ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates worldwide in two segments of the property and casualty business: Insurance and Reinsurance & Monoline Excess. Our decentralized structure provides us with the flexibility to respond quickly and efficiently to local or specific market conditions and to pursue specialty business niches. It also allows us to be closer to our customers in order to better understand their individual needs and risk characteristics. While providing our businesses with certain operating autonomy, our structure allows us to capitalize on the benefits of economies of scale through centralized capital, investment, reinsurance, enterprise risk management, and actuarial, financial and corporate compliance support. The Company’s primary sources of revenues and earnings are its insurance operations and its investments.
An important part of our strategy is to form new businesses to capitalize on various opportunities. Over the years, the Company has formed numerous businesses that are focused on important parts of the economy in the U.S., including healthcare, cyber security, energy and agriculture, and on growing international markets, including the Asia-Pacific region, South America and Mexico.
The profitability of the Company’s insurance business is affected primarily by the adequacy of premium rates. The ultimate adequacy of premium rates is not known with certainty at the time an insurance policy is issued because premiums are determined before claims are reported. The ultimate adequacy of premium rates is affected mainly by the severity and frequency of claims, which are influenced by many factors, including natural and other disasters, regulatory measures and court decisions that define and change the extent of coverage and the effects of economic or social inflation on the amount of compensation for injuries or losses. General insurance prices are also influenced by available insurance capacity, i.e., the level of capital employed in the industry, and the industry’s willingness to deploy that capital.
The Company’s profitability is also affected by its investment income and investment gains. The Company’s invested assets are invested principally in fixed maturity securities. The return on fixed maturity securities is affected primarily by general interest rates, as well as the credit quality and duration of the securities.
The Company also invests in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets. The Company's investments in investment funds and its other alternative investments have experienced, and the Company expects to continue to experience, greater fluctuations in investment income. The Company's share of the earnings or losses from investment funds is generally reported on a one-quarter lag in order to facilitate the timely completion of the Company's consolidated financial statements.
Critical Accounting Estimates
The following presents a discussion of accounting policies and estimates relating to reserves for losses and loss expenses, assumed reinsurance premiums, allowance for expected credit losses and fair value measurements on investments. Management believes these policies and estimates are the most critical to its operations and require the most difficult, subjective and complex judgments.
Reserves for Losses and Loss Expenses . To recognize liabilities for unpaid losses, either known or unknown, insurers establish reserves, which is a balance sheet account representing estimates of future amounts needed to pay claims and related expenses with respect to insured events which have occurred. Estimates and assumptions relating to reserves for losses and loss expenses are based on complex and subjective judgments, often including the interplay of specific uncertainties with related accounting and actuarial measurements. Such estimates are also susceptible to change as significant periods of time may elapse between the occurrence of an insured loss, the report of the loss to the insurer, the ultimate determination of the cost of the loss and the insurer’s payment of that loss.
In general, when a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment based upon known information about the claim at that time. The estimate represents an informed judgment based on general reserving practices and reflects the experience and knowledge of the claims personnel regarding the nature and value of the specific type of claim. Reserves are also established on an aggregate basis to provide for losses incurred but not reported (“IBNR”) to the insurer, potential inadequacy of case reserves and the estimated expenses of settling claims, including legal and other fees and general expenses of administrating the claims adjustment process. Reserves are established based upon the then current legal interpretation of coverage provided.
In examining reserve adequacy, several factors are considered in estimating the ultimate economic value of losses. These factors include, among other things, historical data, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. The actuarial process relies on the basic assumption that past experience, adjusted judgmentally for the effects of current developments and anticipated trends, is an appropriate basis for predicting future outcomes. Reserve amounts are based on management’s informed estimates and judgments using currently available data. As additional experience and other data become available and are reviewed, these estimates and judgments may be revised. This may result in reserve increases or decreases that would be reflected in our results in periods in which such estimates and assumptions are changed.
Reserves do not represent a certain calculation of liability. Rather, reserves represent an estimate of what management expects the ultimate settlement and claim administration will cost. While the methods for establishing reserves are well tested over time, the major assumptions about anticipated loss emergence patterns are subject to uncertainty. These estimates, which generally involve actuarial projections, are based on management’s assessment of facts and circumstances then known, as well as estimates of trends in claims severity and frequency, judicial theories of liability and other factors, including the actions of third parties which are beyond the Company’s control. These variables are affected by external and internal events, such as inflation and economic volatility, judicial and litigation trends, reinsurance coverage, legislative changes and claim handling and reserving practices, which make it more difficult to accurately predict claim costs. The inherent uncertainties of estimating reserves are greater for certain types of liabilities where long periods of time elapse before a definitive determination of liability is made. Because setting reserves is inherently uncertain, the Company cannot provide assurance that its current reserves will prove adequate in light of subsequent events.
Loss reserves included in the Company’s financial statements represent management’s best estimates based upon an actuarially derived point estimate and other considerations. The Company uses a variety of actuarial techniques and methods to derive an actuarial point estimate for each business. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. In circumstances where one actuarial method is considered more credible than the others, that method is used to set the point estimate. For example, the paid loss and incurred loss development methods rely on historical paid and incurred loss data. For new lines of business, where there is insufficient history of paid and incurred claims data, or in circumstances where there have been significant changes in claim practices, the paid and incurred loss development methods would be less credible than other actuarial methods. The actuarial point estimate may also be based on a judgmental weighting of estimates produced from each of the methods considered. Industry loss experience is used to supplement the Company’s own data in selecting “tail factors” and in areas where the Company’s own data is limited. The actuarial data is analyzed by line of business, coverage and accident or policy year, as appropriate, for each business.
The establishment of the actuarially derived loss reserve point estimate also includes consideration of qualitative factors that may affect the ultimate losses. These qualitative considerations include, among others, the impact of re-underwriting initiatives, changes in the mix of business, changes in distribution sources and changes in policy terms and conditions. Examples of changes in terms and conditions that can have a significant impact on reserve levels are the use of
aggregate policy limits, the expansion of coverage exclusions, whether or not defense costs are within policy limits, and changes in deductibles and attachment points.
The key assumptions used to arrive at the best estimate of loss reserves are the expected loss ratios, rate of loss cost inflation, and reported and paid loss emergence patterns. Expected loss ratios represent management’s expectation of losses at the time the business is priced and written, before any actual claims experience has emerged. This expectation is a significant determinant of the estimate of loss reserves for recently written business where there is little paid or incurred loss data to consider. Expected loss ratios are generally derived from historical loss ratios adjusted for the impact of rate changes, loss cost trends and known changes in the type of risks underwritten. Expected loss ratios are estimated for each key line of business within each business. Expected loss cost inflation is particularly important for the long-tail lines, such as excess casualty, and claims with a high medical component, such as workers’ compensation. Reported and paid loss emergence patterns are used to project current reported or paid loss amounts to their ultimate settlement value. Loss development factors are based on the historical emergence patterns of paid and incurred losses, and are derived from the Company’s own experience and industry data. The paid loss emergence pattern is also significant to excess and assumed workers’ compensation reserves because those reserves are discounted to their estimated present value based upon such estimated payout patterns. Management believes the estimates and assumptions it makes in the reserving process provide the best estimate of the ultimate cost of settling claims and related expenses with respect to insured events which have occurred; however, different assumptions and variables could lead to significantly different reserve estimates.
