Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Part IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
PART I
Item 1. BUSINESS
The Travelers Companies, Inc. (together with its consolidated subsidiaries, the Company) is a holding company principally engaged, through its subsidiaries, in providing a wide range of commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals. The Company is incorporated as a general business corporation under the laws of the State of Minnesota and is one of the oldest insurance organizations in the United States, dating back to 1853. The principal executive offices of the Company are located at 485 Lexington Avenue, New York, New York 10017, and its telephone number is (917) 778-6000. The Company also maintains executive offices in Hartford, Connecticut and St. Paul, Minnesota. The term “TRV” in this document refers to The Travelers Companies, Inc., the parent holding company excluding subsidiaries.
PROPERTY AND CASUALTY INSURANCE OPERATIONS
The property and casualty insurance industry is highly competitive in the areas of price, service, product offerings, agent and broker relationships and other methods of distribution. Distribution methods include the use of local and national independent agents and brokers, agency aggregators and carrier-based agencies, as well as direct to consumer, affinity and other partner platforms. According to A.M. Best, there are approximately 1,100 property and casualty groups in the United States, comprising approximately 2,600 property and casualty companies. Of those groups, the top 150 accounted for approximately 94% of the consolidated industry’s total net written premiums in 2024. The Company competes with both foreign and domestic insurers. In addition, some property and casualty insurers writing commercial lines of business, including the Company, offer products for alternative forms of risk protection in addition to traditional insurance products. These products include large deductible programs and various forms of self-insurance, some of which utilize captive insurance companies and risk retention groups. The Company’s competitive position in the marketplace is based on many factors, including the following:
• ability to profitably price business, retain existing customers and obtain new business;
• premiums charged, contract terms and conditions, products and services offered (including the ability to design customized programs);
• agent, broker and policyholder relationships;
• ability to keep pace relative to competitors with changes in technology and information systems, including artificial intelligence;
• ability to use data and analytics to make decisions;
• speed of claims payment;
• ability to provide a positive customer experience;
• ability to provide products and services in a cost effective manner;
• ability to provide new products and services to meet changing customer needs;
• ability to adapt to changes in business models, technology, customer preferences or regulation impacting the markets in which the Company operates;
• perceived overall financial strength and corresponding ratings assigned by independent rating agencies;
• ability to recruit and retain qualified employees;
• geographic scope of business; and
• local presence.
In addition, the marketplace is affected by the available capacity of the insurance industry, as measured by statutory capital and surplus, and the availability of reinsurance from both traditional sources, such as reinsurance companies and capital markets (through catastrophe bonds), and non-traditional sources, such as hedge funds and pension plans. Industry capacity as measured by statutory capital and surplus expands and contracts primarily in conjunction with profit levels generated by the industry, less amounts returned to shareholders through dividends and share repurchases. Capital raised by debt and equity offerings may also increase statutory capital and surplus.
On May 27, 2025, the Company entered into an agreement to sell its Canadian personal insurance business and the majority of its Canadian commercial insurance business to Definity Financial Corporation for approximately US$2.4 billion. The assets and liabilities of the Canadian personal insurance business and the majority of its Canadian commercial insurance business have been classified as held for sale in the consolidated balance sheet as of December 31, 2025. The Company retained its surety business in Canada. The sale closed on January 2, 2026. See note 1 of the notes to the consolidated financial statements.
Pricing and Underwriting
Pricing of the Company’s property and casualty insurance products is generally developed based upon an estimation of expected losses, the expenses associated with producing, issuing and servicing business and managing claims, the time value of money related to the expected loss and expense cash flows, and a reasonable profit margin that considers the capital needed to support the Company’s business. The Company has a disciplined approach to underwriting and risk management that emphasizes product returns and profitable growth over time rather than premium volume or market share. The Company’s insurance subsidiaries are subject to state laws and regulations regarding rate and policy form approvals. The applicable state laws and regulations establish standards in certain lines of business to ensure that rates are not excessive, inadequate, unfairly discriminatory, or used to engage in unfair price competition. The Company’s ability to increase rates and the relative timing of the process are dependent upon each respective state’s requirements, as well as the competitive market environment.
Geographic Distribution
The following table shows the geographic distribution of the Company’s consolidated direct written premiums for the year ended December 31, 2025.
Location
% of Total
Domestic:
California
Texas (1)
New York
Pennsylvania
Florida
Illinois
New Jersey
Georgia
Massachusetts
All other domestic (2)
Total Domestic
International:
Canada
All other international
Total International
Consolidated total
(1) The percentage for Texas includes business written by the Company through a fronting agreement with another insurer.
(2) No other single state accounted for 3.0% or more of the Company’s consolidated direct written premiums written in 2025.
Catastrophe Exposure
The Company’s property and casualty insurance operations expose it to claims arising out of catastrophes. The Company uses various analyses and methods, including proprietary and third-party modeling processes, to monitor and analyze underwriting risks of business in natural catastrophe-prone areas and target risk areas for conventional terrorist attacks (defined as attacks other than nuclear, biological, chemical or radiological events). The Company relies, in part, upon these analyses to make underwriting decisions designed to manage its exposure on catastrophe-exposed business. For example, as a result of these analyses, the Company has at various times limited the writing of new property and homeowners business in some markets and has selectively taken underwriting actions on new and existing business. These underwriting actions on new and existing business include tightening underwriting standards, selective price increases and changes to policy terms specific to hurricane-, tornado-, wind-, wildfire- and hail-prone areas. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations— Modeling” and “—Changing Climate Conditions.” The Company also utilizes reinsurance to manage its aggregate exposures to . See “—Reinsurance.”
BUSINESS INSURANCE
Business Insurance offers a broad array of property and casualty insurance products and services to its customers, primarily in the United States, as well as in the United Kingdom, the Republic of Ireland and throughout other parts of the world, including as a corporate member of Lloyd’s. Business Insurance is organized as follows:
Domestic
• Select Accounts provides small businesses with property and casualty insurance products and services, including commercial multi-peril, workers’ compensation, commercial automobile, general liability and commercial property.
• Middle Market provides mid-sized businesses with property and casualty insurance products and services, including commercial multi-peril, general liability, commercial automobile, workers’ compensation and commercial property, as well as risk management, claims handling and other services. Middle Market generally provides these products to mid-sized businesses through Commercial Accounts, as well as to targeted industries through Construction , Technology & Life Sciences , Public Sector Services and Energy, and additionally, provides mono-line umbrella and excess coverage insurance through Excess Casualty. Middle Market also provides insurance for goods in transit and movable objects, as well as builders’ risk insurance, through Inland Marine ; insurance for the marine transportation industry and related services, as well as other businesses involved in international trade, through Ocean Marine; and comprehensive breakdown for equipment, including property and business interruption, through Boiler & Machinery .
• National Accounts provides large companies with casualty insurance products and services, including workers’ compensation, commercial automobile and general liability, generally utilizing loss-sensitive products, on both a bundled and unbundled basis, as well as risk management, claims administration and other insurance-related services. National Accounts also includes the Company’s commercial residual market business, which primarily offers workers’ compensation claims, policy management and other administrative services related to the involuntary market. National Accounts also offers insurance-related services, such as claims administration, risk management, loss control and risk management information services through Constitution State Services LLC, a wholly-owned subsidiary of the Company.
• National Property and Other provides traditional and customized commercial property insurance programs to large and mid-sized customers through National Property , as well as insurance coverages and programs provided by Northland Transportation, Agribusiness, Northfield and National Programs . Northland Transportation provides insurance coverage for the commercial trucking industry. Agribusiness serves small- to medium-sized agricultural businesses, including farms, ranches and other agricultural-related operations . Northfield includes commercial property and general liability policies for small, difficult to place commercial business primarily on an excess and surplus lines basis. National Programs offers tailored property and casualty insurance programs on an admitted basis for customers with common risk characteristics or coverage requirements.
International
• International , through its operations in the United Kingdom and the Republic of Ireland, provides property and casualty insurance and risk management services to several customer groups, including, among others, those in the technology, manufacturing, public services and commercial real estate industry sectors. International also provides insurance for both the foreign exposures of United States organizations and the United States exposures of foreign organizations through Global Services . At its Lloyd’s syndicate (Syndicate 5000), for which the Company provides 100% of the capital, International underwrites five principal businesses — marine, energy, property, aviation and special risks.
Business Insurance also includes Simply Business, a leading provider of small business insurance policies primarily in the United Kingdom, and Business Insurance Other, which primarily comprises the Company’s asbestos liabilities and other runoff operations, including certain assumed reinsurance arrangements.
Selected Market and Product Information
The following table sets forth Business Insurance’s net written premiums by market and product line for the periods indicated. For a description of the markets and product lines referred to in the table, see “—Principal Markets and Methods of Distribution” and “—Product Lines,” respectively.
(for the year ended December 31, in millions)
% of Total 2025
By market:
Domestic:
Select Accounts
Middle Market
National Accounts
National Property and Other
Total Domestic
International
Total Business Insurance by market
By product line:
Domestic:
Workers’ compensation
Commercial automobile
Commercial property
General liability
Commercial multi-peril
Other
Total Domestic
International
Total Business Insurance by product line
Principal Markets and Methods of Distribution
Business Insurance markets and distributes products through thousands of independent agencies and brokers. Agencies and brokers are serviced by 80 field offices and supported by customer service centers where the Company performs services for agents for a fee and centralized business centers where the Company processes new and renewal business that meet certain underwriting criteria.
Business Insurance builds relationships with well-established, independent insurance agencies and brokers. In selecting new independent agencies and brokers to distribute its products, Business Insurance considers, among other factors, each agency’s or broker’s financial strength, staff experience and strategic fit with the Company’s operating and marketing plans. Once an agency or broker is appointed, Business Insurance regularly monitors its performance. The majority of products offered in the United States are distributed through independent agents and brokers, many of whom also sell the Company’s Personal Insurance and Bond & Specialty Insurance products. Business Insurance continues to make significant investments to enable real-time interface capabilities with its independent agencies and brokers.
Domestic
• Select Accounts markets and distributes products and services to small businesses, generally with fewer than 50 employees, through a large network of independent agents and brokers. Products offered by Select Accounts are guaranteed-cost policies, including packaged products covering property and liability exposures. Each small business risk is independently evaluated via an automated underwriting platform which in turn enables agents to quote, bind and issue a substantial amount of new small business risks in an efficient manner. Risks with more complex characteristics are underwritten with the assistance of Company personnel.
• Middle Market markets and distributes products and services primarily to mid-sized businesses with 50 to 1,000 employees through a large network of independent agents and brokers. The Company offers a full line of products to its Middle Market customers with an emphasis on guaranteed-cost programs. Each account is underwritten based on the
unique risk characteristics, loss history and coverage needs of the account. The ability to underwrite at this detailed level allows Middle Market to have a broad risk appetite and a diversified customer base. Within Middle Market, products and services are tailored to certain targeted industry segments of significant size and complexity that require unique underwriting, claims handling services, risk management or other insurance-related products and services.
• National Accounts markets and distributes products and services to large companies through a large network of national and regional brokers. Products offered by National Accounts are primarily casualty programs that utilize loss-sensitive products, such as large deductible, and to a lesser extent, retrospectively rated insurance and self-insured retention plans. National Accounts also offers insurance-related services, such as claims administration, risk management, loss control and risk management information services through Constitution State Services LLC, a wholly-owned subsidiary of the Company. The commercial residual market business of National Accounts services approximately 38% of the total workers’ compensation assigned risk market, making the Company one of the largest servicing carriers in the industry.
• National Property and Other markets and distributes products and services to a wide customer base, providing traditional and customized insurance programs to a broad range of customer sizes through a large network of agents and brokers. National Property and Other also provides insurance coverage to the excess and surplus lines market, which is characterized by the absence of regulation related to rate and form, and allows for more pricing and coverage flexibility to write certain classes of business. In working with agents or program managers on a brokerage basis, National Property and Other underwrites the business internally and sets the premium level. In working with agents or program managers with delegated underwriting authority, the agents produce and underwrite business subject to pricing and underwriting guidelines that have been specifically designed for each facility or program.
International markets and distributes products and services principally through brokers in each of the countries in which it operates. International also writes business at Lloyd’s, where its products are distributed through Lloyd’s wholesale and retail brokers. By virtue of Lloyd’s worldwide licenses, Business Insurance has access to international markets across the world.
Effective January 1, 2026, the Company renewed a quota share reinsurance agreement with subsidiaries of Fidelis Insurance Holdings Limited (Fidelis) for 2026 pursuant to which the Company assumes 20% of the subject gross written premiums of Fidelis on a risk-attaching basis, subject to a loss ratio cap. The Company’s portion of premiums from Fidelis is reported as part of the International results of Business Insurance. The Company also has a minority investment in Fidelis.
Pricing and Underwriting
Business Insurance utilizes underwriting, claims, engineering, actuarial and product development disciplines for particular industries, together with extensive amounts of proprietary data gathered and analyzed over many years, as well as third-party data, to facilitate its risk selection process and develop pricing parameters. Business Insurance utilizes both proprietary forms and standard industry forms for the insurance policies it issues.
A portion of business in this segment, particularly in National Accounts and Construction, is written with large deductible insurance policies. Under workers’ compensation insurance contracts with large deductible features, the Company is obligated to pay the claimant the full amount of the claim. The Company is subsequently reimbursed by the contractholder for the deductible amount and, as a result, is subject to credit risk until such reimbursement is made. As of December 31, 2025, contractholder payables on unpaid losses within the deductible layer of large deductible policies were approximately $3.03 billion, and the associated receivables (net of allowance for expected credit losses) were approximately $3.01 billion. Business Insurance also utilizes retrospectively rated policies for a portion of its business, primarily for workers’ compensation coverage. Although the retrospectively rated feature of the policy substantially reduces insurance risk for the Company, it introduces additional credit risk to the Company. Premiums receivable from holders of retrospectively rated policies totaled approximately $53 million as of December 31, 2025. Significant collateral, primarily letters of credit and, to a lesser extent, cash collateral, trusts or surety bonds, is generally obtained for large deductible plans and/or retrospectively rated policies that provide for deferred collection of deductible recoveries and/or ultimate premiums. The amount of collateral requested is based upon the creditworthiness of the customer and the nature of the insured risks. Business Insurance regularly monitors the credit exposure on individual accounts and the adequacy of collateral. For additional information concerning credit risk in certain of the Company’s businesses, see “Item 1A—Risk Factors—We are to credit risk in certain of our insurance operations and with respect to certain guarantee or indemnification arrangements that we have with third parties.”
Product Lines
Business Insurance provides the following types of coverages:
Domestic
• Workers’ Compensation. Provides coverage for employers for specified benefits payable under state or federal law for workplace injuries to employees. There are typically four types of benefits payable under workers’ compensation policies: medical benefits, disability benefits, death benefits and vocational rehabilitation benefits. The Company emphasizes managed care cost containment strategies, which involve employers, employees and care providers in a collaborative effort that focuses on the injured employee’s early return to work and cost-effective quality care.
• Commercial Automobile. Provides coverage for businesses against losses incurred from personal bodily injury, bodily injury to third parties, property damage to an insured’s vehicle and property damage to other vehicles and other property resulting from the ownership, maintenance or use of automobiles and trucks in a business.
• Commercial Property. Provides coverage for loss of or damage to buildings, inventory and equipment resulting from a variety of events, including, among others, hurricanes and other windstorms, tornadoes, earthquakes, hail, wildfires, severe winter weather, floods, volcanic eruptions, tsunamis, theft, vandalism, fires, explosions, terrorism and financial loss due to business interruption resulting from covered property damage. Commercial property also includes specialized equipment insurance, which provides coverage for loss or damage resulting from the mechanical breakdown of boilers and machinery, and ocean and inland marine insurance, which provides coverage for goods in transit and unique, one-of-a-kind exposures.
• General Liability. Provides coverages for businesses against third-party claims arising from accidents occurring on their premises or arising out of their operations, including as a result of injuries sustained from products sold. Coverages may also include directors’ and officers’ liability arising in their official capacities, employment practices liability insurance, fiduciary liability for trustees and sponsors of pension, health and welfare, and other employee benefit plans, errors and omissions insurance for employees, agents, professionals and others arising from acts or failures to act under specified circumstances, cyber liability, as well as umbrella and excess insurance.
• Commercial Multi-Peril. Provides a combination of the property and liability coverages described in the foregoing product line descriptions.
The Company offers the above coverages through the following types of products and services:
• guaranteed-cost insurance products, where the premiums charged are not adjusted for actual loss experience during the covered period;
• loss-sensitive insurance products, including large deductible and retrospectively rated policies, where fees or premiums are adjusted based on actual loss experience of the insured during the policy period; and
• service programs, which are generally sold to the Company’s National Accounts customers, where the Company receives fees rather than premiums for providing insurance-related services, such as claims administration, risk management, loss control and risk management information services.
The Company also participates in state-assigned risk pools as a servicing carrier and pool participant.
International
• Provides coverage for employers’ liability (similar to workers’ compensation coverage in the United States), public and product liability (the equivalent of general liability), professional indemnity (similar to professional liability coverage), commercial property, commercial automobile, marine, aviation, onshore and offshore energy, construction, terrorism, personal accident and kidnap & ransom. Marine provides coverage for ship hulls, cargoes carried, private yachts, marine-related liability, ports and terminals, and fine art. Aviation provides coverage for worldwide aviation risks, including physical damage and liabilities for airline, aerospace, general aviation, aviation war and space risks. Personal accident provides financial protection in the event of death or disablement due to accidental bodily injury, while kidnap & ransom provides financial protection against kidnap, hijack, illegal detention and extortion. While the covered hazards may be similar to those in the U.S. market, the different legal environments can make the product risks and coverage terms very different from those the Company faces in the United States.
Net Retention Policy Per Risk
The following discussion reflects the Company’s retention policy with respect to Business Insurance as of January 1, 2026. For third-party liability, Business Insurance generally limits its net retention to a maximum of $6.7 million per insured, per occurrence, through the use of reinsurance, including a significant aggregate annual deductible. For property exposures, Business Insurance generally limits its net retention, through the use of reinsurance, to a maximum amount per risk of $20.0 million per occurrence. Business Insurance generally retains its workers’ compensation exposures. Reinsurance treaties often have aggregate limits or caps which may result in larger net per-risk retentions if the aggregate limits or caps are reached. Business Insurance utilizes facultative reinsurance to provide additional limits capacity or to reduce retentions on an individual risk basis. Business Insurance may also retain amounts greater than those described herein based upon the individual characteristics of the risk.
Geographic Distribution
The following table shows the geographic distribution of Business Insurance’s direct written premiums for the year ended December 31, 2025.
Location
% of Total
Domestic:
California
New York
Texas
Illinois
Florida
New Jersey
Pennsylvania
Georgia
Massachusetts
All other domestic (1)
Total Domestic
International:
Canada
All other international
Total International
Total Business Insurance
(1) No other single state accounted for 3.0% or more of Business Insurance’s direct written premiums in 2025.
Competition
The insurance industry is represented in the commercial marketplace by many insurance companies of varying size as well as other entities offering risk alternatives, such as self-insured retentions or captive programs. Market competition operates within the insurance regulatory framework to set the price charged for insurance products and the levels of coverage and service provided. A company’s success in the competitive commercial insurance landscape is largely measured by its ability to profitably provide insurance and services, including claims handling and risk management, at prices and terms that retain existing customers and attract new customers, as well as its financial strength. See “Item 1A—Risk Factors—The intense competition that we face, including with respect to attracting and retaining employees, and the impact of innovation, technological change, including with respect to artificial intelligence, and changing customer preferences on the insurance industry and the markets in which we operate, could harm our ability to maintain or increase our business volumes and our profitability.”
Domestic
Competitors typically write Select Accounts business through independent agents and brokers and, to a lesser extent, as direct writers, including through affinity and other partner platforms. Both national (including international companies doing business
in the U.S.) and regional property and casualty insurance companies compete in the Select Accounts market which generally comprises lower-hazard, “Main Street” business customers. Risks are underwritten and priced using standard industry practices and a combination of proprietary and standard industry product offerings. Competition in this market is focused on ease and speed of doing business and price.
Competitors typically write Middle Market business through independent agents and brokers. Several of Middle Market’s operations require unique combinations of industry knowledge, customized coverage, specialized risk control and loss handling services, along with partnerships with agents and brokers that also focus on these markets. Competitors in this market are primarily national property and casualty insurance companies (including international companies doing business in the U.S.) that write most classes of business using traditional products and pricing, and regional insurance companies. Companies compete based on product offerings, service levels, price, claim and loss prevention services and ease and speed of doing business. Efficiency through automation and response time to agent, broker and customer needs is one key to success in this market.
In the National Accounts market, competition is based on price, product offerings, claim and loss prevention services, managed care cost containment, risk management information systems and collateral requirements. National Accounts primarily competes with national property and casualty insurance companies (including international companies doing business in the U.S.), as well as with other underwriters of property and casualty insurance in the alternative risk transfer market, such as self-insurance plans, captives managed by others, third-party administrators and a variety of other risk-financing vehicles and mechanisms. The residual market division competes for state contracts to provide claims and policy management services.
National Property and Other competes in focused target markets. Each of these markets is different and requires unique combinations of industry knowledge, customized coverage, specialized risk management and claims handling services, along with partnerships with agents and brokers that also focus on these markets. Some of these businesses compete with national carriers (including international companies doing business in the U.S.) with similarly dedicated underwriting and marketing groups, whereas others compete with smaller regional companies. Specialized agents and brokers, including wholesale agents and program managers, supplement this focused target market approach. National Property and Other’s competitive strategy typically is based on the application of focused industry knowledge to insurance and risk needs.
International
International competes with numerous international and domestic insurers in the United Kingdom and the Republic of Ireland. Companies compete on the basis of price, product offerings, distribution partnerships, the level of claim and risk management services provided and the ease and speed of doing business. The Company has developed expertise in various markets in these countries similar to those served in the United States and provides both property and casualty coverage for these markets.
At Lloyd’s, International competes with other syndicates operating in the Lloyd’s market as well as international and domestic insurers in the various markets where the Lloyd’s operation writes business worldwide, with an emphasis on short-tail insurance lines. Competition is based on price, product, distribution partnerships and service.
BOND & SPECIALTY INSURANCE
Bond & Specialty Insurance offers surety, fidelity, management liability, professional liability, and other property and casualty coverages and related risk management services to its customers, primarily in the United States, and certain surety and specialty insurance products in Canada, the United Kingdom, the Republic of Ireland and Brazil (through a joint venture, as described below), in each case utilizing various degrees of financially-based underwriting approaches. The range of coverages includes performance, payment and commercial surety bonds for construction and general commercial enterprises; management liability coverages including directors’ and officers’ liability, employment practices liability, fidelity liability, fiduciary liability and cyber risk for public corporations, private companies, not-for-profit organizations and financial institutions; professional liability coverage for a variety of professionals including, among others, lawyers and design professionals; in the United States only, property, workers’ compensation, auto and general liability for financial institutions; and transactional liability coverages to public and private companies.
Bond & Specialty Insurance’s surety business in Brazil is conducted through Junto Holding Brasil S.A. (Junto). The Company owns 49.5% of Junto, a market leader in surety coverages in Brazil. This joint venture investment is accounted for using the equity method and is included in “other investments” on the consolidated balance sheet.
Selected Product Information
The following table sets forth Bond & Specialty Insurance’s net written premiums by product line for the periods indicated. For a description of the product lines referred to in the table, see “—Product Lines.” In addition, see “—Principal Markets and Methods of Distribution” for a discussion of distribution channels for Bond & Specialty Insurance’s product lines.
(for the year ended December 31, in millions)
% of Total 2025
Domestic:
Fidelity and surety
General liability
Other
Total Domestic
International
Total Bond & Specialty Insurance
Principal Markets and Methods of Distribution
Bond & Specialty Insurance markets and distributes the vast majority of its products in the United States through many of the same independent agencies and brokers that distribute Business Insurance’s products in the United States. Bond & Specialty Insurance builds relationships with well-established, independent insurance agencies and brokers. In selecting new independent agencies and brokers to distribute its products, Bond & Specialty Insurance considers, among other factors, each agency’s or broker’s profitability, financial stability, staff experience and strategic fit with its operating and marketing plans. Once an agency or broker is appointed, its ongoing performance is regularly monitored. Bond & Specialty Insurance continues to make investments to enable real-time interface capabilities with its independent agencies and brokers. Bond & Specialty Insurance also writes certain products through managing general agents and managing general underwriters.
Pricing and Underwriting
Bond & Specialty Insurance utilizes underwriting, claims, engineering, actuarial and product development disciplines for specific accounts and industries, together with extensive amounts of proprietary data gathered and analyzed over many years, as well as third-party data, to facilitate its risk selection process and develop pricing parameters. Bond & Specialty Insurance utilizes both proprietary forms and standard industry forms for the insurance policies and bonds it issues.
Product Lines
Bond & Specialty Insurance writes the following types of coverages:
Domestic
• Fidelity and Surety. Provides fidelity insurance coverage, which protects an insured for loss due to embezzlement or misappropriation of funds by an employee, and surety, which is a three-party agreement whereby the surety company agrees to pay a third party or to complete an obligation in response to the default, acts or omissions of a bonded party. Surety bonds are generally provided for construction performance; legal matters, such as appeals; compliance and licensing; and other performance obligations.
• General Liability. Provides coverage for specialized liability exposures as described above in more detail in the “Business Insurance” section of this report, as well as transactional liability coverages.
• Other. Coverages include Commercial Property, Workers’ Compensation, Commercial Automobile and Commercial Multi-Peril, which are described above in more detail in the “Business Insurance” section of this report.
International
• Fidelity and Surety and certain General Liability products are provided internationally to various customer groups.
Net Retention Policy Per Risk
The following discussion reflects the Company’s retention policy with respect to Bond & Specialty Insurance as of January 1, 2026. For management liability coverages, including but not limited to directors’ and officers’ liability, professional liability,
employment practices liability, fidelity liability, fiduciary liability and cyber risk liability, Bond & Specialty Insurance generally limits net retentions to $25.0 million per policy. For surety, where limits are often significant, Bond & Specialty Insurance generally retains up to $160.0 million probable maximum loss (PML) per principal, after reinsurance, but may retain higher amounts based on the type of obligation, credit quality and other credit risk factors. Reinsurance treaties often have aggregate limits or caps which may result in larger net per risk retentions if the aggregate limits or caps are reached. Bond & Specialty Insurance utilizes facultative reinsurance to provide additional limits capacity or to reduce retentions on an individual risk basis. Bond & Specialty Insurance may also retain amounts greater than those described herein based upon the individual characteristics of the risk.
Geographic Distribution
The following table shows the geographic distribution of Bond & Specialty Insurance’s direct written premiums for the year ended December 31, 2025.
Location
% of Total
Domestic:
California
Texas
New York
Florida
Illinois
Pennsylvania
All other domestic (1)
Total Domestic
International:
United Kingdom
Canada
All other international
Total International
Total Bond & Specialty Insurance
(1) No other single state accounted for 3.0% or more of Bond & Specialty Insurance’s direct written premiums in 2025.
Competition
The competitive landscape in which Bond & Specialty Insurance operates is affected by many of the same factors described above for Business Insurance. Competitors in this market are primarily national property and casualty insurance companies (including international companies doing business in the U.S.) that write most classes of business and, to a lesser extent, regional insurance companies and companies that have developed niche programs for specific industry segments.
Domestic
Bond & Specialty Insurance underwrites and markets its products to all sizes of businesses and other organizations, as well as individuals. The Company believes that its reputation for timely and consistent decision making and financial stability, a nationwide network of local underwriting, claims and industry experts and strong producer and customer relationships, as well as its ability to offer its customers a full range of products and services, provides Bond & Specialty Insurance an advantage over many of its competitors and enables it to compete effectively in a complex, dynamic marketplace. The Company believes that the ability of Bond & Specialty Insurance to cross-sell its products to customers of Business Insurance and Personal Insurance also provides the Company with a competitive advantage. See “Item 1A—Risk Factors—The intense competition that we face, including with respect to attracting and retaining employees, and the impact of innovation, technological change, including with respect to artificial intelligence, and changing customer preferences on the insurance industry and the markets in which we operate, could harm our ability to maintain or increase our business volumes and our .”
International
International competes with numerous international and domestic insurers in Canada, the United Kingdom, the Republic of Ireland, and in Brazil through a joint venture. Companies compete on the basis of price, product offerings, distribution partnerships, the level of claim and risk management services provided, the ease and speed of doing business and stability of the insurer. The Company has developed expertise in various markets in these countries similar to those served in the United States and provides certain specialty coverages for these markets.
PERSONAL INSURANCE
Personal Insurance offers a broad range of property and casualty insurance products and services covering individuals’ personal risks, primarily in the United States. Personal Insurance’s primary products of automobile and homeowners insurance are complemented by a broad suite of related products and coverages.
Selected Product and Distribution Channel Information
The following table sets forth net written premiums for Personal Insurance’s business by product line for the periods indicated. For a description of the product lines referred to in the following table, see “—Product Lines.” In addition, see “—Principal Markets and Methods of Distribution” for a discussion of distribution channels for Personal Insurance’s product lines.
(for the year ended December 31, in millions)
% of Total 2025
Domestic:
Automobile
Homeowners and Other
Total Domestic
International
Total Personal Insurance
Principal Markets and Methods of Distribution
Personal Insurance products are marketed and distributed primarily through thousands of independent agents and brokers located throughout the United States, supported by personnel in seven sales regions. In addition, sales and service support are supplemented through contact centers. Principal markets for Personal Insurance products are spread throughout the contiguous United States.
In selecting new independent agencies to distribute its products, Personal Insurance considers many factors, including financial stability, staff experience, lead sources, customer facing online and digital capabilities and operating and marketing plans. Once an agency is appointed, Personal Insurance regularly monitors its performance.
Agents can access the Company’s agency service portal for a number of resources, including customer service, marketing and claims management. In addition, agencies can choose to shift the ongoing service responsibility for Personal Insurance’s customers to the Company’s Customer Care Program, where the Company provides, on behalf of an agency, a comprehensive array of customer services, including billing inquiries, coverage discussions and account changes. Approximately two thousand agencies take advantage of this service alternative, for which they generally pay a fee.
Personal Insurance also markets and distributes its products directly to consumers, largely through direct mail and digital marketing, and through affinity partners, including employers, credit unions and consumer associations. Personal Insurance handles the sales from these sources through the Company’s contact center locations and, increasingly, through the Company’s wholly owned independent agency. Personal Insurance also markets and distributes its products on other distribution platforms, including carrier partnerships. Since 1995, the Company has had a distribution agreement with the agency affiliate of GEICO to underwrite a portion of their homeowners business.
Pricing and Underwriting
Personal Insurance has developed a product management methodology that integrates the disciplines of underwriting, claims, actuarial, risk management and product development. This approach is designed to maintain high-quality underwriting discipline and pricing segmentation. Proprietary and third-party data accumulated over many years is analyzed, and Personal Insurance uses a variety of risk differentiation models to facilitate its pricing segmentation and underwriting. The Company’s product management area establishes underwriting guidelines integrated with its filed pricing and rating plans, which enable Personal Insurance to effectively execute its risk selection and pricing processes.
Pricing for personal automobile insurance is driven in large part by changes in the frequency of claims and changes in severity, including inflation in the cost of automobile replacements and repairs (including parts and labor), medical care and resolution of liability claims. Pricing in the homeowners business is driven in large part by changes in the frequency of claims and changes in severity, including inflation in the cost of materials, labor and household possessions. In addition to the normal risks associated with any multiple-peril coverage, the profitability and pricing of both homeowners and automobile insurance are affected by the incidence of catastrophes and other weather-related events, as well as other unusual circumstances, such as the impact of supply chain disruptions, labor shortages and elevated inflation. Insurers writing personal lines property and casualty policies may be unable to change prices until some time after the costs associated with coverage have changed, primarily because of state insurance rate regulation. The pace at which an insurer can change rates in response to changing costs depends, in part, on whether the applicable state law requires prior approval of rate changes or notification to the regulator either before or after a rate change is imposed. In states with prior approval laws, rates must be approved by the regulator before being used by the insurer. In states having “file-and-use” laws, the insurer must file rate changes with the regulator, but does not need to wait for approval before using the new rates. A “use-and-file” law requires an insurer to file rates within a period of time after the insurer begins using the new rate. Approximately one-half of the states require prior approval of most rate changes. In addition, changes to methods of marketing and underwriting in some jurisdictions are subject to state-imposed restrictions, which can make it more for an insurer to significantly manage exposures.
The Company’s ability or willingness to change prices, modify underwriting terms or shift exposure to, or from, certain geographies may be limited due to a number of factors, including public policy, the competitive environment, the evolving political and legislative environment and/or changes in the general economic climate. The Company also may choose to write business it might not otherwise write in some states for strategic purposes, such as improving access to other commercial or personal underwriting opportunities. In choosing to write business in some states, the Company also considers the costs and benefits of those states’ residual markets and guaranty funds, as well as other property and casualty business the Company writes in those states.
Product Lines
The primary coverages in Personal Insurance are personal automobile and homeowners and other insurance sold to individuals. Personal Insurance had approximately 8.4 million active policies (i.e., policies-in-force) in the United States as of December 31, 2025.
Personal Insurance writes the following types of coverages:
• Automobile provides coverage for liability to others for both bodily injury and property damage, uninsured motorist protection, and for physical damage to an insured’s own vehicle from collision, fire, flood, hail and theft. In addition, many states require policies to provide first-party personal injury protection, frequently referred to as no-fault coverage.
• Homeowners and Other provides protection against losses to dwellings and contents from a variety of perils (excluding flooding) as well as coverage for personal liability. The Company writes homeowners insurance for dwellings, condominiums and tenants, and rental properties. The Company also writes coverage for boats and yachts, valuable personal items such as jewelry, umbrella liability, and weddings and special events.
Net Retention Policy Per Risk
The following discussion reflects the Company’s retention policy with respect to Personal Insurance as of January 1, 2026. Personal Insurance generally retains its primary personal auto exposures in their entirety. For personal property insurance, there is an $8.0 million maximum retention per risk, net of reinsurance. Personal Insurance uses facultative reinsurance to provide additional limits capacity or to reduce retentions on an individual risk basis. Personal Insurance issues umbrella policies up to a maximum limit of $10.0 million per risk. Personal Insurance may also retain amounts greater than those described herein based upon the individual characteristics of the risk.
Geographic Distribution
The following table shows the geographic distribution of Personal Insurance’s direct written premiums for the year ended December 31, 2025.
Location
% of Total
Domestic:
Texas (1)
New York
California
Pennsylvania
Georgia
New Jersey
Massachusetts
Florida
Maryland
Virginia
Colorado
Connecticut
Illinois
All other domestic (2)
Total Domestic
International:
Canada
Total International
Total Personal Insurance
(1) The percentage for Texas includes business written by the Company through a fronting agreement with another insurer.
(2) No other single state accounted for 3.0% or more of Personal Insurance’s direct written premiums in 2025.
Competition
Although national companies (including international companies doing business in the U.S.) write the majority of this business, Personal Insurance also faces competition from many regional and local companies. Competitors write business in both traditional and alternative distribution platforms through independent agents and as direct writers, either through the use of exclusive agents, salaried employees or direct marketing strategies. Personal Insurance primarily competes based on breadth of product offerings, price, service (including claims handling), partner and customer experience, stability of the insurer and name recognition. In the independent agent channel, Personal Insurance competes for business within each independent agency since these agencies also offer policies from competing companies. Most independent personal insurance agents utilize price comparison rating technology, sometimes referred to as “comparative raters,” as a cost-efficient means of obtaining quotes from multiple companies. Because the use of this technology facilitates the process of generating multiple quotes, the technology has increased price comparison on new and renewal business.
See “Item 1A—Risk Factors—The intense competition that we face, including with respect to attracting and retaining employees, and the impact of innovation, technological change, including with respect to artificial intelligence, and changing customer preferences on the insurance industry and the markets in which we operate, could harm our ability to maintain or increase our business volumes and our profitability.”
CLAIMS MANAGEMENT
The Company’s claim functions are managed through its Claims Services organization, with locations in the United States and in the other countries where it does business. With approximately 12,300 employees, Claims Services employs a group of professionals with diverse skills, including claim adjusters, appraisers, attorneys, investigators, engineers, accountants, nurses, data and analytics professionals, system specialists and training, management and support personnel. Approved external service
providers, such as investigators, attorneys and, when necessary, independent adjusters and appraisers, are available for use as appropriate.
United States field claim management teams located in 15 claim centers and 57 satellite and specialty-only offices in 42 states are organized to maintain focus on the specific claim characteristics unique to the businesses within the Company’s business segments. Claim teams with specialized skills, required licenses, resources and workflows are matched to the unique exposures of those businesses, with local claims management dedicated to achieving optimal results within each segment, including acting as a third-party administrator for large customers who self-insure and retain the Company to handle their claims process on a fee-for-service basis. The Company’s home office operations provide additional support in the form of workflow design, quality management, information technology, advanced management information and data analysis, training, financial reporting and controls, and human resources strategy. This structure permits the Company to maintain the economies of scale of a large, established company while retaining the agility to respond promptly to the needs of customers, brokers, agents and underwriters. Claims management for International, while generally provided locally by staff in the respective international locations due to local knowledge of applicable laws and regulations, is also managed by the Company’s Claims Services organization in the United States to leverage that knowledge base and to share practices.
An integral part of the Company’s strategy to benefit customers and shareholders is its continuing industry leadership in the fight against insurance fraud through its Investigative Services unit. The Company has a nationwide staff of experts who investigate a wide array of insurance fraud schemes using in-house forensic resources and other technological tools. This staff also has specialized expertise in fire scene examinations, medical provider fraud schemes, law firm fraud schemes and data mining. The Company also dedicates investigative resources to ensure that violations of law are reported to and prosecuted by law enforcement agencies.
Claims Services uses technology, management information and data analysis to assist the Company in reviewing its claim practices and results in order to evaluate and improve its claims management performance. The Company’s claims-management strategy is focused on segmentation of claims and appropriate technical specialization to drive effective claim resolution. The Company regularly monitors its investment in claim resources to maintain an effective focus on claim outcomes and a disciplined approach to continual improvement. The Company operates a state-of-the-art claims-training facility which offers hands-on experiential learning to help ensure that its claim professionals are properly trained. In recent years, the Company has invested significant additional resources in many of its claims handling operations, including digital, analytics, artificial intelligence and automation capabilities. The Company regularly monitors the effect of these investments to ensure a consistent optimization among outcomes, cost and service.
Claims Services’ catastrophe response strategy is to respond to a significant catastrophic event using its own personnel, enabling it to minimize reliance on independent adjusters and appraisers. The Company has developed a large, dedicated Catastrophe Response Team and has also trained a large Enterprise Response Team of existing employees. The latter team can be deployed on short notice in the event of a catastrophe that generates claim volume exceeding the capacity of the dedicated Catastrophe Response Team. In recent years, these internal resources and expanded digital capabilities were successfully deployed to respond to a significant level of catastrophe claims.
REINSURANCE
The Company reinsures a portion of the risks it underwrites in order to manage its exposure to losses and to protect its capital. The Company cedes to reinsurers a portion of these risks and pays premiums based upon the risk and exposure of the policies subject to such reinsurance. The Company utilizes a variety of reinsurance agreements to manage its exposure to large property and casualty losses, including facultative as well as catastrophe and individual risk treaties. Ceded reinsurance involves credit risk, except with regard to mandatory pools and associations, and is predominantly subject to aggregate loss limits. Although the reinsurer is liable to the Company to the extent of the reinsurance ceded, the Company remains liable as the direct insurer on all risks reinsured. Reinsurance recoverables are reported after reductions for known insolvencies and after allowances for uncollectible amounts. The Company also holds collateral, including trust agreements, escrow funds and letters of credit, under certain reinsurance agreements. The Company monitors the financial condition of reinsurers on a regular basis and reviews its reinsurance arrangements periodically. Reinsurers are selected based on their financial condition, business practices, the price of their product offerings and the value of collateral provided. After reinsurance is purchased, the Company has limited ability to manage the credit risk of a reinsurer. In addition, in a number of jurisdictions, particularly the European Union and the United Kingdom and a small number of U.S. states, a reinsurer is permitted to transfer a reinsurance arrangement to another reinsurer, which may be less creditworthy, without a counterparty’s consent, provided that the transfer has been approved by the applicable regulatory and/or court authority.
For additional information regarding reinsurance, see note 6 of the notes to the consolidated financial statements and “Item 1A—Risk Factors—We may not be able to collect all amounts due to us from reinsurers, reinsurance coverage may not be available to us in the future at commercially reasonable rates or at all and we are exposed to credit risk related to our structured settlements.” For a description of reinsurance-related litigation, see note 17 of the notes to the consolidated financial statements.
Catastrophe Reinsurance
Catastrophes include hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions, solar flares and other naturally-occurring events. Catastrophes can also be man-made, such as terrorist attacks and other destructive acts including those involving cyber events, nuclear, biological, chemical and radiological events, civil unrest, explosions and destruction of infrastructure. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure affected by the event and the severity of the event. Most catastrophes are restricted to small geographic areas; however, hurricanes, earthquakes, wildfires, cyber attacks and other events may produce significant or in larger areas, especially those areas that are heavily populated. For additional information regarding , see “Item 1A—Risk Factors—High levels of , including as a result of factors such as increased concentrations of insured exposures in - areas and changing climate conditions, could materially and affect our results of operations, our financial position and/or liquidity, and could impact our ratings, our ability to raise capital and the availability and cost of reinsurance.” The Company generally seeks to manage its exposure to through individual risk selection and the purchase of reinsurance. In addition to the Company’s reinsurance coverages, the Company is also party to other reinsurance treaties that can provide additional coverage for arising from , as described in the “Net Retention Policy Per Risk” sections of the respective segment discussions above. The Company conducts reviews of its risk and coverages on a regular basis and makes changes as it deems appropriate. The following discussion summarizes the Company’s reinsurance coverage as of J anuary 1, 2026.
