SIGI US Equity☆

sigi-20201231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2020

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______________________to_______________________

Commission file number: 001-33067

SELECTIVE INSURANCE GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

40 Wantage Avenue

Branchville, New Jersey07890

(Address of Principal Executive Offices) (Zip Code)

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol (s) Name of each exchange on which registered

Common Stock, par value $2 per share SIGI The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☒Yes☐ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes ☒No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒Yes☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).☒Yes☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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Large accelerated filer ☒ Accelerated filer ̈

Non-accelerated filer ̈ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).☐ Yes ☒ No

The aggregate market value of the voting company common stock held by non-affiliates of the registrant, based on the closing price on the NASDAQ Global Select Market, was $3,092,111,015 on June 30, 2020. As of February 4, 2021, the registrant had outstanding 59,882,189 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders to be held on April 28, 2021, are incorporated by reference into Part III of this report.

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SELECTIVE INSURANCE GROUP, INC.

Table of Contents

Page No.

PART I

Item 1. Business 4

Item 1A. Risk Factors 20

Item 1B. Unresolved Staff Comments 33

Item 2. Properties 33

Item 3. Legal Proceedings 33

PART II

Item 6. Selected Financial Data 36

Forward-looking Statements 37

Introduction 37

Critical Accounting Policies and Estimates 37

Results of Operations and Related Information by Segment 51

Federal Income Taxes 63

Financial Condition, Liquidity, and Capital Resources 63

Off-Balance Sheet Arrangements 66

Contractual Obligations, Contingent Liabilities, and Commitments 66

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 67

Item 8. Financial Statements and Supplementary Data 74

Consolidated Balance Sheets as of December 31, 2020 and 2019 76

Consolidated Statements of Income for the Years Ended

Consolidated Statements of Comprehensive Income for the Years Ended

Consolidated Statements of Stockholders’ Equity for the Years Ended

Consolidated Statements of Cash Flows for the Years Ended

Notes to Consolidated Financial Statements 81

Item 9A. Controls and Procedures 134

PART III

Item 10. Directors, Executive Officers and Corporate Governance 136

Item 11. Executive Compensation 136

Item 14. Principal Accountant Fees and Services 136

PART IV

Item 15. Exhibit and Financial Statement Schedules 137

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PART I

Item 1. Business.

Overview

Selective Insurance Group, Inc. (“Parent”) is a New Jersey holding company incorporated in 1977 that owns ten property and casualty insurance subsidiaries that sell products and services only in the United States ("U.S."). Various state departments of insurance (i) license nine of our subsidiaries as admitted carriers to write specific lines of property and casualty insurance in the standard marketplace and (ii) authorize the tenth subsidiary as a non-admitted carrier to write property and casualty insurance in the excess and surplus ("E&S") lines market. We refer throughout this document to our ten insurance subsidiaries collectively as the “Insurance Subsidiaries” and to the Parent and the Insurance Subsidiaries collectively as "we," “us,” or “our.” We make limited use of Parent as necessary to distinguish the holding company from the Insurance Subsidiaries.

Our main office is located in Branchville, New Jersey. Our common and preferred stock are listed and traded on the NASDAQ Global Select Market under the symbols “SIGI” and "SIGIP," respectively. In 2020, AM Best Company (“AM Best”) ranked us as the 38th largest property and casualty group in its annual list of “Top 200 U.S. Property/Casualty Writers,” based on 2019 net premiums written (“NPW”). Since our founding in 1926, we have a long and successful history in the property and casualty industry, including an "A" or higher AM Best financial strength rating for the past 90 years.

The property and casualty insurance market is highly regulated and competitive with fragmented market share, particularly in standard commercial lines. The market has three main distribution methods: (i) sales through appointed independent insurance agents; (ii) direct sales to personal and commercial customers, including, but not limited to, internet-based platforms; and (iii) sales through captive insurance agents employed by or contracted to sell exclusively with one insurance company. We distribute our property and casualty products exclusively through independent insurance agents.

Strategic Advantages

We have three key sustainable competitive advantages:

(i) A unique field model in which our underwriting and safety management personnel are located in the geographic territories they serve, and a claims operation that specializes regionally and dedicates resources locally to manage our customer relationships. We enhance our field model with sophisticated tools and technologies to inform underwriting, pricing, and claims decisions;

(ii) A franchise value distribution model in which we focus our independent insurance agency appointments to a small number of high quality partners with whom we have longstanding and close business relationships; and

(iii) A superior omnichannel customer experience provided by best-in-class employees, enhanced by digital platforms and value-added services to increase customer engagement.

We are rated by nationally recognized statistical rating organizations ("NRSROs") that issue opinions on our financial strength, operating performance, strategic position, and ability to meet policyholder obligations. We believe that our ability to write insurance business is most influenced by our AM Best rating. In the fourth quarter of 2020, AM Best reaffirmed (i) our rating of "A (Excellent)," the third highest of their 13 financial strength ratings, and (ii) our outlook of "positive."

Our Insurance Subsidiaries’ ratings by NRSRO are as follows:

NRSRO Financial Strength Rating Outlook

AM Best A Positive

Standard & Poor’s Global Ratings (“S&P”) A Stable

Moody’s Investors Services (“Moody’s”) A2 Stable

Fitch Ratings (“Fitch”) A+ Stable

Our independent distribution partners contemplate financial strength ratings when recommending insurance carriers to customers, and many of our customers also contemplate them in their purchasing decisions. Distribution partners generally recommend higher rated carriers to limit their potential liability for error and omission claims. Most of our customers often have minimum insurer rating requirements in loans, mortgages, and other agreements securing real and personal property.

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These NRSROs also rate our long-term debt creditworthiness. Credit ratings indicate the ability of debt issuers to meet obligations in a timely manner and are important factors in our overall funding profile and ability to access certain types of liquidity. Our current senior credit ratings are as follows:

NRSRO Credit Rating Long-Term Credit Outlook

AM Best bbb+ Positive

S&P BBB Stable

Moody’s Baa2 Stable

Fitch BBB+ Stable

Our S&P, Moody's, and Fitch financial strength and associated credit ratings affect our ability to access capital markets.

We have provided a glossary of terms as Exhibit 99.1 to this Form 10-K, which defines certain industry-specific and other terms that are used in this Form 10-K.

Human Capital

We recognize that sustainable human capital complements and contributes to superior longer-term financial performance. We are committed to maintaining a safe and inclusive workplace that promotes diversity and provides attractive benefits to our approximately 2,400 employees. In 2020, we were designated as a Great Place to Work CertifiedTM organization, with 91% of employees identifying us as a great place to work. We discuss our approach to (i) physical, financial, and social well-being of our employees; (ii) talent development and employee retention; and (iii) diversity and inclusion more fully below.

Physical, Financial, and Social Well-Being of our Employees

We invest significantly in our employees' physical, financial and social well-being, which is essential to retaining the best talent. We regularly analyze and adjust compensation to ensure both internal equity and external market alignment. To support the financial well-being of our employees and their families, we offer competitive financial benefit programs, including a 401(k) plan with both employer and employer matching contributions, an employee stock purchase plan with the opportunity to purchase company stock at a discount, a tuition reimbursement program, and a student loan repayment program. To promote the health and well-being of our employees, we also offer competitive and convenient health and wellness programs. We also support the social well-being of our employees, encouraging them to be connected with their colleagues and communities through various programs, such as paid time-off for volunteer work and matching charitable donations.

Talent Development and Employee Retention

We invest significant time and resources on training and development to assist our employees in fulfilling their professional potential and having rewarding careers. We are committed to ongoing learning, personal growth, and continuous improvement. Our employees have access to a variety of live instructor-led training courses and extensive online skills training courses and resources. We also have leadership and talent development programs and initiatives at all levels of the organization. Among these are our Next Generation of Leaders program, through which we identify internal leaders on whom we focus development opportunities so they will be well prepared to lead us in the future. We continue to focus on talent development programs and employee retention. For the year, our employee turnover rate was approximately 7%. Employees with over 20 years of service represented approximately 17% of all employees. In 2019, Forbes recognized us as one of "America's Best Midsize Employers."

Diversity and Inclusion

We recognize that when employees with diverse cultural backgrounds, ideas and experiences work together, it fosters innovation. We have initiatives to increase representation and cultivate greater inclusion of people with differences in gender, ethnicity, race, age, sexual orientation, gender identity, and socio-economic background. We have taken steps to (i) promote greater diversity in first-level management positions to create a pipeline to increase future diversity in senior and executive leadership, and (ii) increase members of our Board of Directors ("Board") who have diverse backgrounds with a wide range of skills and experience, including the addition of three directors who are Black and Latinx.

As of December 31, 2020, women represented 57% of our non-officer workforce and 31% of our officer workforce. We have three women on our Board, and increasing the representation of women in senior management roles is a prioritized goal. Our ethnic diversity for officers and non-officers is consistent with the national average for financial services, but our objective is to increase this representation over time. Currently, approximately 82% of our workforce is White; and 18% of our workforce is a combination of Black, Latinos, Asians, and all other ethnicities combined.

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Coronavirus ("COVID-19") Pandemic

Our strategic competitive advantages described above, strong financial position, effective operations, and experienced leadership team have positioned us well to address the ongoing challenges of COVID-19. During the year, governmental (international, federal, state, and local) actions to contain or delay the spread of COVID-19 resulted in directives requiring social distancing, operational alteration or temporary closure of most non-essential businesses, and the “sheltering-in-place” of many non-essential workers. Under most governmental directives, insurance is considered an essential business. Our information technology ("IT") infrastructure and security, which previously supported over 675 home-based employees, made for a smooth and effective transition of all of our office-based employees to a temporary work-from-home environment, while still maintaining expected customer and agent service levels. Most of our local independent distribution partners also transitioned to a remote work environment. Our strong relationships with — and continued support for — them enabled us to successfully maintain the excellent service-levels we delivered pre-pandemic, for claims handling, underwriting, premium audit processes, and safety management services.

Because most employees have been working remotely since March 2020, we have changed some regular communication methods and increased video conferencing and collaboration tools on robust and secure applications. Throughout 2020, our President and Chief Executive Officer hosted regular company-wide virtual town hall meetings to provide organizational updates and address areas of general employee concern. To keep our employees fully informed about COVID-19-related developments, we (i) disseminated regular health, safety, and other communications, (ii) established an on-line coronavirus center with information, links to valuable resources, and helpful videos, and (iii) continued our pre-COVID-19 online “pulse surveys” to gauge employees’ views on various issues. Our employees have rated our communications around COVID-19 positively.