Loss frequency and severity are measures of loss activity that are considered in determining the key assumptions described in our discussion of loss and loss expense reserves, including expected loss ratios, rate of loss cost inflation and reported and paid loss emergence patterns. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls and safety programs and changes in economic activity or weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations.
Another factor affecting estimates of loss frequency and severity is the loss reporting lag, which is the period of time between the occurrence of a loss and the date the loss is reported to the Company. The length of the loss reporting lag affects our ability to accurately predict loss frequency (loss frequencies are more predictable for lines with short reporting lags) as well as the amount of reserves needed for incurred but not reported losses (less IBNR is required for lines with short reporting lags). As a result, loss reserves for lines with short reporting lags are likely to have less variation from initial loss estimates. For lines with short reporting lags, which include auto, primary workers’ compensation, other liability (claims-made) and property business, the key assumption is the loss emergence pattern used to project ultimate loss estimates from known losses paid or reported to date. For lines of business with long reporting lags, which include other liability (occurrence), products liability, excess workers’ compensation and liability reinsurance, the key assumption is the expected loss ratio since there is often little paid or incurred loss data to consider. Historically, the Company has experienced less variation from its initial loss estimates for lines of businesses with short reporting lags than for lines of business with long reporting lags.
The key assumptions used in calculating the most recent estimate of the loss reserves are reviewed each quarter and adjusted, to the extent necessary, to reflect the latest reported loss data, current trends and other factors observed. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s estimate. The following table reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity, relative to our assumptions, on our loss estimate for claims occurring in 2025:
(In thousands)
Frequency (+/-)
Severity (+/-)
Our net reserves for losses and loss expenses of approximately $19.0 billion as of December 31, 2025 relate to multiple accident years. Therefore, the impact of changes in frequency or severity for more than one accident year could be higher or lower than the amounts reflected above. The impact of such changes would likely be manifested gradually over the course of many years, as the magnitude of the changes became evident.
Approximately $3.4 billion, or 18.0%, of the Company’s net loss reserves as of December 31, 2025 relate to the Reinsurance & Monoline Excess segment. There is a higher degree of uncertainty and greater variability regarding estimates of excess workers' compensation and assumed reinsurance loss reserves. In the case of excess workers’ compensation, our policies generally attach at $1 million or higher. The claims which reach our layer therefore tend to involve the most serious injuries and many remain open for the lifetime of the claimant, which extends the claim settlement tail. These claims also occur less frequently but tend to be larger than primary claims, which increases claim variability. In the case of assumed reinsurance our
loss reserve estimates are based, in part, upon information received from ceding companies. If information received from ceding companies is not timely or correct, the Company’s estimate of ultimate losses may not be accurate. Furthermore, due to delayed reporting of claim information by ceding companies, the claim settlement tail for assumed reinsurance is also extended. Management considers the impact of delayed reporting and the extended tail in its selection of loss development factors for these lines of business.
Information received from ceding companies is used to set initial expected loss ratios, to establish case reserves and to estimate reserves for incurred but not reported losses on assumed reinsurance business. This information, which is generally provided through reinsurance intermediaries, is gathered through the underwriting process and from periodic claim reports and other correspondence with ceding companies. The Company performs underwriting and claim audits of selected ceding companies to determine the accuracy and completeness of information provided to the Company. The information received from the ceding companies is supplemented by the Company’s own loss development experience with similar lines of business as well as industry loss trends and loss development benchmarks.
Following is a summary of the Company’s reserves for losses and loss expenses by business segment as of December 31, 2025 and 2024:
(In thousands)
Insurance
Reinsurance & Monoline Excess
Net reserves for losses and loss expenses
Ceded reserves for losses and loss expenses
Gross reserves for losses and loss expenses
Following is a summary of the Company’s net reserves for losses and loss expenses by major line of business as of December 31, 2025 and 2024:
(In thousands)
Reported Case
Reserves
Incurred But
Not Reported
Total
December 31, 2025
Other liability
Professional liability
Workers’ compensation (1)
Auto
Short-tail lines (2)
Total Insurance
Reinsurance & Monoline Excess (1) (3)
Total
December 31, 2024
Other liability
Professional liability
Workers’ compensation (1)
Auto
Short-tail lines (2)
Total Insurance
Reinsurance & Monoline Excess (1) (3)
Total
(1) Reserves for excess and assumed workers’ compensation business are net of an aggregate net discount of $420 million and $405 million as of December 31, 2025 and 2024, respectively.
(2) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery, high net worth homeowners and other lines.
(3) Reinsurance & Monoline Excess includes property and casualty reinsurance as well as certain program management business and operations that solely retain risk on an excess basis.
The Company evaluates reserves for losses and loss expenses on a quarterly basis. Changes in estimates of prior year losses are reported when such changes are made. The changes in prior year loss reserve estimates are generally the result of ongoing analysis of recent loss development trends. Original estimates are increased or decreased as additional information becomes known regarding individual claims and aggregate claim trends.
Certain of the Company's insurance and reinsurance contracts are retrospectively rated, whereby the Company collects more or less premiums based on the level of loss activity. For those contracts, changes in loss and loss expenses for prior years may be fully or partially offset by additional or return premiums.
Net prior year development (i.e., the sum of prior year reserve changes and prior year earned premiums changes) for each of the last three years ended December 31, are as follows:
(In thousands)
Increase in prior year loss reserves
Increase in prior year earned premiums
Net favorable (unfavorable) prior year development
Favorable prior year development (net of additional and return premiums) was $3 million in 2025.
Insurance – Reserves for the Insurance segment developed unfavorably by $44 million in 2025 (net of additional and return premiums). The adverse development was driven by the other liability and auto liability lines of business, and was partially offset by favorable development for short tail lines of business, auto physical damage, professional liability and workers’ compensation.
The adverse other liability development was driven mainly by umbrella and excess liability claims, and to a lesser degree from the Company’s primary surplus lines casualty business. The umbrella and excess liability development included a significant component stemming from underlying auto exposures. The other liability development was concentrated in accident years 2017 through 2022. The adverse auto liability development was concentrated in accident years 2021 through 2023. The Company believes that auto-related claims are being particularly impacted by social inflation, which is contributing to an increase in the frequency of large losses beyond expectations. An increase in the frequency of litigated claims is also driving up both indemnity and loss adjustment expense in these lines of business beyond expectations. Social inflation can include higher settlement demands from plaintiffs, use of tactics such as litigation funding by the plaintiffs’ bar, negative public sentiment towards large businesses and corporations, and erosion of tort reforms, among others.