Corporate Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty covers the accumulation of certain property losses arising from one or multiple occurrences for the period January 1, 2026, through and including December 31, 2026. The treaty provides for recovery of 100% of each qualifying loss in excess of a $3.0 billion retention up to $4.0 billion, 80% of losses in excess of $4.0 billion up to $5.0 billion, 95% of losses in excess of $5.0 billion up to $7.5 billion and 100% of losses in excess of $7.5 billion up to $8.0 billion. Therefore, the maximum recovery under the treaty would be $4.7 billion, or 94%, of the total $5.0 billion limit. Qualifying losses for each occurrence are after a $100 million deductible. The treaty covers all of the Company’s exposures in North America and all waters contiguous thereto. The treaty only provides coverage for terrorism events in limited circumstances and excludes entirely losses arising from nuclear, biological, chemical or radiological attacks. The treaty only provides coverage for cyber events and civil unrest in limited circumstances and excludes arising from communicable disease. The Company’s underlying insurance coverages generally exclude coverage for communicable disease.
Catastrophe Bonds . The Company has catastrophe protection through an indemnity reinsurance agreement with Long Point Re IV Ltd. (Long Point Re IV), an independent Bermuda company registered as a special purpose insurer under the Bermuda Insurance Act of 1978 and related regulations. The reinsurance agreement meets the requirements to be accounted for as reinsurance in accordance with the guidance for reinsurance contracts. In connection with the reinsurance agreement, Long Point Re IV issued notes (generally referred to as “catastrophe bonds”) to investors in amounts equal to the full coverage provided under the reinsurance agreement as described below. The proceeds of the issuance were deposited in a reinsurance trust account. The businesses covered by this reinsurance agreement are subsets of the Company’s overall insurance portfolio, comprising specified property coverages spread across the following geographic locations: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont and Virginia.
The reinsurance agreement provides coverage of up to $575 million to the Company through May 24, 2026 for certain losses from tropical cyclones, earthquakes, severe thunderstorms or winter storms in the locations listed above. The attachment point and maximum limit under this agreement are reset annually to adjust the expected loss of the layer within a predetermined range. For events up to and including May 24, 2026, this treaty provides up to $575 million of coverage, subject to a $2.89 billion retention. The coverage under the reinsurance agreement is limited to specified property coverage written in Personal Insurance; Select Accounts, Middle Market (excluding Excess Casualty and Boiler & Machinery) and National Property and Other in Business Insurance; and Other in Bond & Specialty Insurance.
Under the terms of the reinsurance agreement, the Company is obligated to pay annual reinsurance premiums to Long Point Re IV for the reinsurance coverage. Amounts payable to the Company under the reinsurance agreement with respect to any covered event cannot exceed the Company’s actual losses from such event. The principal amount of the catastrophe bonds will be reduced by any amounts paid to the Company under the reinsurance agreement.
As with any reinsurance agreement, there is credit risk associated with collecting amounts due from reinsurers. With regard to Long Point Re IV, the credit risk is mitigated by a reinsurance trust account that has been funded by Long Point Re IV with money market funds that invest solely in direct government obligations and obligations backed by the U.S. government with maturities of no more than 13 months. The money market funds must have a principal stability rating of at least AAAm by Standard & Poor’s or AAAmmf by Fitch Ratings on the issuance date of the bonds and thereafter must be rated by Standard & Poor’s or Fitch Ratings, as applicable. Other permissible investments include money market funds which invest in repurchase and reverse repurchase agreements collateralized by direct government obligations and obligations of any agency backed by the U.S. government with terms of no more than 397 calendar days, and cash.
At the time the agreement was entered into with Long Point Re IV, the Company evaluated the applicability of the accounting guidance that addresses variable interest entities or VIEs. Under this guidance, an entity that is formed for business purposes is considered a VIE if: (a) the equity investors lack the direct or indirect ability through voting rights or similar rights to make decisions about an entity’s activities that have a significant effect on the entity’s operations or (b) the equity investors do not provide sufficient financial resources for the entity to support its activities. Additionally, a company that absorbs a majority of the expected losses from a VIE’s activities or is entitled to receive a majority of the entity’s expected residual returns, or both, is considered to be the primary beneficiary of the VIE and is required to consolidate the VIE in the company’s financial statements.
As a result of the evaluation of the reinsurance agreement with Long Point Re IV, the Company concluded that it was a VIE because the conditions described in items (a) and (b) above were present. However, while Long Point Re IV was determined to be a VIE, the Company concluded that it did not have a variable interest in the entity, as the variability in its results, caused by the reinsurance agreement, is expected to be absorbed entirely by the investors in the catastrophe bonds issued by Long Point Re IV and residual amounts earned by it, if any, are expected to be absorbed by the equity investors (the Company has neither an equity nor a residual interest in Long Point Re IV).
Accordingly, the Company is not the primary beneficiary of Long Point Re IV and does not consolidate that entity in the Company’s consolidated financial statements. Additionally, because the Company has no intention to pursue any transaction that would result in it acquiring interest in and becoming the primary beneficiary of Long Point Re IV, the consolidation of that entity in the Company’s consolidated financial statements in future periods is unlikely.
The Company has not incurred any losses that have resulted or are expected to result in a recovery under the Long Point Re IV agreement since its inception.
Personal Insurance Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty provides up to $500 million part of $1.00 billion of coverage for a single event, subject to a $1.00 billion retention (i.e., for every dollar of loss between $1.00 billion and $2.00 billion, this treaty provides 50 cents of coverage), for homeowners property losses. Coverage is provided on an all-perils basis, including but not limited to hurricanes, tornadoes, hail storms, earthquakes, wildfires, winter storms and/or freeze losses. The treaty covers the United States, its territories, possessions and waters contiguous thereto from July 1, 2025 through and including June 30, 2026.
Northeast Property Catastrophe Excess-of-Loss Reinsurance Treaty. This treaty provides up to $1.00 billion of coverage, subject to a $2.75 billion retention, for losses arising from a single occurrence and allows for one reinstatement. Coverage is provided on an all-perils basis, including but not limited to hurricanes, tornadoes, hail storms, earthquakes, wildfires, winter storms and/or freeze losses (including coverage for terrorism events in limited circumstances). Coverage for cyber events applies only in limited circumstances, and coverage for communicable disease and nuclear, biological and radiological terrorism attacks is excluded from this treaty. The treaty covers territory from Virginia to Maine for the period from July 1, 2025 through and including June 30, 2026. Losses from a covered event anywhere in North America and waters contiguous thereto may be used to satisfy the retention. Recoveries under the catastrophe bonds (if any) would be first applied to reduce losses subject to this treaty.
Business Insurance Earthquake Catastrophe Excess-of-Loss Reinsurance Treaty . This treaty provides up to $775 million part of $1.0 billion of coverage, subject to a $350 million retention (i.e., for every dollar of loss between $350 million and $1.35 billion, this treaty provides 77.5 cents of coverage) for the period from February 1, 2026, through and including January 31, 2027. The treaty covers losses arising from an earthquake, including other ensuing causes of loss such as fire following and sprinkler leakage, incurred under policies written by domestic Business Insurance (with the exception of Ocean Marine and Boiler & Machinery). The treaty covers the United States, its territories, possessions and waters contiguous thereto.
Other International Reinsurance Treaties. For other business directly written outside the U.S., separate reinsurance protections are purchased locally that have lower net retentions more commensurate with the size of the respective local balance sheet.
Terrorism Risk Insurance Program. The Terrorism Risk Insurance Program is a Federal program administered by the Department of the Treasury authorized through December 31, 2027 that provides for a system of shared public and private compensation for certain insured losses resulting from certified acts of terrorism. For a further description of the program, including the Company’s estimated deductible under the program in 2026, see note 6 of the notes to the consolidated financial statements and “Item 1A—Risk Factors—High levels of catastrophe losses, including as a result of factors such as increased concentrations of insured exposures in catastrophe-prone areas and changing climate conditions, could materially and adversely affect our results of operations, our financial position and/or liquidity, and could adversely impact our ratings, our ability to raise capital and the availability and cost of reinsurance.”
CLAIMS AND CLAIM ADJUSTMENT EXPENSE RESERVES
Claims and claim adjustment expense reserves represent management’s estimate of the ultimate liability for unpaid losses and loss adjustment expenses for claims that have been reported and claims that have been incurred but not yet reported as of the balance sheet date.
The Company refines its reserve estimates as part of its regular ongoing process that includes reviews of key assumptions, underlying variables and historical loss experience. The Company reflects adjustments to reserves in the results of operations in the periods in which the estimates are changed. In establishing reserves, the Company takes into account estimated recoveries for reinsurance, salvage and subrogation. The reserves are reviewed regularly by qualified actuaries employed by the Company. For additional information on the process of estimating reserves and a discussion of underlying variables and risk factors, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates.”
The process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables. These variables (discussed by product line in the “Critical Accounting Estimates” section of “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations”) are affected by both internal and external events, such as changes in claims handling procedures, inflation, judicial trends, the tort environment and the legislative landscape, among others. The impact of many of these items on ultimate costs for claims and claim adjustment expenses is difficult to estimate. Reserve estimation difficulties also differ significantly by product line due to differences in the underlying insurance contract (e.g., claims-made versus occurrence), claim complexity, the volume of claims, the potential severity of individual claims, the determination of the occurrence date for a claim, and reporting lags (the time between the occurrence of the insured event and when it is actually reported to the insurer). Informed judgment is applied throughout the process.
The Company derives estimates for unreported claims and development with respect to reported claims principally from actuarial analyses of historical patterns of loss development by accident year for each business unit, product line and type of exposure. Similarly, the Company derives estimates of unpaid loss adjustment expenses principally from actuarial analyses of historical development patterns and the relationship of loss adjustment expenses to losses for each product line and type of exposure. For a description of the Company’s reserving methods for asbestos claims, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Asbestos Claims and Litigation.”
Certain of the Company’s claims and claim adjustment expense reserves are discounted to present value. See note 8 of the notes to the consolidated financial statements for further discussion.
Reserves on Statutory Accounting Basis
As of December 31, 2025, 2024 and 2023, claims and claim adjustment expense reserves (net of reinsurance) prepared in accordance with U.S. generally accepted accounting principles (GAAP reserves) were $99 million higher, $93 million higher and $87 million higher, respectively, than those reported in the Company’s respective annual financial reports filed with insurance regulators, which are prepared in accordance with statutory accounting practices (statutory reserves).
The differences between the amount of reserves reported for GAAP and statutory reporting are primarily due to the differences in accounting for: (i) fee reimbursements associated with large deductible business, (ii) the impact of updated guidance for credit losses applicable to structured settlements and (iii) the accounting for reinsurance.
For large deductible business, the Company pays the deductible portion of a casualty insurance claim and then seeks reimbursement from the insured, plus a fee. The associated reserves for claim adjustment expenses are reported gross of the expected fee income (i.e., the reserves are not net of the expected fees) for GAAP reporting. For statutory reporting, the associated reserves are reported net of the expected fee income.
For GAAP reporting, amounts payable under structured settlements for which the Company did not receive a release of its obligation from the claimant are reported in loss reserves and reinsurance recoverables, net of an allowance for estimated uncollectible amounts. For statutory reporting, structured settlements for which the Company has not obtained a release are disclosed as a contingent liability and not recorded as part of loss reserves.
Reserves for claims and claim adjustment expenses are reported gross of reinsurance recoverables (i.e., without reduction for amounts recoverable for reinsurance) for GAAP reporting. For statutory reporting, the reserves are reported net of reinsurance recoverables. Additionally, reinsurance balances resulting from reinsurance placed to cover losses on insured events occurring prior to the inception of a reinsurance contract (retroactive reinsurance) are included in reinsurance recoverables for GAAP reporting. Statutory accounting practices require retroactive reinsurance balances to be recorded in other liabilities as contra-liabilities rather than in loss reserves.
Asbestos Claims
Asbestos claims are segregated from other claims and are handled separately within the Company’s Strategic Resolution Group, a separate unit staffed by dedicated legal, claim, finance and engineering professionals which also has responsibility for enterprise-wide major case activity. For additional information on asbestos claims, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Asbestos Claims and Litigation.”
INTERCOMPANY REINSURANCE POOLING ARRANGEMENTS
Most of the Company’s domestic insurance subsidiaries participate in an intercompany property and casualty reinsurance pooling arrangement. Under such arrangements, the participating subsidiaries share substantially all insurance business they write by reinsuring their combined premiums, losses and expenses to each participating subsidiary in accordance with the quota share participation rate provided in the intercompany agreement. Pooling arrangements allow the participating companies to rely on the capacity of the entire pool’s statutory capital and surplus rather than just on each participating subsidiary’s own statutory capital and surplus.
RATINGS
Ratings are an important factor in assessing the Company’s competitive position in the insurance industry. The Company receives ratings from the following major rating agencies: A.M. Best Company (A.M. Best), Fitch Ratings (Fitch), Moody’s Investors Service (Moody’s) and S&P Global Ratings (S&P). Rating agencies typically issue two types of ratings for insurance companies: claims-paying (or financial strength) ratings, which reflect the rating agency’s assessment of an insurer’s ability to meet its financial obligations to policyholders, and debt ratings, which reflect the rating agency’s assessment of a company’s prospects for repaying its debts and are considered by lenders in connection with the setting of interest rates and terms for a company’s short- and long-term borrowings. Agency ratings are not a recommendation to buy, sell or hold any security, and they may be revised or withdrawn at any time by the rating agency. Each agency’s rating should be evaluated independently of any other agency’s rating. The system and the number of rating categories can vary widely from rating agency to rating agency. Customers usually focus on claims-paying ratings, while creditors focus on debt ratings. Investors use both to evaluate a company’s overall financial strength. The ratings issued on the Company or its subsidiaries by any of these agencies are announced publicly and are available on the Company’s website and from the agencies.
A downgrade in one or more of the Company’s claims-paying ratings could negatively impact the Company’s business volumes and competitive position because demand for certain of its products may be reduced, particularly because some customers require that the Company maintain minimum ratings to enter into, maintain or renew business with it.
Additionally, a downgrade in one or more of the Company’s debt ratings could adversely impact the Company’s ability to access the capital markets and other sources of funds, including in the syndicated bank loan market, and/or result in higher financing costs. For example, downgrades in the Company’s debt ratings could result in higher interest expense under the Company’s revolving credit agreement (under which the cost of borrowing could range from the Secured Overnight Financing Rate (SOFR) plus 85 basis points (including a credit spread adjustment) to SOFR plus 147.5 basis points (including a credit spread adjustment), depending on the Company’s debt ratings), the Company’s commercial paper program, or in the event that the Company were to access the capital markets by issuing debt or similar types of securities. See note 9 of the notes to the consolidated financial statements for a discussion of the Company’s revolving credit agreement and commercial paper program. The Company considers the level of increased cash funding requirements in the event of a ratings downgrade as part of the evaluation of the Company’s liquidity requirements. The Company currently believes that a one- to two-notch downgrade in its debt ratings would not result in a material increase in interest expense under its existing credit agreement and commercial paper programs. In addition, the Company considers the impact of a ratings as part of the evaluation of its common share repurchases.
S&P updated its capital adequacy model in 2023. The updated model resulted in a modest improvement in its assessment of the Company’s capital metrics. As part of its capital management strategy, the Company will continue to make its own assessment of the appropriate level of capital to support the Company’s business operations. For a discussion of the risks to the Company’s claims-paying and financial strength ratings, see the risk factor entitled “A downgrade in our claims-paying and financial strength ratings could adversely impact our business volumes, adversely impact our ability to access the capital markets and increase our borrowing costs” included in “Part I—Item 1A—Risk Factors.”
Claims — Paying Ratings
The following table summarizes the current claims-paying (or financial strength) ratings for each of the Company’s rated entities as of February 12, 2026, including the position of each rating in the applicable agency’s rating scale.
A.M. Best
Moody’s
Fitch
Travelers Reinsurance Pool (a)(b)
Travelers C&S Co. of America
First Floridian Auto and Home Ins. Co.
Travelers Insurance Company Limited
Travelers Insurance Designated Activity Company
(a) The Travelers Reinsurance Pool consists of: The Travelers Indemnity Company, The Charter Oak Fire Insurance Company, The Phoenix Insurance Company, The Travelers Indemnity Company of Connecticut, The Travelers Indemnity Company of America, Travelers Property Casualty Company of America, Travelers Commercial Casualty Company, TravCo Insurance Company, The Travelers Home and Marine Insurance Company, Travelers Casualty and Surety Company, Northland Insurance Company, Northland Casualty Company, The Standard Fire Insurance Company, The Automobile Insurance Company of Hartford, Connecticut, Travelers Casualty Insurance Company of America, Farmington Casualty Company, Travelers Commercial Insurance Company, Travelers Casualty Company of Connecticut, Travelers Property Casualty Insurance Company, Travelers Personal Security Insurance Company, Travelers Personal Insurance Company, St. Paul Fire and Marine Insurance Company, The Travelers Casualty Company, St. Paul Protective Insurance Company, Travelers Constitution State Insurance Company, St. Paul Guardian Insurance Company, St. Paul Mercury Insurance Company, Fidelity and Guaranty Insurance Underwriters, Inc., TravCo Personal Insurance Company and United States Fidelity and Guaranty Company. In addition, the following entities are also members of the Travelers Reinsurance Pool but have a 0% share of the pool: Northfield Insurance Company, American Equity Specialty Insurance Company, Travelers Excess and Surplus Lines Company, St. Paul Surplus Lines Insurance Company and Travelers Specialty Insurance Company.
(b) The following affiliated companies are 100% reinsured by one of the pool participants noted in (a) above: Fidelity and Guaranty Insurance Company, Gulf Underwriters Insurance Company, American Equity Insurance Company, Select Insurance Company, The Travelers Lloyds Insurance Company and Travelers Lloyds of Texas Insurance Company.
Debt Ratings
The following table summarizes the current debt, trust preferred securities and commercial paper ratings of the Company and its subsidiaries as of February 12, 2026. The table also presents the position of each rating in the applicable agency’s rating scale.
A.M. Best
Moody’s
Fitch
Senior debt
Junior subordinated debentures
BBB+
BBB+
Commercial paper
AMB-1+ (1 st of 5)
Rating Agency Actions
The following rating agency actions were taken with respect to the Company from February 13, 2025, the date on which the Company filed its Annual Report on Form 10-K for the year ended December 31, 2024, through February 12, 2026:
• On August 8, 2025, A.M. Best affirmed all ratings of the Company. The outlook for all ratings is stable.
• On October 24, 2025, Fitch affirmed all ratings of the Company. The outlook for all ratings is stable.
INVESTMENT OPERATIONS
The majority of funds available for investment are deployed in a widely diversified portfolio of high quality, liquid, taxable U.S. government, tax-exempt and taxable U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds. The Company regularly monitors the effective duration of its fixed maturity investments, and the Company’s investment purchases and sales are executed with the objective of having adequate funds available to satisfy its insurance and debt obligations. Generally, the expected principal and interest payments produced by the Company’s fixed maturity portfolio adequately fund the estimated runoff of the Company’s insurance reserves. The Company manages the investment duration relative to its liability duration. In 2025, the estimated effective duration of the Company’s portfolio of fixed maturity and short-term security investments increased, primarily driven by the impact of the composition of the investment portfolio. In 2025, the estimated effective duration of the Company’s net insurance liabilities decreased, primarily reflecting the impact of the mix of net insurance liabilities. As of December 31, 2025, the estimated effective duration of the Company’s portfolio of fixed maturity and short-term security investments was greater than the estimated duration of the Company’s net insurance liabilities. The substantial amount by which the fair value of the fixed maturity portfolio exceeds the value of the net insurance liabilities, as well as the cash flow from newly sold policies and the large amount of high-quality liquid bonds, contributes to the Company’s ability to fund claim payments without having to sell assets or access its credit facilities.
The Company also invests much smaller amounts in equity securities, real estate, private equity limited partnerships, hedge funds, and real estate partnerships and joint ventures. These investment classes have the potential for higher returns but also involve varying degrees of risk, including less stable rates of return and less liquidity.
See note 3 of the notes to the consolidated financial statements for additional information regarding the Company’s investment portfolio.
REGULATION
U.S. State and Federal Regulation
The Company’s domestic insurance subsidiaries are collectively licensed to transact insurance business in all U.S. states, the District of Columbia, Guam, Puerto Rico, the U.S. Virgin Islands, American Samoa and the Northern Mariana Islands and are subject to regulation in both the various states and jurisdictions in which the subsidiaries are legally domiciled and in which the subsidiaries transact business. The extent of regulation varies, but generally derives from statutes that delegate regulatory, supervisory, and administrative authority to a department of insurance or finance in each state and jurisdiction. The regulation, supervision, and administration relate, among other things, to standards of solvency that must be met and maintained, the nature of and limitations on investments, premium rates, restrictions on the type and size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and other obligations, deposits of securities for the benefit of policyholders, the licensing of insurers and their agents, approval of policy forms and the regulation of market conduct, including the use of credit and other information in underwriting as well as other underwriting and claims practices. State insurance departments also conduct periodic examinations of the financial condition and market conduct of insurance companies and require the filing of various financial and other reports on a quarterly and annual basis.
State insurance regulation continues to evolve in response to the changing economic and business environment as well as efforts by regulators internationally to develop a consistent approach to regulation. While the U.S. federal government has not historically regulated the insurance business, the Federal Insurance Office (or FIO), which was established within the U.S. Treasury Department as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), has limited authority over the insurance industry. State insurance regulators, through the National Association of Insurance Commissioners (NAIC), along with the Federal Reserve and the FIO have been active in the efforts by the International Association of Insurance Supervisors (IAIS) to develop international regulatory standards for the insurance industry that, if adopted by the states, would result in changes to the regulation of insurance in the U.S. In response to these international efforts, the state insurance regulators, through the NAIC, undertook several initiatives to consider and develop changes to the U.S. regulatory framework, including the development of regulatory tools to evaluate risks and establish capital standards on a groupwide basis in addition to the current requirements imposed on a legal-entity basis.
These changes are evidenced by the incorporation of supervisory colleges into the U.S. regulatory framework to facilitate oversight of insurers at a group level that have been designated an internationally active insurance group by the group’s lead state regulator. A supervisory college is a forum of the regulators having jurisdictional authority over a holding company’s various insurance subsidiaries, including foreign insurance subsidiaries, convened to meet with the insurer’s executive
management to evaluate the insurer’s business strategies, approach to enterprise risk management and corporate governance from both a groupwide and legal-entity perspective.
While insurance in the United States is regulated on a legal-entity basis, the NAIC has adopted changes to its Model Holding Company Act that some states, including the State of Connecticut, have enacted to allow the insurance commissioner to be designated as the groupwide supervisor (i.e., lead state commissioner) for the insurance holding company system based upon certain criteria, including the jurisdiction of domicile of the insurance subsidiaries holding the majority of the insurance group’s premiums, assets, or liabilities. Based upon these criteria, the State of Connecticut Insurance Department is designated as the Company’s lead regulator and coordinates supervisory colleges for the Company. Additionally, in response to international efforts to establish capital standards on a groupwide basis, the NAIC adopted changes to its Model Holding Company Act to require certain insurance groups to file a Group Capital Calculation to allow the groupwide supervisor (lead state) to evaluate the risks and available capital on a groupwide basis in addition to the risk-based capital requirements currently imposed on a legal-entity basis. The State of Connecticut amended its holding company act to incorporate the changes made to the NAIC Model Holding Company Act and required insurers, including the Company, to file a Group Capital Calculation beginning in 2023. These changes have not impacted the amount of capital the Company’s insurance subsidiaries are required to have.
Insurance Regulation Concerning Dividends from Insurance Subsidiaries. The Company’s principal domestic insurance subsidiaries are domiciled in the State of Connecticut. The Connecticut insurance holding company laws require notice to, and approval by, the state insurance commissioner for the declaration or payment of any dividend from an insurance subsidiary that, together with other distributions made within the preceding twelve months, exceeds the greater of 10% of the insurance subsidiary’s statutory capital and surplus as of the preceding December 31 st , or the insurance subsidiary’s net income for the twelve-month period ending the preceding December 31 st , in each case determined in accordance with the statutory accounting practices prescribed or permitted by the State of Connecticut Insurance Department. This declaration or payment is further limited by the amount of adjusted unassigned surplus held by the insurance subsidiaries, as determined in accordance with statutory accounting practices.
The insurance holding company laws of states in which the Company’s other domestic insurance subsidiaries are domiciled generally contain similar, although in some instances somewhat more restrictive, limitations on the payment of dividends. These insurance subsidiaries, as well as the insurance subsidiaries domiciled in Connecticut, may also be subject to similar dividends limitations imposed by states in which those subsidiaries are considered commercially domiciled as a result of the amount of business written in those states.
Rate and Rule Approvals. The Company’s domestic insurance subsidiaries are subject to each state’s laws and regulations regarding rate and rule approvals. The applicable laws and regulations generally establish standards to ensure that rates are not excessive, inadequate, unfairly discriminatory or used to engage in unfair price competition. An insurer’s ability to adjust rates and the relative timing of the process are dependent upon each state’s requirements. Many states have enacted variations of competitive ratemaking laws, which allow insurers to set certain premium rates for certain classes of insurance without having to obtain the prior approval of the state insurance department.
Requirements for Exiting Geographic Markets and/or Canceling or Nonrenewing Policies. Many states have laws and regulations which may impact the timing and/or the ability of an insurer to either discontinue or substantially reduce its writings in that state. These laws and regulations typically require prior notice and in some instances insurance department approval prior to discontinuing a line of business or withdrawing from that state. In addition, all states impose limitations on cancellations or non-renewals of certain policies, including in particular, limitations on the reasons for cancellations and on the timing of non-renewals.
Regulatory and Legislative Responses to Catastrophes. States from time to time have passed legislation, and regulators have taken action, that have the effect of limiting the ability of insurers to manage catastrophe risk, such as legislation restricting insurers from reducing exposures or withdrawing from catastrophe-prone areas or mandating that insurers participate in residual markets involving catastrophe-prone areas. Participation in residual market mechanisms has resulted in, and may in the future result in, significant losses or assessments to insurers, including the Company, and, in certain states, those losses or assessments may not be commensurate with the Company’s direct catastrophe risk exposure in those states. If the Company’s competitors leave states that have residual market mechanisms, the remaining insurers, including the Company, may be subject to significant increases in losses or assessments following a catastrophe. In addition, following , there have been, and may in the future be, legislative and administrative initiatives and court decisions that seek to expand insurance coverage for beyond the original intent of the policies, seek to prevent the application of deductibles included in the policies, or seek to limit the exercise of certain rights available to insurers under the policies. Also, the Company’s ability to adjust policy language or terms, including deductible levels, or to increase pricing to the extent necessary to offset rising claim costs related to requires approval of insurance regulatory authorities in certain states. The Company’s ability or its willingness to manage its exposure by raising prices, modifying policy terms, or reducing exposure to certain
geographies may be limited due to considerations of public policy, an evolving political environment, and/or changes in general economic conditions. Furthermore, the reduction or elimination of the National Flood Insurance Program could result in an increase in the Company’s exposure to flood risk if insurers become required to cover flood risk under certain types of policies.
Assessments for Guaranty Funds and Second-Injury Funds and Other Mandatory Assigned Risk and Reinsurance Arrangements. As a condition of their authority to transact insurance in virtually all states, property and casualty insurers, including the Company’s domestic insurance subsidiaries, are required to be a member of each state’s guaranty association and to bear a portion of the losses covered by the guaranty association (subject to a statutory maximum covered loss amount which varies by state) suffered by claimants of insurers that become insolvent. Additionally, many states also have laws that establish second-injury funds that impose assessments on insurers writing workers’ compensation business, including the Company, to provide compensation to injured employees for the aggravation of a prior injury or disability.
The Company’s domestic insurance subsidiaries are also required to participate in various involuntary assigned risk pools, principally involving workers’ compensation, automobile insurance, property damage due to wind (windpools) in states prone to property damage from hurricanes and in Fair Access to Insurance Requirements (FAIR) plans, as well as automobile assigned risk plans the results of which are not pooled with other carriers, which provide various insurance coverages to individuals or other entities that otherwise are unable to purchase that coverage in the voluntary market.
Other assessments include charges mandated by statute or regulatory authority that are related directly or indirectly to underwriting activities. Examples of such mechanisms include, but are not limited to, the Florida Hurricane Catastrophe Fund, Florida Citizens Property Insurance Corporation, National Workers’ Compensation Reinsurance Pool, various workers’ compensation related funds (e.g., the Florida Special Disability Trust), North Carolina Beach Plan, Louisiana Citizens Property Insurance Corporation, and the Texas Windstorm Insurance Association. Amounts payable or paid as a result of arrangements that are in substance reinsurance, including certain involuntary pools where insurers are required to assume premiums and losses from those pools, are accounted for as reinsurance (e.g., the National Workers’ Compensation Reinsurance Pool, North Carolina Beach Plan). Amounts related to assessments from arrangements that are not reinsurance are reported as part of “General and Administrative Expenses,” such as the Florida Special Disability Trust. For additional information concerning assessments for guaranty funds and second-injury funds as well as other mandatory assigned risk and reinsurance agreements including state-funding mechanisms, see “Item 1A—Risk Factors.”
Insurance Regulatory Information System (IRIS). The NAIC developed the IRIS to help state regulators identify companies that may require regulatory attention. Financial examiners review annual financial statements and the results of key financial ratios based on year-end data with the goal of identifying insurers that appear to require immediate regulatory attention. Each ratio has an established “usual range” of results. A ratio result falling outside the usual range, however, is not necessarily considered adverse; rather, unusual values are used as part of the regulatory early monitoring system. Furthermore, in some years, it may not be unusual for financially sound companies to have several ratios with results outside the usual ranges. Generally, an insurance company may become subject to regulatory scrutiny or, depending on the company’s financial condition, regulatory action if certain of its key IRIS ratios fall outside the usual ranges and the insurer’s financial condition is trending downward.
Based on preliminary 2025 IRIS ratios calculated by the Company for its lead domestic insurance subsidiaries, in both 2025 and 2024, Travelers Casualty and Surety Company had results outside the normal range for one IRIS ratio due to the amount of dividends received from its subsidiaries, while in 2024 The Travelers Indemnity Company had results outside the normal range for one IRIS ratio due to the size of its investments in certain non-fixed maturity securities.
Management does not anticipate regulatory action as a result of the 2025 IRIS ratio results for the lead insurance subsidiaries or their insurance subsidiaries. In all instances in prior years, regulators have been satisfied upon follow-up that no regulatory action was required.
Risk-Based Capital (RBC) Requirements. The NAIC maintains an RBC requirement which sets forth minimum capital standards for most U.S.-based property and casualty insurance companies that is intended to raise the level of protection for policyholder obligations. The Company’s U.S. insurance subsidiaries are subject to these NAIC RBC requirements based on laws that have been adopted by individual states. These requirements subject insurers having policyholders’ surplus less than that required by the RBC calculation to varying degrees of regulatory action, depending on the level of capital inadequacy.
The amount of policyholders’ surplus held by each of the Company’s U.S. insurance subsidiaries as of December 31, 2025 and 2024 exceeded the level at which the subsidiaries would be subject to RBC regulatory action on a legal entity basis or the need for additional analysis when evaluated on a combined basis.
The RBC formulas have not been designed to differentiate among adequately capitalized companies that operate with levels of capital above the RBC requirement. Therefore, it is inappropriate and ineffective to use the formulas to rate or to rank these companies.
Group Capital Calculation (GCC). While there is currently no group regulatory capital requirement in place for insurers in the United States, certain states, including the State of Connecticut, adopted the NAIC Group Capital Calculation (GCC) to provide insurance regulators with additional analytical information on a combined basis that is used by the lead state in assessing group risks and groupwide capital adequacy to complement the RBC requirements imposed on a legal-entity basis and the holding company analysis performed by the lead state. The GCC utilizes an aggregation of the available capital/financial resources and the required regulatory capital of a group’s subsidiaries (known as an Aggregation Method), using the NAIC RBC requirements to identify available and required capital for the group’s U.S. insurance subsidiaries and the local jurisdictional capital requirements for insurance subsidiaries outside of the U.S. The GCC differs from the RBC in that it does not produce a ratio that is subject to a minimum value or result in an identified action level. Instead, the GCC is used in conjunction with other regulatory tools to assist in the lead regulator’s group-wide supervision and evaluation of the adequacy of a group’s capital position.
As part of the international efforts to develop a groupwide capital standard, the IAIS completed a comparability analysis in November 2024 of the Aggregation Method used in the U.S. (i.e., the GCC as discussed above) and recognized the U.S. method as producing results comparable to the group capital standard (Insurance Capital Standard, or ICS) developed by the IAIS.
Investment Regulation . Insurance company investments must comply with applicable laws and regulations which prescribe the kind, quality, and concentration of investments. In general, these laws and regulations permit investments in federal, state and municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans, real estate, and certain other investments, subject to specified limits and certain other qualifications, depending on the type of investment. As of December 31, 2025 and 2024, the Company was in compliance with these laws and regulations.
Federal Regulation. As mentioned above, the Dodd-Frank Act established a Federal Insurance Office (FIO) within the U.S. Department of the Treasury. The FIO has limited regulatory authority and is empowered to gather data and information regarding the insurance industry and insurers, but it has in the past recommended an expanded federal role in some circumstances. The Dodd-Frank Act also gives the Federal Reserve supervisory authority over a number of non-bank financial services holding companies, including holding companies with insurance company subsidiaries, if they are designated by a two-thirds vote of a Financial Stability Oversight Council (the FSOC) as “systemically important financial institutions” (SIFI) or own a bank or thrift. The Company, based upon the FSOC’s rules and interpretive guidance, has not been designated as a SIFI and is not subject to regulation by the Federal Reserve. Nonetheless, it is possible that FSOC may change its rules, interpretations, or application thereof in the future and conclude that the Company is a SIFI. If the Company were designated as a SIFI, the Federal Reserve’s supervisory authority could include the ability to impose heightened financial regulation and could impact requirements regarding the Company’s capital, liquidity and leverage as well as its business and investment conduct. The Dodd-Frank Act also authorizes assessments to pay for the resolution of SIFIs that have become insolvent. The Company (as a financial company with more than $50 billion in assets) could be assessed, and although any such assessment is required to be risk weighted (i.e., firms pay more), such costs could be material and are not currently estimable. As a result of the foregoing, the Dodd-Frank Act, including any changes thereto or additional related regulations, or other additional federal regulation that is adopted in the future, could impose additional on the Company, including impacting the ways in which the Company conducts its business, increasing compliance costs and duplicating state regulation, and could result in a competitive , particularly relative to other competitors that may not be subject to the same level of regulation.
International Regulation
The Company’s insurance subsidiaries based in the United Kingdom (U.K.) are regulated by two regulatory bodies, The Prudential Regulation Authority (PRA) and The Financial Conduct Authority (FCA). One of the Company’s U.K. insurance subsidiaries is also authorized in the U.S. as a surplus lines insurer subject to U.S. state regulation applicable to such insurers.
The Company’s managing agency (Travelers Syndicate Management Limited, or TSML) of its Lloyd’s syndicate (Syndicate 5000 at Lloyd’s) is also regulated by the PRA and the FCA, which have delegated certain regulatory responsibilities to the Council of Lloyd’s. Travelers Syndicate 5000 is able to write, or reinsure, business in respect of over 200 countries and territories throughout the world by virtue of Lloyd’s international licenses. In each such jurisdiction, the policies written by TSML, as part of Lloyd’s, are subject to the laws and insurance regulations of that jurisdiction. Since January 1, 2019, the Company has used a Lloyd’s insurance subsidiary in Brussels, Belgium (Lloyd’s Brussels) to cover its Lloyd’s customers’ risks in the European Union (EU). Lloyd’s Brussels is regulated by the National Bank of Belgium.
The Company is conducting its European insurance operations through an insurance subsidiary that is incorporated in the Republic of Ireland and authorized and regulated by the Central Bank of Ireland. Certain operations are conducted in the U.K. through a U.K. branch of the Irish subsidiary, which is supervised by the PRA and FCA as well as the Central Bank of Ireland.
The Company’s operations in the Republic of Ireland are also subject to regulation by the EU. Generally, EU requirements are adopted by the EU and then implemented by enabling legislation in the member countries. Significant areas of oversight and influence by the EU include capital and solvency requirements (Solvency II), competition law, intermediary and distribution regulation, gender discrimination, sustainability disclosures, including climate change disclosure, and data security and privacy. Under Solvency II, it is possible that the U.S. parent of a European Union subsidiary could be subject to certain Solvency II requirements if the regulator determines that the subsidiary’s capital position is dependent on the parent company and the U.S. parent is not already subject to regulations deemed “equivalent” to Solvency II. Currently, as a result of the Covered Agreements described below, the state regulatory system governing U.S. insurers is deemed “equivalent” for purposes of Solvency II.
The Canadian branch of one of the Company’s U.S. insurance subsidiaries is regulated for solvency and risk management purposes by the Office of the Superintendent of Financial Institutions (OSFI) under the provisions of the Insurance Companies Act (Canada). The Canadian branch is also subject to Canadian provincial and territorial insurance legislation and regulation, primarily governing market conduct, including pricing, underwriting, coverage, and claim conduct, in varying degrees by province/territory and by product line.
Each of the Company’s foreign insurance subsidiaries had capital significantly above their respective regulatory requirements as of December 31, 2025.
Regulators in countries where the Company has operations are working with the International Association of Insurance Supervisors (IAIS) (and with the NAIC, the Federal Reserve and FIO in the U.S.) to consider changes to insurance company supervision, including group supervision and group capital requirements as described above.
The IAIS has developed a framework (i.e., the Global Monitoring Exercise, or GME) to assess the potential systemic risk in the global insurance sector for identifying “global systemically important insurers” (G-SIIs) and high-level policy measures that will apply to the G-SIIs. The methodology and measures were endorsed by the Financial Stability Board (FSB) which was created by the Group of Twenty (or G-20); however, identification of G-SIIs was suspended at the beginning of 2020. In December 2022, the FSB, in consultation with the IAIS, decided to discontinue the annual identification of G-SIIs. Going forward the FSB will utilize a newly developed framework to inform its considerations of systemic risk in the insurance sector. The Company has not previously been designated as a G-SII by the FSB; however, it is possible that the designation of G-SIIs could be reinstituted, the methodologies or framework could be amended or interpreted differently in the future and the Company could be named as a G-SII.
The IAIS completed its Common Framework for the Supervision of Internationally Active Insurance Groups (known as ComFrame). ComFrame is intended to apply heightened regulatory requirements similar to those being developed for G-SIIs to internationally active insurance groups (or “IAIGs”), including group supervision, group capital requirements, and resolution planning, i.e., a written plan developed by a financial group detailing how it would be wound down in the event of an insolvency. While the Company would not be considered an IAIG under the current criteria in ComFrame, it is possible that the criteria could be changed. If the Company is designated as an IAIG or the NAIC and individual states adopt ComFrame or similar provisions for large insurers, the Company could be subject to increased supervision and higher capital standards.
Covered Agreements
The U.S. Department of the Treasury and the Office of the U.S. Trade Representative have signed covered agreements (the Covered Agreements) regarding prudential (solvency) insurance and reinsurance measures with both the EU and the U.K. The Covered Agreements include three areas of prudential insurance supervision: reinsurance contracts, group supervision, and the exchange of information between U.S. and U.K. regulators and between U.S. and EU regulators on insurers and reinsurers that operate in the U.S., U.K., and EU markets. The Covered Agreement with the EU went into effect in April 2018, while the Covered Agreement with the U.K. took full effect upon the U.K.’s exit from the EU on January 31, 2020. The Covered Agreements are intended to promote cooperation between U.S. insurance regulators and EU and U.K. insurance regulators and to limit the ability of the EU and the U.K. to apply solvency and group capital requirements to the worldwide operations of any U.S. insurer operating in the EU or the U.K. It is possible that individual members of the EU could differ in how they adopt or apply the terms of the Covered Agreement, resulting in greater regulation and higher capital standards as well as inconsistent regulatory requirements among the jurisdictions in which the Company does business. While it is not yet known how or if these actions will impact the Company, such regulation could result in increased costs of compliance, increased disclosure, and less flexibility in capital management, and could impact the Company’s results of operations and limit its growth.
The Covered Agreements eliminate the collateral and local presence requirements for EU and U.K. reinsurers operating in the U.S., and for U.S. reinsurers operating in the EU and U.K., as a condition for credit for reinsurance in regulatory reporting and capital requirements. The prospective elimination of the collateral requirements is conditioned on the reinsurer meeting capital and solvency standards and maintaining a record of prompt payments to ceding insurers. While the collateral requirement is removed for reinsurers meeting these standards, insurers and reinsurers are not prohibited from negotiating and putting into place collateral as part of reinsurance agreements. The Covered Agreements include a five-year transition period to full compliance in the impacted jurisdictions.
Insurance Holding Company Statutes
As a holding company, TRV is not regulated as an insurance company. However, since TRV owns capital stock in insurance subsidiaries, it is subject to state insurance holding company statutes, as well as certain other laws, of each of its insurance subsidiaries’ states of domicile. All holding company statutes, as well as other laws, require disclosure and, in some instances, prior approval of certain transactions between an insurance company and an affiliate. The holding company statutes and other laws also require, among other things, prior approval for acquiring control of a domestic insurer and the payment of extraordinary dividends or distributions.
Insurance Regulations Concerning Change of Control. Many state insurance regulatory laws contain provisions that require prior approval by state agencies of any change in control of an insurance company that is domiciled, or, in some cases, having substantial business in a state such that the insurance company is deemed to be commercially domiciled in that state.
The laws of many states also contain provisions requiring pre-notification to state agencies prior to any change in control of a non-domestic insurance company admitted to transact business in that state. While these pre-notification statutes do not authorize the state agency to disapprove the change of control, they do authorize issuance of cease-and-desist orders with respect to the non-domestic insurer if it is determined that some conditions, such as undue market concentration, would result from the acquisition.
Any transactions that would constitute a change in control of any of TRV’s insurance subsidiaries would generally require prior approval by the insurance departments of the states in which the insurance subsidiaries are domiciled or commercially domiciled. Pre-acquisition notification may also be required in those states that have adopted pre-acquisition notification provisions and in which such insurance subsidiaries are admitted to transact business.