Our methods to communicate with customers, prospects, agents, and vendors generally have shifted towards digital and virtual platforms. Our underwriting, claims, premium audit, and safety management functions have replaced their former typically in-person meetings with virtual or video-enabled interactions, although some limited site visits still occur. To ensure we maintain providing a superior omnichannel customer experience as one of our three key strategic advantages, we have developed the ability to respond to our customers in their preferred method of communication — whether by phone, email, or social media.

Our internal operations continue to function effectively during COVID-19. We continue to process claims, underwrite our policies, and operate our corporate functions at the same high standards to which we have always adhered. We effectively managed the implementation of various customer support initiatives during this challenging time, including (i) billing accommodations for our customers that we announced in early 2020, coupled with the implementation of certain state-specific regulations that provided for the deferral of premium payments without cancellations for up to 90 days, and (ii) a credit to our personal and commercial automobile customers with in-force policies equivalent to 15% of their April and May premiums due to the unprecedented nature of the government directives and the associated favorable claims frequency impact.

We entered the COVID-19 pandemic in the strongest financial position in our history, with a high level of embedded profitability in our underwriting and investment portfolios, and strong financial strength ratings. This positioned us well to withstand the COVID-19-related economic downturn, market volatility and heightened uncertainty. For further information regarding the financial impacts of COVID-19, refer to Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations.” of this Form 10-K. Additionally, for more information on the COVID-19-related impacts on our control environment, see the "Enterprise Risk Management" discussion below.

Segments

We have four reportable segments:

•Standard Commercial Lines, which represents 74% of consolidated revenues, is comprised of property and casualty insurance products and services provided in the standard marketplace to commercial enterprises; typically businesses, non-profit organizations, and local government agencies. This business represented 80% of our total insurance operations’ NPW in 2020, and is primarily sold in 27 states and the District of Columbia. The average premium per policyholder in 2020 was approximately $12,900.

•Standard Personal Lines, which represents 10% of consolidated revenues, is comprised of property and casualty insurance products and services provided primarily to individuals acquiring coverage in the standard marketplace. This business represented 11% of our total insurance operations’ NPW in 2020, and is sold in 15 states. The average premium per policyholder in 2020 was approximately $2,400. Standard Personal Lines includes flood insurance coverage sold through the National Flood Insurance Program ("NFIP"). Based on 2019 direct premiums written

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("DPW") as reported in the S&P Market Intelligence platform, we are the third largest writer of this coverage through the NFIP. We write flood business in all 50 states and the District of Columbia.

•E&S Lines, which represents 8% of consolidated revenues, is comprised of property and casualty insurance products and services provided to customers who are unable to obtain coverage in the standard marketplace. We currently only write commercial lines E&S coverages. This business represented 9% of our total insurance operations’ NPW in 2020, and is sold in all 50 states and the District of Columbia. The average premium per policyholder in 2020 was approximately $3,100.

•Investments, which represents 8% (including net realized and unrealized gains and losses) of consolidated revenues, invests the premiums collected by our insurance operations and amounts generated through our capital management strategies, which include the issuance of debt and equity securities.

We derive substantially all of our income in three ways:

•Underwriting income/loss from our insurance operations. Underwriting income/loss is comprised of revenues, which are the premiums earned from our insurance products and services, less expenses. Gross premiums are DPW plus premiums assumed from other insurers. NPW is equal to gross premiums less premiums ceded to reinsurers. NPW is recognized as revenue ratably over a policy’s term as net premiums earned (“NPE”).

Expenses related to our insurance operations fall into three categories, which are depicted on our Consolidated Statements of Income: (i) "Loss and loss expense incurred," which includes losses associated with claims and all loss expenses incurred for adjusting claims incurred during a policy's term; (ii) "Amortization of deferred policy acquisition costs," which includes expenses related to the successful acquisition of insurance policies, such as commissions to our distribution partners and premium taxes, and are recognized ratably over a policy's term; and (iii) "Other insurance expenses," which includes acquisition expenses not captured above, as well as expenses incurred in maintaining policies and policyholder dividends.

Total underwriting expenses are the total of Amortization of deferred policy acquisition costs and Other insurance expenses, offset by Other income on our Consolidated Statements of Income. Other income primarily includes installment fees, which are fees charged to customers paying their premiums on an installment basis.

•Net investment income from our investment segment. We generate income from investing insurance premiums and amounts generated through our capital management strategies. Net investment income consists primarily of (i) interest earned on fixed income investments and commercial mortgage loans, (ii) dividends earned on equity securities, and (iii) other income primarily generated from our alternative investment portfolio.

•Net realized and unrealized gains and losses on investment securities from our investments segment. Realized gains and losses from our investment portfolio is the result of (i) security disposals through sales, calls, and redemptions, (ii) losses on securities for which we have the intent to sell, (iii) credit loss expense or benefit, and (iv) net unrealized gains and losses on equity securities.

Net income (or loss) available to common stockholders on our Consolidated Statements of Income also includes (i) corporate expenses, which includes expenses of the Parent consisting of long-term incentive compensation to employees, and other general corporate expenses, (ii) interest on our debt obligations, (iii) federal income taxes, and (iv) dividends to preferred shareholders.

We use net income (or loss) available to common stockholders and non-GAAP operating income as measures of financial performance. Non-GAAP operating income differs from net income available to common stockholders by the exclusion of (i) after-tax net realized and unrealized gains and losses on investments, and (ii) after-tax debt retirement costs.

We use combined ratio as the key performance measure in assessing our insurance operations. The combined ratio is calculated by adding (i) the loss and loss expense ratio, which is the ratio of incurred loss and loss expense to NPE, (ii) the expense ratio, which is the ratio of underwriting expenses to NPE, and (iii) the dividend ratio, which is the ratio of policyholder dividends to NPE. A combined ratio under 100% indicates an underwriting profit, and a combined ratio over 100% indicates an underwriting loss. The combined ratio does not reflect investment income, federal income taxes, or Parent income or expense. The loss and loss expense ratio is typically the largest contributor to our combined ratio and key drivers are the amount of catastrophe and non-catastrophe property loss and loss expenses incurred, current year casualty loss estimates, and the impact of prior year casualty reserve development.

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We principally use after-tax net investment income as the key measure in assessing the financial performance of our investments segment. We also assess total return, which we calculate by adding pre-tax net realized and unrealized investment gains or losses (including losses on securities we intend to sell and credit loss expense or benefit) to pre-tax net investment income. Our investment philosophy includes setting certain risk and return objectives for the fixed income, equity, and other investment portfolios and comparing our returns for each portfolio to a weighted-average benchmark of comparable indices.

We also use return on common equity ("ROE") and non-generally accepted accounting principles operating return on common equity ("non-GAAP operating ROE") as important measures of our overall financial performance. ROE is a profitability measurement calculated by dividing net income available to common stockholders by average common stockholders' equity during the period. Non-GAAP operating ROE is calculated by dividing non-GAAP operating income available to common stockholders by average common stockholders' equity during the period. We evaluate our segments, in part, based on their contribution to non-GAAP operating ROE. We establish our non-GAAP operating ROE target annually based on (i) our current estimated weighted average cost of capital, (ii) the current interest rate environment, and (iii) property and casualty insurance market conditions. For 2021, our non-GAAP operating ROE target is 11%. For further details regarding our 2020 performance as it relates to ROE, refer to "Financial Highlights of Results for Years Ended December 31, 2020, 2019, and 2018" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this Form

10-K.

In addition to measuring and monitoring our results by segment using combined ratio and non-GAAP operating ROE metrics, we also monitor key operating leverage metrics, such as NPW to surplus and invested assets per dollar of common stockholders’ equity.

We believe we have a lower financial risk profile and strong financial strength compared to the industry driven by:

•Our Standard Commercial Lines segment underwriting risk appetite, which is focused on small-to-medium sized accounts, with risks generally characterized as low-to-medium hazard. Our average premium per policyholder is approximately $12,900, with about 87% of our casualty lines business in this segment having limits of $1 million or less (excluding workers compensation policies, as they do not have limits);

•Maintaining sophisticated pricing reviews and disciplined financial planning and reserving practices. The latter includes quarterly ground-up reserve reviews for principally all lines of business, semi-annual independent external reserve reviews, and year-end regulatory actuarial reserve opinions issued by an independent external actuary;

•Purchasing significant levels of reinsurance, including a property catastrophe reinsurance program that limits the net after-tax impact of a 1 in 250 year catastrophe to about 4% of our U.S. generally accepted accounting principles ("GAAP") equity and property and casualty excess of loss reinsurance agreements that limit the impact of individual property and casualty claims to $2 million per risk and $2 million per occurrence, respectively; and

•Maintaining a conservative investment portfolio principally invested in high quality and liquid fixed income and short-term investments with a modest allocation to risk assets.

As a result of our strong financial strength and lower financial and underwriting risk profile, we operate with higher operating leverage than the industry as a whole. We define operating leverage as the ratio of NPW to policyholders' surplus, and we target a ratio between 1.35x and 1.55x. Our operating leverage at December 31, 2020 was 1.30x, compared to the U.S. standard commercial and personal lines industry average of approximately 0.7x, as reported in Conning, Inc.'s Fourth Quarter 2020 Property-Casualty Forecast & Analysis.

Our higher operating leverage results in higher investment leverage than the industry. We define investment leverage as invested assets per dollar of common stockholders’ equity. Our investment leverage at December 31, 2020 was $2.96 compared to the U.S. commercial and personal lines average invested assets to surplus of $2.07. Because we have higher investment leverage, we have adopted a conservative investment management philosophy with fixed income securities and short-term investments, representing more than 92% of our invested assets. These fixed income securities and short-term investments currently have a weighted average credit rating of "AA-" and an effective duration of 3.8 years. Subject to economic and market conditions; however, we expect to modestly increase our exposure to credit risk within our fixed income securities portfolio by continuing to reinvest proceeds from the non-sale disposal activity primarily related to "AAA" rated agency-backed residential mortgage-backed securities ("RMBS") into other high quality, but non-AAA rated fixed income sectors, as we find the risk adjusted returns more attractive. Over the coming quarters, we expect the average credit rating will decrease from "AA-" to "A+" and remain there for the foreseeable future; however, we do not anticipate a material shift in the overall risk/return characteristics of our fixed income securities portfolio. For additional information about the design and

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credit quality characteristics of our investment segment, refer to "Credit Risk" in Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." and Note 5. "Investments" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

Our strategy of operating with higher operating and investment leverage than the industry as a whole allows us to generate more ROE from our underwriting and investment portfolios. We generate 0.9 points of ROE for each point on the combined ratio, and 2.4 points of ROE for each point of pre-tax investment yield. This allows us to generate strong returns for our shareholders and we believe it is a competitive advantage, particularly in a low interest rate environment.