The favorable development for both short tail lines of business and auto physical damage related to the 2024 accident year, and resulted from favorable settlements of both catastrophe and non-catastrophe property claims below our expectations. The favorable professional liability development related mainly to accident years 2022 and 2023, and was driven by lower reported claim frequency and incurred losses than expected. The favorable workers’ compensation development was mainly related to accident years 2023 and 2024, and resulted from a continuation of favorable reported claim frequency below expectations, although the magnitude of the favorable development in this line has moderated from levels seen in previous years.
Reinsurance & Monoline Excess – Reserves for the Reinsurance & Monoline Excess segment developed favorably by $47 million in 2025 (net of additional and return premiums). The favorable development was driven mainly by property and workers’ compensation business, and was partially offset by adverse development in casualty reinsurance assumed. Similar to the Insurance segment, the favorable property development related primarily to the 2024 accident year and resulted from favorable claims settlements below our expectations. The favorable workers’ compensation development was driven by continued lower claim frequency and reported losses relative to expectations, and was spread across many prior accident years, mainly 2017 through 2024. The unfavorable development for casualty reinsurance was concentrated mainly in accident years 2019 through 2023 and was associated primarily with non-proportional assumed reinsurance.
Favorable prior year development (net of additional and return premiums) was $4 million in 2024.
Insurance – Reserves for the Insurance segment developed unfavorably by $8 million in 2024 (net of additional and return premiums). The adverse development was driven by the commercial auto liability and other liability occurrence lines of business, and was largely offset by favorable development for workers’ compensation, professional liability, products liability, and commercial property lines of business.
The adverse commercial auto liability development was concentrated in accident years 2021 through 2023, while the adverse other liability occurrence development was focused across accident years 2015 through 2022. The majority of the other liability occurrence development was driven by umbrella and excess liability claims, of which a significant portion related to underlying commercial auto exposures. The Company believes that commercial auto-related claims are being particularly
impacted by social inflation, which is contributing to an increase in the frequency of large losses beyond expectations. Social inflation can include higher settlement demands from plaintiffs, use of aggressive actions by the plaintiffs’ bar such as litigation funding, negative public sentiment towards large businesses and corporations, and erosion of tort reforms, among other factors.
The favorable workers’ compensation development for the Insurance segment was mainly related to accident years 2016 through 2023, with accident years 2020 through 2023 contributing the most. For workers’ compensation, favorable reported claim frequency, below expectations, continued to be the main driver of the favorable reserve development. The favorable development for both the professional liability and products liability lines of business was related mainly to accident years 2020 through 2023. For both of these lines, reported claim frequency and incurred losses for accident years 2020 through 2023 were better than expected, which drove the favorable reserve development. Business written in these years also benefitted from significant price increases, which the Company now believes will result in higher profitability than initially anticipated. The favorable development for commercial property was mainly associated with the 2023 accident year, and resulted from better than expected settlements for both catastrophe related and non-catastrophe claims.
Reinsurance & Monoline Excess – Reserves for the Reinsurance & Monoline Excess segment developed favorably by $12 million in 2024 (net of additional and return premiums). The favorable development was driven mainly by excess workers’ compensation business, partially offset by adverse development in the non-proportional reinsurance assumed liability line of business. The favorable excess workers’ compensation development was driven by continued lower claim frequency and reported losses relative to expectations, and favorable claim settlements spread across many prior accident years. The unfavorable development for non-proportional reinsurance was concentrated mainly in accident years 2015 through 2019 and was associated primarily with our U.S. and U.K. excess general liability reinsurance businesses, including coverage for cedants insuring construction projects.
Unfavorable prior year development (net of additional and return premiums) was $19 million in 2023.
Insurance –Reserves for the Insurance segment developed unfavorably by $21 million in 2023 (net of additional and return premiums). The unfavorable development for the segment was concentrated in the early part of the year. A key driver of the unfavorable development early in 2023 was property catastrophe losses related to 2022 events which were still being adjusted and settled during the early part of 2023. In particular, losses related to U.S. winter storms which occurred during the month of December 2022 were a significant contributor to the development, as information gathering and evaluation
of many of these claims were still ongoing into the new year.
In addition to the property prior year development discussed above, during 2023 the Insurance segment also experienced adverse prior year development on casualty lines of business for the 2016 through 2019 accident years, which was offset by favorable prior year development on casualty lines of business for the 2020 through 2022 accident years. The unfavorable development on the 2016 through 2019 accident years was concentrated in the general liability and commercial auto liability lines of business. The development, which particularly impacted business attaching excess of primary policy limits, was driven by a larger than expected number of large losses reported. The Company believes social inflation is contributing to an increase in the frequency of large losses for these accident years. Social inflation can include higher settlement demands from plaintiffs, use of tactics such as litigation funding by the plaintiffs’ bar, negative public sentiment towards large businesses and corporations, and erosion of tort reforms, among others.
The favorable prior year development on casualty lines for the 2020 through 2022 accident years in the Insurance segment was concentrated in the professional liability, workers’ compensation, and general liability lines of business. Due to elevated uncertainty regarding incurred loss frequency and severity as a result of ongoing social inflation and the impacts of the COVID-19 pandemic, the Company set its initial loss ratios for the 2020 through 2022 accident years prudently, and largely maintained these estimates through the end of each respective accident year. The reported loss experience to date for these lines of business for the 2020 through 2022 accident years has been significantly better than was expected, and the Company has begun to react to this favorable emergence as the accident years mature beyond the age of twelve months. It should also be noted that commercial auto liability experienced adverse prior year development for the 2020 through 2022 accident years, which partially offset the favorable development discussed above; the adverse development was driven
by a larger than expected number of large losses reported.
Reinsurance & Monoline Excess – Reserves for the Reinsurance & Monoline Excess segment developed favorably by $2 million in 2023 (net of additional and return premiums). The overall favorable prior year development for the segment was driven mainly by favorable development in excess workers’ compensation, substantially offset by unfavorable development in the non-proportional reinsurance assumed liability, excess general liability (including umbrella), and commercial auto liability lines of business. The favorable excess workers’ compensation development was driven by continued lower
claim frequency and reported losses relative to our expectations, and favorable claim settlements. The favorable development was spread across many prior accident years. The unfavorable development for non-proportional reinsurance assumed liability and excess general liability was associated primarily with our U.S. assumed reinsurance business, and related to accounts
reinsuring excess and umbrella business and construction projects. The adverse development was concentrated mainly in accident years 2017 through 2020. The unfavorable development for commercial auto liability was concentrated in the 2022 accident year and related to commercial auto program business.
Reserve Discount . The Company discounts its liabilities for certain workers’ compensation reserves. The amount of workers’ compensation reserves that were discounted was $1,400 million and $1,358 million at December 31, 2025 and 2024, respectively. The aggregate net discount for those reserves, after reflecting the effects of ceded reinsurance, was $420 million and $405 million at December 31, 2025 and 2024, respectively. At December 31, 2025, discount rates by year ranged from 0.7% to 6.5%, with a weighted average discount rate of 3.6%.