As described above, one of TRV’s insurance subsidiaries and its operations at Lloyd’s are domiciled in the U.K. and one of its insurance subsidiaries is domiciled in the Republic of Ireland. Insurers in the U.K. and the Republic of Ireland are subject to change of control restrictions, including approval of the PRA and FCA and of the Central Bank of Ireland, respectively. TRV’s Brazilian joint venture is subject to regulatory change of control and other share transfer restrictions, including approval of the Superintendência de Seguros Privados (SUSEP).
These requirements may deter, delay or prevent transactions affecting the control of or the ownership of common stock, including transactions that could be advantageous to TRV’s shareholders.
Insurance Intermediaries
The Company has domestic and international subsidiaries which act as insurance intermediaries, i.e., agents, brokers, and managing general underwriters. These entities are regulated by state, provincial, and international regulatory and self-regulatory bodies focused on market conduct and other matters.
Regulatory Developments
The state insurance regulatory framework has been under continuing scrutiny, and some state legislatures have considered or enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. Further, the NAIC and state insurance regulators continually both re-examine existing laws and regulations for potential modifications and focus on the potential promulgation of new insurance regulations or the advancement of new legislation.
Insurance holding company regulations require insurers who are part of a holding company system to file an enterprise risk report to provide the lead insurance regulator with a summary of the company’s Enterprise Risk Management (ERM) framework, including the material risks within the insurance holding company system that could pose risk to the insurance entities within the holding company system. Insurers having premium volume above certain thresholds, including the Company, are also required to perform at least annually a self-assessment of their current and future risks, including their likely future solvency position (known as an own risk and solvency assessment, or ORSA) and file a confidential report with the insurer’s lead insurance regulator. The requirement for an insurer to conduct an ORSA is intended to foster an effective level of ERM for
all insurers within a holding company system and to provide a group-wide perspective on risks and capital as a supplement to the legal entity view. ORSA is required in the United States, the U.K., Ireland and Canada and is in various stages of implementation in other jurisdictions, and included in the IAIS standards. It is possible that, as a result of ORSA and the manner in which it may be used by insurance regulators, the Company’s states of domicile or other regulatory bodies may require changes in its ERM process (e.g., prescribe the use of specific models or the application of certain assumptions or scenarios in the Company’s models) that have the effect of limiting the Company’s ability to write certain risks, limit its risk appetite, or reduce its capital management flexibility. See “Item 1—Business—Enterprise Risk Management” for further discussion of the Company’s ERM.
For additional information concerning regulations applicable to the Company, including cyber regulations, see “Item 1A—Risk Factors—Our businesses are heavily regulated by the states and countries in which we conduct business, including licensing, market conduct and financial supervision, and changes in regulation, including changes in tax regulation, may reduce our profitability and limit our growth” and “Item 1A—Risk Factors—If, as a result of a cyber-attack (the risk of which could be exacerbated by geopolitical tensions) or otherwise, we experience difficulties with technology, data and network security, outsourcing relationships or cloud-based technology, our ability to conduct our business could be negatively impacted.”
ENTERPRISE RISK MANAGEMENT
The Company’s ERM activities involve both the identification and assessment of a broad range of risks and the execution of coordinated strategies to effectively manage these risks. Since certain risks can be correlated with other risks, an event or a series of events can impact multiple areas of the Company simultaneously and have a material effect on the Company’s results of operations, financial position and/or liquidity. This requires an entity-wide view of risk and an understanding of the potential impact on all aspects of the Company’s operations. It also requires the Company to manage its risk-taking to be within its risk appetite in a prudent and balanced effort to create and preserve value for all of the Company’s stakeholders. ERM also includes an evaluation of the Company’s risk capital needs, which takes into account regulatory requirements, financial strength and credit rating considerations, in addition to economic and other factors. ERM at the Company is an integral part of its business operations. All risk owners across all functions, all corporate leaders and the Board of Directors are engaged in ERM. ERM involves risk-based analytics, as well as reporting and feedback throughout the enterprise in support of the Company’s long-term financial strategies and objectives.
The Company uses various analyses and methods, including proprietary and third-party modeling processes, to make underwriting and reinsurance decisions designed to manage its exposure to catastrophic events. In addition to catastrophe modeling and analysis, the Company also models and analyzes its exposure to other extreme events. The Company also utilizes proprietary and third-party modeling processes to evaluate capital adequacy. These analytical techniques are an integral component of the Company’s ERM process and further support the Company’s long-term financial strategies and objectives.
In addition to the day-to-day ERM activities within the Company’s operations, key internal risk management functions include, among others, the Management and Operating Committees (comprised of the Company’s Chief Executive Officer and the other most senior members of management); the Enterprise, Segment and Function (including Catastrophe, Cyber, etc.) Risk Committees of management; the Executive Crisis Management Team; the Sustainability Committee; and the Credit Committee. A senior executive team comprised of the Chief Risk Officer and the Enterprise Chief Underwriting Officer oversees the ERM process. The mission of this team is to facilitate risk assessment and to collaborate in implementing effective risk management strategies throughout the Company. Another strategic ERM objective of this team includes working across the Company to enhance effective and realistic risk modeling capabilities as part of the Company’s overall effort to understand and manage its portfolio of risks to be within its risk appetite. Board oversight of ERM is provided by the Risk Committee of the Board of Directors, which reviews the strategies, processes and controls pertaining to the Company’s insurance operations and oversees the implementation, execution and performance of the Company’s ERM program. The Risk Committee of the Board of Directors meets with senior management at least four times a year to discuss ERM activities and provides a report to the full Board of Directors after each such meeting.
The Company’s ERM efforts build upon the foundation of an effective internal control environment. ERM expands the internal control objectives of effective and efficient operations, reliable financial reporting and compliance with applicable laws and regulations, to foster, lead and support an integrated, risk-based culture within the Company that focuses on value creation and preservation. However, the Company can provide only reasonable, not absolute, assurance that these objectives will be met. Further, the design of any risk management or control system must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. As a result, the possibility of material financial loss remains in spite of the Company’s significant and comprehensive ERM efforts. An investor should carefully consider the risks and all of the other information set forth in this annual report, including the discussions included in “Item 1A—Risk Factors,” “Item 7A—Quantitative and Qualitative Disclosures About Market Risk,” and “Item 8—Financial Statements and Supplementary Data.”
OTHER INFORMATION
Seasonality
A discussion of the extent to which the Company’s business may be seasonal can be found under “Outlook” within “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated by reference into this Item 1.
Human Capital Management
As of December 31, 2025, the Company had approximately 34,000 employees, approximately 90% of whom are located in the United States. The following table shows the geographic distribution of the Company’s employees as of December 31, 2025.
Location
% of Total
Domestic:
Connecticut
Minnesota
New York
Texas
California
Florida
Georgia
Massachusetts
Illinois
All other domestic (1)
Total Domestic
International:
Canada
United Kingdom
All other international
Total International
Consolidated total
(1) No other single state accounted for 3.0% or more of the Company’s employees as of December 31, 2025.
The average employee tenure at the Company is more than 11 years, and more than 20 years for the Company’s approximately 700 most senior leaders. The Company’s average global voluntary turnover rate over the past three years was approximately 8%. The Company believes that these employee tenure and voluntary turnover rates are due, in part, to the resources and support the Company provides to employees throughout their careers, as discussed below.
The Company recognizes that we must maintain our talent advantage by attracting and retaining high performing employees. The Company has established recruiting, retention and development practices that are tailored to deepen talent pools and broaden advancement opportunities for all employees. Our human capital management strategy deploys industry-leading practices to attract, hire, develop and support high performing talent from all backgrounds, geographies and experiences.
Maintaining an Ethical Culture
The Company’s culture of honesty, integrity and accountability is critical to its long-term success. To support this culture, the Company promotes ethics and compliance awareness across its operations. On an annual basis, all employees of the Company’s wholly owned subsidiaries are required to complete the Company’s ethics training and certify that they have reviewed, understand and agree to comply with the Company’s Code of Business Conduct and Ethics and other applicable Company policies.
The Company provides employees with multiple channels to raise concerns, including the Human Resources, Employee Relations and Compliance functions, as well as the Travelers Ethics Helpline. The Company’s independently administered
Ethics Helpline is available to employees and others 24 hours a day, seven days a week to report issues or seek guidance confidentially and anonymously. Trained professionals investigate each concern and, where appropriate, escalate it internally. In addition, the Company maintains a formal Whistleblowing and Non-Retaliation Policy that prohibits retaliation against, or discipline of, an employee who raises concerns in good faith.
Employee Engagement
The Company strives to deliver an employee experience that engages its workforce and strengthens the organization. The Company maintains an Employee Experience function that is responsible for, among other things, an employee experience program that is designed to help drive superior business performance. This function helps the Company create and enhance programs designed to improve employee engagement, reduce attrition and support the retention, growth and satisfaction of the Company’s employees.
The Company uses various methods to evaluate the employee experience and the success of its employee engagement efforts, as well as to inform the strategies the Company uses to enhance those efforts. In addition, the Company’s Chief Human Resources Officer meets regularly with the Chief Executive Officer and other senior leaders to discuss employee engagement strategies and the Company’s progress.
Based on the Company’s employee tenure and voluntary turnover rates, as discussed above, as well as other means the Company uses to evaluate the employee experience and the success of its engagement efforts, the Company believes that its engagement efforts are effective.
Learning and Development
The Company offers various learning and development opportunities to provide its employees with the skills and capabilities they need to be successful. The Company’s enterprise-wide leadership framework outlines the skills and behaviors expected of our leaders. It supports the sustainability of the culture established at Travelers and serves as the underpinning for our leadership training. The Company also offers additional foundational workshops centered on leadership: Coaching for Performance Excellence and Leading World Class Teams.
In addition, the Company offers career mentorship and development programs for both entry-level and experienced professionals. For example, the Company’s Development Programs provide employees with an opportunity to progress through a steady career path in a specific discipline such as Actuarial, Business Insights & Analytics, Data Science, Finance, Human Resources, Engineering (Technology), Operations, Underwriting, Investments or Product Management. Participants complete assignments and rotations designed to help them build upon their strategic thinking skills and business acumen, provide the foundational knowledge and technical skills necessary for success and include on-the-job training, classroom instruction, self-study materials and independent work in an assigned business area. These programs have been a part of the Company’s talent strategy for many years.
Performance and Succession
The Company’s performance management strategy is designed to develop the Company’s talent and equip employees with the skills and resources necessary to ensure the Company’s continued success. To that end, managers assist with setting and monitoring goals, planning, development and discussing opportunities for improvement throughout the year.
The Company also conducts a comprehensive annual talent review, which includes succession planning, to identify and prepare talented employees for future leadership positions. Each line of business identifies talented employees and succession candidates for targeted development and advancement opportunities. This talent review process culminates with the Chief Executive Officer and those reporting directly to him meeting to review succession plans for key positions. In addition, the Chief Executive Officer regularly meets with the Nominating and Governance Committee of the Board of Directors and the full Board of Directors to discuss succession-related matters.
Compensation and Benefits
The Company’s compensation and benefits programs are designed to attract, motivate and retain high performing employees and to help employees be healthy and productive in all aspects of their lives.
Paying employees equitably is the foundation of the Company’s performance-based culture. The Company has comprehensive processes and controls in place and reviews its compensation practices annually with independent, outside experts, in each case to help ensure equitable pay across the Company. Based in part on these measures, the Company believes that it pays its employees equitably, regardless of gender, race or any other protected classification.
The Company’s minimum hourly wage in the United States is $20 as of April 2025. As calculated and reported in the Company’s most recent Proxy Statement filed in April 2025, excluding the Company’s Chairman and Chief Executive Officer, (i) the median of the annual total compensation of all the Company’s employees was approximately $121,000, and (ii) the median of the annual total compensation of the Company’s full-time U.S. employees who worked for the Company for the entire year, who comprised approximately 90% of its U.S. workforce, was approximately $131,000.
The Company takes a holistic approach with respect to the physical, mental and financial well-being of its employees. The Company offers comprehensive, flexible benefit options for its employees. In the United States, these include, among others:
Health and Wellness
• Medical, dental, vision and prescription drug coverage;
• Health savings and flexible spending accounts;
• The my Wellness platform, a mobile-friendly, easy-to-use application, which allows employees to track activity levels, improve sleep, take self-guided courses and much more;
• Round-the-clock access to the Company’s employee assistance program, which provides employees access to professional counseling services, life coaching and support resources;
• Included Health, a free service for employees and dependents enrolled in the Company’s medical plan that matches members to top-ranked doctors, provides expert second opinions and assists in navigating the health care system; and
• Caregiving Support from Wellthy, a benefit that helps employees navigate the challenges of caring for children, aging family members or loved ones who are chronically ill.
Savings and Retirement
• A 401(k) Savings Plan, through which the Company matches employee contributions dollar-for-dollar up to 5% of eligible pay, with a maximum annual Company match of $7,500 for 2025 and $8,000 for 2026;
• The Paying It Forward Savings Program, through which the Company supports employees with student loans by making an annual contribution in the employee’s 401(k) account equal to the annual student loan payments. The combined maximum of the 401(k) match and the Paying It Forward savings contribution is 5% of eligible pay, up to a maximum of $7,500 for 2025 and $8,000 for 2026;
• A Pension Plan that provides annual pay credits from 2% to 6% of eligible pay based on age and years of service, plus quarterly interest credits;
• Financial education program, free one on one guidance sessions, on-demand financial webinars and workshops; and
• Investment advisory service that provides day-to-day management of employees 401(k) account.
Other
• Life insurance;
• Short- and long-term disability coverages;
• Paid time-off, starting at 20 days per year, up to a maximum of 30 days per year based on years of service, plus the ability to purchase up to six additional days per year;
• Designated Company holidays plus floating holiday(s);
• Paid parental and adoption leave;
• Childcare discounts;
• A Legal Services Plan;
• An Educational Assistance Program;
• A corporate discount program; and
• Paid time off for volunteering.
Board Oversight of Human Capital Management
The Company’s Board of Directors takes an active role in overseeing the Company’s human capital management strategy, including its diversity and inclusion efforts. The Chief Human Resources Officer and other senior executives present to the Board regularly on human capital management matters, including the progress the Company has made over time. Additionally, pursuant to its charter, the Nominating and Governance Committee of the Board meets regularly with senior management, including the Chief Executive Officer and the Chief Human Resources Officer, to review and discuss the Company’s strategies to encourage diversity and inclusion within the Company. Pursuant to its charter, the Compensation Committee of the Board, which is advised by an independent compensation consultant, reviews and approves the Company’s general compensation philosophy and objectives. In addition, the Compensation Committee meets with senior management on a regular basis to discuss the Company’s practices designed to help ensure equitable pay across the organization.
Taxation
For a discussion of tax matters affecting the Company and its operations, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 13 of the notes to the consolidated financial statements.
Intellectual Property
The Company relies on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect its intellectual property. With respect to trademarks specifically, the Company has registrations in many countries, including the United States, for its material trademarks, including the “Travelers” name and the Company’s iconic umbrella logo. The Company has the right to retain its material trademark rights in perpetuity, so long as it satisfies the use and registration requirements of all applicable countries. The Company regards its trademarks as highly valuable assets in marketing its products and services and vigorously seeks to protect its trademarks against infringement. See “Item 1A—Risk Factors—Intellectual property is important to our business, and we may be unable to protect and enforce our own intellectual property or we may be subject to claims for infringing the intellectual property of others.”
Company Website, Social Media and Availability of SEC Filings
The Company’s internet website is travelers.com . Information on the Company’s website is not incorporated by reference herein and is not a part of this Form 10-K. The Company makes available free of charge on its website or provides a link on its website to the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the SEC. To access these filings, go to the Company’s website and under the “Investors” heading, click on “Financial Information” then “SEC Filings.”
The Company may use its website and/or social media outlets, such as Facebook and X, as distribution channels of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at investor.travelers.com , its Facebook page at facebook.com/travelers and its X account (@Travelers) at x.com/travelers . In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting “Email Notifications” under the “Investor Toolkit” section at investor.travelers.com .
Glossary of Selected Insurance Terms
Accident year
The annual calendar accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid.
Adjusted unassigned surplus
Unassigned surplus as of the most recent statutory annual report reduced by twenty-five percent of that year’s unrealized appreciation in value or revaluation of assets or unrealized profits on investments, as defined in that report.
Admitted insurer
A company licensed to transact insurance business within a state.
Agent
A licensed individual who sells and services insurance policies, receiving a commission from the insurer for selling the business and a fee for servicing it. An independent agent represents multiple insurance companies and searches the market for the best product for its client.
Annuity
A contract that pays a periodic benefit over the remaining life of a person (the annuitant), the lives of two or more persons or for a specified period of time.
Assigned risk pools
Reinsurance pools which cover risks for those unable to purchase insurance in the voluntary market. Possible reasons for this inability include the risk being too great or the profit being too small under the required insurance rate structure. The costs of the risks associated with these pools are charged back to insurance carriers in proportion to their direct writings.
Assumed reinsurance
Insurance risks acquired from a ceding company.
Book value per share
Total common shareholders’ equity divided by the number of common shares outstanding.
Broker
One who negotiates contracts of insurance or reinsurance on behalf of an insured party, receiving a commission from the insurer or reinsurer for placement and other services rendered.
Capacity
The percentage of statutory capital and surplus, or the dollar amount of exposure, that an insurer or reinsurer is willing or able to place at risk. Capacity may apply to a single risk, a program, a line of business or an entire book of business. Capacity may be constrained by legal restrictions, corporate restrictions or indirect restrictions.
Captive
A closely-held insurance company whose primary purpose is to provide insurance coverage to the company’s owners or their affiliates.
Case reserves
Claim department estimates of anticipated future payments to be made on each specific individual reported claim.
Casualty insurance
Insurance which is primarily concerned with the losses caused by injuries to third persons, i.e., not the insured, and the legal liability imposed on the insured resulting therefrom. It includes, but is not limited to, employers’ liability, workers’ compensation, public liability, automobile liability, personal liability and aviation liability insurance. It excludes certain types of losses that by law or custom are considered as being exclusively within the scope of other types of insurance, such as fire or marine.
Catastrophe
A severe loss event designated, or reasonably expected by the Company to be designated, a catastrophe by one or more industry recognized organizations that track and report on insured losses resulting from catastrophic events, such as Property Claim Services (PCS) for events in the United States and Canada. Catastrophes can be caused by various natural events, including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions and other naturally-occurring events, such as solar flares. Catastrophes can also be man-made, such as terrorist attacks and other destructive acts, including those involving nuclear, biological, chemical and radiological events, cyber events, explosions and destruction of infrastructure. Each catastrophe has unique characteristics and catastrophes are not predictable as to timing or amount. Their effects are included in net and core income and and claim adjustment expense reserves upon occurrence. A may also result in the payment of reinsurance reinstatement premiums and assessments from various pools and associations. The Company’s threshold for is primarily determined at the reportable segment level. If a threshold for one segment or a combination thereof is reached and the other segments have from the same event, from the event are identified as in the segment results and for the consolidated results of the Company. Additionally, an aggregate threshold is applied for International business across all reportable segments. For 2025, the threshold ranged from approximately $20 million to $30 million of before reinsurance and taxes.
Catastrophe loss
Loss and directly identified loss adjustment expenses from catastrophes, as well as related reinsurance reinstatement premiums and assessments from various pools.
Catastrophe reinsurance
A form of excess-of-loss reinsurance which, subject to a specified limit, indemnifies the ceding company for the amount of loss in excess of a specified retention with respect to an accumulation of losses and related reinsurance reinstatement premiums resulting from a catastrophic event. The actual reinsurance document is called a “catastrophe cover.” These reinsurance contracts are typically designed to cover property insurance losses but can be written to cover casualty insurance losses such as from workers’ compensation policies.
Cede; ceding company
When an insurer reinsures its liability with another insurer or a “cession,” it “cedes” business and is referred to as the “ceding company.”
Ceded reinsurance
Insurance risks transferred to another company as reinsurance. See “Reinsurance.”
Claim
Request by an insured for indemnification by an insurance company for loss incurred from an insured peril.
Claim adjustment expenses
See “Loss adjustment expenses (LAE).”
Claims and claim adjustment expenses
See “Loss” and “Loss adjustment expenses (LAE).”
Claims and claim adjustment expense reserves
See “Loss reserves.”
Cohort
A group of items or individuals that share a particular statistical or demographic characteristic. For example, all claims for a given product in a given market for a given accident year would represent a cohort of claims.
Combined ratio
For Statutory Accounting Practices (SAP), the combined ratio is the sum of the SAP loss and LAE ratio and the SAP underwriting expense ratio as defined in the statutory financial statements required by insurance regulators. The combined ratio as used in this report is the equivalent of, and is calculated in the same manner as, the SAP combined ratio except that the SAP underwriting expense ratio is based on net written premium and the underwriting expense ratio as used in this report is based on net earned premiums.
The combined ratio is an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business and overall underwriting profitability. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
Other companies’ method of computing a similarly titled measure may not be comparable to the Company’s method of computing this ratio.
Commercial multi-peril policies
Refers to policies which cover both property and third-party liability exposures.
Commutation agreement
An agreement between a reinsurer and a ceding company whereby the reinsurer pays an agreed-upon amount in exchange for a complete discharge of all obligations, including future obligations, between the parties for reinsurance losses incurred.
Core income (loss)
Consolidated net income (loss) excluding the after-tax impact of net realized investment gains (losses), discontinued operations, the effect of a change in tax laws and tax rates at enactment date, and cumulative effect of changes in accounting principles when applicable. Financial statement users consider core income when analyzing the results and trends of insurance companies.
Debt-to-total capital ratio
The ratio of debt to total capitalization.
Debt-to-total capital ratio excluding net unrealized gain (loss) on investments
The ratio of debt to total capitalization excluding the after-tax impact of net unrealized investment gains and losses included in shareholders’ equity.
Deductible
The amount of loss that an insured retains.
Deferred acquisition costs (DAC)
Incremental direct costs of acquired and renewal insurance contracts, consisting of commissions (other than contingent commissions) and premium-related taxes that are deferred and amortized to achieve a matching of revenues and expenses when reported in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Deficiency
With regard to reserves for a given liability, a deficiency exists when it is estimated or determined that the reserves are insufficient to pay the ultimate settlement value of the related liabilities. Where the deficiency is the result of an estimate, the estimated amount of deficiency (or even the finding of whether or not a deficiency exists) may change as new information becomes available.
Demand surge
Significant short-term increases in building material and labor costs due to a sharp increase in demand for those materials and services, commonly as a result of a large catastrophe resulting in significant widespread property damage.
Direct written premiums
The amounts charged by an insurer to insureds in exchange for coverages provided in accordance with the terms of an insurance contract. The amounts exclude the impact of all reinsurance premiums, either assumed or ceded.
Earned premiums or premiums earned
That portion of property casualty premiums written that applies to the expired portion of the policy term. Earned premiums are recognized as revenues under both SAP and GAAP.
Earned pricing
The impact of renewal premium change on earned premiums relative to the impact of loss cost trends and other related factors on loss and loss adjustment expenses.
Excess and surplus lines insurance
Insurance for risks not covered by standard insurance due to the unique nature of the risk. Risks could be placed in excess and surplus lines markets due to any number of characteristics, such as loss experience, unique or unusual exposures, or insufficient experience in business. Excess and surplus lines are less regulated by the states, allowing greater flexibility to design specific insurance coverage and negotiate pricing based on the risks to be secured.
Excess liability
Additional casualty coverage above a layer of insurance exposures.
Excess-of-loss reinsurance
Reinsurance that indemnifies the reinsured against all or a specified portion of losses over a specified dollar amount or “retention.”
Exposure
The measure of risk used in the pricing of an insurance product. The change in exposure is the amount of change in premium on policies that renew attributable to the change in portfolio risk.
Facultative reinsurance
The reinsurance of all or a portion of the insurance provided by a single policy. Each policy reinsured is separately negotiated.
Fair Access to Insurance Requirements (FAIR) Plan
A residual market mechanism which provides property insurance to those unable to obtain such insurance through the regular (voluntary) market. FAIR plans are set up on a state-by-state basis to cover only those risks in that state. For more information, see “residual market (involuntary business).”
Fidelity and surety programs
Fidelity insurance coverage protects an insured for loss due to embezzlement or misappropriation of funds by an employee. Surety is a three-party agreement in which the insurer agrees to pay a third party or make complete an obligation in response to the default, acts or omissions of an insured.
Gross written premiums
The direct and assumed contractually determined amounts charged to the policyholders for the effective period of the contract based on the terms and conditions of the insurance contract.
Ground-up analysis
A method to estimate ultimate claim costs for a given cohort of claims such as an accident year/product line component. It involves analyzing the exposure and claim activity at an individual insured level and then through the use of deterministic or stochastic scenarios and/or simulations, estimating the ultimate losses for those insureds. The total losses for the cohort are then the sum of the losses for each individual insured.
In practice, the method is sometimes simplified by performing the individual insured analysis only for the larger insureds, with the costs for the smaller insureds estimated via sampling approaches (extrapolated to the rest of the smaller insured population) or aggregate approaches (using assumptions consistent with the ground-up larger insured analysis).
Guaranteed-cost products
An insurance policy where the premiums charged will not be adjusted for actual loss experience during the covered period.
Guaranty fund
A state-regulated mechanism that is financed by assessing insurers doing business in those states. Should insolvencies occur, these funds are available to meet some or all of the insolvent insurer’s obligations to policyholders.
Holding company liquidity
Total cash, short-term invested assets and other readily marketable securities held by the holding company.
Incurred but not reported (IBNR) reserves
Reserves for estimated losses and LAE that have been incurred but not yet reported to the insurer. This includes amounts for unreported claims, development on known cases and re-opened claims.
Inland marine
A broad type of insurance generally covering articles that may be transported from one place to another, as well as bridges, tunnels and other instrumentalities of transportation. It includes goods in transit, generally other than transoceanic, and may include policies for movable objects such as personal effects, personal property, jewelry, furs, fine art and others.
Insurance Regulatory Information System (IRIS) ratios
Financial ratios calculated by the NAIC to assist state insurance departments in monitoring the financial condition of insurance companies.
Large deductible policy
An insurance policy where the customer assumes at least $25,000 or more of each loss. Typically, the insurer is responsible for paying the entire loss under those policies and then seeks reimbursement from the insured for the deductible amount.
Lloyd’s
An insurance marketplace based in London, England, where brokers, representing clients with insurable risks, deal with Lloyd’s underwriters, who represent investors. The investors are grouped together into syndicates that provide capital to insure the risks.
Loss
An occurrence that is the basis for submission and/or payment of a claim. Losses may be covered, limited or excluded from coverage, depending on the terms of the policy.
Loss adjustment expenses (LAE)
The expenses of settling claims, including legal and other fees and the portion of general expenses allocated to claim settlement costs.
Loss and LAE ratio
For SAP, the loss and LAE ratio is the ratio of incurred losses and loss adjustment expenses less certain administrative services fee income to net earned premiums as defined in the statutory financial statements required by insurance regulators. The loss and LAE ratio as used in this report is calculated in the same manner as the SAP ratio.
The loss and LAE ratio is an indicator of the Company’s underwriting discipline and underwriting profitability.
Other companies’ method of computing a similarly titled measure may not be comparable to the Company’s method of computing this ratio.
Loss reserves
Liabilities established by insurers and reinsurers to reflect the estimated cost of claims incurred that the insurer or reinsurer will ultimately be required to pay in respect of insurance or reinsurance it has written. Reserves are established for losses and for LAE, and consist of case reserves and IBNR reserves. As the term is used in this document, “loss reserves” is meant to include reserves for both losses and LAE.
Loss reserve development
The increase or decrease in incurred claims and claim adjustment expenses as a result of the re-estimation of claims and claim adjustment expense reserves at successive valuation dates for a given group of claims. Loss reserve development may be related to prior year or current year development.
Losses incurred
The total losses sustained by an insurance company under a policy or policies, whether paid or unpaid. Incurred losses include a provision for IBNR.
National Association of Insurance Commissioners (NAIC)
An organization of the insurance commissioners or directors of all 50 states, the District of Columbia and the five U.S. territories organized to promote consistency of regulatory practice and statutory accounting standards throughout the United States.
Net written premiums
Direct written premiums plus assumed reinsurance premiums less premiums ceded to reinsurers.
New business volume
The amount of written premiums related to new policyholders and additional products sold to existing policyholders.
Pool
An organization of insurers or reinsurers through which particular types of risks are underwritten with premiums, losses and expenses being shared in agreed-upon percentages.
Premiums
The amount charged during the year on policies and contracts issued, renewed or reinsured by an insurance company.
Probable maximum loss (PML)
The maximum amount of loss that the Company would be expected to incur on a policy if a loss were to occur, giving effect to collateral, reinsurance and other factors.
Property insurance
Insurance that provides coverage to a person or business with an insurable interest in tangible property for that person’s or business’s property loss, damage or loss of use.
Quota share reinsurance
Reinsurance wherein the insurer cedes an agreed-upon fixed percentage of liabilities, premiums and losses for each policy covered on a pro rata basis.
Rates
Amounts charged per unit of insurance.
Redundancy
With regard to reserves for a given liability, a redundancy exists when it is estimated or determined that the reserves are greater than what will be needed to pay the ultimate settlement value of the related liabilities. Where the redundancy is the result of an estimate, the estimated amount of redundancy (or even the finding of whether or not a redundancy exists) may change as new information becomes available.
Reinstatement premiums
Additional premiums payable to reinsurers to restore coverage limits that have been exhausted as a result of reinsured losses under certain excess-of-loss reinsurance treaties.
Reinsurance
The practice whereby one insurer, called the reinsurer, in consideration of a premium paid to that insurer, agrees to indemnify another insurer, called the ceding company, for part or all of the liability of the ceding company under one or more policies or contracts of insurance which it has issued.
Reinsurance agreement
A contract specifying the terms of a reinsurance transaction.
Renewal premium change
The estimated change in average premium on policies that renew, including rate and exposure changes. Such statistics are subject to change based on a number of factors, including changes in estimates.
Renewal rate change
The estimated change in average premium on policies that renew, excluding exposure changes. Such statistics are subject to change based on a number of factors, including changes in estimates.
Residual market (involuntary business)
Insurance market which provides coverage for risks for those unable to purchase insurance in the voluntary market. Possible reasons for this inability include the risks being too great or the profit potential too small under the required insurance rate structure. Residual markets are frequently created by state legislation either because of lack of available coverage such as: property coverage in a windstorm prone area or protection of the accident victim as in the case of workers’ compensation. The costs of the residual market are usually charged back to the direct insurance carriers in proportion to the carriers’ voluntary market shares for the type of coverage involved.
Retention
The amount of exposure a policyholder company retains on any one risk or group of risks. The term may apply to an insurance policy, where the policyholder is an individual, family or business, or a reinsurance policy, where the policyholder is an insurance company.
Retention rate
The percentage of prior period premiums (excluding renewal premium changes), accounts or policies available for renewal in the current period that were renewed. Such statistics are subject to change based on a number of factors, including changes in estimates.
Retrospective premiums
Premiums related to retrospectively rated policies.
Retrospective rating
A plan or method which permits adjustment of the final premium or commission on the basis of actual loss experience, subject to certain minimum and maximum limits.
Return on equity
The ratio of net income (loss) less preferred dividends to average shareholders’ equity.
Risk-based capital (RBC)
A measure adopted by the NAIC and enacted by states for determining the minimum statutory policyholders’ surplus requirements of insurers. Insurers having total adjusted capital less than that required by the RBC calculation will be subject to varying degrees of regulatory action depending on the level of capital inadequacy.
Risk retention group
An alternative form of insurance in which members of a similar profession or business band together to self insure their risks.
Runoff business
An operation that has been determined to be nonstrategic and where the business is in runoff through non-renewal of in-force policies, cessation of writing new business, or no longer offering coverages.
Salvage
The amount of money an insurer recovers through the sale of property transferred to the insurer as a result of a loss payment.
Second-injury fund
The employer of an injured, impaired worker is responsible only for the workers’ compensation benefit for the most recent injury; the second-injury fund would cover the cost of any additional benefits for aggravation of a prior condition. The cost is shared by the insurance industry and self-insureds, funded through assessments to insurance companies and self-insureds based on either premiums or losses.
Segment income (loss)
Determined in the same manner as core income (loss) on a segment basis. Management uses segment income (loss) to analyze each segment’s performance and as a tool in making business decisions. Financial statement users also consider segment income when analyzing the results and trends of insurance companies.
Self-insured retentions
That portion of the risk retained by an insured for its own account.
Servicing carrier
An insurance company that provides, for a fee, various services including policy issuance, claims adjusting and customer service for insureds in a reinsurance pool.
Statutory accounting practices (SAP)
The practices and procedures prescribed or permitted by domiciliary state insurance regulatory authorities in the United States for recording transactions and preparing financial statements. SAP generally reflect a modified going concern basis of accounting.
Statutory capital and surplus
The excess of an insurance company’s admitted assets over its liabilities, including loss reserves, as determined in accordance with SAP. Admitted assets are assets of an insurer prescribed or permitted by a state to be recognized on the statutory balance sheet. Statutory capital and surplus is also referred to as “statutory surplus” or “policyholders’ surplus.”
Statutory net income
As determined under SAP, total revenues less total expenses and income taxes.
Structured settlement
Periodic payments to an injured person or survivor for a determined number of years or for life, typically in settlement of a claim under a liability policy, usually funded through the purchase of an annuity.
Subrogation
A principle of law incorporated in insurance policies, which enables an insurance company, after paying a claim under a policy, to recover the amount of the loss from another person or entity who is legally liable for it.
Tenure impact
As new business volume increases and accounts for a greater percentage of earned premiums, the loss and LAE ratio generally worsens initially, as the loss and LAE ratio for new business is generally higher than the ratio for business that has been retained for longer periods. As poorer performing business leaves and pricing segmentation improves on renewal of the business that is retained, the loss and LAE ratio is expected to improve in future years.
Third-party liability
A liability owed to a claimant (third party) who is not one of the two parties to the insurance contract. Insured liability claims are referred to as third-party claims.
Total capitalization
The sum of total shareholders’ equity and debt.
Treaty reinsurance
The reinsurance of a specified type or category of risks defined in a reinsurance agreement (a “treaty”) between a primary insurer or other reinsured and a reinsurer. Typically, in treaty reinsurance, the primary insurer or reinsured is obligated to offer and the reinsurer is obligated to accept a specified portion of all that type or category of risks originally written by the primary insurer or reinsured.
Umbrella coverage
A form of insurance protection against losses in excess of amounts covered by other liability insurance policies or amounts not covered by the usual liability policies.
Unassigned surplus
The undistributed and unappropriated amount of statutory capital and surplus.
Underlying combined ratio
The underlying combined ratio is the sum of the underlying loss and LAE ratio and the underlying underwriting expense ratio. The underlying combined ratio is an indicator of the Company’s underwriting discipline and underwriting profitability for the current accident year.
Underlying loss and LAE ratio
The underlying loss and LAE ratio is the loss and LAE ratio, adjusted to exclude the impact of catastrophes and prior year reserve development. The underlying loss and LAE ratio is an indicator of the Company’s underwriting discipline and underwriting profitability for the current accident year.
Underlying underwriting expense ratio
The underlying underwriting expense ratio is the underwriting expense ratio adjusted to exclude the impact of catastrophes.
Underlying underwriting margin
Net earned premiums and fee income less claims and claim adjustment expenses (excluding catastrophe losses and prior year reserve development) and insurance-related expenses.
Underwriter
An employee of an insurance company who examines, accepts or rejects risks and classifies accepted risks in order to charge an appropriate premium for each accepted risk. The underwriter is expected to select business that will produce an average risk of loss no greater than that anticipated for the class of business.
Underwriting
The insurer’s or reinsurer’s process of reviewing applications for insurance coverage, and the decision as to whether to accept all or part of the coverage and determination of the applicable premiums; also refers to the acceptance of that coverage.
Underwriting expense ratio
For SAP, the underwriting expense ratio is the ratio of underwriting expenses incurred (including commissions paid), less certain administrative services fee income and billing and policy fees, to net written premiums as defined in the statutory financial statements required by insurance regulators. The underwriting expense ratio as used in this report is the ratio of underwriting expenses (including the amortization of deferred acquisition costs), less certain administrative services fee income, billing and policy fees and other, to net earned premiums.
The underwriting expense ratio is an indicator of the Company’s efficiency in acquiring and servicing its business.
Other companies’ method of computing a similarly titled measure may not be comparable to the Company’s method of computing this ratio.
Underwriting gain or loss
Net earned premiums and fee income less claims and claim adjustment expenses and insurance-related expenses.
Unearned premium
The portion of premiums written that is allocable to the unexpired portion of the policy term.
Voluntary market
The market in which a person seeking insurance obtains coverage without the assistance of residual market mechanisms.
Wholesale broker
An independent or exclusive agent that represents both admitted and non-admitted insurers in market areas, which include standard, non-standard, specialty and excess and surplus lines of insurance. The wholesaler does not deal directly with the insurance consumer. The wholesaler deals with the retail agent or broker.
Workers’ compensation
A system (established under state and federal laws) under which employers provide insurance for benefit payments to their employees for work-related injuries, deaths and diseases, regardless of fault.
Item 1A. RISK FACTORS
You should carefully consider the following risks and all of the other information set forth in this report, including without limitation our consolidated financial statements and the notes thereto and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates.” The following risk factors have been organized by category for ease of use; however, many of the risks may have impacts in more than one category.
Insurance-Related Risks
High levels of catastrophe losses, including as a result of factors such as increased concentrations of insured exposures in catastrophe-prone areas and changing climate conditions, could materially and adversely affect our results of operations, our financial position and/or liquidity, and could adversely impact our ratings, our ability to raise capital and the availability and cost of reinsurance. Our property and casualty insurance operations expose us to claims arising out of catastrophes in each of the geographies where we write business and to varying peak catastrophe perils in different countries and regions. Catastrophes can be caused by various natural events, including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions, solar flares and other naturally occurring events. can also be man-made, such as terrorist attacks and other acts including those involving cyber events, nuclear, biological, chemical and radiological events, civil , explosions and of infrastructure.
The incidence and severity of catastrophes are inherently unpredictable, and it is possible that both the frequency and severity of natural and man-made catastrophic events could increase. Severe weather events over the last few decades have underscored the unpredictability of climate trends. For example, the frequency and/or severity of hurricane, tornado, hail and wildfire events in the United States have been more volatile during this time period. The insurance industry has experienced increased catastrophe losses due to a number of potential factors, including, in addition to weather/climate variability, aging infrastructure, more people living in, and moving to, high-risk areas, population growth in areas with weaker enforcement of building codes, urban expansion, an increase in the number of amenities included in, and the average size of, a home and higher inflation, including as a result of post-event demand surge. We believe that changing climate conditions have also likely added to the frequency and of natural and created additional uncertainty as to future trends and exposures. Climate studies by government agencies, academic institutions, modeling organizations and other groups indicate that an increase in the frequency and/or intensity of hurricanes, hail and convective storms, heavy precipitation events and associated river, urban and flash flooding, sea level rise, , heat waves and wildfires has occurred, and can be expected into the future. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations— Modeling” and “—Changing Climate Conditions.”
All of the catastrophe modeling tools that we use or rely on to evaluate our catastrophe exposures are based on significant assumptions and judgments and are subject to error and mis-estimation. As a result, our estimated exposures could be materially different than our actual results. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Catastrophe Modeling” and “—Changing Climate Conditions.” In addition, for newer and rapidly evolving products, such as cyber insurance, limited historical loss experience and the potential for a widespread cyber event decrease the efficacy of modeling tools and increase the level of uncertainty related to the product, and as a result, the inherent potential for unexpected material economic loss.
The extent of losses from a catastrophe is a function of the total amount of insured exposure affected by the event, the severity of the event and the coverage provided. For example, the specific location impacted by tornadoes is inherently random and unpredictable, and the specific location impacted by a tornado may or may not be highly populated and may or may not have a high concentration of our insured exposures. Similarly, the potential for losses from a cyber event can be magnified to the extent that the event impacts geographies, platforms, systems or vulnerabilities shared by a large number of policyholders, such as cloud-based software platforms, or in the event threat actors continue to expand their use of new and developing technologies, including artificial intelligence. In addition, increases in the value and geographic concentration of insured property, the number of policyholders exposed to certain events and the effects of inflation could increase the severity of claims resulting from a . For example, in recent years, the effects of inflation, including as a result of post-event demand surge, have increased , and this could occur again in the future. to electrical power supplies have also increased arising from natural events, a dynamic which may become more frequent as dependency on electricity increases and/or if the reliability of the electric grid decreases. to electrical power supplies could result from non-natural events as well, including cyber events.
States have from time to time passed legislation, and regulators have taken action, that have the effect of limiting the ability of insurers to manage catastrophe risk, such as by restricting insurers from reducing exposures or withdrawing from catastrophe-prone areas, limiting insurers’ ability to increase prices, requiring price reductions or discounts or mandating that insurers participate in residual markets. Residual markets have resulted in, and may in the future result in, significant losses or assessments to insurers, including us. For example, the January 2025 California wildfires resulted in assessments to insurers from the California FAIR Plan. In addition, legislative, regulatory and legal actions have sought to expand insurance coverage for catastrophe claims beyond the original intent of the policies, prevent the application of deductibles or limit other rights of insurers. We may not be able to adjust terms or adequately raise prices to offset the costs of catastrophes. See “Item 1—Business—U.S. State and Federal Regulation—Regulatory and Legislative Responses to .”
The estimation of claims and claim adjustment expense reserves related to catastrophe losses can be affected by, among other things, the nature of the information available at the time of estimation, coverage issues, and legal, regulatory and economic uncertainties. The estimates related to catastrophe losses are adjusted in subsequent periods as actual claims emerge and additional information becomes available, and these adjustments could be material.
Exposure to catastrophe losses could adversely affect our financial strength and claims-paying ratings and could impair our ability to raise capital on acceptable terms or at all. Also, as a result of our exposure to catastrophe losses, rating agencies may further increase capital requirements, which may require us to raise capital to maintain our ratings. A ratings downgrade could hurt our ability to compete effectively or attract new business. In addition, catastrophic events could cause us to exhaust our available reinsurance limits and could adversely impact the cost and availability of reinsurance on a going-forward basis. Such events can also impact the credit of our reinsurers. For a discussion of our catastrophe reinsurance coverage, see “Item 1—Business—Reinsurance— Reinsurance.” events could also impact the credit of the issuers of securities held in our investment portfolio, such as states or municipalities.