Insurance Operations

Overview

We derive all of our insurance operations revenue from selling insurance policies to businesses and individuals in return for insurance premiums. The majority of our sales are annual insurance policies. Our most significant cost associated with the sale of insurance policies is our loss and loss expense for insured events covered under these policies.

Loss and loss expense reserves are one of our critical estimates and represent the ultimate amounts we will need in the future to pay claims and related expenses for insured losses that have not yet been settled and for unreported insurance claims. Estimating reserves as of any given date is an inherently uncertain process, requiring the application of estimation techniques and a considerable degree of judgment. We regularly review our overall reserve position through both internal and external actuarial reserve analyses. For a full discussion regarding our loss reserving process, see "Critical Accounting Policies and Estimates" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." and Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

As part of our risk management efforts associated with the sale of our products and services, we use reinsurance to protect our capital resources and insure us against losses on the risks we underwrite. We enter into reinsurance contracts and arrangements with third parties that cover various policies we issue to our customers. In addition, to protect our Insurance Subsidiaries, we maintain an internal reinsurance pooling agreement in which each company shares in premiums and losses based on certain specified percentages. For information regarding reinsurance treaties and agreements, see "Reinsurance" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K.

Products and Services

The types of insurance we sell in our insurance operations fall into two broad categories:

•Casualty insurance, which generally covers the financial consequences of (i) employee injuries in the course of employment, (ii) bodily injury and/or property damage to a third party as a result of an insured’s negligent acts, omissions, or legal liabilities, and (iii) the obligation to defend our insured(s). Casualty claims have long tails and may take several years and, in some situations, even decades to be reported and settled.

•Property insurance, which generally covers the financial consequences of accidental loss of an insured’s real and/or personal property or earnings. Property claims are generally reported and settled in a relatively short period of time.

Our insurance premiums originate primarily from underwriting traditional property and casualty insurance policies. The following table shows the principal types of policies we write:

Commercial Property (including Inland Marine) Property X X

Commercial Automobile Property/Casualty X X

General Liability (including Excess Liability/Umbrella) Casualty X X

Workers Compensation Casualty X

Businessowners' Policy Property/Casualty X

Bonds (Fidelity and Surety) Casualty X

Homeowners Property/Casualty X

Personal Automobile Property/Casualty X

Personal Umbrella Casualty X

Flood1 Property X X

1Flood insurance premiums and losses are 100% ceded to the federal government’s Write Your Own Program ("WYO") of the NFIP. The results of our Standard Personal Lines and Standard Commercial Lines flood operations are reported solely within our Standard Personal Lines segment results.

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Product Development and Pricing

Our insurance policies are contracts with our policyholders that specify the losses we cover and the amounts we will pay on a covered loss. We develop our coverages by (i) adopting policy forms created or filed by statistical rating agencies or other third parties, notably Insurance Services Office, Inc. (“ISO”), American Association of Insurance Services, Inc. ("AAIS"), and the National Council on Compensation Insurance, Inc. ("NCCI"), (ii) independently creating our own policy forms, or (iii) modifying third-party policy forms. In developing products and services, we consider market demands, based on competitive research and feedback from our independent distribution partners, and the potential impact the product or service will have in making our customer’s commercial or personal endeavors safer.

Our policies provide coverage for future events, so the actual individual policy loss costs are unknown at the point of sale. Determining pricing for coverage requires us to consider many variables. Like most property and casualty insurance companies, our loss data alone is not sufficiently credible to independently establish the complex sets of loss costs and rating variables required for our products. Therefore, we often adopt loss costs and rating structures filed by statistical rating agencies, such as ISO and NCCI. We typically modify these loss costs or factors based on actuarial analyses of our own historical statistical data, to the extent that data is credible, factoring in loss trends and other expected impacts. The resulting loss costs are converted to premium rates, by adding in provisions for our company expense and profit. In some cases, we supplement the indicated rates with competitive market information to determine our final selected rates.

We have developed predictive models for many of our Standard Commercial and Standard Personal Lines, which we use to further refine the statistical rating agencies' rating plans, or to independently develop our own plans. Predictive models analyze historical statistical data related to various risk characteristics that drive loss experience. For our Standard Commercial Lines, we use the output of these models to group our policies, or potential policies, based on their expected loss potential, which serve as input into the underwriting and pricing process for individual risks. For our Standard Personal Lines, we use these models to develop factors in our filed rating plans. In all cases, the predictive capabilities of these models are dependent on the quantity and quality of available statistical data. Therefore, we may supplement them with other competitive market information or underwriting judgment.

Customers and Customer Markets

We categorize our Standard Commercial Lines customers into the following strategic business units ("SBUs"):

Percentage of Standard Commercial Lines Description

Contractors 42% General contractors and trade contractors

Manufacturing and Wholesale 16% Manufacturers, wholesalers, and distributors

Bonds 1% Fidelity and surety

Total Standard Commercial Lines 100%

We do not categorize our Standard Personal Lines customers or our E&S Lines customers by SBU. No one customer accounts for 10% or more of our insurance operations in the aggregate.

We manage volatility in our underwriting results, in part, by writing accounts that have a lower limits profile. The table below illustrates the percentage of accounts with total insured value and exposure limits at and below $1 million for property and casualty insurance accounts, respectively:

Property Casualty

Standard Commercial Lines 78% 87%1

Standard Personal Lines 84% 98%

1Standard Commercial Lines excludes policies written in our workers compensation line of business, which do not have statutory policy limits, but are covered by our casualty excess of loss treaty, which provides coverage for losses above $2 million.

We also purchase significant levels of reinsurance from reinsurers with an average credit rating of "A" or better. Our reinsurance program supports our ability to write accounts with larger policy limits by limiting the impact of individual property and casualty losses to $2 million per risk and $2 million per occurrence, respectively.

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Geographic Markets

We sell our insurance products and services in the following geographic markets:

•Standard Commercial Lines products and services are primarily sold in 27 states located in the Eastern, Midwestern, and Southwestern regions of the U.S. and the District of Columbia.

•Standard Personal Lines products and services are sold in 15 states located in the Eastern, Midwestern, and Southwestern regions of the U.S. However, flood insurance, which is reported in this segment, is sold in all 50 states and the District of Columbia.

•E&S Lines products and services are sold in all 50 states and the District of Columbia.

Our growth strategy also includes a measured geographic expansion plan focused on organic growth. We plan to expand our current 27-state Standard Commercial Lines segment footprint to 30 by 2022, with the additions of Idaho, Vermont, and Alabama subject to regulatory approval. We also anticipate further geographic expansion in other selected states beyond 2022. Ultimately, we expect to be licensed to distribute our Standard Commercial Lines insurance policies in the 48-state Continental U.S. and the District of Columbia. This expansion will position us to cover customers that are based in our core geographic footprint that have additional exposures currently outside of our core footprint, allowing us to compete against insurers with national footprints.

We support geographically diversified business from our corporate headquarters in Branchville, New Jersey, our six regional branches (referred to as our “Regions”), and our underwriting and claims service center in Richmond, Virginia. The table below lists our Regions and their main office locations:

Region Office Location

Heartland Indianapolis, Indiana

New Jersey Hamilton, New Jersey

Northeast Branchville, New Jersey

Mid-Atlantic Allentown, Pennsylvania and Hunt Valley, Maryland

Southern Charlotte, North Carolina

Southwest Scottsdale, Arizona

In addition, our E&S Lines has offices in Dresher, Pennsylvania and Scottsdale, Arizona.

Distribution Channel

We sell our insurance products and services through the following types of independent distribution partners:

•Standard Commercial Lines: Independent retail agents;

•Standard Personal Lines: Independent retail agents; and

•E&S Lines: Wholesale general agents.

We generally pay our distribution partners commissions calculated as a percentage of DPW, often supplemented by amounts based on profitability or other considerations for business placed with us. We seek to compensate them fairly and consistently with market practices. No one independent distribution partner is responsible for 10% or more of our combined insurance operations' premium. Our top 20 distribution partners generated approximately 36% of our DPW, excluding the flood line of business, in 2020.

Independent Retail Agents

A 2020 Independent Insurance Agents & Brokers of America study reported that independent retail insurance agents and brokers write approximately 85% of standard commercial lines insurance and 36% of standard personal lines insurance in the U.S. We expect that independent retail insurance agents, which comprise the bulk of our independent distribution partners, will remain a significant force in overall insurance industry premium production because they generally represent multiple insurance carriers. This provides the customer with a wider choice of insurance products, more competitive pricing, and individualized risk-based consultation.

We have approximately 1,400 distribution partners selling our Standard Commercial Lines business, and 850 of these distribution partners also sell our Standard Personal Lines business. These 1,400 distribution partners sell our products and services through approximately 2,400 office locations. We also have approximately 6,000 distribution partners selling our flood insurance products.

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Wholesale General Agents

Our distribution partners for our E&S Lines are 90 wholesale general agents with a combined 300 office locations. We have granted limited binding authority to these wholesale general agents for risks that meet our prescribed underwriting and pricing guidelines.

Marketing

Our primary marketing strategy is to:

•Use an empowered field underwriting model to provide our distribution partners with resources within close geographic proximity to their businesses and our mutual customers. For further discussion on this model, see the “Technology, Innovation, and Field Model” section below.

•Develop close relationships with each distribution partner, particularly their principals and producers, by (i) soliciting their feedback on products and services, (ii) advising them of our product development efforts, and (iii) providing education and development programs focused on producer recruitment, sales training, enhancing customer experience, online marketing, and distribution operations, all of which are designed to help them profitably grow and succeed in today's market.

•Develop annual goals with each distribution partner, and then carefully monitor these goals regarding (i) types and mix of risks placed with us, (ii) new business and renewal retention expectations, (iii) customer service, (iv) pricing of their in-force book and changes in renewal prices, and (v) profitability of business placed with us.

•Develop brand recognition with our customers through our marketing efforts to be recognized as a proactive risk manager that provides the unique value-added products and services that customers seek. These unique products and services, along with our proactive communication and focus on a superior customer experience, help position us as a leader in the marketplace.