Substantially all discounted workers’ compensation reserves (97% of total discounted reserves at December 31, 2025) are excess workers’ compensation reserves. In order to properly match loss expenses with income earned on investment securities supporting the liabilities, reserves for excess workers’ compensation business are discounted using risk-free discount rates determined by reference to the U.S. Treasury yield curve. These rates are determined annually based on the weighted average rate for the period. Once established, no adjustments are made to the discount rate for that period, and any increases or decreases in loss reserves in subsequent years are discounted at the same rate, without regard to when any such adjustments are recognized. The expected loss and loss expense payout patterns subject to discounting are derived from the Company’s loss payout experience.
The Company also discounts reserves for certain other long-duration workers’ compensation reserves (representing approximately 3% of total discounted reserves at December 31, 2025), including reserves for quota share reinsurance and reserves related to losses regarding occupational lung disease. These reserves are discounted at statutory rates prescribed or permitted by the Department of Insurance of the State of Delaware.
Assumed Reinsurance Premiums . The Company estimates the amount of assumed reinsurance premiums that it will receive under treaty reinsurance agreements at the inception of the contracts. These premium estimates are revised as the actual amount of assumed premiums is reported to the Company by the ceding companies. As estimates of assumed premiums are made or revised, the related amount of earned premiums, commissions and incurred losses associated with those premiums are recorded. Estimated assumed premiums receivable were approximately $54 million and $51 million at December 31, 2025 and 2024, respectively. The assumed premium estimates are based upon terms set forth in reinsurance agreements, information received from ceding companies during the underwriting and negotiation of agreements, reports received from ceding companies and discussions and correspondence with reinsurance intermediaries. The Company also considers its own view of market conditions, economic trends and experience with similar lines of business. These premium estimates represent management’s best estimate of the ultimate amount of premiums to be received under its assumed reinsurance agreements.
Allowance for Expected Credit Losses on Investments .
Fixed Maturity Securities – For fixed maturity securities in an unrealized loss position where the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery in value, the amortized cost basis is written down to fair value through net investment gains (losses). For fixed maturity securities in an unrealized loss position where the Company does not intend to sell, or it is more likely than not that it will not be required to sell the security before recovery in value, the Company evaluates whether the decline in fair value has resulted from credit losses or all other factors (non-credit factors). In making this assessment, the Company considers the extent to which fair value is less than amortized cost, changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for expected credit losses is recorded for the credit loss through net investment gains (losses), limited by the amount that the fair value is less than the amortized cost basis. The allowance is adjusted for any change in expected credit losses and subsequent recoveries through net investment gains (losses). The impairment related to non-credit factors is recognized in other comprehensive income (loss).
The Company’s credit assessment of allowance for expected credit losses uses a third party model for available for sale and held to maturity securities, as well as loans receivable. The allowance for expected credit losses is generally based on the performance of the underlying collateral under various economic and default scenarios that involve subjective judgments and estimates by management. Modeling these securities involves various factors, such as projected default rates, the nature and realizable value of the collateral, if any, the ability of the issuer to make scheduled payments, historical performance and other relevant economic and performance factors. A discounted cash flow analysis is used to ascertain the amount of the allowance for expected credit losses, if any. In general, the model reverts to the rating-level long-term average marginal default rates based on 10 years of historical data, beyond the forecast period. For other inputs, the model in most cases reverts to the baseline long-term assumptions linearly over 5 years beyond the forecast period. The long-term assumptions are based on the historical averages.
The Company classifies its fixed maturity securities by credit rating, primarily based on ratings assigned by credit rating agencies. For purposes of classifying securities with different ratings, the Company uses the average of the credit ratings assigned, unless in limited situations the Company’s own analysis indicates an internal rating is more appropriate. Securities that are not rated by a rating agency are evaluated and classified by the Company on a case-by-case basis.
A summary of the Company’s non-investment grade fixed maturity securities that were in an unrealized loss position at December 31, 2025 is presented in the table below.
($ in thousands)
Number of
Securities
Aggregate
Fair Value
Unrealized
Loss
Foreign government
Corporate
State and municipal
Mortgage-backed securities
Total
As of December 31, 2025, the Company recorded an allowance for expected credit losses on fixed maturity securities of $0.1 million. The Company has evaluated the remaining fixed maturity securities in an unrealized loss position and believes the unrealized losses are due primarily to temporary market and sector-related factors rather than to issuer-specific factors. None of these securities are delinquent or in default under financial covenants. Based on its assessment of these issuers, the Company expects them to continue to meet their contractual payment obligations as they become due.
Loans Receivable – For loans receivable, the Company estimates an allowance for expected credit losses based on relevant information about past events, including historical loss experience, current conditions and forecasts that affect the expected collectability of the amortized cost of the financial asset. The allowance for expected credit losses is presented as a reduction to amortized cost of the financial asset in the consolidated balance sheet and changes to the estimate for expected credit losses are recognized through net investment gains (losses). Loans receivable are reported net of an allowance for expected credit losses of $0.2 million and $1 million as of December 31, 2025 and 2024, respectively.
Fair Value Measurements . The Company’s fixed maturity available for sale securities, equity securities, and its trading account securities are carried at fair value. Fair value is defined as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date". The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for similar assets in active markets. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs may only be used to measure fair value to the extent that observable inputs are not available. The fair value of the vast majority of the Company’s portfolio is based on observable data (other than quoted prices) and, accordingly, is classified as Level 2.
In classifying particular financial securities in the fair value hierarchy, the Company uses its judgment to determine whether the market for a security is active and whether significant pricing inputs are observable. The Company determines the existence of an active market by assessing whether transactions occur with sufficient frequency and volume to provide reliable pricing information. The Company determines whether inputs are observable based on the use of such information by pricing services and external investment managers, the uninterrupted availability of such inputs, the need to make significant adjustments to such inputs and the volatility of such inputs over time. If the market for a security is determined to be inactive or if significant inputs used to price a security are determined to be unobservable, the security is categorized in Level 3 of the fair value hierarchy.
Because many fixed maturity securities do not trade on a daily basis, the Company utilizes pricing models and processes which may include benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Market inputs used to evaluate securities include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. Quoted prices are often unavailable for recently issued securities that are infrequently traded or securities that are only traded in private transactions. For publicly traded securities for which quoted prices are unavailable, the Company determines fair value based on independent broker quotations and other observable market data. For securities traded only in private negotiations, the Company determines fair value based primarily on the cost of such securities, which is adjusted to reflect prices of recent placements of securities of the same issuer, financial data, projections and business developments of the issuer and other relevant information.
The following is a summary of pricing sources for the Company's fixed maturity securities available for sale as of December 31, 2025:
(In thousands)
Carrying
Value
Percent
of Total
Pricing source:
Independent pricing services
Syndicate manager
Directly by the Company based on:
Observable data
Cash flow model
Total
Independent pricing services - Substantially all of the Company’s fixed maturity securities available for sale were priced by independent pricing services (generally one U.S. pricing service plus additional pricing services with respect to a limited number of foreign securities held by the Company). The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities). The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness based upon current trading levels for similar securities. If the prices appear unusual to the Company, they are re-examined and the value is either confirmed or revised. In addition, the Company periodically performs independent price tests of a sample of securities to ensure proper valuation and to verify our understanding of how securities are priced. As of December 31, 2025, the Company did not make any adjustments to the prices provided by the pricing services. Based upon the Company’s review of the methodologies used by the independent pricing services, these securities were classified as Level 2.