In addition, coverage in our reinsurance program for terrorism is limited. Although the Terrorism Risk Insurance Program provides benefits in the event of certain acts of terrorism, those benefits are subject to a deductible and other limitations, and the program is scheduled to expire on December 31, 2027. Under current provisions of this program, once our losses exceed 20% of our eligible direct commercial earned premiums for the preceding calendar year, the federal government will reimburse us for 80% of our losses attributable to certain acts of terrorism which exceed this deductible up to a total industry program cap of $100 billion. Our estimated deductible under the program is $4.01 billion for 2026. For a further description of the Terrorism Risk Insurance Program, see note 6 of the notes to the consolidated financial statements.
Because of the risks set forth above, catastrophes could materially and adversely affect our results of operations, financial position and/or liquidity. Further, we may not have sufficient resources to respond to claims arising from a high frequency of high-severity natural catastrophes and/or of man-made catastrophic events involving conventional means or claims arising out of one or more man-made catastrophic events involving cyber, nuclear, biological, chemical or radiological means.
If actual claims exceed our claims and claim adjustment expense reserves, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal/tort, regulatory and economic environments in which the Company operates, our financial results could be materially and adversely affected. Claims and claim adjustment expense reserves (“loss reserves”) represent management estimates of what the ultimate settlement and administration of claims will cost, generally utilizing actuarial expertise and projection techniques, at a given accounting date. The process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables and significant uncertainty. These variables can be affected by both internal and external events, such as: changes in claims handling procedures, including automation; adverse changes in loss cost trends, including inflationary pressures, technology or other changes that may impact medical, auto and home repair costs (e.g., more technology in vehicles, labor , supply chain , higher costs of used vehicles and parts, and increased demand and decreased supply for raw materials, all of which result in increased of ); economic conditions, including general and wage inflation; legal trends, including changes in the tort environment that have continued to at elevated levels for a number of years (e.g., increased and more aggressive attorney involvement in insurance , increased , expanded theories of liability, higher jury awards, lawsuit and third-party finance, among others); companies hiring less experienced workers, which can increase ; higher interest rates, which can result in higher post-judgment interest costs; and legislative changes, among others. The impact of many of these items on ultimate costs for reserves could be material and is to estimate. reserve estimation also differ significantly by product line due to differences in claim complexity, the volume of , the potential of individual , the determination of occurrence date for a claim and in reporting of events to insurers, among other factors.
Inflation in recent years significantly increased our loss costs in our personal and commercial businesses. Inflation higher than at the levels that the Company anticipates could negatively impact our loss costs in future periods. It is possible that, among other things, potential actions taken by the federal government, such as tax reform or changes in international trade regulation, including tariffs, could lead to higher than anticipated inflation. The impact of inflation on loss costs could be more pronounced for those lines of business that are considered “long tail,” such as general liability and workers’ compensation, as they require a relatively long period of time to finalize and settle claims for a given accident year or require payouts over a long period of time. In addition, a significant portion of claims costs, including those in “long tail” lines of business, consists of medical costs. As a result, an increase in medical inflation could materially and adversely impact our loss costs and our claims and claim adjustment expense reserves. Changes in the inflationary environment in recent years have impacted medical labor and materials costs, the potential persistency of which could result in future costs which are higher than our current expectations. In addition to the impact of inflation on reserves, on a going forward basis, we may not be to offset the impact of inflation on our costs with sufficient price increases. The estimation of reserves may also be more
during extreme events, such as a pandemic, or during volatile or uncertain economic conditions, due to unexpected changes in behavior of claimants and policyholders, including an increase in fraudulent reporting of exposures and/or losses, reduced maintenance of insured properties, increased frequency of small claims or delays in the reporting or adjudication of claims.
We refine our loss reserve estimates as part of a regular, ongoing process as historical loss experience develops, additional claims are reported and settled, and the legal, regulatory and economic environment evolves. Business judgment is applied throughout the process, including the application of various individual experiences and expertise to multiple sets of data and analyses. Additionally, models and technology are used in the claim estimation process, which can present risks of model inaccuracy. Different experts may apply different assumptions and judgments when faced with material uncertainty, based on their individual backgrounds, professional experiences and areas of focus. As a result, these experts may at times produce estimates materially different from each other. This risk may be exacerbated in the context of an extreme event or an acquisition. Experts providing input to the various estimates, models and underlying assumptions include actuaries, underwriters, claim personnel and lawyers, as well as other members of management. Therefore, management often considers varying individual viewpoints as part of its estimation of loss reserves.
Due to the inherent uncertainty underlying loss reserve estimates, the final resolution of the estimated liability for claims and claim adjustment expenses will likely be higher or lower than the related loss reserves at the reporting date. In addition, our estimate of claims and claim adjustment expenses is likely to change. These additional liabilities or increases in estimates, or a range of either, could vary significantly from period to period and could materially and adversely affect our results of operations and/or our financial position. For a discussion of loss reserves by product line, including examples of common factors that can affect reserves, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates—Claims and Claim Adjustment Expense Reserves.”
Our business could be harmed because of our continued exposure to asbestos claims and related litigation. We continue to receive a significant number of asbestos claims. Factors underlying these claim filings include continued intensive advertising by lawyers seeking asbestos claimants and the continued focus by plaintiffs on defendants, such as manufacturers of talcum powder, who were not traditionally sued and/or primary targets of asbestos litigation. We also continue to be involved in coverage litigation concerning a number of policyholders, some of whom have filed for bankruptcy, who in some instances have asserted that all or a portion of their asbestos-related claims are not subject to aggregate limits on coverage and/or that each individual bodily injury claim should be treated as a separate occurrence under the policy. To the extent both issues are resolved in a policyholder’s favor and our other defenses are not , our coverage obligations under the policies at issue would be materially increased and bounded only by the applicable per-occurrence limits and the number of asbestos bodily the policyholders. Although we have seen a moderation in the overall risk associated with these lawsuits, it remains to predict the ultimate cost of these . Further, in addition to policyholders, proceedings have been launched directly insurers, including us, by individuals insurers’ conduct with respect to the handling of past asbestos and by individuals seeking arising from asbestos-related bodily . It is possible that the filing of other direct actions insurers, including us, could be made in the future.
As mentioned above, the Company has been, and continues to be, involved in litigation involving insurance coverage issues pertaining to asbestos claims. The Company believes that some court decisions have interpreted the insurance coverage to be broader than the original intent of the insurers and policyholders. These decisions continue to be inconsistent and vary from jurisdiction to jurisdiction. Uncertainties surrounding the final resolution of these asbestos claims continue, and it is difficult to estimate our ultimate liability for such claims and related litigation. As a result, these reserves are subject to revision as new information becomes available and as claims develop. It is also not possible to predict changes in the legal, regulatory and legislative environment and their impact on the future development of asbestos claims. This environment could be affected by changes in applicable legislation and future court and regulatory decisions and interpretations, including the outcome of legal challenges to legislative and/or judicial reforms establishing medical criteria for the pursuit of asbestos . It is also to predict the ultimate outcome of complex coverage until settlement negotiations near completion and significant legal are resolved or, settlement, until the is adjudicated. This is particularly the case with policyholders in where negotiations often involve a large number of claimants and other parties and require court approval to be .
It is possible that the outcome of the continued uncertainties regarding these claims could result in liability in future periods that differs from current reserves by an amount that could materially and adversely affect our results of operations. See the “Asbestos Claims and Litigation” and “Uncertainty Regarding Adequacy of Asbestos Reserves” sections of “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Also see “Item 3—Legal Proceedings.”
We are exposed to, and may face adverse developments involving, mass tort claims such as those relating to exposure to potentially harmful products or substances. We face exposure to mass tort claims, including claims related to exposure to
potentially harmful products or substances, such as perfluoroalkyl and polyfluoroalkyl substances (PFAS), talc, opioids and lead. Establishing loss reserves for mass tort claims is subject to significant uncertainties because of many factors, including adverse changes to the tort environment that have continued to persist at elevated levels for a number of years (e.g., increased and more aggressive attorney involvement in insurance claims, increased litigation, expanded theories of liability, higher jury awards, lawsuit abuse and third-party litigation finance, among others); evolving judicial interpretations, including application of various theories of joint and several liabilities; disputes concerning medical causation with respect to certain diseases; geographical concentration of the lawsuits asserting the claims; and the potential for a large rise in the total number of claims without underlying epidemiological developments suggesting an increase in disease rates. Because of the uncertainties set forth above, additional liabilities may arise for amounts significantly in excess of the current reserves. In addition, our estimate of reserves may change. These additional liabilities or increases in estimates, or a range of either, could vary significantly from period to period and could materially and affect our results of operations and/or our financial position.
The effects of emerging claim and coverage issues on our business are uncertain, and court decisions or legislative changes that take place after we issue our policies can result in an unexpected increase in the number of claims and have a material adverse impact on our results of operations and/or our financial position. As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claim and coverage are likely to emerge. These issues may adversely affect our business, including by extending coverage beyond our underwriting intent, by increasing the number, size or types of claims or by mandating changes to our underwriting practices. Examples of such claims and coverage issues include, but are not limited to:
• judicial expansion of policy coverage and the impact of new or expanded theories of liability;
• plaintiffs targeting insurers in purported class action litigation relating to claims handling and other practices;
• claims relating to construction defects, which often present complex coverage and damage valuation questions;
• claims related to data and network security breaches, information system failures or cyber events, including cases where coverage was not intended to be provided;
• the assertion of “public nuisance” or similar theories of liability, pursuant to which plaintiffs, including governmental entities, seek to recover monies spent to respond to harm caused to members of the public, abate hazards to public health and safety and/or recover expenditures purportedly attributable to a “public nuisance,” such as litigation against manufacturers or distributors of lead paint, opioids, perfluoroalkyl and polyfluoroalkyl substances (PFAS) and other allegedly harmful products, and entities that caused or contributed to harm to the environment;
• claims related to liability, business interruption or workers’ compensation arising out of infectious disease or pandemic;
• claims relating to abuse by an employee or a volunteer of an insured;
• claims that link health issues to particular causes (for example, cumulative traumatic head injury from sports or other causes), resulting in liability or workers’ compensation claims;
• expansion of compensable workers’ compensation claims;
• claims arising out of the use of personal property in commercial transactions, such as ride or home sharing;
• claims against fiduciaries of retirement plans, including allegations regarding excessive fees;
• claims under laws protecting biometric and other personal data;
• claims relating to consequences of current or new technologies, including artificial intelligence or addictive software, or business models or processes, including as a result of related behavioral changes;
• claims relating to changing climate conditions, including claims alleging that our policyholders cause or contribute to changing climate conditions; and
• bankruptcies of policyholders or other insurers, which can lead to inflated numbers and values of claims.
In some instances, emerging issues may not become apparent for some time after we have issued the affected insurance policies. As a result, the full extent of liability under our insurance policies may not be known for many years after the policies are issued.
In addition, the passage of new legislation designed to expand the right to sue, to remove limitations on recovery, to deem by statute the existence of a covered occurrence, to extend or eliminate the statutes of limitations or otherwise to repeal or weaken tort reforms could have a material and adverse effect on our results of operations and/or our financial position. For example, over the past decade, a number of states have enacted legislation allowing victims of sexual molestation to file or proceed with claims that otherwise would have been time-barred, which have resulted in, and are expected to continue to result in, significant claims payments by the Company, and additional states are considering similar legislative changes.
The effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict and could harm our business and materially and adversely affect our results of operations and/or our financial position.
Financial, Economic and Credit Risks
During or following a period of financial market disruption or an economic downturn, our business could be materially and adversely affected. If financial markets experience significant disruption or if economic conditions deteriorate, such as in a period of recession or stagflation, our results of operations, financial position and/or liquidity likely would be adversely impacted. For example, financial market disruptions and economic downturns in the past have resulted in, among other things, reduced business volume, heightened credit risk, reduced valuations for certain of our investments and heightened vulnerability for smaller vendors with whom we do business. Future actions or inactions of the United States government related to the “debt-ceiling” could increase the actual or perceived risk that the United States may not ultimately pay its obligations when due. This could result in downgrades to the credit rating of the United States and potential to financial markets, including capital markets.
Several of the risk factors discussed above and below identify risks that could result from, or be exacerbated by, financial market disruption, an economic slowdown or economic uncertainty. These include risks discussed above related to our estimates of claims and claim adjustment expense reserves and emerging claim and coverage issues, and those discussed below related to our investment portfolio, the competitive environment, reinsurance arrangements, other credit exposures, regulatory developments and the impact of rating agency actions. See also “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations,” particularly the “Outlook” section, for additional information about these risks and the potential impact on our business.
Our investment portfolio is subject to credit and interest rate risk, and may suffer reduced or low returns or material realized or unrealized losses. Investment returns are an important part of our overall profitability. Fixed maturity and short-term investments comprised approximately 94% of the carrying value of our investment portfolio as of December 31, 2025. Changes in interest rates affect the carrying value of our fixed maturity investments and returns on our fixed maturity and short-term investments. A decline in interest rates reduces the returns available on short-term investments and new fixed maturity investments (including those purchased to re-invest maturities from the existing portfolio), thereby negatively impacting our net investment income on a going-forward basis, while rising interest rates reduce the market value of existing fixed maturity investments, thereby negatively impacting our book value. See also “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook.” The value of our fixed maturity and short-term investments is also subject to the risk that certain investments may default or become impaired due to a in the financial condition of one or more issuers of the securities held in our portfolio, or due to a in the financial condition of an insurer that guarantees an issuer’s payments of such investments. Such and could reduce our net investment income and result in realized investment . During an economic , fixed maturity and short-term investments could be subject to a higher risk of , and our non-fixed income investments could be impacted as well.
A significant portion of our fixed maturity investment portfolio is invested in obligations of states, municipalities and political subdivisions. This municipal bond portfolio could be subject to default or impairment. In particular:
• Many state and local governments have from time to time operated under deficits or projected deficits, particularly during and after a financial market disruption or economic downturn. The severity and duration of these deficits could have an adverse impact on the collectability and valuation of our municipal bond portfolio. These deficits may also be exacerbated by the impact of unfunded pension plan obligations and other postretirement obligations or by declining municipal tax bases and revenues in times of financial stress.
• Some municipal bond issuers may be unwilling to increase tax rates, or to reduce spending, to fund interest or principal payments on their municipal bonds, or may be unable to access the municipal bond market to fund such payments. The risk of widespread defaults may increase if some issuers voluntarily choose to default, instead of implementing difficult fiscal measures, and the actual or perceived consequences are less severe than expected.
• The risk of widespread defaults may also increase if there are changes in legislation that permit states, municipalities and political subdivisions to file for bankruptcy protection where they were not permitted before. In addition, the collectability and valuation of municipal bonds may be adversely affected if there are judicial interpretations in a bankruptcy or other proceeding that lessen the value of structural protections. For example, debtors may challenge the effectiveness of structural protections thought to be provided by municipal securities backed by a dedicated source of revenue. The collectability and valuation may also be adversely affected if there are judicial interpretations in a bankruptcy or other proceeding that question the payment priority of municipal bonds.
Our portfolio has benefited from tax exemptions (such as those related to interest from municipal bonds) and certain other tax laws, including, but not limited to, those governing dividends-received deductions and tax credits. Changes in these laws could adversely impact the value of our investment portfolio.
Our investment portfolio includes: residential mortgage-backed securities; collateralized mortgage obligations; pass-through securities and asset-backed securities collateralized by sub-prime mortgages; commercial mortgage-backed securities; and wholly-owned real estate and real estate partnerships, all of which could be adversely impacted by declines in real estate valuations.
We also invest a portion of our assets in equity securities, private equity limited partnerships, hedge funds and, as noted above, real estate partnerships, as well as strategic investments in private and/or public companies. From time to time, we may also invest in other types of non-fixed maturity investments, including investments with exposure to commodity price risk. All of these asset classes are subject to greater volatility in their investment returns than fixed maturity investments. General economic and market conditions, changes in applicable tax laws and many other factors beyond our control can adversely affect the value of our non-fixed maturity investments and the realization of net investment income, and/or result in realized investment losses. As a result of these factors, we may realize reduced returns on these investments, incur losses on sales of these investments and be required to write down the value of these investments, which could reduce our net investment income and result in realized investment losses. From time to time, the Company enters into short positions in U.S. Treasury futures contracts to manage the duration of its fixed maturity portfolio, which can result in realized investment losses.
Our investment portfolio is also subject to increased valuation uncertainties when investment markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the portion of the investment portfolio that is carried at fair value as reflected in our financial statements is not reflective of prices at which actual transactions could occur.
We have in the past, and may in the future, depending on changes in circumstances, such as economic and market conditions and relative asset valuations, make changes to the mix of investments in our investment portfolio as part of our ongoing efforts to seek appropriate risk-adjusted returns. These changes may impact the duration, diversification, volatility, and risk of our investment portfolio.
Because of the risks set forth above, the value of our investment portfolio could decrease, we could experience reduced net investment income and we could experience realized and/or unrealized investment losses, which could materially and adversely affect our results of operations, financial position and/or liquidity.
We may not be able to collect all amounts due to us from reinsurers, reinsurance coverage may not be available to us in the future at commercially reasonable rates or at all and we are exposed to credit risk related to our structured settlements. Although the reinsurer is liable to us to the extent of the reinsurance, we remain liable as the direct insurer on all risks reinsured. As a result, reinsurance arrangements do not eliminate our obligation to pay claims. Accordingly, we are subject to credit risk with respect to our ability to recover amounts due from reinsurers. In the past, certain reinsurers have ceased writing business and entered into runoff. Some of our reinsurance claims may be disputed by the reinsurers, and we may ultimately receive partial or no payment. This is a particular risk in the case of claims that relate to insurance policies written many years ago, including those relating to asbestos claims. In addition, in a number of jurisdictions a reinsurer is permitted to transfer a reinsurance arrangement to another reinsurer, which may be less creditworthy, without a counterparty’s consent. Also, the reinsurance that we purchase may not cover all of the risks covered by the policies that we issue.
Included in reinsurance recoverables are amounts related to certain structured settlements. Structured settlements are annuities purchased from various life insurance companies to settle certain personal physical injury claims, of which workers’ compensation claims comprise a significant portion. In cases where we did not receive a release from the claimant, the structured settlement is included in reinsurance recoverables and the related claim cost is included in the liability for loss reserves, as we retain the contingent liability to the claimant. Some of the life insurance companies from which we have purchased annuities have been downgraded to below investment grade credit ratings subsequent to the time of the purchase. If it is expected that the life insurance company is not able to pay, we would recognize an impairment of the related reinsurance recoverable if, and to the extent, the purchased annuities are not covered by state guaranty associations. In the event that the life insurance company fails to make the required annuity payments, we would be required to make such payments. For a discussion of the top five providers of our reinsurance and structured settlements, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reinsurance Recoverables.”
The availability of reinsurance capacity, as well as its cost and terms, can be impacted, and in recent periods have been impacted, by general economic conditions and conditions in the reinsurance market, such as the occurrence of significant reinsured events or unexpected adverse trends. The availability, cost and terms of reinsurance could affect our business volume and profitability. In addition, the Covered Agreements between the U.S. and each of the EU and U.K. eliminate the requirement for European and U.K. reinsurers operating in the U.S. to provide collateral, which have made it more difficult for U.S. companies, including us, to obtain collateral from European and U.K. reinsurers.
Because of the risks set forth above, we may not be able to collect all amounts due to us from reinsurers, and reinsurance coverage may not be available to us in the future at commercially reasonable rates or terms, or at all, and/or life insurance companies may fail to make required annuity payments, and thus our results of operations could be materially and adversely affected.
We are exposed to credit risk in certain of our insurance operations and with respect to certain guarantee or indemnification arrangements that we have with third parties. We are exposed to credit risk in several areas of our business operations, including credit risk relating to policyholders, independent agents and brokers. To a significant degree, the extent of the credit risk that we face is a function of the health of the economy; accordingly, we face an increased credit risk in an economic downturn.
We are exposed to credit risk in our surety insurance operations, where we guarantee to a third party that our customer will satisfy certain performance obligations (e.g., a construction contract) or certain financial obligations, including exposure to large customers who may have obligations to multiple third parties. If our customer defaults, we may suffer losses and not be reimbursed by that customer, even though we are entitled to indemnification from such customer. In addition, it is customary practice for multiple insurers to participate as co-sureties on large surety bonds. Under these arrangements, the co-surety obligations are typically joint and several, in which case we are also exposed to credit risk with respect to our co-sureties.
In addition, a portion of our business is written with large deductible insurance policies. Under casualty insurance contracts with deductible features, we are obligated to pay the claimant the full amount of the settled claim. We are subsequently reimbursed by the contractholder for the deductible amount, and, as a result, we are exposed to credit risk to the policyholder. Moreover, certain policyholders purchase retrospectively rated policies (i.e., where premiums are adjusted after the policy period based on the actual loss experience of the policyholder during the policy period). Retrospectively rated policies expose us to additional credit risk to the extent that the adjusted premium is greater than the original premium.
Our efforts to mitigate the credit risk that we have to our insureds may not be successful. For example, we may not be able to obtain collateral and any collateral obtained may subsequently have little or no value.
In accordance with industry practice, when policyholders purchase insurance policies from us through independent agents and brokers, the premiums relating to those policies are often paid to the agents and brokers for payment to us. In most jurisdictions, the premiums will be deemed to have been paid to us whether or not they are actually received by us. Consequently, we assume a degree of credit risk associated with amounts due from independent agents and brokers.
We are also exposed to credit risk related to certain guarantee or indemnification arrangements that we have with third parties. See note 17 of the notes to the consolidated financial statements. Our exposure to the above credit risks could materially and adversely affect our results of operations.
A downgrade in our claims-paying and financial strength ratings could adversely impact our business volumes, adversely impact our ability to access the capital markets and increase our borrowing costs. Claims-paying and financial strength ratings are important to an insurer’s competitive position. A downgrade in one or more of our ratings could negatively impact our business volumes or make it more difficult or costly for us to access the capital markets or borrow money. If significant losses, including, but not limited to, those resulting from one or more major catastrophes, or significant reserve additions or significant investment losses were to cause our capital position to deteriorate significantly, or if one or more rating agencies substantially increase their capital requirements, we may need to raise equity capital in the future (which we may not be to do at a reasonable cost or at all, especially at a time of financial market ) in order to maintain our ratings or limit the extent of a . A continued trend of more frequent and or a financial market or economic may lead rating agencies to substantially increase their capital requirements. See also “Item 1—Business—Ratings.”
The inability of our insurance subsidiaries to pay dividends to our holding company in sufficient amounts would harm our ability to meet our obligations, pay future shareholder dividends and/or make future share repurchases. Our holding company relies on dividends from our U.S. insurance subsidiaries to meet our obligations for payment of interest and principal on outstanding debt, to pay dividends to shareholders, to make contributions to our qualified domestic pension plan, to pay other corporate expenses and to make share repurchases. The ability of our insurance subsidiaries to pay dividends to our holding company in the future will depend on their statutory capital and surplus, earnings and regulatory restrictions.
We are subject to state insurance regulation as an insurance holding company system. Our U.S. insurance subsidiaries are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of insurance regulatory authorities. In a time of prolonged economic downturn or otherwise, insurance regulators may choose to further restrict the ability of insurance subsidiaries to make payments to their parent companies. The
ability of our insurance subsidiaries to pay dividends to our holding company is also restricted by regulations that set standards of solvency that must be met and maintained.
The inability of our insurance subsidiaries to pay dividends to our holding company in an amount sufficient to meet our debt service obligations and other cash requirements could harm our ability to meet our obligations, to pay future shareholder dividends and to make share repurchases.
Business and Operational Risks
The intense competition that we face, including with respect to attracting and retaining employees, and the impact of innovation, technological change, including with respect to artificial intelligence, and changing customer preferences on the insurance industry and the markets in which we operate, could harm our ability to maintain or increase our business volumes and our profitability. The property and casualty insurance industry is highly competitive, and we believe that it will remain highly competitive for the foreseeable future. We compete with both domestic and foreign insurers, including start-ups, which may offer products at prices and on terms that are not consistent with our economic standards in an effort to maintain or increase their business. The competitive environment in which we operate could also be impacted by current general economic conditions, which could reduce the volume of business available to us as well as to our competitors. Pension and hedge funds and other entities with substantial available capital, more flexible legal structures and/or potentially lower return objectives have increasingly sought to participate in the property and casualty insurance and reinsurance businesses. Well-capitalized new entrants to the property and casualty insurance and reinsurance industries, including entities backed by private equity, and existing competitors that receive substantial infusions of capital may conduct business in ways that adversely impact our business volumes and . In addition, the competitive environment could be impacted by changes in customer preferences, including customer demand for direct distribution channels and/or choice, not only in personal lines, but also in commercial lines (where direct writers may become a more significant source of competition in the future, particularly in the small commercial market). Similarly, comparative rating technology has impacted competition in personal lines and is now being used to access comparative rates for small commercial business as well, and that trend is likely to continue and may accelerate. In recent years, there have been new entrants into the small commercial business, and this trend may continue. Customer behavior could also evolve in the future towards buying insurance in point-of-sale or other non-traditional distribution channels where we may not have a meaningful presence or which are designed to sell products that we currently do not provide. Consolidation within the insurance industry also could impact our business volumes and/or the rates or terms of our products.
Other technological changes also present competitive risks. For example, our competitive position could be impacted if we are unable to deploy, in a cost effective and competitive manner, technology such as artificial intelligence and machine learning that collects and analyzes a wide variety of data points to help make underwriting or other decisions, or if our competitors collect and use data which we do not have the ability to access or use or deploy artificial intelligence to create efficiencies in ways that we do not. In addition, innovations, such as telematics and other usage-based methods of determining premiums, can impact product design and pricing and are becoming an increasingly important competitive factor.
Competitive dynamics may impact the success of efforts to improve our underwriting margins on our insurance products. These efforts could include seeking improved rates or improved terms and conditions, and could also include other initiatives, such as reducing operating expenses and acquisition costs, and introducing new product offerings. These efforts may not be successful and/or may result in lower business volumes. Also, in some cases, if we do not write a particular product for an account, we could lose the ability to write other products for the same account. In addition, if our underwriting is not effective, further efforts to increase rates could also lead to “adverse selection”, whereby accounts retained have higher losses, and are less profitable, than accounts lost. For more detail, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook.”
Similar to other industries, the insurance industry is undergoing rapid and significant technological and other change. Traditional insurance industry participants, technology companies, “InsurTech” companies, some of which are supported by traditional insurance industry participants, and others are focused on using technology and innovation to simplify and improve the customer experience, increase efficiencies, redesign products, alter business or distribution models, create more sophisticated pricing models and effect other potentially disruptive changes in the insurance industry. If we do not anticipate, keep pace with and adapt to technological and other changes impacting the insurance industry, including artificial intelligence, it will harm our ability to compete, decrease the value of our products to customers, and materially and adversely affect our business. Furthermore, innovation, technological change and changing customer preferences in the markets in which we operate also pose risks to our business. For example, technologies such as driverless vehicles, assisted-driving or accident prevention technologies, technologies that facilitate ride, car or home sharing, smart homes or automation could reduce the number of vehicles in use and/or the demand for, or of, certain of our products, create coverage issues or impact the frequency or of , and we may not be to respond effectively. While there is substantial uncertainty as to the timing of
any impact, in the case of driverless vehicles in particular, new legal frameworks or business practices could be adopted that reduce the size of the auto insurance market. If competition or technological or other changes to the markets in which we operate limit our ability to retain existing business or write new business at adequate rates or on appropriate terms, our results of operations could be materially and adversely affected. See “Competition” sections of the discussion on business segments in “Item 1—Business.”
Technological change can impact us in other ways as well. For example, rapid changes in the sophistication and use of certain types of cyber-attacks, such as ransomware and social engineering attacks, as well as other cyber incidents impacting our insureds, have increased the frequency and severity of losses under our policies. The risk of cyber-attacks could be exacerbated by geopolitical tensions, including hostile actions taken by nation-states and terrorist organizations. In addition, new technology, such as artificial intelligence, could create unforeseen exposures or coverage issues under the policies we write and aggravate claims fraud and cybercrime.
There is significant competition from within the property and casualty insurance industry and from businesses outside the industry for qualified employees, especially those in key positions and those possessing highly specialized knowledge in areas such as underwriting, data and analytics, technology, claims and artificial intelligence. This competition has continued in recent periods and, with the ability for employees to work remotely, is taking place on a broad geographic scale. In addition, the competition for talent and the difficulty in attracting and retaining employees has also increased due to retirements. This dynamic has also impacted our agents, brokers, regulators, vendors and other business partners. If we and our business partners are not able to successfully attract, train, retain and motivate our respective employees, our business, financial results and reputation could be materially and adversely affected.
Disruptions to our relationships with our independent agents and brokers or our inability to manage effectively a changing distribution landscape could adversely affect us . We market our insurance products primarily through independent agents and brokers. An important part of our business is written through less than a dozen such intermediaries, including the agency affiliate of GEICO, with whom we have had a distribution arrangement for homeowners’ business since 1995. Further, there has been a trend of increased consolidation by agents and brokers, and increased financing of agents and brokers by private equity firms, which could impact our relationships with, and fees paid to, some agents and brokers, and/or otherwise negatively impact the pricing or distribution of our products. Agents and brokers may increasingly compete with us to the extent that markets increasingly provide them with direct access to providers of capital seeking exposure to insurance risk or if they become affiliated with carriers that compete with us. In all of the foregoing situations, loss of all or a substantial portion of the business provided through such agents and brokers could materially and adversely affect our future business volume and results of operations.
Our efforts or the efforts of agents and brokers with respect to new products or markets, alternate distribution channels, changes to commission terms as well as changes in the way agents and brokers utilize data and technology, including in ways that may be in direct competition with us, could adversely impact our business relationship with independent agents and brokers who currently market our products, resulting in a lower volume and/or profitability of business generated from these sources.
In certain markets, brokers increasingly have been packaging portfolios of risks together and offering them to fewer carriers or segmenting individual risks among many carriers. In these and other situations, agents and brokers have an increased influence over policy language and compensation structure which, if we participate on that basis, could adversely impact our ability to profitably manage underwriting risk. It could also lead to commoditization of products, which could increase the focus on price and cost management and decrease our ability to differentiate our products in the marketplace with customers based on other factors.
Customers in the past have brought claims against us for the actions of our agents. Even with proper controls in place, actual or alleged errors or inaccuracies by our agents could result in our involvement in disputes, litigation or regulatory actions.
Our efforts to develop new products or services, expand in targeted markets, improve business processes and workflows or pursue acquisitions or dispositions may not be successful and may create enhanced risks. From time to time, to protect and grow market share and/or improve our productivity and efficiency, we invest in strategic initiatives and pursue acquisitions or dispositions. These efforts may require us to make substantial expenditures and not be successful, and even if successful, they may create additional risks:
• Changes to our business processes or workflow, including the use of new technologies, may give rise to execution risk;
• Models underlying automated underwriting and pricing decisions may not be effective;
• Demand for new products or expansion into new markets may not meet our expectations;
• New products or services and expansion into new markets may change our risk exposures, and the data and models we use to manage such exposures may not be as effective as those we use in existing markets or with existing products;
• Acquisitions or dispositions may not be successfully integrated or separated, resulting in substantial disruption, costs or delays and adversely affecting our ability to compete, may not result in the benefits anticipated by us, and may also result in unforeseen liabilities or impact our credit ratings; and
• The conversion of policyholders to a new product could negatively impact retention and profit margins.
These efforts may require us to make substantial expenditures, which may negatively impact results in the near term, and if not successful, could materially and adversely affect our results of operations.
We may be adversely affected if our pricing and capital models provide materially different indications than actual results. Our profitability substantially depends on the extent to which our actual claims experience is consistent with the assumptions we use in pricing our policies. We utilize proprietary and third-party models to help us price business in a manner that is intended to be consistent, over time, with actual results and return objectives. We incorporate our historical loss experience, external industry and other data, and economic indices into our modeling processes, and we use various methods, including predictive modeling, forecasting and sophisticated simulation modeling techniques, to analyze loss trends and the risks associated with our assets and liabilities. We also use these modeling processes, analyses and methods in making underwriting, pricing and reinsurance decisions as part of managing our exposure to catastrophes and other extreme adverse events. These modeling processes incorporate numerous assumptions and forecasts about the future level and variability of the frequency and severity of losses, inflation, interest rates and capital requirements, among others, that are to make and may differ materially from actual results. In addition, as the number of third-party models increases, it becomes more to validate, manage and integrate such models as they evolve over time, and the risk associated with assimilating the output from such models into our decisions increases.
If we fail to appropriately price the risks we insure or fail to change our pricing models to appropriately reflect our experience, or if our claims experience is more frequent or severe than our underlying risk assumptions, for example due to inflation, changing climate conditions, legislative or regulatory changes, changes in behavior such as distracted or faster driving or a more aggressive tort environment, our profit margins may be negatively affected. If we underestimate the frequency and/or severity of extreme adverse events occurring, our financial condition may be adversely affected. If we overestimate the risks we are exposed to, we may overprice our products, and new business growth and retention of our existing business may be adversely affected. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations— Modeling.”
We are subject to additional risks associated with our business outside the United States. We conduct business outside the United States primarily in the United Kingdom, the Republic of Ireland and Canada. In addition, we conduct business in Brazil through a joint venture, and throughout other parts of the world, including as a corporate member of Lloyd’s and through our quota share agreement with Fidelis. We may also explore opportunities in other countries. In conducting business outside of the United States, we are subject to a number of risks, particularly in emerging economies. These risks include restrictions such as price controls, capital controls, currency exchange limits, ownership limits and other restrictive or anti-competitive governmental actions or requirements, which could have an adverse effect on our business and our reputation. Our business activities outside the United States may also subject us to currency risk and, in some markets, it may be difficult to effectively hedge that risk, or we may choose not to hedge that risk. In addition, in some markets, we invest as part of a joint venture with a local counterparty. Because our governance rights may be limited, we may not have control over the ability of the joint venture to make certain decisions and/or mitigate risks it faces, and significant disagreements with a joint venture counterparty may impact our investment and/or reputation. Our business activities outside the United States could subject us to increased in earnings resulting from the need to recognize and subsequently revise a valuation allowance associated with income taxes if we became to fully utilize any deferred tax assets, including carry-forwards from those foreign operations. Also, political and geopolitical tensions have at times resulted, and may in the future result, in inflation, reduced growth, supply chain and financial market or an economic in such regions. For certain businesses, we give third parties binding authority to write direct and indirect business on our behalf, and in the case of Fidelis, we assume a percentage of its business under a reinsurance agreement, which us to additional risks, including with respect to certain products, risks and geographies we do not normally cover.
Our business activities outside the United States also subject us to additional domestic and foreign laws and regulations, including the Foreign Corrupt Practices Act and similar laws in other countries that prohibit the making of improper payments to foreign officials. Although we have policies and controls in place that are designed to ensure compliance with these laws, if those controls are ineffective and/or an employee or intermediary fails to comply with applicable laws and regulations, we could suffer civil and criminal penalties and our business and our reputation could be adversely affected. Some countries, particularly emerging economies, have laws and regulations that lack clarity and, even with local expertise and effective controls, it can be difficult to determine the exact requirements of, and potential liability under, the local laws. In some jurisdictions, including Brazil, parties to a joint venture may, in some circumstances, have liability for some obligations of the venture, and that liability may extend beyond the capital invested. to comply with local laws in a particular market may
result in substantial liability and could have a significant and negative effect not only on our business in that market but also on our reputation generally.
Loss of or significant restrictions on the use of particular types of underwriting criteria, such as credit scoring, or other data or methodologies, in the pricing and underwriting of our products could reduce our future profitability. Our underwriting profitability depends in large part on our ability to competitively price our products at a level that will adequately compensate us for the risks assumed. As a result, risk selection and pricing through the application of actuarially sound and segmented underwriting criteria is critical. However, laws or regulations, or judicial or administrative findings, could significantly curtail the use of particular types of underwriting criteria. For example, we may use credit scoring as a factor in pricing decisions where allowed by state law. Some consumer groups and/or regulators have alleged that the use of credit scoring violates the law by discriminating against persons belonging to a protected class and are calling for the prohibition or restrictions on the use of credit scoring in underwriting and pricing. A variety of other underwriting criteria and other data or methodologies used in personal and commercial insurance have been and continue to be by regulators, government agencies, consumer groups or individuals on similar or other grounds, such as the impact of external data sources, artificial intelligence, algorithms and predictive models on protected classes of customers, and a number of states have begun rulemaking efforts in response or are considering doing so. Resulting legislative or regulatory actions or could result in publicity and/or generate rules or findings, such as the use of important underwriting criteria, or other data or methodologies, which could materially and affect our results of operations.
Future pandemics could materially affect our results of operations, financial position and/or liquidity. The pandemic presented, and any future pandemics could present, the following risks, among others: inflation; supply chain disruption; labor shortages; backlogs in the court system (which increase the time and costs to resolve claims); legal and regulatory demands for rate refunds; behavioral changes that can result in the increased frequency and severity of claims, such as driving at faster speeds; medical conditions such as “long-COVID” and other claims in our workers compensation line; litigation seeking business interruption coverage; reduced earned premiums; higher claims and claim adjustment expenses in certain lines of business; adverse legislative or regulatory actions; operational disruptions; increased general and administrative expenses; financial market disruption; and an economic . These risks could materially and impact our results of operations, financial position and/or liquidity. For a further discussion of risks that can impact us as a result of financial market or an economic , see “During or following a period of financial market or an economic , our business could be materially and affected” above and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook.”
Technology and Intellectual Property Risks
Our business success and profitability depend, in part, on effective information technology systems and on continuing to develop and implement improvements in technology, including artificial intelligence, particularly as our business processes become more digital. We depend in large part on our technology systems for conducting business and processing claims, as well as for providing the data and analytics we utilize to manage our business. As a result, our business success is dependent on maintaining the effectiveness of existing technology systems and on continuing to develop and enhance technology systems that support our business processes and strategic initiatives in an efficient manner, particularly as our business processes become more digital and seek to incorporate artificial intelligence, which has a high rate of change, and certain of our products, such as cyber insurance, are more technology-based. Some system development projects are long-term in nature, may negatively impact our expense ratios as we invest in the projects and may cost more than we expect to complete. In addition, system development projects may not deliver the benefits or perform as expected, or may be replaced or become more quickly than expected, which could result in operational , additional costs or accelerated recognition of expenses. Artificial intelligence, in particular, may become more expensive in the future given the resources necessary to develop that technology. Attracting and retaining technology personnel has also become significantly more in recent years. If we do not effectively and manage and upgrade our technology portfolio, or if the costs of doing so are higher than we expect, our ability to provide competitive services to, and conduct business with, new and existing customers in a cost manner and our ability to implement our strategic initiatives could be impacted.
If, as a result of a cyber-attack (the risk of which could be exacerbated by geopolitical tensions) or otherwise, we experience difficulties with technology, data and network security, outsourcing relationships or cloud-based technology, our ability to conduct our business could be negatively impacted. A shut-down of, or inability to access, one or more of our facilities (including our primary data processing facility); a power outage; or a failure of one or more of our systems could significantly impair our ability to perform necessary business functions on a timely basis. In the event of a cyber-attack, malware or natural or other disaster, our systems could be inaccessible for an extended period of time, including as a result of hostile actions taken by cyber criminals, nation-states or terrorist organizations. In addition, because our systems increasingly interface with and depend on third-party systems, including cloud-based systems, we could experience service or
failures of controls if demand for our service exceeds capacity or a third-party system fails or experiences an interruption. Business interruptions and failures of controls could also result if our internal systems do not interface with each other as intended or if changes to such systems or our other business processes, such as new payment technologies, are not effectively implemented. Business continuity can also be disrupted by an event, such as a pandemic, that renders large numbers of a workforce unable to work as needed, particularly at critical locations. If our business continuity plans do not sufficiently address a business interruption, system failure or service denial, this could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions. In addition, should internet occur, or with our business platforms or distribution initiatives develop among our independent agents and brokers, any resulting of business could materially and affect our future business volume and results of operations.
Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Cyber-attacks and employee or vendor misconduct (inadvertent or intentional) could expose our systems or data to unauthorized parties or otherwise cause significant disruptions. Increased use of data supplied by third parties in our business increases our exposure to this risk. While we attempt to develop secure transmission capabilities with third-party vendors and others with whom we do business, we may not be successful and, in addition, these third parties may not have appropriate controls in place to protect the confidentiality of the information.
Like other global companies, our computer systems and networks are regularly subject to and will continue to be the target of computer viruses, malware or other malicious codes (including ransomware), unauthorized access, cyber-attacks or other computer-related penetrations. The Company, like other property and casualty insurers, may be under greater threat from cybercriminals seeking sensitive personal or other insurance-related information. The risk of cyber-attacks could be exacerbated by geopolitical tensions, including hostile actions taken by cyber criminals, nation-states or terrorist organizations, and the increased use of artificial intelligence by threat actors to perpetrate these attacks.
While we have experienced cyber-attacks, to date, we are not aware that we have experienced a material cyber-security breach. The sophistication of these threats continues to increase, including because of the rapid evolution of artificial intelligence, and the preventative actions we take to reduce the risk of cyber-attacks and protect our systems and information may be insufficient. In addition, new technology that could result in greater operational efficiency, including artificial intelligence, may further expose our computer systems and networks to the risk of cyber-attacks. Also, our increased use of open source software, cloud technology and software as a service can make it more difficult to identify and remedy such situations due to the disparate location of code utilized in our operations.
We have outsourced certain technology and business process functions to third parties and may increasingly do so in the future. If we do not effectively develop, implement and monitor our vendor relationships, if third party providers do not perform as anticipated or experience financial difficulties, if we experience technological or other problems with a transition to a new vendor, or if vendor relationships relevant to our business process functions are terminated, we may not realize expected productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business. Our outsourcing of certain technology and business process functions to third parties exposes us to increased risk related to data and cyber security, service disruptions and the effectiveness of our control system. These risks could increase as additional functions move to the cloud and as dependencies and interconnections with the third parties with whom we do business increase and become more complex, particularly as those third parties incorporate new technologies, such as artificial intelligence.