Technology, Innovation, and Field Model

We continue to evolve our technology and field model by maintaining a strong focus on innovation. This allows us to provide our customers with "around the clock" digital access to account information and transactional capabilities. While many insurers offer such digital customer solutions in personal lines, we strive to be a digital and customer experience leader in all three segments of our insurance operations.

Technology

We leverage technology in our business. We have made significant investments in IT platforms, integrated systems, and Internet-based applications, and have utilized predictive models for over 15 years in our Standard Commercial Lines underwriting.

We make these technology investments to provide:

•Our distribution partners with accurate business information and the ability to easily process policy transactions that seamlessly integrate into our systems. During 2020, we were recognized as a "Five-Star Carrier" by Insurance Business America (IBA) for superior performance in seven of the eight key categories, one of which was technology and automation.

•Our service representatives with a customer-centric view of our policyholders, as opposed to a traditional policy-centric view, which helps us to respond faster to customer inquiries and complements our on-demand access to digital transactional capabilities.

•Our underwriters with advanced underwriting and pricing tools that enhance profitability and enable premium growth by providing pricing guidance and automating the retrieval of relevant public information on existing policyholders and potential customers.

•Our claims adjusters with predictive tools that indicate which claims are likely to escalate, or result in fraud, subrogation, or litigation.

As part of our digital strategy, we provide our Standard Commercial Lines and Standard Personal Lines customers with a mobile application and a web-based portal, both of which we encourage policyholders to adopt for on-demand self-service

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access to account information, electronic bill payment, and claims reporting. We also provide other digital value-added services to all of our customers, such as proactive messaging about vehicle and product recalls, adverse weather, and claim status. For example, we launched a proactive communication message to our customers regarding notification of adjuster assignment, which during 2020 resulted in a decrease of adjuster transfers and adjuster inquiries by approximately 1,000 cases per month, or approximately a 40% reduction.

We manage our IT projects through an Enterprise Project Management Office (“EPMO”). The EPMO is supported by certified project managers who apply methodologies to (i) communicate project management standards, (ii) provide project management training and tools, (iii) manage projects, (iv) review project status, including external and internal costs and any projected net present value of project benefits, and (v) provide non-technology project management consulting services to the rest of the organization. The EPMO, which includes senior management representatives from all major business and corporate areas, meets regularly to review all major initiatives and receives reports on the status of other projects. The EPMO is an important factor in the success of our business strategy and technology implementations.

Our primary technology operations are located in Branchville, New Jersey and Glastonbury, Connecticut. To augment our internal resources, we have agreements with multiple consulting, IT, and supplemental staffing service providers. Collectively, these mainly U.S.-based providers supply approximately 54% of our skilled technology capacity. We retain management oversight of all projects and ongoing IT production operations. If we were to terminate an existing technology service provider, we have procedures in place to be able to manage an efficient transition to new vendors without significant impact to our operations.

Innovation

To advance (i) an organizational culture of innovation, (ii) our nimbleness, (iii) our digital and customer experience initiatives, and (iv) our long-term value proposition to our customers and distribution partners, we have undertaken several important strategic actions. We:

•Created a team dedicated to innovation and continuous improvement under a chief innovation officer. This team was established to (i) apply proven innovation techniques and methods for identifying, prioritizing, and advancing strategic innovative ideas and opportunities, (ii) stay abreast of the key industry and insurance technology trends that impact our customers, distribution partners, and employees, and (iii) further expand our culture of innovation by providing training and skill-building opportunities, facilitating departmental and cross-functional strategy and innovation sessions, and leading relevant communities of interest that intersect with the lifecycle of innovation;

•Opened an innovation lab at our corporate headquarters to spur innovation generally and further our efforts to identify and deploy product, agency and customer experience, and operational efficiency improvements; and

•Established an Insurtech Investment Committee to review and take action on potential investment opportunities in technology and Insurtech vehicles that may positively impact our business or the industry.

These efforts position us to offer customers an improved service experience and better position us to demonstrate our long-term value proposition to our customers and distribution partners.

Our digital and customer experience initiatives have helped us introduce the following solutions:

•SelectiveGOSM - a free-to-customer driving mobile application that we launched in late 2020 to our Standard Personal Lines customers in certain states, which provides driver performance features to help customers improve their driving with detailed feedback on speeding, harsh braking, rapid acceleration, and more.

•Selective® Drive - a free-to-customer, commercial vehicle fleet management tool that we launched in 2019 that detects unsafe driving behaviors and provides additional information to help our customers manage their vehicles and drivers.

In addition, during the second half of 2020, we began rolling out a new platform within our Standard Commercial Lines segment designed to streamline the quoting and issuance of new small business policies for our distribution partners. We generally consider small business to be lower hazard business in specific industry classifications with premiums less than $25,000. Writing small business has always been a core part of our strategy. Technology, as well as the number of market participants in this space, has been advancing rapidly in recent years. We launched a multi-year strategy with an emphasis on improving the ease and speed of writing small business, and are reinforcing our commitment to our distribution partners in this market by offering a best-in-class small business experience. We are advancing the user experience of our rating platform by streamlining the amount of information required to generate a quote. This new small business platform has been deployed for

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our businessowners' policies and commercial automobile lines of business. The enhanced system allows our agents to quote and issue over 400 businessowners' classes, including Professional Offices, Florists, Technology, and Funeral Homes. Our plans include adding additional capabilities and more lines of business in 2021 to help us maximize new business growth and share of small business with our distribution partners.

Field Model

To support our independent distribution partners, we employ a unique field model in which (i) our Standard Commercial Lines underwriting and safety management personnel are located in the geographic territories they serve and (ii) our claims operation is organized regionally by claim specialty with local resources who manage our customer relationships. This field model builds better and stronger relationships with our independent distribution partners due to our field employees' close proximity and direct interaction with them and our customers. We enhance the field model with our sophisticated tools and technologies to inform underwriting, pricing, safety management, and claims decisions. At December 31, 2020, we had approximately 2,400 employees, of whom 675 are normally home-based, 950 are in our regional offices, and the remainder are in our corporate office. Currently, as a result of the COVID-19 pandemic, the majority of our office-based employees are temporarily working remotely from home.

Underwriting Process

Our underwriting process by segment is as follows:

•Standard Commercial Lines: Our Standard Commercial Lines corporate underwriting department oversees our underwriting guidelines and philosophy for each industry segment and line of business. The Chief Underwriting Officer ("CUO") delegates underwriting authority throughout the organization through formal letters of authority based on an individual underwriter's job grade and industry and line of business expertise. Our corporate underwriting department also coordinates with our corporate actuaries to determine adequate pricing levels for all Standard Commercial Lines products.

Under the authorities delegated by the CUO, our regional underwriting operations make the majority of individual underwriting and pricing decisions. New business is underwritten by Agency Management Specialists ("AMSs"), with contributions from Production Underwriters, Small Business Teams, and Large Account Underwriters. Renewal business is underwritten in each Region, but some business is renewed in our underwriting service center ("USC"), where underwriters are assigned to specific agents. With this model, production resources are focused on new opportunities with our agents, which provides capacity for the best profitable growth opportunities. In addition, our separate group of renewal underwriters remain focused on retaining our best accounts and driving profit improvement goals within the portfolio.

Our field model also provides a wide range of Standard Commercial Lines customer-focused safety management services focused on improving safety and risk management programs, loss experience, and retention including:

•Risk evaluation, and virtual and on-site improvement surveys intended to evaluate potential exposures and provide solutions for mitigation;

•Internet-based safety management educational resources, including a large library of coverage-specific safety materials, videos and online courses, such as defensive driving and employee educational safety courses;

•Thermographic infrared surveys used to identify potential electrical hazards; and

•Occupational Safety and Health Administration construction and general industry certification training.

We brand these services as “Safety Management: Solutions for a safer workplace.”SMWe have 83 safety management specialists supporting policyholders in the field. These specialists regularly interact with customers and prospective accounts. They provide advice on risk mitigation for perils such as property damage as well as liability risks, including how to avoid abuse claims. By understanding our customers' exposures and recommending safety enhancements to reduce the risk from those exposures, our safety management specialists help us make better new and renewal underwriting decisions, while helping customers improve the safety of their operations.

To further our safety management efforts, over the past two years we have embarked on initiatives to proactively service policyholders with notifications and alerts, risk identification and mitigation of potential loss occurrence, and tools and technologies that can reduce losses and improve safety. Examples include:

•Vehicle recall notifications to our policyholders and distribution partners;

•Weather preparation notices for large storms or hurricanes, including guides on structural improvements, roof and drainage maintenance, and measures to prevent plumbing from freezing or clogging; and

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•Food and product recall notifications to policyholders in food manufacturing, distribution, or preparation.

•Standard Personal Lines: Our Standard Personal Lines underwriting operations are centralized and highly automated. The majority of our new and renewal business is underwritten and priced through an automated system reflecting our filed rates and rules. Exceptions are approved under the direction of our Standard Personal Lines CUO. For long-term growth in this segment, we are actively repositioning our Standard Personal Lines business to provide our insurance products to a customer base that is less price sensitive, and more focused on insurance product coverage and service.

•E&S Lines: Our E&S territory managers focus on marketing our product capabilities, training on our guidelines and automation and collection of market intelligence with our wholesale general agents. In return, our wholesale general agents provide front-line underwriting for new business and renewals pursuant to our prescribed guidelines. Our underwriters review all exceptions submitted by our wholesale general agents for approval, revision or declination based on individual account risk characteristics.

Our USC services certain Standard Commercial Lines and Standard Personal Lines accounts designated by our independent distribution partners. All of our USC employees are licensed agents who respond to policyholder inquiries about insurance coverage, billing transactions, and other matters. For the convenience of our handling of USC transactions, our distribution partners agree to receive a slightly lower than standard commission on the associated premium. As of December 31, 2020, our USC was servicing NPW of $85.5 million, which represents 3% of our total NPW.

Claims Management

Timely and appropriate investigation of a claim's facts and circumstances in light of our policy's terms, conditions, and exclusions is one of the most important services we provide to our policyholders, their claimants, and our distribution partners. It also is one of the critical factors in achieving underwriting profitability. In the fourth quarter of 2020, we restructured our claims management process to more effectively administer claims. To address the increasing complexity of coverage evaluation, construction methods, and litigation, we have structured our claims organization to emphasize:

•Claims handling by technical areas of expertise, such as auto liability, general liability, property, and workers compensation;

•Claims customer managers and agency executives ("CAEs") who have responsibility for enhancing the relationship among our policyholders, agents, and our claims operation. The CAEs provide a single point-of-contact for our large account customers and distribution partners. They work with our regional underwriters to ensure appropriate claims service delivery, communicate trends, and discuss results and client services;

•Cost-effective delivery of claims services and control of loss and loss expense; and

•Timely and adequate claims reserving and resolution.