Syndicate manager – The Company has a 15% participation in a Lloyd’s syndicate, and the Company’s share of the securities owned by the syndicate is priced by the syndicate’s manager. The majority of the securities are liquid, short duration fixed maturity securities. The Company reviews the syndicate manager’s pricing methodology and audited financial statements and holds discussions with the syndicate manager as necessary to confirm its understanding and agreement with security prices. Based upon the Company’s review of the methodologies used by the syndicate manager, these securities were classified as Level 2.
Observable data – If independent pricing is not available, the Company prices the securities directly. Prices are based on observable market data where available, including current trading levels for similar securities and non-binding quotations from brokers. The Company generally requests two or more quotes. If more than one quote is received, the Company sets a price within the range of quotes received based on its assessment of the credibility of the quote and its own evaluation of the security. The Company generally does not adjust quotes obtained from brokers. Since these securities were priced based on observable data, they were classified as Level 2.
Cash flow model – If the above methodologies are not available, the Company prices securities using a discounted cash flow model based upon assumptions as to prevailing credit spreads, interest rates and interest rate volatility, time to maturity and subordination levels. Discount rates are adjusted to reflect illiquidity where appropriate. These securities were classified as Level 3.
Results of Operations for the Years Ended December 31, 2025 and 2024
Business Segment Results
Following is a summary of gross and net premiums written, net premiums earned, loss ratios (losses and loss expenses incurred expressed as a percentage of net premiums earned), expense ratios (policy acquisition and insurance operating expenses expressed as a percentage of net premiums earned) and GAAP combined ratios (sum of loss ratio and expense ratio) for each of our business segments for the years ended December 31, 2025 and 2024. The GAAP combined ratio represents a measure of underwriting profitability, excluding investment income. A GAAP combined ratio in excess of 100 indicates an underwriting loss; a number below 100 indicates an underwriting profit.
(In thousands)
Insurance
Gross premiums written
Net premiums written
Net premiums earned
Loss ratio
Expense ratio
GAAP combined ratio
Reinsurance & Monoline Excess
Gross premiums written
Net premiums written
Net premiums earned
Loss ratio
Expense ratio
GAAP combined ratio
Consolidated
Gross premiums written
Net premiums written
Net premiums earned
Loss ratio
Expense ratio
GAAP combined ratio
Net Income to Common Stockholders . The following table presents the Company’s net income to common stockholders and net income per diluted share for the years ended December 31, 2025 and 2024.
(In thousands, except per share data)
Net income to common stockholders
Weighted average diluted shares
Net income per diluted share
The Company reported net income of $1,779 million in 2025 and $1,756 million in 2024. The $23 million increase in net income reflected an after-tax increase in net investment income of $75 million primarily due to a larger fixed maturity securities portfolio and increased investment income from investment funds, an after-tax increase in underwriting income of $29 million mainly due to growth in premium rates, a reduction of $18 million in tax expense due to a change in the effective tax rate, an after-tax increase in net investment gains of $11 million, an after-tax increase in profits from non-insurance businesses of $8 million and an after-tax increase in profit from insurance service businesses of $5 million, partially offset by an after-tax increase in foreign currency losses of $94 million due to the U.S. dollar weakening against other major currencies in 2025, an after-tax increase in corporate expenses of $22 million and an after-tax decrease in income of $7 million related to minority interests. The number of weighted average diluted shares decreased 3.4 million for 2025 compared to 2024, mainly reflecting shares repurchased in 2025 and 2024.
Premiums . Gross premiums written were $15,105 million in 2025, an increase of 6% from $14,211 million in 2024. The increase was due to the growth in the Insurance segment of $803 million and in the Reinsurance & Monoline Excess segment of $91 million. Approximately 81% of premiums expiring in 2025 and 2024 were renewed.
Average renewal premium rates (per unit of exposure) for insurance and facultative reinsurance increased 6.7% in 2025 and 6.9% in 2024. Average renewal premium rates (per unit of exposure) for insurance and facultative reinsurance excluding workers' compensation increased 7.6% in 2025 and 7.9% in 2024.
A summary of gross premiums written in 2025 compared with 2024 by line of business within each business segment follows:
• Insurance gross premiums increased 6% to $13,465 million in 2025 from $12,662 million in 2024. Gross premiums increased $365 million (11%) for short-tail lines, $264 million (5%) for other liability, $110 million (7%) for auto, $44 million (3%) for workers' compensation and $20 million (1%) for professional liability.
• Reinsurance & Monoline Excess gross premiums increased 6% to $1,640 million in 2025 from $1,549 million in 2024. Gross premiums written increased $63 million (13%) for property lines and $28 million (9%) for monoline excess, partially offset by a reduction of $0.2 million (less than 1%) for casualty lines.
Net premiums written were $12,711 million in 2025, an increase of 6% from $11,972 million in 2024. Ceded reinsurance premiums as a percentage of gross written premiums was 16% in both 2025 and 2024.
Premiums earned increased 8% to $12,447 million in 2025 from $11,548 million in 2024. Insurance premiums (including the impact of rate changes) are generally earned evenly over the policy term, and accordingly recent rate increases will be earned over the upcoming quarters. Premiums earned in 2025 are related to business written during both 2025 and 2024. Audit premiums were $333 million in 2025 compared with $350 million in 2024.
Net Investment Income . Following is a summary of net investment income (loss) for the years ended December 31, 2025 and 2024:
Amount
Average Annualized
Yield
(In thousands)
Fixed maturity securities, including cash and cash equivalents and loans receivable
Arbitrage trading account
Equity securities
Investment funds
Real estate
Gross investment income
Investment expenses
Total
Net investment income increased 7% to $1,429 million in 2025 from $1,333 million in 2024 due primarily to a $47 million increase in income from fixed maturity securities mainly driven by a larger fixed maturity securities portfolio, a $39 million increase in income from investment funds primarily due to transportation funds and financial services funds, a $5 million increase in arbitrage trading account, a $5 million increase in real estate and a $1 million increase from equity securities, partially offset by a $1 million increase in investment expenses. Investment funds are reported on a one quarter lag. The average annualized yield for fixed maturity securities was 4.9% in 2025 and 5.3% in 2024. The average annualized yield for fixed maturity securities excluding Argentine inflation-linked securities was 4.7% in 2025
and 4.5% in 2024. The effective duration of the fixed maturity portfolio was 3.0 years at December 31, 2025 and 2.6 years at December 31, 2024. Average invested assets, at cost (including cash and cash equivalents), were $31.6 billion in 2025, up 9% from $28.9 billion in 2024.
Insurance Service Fees . The Company earns fees from an insurance distribution business, a third-party administrator, and as a servicing carrier of workers' compensation assigned risk plans for certain states. Insurance service fees increased to $119 million in 2025 from $109 million in 2024, mainly due to organic growth within the business.