The increased risks identified above could expose us to data loss or manipulation, disruption of service, monetary and reputational damages, competitive disadvantage and significant increases in compliance costs and costs to improve the security and resiliency of our computer systems and networks. The compromise of personal, confidential or proprietary information could also subject us to significant legal liability or regulatory action under evolving cyber-security, data protection and privacy laws and regulations enacted by the U.S. federal and state governments, the European Union, Canada or other jurisdictions or by various regulatory organizations or exchanges. As a result, our ability to conduct our business and our results of operations might be materially and adversely affected.
Intellectual property is important to our business, and we may be unable to protect and enforce our own intellectual property or we may be subject to claims for infringing the intellectual property of others. Our success depends in part upon our ability to protect our proprietary trademarks, technology and other intellectual property. See “Item 1—Business—Other Information—Intellectual Property.” We may not, however, be able to protect our intellectual property from unauthorized use and disclosure by others. Further, the intellectual property laws may not prevent our competitors from independently developing trademarks, products and services that are similar to ours. We may incur significant costs in our efforts to protect and enforce our intellectual property, including the initiation of expensive and protracted litigation, and we may not prevail.
Any inability to enforce our intellectual property rights could have a material adverse effect on our business and our ability to compete.
We may be subject to claims by third parties from time to time that our products, services and technologies infringe on their intellectual property rights. In recent years, certain entities have acquired patents in order to allege claims of infringement against companies, including in some cases, us. Any intellectual property infringement claims brought against us could cause us to spend significant time and money to defend ourselves, regardless of the merits of the claims. If we are found to infringe any third-party intellectual property rights, it could result in reputational harm, payment of significant monetary damages or fees and/or substantial time and expense to redesign our products, services or technologies to avoid the . In addition, we use third-party software in some of our products, services and technologies. With respect to artificial intelligence, emerging intellectual property-related rights and issues are being interpreted by courts and addressed by regulations. If any of our software vendors or licensors are faced with , we may our ability to use such software until the is resolved. If we cannot redesign an product, service or technology (or procure a substitute version), this could have a material effect on our business and ability to compete.
Regulatory and Compliance Risks
Our businesses are heavily regulated by the states and countries in which we conduct business, including licensing, market conduct and financial supervision, and changes in regulation, including changes in tax regulation, may reduce our profitability and limit our growth. These regulatory systems are generally designed to protect the interests of policyholders, and not necessarily the interests of insurers, their shareholders and other investors. For example, to protect policyholders whose insurance company becomes financially insolvent, guaranty funds have been established in all 50 states to pay the covered claims of policyholders in the event of an insolvency of an insurer, subject to applicable state limits. The funding of guaranty funds is provided through assessments levied against remaining insurers in the marketplace. As a result, the insolvency of one or more insurance companies or an increase in amounts paid by guaranty funds could result in additional assessments levied against us.
These regulatory systems also address authorization for lines of business, statutory capital and surplus requirements, limitations on the types and amounts of certain investments, underwriting limitations, transactions with affiliates, dividend limitations, changes in control, premium rates and a variety of other financial and non-financial components of an insurer’s business including, recently, cyber-security and the use of artificial intelligence and models. In addition, many jurisdictions restrict the timing and/or the ability of an insurer to discontinue writing a line of business or to cancel or non-renew certain policies. Insurance regulators may also increase the statutory capital and surplus requirements for our insurance subsidiaries or, as has happened recently in certain states, reject or delay rate increases or other changes to terms and conditions due to the economic environment or other factors and/or expand FAIR plans or similar residual market mechanisms, including with respect to commercial lines. The adverse impacts of these types of actions have caused some insurance companies to withdraw from certain states, resulting in market dislocations for those insurance companies that remain. These market dislocations make it harder for the remaining companies to maintain their market presence and manage their exposures and . In addition, state tax laws that specifically impact the insurance industry, such as premium taxes, or more general tax laws, such as U.S. federal corporate taxes, could be enacted or changed and could have a material impact on us. Other legislative actions could impact our business as well. For example, changes to state law regarding workers’ compensation insurance or to requirements for other insurance products could impact the demand for our products, and the legalization of cannabis in certain states has, according to some studies, resulted in more automobile . In addition, the potential repeal of the McCarran-Ferguson Act (which exempts insurance from most federal regulation) or a change to the federal health care system that eliminates or reduces the need for the medical coverage component of workers’ compensation insurance, could also significantly the insurance industry, including us. State, federal and international regulators are also increasingly focused on imposing new reporting and other requirements, which in some cases can be , on a multitude of topics. Regarding artificial intelligence, legal and regulatory frameworks are developing and subject to change. Changes in applicable legislation and regulations and future court and regulatory decisions may be more restrictive and may result in lower revenues, higher costs of compliance and higher risk of non-compliance and, as a result, could materially and affect our results of operations. See also “Item 1 – Business – Regulation.”
We could be adversely affected if our controls designed to ensure compliance with guidelines, policies and legal and regulatory standards are not effective. Our business is highly dependent on our ability to engage on a real-time basis in a large number of insurance underwriting, claim processing, treasury and investment activities, many of which are highly complex and constantly evolving, including from a systems perspective. These activities, particularly when new technologies such as artificial intelligence are incorporated, often require internal governance, guidelines and policies, and are subject to legal and regulatory standards. A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. If our controls, or the controls of our joint ventures or recently
acquired businesses, are not effective (including with respect to the prevention or identification of misconduct by employees or others with whom we do business), it could lead to financial loss, unanticipated risk exposure (including underwriting, credit and investment risk), errors in financial reporting, litigation, regulatory proceedings and/or damage to our reputation.
Item 1B. UNRESOLVED STAFF COMMENTS
NONE.
Item 1C. CYBERSECURITY
Risk management and strategy
The Company has implemented technologies and tools to evaluate its cybersecurity protections and maintain a cyber risk management strategy related to its technology infrastructure that includes monitoring emerging cybersecurity threats and assessing appropriate responsive measures.
Risk Identification
The Company’s Chief Information Security Officer (“CISO”) and Cybersecurity team are actively engaged within the cybersecurity community in order to monitor emerging trends and developments and share best practices for identifying and mitigating cyber threats. For example, the Company participates in threat intelligence information-sharing networks, such as the Financial Services Information Sharing and Analysis Center (FS-ISAC). The Company also tracks industry and government intelligence sources for information about evolving cyber threats and deploys updates to its systems, as appropriate. The Company’s Cybersecurity team monitors and investigates suspicious events.
Risk Assessment
The Company performs an annual cybersecurity risk and control assessment as part of the Enterprise Risk Management team’s risk assessment processes. The CISO and the Chief Financial Officer of the Company’s Technology and Operations group review and approve the cybersecurity assessment. The Company’s Chief Technology and Operations Officer and the Chief Financial Officer of the Company’s Technology and Operations group review and approve the list of emerging, strategic and transformative risks upon which the Enterprise Risk Management team’s cybersecurity risk and control assessment processes are based. In addition, as part of their regular responsibilities, the Company’s Risk and Security officers within its Technology and Cybersecurity groups assess technology and cybersecurity risks by leveraging the Company’s risk framework related to technology and cybersecurity, which aligns with the Company’s enterprise risk management strategy.
On an annual basis, under the direction of the Company’s Chief Risk Officer, the Company’s Technology, Cybersecurity and Business Resiliency groups also participate in the enterprise-wide Own Risk and Solvency Assessment (“ORSA”), which outlines identified risks and describes the controls in place across the Company to address those risks. The ORSA is reviewed with the Company’s lead regulator, the State of Connecticut Department of Insurance, which in turn performs periodic financial examinations, including a technology control assessment.
In addition, the Company regularly self-assesses against its internal policies, using its internal risk assessment process and a variety of frameworks, such as the New York Department of Financial Services Cybersecurity Requirements for Financial Services Companies, the Insurance Data Security Model Law as adopted and modified by various states and the Payment Card Industry Data Security Standard.
As the workforce, the work environment and the threat landscape continue to evolve, the Company seeks to evaluate related risks and implement appropriate controls.
Risk Management
The Company maintains cybersecurity policies and standards that are modeled to align with the International Organization for Standardization (ISO) 27001 standard and the National Institute of Standards and Technology (NIST) Cybersecurity Framework. The Company’s cybersecurity policies and standards have been developed in collaboration with groups across the enterprise, such as Legal, Compliance, Technology, and each of its business segments. The Company’s policies include, for example, Information and System Use policies for employee and non-employee system users. These policies reinforce the data privacy and protection sections of the Company’s Code of Business Conduct and Ethics.
The Company uses certain technologies and tools, as appropriate, to enhance cybersecurity, such as multifactor authentication, encryption, firewalls, intrusion prevention systems, endpoint detection and response, data loss prevention, vulnerability
scanning, penetration testing, patch management and identity and access management systems. These systems are designed, implemented and maintained with the goal of identifying, assessing and managing cybersecurity risks. In addition to its internal cybersecurity team, the Company uses internal and external auditors and, as appropriate, third-party consultants, service providers and assessors to review and test its processes and controls.
To help manage risk related to potential cybersecurity threats, as part of the annual Code of Business Conduct and Ethics training, all Company employees receive data protection and privacy training, which focuses on the need to appropriately protect and secure confidential Company information. Additionally, the Company provides annual security awareness training that covers a broad range of security topics. The Company also provides regular targeted training on topics such as artificial intelligence related risks, phishing and secure application development, among others. In addition to online training, the Company provides employees with cybersecurity information through a number of different methods, including awareness campaigns, gamified activities, recognition programs, security presentations, intranet articles, videos, system-generated communications, email publications and various simulation exercises.
The Company has a Security Incident Response Framework (Framework) in place. The Framework comprises a set of coordinated procedures and tasks that the Company’s Incident Response team, under the direction of the CISO, executes with the goal of ensuring timely and effective resolution of cybersecurity incidents. To maintain the robustness of the Framework, from time-to-time the Company conducts cybersecurity tabletop testing exercises.
As part of the Company’s supplier risk management program, using a risk-based approach, the Cybersecurity team conducts formal risk assessments with respect to certain of the Company’s third-party service providers. The assessment process addresses aspects of the service providers’ data security controls and policies. The team also conducts reassessments of its third-party service providers, the frequency of which is determined based on a risk assessment and rating process. Where appropriate, the Company seeks to incorporate contractual language with third-party service providers that includes clear terms involving the collection, use, sharing and retention of user data, as well as compliance with appropriate security terms. Additionally, our Procurement group has a framework to help identify and mitigate supplier risks, as well as enable management to make risk informed decisions.
To date, the Company does not believe that any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected the Company, including its business strategy, results of operations, or financial condition. As discussed more fully under “Item 1A—Risk Factors”, the sophistication of cyber threats continues to increase, and the preventative actions the Company takes to reduce the risk of cyber incidents and protect its systems and information may be insufficient. No matter how well designed or implemented the Company’s cybersecurity controls are, it will not be able to anticipate all security breaches, and it may not be able to implement effective preventive measures against cybersecurity breaches in a timely manner. See “Item 1A—Risk Factors—If, as a result of a cyber-attack (the risk of which could be exacerbated by geopolitical tensions) or otherwise, we experience with technology, data and network security, outsourcing relationships or cloud-based technology, our ability to conduct our business could be impacted.”
Governance
The Risk Committee of the Company’s Board of Directors, consistent with its charter, reviews and discusses with management the strategies, processes and controls pertaining to the management of the Company’s information technology operations, including cyber risks and cybersecurity. The CISO typically provides quarterly updates regarding cybersecurity and cyber risk to executive management and the Risk Committee of the Company’s Board of Directors.
The CISO leads the Company’s cybersecurity department. The CISO reports to the Chief Technology and Operations Officer and is a member of the Enterprise Risk team and the Company’s Disclosure Committee. The CISO has over 20 years of cybersecurity and information security risk compliance and threat analysis experience. Prior to joining the Company in 2023, the CISO served as Chief Security Officer for a national telecommunications service provider. Under the direction of the CISO, the Company’s Cybersecurity department analyzes cybersecurity and resiliency risks to the Company’s business, considers industry trends and implements controls, as appropriate, to mitigate these risks. This analysis drives the Company’s long- and short-term strategies, which are executed through a collaborative effort within Technology, Cybersecurity and Business Resiliency and are communicated to the Risk Committee of the Board of Directors on a regular basis.
Item 2. PROPERTIES
The Company leases its principal executive offices in New York, New York, as well as approximately 155 field and claim offices throughout the United States under leases or subleases with third parties. The Company also leases offices outside the United States, including in the United Kingdom, the Republic of Ireland and Canada. The Company owns six buildings in Hartford, Connecticut. The Company also owns buildings located in Windsor, Connecticut; Norcross, Georgia; St. Paul, Minnesota; and Omaha, Nebraska.
In the opinion of the Company’s management, the Company’s properties are adequate and suitable for its business as presently conducted and are adequately maintained.
Item 3. LEGAL PROCEEDINGS
The information required with respect to this item can be found under “Contingencies” in note 17 of the notes to the consolidated financial statements in this annual report and is incorporated by reference into this Item 3.
Item 4. MINE SAFETY DISCLOSURES
NONE.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Information about the Company’s executive officers is incorporated by reference from Part III—Item 10 of this annual report.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is traded on the New York Stock Exchange under the symbol “TRV.” The number of holders of record of the Company’s common stock was 27,700 as of February 5, 2026. This is not the actual number of beneficial owners of the Company’s common stock as some shares are held in “street name” by brokers and others on behalf of individual owners.
For information regarding dividends paid to shareholders in 2025 and 2024 and the declaration and payment of future dividends, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Activities—Dividends.”
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph shows a five-year comparison of the cumulative total return to shareholders for the Company’s common stock and the common stock of companies included in the S&P 500 Index and the S&P 500 Property & Casualty Insurance Index, which the Company believes is the most appropriate comparative index.
As of December 31,
The Travelers Companies, Inc.
S&P 500 Index
S&P 500 Property & Casualty Insurance Index
(1) The cumulative total return to shareholders is a concept used to compare the performance of a company’s stock over time. Cumulative total return to shareholders is calculated as the net stock price change for the specified time period plus the cumulative amount of dividends (assuming dividend reinvestment on the respective dividend payment dates) divided by the stock price at the beginning of the time period.
(2) Assumes $100 invested in common shares of The Travelers Companies, Inc. on December 31, 2020.
(3) Companies in the S&P 500 Property & Casualty Insurance Index as of December 31, 2025 were the following: The Travelers Companies, Inc., Chubb Limited, Cincinnati Financial Corporation, The Progressive Corporation, The Allstate Corporation, Loews Corporation (CNA), W.R. Berkley Corporation, Arch Capital Group Limited, The Hartford Financial Services Group, Inc., Erie Indemnity Company, Assurant, Inc. and American International Group, Inc. Returns of each of the companies included in this index have been weighted according to their respective market capitalizations.
A long-term perspective is particularly important in the property and casualty insurance industry, where the periodic occurrences of significant catastrophes have historically produced results that can vary significantly year-to-year. Accordingly, the Company manages with a long-term perspective. From January 1, 2007, the year prior to the financial crisis, through
December 31, 2025, the Company’s cumulative return to shareholders was 745% as compared to 595% for the S&P 500 Index and 545% for the S&P 500 Property & Casualty Insurance Index.
ISSUER PURCHASES OF EQUITY SECURITIES
The table below sets forth information regarding repurchases by the Company of its common stock during the periods indicated.
Period Beginning
Period Ending
Total number
of shares
purchased
Average
price paid
per share
Total number of
shares purchased
as part of
publicly announced
plans or programs
Approximate
dollar value of
shares that may
yet be purchased
under the
plans or programs
(in millions)
Oct. 1, 2025
Oct. 31, 2025
Nov. 1, 2025
Nov. 30, 2025
Dec. 1, 2025
Dec. 31, 2025
Total
The Company’s Board of Directors has approved common share repurchase authorizations under which repurchases may be made from time to time in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions or otherwise. The most recent authorization was approved by the Board of Directors on January 21, 2026 and added $5.0 billion of repurchase capacity to the $2.02 billion capacity remaining at that date, which was previously approved by the Board of Directors on April 19, 2023. The authorizations do not have a stated expiration date. The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining appropriate capital levels for business operations, changes in the levels of written premiums, funding of its qualified pension plan, regulatory capital requirements of the operating insurance subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions, changes in tax laws and other factors. The cost of the treasury stock acquired pursuant to common share repurchases includes the 1% federal excise tax imposed on common share repurchase activity, net of common share issuances, as part of the Inflation Reduction Act of 2022.
The Company acquired 10,413 shares for a total cost of $3 million during the three months ended December 31, 2025 that were not part of the publicly announced share repurchase authorizations. These shares consisted of shares retained to cover payroll withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards, and shares used by employees to cover the exercise price, as well as the related payroll withholding taxes, for stock options that were exercised.
For additional information regarding the Company’s share repurchases, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Information relating to compensation plans under which the Company’s equity securities are authorized for issuance is set forth in “Part III—Item 12” of this Report.
Item 6. RESERVED
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the Company’s financial condition and results of operations for the years ended December 31, 2025 and 2024, including year-to-year comparisons between 2025 and 2024. Year-to-year comparisons between 2024 and 2023 have been omitted from this Form 10-K, but may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
On May 27, 2025, the Company entered into an agreement to sell its Canadian personal insurance business and the majority of its Canadian commercial insurance business to Definity Financial Corporation for approximately US$2.4 billion. The assets and liabilities of the Canadian personal insurance business and the majority of its Canadian commercial insurance business have been classified as held for sale in the consolidated balance sheet as of December 31, 2025. The Company retained its surety business in Canada. The sale closed on January 2, 2026. See note 1 of the notes to the consolidated financial statements.
FINANCIAL HIGHLIGHTS
2025 Consolidated Results of Operations
• Net income of $6.29 billion, or $27.83 per share basic and $27.43 per share diluted
• Net earned premiums of $43.91 billion
• Catastrophe losses of $3.69 billion ($2.92 billion after-tax)
• Net favorable prior year reserve development of $1.04 billion ($815 million after-tax)
• Combined ratio of 89.9%
• Net investment income of $3.96 billion ($3.25 billion after-tax)
• Net realized investment losses of $48 million ($37 million after-tax)
• Operating cash flows of $10.61 billion
2025 Consolidated Financial Condition
• Total investments of $101.18 billion; fixed maturities and short-term securities comprised 94% of total investments
• Total assets of $143.71 billion
• Total debt of $9.27 billion, resulting in a debt-to-total capital ratio of 22.0% (21.2% excluding net unrealized investment losses, net of tax, included in shareholders’ equity)
• Total capital returned to shareholders of $4.18 billion, comprising $3.20 billion of share repurchases and $987 million of dividends
• Shareholders’ equity of $32.89 billion
• Net unrealized investment losses of $1.86 billion ($1.48 billion after-tax)
• Book value per common share of $151.21
• Holding company liquidity of $2.41 billion
CONSOLIDATED OVERVIEW
Consolidated Results of Operations
(for the year ended December 31, in millions except ratio and per share amounts)
Revenues
Premiums
Net investment income
Fee income
Net realized investment losses
Other revenues
Total revenues
Claims and expenses
Claims and claim adjustment expenses
Amortization of deferred acquisition costs
General and administrative expenses
Interest expense
Total claims and expenses
Income before income taxes
Income tax expense
Net income
Net income per share
Basic
Diluted
Combined ratio
Loss and loss adjustment expense ratio
Underwriting expense ratio
Combined ratio
The following discussions of the Company’s net income and segment income (loss) are presented on an after-tax basis. Discussions of the components of net income and segment income (loss) are presented on a pre-tax basis, unless otherwise noted. Discussions of net income per common share are presented on a diluted basis.
Overview
Diluted net income per share of $27.43 in 2025 increased by 28% over diluted net income per share of $21.47 in 2024. Net income of $6.29 billion in 2025 increased by 26% over net income of $5.00 billion in 2024. The higher rate of increase in diluted net income per share reflected the impact of share repurchases in recent periods. The increase in income before income taxes primarily reflected the pre-tax impacts of (i) higher underwriting margins excluding catastrophe losses and prior year reserve development (“underlying underwriting margins”), (ii) higher net investment income and (iii) higher net favorable prior year reserve development, partially offset by (iv) higher catastrophe losses. Net favorable prior year reserve development in 2025 and 2024 was $1.04 billion and $709 million, respectively. Catastrophe losses in 2025 and 2024 were $3.69 billion and $3.34 billion, respectively. The higher underlying underwriting margins in 2025 were driven by all three segments. Income tax expense in 2025 was higher than in 2024, primarily reflecting the impact of the increase in income before income taxes.
The Company has insurance operations in the United Kingdom, the Republic of Ireland, Canada and throughout other parts of the world as a corporate member of Lloyd’s, as well as in Brazil through a joint venture. Because these operations are conducted in local currencies other than the U.S. dollar, the Company is subject to changes in foreign currency exchange rates. For the years ended December 31, 2025 and 2024, changes in foreign currency exchange rates impacted reported line items in the statement of income by insignificant amounts. The impact of these changes was not material to the Company’s net income or segment income (loss) for the periods reported.
Revenues
Earned Premiums
Earned premiums in 2025 were $43.91 billion, $1.97 billion or 5% higher than in 2024. In Business Insurance, earned premiums in 2025 increased by 5% over 2024. In Bond & Specialty Insurance, earned premiums in 2025 increased by 4% over 2024. In Personal Insurance, earned premiums in 2025 increased by 5% over 2024. Factors contributing to the change in earned premiums in each segment in 2025 as compared with 2024 are discussed in more detail in the segment discussions that follow.
Net Investment Income
The following table sets forth information regarding the Company’s investments.
(for the year ended December 31, in millions)
Average investments (1)
Pre-tax net investment income
After-tax net investment income
Average pre-tax yield (2)
Average after-tax yield (2)
(1) Excludes net unrealized investment gains and losses and reflects cash, receivables for investment sales, payables on investment purchases and accrued investment income.
(2) Excludes net realized and net unrealized investment gains and losses.
Net investment income in 2025 was $3.96 billion, $369 million or 10% higher than in 2024. Net investment income from fixed maturity investments in 2025 was $3.43 billion, $485 million higher than in 2024. The increase primarily resulted from a higher average level of fixed maturity investments and higher long-term average yields. Net investment income from short-term securities in 2025 was $253 million, $27 million lower than in 2024. The decrease primarily resulted from lower short-term average yields, partially offset by a higher level of short-term investments. The Company’s remaining investment portfolios had net investment income of $326 million in 2025, $83 million lower than in 2024, primarily reflecting lower private equity partnership returns. Included in other investments are private equity, hedge fund and real estate partnerships that are accounted for under the equity method of accounting and typically report their financial statement information to the Company one month to three months following the end of the reporting period. Accordingly, net investment income from these other investments is generally reflected in the Company’s financial statements on a quarter lag basis.
Fee Income
Fee income in 2025 was $495 million, $22 million higher than in 2024. The National Accounts market in Business Insurance is the primary source of the Company’s fee-based business and is discussed in the Business Insurance segment discussion that follows.
Net Realized Investment Gains (Losses)
The following table sets forth information regarding the Company’s net pre-tax realized investment gains (losses).
(for the year ended December 31, in millions)
Impairment gains (losses):
Fixed maturities
Real estate investments
Net realized investment gains (losses) on equity securities still held
Other net realized investment gains (losses), including from sales
Total
Net realized investment gains on equity securities still held of $50 million and $89 million in 2025 and 2024, respectively, were driven by the impact of changes in fair value attributable to favorable equity markets.
Other net realized investment losses in 2025 included $67 million of net realized investment losses related to fixed maturity investments, $24 million of net realized investment losses related to other investments and $5 million of net realized investment losses related to equity securities sold. Other net realized investment losses in 2024 included $126 million of net realized investment losses related to fixed maturity investments and $10 million of net realized investment losses related to other investments, partially offset by $17 million of net realized investment gains related to real estate sales and $10 million of net realized investment gains related to equity securities sold.
Other Revenues
Other revenues in 2025 were $508 million, $59 million higher than 2024. Other revenues include revenues from Simply Business, installment premium charges and other policyholder service charges.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in 2025 were $27.22 billion, $162 million or 1% higher than 2024, driven by Business Insurance, partially offset by Personal Insurance and Bond & Specialty Insurance. Catastrophes in 2025 primarily resulted from the January 2025 California wildfires and severe wind and hail storms in multiple states. Catastrophes in 2024 primarily resulted from Hurricane Helene and numerous severe wind and hail storms in multiple states. Factors contributing to the changes in claims and claim adjustment expenses in each segment are discussed in more detail in the segment discussions that follow.
Factors contributing to net prior year reserve development are discussed in more detail in note 8 of the notes to the consolidated financial statements.
Significant Catastrophe Losses
The Company defines a catastrophe as a severe loss event designated, or reasonably expected by the Company to be designated, a catastrophe by one or more industry recognized organizations that track and report on insured losses resulting from catastrophic events, such as Property Claim Services (PCS) for events in the United States and Canada.
Catastrophes can be caused by various natural events, including, among others, hurricanes, tornadoes and other windstorms, earthquakes, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions and other naturally-occurring events, such as solar flares. Catastrophes can also be man-made, such as terrorist attacks and other destructive acts, including those involving nuclear, biological, chemical and radiological events, cyber events, explosions and destruction of infrastructure. The effects of catastrophes are included in net income (loss) and core income (loss) and claims and claim adjustment expense reserves upon occurrence. A catastrophe may also result in the payment of reinsurance reinstatement premiums and assessments from various pools and associations.
The Company’s threshold for disclosing catastrophes is primarily determined at the reportable segment level. If a threshold for one segment or a combination thereof is reached and the other segments have losses from the same event, losses from the event are identified as catastrophe losses in the segment results and for the consolidated results of the Company. Additionally, an aggregate threshold is applied for International business across all reportable segments. The threshold for 2025 ranged from approximately $20 million to $30 million of losses before reinsurance and taxes.
The following table presents the amount of losses recorded by the Company for significant catastrophes that occurred in 2025, 2024 and 2023, the amount of net unfavorable (favorable) prior year reserve development recognized in 2025 and 2024 for catastrophes that occurred in 2024 and 2023, and the estimate of ultimate losses for those catastrophes at December 31, 2025, 2024 and 2023. For purposes of the table, a significant catastrophe is an event for which the Company estimates its ultimate losses will be $100 million or more after reinsurance and before taxes.
Losses Incurred / Unfavorable (Favorable)
Prior Year Reserve Development for the Year Ended December 31,
Estimated Ultimate Losses as of
December 31,
(in millions, pre-tax and net of reinsurance)
PCS Serial Number:
25 — Severe wind and hail storms
32 — Severe wind and hail storms
33 — Severe wind and hail storms
35 — Severe wind and hail storms
38 — Severe wind and hail storms
42 — Severe wind and hail storms
48 — Severe wind and hail storms
49 — Severe wind and hail storms
51 — Severe wind and hail storms
63 — Severe wind and hail storms
75 — Severe wind and hail storms
PCS Serial Number:
26 — Severe wind and hail storms
39 — Severe wind and hail storms
42 — Severe wind and hail storms
44 — Severe wind and hail storms
45 — Severe wind and hail storms
46 — Severe wind and hail storms
61 — Severe wind and hail storms
77 — Hurricane Helene
11 — California wildfire – Palisades fire
12 — California wildfire – Eaton fire
24 — Severe wind and hail storms
29 — Severe wind and hail storms
37 — Severe wind and hail storms
39 — Severe wind and hail storms
43 — Severe wind and hail storms
45 — Severe wind and hail storms
n/a: not applicable.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in 2025 was $7.27 billion, $293 million or 4% higher than in 2024. The increase in 2025 was generally consistent with the increase in earned premiums. Amortization of deferred acquisition costs is discussed in more detail in the segment discussions that follow.
General and Administrative Expenses
General and administrative expenses in 2025 were $6.12 billion, $301 million or 5% higher than in 2024, primarily reflecting the impact of costs associated with higher business volumes. General and administrative expenses are discussed in more detail in the segment discussions that follow.
Interest Expense
Interest expense in 2025 and 2024 was $425 million and $392 million, respectively.
Income Tax Expense
Income tax expense in 2025 was $1.51 billion, $327 million or 28% higher than in 2024, primarily reflecting the impact of the $1.62 billion increase in income before income taxes in 2025.
The Company’s effective tax rate was 19% in both 2025 and 2024. The effective tax rates in both years reflected the impact of tax-exempt investment income on the calculation of the Company’s income tax provision.
Combined Ratio
The combined ratio of 89.9% in 2025 was 2.6 points lower than the combined ratio of 92.5% in 2024. The loss and loss adjustment expense ratio of 61.4% in 2025 was 2.6 points lower than the loss and loss adjustment expense ratio of 64.0% in 2024. The underwriting expense ratio of 28.5% in 2025 was comparable with the underwriting expense ratio in 2024.
Catastrophe losses in 2025 and 2024 accounted for 8.4 points and 8.0 points, respectively, of the combined ratio. Net favorable prior year reserve development in 2025 and 2024 provided 2.4 points and 1.7 points of benefit, respectively, to the combined ratio. The combined ratio excluding prior year reserve development and catastrophe losses (“underlying combined ratio”) in 2025 was 2.3 points lower than the 2024 ratio on the same basis, primarily reflecting the impacts of (i) the benefit of earned pricing and (ii) lower losses in Personal Insurance.
The combined ratio continues to be impacted by the tort environment, including more aggressive attorney involvement in insurance claims.
Written Premiums
Consolidated gross and net written premiums were as follows:
Gross Written Premiums
(for the year ended December 31, in millions)
Business Insurance
Bond & Specialty Insurance
Personal Insurance
Total
Net Written Premiums
(for the year ended December 31, in millions)
Business Insurance
Bond & Specialty Insurance
Personal Insurance
Total
Gross and net written premiums in 2025 increased by 3% and 2%, respectively, over 2024. Factors contributing to the changes in gross and net written premiums in each segment are discussed in more detail in the segment discussions that follow.
RESULTS OF OPERATIONS BY SEGMENT
Business Insurance
Results of Business Insurance were as follows:
(for the year ended December 31, in millions)
Revenues
Earned premiums
Net investment income
Fee income
Other revenues
Total revenues
Total claims and expenses
Segment income before income taxes
Income tax expense
Segment income
Loss and loss adjustment expense ratio
Underwriting expense ratio
Combined ratio
Overview
Segment income in 2025 was $3.70 billion, $389 million or 12% higher than segment income of $3.31 billion in 2024. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher net investment income, (ii) higher underlying underwriting margins and (iii) higher net favorable prior year reserve development, partially offset by (iv) higher catastrophe losses. Net favorable prior year reserve development in 2025 and 2024 was $233 million and $90 million, respectively. Catastrophe losses in 2025 and 2024 were $1.07 billion and $1.03 billion, respectively. The higher underlying underwriting margins primarily reflected the impacts of (i) the benefit of earned pricing and (ii) higher business volumes, partially offset by (iii) higher general and administrative expenses. Income tax expense in 2025 was higher than in 2024, primarily reflecting the impact of the increase in segment income before income taxes.
Revenues
Earned Premiums
Earned premiums in 2025 were $22.41 billion, $1.07 billion or 5% higher than in 2024, primarily reflecting the increase in net written premiums over the preceding twelve months.
Net Investment Income
Net investment income in 2025 was $2.78 billion, $222 million or 9% higher than in 2024. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion for a description of the factors contributing to the increase in the Company’s consolidated net investment income in 2025 compared with 2024. In addition, refer to note 2 of the notes to the consolidated financial statements for a discussion of the Company’s net investment income allocation methodology.
Fee Income
National Accounts is the primary source of fee income due to revenue from its large deductible policies and service businesses, which include risk management, claims administration, loss control and risk management information services provided to third parties, as well as policy issuance and claims management services to workers’ compensation residual market pools. Fee income in 2025 was $445 million, $15 million or 3% higher than in 2024, primarily reflecting higher claim volume under administration associated with large deductible policies and the service business.
Other Revenues
Other revenues in 2025 were $379 million, $57 million or 18% higher than in 2024, driven by growth in Simply Business. Other revenues also include premium installment charges and other policyholder service charges.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in 2025 were $14.15 billion, $475 million or 3% higher than in 2024, primarily reflecting the impacts of (i) loss cost trends and (ii) higher catastrophe losses, partially offset by (iii) higher net favorable prior year reserve development.
Factors contributing to net prior year reserve development are discussed in more detail in note 8 of the notes to the consolidated financial statements.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in 2025 was $3.80 billion, $208 million or 6% higher than in 2024, generally consistent with the increase in earned premiums.
General and Administrative Expenses
General and administrative expenses in 2025 were $3.48 billion, $179 million or 5% higher than in 2024. The increase in 2025 was primarily in support of business growth.
Income Tax Expense
Income tax expense in 2025 was $891 million, $110 million or 14% higher than in 2024, primarily reflecting the impact of the $499 million increase in segment income before income taxes in 2025.
Combined Ratio
The combined ratio of 91.7% in 2025 was 0.8 points lower than the combined ratio of 92.5% in 2024. The loss and loss adjustment expense ratio of 62.2% in 2025 was 0.9 points lower than the loss and loss adjustment expense ratio of 63.1% in 2024. The underwriting expense ratio of 29.5% in 2025 was 0.1 points higher than the underwriting expense ratio of 29.4% in 2024.
Catastrophe losses in both 2025 and 2024 accounted for 4.8 points of the combined ratio. Net favorable prior year reserve development in 2025 and 2024 provided 1.1 points and 0.4 points of benefit, respectively, to the combined ratio. The underlying combined ratio in 2025 was 0.1 points lower than the 2024 ratio on the same basis.
Written Premiums
Business Insurance’s gross and net written premiums by market were as follows:
Gross Written Premiums
(for the year ended December 31, in millions)
Domestic:
Select Accounts
Middle Market
National Accounts
National Property and Other
Total Domestic
International
Total Business Insurance
Net Written Premiums
(for the year ended December 31, in millions)
Domestic:
Select Accounts
Middle Market
National Accounts
National Property and Other
Total Domestic
International
Total Business Insurance
Gross and net written premiums in 2025 both increased by 3% over 2024.
Select Accounts . Net written premiums of $3.83 billion in 2025 increased by 3% over 2024. Retention rates remained strong in 2025 but decreased from 2024. Renewal premium changes in 2025 remained positive but were slightly lower than in 2024. New business premiums in 2025 increased over 2024.
Middle Market . Net written premiums of $12.54 billion in 2025 increased by 4% over 2024. Retention rates remained strong in 2025 and were comparable with 2024. Renewal premium changes in 2025 remained positive but were lower than in 2024. New business premiums in 2025 increased over 2024.
National Accounts . Net written premiums of $1.26 billion in 2025 increased slightly over 2024. Retention rates remained strong in 2025 and were comparable with 2024. Renewal premium changes in 2025 remained positive but were lower than in 2024. New business premiums in 2025 decreased from 2024.
National Property and Other. Net written premiums of $3.11 billion in 2025 decreased by 1% from 2024. Retention rates remained strong in 2025 and increased over 2024. Renewal premium changes in 2025 remained positive but were lower than in 2024. New business premiums in 2025 decreased from 2024.
International. Net written premiums of $1.93 billion in 2025 were comparable with 2024.
Bond & Specialty Insurance
Results of Bond & Specialty Insurance were as follows:
(for the year ended December 31, in millions)
Revenues
Earned premiums
Net investment income
Other revenues
Total revenues
Total claims and expenses
Segment income before income taxes
Income tax expense
Segment income
Loss and loss adjustment expense ratio
Underwriting expense ratio
Combined ratio
Overview
Segment income in 2025 was $950 million, $135 million or 17% higher than segment income of $815 million in 2024. The increase in segment income before income taxes primarily reflected the pre-tax impacts of (i) higher net favorable prior year reserve development, (ii) higher net investment income, (iii) lower catastrophe losses and (iv) higher underlying underwriting margins. Net favorable prior year reserve development in 2025 and 2024 was $221 million and $129 million, respectively. Catastrophe losses in 2025 and 2024 were $25 million and $51 million, respectively. The higher underlying underwriting margins primarily reflected (i) higher business volumes, partially offset by (ii) the impact of earned pricing and (iii) higher general and administrative expenses. Income tax expense in 2025 was higher than in 2024, primarily reflecting the impact of the increase in segment income before income taxes.
Revenues
Earned Premiums
Earned premiums in 2025 were $4.11 billion, $149 million or 4% higher than in 2024, primarily reflecting an increase in net written premiums, including the impact of longer duration surety bonds and multi-year management liability policies.
Net Investment Income
Net investment income in 2025 was $445 million, $55 million or 14% higher than in 2024. Included in Bond & Specialty Insurance are certain legal entities whose invested assets and related net investment income are reported exclusively in this segment and not allocated among all business segments. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion for a description of the factors contributing to the increase in the Company’s consolidated net investment income in 2025 as compared with 2024. In addition, refer to note 2 of the notes to the consolidated financial statements for a discussion of the Company’s net investment income allocation methodology.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in 2025 were $1.76 billion, $10 million or 1% lower than in 2024, primarily reflecting the impacts of (i) higher net favorable prior year reserve development and (ii) lower catastrophe losses, partially offset by (iii) higher business volumes and (iv) loss cost trends.
Factors contributing to net prior year reserve development are discussed in more detail in note 8 of the notes to the consolidated financial statements.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in 2025 was $778 million, $22 million or 3% higher than in 2024, generally consistent with the increase in earned premiums.
General and Administrative Expenses
General and administrative expenses in 2025 were $843 million, $11 million or 1% higher than in 2024.
Income Tax Expense
Income tax expense in 2025 was $244 million, $43 million or 21% higher than in 2024, primarily reflecting the impact of the $178 million increase in segment income before income taxes in 2025.
Combined Ratio
The combined ratio of 81.9% in 2025 was 2.4 points lower than the combined ratio of 84.3% in 2024. The loss and loss adjustment expense ratio of 42.6% in 2025 was 1.8 points lower than the loss and loss adjustment expense ratio of 44.4% in 2024. The underwriting expense ratio of 39.3% in 2025 was 0.6 points lower than the underwriting expense ratio of 39.9% in 2024.
Net favorable prior year reserve development in 2025 and 2024 provided 5.4 points and 3.3 points of benefit, respectively, to the combined ratio. Catastrophe losses in 2025 and 2024 accounted for 0.7 points and 1.3 points, respectively, of the combined ratio. The underlying combined ratio in 2025 was 0.3 points higher than the 2024 ratio on the same basis, primarily reflecting the impact of earned pricing.
Written Premiums
Bond & Specialty Insurance’s gross and net written premiums were as follows:
Gross Written Premiums
(for the year ended December 31, in millions)
Domestic:
Management Liability
Surety
Total Domestic
International
Total Bond & Specialty Insurance
Net Written Premiums
(for the year ended December 31, in millions)
Domestic:
Management Liability
Surety
Total Domestic
International
Total Bond & Specialty Insurance
Gross written premiums and net written premiums in 2025 increased by 3% and 4%, respectively, over 2024.
Domestic . Net written premiums of $3.68 billion in 2025 increased by 2% over 2024. Excluding the surety line of business, for which the following are not relevant measures, retention rates remained strong in 2025 but decreased from 2024. Renewal premium changes in 2025 remained positive and were higher than in 2024. New business premiums in 2025 decreased from 2024.
International. Net written premiums of $582 million in 2025 increased by 15% over 2024, driven by increases in the United Kingdom and broader Europe.
Personal Insurance
Results of Personal Insurance were as follows:
(for the year ended December 31, in millions)
Revenues
Earned premiums
Net investment income
Fee income
Other revenues
Total revenues
Total claims and expenses
Segment income (loss) before income taxes
Income tax expense (benefit)
Segment income (loss)
Loss and loss adjustment expense ratio
Underwriting expense ratio
Combined ratio
Overview
Segment income in 2025 was $2.05 billion, $804 million or 64% higher than segment income of $1.25 billion in 2024. The increase in segment income before income taxes was driven by the pre-tax impacts of (i) higher underlying underwriting margins, (ii) higher net investment income and (iii) higher net favorable prior year reserve development, partially offset by (iv) higher catastrophe losses. Net favorable prior year reserve development in 2025 and 2024 was $582 million and $490 million, respectively. Catastrophe losses in 2025 and 2024 were $2.59 billion and $2.25 billion, respectively. The higher underlying underwriting margins primarily reflected the impacts of (i) lower losses in the automobile product line, (ii) the benefit of earned pricing, (iii) higher business volumes and (iv) lower non-catastrophe weather-related and non-weather losses in the homeowners and other product line. Income tax expense in 2025 was higher than in 2024, primarily reflecting the impact of the increase in segment income before income taxes.
Revenues
Earned Premiums
Earned premiums in 2025 were $17.40 billion, $757 million or 5% higher than in 2024, primarily reflecting the increase in net written premiums over the preceding twelve months.
Net Investment Income
Net investment income in 2025 was $732 million, $92 million or 14% higher than in 2024. Refer to the “Net Investment Income” section of the “Consolidated Results of Operations” discussion for a description of the factors contributing to the increase in the Company’s consolidated net investment income in 2025 as compared with 2024. In addition, refer to note 2 of the notes to the consolidated financial statements for a discussion of the Company’s net investment income allocation methodology.
Other Revenues
Other revenues in all years presented primarily consisted of installment premium charges.
Claims and Expenses
Claims and Claim Adjustment Expenses
Claims and claim adjustment expenses in 2025 were $11.30 billion, $303 million or 3% lower than in 2024, primarily reflecting the impacts of (i) lower losses in the automobile product line, (ii) lower non-catastrophe weather-related and non-weather losses in the homeowners and other product line and (iii) higher net favorable prior year reserve development, partially offset by (iv) higher catastrophe losses and (v) loss cost trends.
Factors contributing to net prior year reserve development are discussed in more detail in note 8 of the notes to the consolidated financial statements.
Amortization of Deferred Acquisition Costs
Amortization of deferred acquisition costs in 2025 was $2.69 billion, $63 million or 2% higher than in 2024, generally consistent with the increase in earned premiums.
General and Administrative Expenses
General and administrative expenses in 2025 were $1.75 billion, $106 million or 6% higher than in 2024, primarily reflecting higher contingent commissions.