We deploy specialized claims handling as follows:

•Liability claims with high severity or technically complex losses are handled by the Complex Claims and Litigation Unit ("CCU"). The CCU specialists handle losses based on injury type or with expected severities greater than $250,000 in our Standard Commercial Lines and Standard Personal Lines.

•Litigated matters not meeting the CCU criteria are handled within our litigation unit, where regional litigation managers supervise teams of litigation adjusters aligned by jurisdiction and technical experience.

•E&S claims are handled by a dedicated group with specific expertise in E&S coverages, which differ from and often provide more limited coverages than Standard Lines offerings.

•Workers compensation claims are handled by a centralized team in Charlotte, North Carolina. Medical-only and lost-time adjusters, who are aligned and trained by jurisdiction, manage non-complex workers compensation claims within our footprint. Claims with high exposure or significant escalation risk are referred to the workers compensation strategic case management unit.

•Low-severity, high-volume property claims are handled by the claims service center ("CSC"). Certain complex claims that do not involve structural damage (e.g. employee dishonesty and equipment breakdown losses) are handled by a small group of specialists in the CSC. The CSC has adopted the use of virtual claims handling tools in order to quickly assess the value of smaller claims and pay them in a timely and appropriate manner.

•The Large Loss Unit ("LLU") handles complex property claims, typically those greater than $100,000.

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•We centralize the following claims to align the highest level of expertise: (i) asbestos and environmental claims; (ii) construction defect claims; and (iii) other latent claims, including those related to abuse or molestation.

The CSC is co-located with the USC in Richmond, Virginia. The CSC receives first notices of loss from our customers and claimants about Standard Commercial Lines, Standard Personal Lines, and E&S Lines claims and manages routine, non-injury automobile and property claims. The CSC, which assigns claims to our specialized claims handling groups as warranted by complexity, is organized to:

•Reduce claims settlement times on first- and third-party automobile property damage claims;

•Increase the use of body shops, glass repair shops, and car rental agencies with which we have negotiated discounted rates and specified service levels;

•Handle and settle small property claims; and

•Investigate and negotiate auto liability claims.

The CSC uses a virtual automobile appraisal process managed by our team of appraisers from remote locations. This allows the CSC to process automobile physical damage claims faster and more efficiently. It also allows us to accumulate substantial data that will help us make ongoing improvements to our appraisal function.

The Special Investigative Unit ("SIU") supports all insurance operations and investigates potential insurance fraud and abuse, consistent with law and direction from regulatory bodies and trade associations. The SIU adheres to uniform internal procedures to improve detection and take action on potentially fraudulent claims. We have developed a proprietary SIU fraud detection model that identifies potential fraud cases early in a claim's life. The SIU supervises anti-fraud training for all claims adjusters and AMSs. Its operation sends a clear message that we will not tolerate fraud against our policyholders or us. Our practice (and usually our legal requirement) is to notify the proper authorities of SIU findings.

Insurance Operations Competition

We face substantial competition in the insurance marketplace, including from public, private, and mutual insurance companies, some of which have better brand recognition and/or lower cost of capital. Many of our competitors, like us, rely on independent partners for the distribution of their products and services. Other insurance carriers either employ their own agents who only represent them, or use a combination of distribution partners, captive agents, and direct marketing.

Within each of our insurance segments, the property and casualty insurance market is highly competitive, and market share is fragmented among many companies, particularly in Standard Commercial Lines and E&S Lines. We compete primarily with regional and national insurers, mostly based on price, coverage terms, claims service, customer experience, safety management services, ease of technology usage, and financial ratings. We also face increased competition from established direct-to-consumer insurers, and existing competitors and new entrants that may have a lower cost structure and leverage digital technology that may offer enhanced servicing capabilities or enhanced customer experience.

Investments Segment

Our Investments segment seeks to generate net investment income by investing the premiums we receive from our insurance operations and the amounts generated through our capital management strategies, which may include the issuance of debt and equity securities. Our investment portfolio mainly consists of fixed income securities, which primarily includes corporate securities, asset-backed securities, mortgage-backed securities, and state and local municipal obligations. As of December 31, 2020, 13% of this portfolio was invested in floating rate securities that reset principally on the 90-day U.S. dollar-denominated London Interbank Offered Rate ("LIBOR"). We also hold both public and private equity securities, commercial mortgage loans, short-term investments, and other investments. Other investments primarily includes alternative investments.

The primary objective of our investment portfolio is to maximize after-tax net investment income subject to our risk appetite, market conditions, and our desire for long-term growth in book value. Our investment strategy and objectives are managed by our Management Investment Committee, and are executed by our internal investment team and relationships with multiple external investment managers. This committee is comprised of senior management and is responsible for setting and implementing the investment objectives and the asset allocation, administering investment policies, selecting qualified external investment managers and advisors, and monitoring performance, transactions, and certain risk metrics, in the execution of our investment strategy. Members of this committee are appointed by our Board's Finance Committee. The Finance Committee reviews and makes recommendations to our Board with respect to certain financial affairs and our policies, including, but not limited to, investments and investment policies and guidelines, financial planning, capital structure and management, dividend policy and dividends, share repurchases, and strategic plans and transactions.

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For further information regarding our risks associated with the overall investment portfolio, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” and Item 1A. “Risk Factors.” of this Form 10-K. For additional information about investments, see the section entitled, “Investments Segment,” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” and Note 5. "Investments" included in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K.

Regulation

Primary Oversight by the States in Which We Operate

Insurance is regulated, primarily at the state level, because of the McCarran-Ferguson Act. The primary public policy behind insurance regulation is protecting policyholders and claimants over all other constituencies, including shareholders. Insurance activities regulated by the states include the following:

•Our ability to meet financial requirements to be able to pay claimants: Oversight of matters such as: minimum capital; surplus; solvency standards; accounting methods; form and content of statutory financial statements and other reports; loss and loss expense reserves; investments; reinsurance; dividend payments and other distributions to shareholders; security deposits; and periodic financial examinations.

•Protection of policyholders: Related to our property and casualty insurance business, oversight of matters such as: certificates of authority and other insurance company licenses; licensing and compensation of distribution partners; premium rates (required to not be excessive, inadequate, or unfairly discriminatory); policy forms; policy terminations; claims handling and related practices; cybersecurity; data protection and customer privacy; reporting of premium and loss statistical information; periodic market conduct examinations; unfair trade practices; mandatory participation in shared market mechanisms, such as assigned risk pools and reinsurance pools; mandatory participation in state guaranty funds; and mandated continuing workers compensation coverage post-termination of employment.

•Protection of policyholders, claimants, and shareholders: Related to our ownership of the Insurance Subsidiaries, oversight of matters such as: registration of insurance holding company systems in states where we have domiciled insurance subsidiaries, reporting about intra-holding company system developments, and required pre-approval of certain transactions that may materially affect the operations, management, or financial condition of the insurers, including dividends and change in control.

NAIC Financial Monitoring Tools

Our various state insurance regulators are members of the National Association of Insurance Commissioners ("NAIC"). The NAIC has established statutory accounting principles ("SAP") and other accounting reporting formats and model insurance laws and regulations governing insurance companies. The adoption of certain NAIC model laws and regulations is a key aspect of the NAIC Financial Regulations Standards and Accreditation Program, under which state insurance departments recognize the financial examinations and reviews done by other state insurance departments, which benefits insurance companies operating in multiple states by avoiding overlapping examinations. However, an NAIC model statute only becomes a law after a state legislature enacts it, and an NAIC model rule only becomes a regulation after a state insurance department promulgates it.

The following are among the NAIC's various financial monitoring tools, most predicated on NAIC model laws and regulations that are material to the regulators in states in which our Insurance Subsidiaries are organized:

•The Insurance Regulatory Information System ("IRIS"). IRIS identifies 13 industry financial ratios and specifies “usual values” for each ratio. Departure from the usual values on four or more of the financial ratios can lead to inquiries from individual state insurance departments about certain aspects of an insurer's business. Our Insurance Subsidiaries have consistently met the majority of the IRIS ratio tests.

•Risk-Based Capital ("RBC"). RBC is measured by four major areas of risk to which property and casualty insurers are exposed: (i) asset risk; (ii) credit risk; (iii) underwriting risk; and (iv) off-balance sheet risk. Regulators increase their scrutiny, up to and including intervention, as an insurer's total adjusted capital declines below three times its "Authorized Control Level." Based on our 2020 statutory financial statements prepared in accordance with SAP, the total adjusted capital for each of our Insurance Subsidiaries substantially exceeded three times their Authorized Control Level.

•Annual Financial Reporting Regulation (referred to as the "Model Audit Rule"). The Model Audit Rule, based closely on the Sarbanes-Oxley Act of 2002, as amended ("Sarbanes-Oxley Act"), regulates (i) auditor independence, (ii) corporate governance, and (iii) internal control over financial reporting. As permitted under the Model Audit Rule, the

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Audit Committee of the Board of the Parent can also serve as the audit committee of each of our Insurance Subsidiaries, even if the Parent is not an insurance entity.

•Own Risk and Solvency Assessment ("ORSA"). ORSA requires an insurer to maintain a framework for identifying, assessing, monitoring, managing, and reporting on the “material and relevant risks” associated with the insurers' (or insurance groups') current and future business plans. ORSA, which the state insurance regulators of our Insurance Subsidiaries have adopted, requires an insurer to annually file an internal assessment of its solvency. For more information on our internal process of assessing our major risks, refer to the "Enterprise Risk Management" section below.

NRSROs

Rating agencies, although not formal regulators, also monitor our capital adequacy. Two are (i) AM Best Company, with its Capital Adequacy Ratio ("BCAR"), and (ii) S&P, with its capital model. Both examine the strength of an insurer's balance sheet and compare available capital to estimated required capital at various probability or rating levels. BCAR and the S&P model differ from the NAIC financial monitoring tools, particularly RBC. While RBC, BCAR, and the S&P capital model all show similar direction as circumstances change, they react differently to changes in economic conditions, underwriting and investment portfolio mix, and capital. Rating agencies also update and change their capital adequacy models and requirements more frequently than the NAIC does its financial monitoring tools. We analyze this divergence in capital adequacy models as we manage our capital, risk profile, and growth objectives.

