoption of ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, the investment was reclassified as an other invested asset during 2023. A total tax benefit of $6 million was recognized from our HTC investment during 2024, compared to $6 million during 2023 and $5 million during 2022. Our HTC recognized $4 million of amortization as a component of income tax expense during 2024 and 2023 and was included in the net earnings line item of the statement of cash flows.

Our investments in private funds totaled $24 million at December 31, 2024 and $28 million at December 31, 2023. We had $4 million of associated unfunded commitments at December 31, 2024. Our interest in private funds is generally restricted from being transferred or otherwise redeemed without prior consent by the respective entities and the timed dissolution of the partnerships would trigger redemption.

Restricted Assets

As of December 31, 2024, $53 million of investments were pledged as collateral with the FHLBC to ensure timely access to the secured lending facility that ownership of the FHLBC stock provides. On November 12, 2024, RLI Insurance Company borrowed $50 million from the FHLBC, which was outstanding as of December 31, 2024.

As of December 31, 2024, fixed income securities with a carrying value of $93 million were on deposit with regulatory authorities as required by law.