Income Tax Expense
Income tax expense in 2025 was $485 million, $191 million or 65% higher than in 2024, primarily reflecting the impact of the $995 million increase in segment income before income taxes.
Combined Ratio
The combined ratio of 89.5% in 2025 was 4.9 points lower than the combined ratio of 94.4% in 2024. The loss and loss adjustment expense ratio of 65.0% in 2025 was 4.7 points lower than the loss and loss adjustment expense ratio of 69.7% in 2024. The underwriting expense ratio of 24.5% in 2025 was 0.2 points lower than the underwriting expense ratio of 24.7% in 2024.
Catastrophe losses accounted for 14.9 points and 13.5 points of the combined ratio in 2025 and 2024, respectively. Net favorable prior year reserve development in 2025 and 2024 provided 3.4 points and 3.0 points of benefit, respectively, to the combined ratio. The underlying combined ratio in 2025 was 5.9 points lower than the 2024 ratio on the same basis, primarily reflecting the impacts of (i) lower losses in the automobile product line, (ii) the benefit of earned pricing and (iii) lower non-catastrophe weather-related and non-weather losses in the homeowners and other product line.
Written Premiums
Personal Insurance’s gross and net written premiums were as follows:
Gross Written Premiums
(for the year ended December 31, in millions)
Domestic:
Automobile
Homeowners and Other
Total Domestic
International
Total Personal Insurance
Net Written Premiums
(for the year ended December 31, in millions)
Domestic:
Automobile
Homeowners and Other
Total Domestic
International
Total Personal Insurance
Gross and net written premiums in 2025 both increased by 2% over 2024.
Domestic
Automobile net written premiums of $7.75 billion in 2025 decreased by 2% from 2024. Retention rates remained strong in 2025 and were comparable with 2024. Renewal premium changes in 2025 remained positive but were lower than in 2024. New business premiums in 2025 increased over 2024.
Homeowners and Other net written premiums of $9.05 billion in 2025 increased by 6% over 2024. Retention rates remained strong in 2025 but decreased from 2024. Renewal premium changes in 2025 remained positive and were higher than in 2024. New business premiums in 2025 decreased from 2024.
For its Domestic business, Personal Insurance had approximately 8.4 million and 8.8 million active policies at December 31, 2025 and 2024, respectively.
International
International net written premiums of $650 million in 2025 decreased by 6% from 2024, driven by decreases in the automobile product line.
For its International business, Personal Insurance had approximately 349,000 and 425,000 active policies at December 31, 2025 and 2024, respectively.
Interest Expense and Other
(for the year ended December 31, in millions)
Income (loss)
The income (loss) for Interest Expense and Other in 2025 and 2024 was $(373) million and $(345) million, respectively. Pre-tax interest expense in 2025 and 2024 was $425 million and $392 million, respectively. After-tax interest expense in 2025 and 2024 was $336 million and $310 million, respectively.
ASBESTOS CLAIMS AND LITIGATION
The Company believes that the property and casualty insurance industry has suffered from court decisions and other trends that have expanded insurance coverage for asbestos claims far beyond the original intent of insurers and policyholders. The Company has received and continues to receive a significant number of asbestos claims. Factors underlying these claim filings include continued intensive advertising by lawyers seeking asbestos claimants and the focus by plaintiffs on defendants, such as manufacturers of talcum powder, who were not traditionally sued and/or primary targets of asbestos litigation. Many defendants have also been subject to increased settlement demands, in part due to the bankruptcy of many traditional primary targets of asbestos litigation. Currently, in many jurisdictions, those who allege very serious injury and who can present credible medical evidence of their are receiving priority trial settings in the courts, while those who have not shown any credible disease manifestation are having their hearing dates or placed on an inactive docket. Prioritizing involving credible evidence of , along with the focus on who were not traditionally primary targets of asbestos , contributes to the and claim adjustment expense payment patterns experienced by the Company. The Company’s asbestos-related and claim adjustment expense experience also has been impacted by the of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the of other participating insurers.
The Company continues to be involved in disputes, including litigation, with a number of policyholders, some of whom are in bankruptcy, over coverage for asbestos-related claims. Many coverage disputes with policyholders are only resolved through settlement agreements. Because many policyholders make exaggerated demands, it is difficult to predict the outcome of settlement negotiations. Settlements involving bankrupt policyholders may include extensive releases which are favorable to the Company, but which could result in settlements for larger amounts than originally anticipated. Although the Company has seen a reduction in the overall risk associated with these disputes, it remains difficult to predict the ultimate cost of these claims. As in the past, the Company will continue to pursue settlement opportunities.
In addition to claims against policyholders, proceedings have been launched directly against insurers, including the Company, by individuals challenging insurers’ conduct with respect to the handling of past asbestos claims and by individuals seeking damages arising from alleged asbestos-related bodily injuries. While the number of direct actions has decreased significantly over time, it is possible that additional direct actions against insurers, including the Company, could be filed in the future. It is difficult to predict the outcome of these proceedings, including whether the plaintiffs would be able to sustain these actions against insurers based on novel legal theories of liability. The Company believes it has meritorious defenses to any such and has received rulings in certain jurisdictions.
The Company’s net asbestos reserves as of December 31, 2025 and 2024 were $1.36 billion and $1.34 billion, respectively, and include case reserves, IBNR reserves and reserves for the costs of defending asbestos-related coverage litigation. IBNR reserves include amounts for new claims and adverse development on existing policyholders, as well as reserves for claims from policyholders reporting asbestos claims for the first time and for policyholders for which there is, or may be, litigation. Asbestos reserves also include amounts related to certain policyholders with whom the Company has entered into permanent settlement agreements, which are based on the expected payout for each policyholder under the applicable agreement. Additionally, a portion of the asbestos reserves relates to assumed reinsurance contracts, primarily consisting of reinsurance of excess coverage, including various pool participations.
Because each policyholder presents different liability and coverage issues, the Company generally conducts an in-depth asbestos claim review on an annual basis, including a review of domestic policyholders with open claims and litigation cases for potential product and “non-product” liability. Policyholders are identified for this review based upon, among other factors: a combination of past payments and current case reserves in excess of a specified threshold (currently $100,000), perceived level of exposure, number of reported claims, products/completed operations and potential “non-product” exposures, size of policyholder and geographic distribution of products or services sold by the policyholder.
Among the factors the Company may consider in the course of this review are: available insurance coverage, including the role of any umbrella or excess insurance the Company has issued to the policyholder; limits and deductibles; an analysis of the policyholder’s potential liability, including as a result of the bankruptcy of other defendants; the jurisdictions involved, including any trends, judicial rulings or legislative actions in those jurisdictions; past and anticipated future claim activity and loss development on pending claims; past settlement values of similar claims; allocated claim adjustment expense; the potential role of other insurance; the role, if any, of non-asbestos claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or determinations, if any, including the determination as to whether or not an asbestos claim is a products/completed operation claim subject to an aggregate limit and the available coverage, if any, for that claim.
The Company also reviews its asbestos reserves quarterly. These reviews include, as appropriate, an analysis of exposure and claim payment patterns by policyholder, as well as recent settlements, policyholder bankruptcies, judicial rulings and legislative
actions. The Company also analyzes developing payment patterns among policyholders and the assumed reinsurance component of reserves, as well as projected reinsurance billings and recoveries. In addition, the Company reviews its historical gross and net loss and expense paid experience, year-by-year, to assess any emerging trends, fluctuations, or characteristics suggested by the aggregate paid activity. Conventional actuarial methods are not utilized to establish asbestos reserves, and the Company’s evaluations have not resulted in a reliable method to determine a meaningful average asbestos defense or indemnity payment.
During the third quarter of 2025, the Company completed its annual in-depth asbestos claim review. While the latest available government data continue to reflect a declining trend in deaths caused by mesothelioma, the number of policyholders with open asbestos claims was relatively flat compared to 2024. Net asbestos paid loss and loss adjustment expenses in 2025, 2024 and 2023 were $261 million, $282 million and $212 million, respectively. Payments on behalf of these policyholders continue to be influenced by the factors described above, including an increase in severity for certain policyholders and a high level of litigation activity in a limited number of jurisdictions where individuals alleging serious asbestos-related injury, primarily mesothelioma, continue to target defendants who were not traditionally sued and/or primary targets of asbestos litigation. The completion of the analyses described above and the annual review in the third quarters of 2025, 2024 and 2023 resulted in $277 million, $242 million and $284 million increases, respectively, to the Company’s net asbestos reserves. In each year, the reserve increases were primarily driven by increases in the Company’s estimate of projected settlement and defense costs related to a broad number of policyholders. The increase in the estimate of projected settlement and defense costs primarily resulted from payment trends that continue to be higher than previously anticipated due to the continued high level of mesothelioma claim filings and the impact of the current environment surrounding those discussed above. The 2023 charge also included an additional increase to the Company’s carried reserve position relative to the range of reasonable estimates.
Over the past decade, the property and casualty insurance industry, including the Company, has experienced net unfavorable prior year reserve development with regard to asbestos reserves, but the Company believes that over that period there has been a reduction in the volatility associated with the Company’s overall asbestos exposure as the overall asbestos environment has evolved from one dominated by exposure to significant litigation risks, particularly coverage disputes relating to policyholders in bankruptcy who were asserting that their claims were not subject to the aggregate limits contained in their policies, to an environment primarily driven by a frequency of litigation related to individuals with mesothelioma. The Company’s overall view of the current underlying asbestos environment is essentially unchanged from recent periods, and there remains a high degree of uncertainty with respect to future exposure to asbestos claims.
The following table displays activity for asbestos losses and loss adjustment expenses and reserves.
(as of and for the year ended December 31, in millions)
Beginning reserves:
Gross
Ceded
Net
Incurred losses and loss adjustment expenses:
Gross
Ceded
Net
Paid loss and loss adjustment expenses:
Gross
Ceded
Net
Foreign exchange and other:
Gross
Ceded
Net
Ending reserves:
Gross
Ceded
Net
UNCERTAINTY REGARDING ADEQUACY OF ASBESTOS RESERVES
As a result of the processes and procedures discussed above, management believes that the reserves carried for asbestos claims are appropriately established based upon known facts, current law and management’s judgment. However, the uncertainties surrounding the final resolution of these claims continue, and it is difficult to determine the ultimate exposure for asbestos claims and related litigation. As a result, these reserves are subject to revision as new information becomes available and as claims develop. The continuing uncertainties include, without limitation:
• the risks and lack of predictability inherent in complex litigation;
• a further increase in the cost to resolve, and/or the number of, asbestos claims beyond that which is anticipated;
• the emergence of a greater number of asbestos claims than anticipated as a result of extended life expectancies resulting from medical advances and lifestyle improvements;
• the role of any umbrella or excess policies we have issued;
• the resolution or adjudication of disputes concerning coverage for asbestos claims in a manner inconsistent with our previous assessment of these disputes;
• the number and outcome of direct actions against us;
• future developments pertaining to our ability to recover reinsurance for asbestos claims;
• any impact on asbestos defendants we insure due to the bankruptcy of other asbestos defendants;
• the unavailability of other insurance sources potentially available to policyholders, whether through exhaustion of policy limits or through the insolvency of other participating insurers; and
• uncertainties arising from the insolvency or bankruptcy of policyholders.
Changes in the legal, regulatory and legislative environment may impact the future resolution of asbestos claims and result in adverse loss reserve development. The emergence of a greater number of asbestos claims beyond that which is anticipated may result in adverse loss reserve development. Changes in applicable legislation and future court and regulatory decisions and interpretations, including the outcome of legal challenges to legislative and/or judicial reforms establishing medical criteria for the pursuit of asbestos claims, could affect the settlement of asbestos claims. It is also difficult to predict the ultimate outcome of complex coverage disputes until settlement negotiations near completion and significant legal questions are resolved or, failing settlement, until the is adjudicated. This is particularly the case with policyholders in where
negotiations often involve a large number of claimants and other parties and require court approval to be effective. As part of its continuing analysis of asbestos reserves, the Company continues to study the implications of these and other developments.
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of the Company’s current reserves. In addition, the Company’s estimate of claims and claim adjustment expenses may change. These additional liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could result in income statement charges that could be material to the Company’s operating results in future periods.
INVESTMENT PORTFOLIO
The Company’s invested assets as of December 31, 2025 were $101.18 billion, of which 94% was invested in fixed maturity and short-term investments, 1% in equity securities, 1% in real estate investments and 4% in other investments. Because the primary purpose of the investment portfolio is to fund future claims payments, the Company employs a thoughtful investment philosophy that focuses on appropriate risk-adjusted returns. A significant majority of funds available for investment are deployed in a widely diversified portfolio of high quality, liquid, taxable U.S. government, tax-exempt and taxable U.S. municipal and taxable corporate and U.S. agency mortgage-backed bonds.
The carrying value of the Company’s fixed maturity portfolio as of December 31, 2025 was $89.83 billion. The Company closely monitors the duration of its fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy the Company’s insurance and debt obligations. The weighted average credit quality of the Company’s fixed maturity portfolio was “Aa2” as of both December 31, 2025 and 2024. The weighted average credit quality of the Company’s fixed maturity portfolio, excluding U.S. Treasury securities, was “Aa3” and “Aa2” as of December 31, 2025 and 2024, respectively. Below investment grade securities represented 1.2% of the total fixed maturity investment portfolio as of both December 31, 2025 and 2024. The weighted average effective duration of fixed maturities and short-term securities was 4.7 (5.0 excluding short-term securities) as of December 31, 2025 and 4.3 (4.5 excluding short-term securities) as of December 31, 2024.
The carrying values of investments in fixed maturities classified as available for sale as of December 31, 2025 and 2024 were as follows:
(as of December 31, in millions)
Carrying Value
Weighted Average Credit
Quality (1)
Carrying Value
Weighted Average Credit
Quality (1)
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities
Aaa/Aa1
Obligations of U.S. states, municipalities and political subdivisions:
Local general obligation
Aaa/Aa1
Aaa/Aa1
Revenue
Aaa/Aa1
Aaa/Aa1
State general obligation
Aaa/Aa1
Aaa/Aa1
Pre-refunded
Aaa/Aa1
Total obligations of U.S. states, municipalities and political subdivisions
Debt securities issued by foreign governments
Aaa/Aa1
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities
Aaa/Aa1
Corporate and all other bonds:
Financial:
Bank
Insurance
Finance/leasing
Brokerage and asset management
Total financial
Industrial
Public utility
Canadian municipal securities
Sovereign corporate securities (2)
Aaa
Aaa
Commercial mortgage-backed securities and project loans (3)
Aaa/Aa1
Aaa
Asset-backed and other
Total corporate and all other bonds
Total fixed maturities
(1) Rated using external rating agencies or by the Company when a public rating does not exist.
(2) Sovereign corporate securities include corporate securities that are backed by a government and include sovereign banks and securities issued under the Federal Ship Financing Programs.
(3) Included in commercial mortgage-backed securities and project loans as of December 31, 2025 and 2024 were $557 million and $327 million of securities guaranteed by the U.S. government, respectively.
The following table sets forth the Company’s fixed maturity investment portfolio rated using external ratings agencies or by the Company when a public rating does not exist.
(as of December 31, 2025, in millions)
Carrying
Value
Percent of Total
Carrying Value
Quality Rating:
Aaa
Baa
Total investment grade
Below investment grade
Total fixed maturities
Obligations of U.S. States, Municipalities and Political Subdivisions
The Company’s fixed maturity investment portfolio as of December 31, 2025 and 2024 included $31.38 billion and $27.19 billion, respectively, of securities which are obligations of U.S. states, municipalities and political subdivisions (collectively referred to as the municipal bond portfolio). The municipal bond portfolio is diversified across the United States, the District of Columbia and Puerto Rico and includes general obligation and revenue bonds issued by states, cities, counties, school districts and similar issuers. Included in the municipal bond portfolio as of December 31, 2025 and 2024 were $416 million and $572 million, respectively, of pre-refunded bonds, which are bonds for which U.S. states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities. These trusts were created to fund the payment of principal and interest due under the bonds. The irrevocable trusts are verified as to their sufficiency by an independent verification agent of the underwriter, issuer or trustee. All of the Company’s holdings of securities issued by Puerto Rico and related entities have either been pre-refunded and therefore are defeased by U.S. Treasury securities or have FHA guarantees subject to federal appropriation.
The following table shows the geographic distribution of the $30.96 billion of municipal bonds as of December 31, 2025 that were not pre-refunded.
(as of December 31, 2025, in millions)
State General
Obligation
Local General
Obligation
Revenue
Total Carrying
Value
Weighted Average
Credit
Quality(1)
State:
Texas
Aaa
California
Aaa/Aa1
Virginia
Aaa
North Carolina
Aaa
Minnesota
Aaa/Aa1
Wisconsin
Maryland
Aaa/Aa1
Colorado
Aaa/Aa1
Tennessee
Aaa/Aa1
Washington
Aaa/Aa1
Georgia
Aaa/Aa1
Massachusetts
Aaa/Aa1
South Carolina
All others (2)
Aaa/Aa1
Total
Aaa/Aa1
(1) Rated using external rating agencies or by the Company when a public rating does not exist. Ratings shown are the higher of the rating of the underlying issues or the insurer in the case of securities enhanced by third-party insurance for the payment of principal and interest in the event of issuer default.
(2) No other single state accounted for 2.5% or more of the total non-pre-refunded municipal bonds.
The following table displays the funding sources for the $9.33 billion of municipal bonds identified as revenue bonds in the foregoing table as of December 31, 2025.
(as of December 31, 2025, in millions)
Carrying
Value
Weighted Average
Credit
Quality(1)
Source:
Water
Aaa/Aa1
Higher education
Aaa/Aa1
Sewer
Aaa/Aa1
Special tax
Aaa/Aa1
Power utilities
Aaa/Aa1
Highway tolls
Transit
Housing
Aaa
Fuel sales
Aaa/Aa1
Health care
Lease
Aaa
Natural gas
Lottery
Industrial
Other revenue sources
Aaa/Aa1
Total
Aaa/Aa1
(1) Rated using external rating agencies or by the Company when a public rating does not exist. Ratings shown are the higher of the rating of the underlying issuer or the insurer in the case of securities enhanced by third-party insurance for the payment of principal and interest in the event of issuer default.
The Company bases its investment decision on the underlying credit characteristics of the municipal security. The weighted average credit rating of the municipal bond portfolio was “Aaa/Aa1” as of December 31, 2025.
Debt Securities Issued by Foreign Governments
The following table shows the geographic distribution of the Company’s long-term fixed maturity investments in debt securities issued by foreign governments as of December 31, 2025.
(as of December 31, 2025, in millions)
Carrying
Value
Weighted Average Credit
Quality (1)
Foreign Government:
Canada
Aaa/Aa1
United Kingdom
All others (2,3)
Total
(1) Rated using external rating agencies or by the Company when a public rating does not exist.
(2) The Company does not have direct exposure to sovereign debt issued by the Republic of Ireland, Italy, Greece, Portugal or Spain.
(3) No other country accounted for 2.5% or more of total debt securities issued by foreign governments.
Mortgage-Backed Securities, Collateralized Mortgage Obligations and Pass-Through Securities
The Company’s fixed maturity investment portfolio as of December 31, 2025 and 2024 included $13.23 billion and $12.61 billion, respectively, of residential mortgage-backed securities, including pass-through-securities and collateralized mortgage
obligations (CMOs), all of which are subject to prepayment risk (either shortening or lengthening of duration). While prepayment risk for securities and its effect on income cannot be fully controlled, particularly when interest rates move dramatically, the Company’s investment strategy generally favors securities that reduce this risk within expected interest rate ranges. The Company makes investments in residential CMOs that are either guaranteed by GNMA, FNMA or FHLMC, or if not guaranteed, are senior or super-senior positions within their respective securitizations. Both guaranteed and non-guaranteed residential CMOs allocate the distribution of payments from the underlying mortgages among different classes of bondholders. In addition, non-guaranteed residential CMOs provide structures that allocate the impact of credit losses to different classes of bondholders. Senior and super-senior CMOs are protected, to varying degrees, from credit losses as those losses are initially allocated to subordinated bondholders. The Company’s investment strategy is to purchase CMO tranches that are expected to offer the most favorable return given the Company’s assessment of associated risks. The Company does not purchase residual interests in CMOs. For more information regarding the Company’s investments in residential mortgage-backed securities, see note 3 of the notes to the consolidated financial statements.
Commercial Mortgage-Backed Securities and Project Loans
As of December 31, 2025 and 2024, the Company held commercial mortgage-backed securities (including FHA project loans) of $1.31 billion and $1.15 billion, respectively. For more information regarding the Company’s investments in commercial mortgage-backed securities, see note 3 of the notes to the consolidated financial statements.
Equity Securities, Real Estate and Short-Term Investments
See note 1 of the notes to the consolidated financial statements for further information about these invested asset classes.
Other Investments
The Company also invests in private equity, hedge fund and real estate partnerships, and joint ventures. These asset classes have historically provided a higher return than investments in fixed maturities but are subject to more volatility. The Company also enters into certain derivative financial instruments from time to time that are reported as part of other investments. As of December 31, 2025 and 2024, the carrying value of the Company’s other investments was $4.12 billion and $4.20 billion, respectively. The Company has unfunded commitments to private equity limited partnerships, real estate partnerships and others in which it invests. These commitments totaled $1.41 billion and $1.49 billion as of December 31, 2025 and 2024, respectively. It is the opinion of the Company’s management that the Company has adequate liquidity to meet these commitments.
Securities Lending
The Company has, from time to time, engaged in securities lending activities from which it generates net investment income by lending certain of its investments to other institutions for short periods of time. As of December 31, 2025 and 2024, the Company had $473 million and $586 million, respectively, of securities on loan as part of a tri-party lending agreement. The average monthly balance of securities on loan during 2025 and 2024 was $556 million and $555 million, respectively. Borrowers of these securities provide collateral equal to at least 102% of the market value of the loaned securities plus accrued interest. The Company did not incur any investment losses in its securities lending program for the years ended December 31, 2025 and 2024.
Lloyd’s Trust Deposits
The Company meets its capital requirements to support its underwriting at Lloyd’s using a combination of the share capital and retained earnings of the Company’s subsidiaries participating in Lloyd’s, trust deposits and uncollateralized letters of credit. Securities with a fair value of approximately $13 million as of both December 31, 2025 and 2024 were held by a wholly-owned subsidiary, and $89 million and $86 million held by TRV as of December 31, 2025 and 2024, respectively, were pledged into Lloyd’s trust accounts to provide a portion of the Lloyd’s capital requirements. For more information regarding the Company’s utilization of uncollateralized letters of credit, see “Liquidity and Capital Resources” herein.
Net Unrealized Investment Gains (Losses)
The net unrealized investment losses that were included in shareholders’ equity were as follows:
(as of December 31, in millions)
Fixed maturities
Other
Unrealized investment losses before tax
Tax benefit
Net unrealized investment losses included in shareholders’ equity at end of year
Net unrealized investment losses included in shareholders’ equity were $1.48 billion as of December 31, 2025 compared with $3.64 billion as of December 31, 2024. As of December 31, 2025, the Company had $583 million fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost. As of December 31, 2024, the Company had $1.12 billion fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost. These year-over-year changes were driven by changes in interest rates. Since the Company generally holds its high-quality fixed maturity investments to maturity, these net unrealized losses are considered temporary in nature and are not expected to result in significant realized losses. In addition, given the temporary nature of net unrealized losses combined with the Company’s strong operating cash flows, which include income received on investments and the proceeds received upon maturity of the investments, the net unrealized investment loss is not expected to meaningfully impact the Company’s assessment of capital adequacy or liquidity. Equity securities, which include common and non-redeemable preferred stocks, are reported at fair value with changes in fair value recognized in net income.
For fixed maturity investments where fair value is less than the carrying value and the Company did not reach a decision to impair, the Company continues to have the intent and ability to hold such investments to a projected recovery in value, which may not be until maturity.
As of both December 31, 2025 and 2024, below investment grade securities comprised 1.2%, of the fair value of the Company’s fixed maturity investment portfolio. Included in below investment grade securities as of December 31, 2025 were securities in an unrealized loss position that, in the aggregate, had an amortized cost of $464 million and a fair value of $439 million, resulting in a net pre-tax unrealized investment loss of $25 million. These securities in an unrealized loss position represented less than 1% of both the amortized cost and fair value of the fixed maturity portfolio as of December 31, 2025 and accounted for less than 1% of the total gross pre-tax unrealized investment loss in the fixed maturity portfolio as of December 31, 2025.
Impairment Charges
Impairment charges included in net realized investment losses in the consolidated statement of income were $2 million, $10 million and $12 million for the years ended December 31, 2025, 2024 and 2023, respectively. See note 3 of the notes to the consolidated financial statements for further information.
Purchases and Sales of Investment Securities
Purchases and sales of investments are based on cash requirements, the characteristics of the insurance liabilities and current market conditions. The Company identifies investments to be sold to achieve its primary investment goals of assuring the Company’s ability to meet policyholder obligations as well as to optimize investment returns, given these obligations.
During the year ended December 31, 2025, the Company incurred pre-tax realized losses of $33 million on the sale of fixed maturity investments having a fair value of $589 million.
CATASTROPHE MODELING
The Company uses various analyses and methods, including proprietary and third-party modeling processes, to make underwriting and reinsurance decisions designed to manage its exposure to catastrophic events. There are no industry-standard methodologies or assumptions for projecting catastrophe exposure. Accordingly, catastrophe estimates provided by different insurers may not be comparable.
The Company actively monitors and evaluates changes in third-party models and, when necessary, calibrates the catastrophe risk model estimates delivered via its own proprietary modeling processes. The Company considers historical loss experience, recent events, underwriting practices, market share analyses, external scientific analysis and various other factors, including non-modeled losses, to refine its proprietary view of catastrophe risk. These proprietary models are updated regularly as new information and techniques emerge.
Based on the proprietary and third-party models utilized by the Company, the tables below set forth, as of December 31, 2025, the probabilities that estimated losses, comprising claims and allocated claim adjustment expenses (but excluding unallocated claim adjustment expenses), from a single event occurring in a one-year timeframe will equal or exceed the indicated loss amounts (expressed in dollars, net of tax, and as a percentage of the Company’s common equity). For example, on the basis described below the tables, the Company estimates that there is a one percent chance that the Company’s loss from a single U.S. hurricane in a one-year timeframe would equal or exceed $1.7 billion, or 5% of the Company’s common equity as of December 31, 2025.
Dollars (in billions)
Likelihood of Exceedance (1)
Single U.S.
Hurricane
Single U.S.
Earthquake
Percentage of Common Equity (2)
Likelihood of Exceedance
Single U.S.
Hurricane
Single U.S.
Earthquake
(1) An event that has, for example, a 2% likelihood of exceedance is sometimes described as a “1-in-50 year event.” As noted above, however, the probabilities in the table represent the likelihood of losses from a single event equaling or exceeding the indicated threshold loss amount in a one-year timeframe, not over a multi-year timeframe. Also, because the probabilities relate to a single event, the probabilities do not address the likelihood of more than one event occurring in a particular period, and, therefore, the amounts do not address potential aggregate catastrophe losses occurring in a one-year timeframe.
(2) The percentage of common equity is calculated by dividing (a) indicated loss amounts in dollars by (b) total common equity excluding net unrealized investment gains and losses, net of taxes, included in shareholders’ equity. Net unrealized investment gains and losses can be significantly impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends. Accordingly, the Company’s management uses the percentage of common equity calculated on this basis as a metric to evaluate the potential impact of a single hurricane or single earthquake on the Company’s financial position for purposes of making underwriting and reinsurance decisions.
The loss amounts included in the tables above are based on the Company’s in-force portfolio of direct exposures and do not include assumed business. Additionally, the amounts are as of December 31, 2025, reflect the reinsurance program in place at January 1, 2026, are net of reinsurance, after-tax, and exclude unallocated claim adjustment expenses, which historically have been less than 10% of loss estimates. For further information regarding the Company’s reinsurance, see “Item 1—Business—Reinsurance.” The amounts for hurricanes reflect U.S. exposures and include property exposures, property residual market exposures and an adjustment for certain non-property exposures. The hurricane loss amounts are based on the Company’s catastrophe risk model estimates and include losses from the hurricane hazards of wind and storm surge. The amounts for earthquakes reflect U.S. property and workers’ compensation exposures. These loss amounts include the effects of exposure growth, inflation and modeling updates based on recent trends and scientific analysis. The Company does not believe that the inclusion of hurricane or earthquake losses arising from other geographical areas or other exposures would materially change the estimated amounts.
Catastrophe modeling relies upon inputs based on experience, science, engineering and history. These inputs reflect a significant amount of judgment and are subject to changes which may result in volatility in the modeled output. Catastrophe modeling output may also fail to account for risks that are outside the range of normal probability or are otherwise unforeseeable. Catastrophe modeling assumptions include, among others, the portion of purchased reinsurance that is collectible after a catastrophic event, which may prove to be materially incorrect. Consequently, catastrophe modeling estimates are subject to significant uncertainty. In the tables above, the uncertainty associated with the estimated threshold loss amounts increases significantly as the likelihood of exceedance decreases. In other words, in the case of a relatively more remote event (e.g., 1-in-1,000), the estimated threshold loss amount is relatively less reliable. Actual from an event could materially exceed the indicated threshold amount. In addition, more than one such event could occur in any period.
Moreover, the Company is exposed to the risk of material losses from other than property and workers’ compensation coverages arising out of hurricanes and earthquakes, and it is exposed to catastrophe losses from perils other than hurricanes and earthquakes, such as tornadoes and other windstorms, hail, wildfires, severe winter weather, floods, tsunamis, volcanic eruptions, solar flares and other naturally-occurring events, as well as acts of terrorism and cyber events.
In addition, compared to models for hurricanes, models for earthquakes are less reliable due to there being a more limited number of significant historical events to analyze, while models for tornadoes, hail storms, wildfires and winter storms are newer and may be less reliable due to the highly random geographic nature and size of these events. Accordingly, these models may be less accurate in predicting risks and estimating losses. Further, changes in climate conditions could cause our underlying modeling data to be less predictive, thus limiting our ability to effectively evaluate and manage catastrophe risk. As compared to natural catastrophes, modeling for man-made catastrophes, such as terrorism and cyber events, is even more difficult and less reliable, and for some events (both natural and man-made), models are either in early stages of development and, therefore, not widely adopted, or are not available.
For more information about the Company’s exposure to catastrophe losses, see “Item 1A—Risk Factors—High levels of catastrophe losses, including as a result of factors such as increased concentrations of insured exposures in catastrophe-prone areas and changing climate conditions, could materially and adversely affect our results of operations, our financial position and/or liquidity, and could adversely impact our ratings, our ability to raise capital and the availability and cost of reinsurance” and “Item 1A—Risk Factors—We may be adversely affected if our pricing and capital models provide materially different indications than actual results.”
CHANGING CLIMATE CONDITIONS
Severe weather events over the last few decades underscore the unpredictability of climate trends. For example, the frequency and/or severity of hurricane, tornado, hail and wildfire events in the United States have been more volatile during this time period. The insurance industry has experienced increased catastrophe losses due to a number of potential causal factors, including, in addition to weather/climate variability, aging infrastructure, more people living in, and moving to, high-risk areas, population growth in areas with weaker enforcement of building codes, urban expansion, an increase in the number of amenities included in, and average size of, a home and increased inflation, including as a result of post-event demand surge. We believe that changing climate conditions have also likely added to the frequency and severity of natural disasters and created additional uncertainty as to future trends and exposures. Climate studies by government agencies, academic institutions, catastrophe modeling organizations and other groups indicate that an increase in frequency and/or intensity of hurricanes, hail and convective storms, heavy precipitation events and associated river, urban and flash flooding, sea level rise, , heat waves and wildfires has occurred, and can be expected into the future. Understanding the potential impacts of changing climate conditions is important to the Company’s business. Changing climate conditions are expected to evolve over decades. Importantly, because most of its policies renew annually, the Company is to respond to these changes over time through adjustments to its underwriting strategy, product pricing and related policy terms and conditions, as appropriate. As a result, the Company has focused in recent years on the strategic management of its exposure, adding experts in data science, meteorology, including climate and flood science, wind and structural engineering and geophysics, among other disciplines, to its management organization. The Company has also established dedicated teams for each , with the goal of developing industry- scientific and underwriting expertise. This expertise has been incorporated into the Company’s product development, risk selection, pricing, capital allocation and claim response.
The Company discusses how changing climate conditions may present other issues for its business under “Item 1A—Risk Factors” and “Outlook”, including, but not limited to, the following:
• Increasingly unpredictable and severe weather conditions could result in increased frequency and severity of claims under policies issued by the Company. See “Item 1A—Risk Factors—High levels of catastrophe losses, including as a result of factors such as increased concentrations of insured exposures in catastrophe-prone areas and changing climate conditions, could materially and adversely affect our results of operations, our financial position and/or liquidity, and could adversely impact our ratings, our ability to raise capital and the availability and cost of reinsurance” and “—Outlook—Underwriting Gain/Loss.” Moreover, the Company’s catastrophe models may be less reliable due to the increased unpredictability in frequency and of weather events, emerging trends in climate conditions and regulatory responses to events not being appropriately reflected in the models, in addition to the other factors mentioned above. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations— Modeling” and “Item 1A—Risk Factors—We may be affected if our pricing and capital models provide materially different indications than actual results.” Accordingly, the Company may be subject to increased from and other weather-related events.
• Changing climate conditions could also impact the creditworthiness of issuers of securities in which the Company invests. For example, water supply adequacy could impact the creditworthiness of bond issuers with significant assets or business activities in the Southwestern United States; more frequent and/or severe hurricanes could impact the creditworthiness of issuers with significant assets or business activities in the Southeastern United States, among other areas; and increased regulation adopted in response to potential changes in climate conditions could impact the creditworthiness of issuers affected by such regulations. In addition, as issuers of securities in which the Company invests become increasingly focused on mitigating the potential environmental impact of their operations, the costs associated with such initiatives could affect the business models and realized returns of such issuers. See “Item 1A—Risk Factors—Our investment portfolio is subject to credit and interest rate risk, and may suffer reduced or low returns or material realized or unrealized losses.”
• Increased regulation adopted in response to potential changes in climate conditions may impact the Company and its customers, including state insurance regulations that could impact the Company’s ability to manage property exposures in areas vulnerable to significant climate driven losses. For example, state laws have been passed that restrict a carrier’s ability to cancel or non-renew certain policies within or adjacent to declared state of emergency zip codes and mandate discounts for risk mitigation practices that may not be effective. If the Company is unable to implement risk-based pricing, modify policy terms or reduce exposures to the extent necessary to address rising losses related to catastrophes and smaller scale weather events (should those increased losses occur), its business may be adversely affected. See “Item 1—Business—Regulation—U.S. State and Federal Regulation—Regulatory and Legislative Responses to Catastrophes.” In addition, climate change regulation could increase the Company’s customers’ costs of doing business. For example, insureds faced with carbon management regulatory requirements may have less available capital for investment in and safety features which may, over time, increase exposures. Increased regulation may also result in reduced economic activity, which would decrease the amount of insurable assets and businesses, and increased claim costs, to the extent such regulations require that homes or businesses be rebuilt according to more expensive specifications.
• The full range of potential liability exposures related to changing climate conditions continues to evolve. For example, from time to time third parties sue our policyholders alleging that they caused or contributed to losses associated with changing climate conditions. In the event any such policyholders were found to be responsible, it could result in them seeking recovery under policies issued by the Company. Through the Company’s Casualty Emerging Risk Committee and its Sustainability Committee, the Company works to identify and try to assess climate change-related liability issues, which are continually evolving and often hard to fully evaluate. Through the Company’s Property/CAT Committee, the Company regularly reviews emerging issues, including changing climate conditions, to consider potential changes to its modeling and the use of such modeling, as well as to help determine the need for new underwriting strategies, coverage modifications or new products. See “Item 1A—Risk Factors—The effects of emerging claim and coverage issues on our business are uncertain, and court decisions or legislative changes that take place after we issue our policies can result in an unexpected increase in the number of claims and have a material adverse impact on our results of operations and/or our financial position.”
REINSURANCE RECOVERABLES
The Company reinsures a portion of the risks it underwrites in order to control its exposure to losses. For additional discussion regarding the Company’s reinsurance coverage, see “Part I—Item 1—Business—Reinsurance.”
The following table summarizes the composition of the Company’s reinsurance recoverables.
(as of December 31, in millions)
Gross reinsurance recoverables on paid and unpaid claims and claim adjustment expenses
Gross structured settlements
Mandatory pools and associations
Gross reinsurance recoverables
Allowance for estimated uncollectible reinsurance
Less amounts classified as held for sale
Net reinsurance recoverables
The following table presents the Company’s top five reinsurer groups by reinsurance recoverable as of December 31, 2025 (in millions). Also included is the A.M. Best rating of the Company’s predominant reinsurer from each such reinsurer group as of February 12, 2026.
Reinsurer Group
Reinsurance
Recoverable
A.M. Best Rating of Group’s Predominant
Reinsurer
Swiss Re Group
second highest of 16 ratings
Berkshire Hathaway
highest of 16 ratings
Munich Re Group
second highest of 16 ratings
Fairfax Financial Group
second highest of 16 ratings
Axa Insurance Group
second highest of 16 ratings
As of December 31, 2025, the Company held $904 million of collateral in the form of letters of credit, funds and trust agreements held to fully or partially collateralize certain reinsurance recoverables.
Included in net reinsurance recoverables are amounts related to structured settlements, which are annuities purchased from various life insurance companies to settle certain personal physical injury claims, of which workers’ compensation claims comprise a significant portion. In cases where the Company did not receive a release from the claimant, the amount due from the life insurance company related to the structured settlement is included in the Company’s consolidated balance sheet as a reinsurance recoverable and the related claim cost is included in the liability for claims and claim adjustment expense reserves, as the Company retains the contingent liability to the claimant. If it is expected that the life insurance company is not able to pay, the Company would recognize an impairment of the related reinsurance recoverable if, and to the extent, the purchased annuities are not covered by state guaranty associations. In the event that the life insurance company fails to make the required annuity payments, the Company would be required to make such payments. The following table presents the Company’s top five groups by structured settlements as of December 31, 2025 (in millions). Also included is the A.M. rating of the Company’s predominant insurer from each such insurer group as of February 12, 2026.
Group
Structured
Settlements
A.M. Best Rating of Group’s Predominant
Insurer
Fidelity & Guaranty Life Group
third highest of 16 ratings
Genworth Financial Group
eighth highest of 16 ratings
John Hancock Group
second highest of 16 ratings
Symetra Financial Corporation
third highest of 16 ratings
Brighthouse Financial, Inc.
third highest of 16 ratings
The Company considers the ratings and related outlook assigned to reinsurance companies and life insurance companies by various independent ratings agencies in assessing the adequacy of its allowance for uncollectible amounts.
OUTLOOK
The following discussion provides outlook information for certain key drivers of the Company’s results of operations and capital position.
Premiums. The Company’s earned premiums are a function of net written premium volume. Net written premiums comprise both renewal business and new business and are recognized as earned premium over the term of the underlying policies. When business renews, the amount of net written premiums associated with that business may increase or decrease (renewal premium change) as a result of increases or decreases in rate and/or insured exposures, which the Company considers as a measure of units of exposure (such as the number and value of vehicles or properties insured). Net written premiums from both renewal and new business, and therefore earned premiums, are impacted by competitive market conditions as well as general economic conditions, which, particularly in the case of Business Insurance, affect audit premium adjustments, policy endorsements and mid-term cancellations. Net written premiums may also be impacted by the structure of reinsurance programs and related costs, as well as changes in foreign currency exchange rates.
Overall, the Company expects that retention levels (the amount of expiring premium that renews, before the impact of renewal premium changes) will remain strong during 2026.
Property and casualty insurance market conditions are expected to remain competitive during 2026 for new business. In each of the Company’s business segments, new business generally has less of an impact on underwriting profitability than renewal
business, given the volume of new business relative to renewal business. However, in periods of meaningful increases in new business, despite its positive impact on underwriting gains over time, the impact of higher new business levels may negatively impact the combined ratio for a period of time. In periods of meaningful decreases in new business, despite its negative impact on underwriting gains over time, the impact of lower new business levels may positively impact the combined ratio for a period of time.
Effective January 1, 2026, the Company renewed a quota share reinsurance agreement with subsidiaries of Fidelis Insurance Holdings Limited (Fidelis) for 2026 pursuant to which the Company assumes 20% of the subject gross written premiums of Fidelis on a risk-attaching basis, subject to a loss ratio cap. The Company’s portion of premiums from Fidelis is reported as part of the International results of Business Insurance. The Company also has a minority investment in Fidelis.
Underwriting Gain/Loss. The Company’s underwriting gain/loss can be significantly impacted by catastrophe losses and net favorable or unfavorable prior year reserve development, as well as underlying underwriting margins. Underlying underwriting margins can be impacted by a number of factors, including variability in non-catastrophe weather, large loss and other loss activity; changes in current period loss estimates resulting from prior period loss development; changes in loss cost trends; changes in business mix; changes in reinsurance coverages and/or costs; premium adjustments; and variability in expenses and assessments.
Catastrophe losses and non-catastrophe weather-related losses are inherently unpredictable from period to period. The Company’s results of operations could be adversely impacted if significant catastrophe and non-catastrophe weather-related losses were to occur.
On average for the ten-year period ended December 31, 2025, the Company experienced approximately 37% of its annual catastrophe losses during the second quarter, primarily arising out of severe wind and hail storms, including tornadoes. Hurricanes, wildfires and winter storms tend to happen at other times of the year and can also have a material impact on the Company’s results of operations. Catastrophe losses incurred in a particular quarter in any given year may differ materially from historical experience. In addition, most of the Company’s reinsurance programs renew on January 1 or July 1 of each year, and, therefore, any changes to the availability, cost or coverage terms of such programs will be effective after such dates.