Federal Regulation

While primarily regulated at the state level, our business is subject to certain federal laws and regulations, including:

•The McCarran-Ferguson Act;

•The Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA");

•The NFIP, which is overseen by the Mitigation Division of the Federal Emergency Management Agency ("FEMA");

•The Medicare, Medicaid, and SCHIP Extension Act of 2007, which subjects our workers compensation business to Mandatory Medicare Secondary Payer Reporting;

•The economic and trade sanctions of the Office of Foreign Assets Control (“OFAC”);

•Various privacy laws related to possession of personal non-public information, including the following:

◦Gramm-Leach-Bliley Act;

◦Fair Credit Reporting Act;

◦Drivers Privacy Protection Act; and

◦Health Insurance Portability and Accountability Act.

•The Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which govern, among other things, publicly-traded companies and require or permit national stock exchanges or associations, such as the Nasdaq Stock Market LLC, where our securities are listed, to mandate certain governance practices of their listed companies.

The Dodd-Frank Act, enacted in 2010 in response to the 2008 and 2009 financial markets crises, provided for some public company corporate governance reforms and some oversight of the business of insurance, including:

•Establishing the Federal Insurance Office (“FIO”) under the U.S. Department of the Treasury; and

•Granting the Federal Reserve oversight of financial services firms designated as systemically important.

The FIO, consistent with its Dodd-Frank Act (i) negotiated a covered agreement with the European Union that, among other things, impacted reinsurance collateral requirements for foreign reinsurers, and (ii) has been gathering insurance market data.

For additional information on the potential impact of regulation and changes in regulation on our business, refer to the risk factor related to regulation within Item 1A. “Risk Factors.” of this Form 10-K.

Enterprise Risk Management

As a property and casualty holding company, our Insurance Subsidiaries are in the business of taking risk. We categorize our major risks into six broad categories:

•Asset risk, which stems primarily from our investment portfolio and reinsurance recoverables and includes credit and market risk;

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•Underwriting risk, which is the risk that our insured losses exceed our expectations, including:

◦Losses from inadequate loss reserves;

◦Larger than expected non-catastrophe current accident year losses; and

◦Catastrophe losses that exceed our expectations or our reinsurance treaty limits.

•Liquidity risk, which is the risk we will be unable to meet contractual obligations as they become due because we are unable to liquidate assets or obtain adequate funding without incurring unacceptable investment losses or borrowing expense;

•Pension risk, which is the risk that our obligations under the Retirement Income Plan for Selective Insurance Company of America exceed our expectations because the invested assets supporting those obligations underperform or there are adverse changes in the assumptions we used to calculate the pension liabilities;

•Other risks, which include a broad range of operational risks, many difficult to quantify, such as talent/human capital, market conditions, economic, legal, regulatory, reputational, and strategic risks - as well as the risks of fraud, human failure, modeling risks, inadequate business continuity plans, or failure of controls or systems, including, rapidly-evolving cybersecurity risk; and

•Emerging risks, which include risks in each of the other five categories, but are new, rapidly evolving, or increasing substantially compared to historical levels. For example, we consider the increased frequency and intensity of severe wildfires, the exposures created by the legalization of cannabis, the recent passage of reviver statutes for victims of abuse, the various potential impacts from climate change, and the significant economic and societal impacts from the COVID-19 pandemic, all to be emerging risks.

Our internal control framework deploys three-lines of defense:

•The first line of defense are the individual business functions that deliberately assume, own, and manage the risk on a daily operational basis.

•The second line of defense is responsible for risk oversight and also supports the first line to understand and manage risk. Our Chief Risk Officer, who reports to the Chief Financial Officer, leads a dedicated risk team responsible for this second line.

•The third line of defense is our Internal Audit team that, with oversight from our Board's audit committee, provides independent, objective assurance as to the assessment of the adequacy and effectiveness of our internal control environment. Internal Audit also coordinates risk-based audits, compliance reviews, and other specific initiatives to evaluate and address risk within targeted areas of our business.

We use Enterprise Risk Management (“ERM”) as part of our governance and control process to take an entity-wide view of our major risks and their potential impact. We designed our ERM framework to identify, measure, report, and monitor our major risks and develop appropriate responses to support successful execution of our business strategies.

Our Board oversees our ERM process, and the various Board committees oversee risks specific to their areas of supervision and report their activities and findings to the Board. Management has formed an Executive Risk Committee ("ERC") that is responsible for the holistic monitoring and management of our risk profile. The ERC consists of the Chief Executive Officer, his direct reports and key operational and financial leaders, including the Chief Risk Officer. The ERC relies on several management committees, such as the Emerging Risk Committee and the Underwriting Committee, for detailed analysis and management of specific major risks. The Chief Risk Officer reports on the ERC's activities, analyses, and findings to the Board or the appropriate Board committee, and provides a quarterly update on certain risk metrics.

High-quality, effective ERM is best achieved as a shared organizational cultural value that is the responsibility of every employee. We have developed processes and tools that we believe support a culture of risk management and create a robust organizational ERM framework. We also designed our compensation policies and practices, as well as our governance framework and Board leadership structure, to support our overall risk appetite and strategy. Our ERM processes and practices help us to identify potential events that may affect us, and quantify, evaluate, and manage the significant risks we face.

We rely on quantitative and qualitative tools to identify, prioritize, and manage our major risks, including proprietary and third-party computer modeling and various other analyses. The ERC meets at least quarterly to review and discuss various topics and the interrelation of our major risks, including, without limitation, capital modeling results, capital adequacy, risk metrics, emerging risks, and sensitivity analysis. When appropriate, we engage subject matter experts, such as external actuaries, third-party risk modeling firms, and IT and cybersecurity consultants. Annually, our Insurance Subsidiaries file their ORSA report, an internal solvency assessment developed by the Chief Risk Officer in coordination with the ERC, with their domiciliary regulator after review by our Board.

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COVID-19 has been a significant emerging risk and a focus of the ERC in 2020, and will continue to remain a focus into 2021. To monitor and manage COVID-19-related developments, our ERC met daily in March, multiple times a week through April, transitioned to weekly meetings in May, June, and July, and since has met monthly. The ERC continues to actively review and address all significant operational, compliance, and financial risk matters related to COVID-19. This oversight includes matters such as employee health and safety, facilities matters, operational business continuity, IT including third-party vendors, regulatory developments, premium collections, past due accounts, investments, liquidity, capital, cash flow, claims activity, and other key business metrics. Our Management Investment Committee, which has oversight of our investment portfolio, also met weekly in the early days of the COVID-19-related financial market disruption, transitioned to meeting every two weeks, and now meets monthly. This committee has carefully reviewed detailed portfolio metrics and market projections and, during the crisis, has communicated and met regularly with our portfolio managers, allowing it to make proactive investment decisions on an informed basis. Our Board met weekly with senior executives through April, transitioned to bi-weekly meetings in May, June, and July, and since has met monthly to ensure appropriate corporate governance and oversight.

We have not had to modify our existing internal controls or processes in any significant way in response to the pandemic and we have not experienced any material impact to our internal control environment over financial reporting despite having the majority of our employees working remotely in response to the pandemic. We are continually monitoring and assessing COVID-19-related current events to minimize their potential impact on our internal controls and their design and operating effectiveness.

Given the COVID-19-related governmental actions and directives, remote access to critical systems is required. For several years, our IT security strategy has emphasized endpoint controls for cloud computing and employee mobility. This strategy leveraged a virtual private network with multi-factor authentication that is supplemented by a virtual desktop infrastructure, where necessary or appropriate, to create a highly-available and centrally-managed end-user environment. The technology supporting this strategy was already in use by our 675 home-based employees, as well as anyone working remotely on an ad hoc basis. As a result, our cybersecurity program was well-positioned to support increased remote working arrangements and respond to an increase in attempted attacks to exploit the COVID-19 outbreak without rolling back controls. Our cybersecurity strategy also has always included an information security education and awareness program that combines training with testing aligned to key security exposures, including phishing and social engineering, which is an ongoing challenge for our employees and vendors. We recently strengthened our phishing risk management by deploying multiple technology-driven controls that include malicious content checks, malicious link blocking, and reputation-based rules. The cybersecurity program also anticipated an increase in attempts to disrupt our information systems and deployed safeguards to prevent interruption to key customer and agent-facing technologies.

Our risk governance structure facilitates robust risk dialogue across all levels and disciplines of the organization. It also promotes robust risk management practices, which served us well in 2020 as we evaluated and managed the emerging risk of COVID-19. All of our strategies and controls, however, have inherent limitations. We cannot be certain that an event or series of unanticipated events will not occur and generate losses greater than we expect and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. An investor should carefully consider the risks and all of the other information included in Item 1A. “Risk Factors.”, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.", and Item 8. “Financial Statements and Supplementary Data." of this Form 10-K.

Reports to Security Holders

We file with the U.S. Securities and Exchange Commission ("SEC") all required disclosures, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements, and any amendments to these reports that we file or furnish pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), which can be accessed on the SEC's website, www.SEC.gov. We also provide access to these filed materials on our Internet website, www.Selective.com.

Item 1A. Risk Factors.

Certain risk factors can significantly impact our business, liquidity, capital resources, results of operations, financial condition, and debt ratings. These risk factors might affect, alter, or change actions we might take executing our long-term capital strategy. Examples include, without limitation, contributing capital to any or all of the Insurance Subsidiaries, issuing additional debt and/or equity securities, repurchasing our existing debt and/or equity securities, or increasing or decreasing stockholders’ dividends. We operate in a continually changing business environment and new risk factors emerge from time to time. Consequently, we can neither predict such new risk factors nor assess the potential future impact, if any, they might have on our business.

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Risks Related to COVID-19

Governmental actions to contain or delay the spread of the COVID-19 pandemic since early March 2020 have disrupted ordinary business commerce and impacted financial markets. These governmental actions, for which we cannot predict the extent, duration, and possible alteration based on future COVID-19-related developments, could materially and adversely affect our results of operations, financial position, and liquidity.