Net Realized and Unrealized Gains on Investments . The Company buys and sells securities and other investment assets on a regular basis in order to maximize its total return on investments. Decisions to sell securities and other investment assets are based on management’s view of the underlying fundamentals of specific investments as well as management’s expectations regarding interest rates, credit spreads, currency values and general economic conditions. Net realized and unrealized gains on investments were $131 million in 2025 compared with $80 million in 2024. The gains of $131 million in 2025 reflected an increase in unrealized gains on equity securities of $97 million and net realized gains on investments of $34 million. The gains
of $80 million in 2024 reflected an increase in unrealized gains on equity securities of $121 million, partially offset by net realized losses on investments of $41 million.
Change in Allowance for Expected Credit Losses on Investments. Based on credit factors, the allowance for expected credit losses is increased or decreased depending on the percentage of unrealized loss relative to amortized cost by security, changes in rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. The pre-tax change in allowance for expected credit losses on investments reflected in net investment gains, decreased by $2 million ($1 million after-tax) in 2025 reflecting improved pricing related to fixed maturity securities and the redemption of one loan in the loan receivable portfolio, and $38 million ($30 million after-tax) in 2024 due to improved pricing associated with foreign government securities and corporate securities.
Revenues from Non-Insurance Businesses . Revenues from non-insurance businesses were derived from businesses engaged in the distribution of promotional merchandise, world-wide textile solutions, and aviation-related businesses that provide services to aviation markets, including (i) the distribution, manufacturing, repair and overhaul of aircraft parts and components, (ii) the sale of new and used aircraft, and (iii) avionics, fuel, maintenance, storage and charter services. Revenues from non-insurance businesses increased to $577 million in 2025 from $528 million in 2024 mainly due to the aviation-related business, partially offset by a reduction in promotional merchandise.
Losses and Loss Expenses . Losses and loss expenses increased to $7,772 million in 2025 from $7,132 million in 2024. The consolidated loss ratio was 62.4% in 2025 and 61.8% in 2024. Catastrophe losses, net of reinsurance recoveries, were $336 million in 2025, with the largest contributors being California wildfire losses and frequency of severe storms, and $298 million in 2024, driven by heightened frequency of severe catastrophe events, with Hurricanes Helene and Milton having the largest impacts. Favorable prior year reserve development (net of premium offsets) was $3 million in 2025 and $4 million in 2024 (refer to Note 13 of our consolidated financial statements for more detail). The loss ratio excluding catastrophe losses and prior year reserve development increased 0.6 points to 59.8% in 2025 from 59.2% in 2024.
A summary of loss ratios in 2025 compared with 2024 by business segment follows:
• Insurance - The loss ratio was 63.5% in 2025 and 62.8% in 2024. Catastrophe losses were $260 million in 2025 compared with $227 million in 2024. Adverse prior year reserve development was $44 million in 2025 and $8 million in 2024. The loss ratio excluding catastrophe losses and prior year reserve development increased 0.2 points to 60.7% in 2025 from 60.5% in 2024.
• Reinsurance & Monoline Excess - The loss ratio was 54.6% in 2025 and 54.7% in 2024. Catastrophe losses were $76 million in 2025 compared with $71 million in 2024. Favorable prior year reserve development was $47 million in 2025 and $12 million in 2024. The loss ratio excluding catastrophe losses and prior year reserve development increased 2.1 points to 52.7% in 2025 from 50.6% in 2024.
Other Operating Costs and Expenses . Following is a summary of other operating costs and expenses:
(In thousands)
Policy acquisition and insurance operating expenses
Insurance service expenses
Net foreign currency losses (gains)
Other costs and expenses
Total
Policy acquisition and insurance operating expenses are comprised of commissions paid to agents and brokers, premium taxes and other assessments and internal underwriting costs. Policy acquisition and insurance operating expenses increased 7% and net premiums earned increased 8% from 2024. The expense ratio (policy acquisition and insurance operating expenses expressed as a percentage of net premiums earned) decreased by 0.2 points to 28.3% in 2025 from 28.5% in 2024.
Service expenses, which represent the costs associated with the fee-based businesses, were $94 million in 2025 and $91 million in 2024.
Net foreign currency losses (gains) result from transactions denominated in a currency other than a businesses’ functional currency. Net foreign currency losses were $68 million in 2025 compared to gains of $52 million in 2024, primarily due to the U.S. dollar weakening against other major currencies in 2025.
Other costs and expenses represent general and administrative expenses of the parent company and other expenses not allocated to business segments, including the cost of certain long-term incentive plans and new business ventures. Other costs
and expenses increased to $298 million in 2025 from $269 million in 2024, primarily due to higher compensation-related costs and new start-up operating unit expenses in 2025.
Expenses from Non-Insurance Businesses . Expenses from non-insurance businesses represent costs associated with businesses engaged in the distribution of promotional merchandise, world-wide textile solutions, and aviation-related businesses that include (i) cost of goods sold related to aircraft and products sold and services provided and (ii) general and administrative expenses. Expenses from non-insurance businesses increased to $552 million in 2025 from $513 million in 2024 mainly due to the aviation-related business, partially offset by a reduction in promotional merchandise.
Interest Expense . Interest expense was $127 million in both 2025 and 2024.
Income Taxes. The effective income tax rate was 21.7% in 2025 and 22.5% in 2024. The lower effective income tax rate for the year, as compared to 2024, was primarily due to an improved geographical mix of earnings and larger benefits attributable to equity-based compensation. See Note 16 of the Consolidated Financial Statements for a reconciliation of the income tax expense and the amounts computed by applying the Federal income tax rate of 21%.
The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $585 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. In the future, if such earnings were distributed, the Company projects that the incremental tax, if any, will be immaterial.
For years beginning after December 31, 2025, certain U.S. tax rates applied to international business will change. Specifically, increases to the Global Intangible Low Taxed Income and the Base Erosion and Anti-Abuse Tax rates will take effect but we do not expect this to have a meaningful impact on tax expenses. We are monitoring legislative developments and will continue to assess the potential financial implications.
Pursuant to the Inflation Reduction Act of 2022, a corporate alternative minimum tax on certain corporations was introduced. The tax is applicable for taxable years beginning after December 31, 2022 and imposes a 15% minimum tax on a corporation’s applicable financial statement income. While we were not subject to this tax in 2025, we continue to evaluate the overall impact of this tax legislation on our operations and U.S. federal income tax position. In addition, a 1% excise tax is now imposed on the value of corporate share repurchases, net of common share issuances. The tax is included in the cost of treasury stock acquired and was not material for 2025.
Further, the Company is monitoring the impact of the implementation of a global minimum tax rate of 15%, also known as Pillar Two, as introduced by the Organization for Economic Co-operation and Development (the "OECD"), which applied in some countries commencing in 2024. The 2025 impact on the Company was not material, as the Company mainly operates in jurisdictions with a statutory tax rate above 15%. We will continue to evaluate this tax legislation given the recent release of administrative guidance applicable to U.S. multinationals issued by the OECD.