Over much of the past decade, the Company’s results have included significant amounts of net favorable prior year reserve development driven by better than expected loss experience. However, given the inherent uncertainty in estimating claims and claim adjustment expense reserves, loss experience could develop such that the Company recognizes in future periods higher or lower levels of favorable prior year reserve development, no favorable prior year reserve development or unfavorable prior year reserve development. In addition, the ongoing review of prior year claims and claim adjustment expense reserves, or other changes in current period circumstances, may result in the Company revising current year loss estimates upward or downward in future periods of the current year.
It is possible that changes in economic conditions, the supply chain, international trade, including the impact of tariffs, the labor market and geopolitical tensions, as well as steps taken by federal, state and/or local governments and the Federal Reserve could lead to higher or lower inflation than the Company anticipated, which could in turn lead to an increase or decrease in the Company’s loss costs and the need to strengthen or reduce claims and claim adjustment expense reserves. These impacts of inflation on loss costs and claims and claim adjustment expense reserves could be more pronounced for those lines of business that require a relatively longer period of time to finalize and settle claims for a given accident year and, accordingly, are relatively more inflation sensitive. Higher costs of labor, parts and raw materials adversely impacted severity in recent years in our personal and commercial businesses. Tariff and immigration policy could also impact severity. For a further discussion, see “Part I—Item 1A—Risk Factors—If actual exceed our and claim adjustment expense reserves, or if changes in the estimated level of and claim adjustment expense reserves are necessary, including as a result of, among other things, changes in the legal/tort, regulatory and economic environments in which the Company operates, our financial results could be materially and affected.”
The Company’s results of operations may be impacted by a number of other factors, including an economic slowdown, a recession, financial market volatility, monetary and fiscal policy measures, heightened geopolitical tensions, fluctuations in interest rates and foreign currency exchange rates, the political and regulatory environment, changes to the U.S. Federal budget and potential changes in tax laws.
Investment Portfolio . The Company expects to continue to focus its investment strategy on maintaining a high-quality investment portfolio and a relatively short average effective duration. The weighted average effective duration of fixed maturities and short-term securities was 4.7 (5.0 excluding short-term securities) as of December 31, 2025. From time to time, the Company enters into short positions in U.S. Treasury futures contracts to manage the duration of its fixed maturity portfolio. As of December 31, 2025, the Company had no open U.S. Treasury futures contracts. The Company regularly evaluates its
investment alternatives and mix. Currently, the majority of the Company’s investments are comprised of a widely diversified portfolio of high-quality, liquid, taxable U.S. government, tax-exempt and taxable U.S. municipal, taxable corporate and U.S. agency mortgage-backed bonds.
The Company also invests much smaller amounts in equity securities, real estate and private equity, hedge fund and real estate partnerships, and joint ventures. These investment classes have the potential for higher returns but also the potential for greater volatility and higher degrees of risk, including less stable rates of return and less liquidity.
Approximately 30% of the fixed maturity portfolio is expected to mature over the next three years (including the early redemption of bonds, assuming interest rates (including credit spreads) do not rise significantly by applicable call dates). As a result, the overall yield on and composition of its portfolio could be meaningfully impacted by the types of investments available for reinvestment with the proceeds of maturing bonds.
Net investment income is a material contributor to the Company’s results of operations. Based on the Company’s current expectations for the impact of expected higher reinvestment yields on the Company’s fixed income investments and higher levels of fixed income investments, the Company expects that after-tax net investment income from that portfolio will be approximately $800 million in the first quarter of 2026, increasing to approximately $870 million in the fourth quarter of 2026. This expectation could be impacted by the direction of interest rates and disruptions in global financial markets. Included in other investments are private equity, hedge fund and real estate partnerships that are accounted for under the equity method of accounting and typically report their financial statement information to the Company one month to three months following the end of the reporting period. Accordingly, net investment income or loss from these other investments is generally reflected in the Company’s financial statements on a quarter lag basis. The Company’s net investment income in future periods from its non-fixed income investment portfolio will be impacted, positively or negatively, by the performance of global financial markets.
The Company had net pre-tax realized investment losses of $48 million in 2025. Changes in global financial markets could result in net realized investment gains or losses in the Company’s investment portfolio.
The Company had a net pre-tax unrealized investment loss of $1.86 billion ($1.48 billion after-tax) in its fixed maturity investment portfolio as of December 31, 2025, compared to $4.61 billion ($3.64 billion after-tax) as of December 31, 2024. The net unrealized investment loss is primarily due to the impact of movements in interest rates. The decrease in the net unrealized investment loss in 2025 was due to decreases in interest rates. While the Company does not attempt to predict future interest rate movements, a rising interest rate environment reduces the market value of fixed maturity investments and, therefore, reduces shareholders’ equity, and a declining interest rate environment has the opposite effects. The net unrealized loss discussed above is considered temporary in nature as it is not due to credit impairments, there is no impact on expected contractual cash flows from fixed maturities, and the Company generally holds its fixed maturity investments to maturity. In addition, given the temporary nature of net unrealized losses combined with the Company’s strong operating cash flows (which include income received on investments and the proceeds received upon maturity of the investments), the net unrealized investment is not expected to meaningfully impact the Company’s assessment of capital adequacy or liquidity. Equity securities, which include common and non-redeemable preferred stocks, are reported at fair value with changes in fair value recognized in net income.
Additionally, disruptions in global financial markets could also impact the market value of the Company’s investment portfolio. The Company’s investment portfolio has benefited from certain tax exemptions (primarily those related to interest from municipal bonds) and certain other tax laws, including, but not limited to, those governing dividends-received deductions and tax credits (such as foreign tax credits). Changes in these laws could adversely impact the value of the Company’s investment portfolio. See “Our businesses are heavily regulated by the states and countries in which we conduct business, including licensing, market conduct and financial supervision, and changes in regulation, including changes in tax regulation, may reduce our profitability and limit our growth” included in “Part I—Item 1A—Risk Factors.”
For further discussion of the Company’s investment portfolio, see “Investment Portfolio.” For a discussion of the risks to the Company’s business during or following a financial market disruption and risks to the Company’s investment portfolio, see the risk factors entitled “During or following a period of financial market disruption or an economic downturn, our business could be materially and adversely affected” and “Our investment portfolio is subject to credit and interest rate risk, and may suffer reduced or low returns or material realized or unrealized losses” included in “Part I—Item 1A—Risk Factors.” For a discussion of the risks to the Company’s investments from foreign currency exchange rate fluctuations, see the risk factor entitled “We are subject to additional risks associated with our business outside the United States” included in “Part I—Item 1A—Risk Factors” and see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rate Risk.”
Capital Position. The Company believes it has a strong capital position and, as part of its ongoing efforts to create shareholder value, expects to continue to return capital not needed to support its business operations to its shareholders, subject to the considerations described below. The Company expects that, generally over time, the combination of dividends to common shareholders and common share repurchases will likely not exceed net income. The Company also expects that to the extent that it continues to grow premium volumes, the level of capital to support the Company’s financial strength ratings will also increase, and accordingly, the amount of capital returned to shareholders relative to earnings would be somewhat less than it otherwise would have been absent the growth in premium volumes. Given the Company’s very strong capital position and earnings over the past four quarters, the Company currently expects to repurchase approximately $1.80 billion of the Company’s common shares in the first quarter of 2026. Included in this amount is $700 million of the net cash proceeds from the sale of the Company’s Canadian insurance business (excluding surety) to Definity Financial Corporation. The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe , maintaining appropriate capital levels for business operations, changes in the levels of written premiums, funding of its qualified pension plan, regulatory capital requirements of the operating insurance subsidiaries, legal requirements, regulatory constraints, other investment (including mergers and acquisitions and related financings), market conditions, changes in tax laws and other factors. For information regarding the Company’s common share repurchases in 2025, see “Liquidity and Capital Resources” herein.
As a result of the Company’s business outside of the United States, primarily in the United Kingdom (including Lloyd’s), the Republic of Ireland, Canada and in Brazil through a joint venture, the Company’s capital is also subject to the effects of changes in foreign currency exchange rates. Strengthening of the U.S. dollar in comparison to other currencies could result in a reduction in shareholders’ equity, while a weakening of the U.S. dollar in comparison to other currencies could result in an increase in shareholders’ equity. For additional discussion of the Company’s foreign exchange market risk exposure, see “Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk.”
Many of the statements in this “Outlook” section and in “Liquidity and Capital Resources” are forward-looking statements, which are subject to risks and uncertainties that are often difficult to predict and beyond the Company’s control. Actual results could differ materially from those expressed or implied by such forward-looking statements. Further, such forward-looking statements speak only as of the date of this report and the Company undertakes no obligation to update them. See “—Forward Looking Statements.” For a discussion of potential risks and uncertainties that could impact the Company’s results of operations or financial position, see “Part I—Item 1A—Risk Factors” and “Critical Accounting Estimates.”
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the cash requirements of its business operations and to satisfy general corporate purposes when needed.
Operating Company Liquidity. The liquidity requirements of the Company’s insurance subsidiaries are met primarily by funds generated from premiums, fees, income received on investments and investment maturities. Cash provided from these sources is used primarily for claims and claim adjustment expense payments and operating expenses. The insurance subsidiaries’ liquidity requirements can be impacted by, among other factors, the timing and amount of catastrophe claims, which are inherently unpredictable, as well as the timing and amount of reinsurance recoveries, which may be affected by reinsurer solvency and reinsurance coverage disputes. Additionally, the variability of asbestos-related claim payments, as well as the volatility of potential judgments and settlements arising out of litigation, may also result in increased liquidity requirements. While an environment of higher interest rates, such as that which occurred during 2023 and 2024, and moderated in 2025, resulted in significant net unrealized investment losses, the net unrealized loss is considered temporary in nature as it is not due to credit , there is no impact on expected contractual cash flows from fixed maturities, and the Company generally holds its high-quality fixed maturity investments to maturity. In addition, given the temporary nature of net unrealized combined with the Company’s operating cash flows (which include income received on investments and the proceeds received upon maturity of the investments), the net unrealized investment is not expected to meaningfully impact the Company’s assessment of capital adequacy or liquidity. It is the opinion of the Company’s management that the insurance subsidiaries’ future liquidity needs will be met from all of the sources described above. Subject to the restrictions imposed by states in which the Company’s insurance subsidiaries are domiciled, the Company’s principal insurance subsidiaries pay dividends to their respective parent companies, which, in turn, pay dividends to the corporate holding (parent) company (TRV). For further information regarding restrictions on dividends paid by the Company’s insurance subsidiaries, see “Part I—Item 1—Business—Regulation.”
Holding Company Liquidity . TRV’s liquidity requirements primarily include shareholder dividends, debt servicing, common share repurchases and, from time to time, contributions to its qualified domestic pension plan. As of December 31, 2025, TRV held total cash and short-term invested assets in the United States aggregating $2.41 billion and having a weighted average
maturity of 23 days. TRV has established a holding company liquidity target equal to its estimated annual pre-tax interest expense and common shareholder dividends (currently approximately $1.37 billion). TRV’s holding company liquidity of $2.41 billion as of December 31, 2025 exceeded this target, and it is the opinion of the Company’s management that these assets are sufficient to meet TRV’s current liquidity requirements.
TRV is not dependent on dividends or other forms of repatriation from its foreign operations to support its liquidity needs. The undistributed earnings of the Company’s foreign operations are intended to be permanently reinvested in those operations, and such earnings were not material to the Company’s financial position or liquidity as of December 31, 2025.
TRV has a shelf registration statement filed with the Securities and Exchange Commission that expires on June 4, 2028 which permits it to issue securities from time to time. TRV also has a $1.0 billion line of credit facility with a syndicate of financial institutions that expires on June 15, 2027. As of December 31, 2025, the Company had $100 million of commercial paper outstanding. TRV is not reliant on its commercial paper program to meet its operating cash flow needs. The Company has $200 million of senior notes maturing in April 2026.
The Company utilized uncollateralized letters of credit issued by major banks with an aggregate limit of $260 million to provide a portion of the capital needed to support its obligations at Lloyd’s as of December 31, 2025. If uncollateralized letters of credit are not available at a reasonable price or at all in the future, the Company can collateralize these letters of credit or may have to seek alternative means of supporting its obligations at Lloyd’s, which could include utilizing holding company funds on hand.
Operating Activities
Net cash provided by operating activities was $10.61 billion and $9.07 billion in 2025 and 2024, respectively. The increase in cash flows in 2025 primarily reflected the impacts of higher levels of cash received for premiums, partially offset by higher levels of payments for general and administrative expenses and commissions. The increase in cash received for premiums in 2025 compared to the prior year was impacted by business growth including the impact of positive renewal premium changes.
Investing Activities
Net cash used in investing activities was $7.65 billion and $7.26 billion in 2025 and 2024, respectively. The Company’s consolidated total investments as of December 31, 2025 increased by $6.96 billion, or 7% over December 31, 2024, primarily reflecting the impacts of (i) net cash flows provided by operating activities and (ii) lower net unrealized investment losses on investments due to the impact of lower interest rates during 2025, partially offset by (iii) total investments reclassified as held for sale and (iv) net cash used in financing activities.
The Company’s investment portfolio is managed to support its insurance operations; accordingly, the portfolio is positioned to meet obligations to policyholders. As such, the primary goals of the Company’s asset-liability management process are to satisfy the insurance liabilities and maintain sufficient liquidity to cover fluctuations in projected liability cash flows. Generally, the expected principal and interest payments produced by the Company’s fixed maturity portfolio adequately fund the estimated runoff of the Company’s insurance reserves. Although this is not an exact cash flow match in each period, the substantial amount by which the market value of the fixed maturity portfolio exceeds the value of the net insurance liabilities, as well as the positive cash flow from newly sold policies and the large amount of high quality liquid bonds, contributes to the Company’s ability to fund claim payments without having to sell illiquid assets or access credit facilities.
Financing Activities
Net cash used in financing activities was $2.66 billion and $1.75 billion in 2025 and 2024, respectively. The totals in both 2025 and 2024 reflected common share repurchases and dividends paid to shareholders, partially offset by the net proceeds from employee stock option exercises. The total in 2025 also included net proceeds from the issuance of debt. Common share repurchases in 2025 and 2024 were $3.13 billion and $1.12 billion, respectively.
Debt Transactions .
2025. On July 24, 2025, the Company issued a total of $1.25 billion of debt in two tranches:
• $500 million aggregate principal amount of 5.05% senior notes that will mature on July 24, 2035 (the “2035 notes”), and
• $750 million aggregate principal amount of 5.70% senior notes that will mature on July 24, 2055 (the “2055 notes” and together with the 2035 notes, the “senior notes”).
The net proceeds of the issuance, after deducting the underwriting discount and expenses payable by the Company, totaled approximately $1.23 billion. Interest on the senior notes is payable semi-annually in arrears on January 24 and July 24.
The 2035 notes may be redeemed prior to April 24, 2035, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of any 2035 notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest to but excluding April 24, 2035 on any 2035 notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the then current Treasury Rate (as defined in the 2035 notes), plus 15 basis points. On or after April 24, 2035, the 2035 notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to 100% of the principal amount of any 2035 notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The 2055 notes may be redeemed prior to January 24, 2055, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of any 2055 notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest to but excluding January 24, 2055 on any 2055 notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the then current Treasury Rate (as defined in the 2055 notes), plus 15 basis points. On or after January 24, 2055, the 2055 notes may be redeemed, in whole or in part, at the Company’s option, at any time or from time to time, at a redemption price equal to 100% of the principal amount of any 2055 notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
Dividends. Dividends paid to shareholders were $979 million and $951 million in 2025 and 2024, respectively. The declaration and payment of future dividends to holders of the Company’s common stock will be at the discretion of the Company’s Board of Directors and will depend upon many factors, including the Company’s financial position, earnings, capital requirements of the Company’s operating subsidiaries, legal requirements, regulatory constraints and other factors as the Board of Directors deems relevant. Dividends will be paid by the Company only if declared by its Board of Directors out of funds legally available, subject to any other restrictions that may be applicable to the Company. On January 21, 2026, the Company announced that its Board of Directors declared a regular quarterly dividend of $1.10 per share, payable March 31, 2026, to shareholders of record on March 10, 2026.
Share Repurchases. The Company’s Board of Directors has approved common share repurchase authorizations under which repurchases may be made from time to time in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions or otherwise. The authorizations do not have a stated expiration date. The Company expects that, generally over time, the combination of dividends to common shareholders and common share repurchases will likely not exceed net income. The Company also expects that to the extent that it continues to grow premium volumes, the amount of capital returned to shareholders relative to earnings would be somewhat less than it otherwise would have been absent the growth in premium volumes. The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, share price, catastrophe losses, maintaining appropriate capital levels for business operations, changes in the levels of written premiums, funding of its qualified pension plan, regulatory capital requirements of the operating insurance subsidiaries, legal requirements, regulatory constraints, other investment opportunities (including mergers and acquisitions and related financings), market conditions, changes in tax laws and other factors. During 2025, the Company repurchased 10.9 million shares under its share repurchase authorizations, for a total of $3.03 billion. The average cost per share repurchased was $277.17. Common share repurchases in 2025 were higher than the total of $1.00 billion in 2024. The cost of the treasury stock acquired pursuant to common share repurchases includes the 1% federal excise tax imposed as part of the Inflation Reduction Act of 2022. As of December 31, 2025, the Company had $2.02 billion of capacity remaining under its share repurchase authorizations. The most recent authorization was approved by the Board of Directors on January 21, 2026 and added $5.0 billion of repurchase capacity to the $2.02 billion capacity remaining at that date, which was previously approved by the Board of Directors on April 19, 2023.
From the inception of the first authorization on May 2, 2006 through December 31, 2025, the Company has repurchased a cumulative total of 559.2 million shares for a total of $43.99 billion, or an average of $78.66 per share.
In both 2025 and 2024, the Company acquired 0.7 million shares of common stock from employees as treasury stock primarily to cover payroll withholding taxes in connection with the vesting of restricted stock unit awards and performance share awards, and shares used by employees to cover the exercise price, as well as the related payroll withholding taxes, for stock options that were exercised.
Capital Resources
Capital resources reflect the overall financial strength of the Company and its ability to borrow funds at competitive rates and raise new capital to meet its needs. The following table summarizes the components of the Company’s capital structure as of December 31, 2025 and 2024.
(as of December 31, in millions)
Debt:
Short-term
Long-term
Net unamortized fair value adjustments and debt issuance costs
Total debt
Shareholders’ equity:
Common stock and retained earnings, less treasury stock
Accumulated other comprehensive loss
Total shareholders’ equity
Total capitalization
Total capitalization as of December 31, 2025 was $42.16 billion, $6.26 billion higher than at December 31, 2024, primarily reflecting the impacts of (i) net income of $6.29 billion, (ii) other comprehensive income of $2.47 billion, primarily reflecting a decrease in net unrealized losses on investments due to a change in interest rates during 2025, (iii) an increase in debt outstanding of $1.23 billion and (iv) proceeds from the exercise of employee share options of $214 million, partially offset by (v) common share repurchases totaling $3.03 billion under the Company’s share repurchase authorizations and (vi) shareholder dividends of $987 million.
The following table provides a reconciliation of total capitalization presented in the foregoing table to total capitalization excluding net unrealized losses on investments, net of taxes, included in shareholders’ equity.
(as of December 31, dollars in millions)
Total capitalization
Less: net unrealized losses on investments, net of taxes, included in shareholders’ equity
Total capitalization excluding net unrealized losses on investments, net of taxes, included in shareholders’ equity
Debt-to-total capital ratio
Debt-to-total capital ratio excluding net unrealized losses on investments, net of taxes, included in shareholders’ equity
The debt-to-total capital ratio excluding net unrealized gains (losses) on investments, net of taxes, included in shareholders’ equity, is calculated by dividing (a) debt by (b) total capitalization excluding net unrealized gains and losses on investments, net of taxes, included in shareholders’ equity. Net unrealized gains and losses on investments can be significantly impacted by both interest rate movements and other economic factors. Accordingly, in the opinion of the Company’s management, the debt-to-total capital ratio calculated on this basis provides another useful metric for investors to understand the Company’s financial leverage position. The Company’s ratio of debt-to-total capital excluding after-tax net unrealized investment losses included in shareholders’ equity of 21.2% as of December 31, 2025 was within the Company’s target range of 15% to 25%.
Credit Agreement . The Company is a party to a five-year, $1.0 billion revolving credit agreement with a syndicate of financial institutions that expires on June 15, 2027. Terms of the credit agreement are discussed in more detail in note 9 of the notes to the consolidated financial statements.
Shelf Registration . The Company has filed a universal shelf registration statement with the Securities and Exchange Commission that expires on June 4, 2028 for the potential offering and sale of securities. The Company may offer these securities from time to time at prices and on other terms to be determined at the time of offering.
Share Repurchase Authorizations. As of December 31, 2025, the Company had $2.02 billion of capacity remaining under its share repurchase authorizations approved by the Board of Directors.
Cash Requirements from Contractual and Other Obligations
The following table summarizes, as of December 31, 2025, the Company’s estimated future payments under material contractual obligations and estimated claims and claim-related payments. The table includes only obligations as of December 31, 2025 that are expected to be settled in cash and excludes amounts held for sale.
The table below includes the amount and estimated future timing of claims and claim-related payments. The amounts do not represent the exact liability, but instead represent estimates, generally utilizing actuarial projection techniques, at a given accounting date. These estimates include expectations of what the ultimate settlement and administration of claims will cost based on the Company’s assessment of facts and circumstances known, review of historical settlement patterns, estimates of trends in claims severity, frequency, legal theories of liability and other factors. Variables in the reserve estimation process can be affected by both internal and external events, such as changes in claims handling procedures, economic inflation or deflation, legal trends and legislative changes. Many of these items are not directly quantifiable, particularly on a prospective basis. Additionally, there may be significant reporting lags between the occurrence of the policyholder event and the time it is actually reported to the insurer. The future cash flows related to the items contained in the table below required estimation of both amount (including severity considerations) and timing. Amount and timing are frequently estimated separately. An estimation of both amount and timing of future cash flows related to and claim-related payments has estimation uncertainty.
The material cash requirements from contractual and other obligations as of December 31, 2025 were as follows:
Payments Due by Period (in millions)
Total
Less than
1 Year
Years
Years
After 5
Years
Debt
Senior notes
Junior subordinated debentures
Total debt principal
Interest
Total long-term debt obligations (1)
Real estate and other operating leases (2)
Information systems-related commitments (3)
Unfunded investment commitments (4)
Estimated claims and claim-related payments
Claims and claim adjustment expenses (5)
Claims from large deductible policies (6)
Total estimated claims and claim-related payments
Total
(1) See note 9 of the notes to the consolidated financial statements for a further discussion of outstanding indebtedness. Because the amounts reported in the foregoing table include principal and interest, the total long-term debt obligations will not agree with the amounts reported in note 9.
(2) Represents agreements entered into in the ordinary course of business to lease office space, equipment and furniture.
(3) Includes agreements with vendors to purchase system software (including software as a service), software maintenance services and technology-related costs.
(4) Represents estimated timing for fulfilling unfunded commitments for private equity limited partnerships, real estate partnerships and other investments.
(5) The amounts in “Claims and claim adjustment expenses” in the table above represent the estimated timing of future payments for both reported and unreported claims incurred and related claim adjustment expenses, gross of reinsurance recoverables, excluding structured settlements expected to be paid by annuity companies.
The Company has entered into reinsurance agreements to manage its exposure to losses and protect its capital as described in note 6 of the notes to the consolidated financial statements.
In order to qualify for reinsurance accounting, a reinsurance agreement must indemnify the insurer from insurance risk, i.e., the agreement must transfer amount and timing risk. Since the timing and amount of cash inflows from such reinsurance agreements are directly related to the underlying payment of claims and claim adjustment expenses by the insurer, reinsurance recoverables are recognized in a manner consistent with the liabilities (the estimated liability for claims and claim adjustment expenses) relating to the underlying reinsured contracts. The presence of any feature that can delay timely reimbursement of claims by a reinsurer results in the reinsurance contract being accounted for as a deposit rather than reinsurance. The assumptions used in estimating the amount and timing of the reinsurance recoverables are consistent with those used in estimating the amount and timing of the related liabilities.
The estimated future cash inflows from the Company’s reinsurance contracts that qualify for reinsurance accounting are as follows:
(in millions)
Total
Less than 1
Year
Years
Years
After 5
Years
Reinsurance recoverables
The Company manages its business and evaluates its liabilities for claims and claim adjustment expenses on a net of reinsurance basis. The estimated cash flows on a net of reinsurance basis are as follows:
(in millions)
Total
Less than 1
Year
Years
Years
After 5
Years
Claims and claim adjustment expenses, net
For business underwritten by non-U.S. operations, future cash flows related to reported and unreported claims incurred and related claim adjustment expenses were translated at the spot rate on December 31, 2025.
The amounts reported in the table above and in the table of reinsurance recoverables above are presented on a nominal basis and have not been adjusted to reflect the time value of money. Accordingly, the amounts above will differ from the Company’s balance sheet to the extent that the liability for claims and claim adjustment expenses and the related reinsurance recoverables have been discounted in the balance sheet. See note 1 of the notes to the consolidated financial statements.
(6) Workers’ compensation large deductible policies provide third-party coverage in which the Company typically is responsible for paying the entire loss under such policies and then seeks reimbursement from the insured for the deductible amount. “Claims from large deductible policies” represent the estimated future payment for claims and claim related expenses below the deductible amount, net of the estimated recovery of the deductible. The liability and the related deductible receivable for unpaid claims are presented in the consolidated balance sheet as “contractholder payables” and “contractholder receivables,” respectively. Most deductibles for such policies are paid directly from the policyholder’s escrow, which is periodically replenished by the policyholder. The payment of the loss amounts above the deductible are reported within “Claims and claim adjustment expenses” in the above table. Because the timing of the collection of the deductible (contractholder receivables) occurs shortly after the payment of the deductible to a claimant (contractholder payables), these cash flows offset each other in the table.
The estimated timing of the payment of the contractholder payables and the collection of contractholder receivables (net of allowance for expected credit losses) for workers’ compensation policies is presented below:
(in millions)
Total
Less than 1
Year
Years
Years
After 5
Years
Contractholder payables/receivables
The above table does not include an analysis of liabilities reported for structured settlements for which the Company has purchased annuities and remains contingently liable in the event of default by the company issuing the annuity. The Company is not reasonably likely to incur material future payment obligations under such agreements. In addition, the Company is not currently subject to any minimum funding requirements for its qualified pension plan. Accordingly, future contributions are not included in the foregoing table.
The Company believes that the combination of operating company liquidity, holding company liquidity, its investment portfolio and its capital resources are sufficient to meet its contractual obligations.
Dividend Availability
The Company’s principal insurance subsidiaries are domiciled in the State of Connecticut. The insurance holding company laws of Connecticut applicable to the Company’s subsidiaries requires notice to, and approval by, the state insurance commissioner for the declaration or payment of any dividend that, together with other distributions made within the preceding twelve months, exceeds the greater of 10% of the insurer’s statutory capital and surplus as of the preceding December 31, or the insurer’s net income for the twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting practices and by state regulation. This declaration or payment is further limited by adjusted unassigned surplus, as determined in accordance with statutory accounting practices. The insurance holding company laws of other states in which the Company’s subsidiaries are domiciled generally contain similar, although in some instances somewhat more restrictive, limitations on the payment of dividends. A maximum of $5.92 billion is available by the end of 2026 for such dividends to ultimately be paid to the holding company, TRV, without prior approval of the Connecticut Insurance Department. The Company may choose to accelerate the timing within 2026 and/or increase the amount of dividends from its insurance subsidiaries in 2026, which could result in certain dividends being subject to approval by the Connecticut Insurance Department prior to payment.
In addition to the regulatory restrictions on the amount of dividends that can be paid by the Company’s U.S. insurance subsidiaries, the maximum amount of dividends that may be paid to the Company’s shareholders is also limited, to a lesser degree, by certain covenants contained in its line of credit agreement with a syndicate of financial institutions that require the Company to maintain a minimum consolidated net worth as described in note 9 of the notes to the consolidated financial statements.
TRV is not dependent on dividends or other forms of repatriation from its foreign operations to support its liquidity needs. The undistributed earnings of the Company’s foreign operations are intended to be permanently reinvested in those operations, and such earnings were not material to the Company’s financial position or liquidity as of December 31, 2025.
The U.S. insurance subsidiaries paid dividends of $3.25 billion and $2.00 billion during 2025 and 2024, respectively.
Pension and Other Postretirement Benefit Plans
The Company sponsors a qualified non-contributory defined benefit pension plan (the qualified domestic pension plan), which covers substantially all U.S. domestic employees and provides benefits primarily under a cash balance formula. In addition, the Company sponsors a nonqualified defined benefit pension plan which covers certain highly-compensated employees, pension plans for employees of its foreign subsidiaries, and a postretirement health and life insurance benefit plan for employees satisfying certain age and service requirements and for certain retirees.
The qualified domestic pension plan is subject to regulations under the Employee Retirement Income Security Act of 1974 as amended (ERISA), which requires plans to meet minimum standards of funding and requires such plans to subscribe to plan termination insurance through the Pension Benefit Guaranty Corporation (PBGC). The Company does not have a minimum funding requirement for the qualified domestic pension plan for 2026 and does not anticipate having a minimum funding requirement in 2027. The Company has significant discretion in making contributions above those necessary to satisfy the minimum funding requirements. In 2025, 2024 and 2023, there was no minimum funding requirement for the qualified domestic pension plan. In 2025, 2024 and 2023, the Company made no voluntary contributions to the qualified domestic pension plan. The qualified domestic pension plan had a funded status of 132% and 130% as of December 31, 2025 and 2024, respectively. Based on its funded status as of December 31, 2025, the Company does not currently anticipate making a voluntary contribution to the qualified domestic pension plan in 2026. In determining future contributions, the Company will consider the performance of the plan’s investment portfolio, the effects of interest rates on the projected benefit obligation of the plan and the Company’s other capital requirements.
The qualified domestic pension plan assets are managed to maximize long-term total return while maintaining an appropriate level of risk. The Company’s overall investment strategy is to achieve a mix of approximately 85% to 90% of investments for long-term growth and 10% to 15% for near-term benefit payments with a diversification of asset types, fund strategies and fund managers. The current target allocations for plan assets are 55% to 65% equity securities and 20% to 40% fixed income securities, with the remainder allocated to short-term securities. For 2026, the Company plans to apply an expected long-term rate of return on plan assets of 7.00%, comparable with 2025. The expected rate of return reflects the Company’s current expectations with regard to long-term returns in the capital markets, taking into account the pension plan’s asset allocation targets, the historical performance and current valuation of U.S. and international equities, and the level of long term interest rate and inflation expectations.
For further discussion of the pension and other postretirement benefit plans, see note 15 of the notes to the consolidated financial statements.
Risk-Based Capital
The NAIC has an RBC requirement for most property and casualty insurance companies, which determines minimum capital requirements and is intended to raise the level of protection for policyholder obligations. The Company’s U.S. insurance subsidiaries are subject to these NAIC RBC requirements based on laws that have been adopted by individual states. These requirements subject insurers having policyholders’ surplus less than that required by the RBC calculation to varying degrees of regulatory action, depending on the level of capital inadequacy. Each of the Company’s U.S. insurance subsidiaries had policyholders’ surplus as of December 31, 2025 significantly above the level at which any RBC regulatory action would occur. Regulators in the jurisdictions in which the Company’s foreign insurance subsidiaries are located require insurance companies to maintain certain levels of capital depending on, among other things, the type and amount of insurance policies written. Each of the Company’s foreign insurance subsidiaries had capital significantly above their respective regulatory requirements as of December 31, 2025.
Off-Balance Sheet Arrangements
The Company has entered into certain contingent obligations for guarantees related to selling businesses to third parties, certain investments, certain insurance policy obligations of former insurance subsidiaries and various other indemnifications. See note 17 of the notes to the consolidated financial statements. The Company does not believe it is reasonably likely that these arrangements will have a material current or future effect on the Company’s financial position, changes in financial position, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING ESTIMATES
The Company considers its most significant accounting estimates to be those applied to claims and claim adjustment expense reserves and related reinsurance recoverables, and impairments of investments, goodwill and other intangible assets.
Claims and Claim Adjustment Expense Reserves
Gross claims and claim adjustment expense reserves by product line were as follows:
December 31, 2025
December 31, 2024
(in millions)
Case
IBNR
Total
Case
IBNR
Total
General liability
Commercial property
Commercial multi-peril
Commercial automobile
Workers’ compensation
Fidelity and surety
Personal automobile
Personal homeowners and other
International and other
Property-casualty
Accident and health
Less amounts classified as held for sale
Claims and claim adjustment expense reserves
The $3.56 billion increase in gross claims and claim adjustment expense reserves since December 31, 2024 primarily reflected the impacts of (i) catastrophe losses in 2025, (ii) higher volumes of insured exposures and (iii) loss cost trends for the current accident year, partially offset by (iv) claim payments made during 2025 and (v) net favorable prior year reserve development.
Asbestos reserves are included in the General liability, Commercial multi-peril and International and other lines in the foregoing summary table. Asbestos reserves are discussed separately; see “Asbestos Claims and Litigation” and “Uncertainty Regarding Adequacy of Asbestos Reserves” herein.
Claims and claim adjustment expense reserves represent management’s estimate of the ultimate liability for unpaid losses and loss adjustment expenses for claims that have been reported and claims that have been incurred but not yet reported (IBNR) as of the balance sheet date. Claims and claim adjustment expense reserves do not represent an exact calculation of liability, but instead represent management estimates, primarily utilizing actuarial expertise and projection methods. These estimates are expectations of what the ultimate settlement and administration of claims will cost upon final resolution in the future, based on the Company’s assessment of facts and circumstances then known, review of historical settlement patterns, estimates of trends in claims severity and frequency, expected interpretations of legal theories of liability and other factors. In establishing gross claims and claim adjustment expense reserves, the Company also considers salvage and subrogation. Estimated recoveries from reinsurance are included in “Reinsurance Recoverables” as an asset on the Company’s consolidated balance sheet. The and claim adjustment expense reserves are reviewed regularly by qualified actuaries employed by the Company.
The process of estimating claims and claim adjustment expense reserves involves a high degree of judgment and is subject to a number of variables. These variables can be affected by both internal and external events, such as changes in claims handling procedures, changes in individuals involved in the reserve estimation process, economic inflation, changes in the tort environment, legal trends and legislative changes, among others. The impact of many of these items on ultimate costs for claims and claim adjustment expenses is difficult to estimate. Estimation difficulties also differ significantly by product line due to differences in claim complexity, the volume of claims, the potential severity of individual claims, the determination of occurrence date for a claim and reporting lags (the time between the occurrence of the policyholder event and when it is actually reported to the insurer). Informed judgment is applied throughout the process, including the application of various individual experiences and expertise to multiple sets of data and analyses. The Company refines its estimates in a regular ongoing process as historical experience develops and additional are reported and settled. The Company rigorously attempts to consider all significant facts and circumstances known at the time and claim adjustment expense reserves are established. Due to the inherent uncertainty underlying these estimates including, but not limited to, the future settlement environment, final resolution of the estimated liability for and claim adjustment expenses may be higher or lower than the related and claim adjustment expense reserves at the reporting date. Therefore, actual paid , as are settled in the future, may be materially different than the amount currently recorded- or . Because establishment of and claim adjustment expense reserves is an inherently uncertain process involving estimates and the application of judgment, currently established and claim adjustment expense reserves may change. The Company reflects adjustments to the reserves in the results of operations in the period the estimates are changed.
There are also additional risks which impact the estimation of ultimate costs for catastrophes. For example, the estimation of reserves related to hurricanes, tornadoes, wildfires and other catastrophic events can be affected by the inability of the Company and its insureds to access portions of the impacted areas, the complexity of factors contributing to the losses, the legal and regulatory uncertainties, including the interpretation of policy terms and conditions, and the nature of the information available to establish the reserves. Complex factors include, but are not limited to: determining whether damage was caused by flooding versus wind; evaluating general liability and pollution exposures; estimating additional living expenses; estimating the impact of demand surge, infrastructure disruption, fraud, the effect of mold damage and business interruption costs; and reinsurance collectibility. The timing of a catastrophe, such as at or near the end of a reporting period, can also affect the information available to the Company in estimating reserves for that reporting period. The estimates related to are adjusted as actual emerge.
A portion of the Company’s gross claims and claim adjustment expense reserves (totaling $1.70 billion as of December 31, 2025) are for asbestos claims and related litigation. While the ongoing review of asbestos claims and associated liabilities considers the inconsistencies of court decisions as to coverage, plaintiffs’ expanded theories of liability and the risks inherent in complex litigation and other uncertainties, in the opinion of the Company’s management, it is possible that the outcome of the continued uncertainties regarding these claims could result in liability in future periods that differs from current insurance reserves by an amount that could be material to the Company’s future operating results. See the preceding discussion of “Asbestos Claims and Litigation.”
General Discussion
The process for estimating the liabilities for claims and claim adjustment expenses begins with the collection and analysis of claim data. Data on individual reported claims, both current and historical, including paid amounts and individual claim adjuster estimates, are grouped by common characteristics (components) and evaluated by actuaries in their analyses of ultimate claim liabilities. Such data is occasionally supplemented with external data as available and when appropriate. The process of analyzing reserves for a component is undertaken on a regular basis, generally quarterly, in light of continually updated information.
Multiple estimation methods are available for the analysis of ultimate claim liabilities. Each estimation method has its own set of assumption variables and its own advantages and disadvantages, with no single estimation method being better than the
others in all situations and no one set of assumption variables being meaningful for all product line components. The relative strengths and weaknesses of the particular estimation methods when applied to a particular group of claims can also change over time. Therefore, the actual choice of estimation method(s) can change with each evaluation. The estimation method(s) chosen are those that are believed to produce the most reliable indication at that particular evaluation date for the claim liabilities being evaluated.
In most cases, multiple estimation methods will be valid for the particular facts and circumstances of the claim liabilities being evaluated. This will result in a range of reasonable estimates for any particular claim liability. The Company uses such range analyses to back test whether previously established estimates for reserves by reporting segments are reasonable, given available information. Reported values found to be closer to the endpoints of a range of reasonable estimates are subject to further detailed reviews. These reviews may substantiate the validity of management’s recorded estimate or lead to a change in the reported estimate.
The exact boundary points of these ranges are more qualitative than quantitative in nature, as no clear line of demarcation exists to determine when the set of underlying assumptions for an estimation method switches from being reasonable to unreasonable. As a result, the Company does not believe that the endpoints of these ranges are or would be comparable across companies. In addition, potential interactions among the different estimation assumptions for different product lines make the aggregation of individual ranges a highly judgmental and inexact process.
Property-casualty insurance policies are either written on a “claims-made” or on an “occurrence” basis. Claims-made policies generally cover, subject to requirements in individual policies, claims reported during the policy period. Policies that are written on an occurrence basis require that the insured demonstrate that a loss occurred in the policy period, even if the insured reports the loss many years later.
Most general liability policies are written on an occurrence basis. These policies are subject to substantial loss development over time as facts and circumstances change in the years following the policy issuance. The occurrence form, which accounts for much of the reserve development in asbestos exposures, is also used to provide coverage for construction general liability, including construction defect. Occurrence-based forms of insurance for general liability exposures require substantial projection of loss trends, which can be influenced by a number of factors, including future inflation, judicial interpretations and societal litigation trends (e.g., size of jury awards and propensity of individuals to pursue litigation), among others.
A basic premise in most actuarial analyses is that past patterns demonstrated in the data will repeat themselves in the future, absent a material change in the associated risk factors discussed below. To the extent a material change affecting the ultimate claim liability is known, such change is estimated to the extent possible through an analysis of internal company data and, if available and when appropriate, external data. Such a measurement is specific to the facts and circumstances of the particular claim portfolio and the known change being evaluated. Significant structural changes to the available data, product mix or organization can materially impact the reserve estimation process. In addition, the introduction of new products creates a unique risk as historical company data would typically not be available.
Informed judgment is applied throughout the reserving process. This includes the application of various individual experiences and expertise to multiple sets of data and analyses. In addition to actuaries, experts involved with the reserving process also include underwriting and claims personnel and lawyers, as well as other company management. Therefore, management may have to consider varying individual viewpoints as part of its estimation of claims and claim adjustment expense reserves. It is also likely that during periods of significant change, such as a merger, consistent application of informed judgment becomes even more complicated and difficult.
The variables discussed above in this general discussion have different impacts on reserve estimation uncertainty for a given product line, depending on the length of the claim tail, the reporting lag, the impact of individual claims and the complexity of the claim process for a given product line.
Product lines are generally classifiable as either long tail or short tail, based on the average length of time between the event triggering claims under a policy and the final resolution of those claims. Short tail claims are reported and settled quickly, resulting in less estimation variability. The longer the time to final claim resolution, the greater the exposure to estimation risks and hence the greater the estimation uncertainty.
A major component of the claim tail is the reporting lag. The reporting lag, which is the time between the event triggering a claim and the reporting of the claim to the insurer, makes estimating IBNR inherently more uncertain. In addition, the greater the reporting lag, the greater the proportion of IBNR to the total claim liability for the product line. Writing new products with material reporting lags can result in adding several years’ worth of IBNR claim exposure before the reporting lag exposure becomes clearly observable, thereby increasing the risk associated with estimating the liabilities for claims and claim
adjustment expenses for such products. The most extreme example of claim liabilities with long reporting lags are asbestos claims.
For some lines, the impact of large individual claims can be material to the analysis. These lines are generally referred to as being “low frequency/high severity,” while lines without this “large claim” sensitivity are referred to as “high frequency/low severity.” Estimates of claim liabilities for low frequency/high severity lines can be sensitive to the impact of a small number of potentially large claims. As a result, the role of judgment is much greater for these reserve estimates. In contrast, for high frequency/low severity lines the impact of individual claims is relatively minor and the range of reasonable reserve estimates is likely narrower and more stable.
Claim complexity can also greatly affect the estimation process by impacting the number of assumptions needed to produce the estimate, the potential stability of the underlying data and claim process, and the ability to gain an understanding of the data. Product lines with greater claim complexity, such as for certain surety and construction exposures, have inherently greater estimation uncertainty.
Actuaries have to exercise a considerable degree of judgment in the evaluation of all these factors in their analysis of reserves. The human element in the application of actuarial judgment is unavoidable when faced with material uncertainty. Different actuaries may choose different assumptions when faced with such uncertainty, based on their individual backgrounds, professional experiences and areas of focus. Hence, the estimates selected by the various actuaries may differ materially from each other.