These actions generally have:

•Negatively impacted the global and United States domestic economies, with some sectors such as travel and leisure, retail, energy, and real estate more significantly affected than others;

•Increased unemployment;

•Increased international, federal, state, and local government budget deficits, which has led to adverse rating actions against certain governmental units and increased the general risk of government debt default that could impact the value of related fixed income securities;

•Induced significant volatility in financial markets;

•Decreased valuations in markets for equity, fixed income, and alternative investments in certain sectors;

•Impacted individual income and business revenue, and increased the number of individuals and businesses experiencing financial distress with the potential for insolvency;

•Decreased premium collections, late payment fees, and reinstatement fees;

•Generated state and federal legislative or executive branch proposals to (i) require insurance policies to retroactively cover COVID-19-related losses expressly excluded under the terms of some property insurance policies, and (ii) presume that COVID-19 is a work-related illness for certain employees under workers compensation policies;

•Generated state insurance department bulletins or orders requesting or mandating premium credits and rebates on certain insurance policies that may exceed actual COVID-19-related frequency experience decreases;

•Disrupted commerce, supply chains, and travel to varying degrees;

•Increased expense management focus by individuals and all-sized businesses;

•Increased the demand for and/or limited the availability of certain types of medical resources; and

•Increased e-commerce, video, phone, and other methods of remote trade and business transaction.

The economic impacts of the COVID-19-related governmental actions may impact our revenue, loss and loss expense, liquidity, or regulatory capital and surplus, and operations, particularly as these relate, without limitation, to the following:

Impact on Our Insurance Operations

•Because our general liability and workers compensation policies provide for premium audit to assure pricing for actual risk exposure, we must estimate return premium that we may owe policyholders for revenues and payrolls lowered by the extent and duration of the COVID-19-related governmental directives and related economic contraction. Such return premiums could be significant and will impact our underwriting results. Our results include the impact of a $75 million return audit and mid-term endorsement premium accrual recorded in the first quarter of 2020, which reflects our estimate of reduced exposures on the in-force workers compensation and general liability portfolio as of March 31, 2020. As of December 31, 2020, we had a remaining accrual of $24.8 million.

•In the second quarter of 2020, we offered a credit equal to 15% of insureds’ premiums for our standard lines commercial automobile and personal automobile lines of insurance for April and May totaling $19.7 million. This two-month premium credit was based on a limited amount of claims reporting data reflecting the impact of the COVID-19-related governmental directives on miles driven, which has reduced claims frequencies. Due to the sudden and dynamic nature of these impacts, we did not rely upon traditional actuarial analysis to support these credits. We will not know the actual impact of the COVID-19-related governmental actions until some point in the future. Should the various governmental directives be extended or reinstated due to increased infection rates, we may give further premium credit to our customers to the extent supported by further analysis. Based on the continued COVID-19-related economic impact, state insurance commissioners may take other regulatory actions requiring additional premium credits in commercial and personal automobile and other lines, and we face the risk that we may be required to return more premium than is warranted by our filed rating plans and actual loss experience.

•All of our commercial property and businessowners' policies require direct physical loss of or damage to property by a covered cause of loss to trigger a business interruption claim. Whether COVID-19-related contamination, the existence of a pandemic, and/or the resulting government shutdown orders cause physical loss of or damage to property continues to be the subject of much debate and litigation. We cannot predict the outcome of that litigation. Our practice is to include in, or attach to, all standard lines commercial property and businessowners' policies an

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exclusion that states that all loss or property damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease is not a covered cause of loss. We offer some limited coverages that could apply in COVID-19-related claims and circumstances, primarily tied to clean-up and food-contamination that are subject to sub-limits. Approximately 95% of our commercial property and businessowners' policies include the very specific and regulatory approved virus exclusion.

•We purchase a significant amount of reinsurance, including a property catastrophe reinsurance program and property and casualty excess of loss reinsurance treaties. In response to the COVID-19 pandemic and recent increased catastrophic loss activity, the reinsurance industry is seeking to tighten contractual terms and conditions, reduce reinsurance capacity, and increase its pricing for reinsurance protection. Tightened terms and conditions include introducing new coverage exclusions, such as excluding losses related to communicable diseases, particularly for business interruption losses in property treaties and, to a lesser extent, in casualty treaties. To the extent we are exposed to losses on our primary policies from risks, such as communicable disease, these losses will most likely be excluded from coverage under our new reinsurance treaties, and we now face increased underwriting risk. This increased underwriting risk could increase our net loss and loss expenses and increase the volatility in our underwriting results. We experienced risk-adjusted reinsurance price increases at our January 1, 2021 renewals that were at rates higher than we are likely able to generate on the underlying insurance policies we sell.

•In response to the COVID-19 pandemic, there currently are various public policy debates and legislative and regulatory proposals at both the federal and state levels:

◦Certain states have proposed legislation that would impose liability (including retroactively) for COVID-19-related business interruption losses on policies that do not provide such coverage terms. We cannot predict the outcome of such proposals. We believe that if any of these proposals were enacted, they could impair future commercial activity and would likely be determined unconstitutional after being challenged through litigation. Nonetheless, if such proposals were enacted and upheld as constitutional, they could have a material impact on our profitability, liquidity, and overall financial condition and results of operations.

◦We are aware of four future pandemic insurance proposals being discussed in Washington, D.C., only one of which has been introduced as proposed legislation. Three of the proposals provide for insurer participation and put insurer capital at risk to various degrees. If any of the proposals involving insurer at risk capital were enacted, it could have a material impact on our profitability, liquidity, and overall financial condition and results of operations.

◦Certain state insurance departments have indicated that they currently (i) will not approve the filing of rate increases or decreases related – or unrelated – to COVID-19, and (ii) are suspending, limiting, or restricting the approval or attachment of new virus-related exclusions. To the extent any of these regulatory actions do not permit us to modify our rating plans, they could have a material impact on our profitability, liquidity, and overall financial condition and results of operations.

•Limited medical resources availability could result in medical inflation and complicate, delay and/or extend medical treatment that could impact exposure on workers compensation, general liability, and personal and commercial automobile claims.

•Economic inflation could increase our loss and loss expense reserves, particularly associated with our longer tail lines of business.

•We may have increased workers compensation loss and loss expenses if policyholders' employees in high-risk roles of essential businesses contracted COVID-19 in the workplace. We may experience higher frequency of workers compensation claims, particularly as state legislative or executive order proposals are enacted that create presumptions that the contraction of COVID-19 by an essential business employee who interacted with the public is work-related. We also may see an extension of workers compensation benefits if employees do not have jobs to which they can return.

•We may experience an increase in liability claims against our policyholders related to business practices as remote-office work-from-home employees return to their pre-COVD-19 office and business locations. This may be exacerbated by an active plaintiffs’ bar seeking to generate COVID-19-related claim activity.

•Loss frequency and severity could increase related to our auto and property coverages due to, among other things,

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disruptions in supply chains and changes in business practices and individual behaviors resulting from the shelter-in-place and social distancing measures, such as arson and fraud.

•Due to the COVID-19-related governmental orders, we may experience delayed reporting of losses, settlement negotiations, and trial of disputed claims that may disrupt our normal claims resolution processes and trends.

•Service levels could deteriorate if significant numbers of our (i) employees were to be simultaneously infected by COVID-19, whether working remotely or in one of our offices, and/or (ii) remote employees or key business partners are unable to work effectively while sheltering-in-place. Examples of potential work impacts include local internet disruption that prevents access to our virtual private network or similar unavoidable events. Because our employees are working remotely, it also is possible that we will be subject to increased cybersecurity attacks from bad actors.

Impact on our Investment Operations

•The COVID-19 pandemic and the related governmental orders may result in further significant equity and debt market volatility that could impact our net investment income due to the following:

◦Financial market volatility is reflected in our alternative investment portfolio performance;

◦A change in spreads on fixed income securities may create mark-to-market investment valuation losses and volatility in unrealized capital gains, which will impact GAAP equity;

◦Losses on securities that we intend to sell may increase, as we give our third-party investment managers flexibility to take advantage of the spread widening in fixed income securities, particularly in asset classes more significantly impacted by COVID-19-related governmental directives and to which the Federal Reserve Board is providing liquidity and structural support;

◦Economic inflation related to COVID-19 issues could be higher or lower than our expectations and impact our investment returns; and

◦A potential increase in credit risk associated with municipal bonds for which repayment is supported by dedicated revenue streams that may be impacted by COVID-19.

Impact on our Capital Position, Liquidity and Financial Leverage

•Out of an abundance of caution, we significantly increased our short-term debt during the first quarter of 2020 to enhance our liquidity and provide us with additional financial flexibility due to the market volatility and economic uncertainty from the COVID-19 pandemic. These short-term borrowings totaled $302 million, and we invested the proceeds in high-quality money market funds and fixed income securities. In addition to the $302 million of short-term borrowings, our GAAP equity decreased from $2.2 billion at December 31, 2019 to $2.1 billion at March 31, 2020, driven by a reduction in net unrealized gains in our investment portfolio. The combination of the additional borrowings and lower GAAP equity resulted in an increase in our debt to total capitalization ratio from 20.1% at December 31, 2019 to 28.9% at March 31, 2020, above our longer term target of 25%.

•We subsequently repaid these short-term borrowings by December 31, 2020.The reduction in the short-term borrowings, as well as an increase in our GAAP equity to $2.7 billion at December 31, 2020, inclusive of our issuance on December 2, 2020, of $200.0 million of 4.60% non-cumulative preferred stock ("Preferred Stock"), has decreased our debt to total capitalization ratio to 16.7% at December 31, 2020.

Despite the improvement in our capital position and a reduction in our debt to total capitalization since the first quarter of 2020, the ongoing COVID-19 pandemic, in future periods, could cause a reduction in our GAAP income or equity, decrease our liquidity, and result in an increase in our debt to total capitalization.This could impact our financial strength ratings and impair our business.

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Risks Related to our Insurance Operations

We are subject to losses from catastrophic events.

Losses from natural and human-made catastrophes including, without limitation, hurricanes, tornadoes, windstorms, earthquakes, hail, severe winter weather, derechos, floods, and fires, some related to climate change - and terrorism, including cyber-attacks, civil unrest, and explosions, can negatively impact our financial results. The frequency and severity of these catastrophes are inherently unpredictable. In recent years, the global insurance industry has seen an escalation in the frequency and severity of losses from catastrophes.