The Bermuda Corporate Income Tax Act 2023 introduced an income tax based on a statutory tax rate of 15% on Bermuda businesses, subject to reductions for foreign tax credits effective for fiscal years beginning on or after January 1, 2025. The legislation did not have a material impact on our income tax position.
Results of Operations for the Years Ended December 31, 2024 and 2023
For a comparison of the Company’s results of operations for the year ended December 31, 2024 to the year ended December 31, 2023, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the Securities and Exchange Commission on February 24, 2025.
Investments
As part of its investment strategy, the Company establishes a level of cash and highly liquid short-term and intermediate-term securities that, combined with expected cash flow, it believes is adequate to meet its payment obligations. In addition to fixed maturity securities, the Company invests in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets. The Company's investments in investment funds and its other alternative investments have experienced, and the Company expects to continue to experience, greater fluctuations in investment income.
The Company also attempts to maintain an appropriate relationship between the effective duration of the investment portfolio and the approximate duration of its liabilities (i.e., policy claims and debt obligations). The effective duration of the investment portfolio was 3.0 years and 2.6 years at December 31, 2025 and 2024, respectively. The Company’s investment portfolio and investment-related assets as of December 31, 2025 were as follows:
($ in thousands)
Carrying
Value
Percent
of Total
Fixed maturity securities:
U.S. government and government agencies
State and municipal:
Special revenue
State general obligation
Local general obligation
Corporate backed
Pre-refunded (1)
Total state and municipal
Mortgage-backed securities:
Agency
Commercial
Residential-Prime
Residential-Alt A
Total mortgage-backed securities
Asset-backed securities
Corporate:
Industrial
Financial
Utilities
Other
Total corporate
Foreign government
Total fixed maturity securities
Equity securities available for sale:
Common stocks
Preferred stocks
Total equity securities available for sale
Cash and cash equivalents (2)
Investment funds
Real estate
Arbitrage trading account
Loans receivable
Total investments
(1) Pre-refunded securities are securities for which an escrow account has been established to fund the remaining payments of principal and interest through maturity. Such escrow accounts are funded almost exclusively with U.S. Treasury and U.S. government agency securities.
(2) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.
Fixed Maturity Securities . The Company’s investment policy with respect to fixed maturity securities is generally to purchase instruments with the expectation of holding them to their maturity. However, management of the available for sale portfolio is considered necessary to maintain an approximate matching of assets and liabilities as well as to adjust the portfolio as a result of changes in financial market conditions and tax considerations.
The Company’s philosophy related to holding or selling fixed maturity securities is based on its objective of maximizing total return. The key factors that management considers in its investment decisions as to whether to hold or sell fixed maturity securities are its view of the underlying fundamentals of specific securities as well as its expectations regarding interest rates, credit spreads and currency values. In a period in which management expects interest rates to rise, the Company may sell longer duration securities in order to mitigate the impact of an interest rate rise on the fair value of the portfolio. Similarly, in a period in which management expects credit spreads to widen, the Company may sell lower quality securities, and in a period in which management expects certain foreign currencies to decline in value, the Company may sell securities denominated in those foreign currencies. The sale of fixed maturity securities in order to achieve the objective of maximizing total return may result in realized gains (losses); however, there is no reason to expect these gains (losses) to continue in future periods.
Equity Securities . Equity securities primarily represent investments in common and preferred stocks in companies with potential growth opportunities in different sectors, mainly in the financial institutions and energy sectors.
Investment Funds . At December 31, 2025, the carrying value of investment funds was $1,362 million, including investments in financial services funds of $360 million, other funds of $354 million (which includes a deferred compensation trust asset of $43 million), transportation funds of $273 million, infrastructure funds of $170 million, real estate funds of $163 million and energy funds of $42 million. Investment funds are primarily reported on a one-quarter lag.
Real Estate . Real estate is directly owned property held for investment. At December 31, 2025, real estate properties in operation included a long-term ground lease in Washington D.C., an office complex in New York City and the completed portion of a mixed-use project in Washington D.C. In addition, part of the previously mentioned mixed-use project in Washington D.C. is under development. The Company expects to fund further development costs for the project with a combination of its own funds and external financing.
Arbitrage Trading Account . The arbitrage trading account is comprised of direct investments in arbitrage securities. Merger arbitrage is the business of investing in the securities of publicly held companies that are the targets in announced tender offers and mergers.
Loans Receivable. Loans receivable, net of allowance for expected credit losses, had both an amortized cost and an aggregate fair value of $419 million at December 31, 2025. The amortized cost of loans receivable is net of an allowance for expected credit losses of $0.2 million as of December 31, 2025. Loans receivable include real estate loans of $419 million that are secured by commercial and residential real estate located primarily in the U.K. and New York. Real estate loans generally earn interest at fixed or stepped interest rates and have maturities through 2028.
Liquidity and Capital Resources
Cash Flow . Cash flow provided from operating activities decreased to $3,583 million in 2025 from $3,678 million in 2024, primarily due to increased loss and loss expense payments partially offset by increased premium receipts.
The Company's insurance subsidiaries' principal sources of cash are premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments. The principal uses of cash are payments for claims, purchase of investments, taxes, operating expenses and dividends. The Company expects its insurance subsidiaries to fund the payment of losses with cash received from premiums, investment income and fees. The Company generally targets an average duration for its investment portfolio that is within 1.5 years of the average number of years held for its liabilities so that portions of its investment portfolio mature throughout the claim cycle and are available for the payment of claims if necessary. In the event operating cash flow and proceeds from maturities and prepayments of fixed maturity securities are not sufficient to fund claim payments and other cash requirements, the remainder of the Company's cash and investments is available to pay claims and other obligations as they become due. The Company's investment portfolio is highly liquid, with approximately 83% invested in cash, cash equivalents and marketable fixed maturity securities as of December 31, 2025. If the sale of fixed maturity securities were to become necessary, a realized gain or loss equal to the difference between the cost and sales price of securities sold would be recognized.
Debt . At December 31, 2025, the Company had senior notes, subordinated debentures and other debt outstanding with a carrying value of $2,840 million and a face amount of $2,862 million. The maturities of the outstanding debt are $7 million in 2026, $250 million in 2037, $350 million in 2044, $470 million in 2050, $400 million in 2052, $185 million in 2058, $300 million in 2059, $250 million in 2060, and $650 million in 2061.
On April 1, 2022, the Company entered into a senior unsecured revolving credit facility that provides for revolving, unsecured borrowings up to an aggregate of $300 million with a $50 million sublimit for letters of credit. The Company may increase the amount available under the facility to a maximum of $500 million subject to obtaining lender commitments for the increase and other customary conditions. Borrowings under the facility may be used for working capital and other general corporate purposes. All borrowings under the facility must be repaid by April 1, 2027, except that letters of credit outstanding on that date may remain outstanding until April 1, 2028 (or such later date approved by all lenders). Our ability to utilize the facility is conditioned on the satisfaction of representations, warranties and covenants that are customary for facilities of this type. As of December 31, 2025, there were no borrowings outstanding under the facility.