Lastly, significant structural changes to the available data, product mix or organization can also materially impact the reserve estimation process. Events such as mergers increase the inherent uncertainty of reserve estimates for a period of time, until stable trends re-establish themselves within the new organization.
Risk Factors
The major causes of material uncertainty (“risk factors”) generally will vary for each product line, as well as for each separately analyzed component of the product line. In a few cases, such risk factors are explicit assumptions of the estimation method, but in most cases, they are implicit. For example, a method may explicitly assume that a certain percentage of claims will close each year, but will implicitly assume that the legal interpretation of existing contract language will remain unchanged. Actual results will likely vary from expectations for each of these assumptions, causing actual paid losses, as claims are settled in the future, to be different in amount than the reserves being estimated currently.
Some risk factors will affect more than one product line. Examples include changes in claim department practices, changes in the tort environment, changes in settlement patterns, regulatory and legislative actions, court actions, timeliness of claim reporting, state mix of claimants, medical utilization and degree of claimant fraud. The extent of the impact of a risk factor will also vary by components within a product line. Individual risk factors are also subject to interactions with other risk factors within product line components.
The effect of a particular risk factor on estimates of claim liabilities cannot be isolated in most cases. For example, estimates of potential claim settlements may be impacted by the risk associated with potential court rulings, but the final settlement agreement typically does not delineate how much of the settled amount is due to this and other factors.
The evaluation of data is also subject to distortion from extreme events or structural shifts, sometimes in unanticipated ways. For example, the timing of claims payments in one geographic region may be impacted if claim adjusters are temporarily reassigned from that region to help settle catastrophe claims in another region.
While some changes in the claim environment are sudden in nature (such as a new court ruling affecting the interpretation of all contracts in that jurisdiction), others are more evolutionary. Evolutionary changes can occur when multiple factors affect final claim values, with the uncertainty surrounding each factor being resolved separately, in stepwise fashion. The final impact is not known until all steps have occurred.
Sudden changes generally cause a one-time shift in claim liability estimates, although there may be some lag in reliable quantification of their impact. Evolutionary changes generally cause a series of shifts in claim liability estimates, as each component of the evolutionary change becomes evident and estimable.
Actuarial Methods for Analyzing and Estimating Claims and Claim Adjustment Expense Reserves
The principal estimation and analysis methods utilized by the Company’s actuaries to evaluate management’s existing estimates for prior accident periods are the paid loss development method, the case incurred development method, the Bornhuetter-Ferguson (BF) method, and average value analysis combined with the reported claim development method. The BF method is usually utilized for more recent accident periods, with a transition to other methods as the underlying claim data becomes more voluminous and therefore more credible. These estimation and analysis methods are typically referred to as conventional actuarial methods. (See note 8 of the notes to the consolidated financial statements for an explanation of these methods).
While the Company utilizes these conventional actuarial methods to estimate the claims liability for its various businesses, Company actuaries evaluating a particular component for a product line may select from the full range of methods developed within the casualty actuarial profession. The Company’s actuaries are also regularly monitoring developments within the profession for advances in existing techniques or the creation of new techniques that might improve current and future estimates.
Some components of a product line may be susceptible to infrequent large claims or not be subject to conventional methods. In such cases, the Company’s actuarial analysis will isolate such components for review. The reserves excluding such large claims are generally analyzed using the conventional methods described above. The reserves associated with large claims are then analyzed utilizing various methods, such as:
• Estimating the number of large claims and their average values based on historical trends from prior accident periods, adjusted for the current environment and supplemented with actual data for the accident year analyzed to the extent available.
• Utilizing individual claim adjuster estimates of the large claims, combined with continual monitoring of the aggregate accuracy of such claim adjuster estimates. (This monitoring may lead to supplemental adjustments to the aggregate of such claim estimates).
• Utilizing historic longer-term average ratios of large claims to small claims, and applying such ratios to the estimated ultimate small claims from conventional analysis.
• Ground-up analysis of the underlying exposure (typically used for asbestos and environmental).
The results of such methodologies are subjected to various reasonability and diagnostic tests, including implied incurred-loss-to-earned-premium ratios, non-zero claim severity trends and paid-to-incurred loss ratios. An actual versus expected analysis is also performed comparing actual loss development to expected development embedded within management’s estimate. Additional analyses may be performed based on the results of these diagnostics, including the investigation of other actuarial methods.
The methods described above are generally utilized to evaluate management’s estimate for prior accident periods. For the initial estimate of the current accident year, however, the available claim data is typically insufficient to produce a reliable indication. As a result, the initial estimate for an accident year is generally based on an exposure-based method using either the loss ratio projection method or the expected loss method. The loss ratio projection method, which is typically used for guaranteed-cost business, develops an initial estimate for an accident year by multiplying earned premiums for the accident year by a projected loss ratio. The projected loss ratio is determined by analyzing prior period experience, and adjusting for loss cost trends, rate level differences, mix of business changes and other known or observed factors influencing the current year relative to prior years. The exact number of prior years utilized varies by product line component, based on the and consistency of the individual year estimates. The expected method, which is typically used for sensitive business, develops an initial estimate of ultimate and claim adjustment expenses for an year by analyzing exposures by account.
Management’s Estimates
At least once per quarter, members of Company management meet with the Company’s actuaries to review the latest claims and claim adjustment expense reserve analyses. Based on these analyses, management determines whether its ultimate claim liability estimates should be changed from the prior period. In doing so, it must evaluate whether the new data provided represents credible actionable information or an anomaly that will have no effect on estimated ultimate claim liability. For example, as described above, payments may have decreased in one geographic region due to fewer claim adjusters being available to process claims. The resulting claim payment patterns would be analyzed to determine whether or not the change in payment pattern represents a change in ultimate claim liability.
This type of assessment requires considerable judgment. It is frequently not possible to determine whether a change in the data is an anomaly until sometime after the event. Even if a change is determined to be permanent, it is not always possible to
reliably determine the extent of the change until sometime later. The overall detailed analyses supporting such an effort can take several months to perform as the underlying causes of the trends observed need to be evaluated, which may require the gathering or assembling of data not previously available. It may also include interviews with experts involved with the underlying processes. As a result, there can be a time lag between the emergence of a change and a determination that the change should be reflected in the Company’s estimated claim liabilities. The final estimate selected by management in a reporting period is based on these various detailed analyses of past data, adjusted to reflect any new actionable information.
The Audit Committee of the Board of Directors reviews the process by which the Company establishes reserves for the purpose of the Company’s financial statements.
Discussion of Product Lines
The following section details reserving considerations and common risk factors by product line. There are many additional risk factors that may impact ultimate claim costs. Each risk factor presented will have a different impact on required reserves. Also, risk factors can have offsetting or compounding effects on required reserves. For example, in workers’ compensation, the use of expensive medical procedures that result in medical cost inflation may enable workers to return to work faster, thereby lowering indemnity costs. Thus, in almost all cases, it is impossible to discretely measure the effect of a single risk factor and construct a meaningful sensitivity expectation.
In order to provide information on reasonably possible reserving changes by product line, the historical changes in year-end claims and claim adjustment expense reserves over a one-year period are provided for the U.S. product lines. This information is provided for both the Company and the industry for the nine most recent years, and is based on the most recent publicly available data for the reported line(s) that most closely match the individual product line being discussed. These changes were calculated, net of reinsurance, from statutory annual statement data found in Schedule P of those statements, and represent the reported reserve development on the beginning-of-the-year claim liabilities divided by the beginning claim liabilities, all accident years combined, excluding non-defense related claim adjustment expense. Data presented for the Company includes history for the entire Travelers group (U.S. companies only), as required by the statutory reporting instructions promulgated by state regulatory authorities for Schedule P. Comparable data for non-U.S. companies is not available.
General Liability
General liability is generally considered a long tail line, as it takes a relatively long period of time to finalize and settle claims from a given accident year. The speed of claim reporting and claim settlement is a function of the characteristics of claims, including specific coverage provided, the jurisdiction and specific policy provisions such as self-insured retentions, among others. There are numerous components underlying the general liability product line. Some of these have relatively moderate payment patterns (with most of the claims for a given accident year closed within five to seven years), while others can have extreme lags in both reporting and payment of claims (e.g., a reporting lag of a decade or more for “construction defect” claims).
While the majority of general liability coverages are written on an “occurrence” basis, certain general liability coverages (such as those covering management and professional liability, including cyber coverages) are typically insured on a “claims-made” basis.
General liability reserves are generally analyzed as two components: primary and excess/umbrella, with the primary component generally analyzed separately for bodily injury and property damage. Bodily injury liability payments reimburse the claimant for damages pertaining to physical injury as a result of the policyholder’s legal obligation arising from non-intentional acts such as negligence, subject to the insurance policy provisions. In some cases the damages can include future wage loss (which is a function of future earnings power and wage inflation) and future medical treatment costs. Property damage liability payments result from damages to the claimant’s private property arising from the policyholder’s legal obligation for non-intentional acts. In most cases, property damage are a function of costs as of the date, or soon thereafter.
In addition, sizable or unique exposures are reviewed separately. These exposures include asbestos, environmental, other mass torts, construction defect and large unique accounts that would otherwise distort the analysis. These unique categories often require a very high degree of judgment and require reserve analyses that do not rely on conventional actuarial methods.
Defense costs are also a part of the insured costs covered by liability policies and can be significant, sometimes greater than the cost of the actual paid claims. For some products this risk is mitigated by policy language such that the insured portion of defense costs is included in the policy limit available to pay the claim. Such “defense within the limits” policies are most common for “claims-made” products. When defense costs are outside of the policy limits, the full amount of the policy limit is available to pay claims and the amounts paid for defense costs have no contractual limit.
This line is typically the largest source of reserve estimate uncertainty in the United States (excluding assumed reinsurance contracts covering the same risk). Major contributors to this reserve estimate uncertainty include the reporting lag (i.e., the length of time between the event triggering coverage and the actual reporting of the claim), the number of parties involved in the underlying tort action, whether the “event” triggering coverage is confined to only one time period or is spread over multiple time periods, the potential dollars involved (in the individual claim actions), whether such claims were reasonably foreseeable and intended to be covered at the time the contracts were written (i.e., coverage dispute potential), and the potential for mass claim actions. Claims with longer reporting lags result in greater estimation uncertainty. This is especially true for alleged claims with a latency feature, particularly where courts have ruled that coverage is spread over multiple policy years, hence involving multiple defendants (and their insurers and reinsurers) and multiple policies (thereby increasing the potential dollars involved and the underlying settlement complexity). with long latencies also increase the potential recognition (i.e., the between writing a type of policy in a certain market and the recognition that such policies have potential mass tort and/or latent claim exposure).
The amount of reserve estimate uncertainty also varies significantly by component for the general liability product line. The components in this product line with the longest latency, longest reporting lags, largest potential dollars involved and greatest claim settlement complexity are asbestos and environmental. Components that include latency, reporting lag and/or complexity issues, but to a materially lesser extent than asbestos and environmental, include construction defect and other mass tort actions. Many components of general liability are not subject to material latency or claim complexity risks and hence have materially less uncertainty than the previously mentioned components. In general, components with shorter reporting lags, fewer parties involved in settlement negotiations, only one policy potentially triggered per claim, fewer potential settlement dollars, reasonably foreseeable (and stable) potential hazards/claims and no mass tort potential result in much less reserve estimate uncertainty than components without those characteristics.
In addition to the conventional actuarial methods mentioned in the general discussion section, the company utilizes various report year development methods for the construction defect components of this product line. The Construction Defect report year development analysis is supplemented with projected claim counts and average values for IBNR claim counts. For components with greater lags in claim reporting, such as excess and umbrella components of this product line, the Company relies more heavily on the BF method than on the paid and case incurred development methods.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required general liability reserves (beyond those included in the general discussion section) include:
General liability risk factors
• Changes in claim handling philosophies
• Changes in policy provisions or court interpretation of such provisions
• New or expanded theories of liability
• Trends in jury awards
• Changes in the propensity to sue, in general with specificity to particular issues
• Changes in the propensity to litigate rather than settle a claim
• Increases in attorney involvement in, or impact on, claims
• Changes in statutes of limitations
• Changes in the underlying court system
• Distortions from losses resulting from large single accounts or single issues
• Changes in tort law
• Shifts in lawsuit mix between federal and state courts
• Changes in claim adjuster processes or reporting which may cause distortions in the data being analyzed
• The impact of inflation on loss costs
• Changes in settlement patterns
General liability book of business risk factors
• Changes in policy provisions (e.g., deductibles, policy limits, endorsements)
• Changes in underwriting standards
• Product mix (e.g., size of account, industries insured, jurisdiction mix)
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk factors could have on reserves for general liability (excluding asbestos), a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.5% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line, excluding estimated asbestos amounts, over the last nine years has varied from -4% to 6% (averaging 2%) for the Company, and from -2% to 3% (averaging 1%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. General liability reserves (excluding asbestos) represent approximately 26% of the Company’s total claims and claim adjustment expense reserves.
The Company’s change in reserve estimate for this product line related to the last nine accident years, which excludes the impacts of increases in asbestos reserves, the extension of the statute of limitations for childhood sexual molestation claims and increases in reserves in the Company’s runoff operations, was 2% for 2025, 4% for 2024 and 4% for 2023. The 2025 change primarily reflected higher than expected loss experience in Business Insurance for accident years 2022 and 2023. The 2024 change primarily reflected higher than expected loss experience in Business Insurance for accident years 2021 through 2023. The 2023 change primarily reflected higher than expected loss experience in Business Insurance for accident years 2017 through 2020.
Commercial Property
Commercial property is generally considered a short tail line with a simpler and faster claim reporting and adjustment process than liability coverages, and less uncertainty in the reserve setting process (except for more complex business interruption claims). It is generally viewed as a moderate frequency, low to moderate severity line, except for catastrophes and coverage related to large properties. The claim reporting and settlement process for property coverage claim reserves is generally restricted to the insured and the insurer. Overall, the claim liabilities for this line create a low estimation risk, except possibly for catastrophes and business interruption claims.
Commercial property reserves are typically analyzed in two components, one for catastrophic or other large single events, and another for all other events. Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required property reserves (beyond those included in the general discussion section) include:
Commercial property risk factors
• Physical concentration of policyholders
• Availability and cost of local contractors
• Inflation and materials shortages
• For the more severe catastrophic events, “demand surge” inflation, which refers to significant short-term increases in building material and labor costs due to a sharp increase in demand for those materials and services
• Local building codes
• Amount of time to return property to full usage (for business interruption claims)
• Frequency of claim re-openings on claims previously closed
• Court interpretation of policy provisions (such as occurrence definition, wind versus flooding or communicable disease exclusions)
• Lags in reporting claims (e.g., winter damage to summer homes, hidden damage after an earthquake, hail damage to roofs and/or equipment on roofs)
• Court or legislative changes to the statute of limitations
• Weather/climate variability
Commercial property book of business risk factors
• Policy provisions mix (e.g., deductibles, policy limits, endorsements)
• Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk factors could have on reserves for property, a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.1% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -11% to 2% (averaging -7%) for the Company, and from -12% to -2% (averaging -7%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Commercial property reserves represent approximately 3% of the Company’s total claims and claim adjustment expense reserves.
Since commercial property is considered a short tail coverage, the one year change for commercial property can be more volatile than that for the longer tail product lines. This is due to the fact that the majority of the reserve for commercial property
relates to the most recent accident year, which is subject to the most uncertainty for all product lines. This recent accident year uncertainty is relevant to commercial property because weather-related events that occur in the second half of the year may not be completely resolved until the following year. Reserve estimates associated with catastrophes may take even longer to resolve. The reserve estimates for this product line are also potentially subject to material changes due to uncertainty in measuring ultimate losses for significant catastrophes such as hurricanes, tornadoes, hail storms and wildfires.
The Company’s change in reserve estimate for this product line was -8% for 2025, -3% for 2024 and 2% for 2023. The 2025 change primarily reflected better than expected loss experience related to both catastrophe and non-catastrophe losses for accident years 2022 through 2024. The 2024 change primarily reflected better than expected loss experience related to both catastrophe and non-catastrophe losses for accident years 2018 through 2020 and 2023. The 2023 change primarily reflected higher than expected loss experience related to both catastrophe and non-catastrophe losses for accident year 2022.
Commercial Multi-Peril
Commercial multi-peril provides a combination of property and liability coverage typically for small businesses and, therefore, includes both short and long tail coverages. For property coverage, it generally takes a relatively short period of time to close claims, while for the other coverages, generally for the liability coverages, it takes a longer period of time to close claims.
The reserving risk for this line is dominated by the liability coverage portion of this product, except occasionally in the event of catastrophic or other large single loss events. The reserving risk for this line differs from that of the general liability product line and the property product line due to the nature of the customer. Commercial multi-peril is generally sold to small- to mid-sized accounts, while the customer profile for general liability and commercial property includes larger customers.
See “Commercial property risk factors” and “General liability risk factors,” discussed above, with regard to reserving risk for commercial multi-peril.
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk factors could have on reserves for commercial multi-peril (excluding asbestos), a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.4% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line, excluding estimated asbestos amounts, over the last nine years has varied from -5% to 4% (averaging 0%) for the Company, and from -3% to 3% (averaging 0%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Commercial multi-peril reserves (excluding asbestos reserves) represent approximately 11% of the Company’s total claims and claim adjustment expense reserves.
As discussed above, this line combines general liability and commercial property coverages and it has been impacted in the past by many of the same events as those two lines.
The Company’s change in reserve estimate for this product line related to the last nine accident years, which excludes the impacts of increases in asbestos reserves and increases in reserves in the Company’s runoff operations, was -2% for 2025, 1% for 2024 and 0% for 2023. The 2025 change primarily reflected better than expected loss experience for property coverages for accident years 2023 and 2024. The 2024 change primarily reflected higher than expected loss experience for liability coverages for accident years 2021 through 2023. In 2023, higher than expected loss experience for liability coverages for accident year 2022 was mostly offset by better than expected loss experience for liability coverages for accident years 2017 and 2020.
Commercial Automobile
The commercial automobile product line is a mix of property and liability coverages and, therefore, includes both short and long tail coverages. The payments that are made quickly typically pertain to auto physical damage (property) claims and property damage (liability) claims. The payments that take longer to finalize and are more difficult to estimate relate to bodily injury claims. In general, claim reporting lags are generally short, claim complexity is not a major issue, and the line is viewed as high frequency, low to moderate severity. Overall, the claim liabilities for this line create a moderate estimation risk. Recently, the Company has seen more of an increase in the rate of attorney involvement than it had anticipated and a lengthening of the claim development pattern. As a consequence, the Company has experienced a higher level of bodily injury severity than it had anticipated.
Commercial automobile reserves are typically analyzed in four components: bodily injury liability; property damage liability; collision claims; and comprehensive claims. These last two components have minimum reserve risk and fast payouts and, accordingly, separate risk factors are not presented.
The Company utilizes the conventional actuarial methods mentioned in the general discussion above in estimating claim liabilities for this line. This is supplemented with detailed custom analyses where needed.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required commercial automobile reserves (beyond those included in the general discussion section) include:
Bodily injury and property damage liability risk factors
• Trends in jury awards
• Changes in the underlying court system
• Changes in case law
• Litigation trends
• Increases in attorney involvement in, or impact on, claims
• Frequency of claims with payment capped by policy limits
• Change in average severity of accidents, or proportion of severe accidents, including the impact of inflation
• Changes in auto safety technology
• Subrogation opportunities
• Changes in claim handling philosophies
• Frequency of visits to health providers
• Number of medical procedures given during visits to health providers
• Types of health providers used
• Types of medical treatments received
• Changes in cost of medical treatments
• Degree of patient responsiveness to treatment
Commercial automobile book of business risk factors
• Changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.)
• Changes in mix of insured vehicles (e.g., long haul trucks versus local and smaller vehicles, fleet risks versus non-fleets)
• Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk factors could have on reserves for commercial automobile, a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.4% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -2% to 11% (averaging 3%) for the Company, and from 2% to 7% (averaging 5%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Commercial automobile reserves represent approximately 10% of the Company’s total claims and claim adjustment expense reserves.
The Company’s change in reserve estimate for this product line was 0% for 2025, 0% for 2024 and 4% for 2023. In 2025, better than expected loss experience for physical damage coverages for accident year 2024 was largely offset by higher than expected loss experience for liability coverages for accident years 2022 and 2023. In 2024, better than expected loss experience for physical damage coverages for accident year 2023 was largely offset by higher than expected loss experience for liability coverages for accident years 2021 through 2023. The 2023 change primarily reflected higher than expected loss experience for liability coverages for accident years 2021 and 2022.
Workers’ Compensation
Workers’ compensation is generally considered a long tail coverage, as it takes a relatively long period of time to finalize claims from a given accident year. While certain payments such as initial medical treatment or temporary wage replacement for the injured worker are made quickly, some other payments are made over the course of several years, such as awards for permanent partial injuries. In addition, some payments can run as long as the injured worker’s life, such as permanent disability benefits and on-going medical care. Despite the possibility of long payment tails, the reporting lags are generally short, payment obligations are generally not complex, and most of the liability can be considered high frequency with moderate severity. The largest reserve risk generally comes from the low frequency, high severity claims providing lifetime coverage for medical expense arising from a worker’s injury, as such are subject to inflation risk. Overall, the claim liabilities for this line create a somewhat than moderate estimation risk.
Workers’ compensation reserves are typically analyzed in three components: indemnity losses, medical losses and claim adjustment expenses.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required workers’ compensation reserves (beyond those included in the general discussion section) include:
Indemnity risk factors
• Time required to recover from the injury
• Degree of available transitional jobs
• Degree of legal involvement
• Changes in the interpretations and processes of the administrative bodies that oversee workers’ compensation claims
• Future wage inflation for states that index benefits
• Changes in the administrative policies of second injury funds
Medical risk factors
• Changes in the cost of medical treatments (including prescription drugs) and underlying fee schedules (“inflation”)
• Availability of medical providers and medical wage impacts
• Frequency of visits to health providers
• Number of medical procedures given during visits to health providers
• Types of health providers used
• Type of medical treatments received
• Use of preferred provider networks and other medical cost containment practices
• Availability of new medical processes and equipment
• Changes in the use of pharmaceutical drugs, including drugs for pain management
• Degree of patient responsiveness to treatment
General workers’ compensation risk factors
• Frequency of reopening claims previously closed
• Mortality trends of injured workers with lifetime benefits and medical treatment
• Changes in statutory benefits, including due to presumption laws
• The impact, if any, of potential future changes to government health insurance legislation
Workers’ compensation book of business risk factors
• Product mix
• Injury type mix
• Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk factors could have on reserves for workers’ compensation, a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.1% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -5% to -3% (averaging -4%) for the Company, and from -5% to -2% (averaging -4%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Workers’ compensation reserves represent approximately 28% of the Company’s total claims and claim adjustment expense reserves.
The Company’s change in reserve estimate for this product line was -4% for 2025, -5% for 2024 and -5% for 2023. The 2025 change primarily reflected better than expected loss experience for accident years 2022 and prior. The 2024 change primarily reflected better than expected loss experience for accident years 2022 and prior. The 2023 change primarily reflected better than expected loss experience for accident years 2021 and prior.
Fidelity and Surety
Fidelity is generally considered a short tail coverage. It takes a relatively short period of time to finalize and settle most fidelity claims. The volatility of fidelity reserves is generally related to the type of business of the insured, the size and complexity of the insured’s business operations, amount of policy limit and attachment point of coverage. The uncertainty surrounding reserves for small, commercial insureds is typically less than the uncertainty for large commercial or financial institutions. The high frequency, low severity nature of small commercial fidelity losses provides for stability in loss estimates, whereas the low frequency, high severity nature of losses for large insureds results in a wider range of ultimate loss outcomes. Actuarial techniques that rely on a stable pattern of loss development are generally not applicable to low frequency, high severity .
Surety has certain components that are generally considered short tail coverages with short reporting lags, although large individual construction and commercial surety contracts can result in a long settlement tail, based on the length and complexity of the construction project(s) or commercial transaction being bonded. The frequency of losses in surety generally has a lagging correlation with economic cycles as the primary cause of surety loss is the inability of an insured to fulfill its contractual obligations. The Company actively seeks to mitigate this exposure to loss through disciplined risk selection, adherence to underwriting standards and ongoing monitoring of contractor progress in significant construction projects. The volatility of surety losses is generally related to the type of business performed by the bonded party, the type of bonded obligation, the amount of limit exposed to loss and the amount of assets available to the surety company to mitigate , such as unbilled contract funds, collateral, first and third party indemnity, and other security positions of a bonded party’s assets. Certain classes of surety are very high , low frequency in nature. These can include large construction contractors involved with one or multiple large, complex projects as well as certain large commercial surety exposures. Other claim factors affecting reserve variability of surety include related to amounts owed by the bonded party and due to the surety company (e.g., salvage and subrogation efforts), the results of financial of a bonded party and the availability and cost of replacement contractors, labor and materials.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required fidelity and surety reserves (beyond those included in the general discussion section) include:
Fidelity risk factors
• Type of business of insured
• Policy limit and attachment points
• Third-party claims
• Coverage litigation
• Complexity of claims
• Growth in insureds’ operations
Surety risk factors
• Economic trends, including the general level of construction activity
• Concentration of reserves in a relatively few large claims
• Type of business bonded
• Type of obligation bonded
• Cumulative limits of liability for the bonded party
• Assets available to mitigate loss
• Defective workmanship/latent defects
• Financial strategy of the bonded party
• Changes in statutory obligations
• Geographic spread of business
Fidelity and Surety book of business risk factors
• Changes in policy provisions (e.g., deductibles, limits, endorsements)
• Changes in underwriting standards
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk factors could have on reserves for fidelity and surety, a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.8% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -30% to -10% (averaging -18%) for the Company, and from -21% to 0% (averaging -13%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Fidelity and surety reserves represent approximately 1% of the Company’s total claims and claim adjustment expense reserves.
In general, developments on single large claims (both adverse and favorable) are a primary source of changes in reserve estimates for this product line.
The Company’s change in reserve estimate for this product line was -23% for 2025, -14% for 2024 and -26% for 2023. The 2025 change primarily reflected better than expected loss experience in the fidelity and surety product line for accident year 2024. The 2024 change primarily reflected better than expected loss experience in the fidelity and surety product line for accident year 2022. The 2023 change primarily reflected better than expected loss experience in the fidelity and surety product line for accident years 2021 and 2022.
Personal Automobile
Personal automobile includes both short and long tail coverages. The payments that are made quickly typically pertain to auto physical damage (property) claims and property damage (liability) claims. The payments that take longer to finalize and are more difficult to estimate relate to bodily injury claims. Reporting lags are relatively short and the claim settlement process for personal automobile liability generally is the least complex of the liability products. It is generally viewed as a high frequency, low to moderate severity product line. Overall, the claim liabilities for this line create a moderate estimation risk.
Personal automobile reserves are typically analyzed in five components: bodily injury liability, property damage liability, no-fault losses, collision claims and comprehensive claims. These last two components have minimum reserve risk and fast payouts and, accordingly, separate factors are not presented.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required personal automobile reserves (beyond those included in the general reserve discussion section) include:
Bodily injury, property damage liability and no-fault risk factors
• Trends in jury awards
• Changes in the underlying court system and its philosophy
• Changes in case law
• Litigation trends
• Increases in attorney involvement in, or impact on, claims
• Frequency of claims with payment capped by policy limits
• Change in frequency trends, including the impact of changes in driving behavior and customer coverage elections
• Change in average severity of accidents, or proportion of severe accidents, including the impact of inflation, changes in driving behavior and the involvement of pedestrians
• Changes in auto technology, including safety features
• Subrogation opportunities
• Frequency of visits to health providers
• Number of medical procedures given during visits to health providers
• Types of health providers used
• Types of medical treatments received
• Changes in cost of medical treatments
• Effectiveness of no-fault laws
• Degree of patient responsiveness to treatment
• Changes in claim handling philosophies
Personal automobile book of business risk factors
• Changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.)
• Changes in underwriting standards
• Changes in the use of permissible data for rating and underwriting
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk factors could have on reserves for personal automobile, a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.1% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line over the last nine years has varied from -8% to 0% (averaging -3%) for the Company, and from -2% to 4% (averaging 0%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Personal automobile reserves represent approximately 7% of the Company’s total claims and claim adjustment expense reserves.
The Company’s change in reserve estimate for this product line was -8% for 2025, -5% for 2024 and 0% for 2023. The 2025 change primarily reflected better than expected loss experience for liability coverages for accident years 2023 and 2024 and for physical damage coverages for accident year 2024. The 2024 change primarily reflected better than expected loss experience for liability coverages for accident years 2020 through 2023 and for physical damage coverages for accident year 2023. In 2023, better than expected loss experience for physical damage coverages for accident years 2021 and 2022 was largely offset by higher than expected loss experience for liability coverages for years 2020 and 2021.
Personal Homeowners and Other
Homeowners is generally considered a short tail coverage. Most payments are related to the property portion of the policy, where the claim reporting and settlement process is generally restricted to the insured and the insurer. Claims on property coverage are typically reported soon after the actual damage occurs, although delays of several months are not unusual. The resulting settlement process is typically fairly short term, although exceptions do exist.
The liability portion of the homeowners policy generates claims which take longer to pay due to the involvement of litigation and negotiation, but with generally small reporting lags. Personal Insurance Other products include personal umbrella policies, among others. See “general liability reserving risk factors,” discussed above, for reserving risk factors related to umbrella coverages.
Overall, the line is generally high frequency, low to moderate severity (except for catastrophes), with simple to moderate claim complexity.
Homeowners reserves are typically analyzed in two components: non-catastrophe related losses and catastrophe losses.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required homeowners reserves (beyond those included in the general discussion section) include:
Homeowners and Other risk factors
• Weather/climate variability
• Inflation and materials costs and shortages
• For the more severe catastrophic events, “demand surge” inflation, which refers to significant short-term increases in building material and labor costs due to a sharp increase in demand for those materials and services
• Amount of time to return property to residential use
• Lags in reporting claims (e.g., winter damage to summer homes, hidden damage after an earthquake, hail damage to roofs and/or equipment on roofs)
• Availability and cost of local contractors
• Quality of construction of insured homes
• Local building codes
• Litigation trends
• Trends in jury awards
• Court interpretation of policy provisions (such as occurrence definition, or wind versus flooding)
• Court or legislative changes to the statute of limitations
• Salvage and subrogation opportunities
Homeowners and Other book of business risk factors
• Policy provisions mix (e.g., deductibles, policy limits, endorsements, etc.)
• Degree of concentration of policyholders
• Changes in underwriting standards
• Changes in the use of permissible data for rating and underwriting
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk factors could have on reserves for personal homeowners and other, a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.1% increase (decrease) in claims and claim adjustment expense reserves.
Historically, the one-year change in the reserve estimate for this product line (excluding Personal Insurance Other, which for statutory reporting purposes is included with other lines of business) over the last nine years has varied from -28% to 1% (averaging -8%) for the Company, and from -3% to 2% (averaging -1%) for the industry overall. The Company’s year-to-year changes are driven by, and are based on, observed events during the year. The Company believes that its range of historical outcomes is illustrative of reasonably possible one-year changes in reserve estimates for this product line. Personal homeowners and other reserves represent approximately 5% of the Company’s total claims and claim adjustment expense reserves.
This line combines both liability and property coverages; however, the majority of the reserves relate to property. While property is considered a short tail coverage, the one year change for property can be more volatile than that for the longer tail product lines. This is due to the fact that the majority of the reserve for property relates to the most recent accident year, which is subject to the most uncertainty for all product lines. This recent accident year uncertainty is relevant to property because weather-related events in the second half of the year may not be completely resolved until the following year. Reserve estimates associated with catastrophes, including wildfires in recent years, may take even longer to resolve.
The Company’s change in reserve estimate for this product line (excluding Personal Insurance Other) was -8% for 2025, -12% for 2024 and -9% for 2023. The 2025 change primarily reflected better than expected loss experience for catastrophe and non-catastrophe losses for accident year 2024. The 2024 change primarily reflected better than expected loss experience for catastrophe and non-catastrophe losses for accident years 2017 through 2023. The 2023 change primarily reflected better than expected loss experience for catastrophe and non-catastrophe losses for years 2017 through 2022.
International and Other
International and other includes products written by the Company’s international operations, as well as all other products not explicitly discussed above. The principal component of “other” claim reserves is assumed reinsurance written on an excess-of-loss basis, which may include reinsurance of non-U.S. exposures, and is runoff business.
International and other claim liabilities result from a mix of coverages, currencies and jurisdictions/countries. The common characteristic is the need to customize the analysis to the individual component, and the inability to rely on data characterizations and reporting requirements in the U.S. statutory reporting framework.
Due to changes in the business mix for this product line over time, incurred claim liabilities for more recent years are generally shorter-tailed (due to both the products and the jurisdictions involved, e.g., the Republic of Ireland, the United Kingdom and Canada), compared to the older liabilities from runoff operations that are extremely long tail (e.g., U.S. excess liabilities reinsured through the London market, and several underwriting pools in runoff). The speed of claim reporting and claim settlement is a function of the specific coverage provided, the jurisdiction, the distribution system (e.g., underwriting pool versus direct) and the proximity of the insurance sale to the insured hazard (e.g., insured and insurer located in different countries). In particular, liabilities arising from the underwriting pools in runoff may result in significant reporting lags, settlement lags and claim complexity, due to the need to coordinate with other pool members or co-insurers through a broker or lead-insurer for claim settlement purposes.
International reserves are generally analyzed by country and general coverage category (e.g., Commercial Property in the United Kingdom, General Liability in Canada, etc.). The business is also generally split by direct versus assumed reinsurance for a given coverage. Where the underlying insured hazard is outside the United States, the underlying coverages are generally similar to those described under the Homeowners, Personal Automobile, Commercial Automobile, General Liability, Commercial Property and Surety discussions above, taking into account differences in the legal environment and differences in terms and conditions. However, statutory coverage differences exist amongst various jurisdictions. For example, in some jurisdictions there are no aggregate policy limits on certain liability coverages.
Other reserves, primarily assumed reinsurance in runoff, are generally analyzed by program/pool, treaty type, and general coverage category (e.g., General Liability — excess of loss reinsurance). Excess exposure requires the insured to “prove” not only claims under the policy, but also the prior payment of claims reaching up to the excess policy’s attachment point.
Examples of common risk factors, or perceptions thereof, that could change and, thus, affect the required International and other reserves (beyond those included in the general discussion section, and in the Personal Automobile, Homeowners, General Liability, Commercial Property, Commercial Automobile and Surety discussions above) include:
International and other risk factors
• Changes in claim handling procedures, including those of the primary carriers
• Changes in policy provisions or court interpretation of such provision
• Economic trends
• New theories of liability
• Trends in jury awards
• Changes in the propensity to sue
• Changes in statutes of limitations
• Changes in the underlying court system
• Distortions from losses resulting from large single accounts or single issues
• Changes in tort law
• Changes in claim adjuster office structure (causing distortions in the data)
• Changes in foreign currency exchange rates
International and other book of business risk factors
• Changes in policy provisions (e.g., deductibles, policy limits, endorsements, “claims-made” language)
• Changes in underwriting standards
• Product mix (e.g., size of account, industries insured, jurisdiction mix)
Unanticipated changes in risk factors can affect reserves. As an indicator of the causal effect that a change in one or more risk factors could have on reserves for International and other (excluding asbestos), a 1% increase (decrease) in incremental paid loss development for each future calendar year could result in a 1.4% increase (decrease) in claims and claim adjustment expense reserves. International and other reserves (excluding asbestos) represent approximately 9% of the Company’s total claims and claim adjustment expense reserves.
International and other represents a combination of different product lines, some of which are in runoff. Comparative historical information is not available for international product lines as insurers domiciled outside of the United States do not file U.S. statutory reports. Comparative historical information on runoff business is not indicative of reasonably possible one-year changes in the reserve estimate for this mix of runoff business. Accordingly, the Company has not included comparative analyses for International and other.
Reinsurance Recoverables
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim liability. The Company evaluates and monitors the financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its exposure to significant losses from reinsurer insolvencies. In addition, in the ordinary course of business, the Company becomes involved in coverage disputes with its reinsurers. Some of these disputes could result in lawsuits and arbitrations brought by or against the reinsurers to determine the Company’s rights and obligations under the various reinsurance agreements. The Company employs dedicated specialists and comprehensive strategies to manage reinsurance collections and disputes.
The Company has entered into a reinsurance contract in connection with catastrophe bonds issued by Long Point Re IV. This contract meets the requirements to be accounted for as reinsurance in accordance with guidance for accounting for reinsurance contracts. The catastrophe bonds are described in more detail in “Item 1—Business—Catastrophe Reinsurance.”
Recoverables attributable to structured settlements relate primarily to personal injury claims, of which workers’ compensation claims comprise a significant portion, for which the Company has purchased annuities and remains contingently liable in the event of a default by the companies issuing the annuities. Recoverables attributable to mandatory pools and associations relate primarily to workers’ compensation service business. These recoverables are supported by the participating insurance companies’ obligation to pay a pro rata share based on each company’s voluntary market share of written premium in each state in which it is a pool participant. In the event a member of a mandatory pool or association defaults on its share of the pool’s or association’s obligations, the other members’ share of such obligation increases proportionally.
The Company reports its reinsurance recoverables net of an allowance for estimated uncollectible reinsurance. The allowance is based upon the Company’s ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, disputes, applicable coverage defenses and other relevant factors. For structured settlements, the allowance is also based upon the Company’s ongoing review of life insurers’ creditworthiness and estimated amounts of coverage that would be available from state guaranty funds if a life insurer defaults. A probability-of-default methodology which reflects current and forecasted economic conditions is used to estimate the amount of uncollectible reinsurance due to credit-related factors and the estimate is reported in an allowance for estimated uncollectible reinsurance. The allowance also includes estimated uncollectible amounts related to dispute risk with reinsurers. Amounts deemed to be uncollectible, including amounts due from known insolvent reinsurers, are written off the allowance. Changes in the allowance, as well as any subsequent collections of amounts previously written off, are reported as part of and claim adjustment expenses. The Company
evaluates and monitors the financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its exposure to significant losses from reinsurer insolvencies.
Impairments
Investment Impairments
See note 1 of the notes to the consolidated financial statements for a discussion of investment impairments.
Due to the subjective nature of the Company’s analysis and estimates of future cash flows, along with the judgment that must be applied in the analysis, it is possible that the Company could reach a different conclusion whether or not to impair a security if it had access to additional information about the issuer. Additionally, it is possible that the issuer’s actual ability to meet contractual obligations may be different than what the Company determined during its analysis, which may lead to a different impairment conclusion in future periods.
Goodwill and Other Intangible Assets Impairments
The Company performs a review, on at least an annual basis, of goodwill held by the reporting units which are the Company’s three operating and reportable segments: Business Insurance; Bond & Specialty Insurance; and Personal Insurance. The Company uses a discounted cash flow model to estimate the fair value of its reporting units that incorporates multiple inputs into discounted cash flow calculations, including assumptions that market participants may make in valuing the reporting unit. The discounted cash flow model is an income approach to valuation that is based on a detailed cash flow analysis for deriving a current fair value of reporting units and is representative of the Company’s reporting units’ current and expected future financial performance. The assumptions used include earnings projections, including projected growth, projected levels of economic capital needed to support the business, and the weighted average cost of capital used for purposes of discounting the projected cash flows. Changes in the estimates of projected earnings, business growth, economic capital, and the weighted average cost of capital will directly impact the estimated fair value of the reporting units and, depending on the directional change of inputs, may increase the risk of impairment of goodwill. Once the Company estimates the fair value of its reporting units, those estimates are compared to their carrying values. If the carrying values of the reporting units were to exceed their fair value, the amount of the impairment would be calculated, and goodwill adjusted accordingly.
Other indefinite-lived intangible assets held by the Company are also reviewed for impairment on at least an annual basis. The Company uses various methods for estimating the fair value of the intangible assets and relies on inputs such as replacement cost, projected earnings, including projected growth of earnings, and market royalty rates applied to the projected earnings.
See note 1 of the notes to the consolidated financial statements for a discussion of impairments of goodwill and other intangible assets.
OTHER UNCERTAINTIES
For a discussion of other risks and uncertainties that could impact the Company’s results of operations or financial position, see note 17 of the notes to the consolidated financial statements and “Item 1A—Risk Factors.”
FORWARD-LOOKING STATEMENTS
This report contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as “may,” “will,” “should,” “likely,” “probably,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “views,” “ensures,” “estimates” and similar expressions are used to identify these forward-looking statements. These statements include, among other things, the Company’s statements about:
• the Company’s outlook, the impact of trends on its business and its future results of operations and financial condition (including, among other things, anticipated premium volume, premium rates, renewal premium changes, underwriting margins and underlying underwriting margins, net and core income, investment income and performance, loss costs, return on equity, core return on equity and expected current returns, and combined ratios and underlying combined ratios);
• the impact of legislative or regulatory actions or court decisions;
• share repurchase plans;
• future pension plan contributions;
• the sufficiency of the Company’s reserves, including asbestos;
• the impact of emerging claims issues as well as other insurance and non-insurance litigation;
• the cost and availability of reinsurance coverage;
• catastrophe losses and modeling, including statements about probabilities or likelihood of exceedance;
• the impact of investment (including changes in interest rates), economic (including inflation, the impact of tariffs, changes in tax laws, changes in commodity prices and fluctuations in foreign currency exchange rates) and underwriting market conditions;
• the Company’s approach to managing its investment portfolio;
• the impact of changing climate conditions;
• strategic and operational initiatives to improve growth, profitability and competitiveness;
• the Company’s competitive advantages and innovation agenda, including executing on that agenda with respect to artificial intelligence;
• the Company’s cybersecurity policies and practices;
• new product offerings;
• the impact of developments in the tort environment, such as increased attorney involvement in insurance claims; and
• the impact of developments in the geopolitical environment.
The Company cautions investors that such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond the Company’s control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.
For a discussion of some of the factors that could cause actual results to differ, see “Item 1A—Risk Factors” and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made, and the Company undertakes no obligation to update its forward-looking statements.