Equity . At December 31, 2025, total common stockholders’ equity was $9.7 billion, common shares outstanding were 377,155,799 and stockholders’ equity per outstanding share was $25.72. The Company repurchased 4,069,026 and 5,702,996 shares of its common stock in 2025 and 2024, respectively. The aggregate cost of the repurchases was $270 million in 2025 and $304 million in 2024. In 2025, the Board declared ordinary quarterly cash dividends of $0.08 per share in the first quarter and $0.09 per share in each of the remaining three quarters, as well as special dividends of $0.50 per share and $1.00 per share in the second and fourth quarters, respectively, for a total of $700 million in aggregate dividends in 2025.
Total Capital . Total capitalization (equity, debt and subordinated debentures) was $12.5 billion at December 31, 2025. The percentage of the Company’s capital attributable to senior notes, subordinated debentures and other debt was 23% and 25% at December 31, 2025 and 2024, respectively.
Federal and Foreign Income Taxes
The Company files a consolidated income tax return in the U.S. and foreign tax returns in each of the countries in which it has overseas operations. At December 31, 2025, the Company had a gross deferred tax asset of $732 million (which primarily relates to loss and loss expense reserves, unearned premium reserves and employee compensation plans). The Company also has a $56 million valuation allowance against the gross deferred tax asset and a gross deferred tax liability of $634 million (which primarily relates to deferred policy acquisition costs, and various investment funds) resulting in a net deferred tax asset of $42 million. The realization of this asset is dependent upon the Company's ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of this asset.
Reinsurance
The Company follows customary industry practice of reinsuring a portion of its exposures in exchange for paying reinsurers a part of the premiums received on the policies it writes. Reinsurance is purchased by the Company principally to reduce its net liability on individual risks and to protect against catastrophic losses. Although reinsurance does not legally discharge an insurer from its primary liability for the full amount of the policies, it does make the assuming reinsurer liable to the insurer to the extent of the reinsurance coverage. The Company monitors the financial condition of its reinsurers and attempts to place its coverages with only financially sound carriers. Reinsurance coverage and retentions vary depending on the line of business, location of the risk and nature of loss. The Company’s reinsurance purchases include the following:
• Property reinsurance treaties - The Company purchases property reinsurance to reduce its exposure to large individual property losses and catastrophe events. Following is a summary of significant property reinsurance treaties in effect as of January 1, 2026:
◦ The Company’s property per risk reinsurance generally covers losses between $2.5 million and $85 million.
◦ The Company’s property catastrophe excess of loss reinsurance program provides protection for business written by its Insurance businesses as well as U.S. and non-U.S. business written by Lloyd's Syndicate, excluding offshore energy. For 2026, some of our property catastrophe reinsurance is placed via an industry loss warranty ("ILW") cover and the equivalent Company limit and retention (and resulting net position) are estimated based on our market share and modeled outcome when applying the ILW layering. Retentions by territory and peril range between $40 million and $65 million within the first $100 million of limit. Limits purchased are the difference between these retained amounts and $700 million.
• Casualty reinsurance treaties - The Company purchases casualty reinsurance to reduce its exposure to large individual casualty losses and workers’ compensation catastrophe losses for the majority of business written by its U.S. companies. A casualty contingency treaty, in effect as of January 1, 2026, provides protection for bad faith and runaway loss adjustment expense losses in excess of $10 million (also in excess of the net policy limit) and up to $75 million. For losses involving two or more claimants for primary workers’ compensation business, coverage is generally in place for losses between $10 million and $565 million. For excess workers’ compensation business, such coverage is generally in place for losses between $25 million and $550 million. Our workers’ compensation catastrophe reinsurance program is a shared cover for both excess and primary workers’ compensation business.
• Facultative reinsurance - The Company purchases facultative reinsurance on certain individual policies or risks that are in excess of treaty reinsurance capacity.
• Other reinsurance - Depending on the business, the Company purchases specific additional reinsurance to supplement the above programs.
• Lifson Re continues to participate on the majority of the Company’s reinsurance placements. As of January 1, 2026, Lifson Re participates in a 32.5% share of the placed amounts, consistent with the prior year. This pertains to all traditional treaty reinsurance/retrocessional placements for both property and casualty business where there is more than one open market reinsurer participating. Lifson Re is currently capitalized with $418 million of equity from a small group of sophisticated global investors with long-term investment horizons, including a minority participation by the Company. Lifson Re participates on a fully collateralized basis.
The Company places a number of its casualty treaties on a “risk attaching” basis. Under risk attaching treaties, all claims from policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. If the Company is unable to renew or replace its existing reinsurance coverage, protection for unexpired policies would remain in place until their expiration. In such case, the Company could revise its underwriting strategy for new business to reflect the absence of reinsurance protection. The casualty contingency treaty highlighted above is purchased on a “losses discovered” basis. Property catastrophe and workers’ compensation catastrophe reinsurance is generally placed on a “losses occurring basis,” whereby only claims occurring during the period are covered. If the Company is unable to renew "losses occurring" reinsurance treaties, unexpired policies would not be protected, though we generally have the option to purchase run-off coverage in our treaties.
Following is a summary of earned premiums and loss and loss expenses ceded to reinsurers for each of the three years ended December 31, 2025:
Year Ended December 31,
(In thousands)
Earned premiums
Losses and loss expenses
Ceded earned premiums increased 8% in 2025 to $2,342 million. The ceded losses and loss expenses ratio decreased 3.5 points to 59.8% in 2025 from 63.3% in 2024.
The following table presents the credit quality of amounts due from reinsurers as of December 31, 2025.
(In thousands)
Reinsurer
Rating
Amount
Amounts due in excess of $20 million:
Lloyd’s of London
Partner Re
Munich Re
Berkshire Hathaway
Hannover Re
Renaissance Re
Swiss Re
Liberty Mutual
Everest Re
Arch Capital
Axis Capital
Sompo Holdings
Fairfax Financial
Nationwide Corp
TOA Reinsurance
Korean Re
Axa Insurance
MS & AD Insurance
Markel Corp
Chubb
Helvetia Holdings
Other reinsurers:
Rated A- or better
Secured (2)
All Others
Subtotal
Residual market pools (3)
Allowance for expected credit losses
Total
(1) S&P rating, or if not rated by S&P, A.M. Best rating.
(2) Secured by letters of credit or other forms of collateral.
(3) Many states require licensed insurers that provide workers' compensation insurance to participate in programs that provide workers' compensation to employers that cannot procure coverage from an insurer on a voluntary basis. Insurers can fulfill this residual market obligation by participating in pools where results are shared by the participating companies. The Company acts as a servicing carrier for workers' compensation pools in certain states. As a servicing carrier, the Company writes residual market business directly and then cedes 100% of this business to the respective pool. As a servicing carrier, the Company receives fee income for its services. The Company does not retain underwriting risk, and credit risk is limited as ceded balances are jointly shared by all the pool members.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging or research and development arrangements with the Company. The Company has no arrangements of these types that management believes may have a material current or future effect on our financial condition, liquidity or results of operations.