The United Nation’s Intergovernmental Panel on Climate Change (“IPCC”) is an international body responsible for assessing climate change science. In 2018, the IPCC reported in its "Special Report on Global Warming of 1.5°C" that human activities are estimated to have caused approximately 1.8°F of global warming above pre-industrial levels and that, if the trend continues at the current rate, it will reach 2.7°F above pre-industrial levels between 2030 and 2052. Climate change models project robust differences in global regional climate characteristics between 1.8°F and 3.6°F. These differences, whether attributable to human activities or natural, include increases in (i) mean temperature in most land and ocean regions, (ii) hot extremes in most inhabited regions, (iii) heavy precipitation in several regions, and (iv) the probability of drought and precipitation deficits in some regions. These differences and increases can impact weather patterns and the frequency and severity of catastrophes including hurricanes, severe convective storms, and wildfires. The IPCC's 2019 "Special Report on Climate Change and Land" reinforced these findings.

Our insurance operations primarily write risks in the Eastern, Midwestern, and Southwestern regions of the U.S. Our most significant catastrophe exposures are (i) hurricanes impacting the Eastern U.S., (ii) terrorism events, (iii) severe convective storms, including hailstorms and tornadoes, and (iv) winter storms. Single storms could adversely impact our financial results, but it is also possible that we could experience more than one severe catastrophic event in any given calendar year. We track our severe weather and catastrophe losses using definitions and information we obtain from ISO’s Property Claim Services unit, an internationally recognized expert on U.S. storm losses.

Certain factors can impact our estimates of ultimate costs for catastrophes, including:

i.Inability to access portions of the impacted areas following a catastrophic event;

ii.Scarcity of necessary labor and materials that delay repairs and increase our loss costs;

iii.Regulatory uncertainties, including new or expanded interpretations of coverage;

iv.Residual market assessment-related increases in our catastrophe losses;

v.Potential fraud and inflated repair costs, partly driven by (a) demand surge post-event, and (b) opportunistic service providers;

vi.Higher loss adjustment expenses due to shortages of claims adjusters available to appraise damage;

vii.Late claims reporting;

viii.Escalation of business interruption costs due to infrastructure disruption; and

ix.Whether the U.S. Secretary of Treasury certifies a terrorist event as an act of terrorism under TRIPRA.

An increase in catastrophe losses likely will reduce our net income and stockholders’ equity and could have a material adverse effect on our liquidity, financial strength, and debt ratings. The closer a catastrophe occurs to the end of a reporting period, the more likely it is we have limited information to estimate loss and loss expense reserves, adding greater uncertainty to our estimates. More detailed claims information available after the end of a reporting period may result in reserve changes in subsequent periods.

Our loss and loss expense reserves may not be adequate to cover actual losses and expenses.

We maintain reserves for our estimated liability for loss and loss expense associated with reported and unreported insurance claims. We base our loss and loss expense reserve estimates on known facts and circumstances, including our expectations of ultimate settlement and claim administration expenses, trends in claims severity and frequency, medical inflation trends, predictions of future events, and other subjective factors relating to our in-force insurance policies. There is no method for precisely estimating the ultimate liability for the settlement of claims.

Reserve estimates may be impacted by a variety of broad economic, political, social, and legal developments or trends, such as inflation, judicial tort decisions, and various state legislative initiatives. Because we cannot predict the timing and impact of these economic, political, social, and legal developments or trends, and estimating loss and loss expense reserves is inherently uncertain, we cannot be sure the reserves we establish are adequate or will be so in the future.

We review our reserve position quarterly and adjust the reserve position accordingly. An increase in reserves (i) reduces net income and stockholders’ equity, and (ii) could have a material adverse effect on our liquidity, financial strength, and debt

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ratings. As we underwrite new business and renew existing business, we estimate future loss cost trends in pricing our products to generate an adequate risk-adjusted return. If our estimate of future loss cost trends proves to be understated, our pricing of future new and renewal business may be inadequate to meet estimated loss costs trends, understating our future loss and loss expense reserves.

The COVID-19 pandemic is an example of how loss and loss expense reserves might be affected by economic, political, social, or legal developments or trends. Two additional examples are:

•If economic inflation, including medical inflation, is higher than our assumptions, our loss and loss expense reserves associated with our longer tail lines of business may prove to be insufficient. In particular, our workers compensation line of business is susceptible to this risk, given its extended payment pattern and the current low medical inflationary environment compared to long-term medical inflation rates, which have historically been higher.

•Several states have expanded or are exploring expanding the statute of limitations for civil actions alleging sexual abuse. By retroactively permitting claims for previously time-barred acts, these “reviver” laws may result in insurance claims that could significantly increase loss costs and require re-evaluation of previously-established reserves or the creation of new reserves. Since reviver statutes have been enacted, we have received notices of claims or potential claims for acts alleged to have occurred as far back as the 1950s. Without prior experience, we cannot estimate how many "reviver" claims notices we may receive. Most notices we have received are sent on behalf of claimants by attorneys unsure of what insurer or policy (if any) may have covered the alleged assailant or supervising entity and may not implicate insurance policies issued by us or a predecessor. For notices we have determined implicate an insured under a policy issued by us or a predecessor, we (i) have investigated or are investigating facts, (ii) have evaluated policy terms, and (iii) believe we have appropriate coverage defenses and reinsurance protections that have been considered in establishing our reserves. As coverage positions may be challenged through litigation or otherwise, we face litigation risks further discussed below in the Risk Factor entitled, “Incidental to our insurance operations, we are engaged in ordinary routine legal proceedings that, because litigation outcomes are inherently unpredictable, could impact our reputation and/or have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.”

For further discussion on our loss and loss expense reserves, please see the “Critical Accounting Policies and Estimates” section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” and Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

Our ability to reduce our risk exposure depends on the availability and cost of reinsurance.

We transfer a significant portion of our underwriting risk exposure - specifically a portion of our loss and loss expense - to reinsurance companies in exchange for a specified portion of premiums. Most of our reinsurance contracts have annual terms. The availability, amount, and cost of reinsurance depend on market conditions, including retrocessional reinsurance market capacity. This may fluctuate significantly and not necessarily correlate to the loss experience of our specific book of business. In general, we can consider catastrophe reinsurance expense in our filed rates and rating plans. Any other disproportionate increase in our reinsurance expense that we cannot include in our filed rates and rating plans will reduce our earnings. If we do not obtain expected reinsurance amounts or terms, our reinsurance expenses could increase, we may assume increased risk for individual or aggregate losses, and our ability to write future business could be adversely affected.

Catastrophes impact many property and casualty insurance lines, but commercial property and homeowners coverages historically have accounted for most of our catastrophe-related claims. To limit our exposure to catastrophe losses, we purchase catastrophe reinsurance. It is possible that our reinsurance coverage could be inadequate, particularly if:

•We do not purchase sufficient amounts of reinsurance because of defects or inaccuracies in the various modeling software programs we use to analyze our Insurance Subsidiaries' risk;

•A major catastrophe loss exceeds the purchased reinsurance limit or is within the limits, but exceeds the financial capacity of one or more of our reinsurers;

•The frequency of catastrophe losses increases and our Insurance Subsidiaries' insured losses exceed the aggregate limits of the catastrophe reinsurance treaty or our Insurance Subsidiaries experience an aggregation of losses that fall below our per occurrence reinsurance retention; or

•Our reinsurance counterparties (a) are unable to access their reinsurance markets, or retrocessions, (b) suffer significant financial losses, (c) are sold, (d) cease writing reinsurance business, or (e) are unable or unwilling to satisfy their contractual obligations to us.

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Typically, our reinsurance contracts align with our primary insurance policies. For example, if our primary insurance policies provide coverage for a loss, then our reinsurance contracts typically provide coverage as well (subject to any specific exclusions the reinsurance contracts may contain).

In response to the COVID-19 pandemic and recent increased catastrophic loss activity, the reinsurance industry has sought to tighten contractual terms and conditions, reduce reinsurance capacity, and increase pricing. Tightened terms and conditions include introducing new coverage exclusions, such as excluding losses related to cyber risk and communicable diseases, particularly for business interruption losses in property treaties and, to a lesser extent, in casualty treaties. To the extent we are exposed to losses on our primary policies from risks, such as cyber and communicable disease, that are now principally excluded from coverage under our reinsurance treaties, we face increased underwriting risk. The increased underwriting risk could increase our net loss and loss expenses and increase the volatility in our underwriting results. Decreased reinsurance capacity also would increase our underwriting risk if we cannot fully place our existing reinsurance treaties upon renewal. We experienced risk-adjusted reinsurance price increases at our January 1, 2021 renewals that were at rates higher than we are likely to generate on the underlying insurance policies we sell. This will negatively impact our underwriting profitability in 2021.

Even with the benefits of reinsurance, our exposure to catastrophe risks could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

We may be subject to potentially significant losses from acts of terrorism.

We are required to participate in TRIPRA, which was extended to December 31, 2027, for our Standard Commercial Lines and E&S Lines business. TRIPRA rescinded all previously-approved coverage exclusions for terrorism and requires private insurers and the U.S. government to share the risk of loss on future acts of terrorism certified by the U.S. Secretary of the Treasury. Under TRIPRA, each participating insurer is responsible for paying a significant deductible of specified losses before federal assistance is available. Our deductible of $369 million is based on a percentage of our prior year’s applicable Standard Commercial Lines and E&S Lines premiums. For losses above the deductible in 2021, the federal government will pay 80% of losses, and the insurer retains 20%. Although TRIPRA’s provisions provide some mitigation to our loss exposure to a large-scale terrorist attack, our deductible could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. If the U.S. Secretary of Treasury does not certify certain future terrorist events, as happened with the 2013 Boston Marathon bombing and the 2015 San Bernardino shootings, we could be required to pay terrorism-related covered losses without TRIPRA's risk-sharing benefits. We also could be required to pay terrorism-related losses for customers who declined terrorism coverage.

Under TRIPRA, terrorism coverage is mandatory for all primary workers compensation policies. TRIPRA also applies to cyber liability insurance policies reported under a Terrorism Risk Insurance Program-eligible line of insurance. Insureds with non-workers compensation commercial policies have the option to accept or decline our terrorism coverage or negotiate with us for other terms. In 2020, 86% of our Standard Commercial Lines non-workers compensation policyholders purchased terrorism coverage that included nuclear, biological, chemical, and radioactive ("NBCR") events.

Many states in which we write commercial property insurance mandate that we cover fire following an act of terrorism - regardless of whether the insured opted to purchase terrorism coverage. We also sometimes elect to provide terrorism coverage for lines of business not included in TRIPRA, such as Commercial Automobile. TRIPRA has never covered personal lines of business. Our homeowner policies in Standard Personal Lines exclude nuclear losses, but they do not exclude biological or chemical losses. Our current reinsurance programs generally provide coverage for conventional acts of foreign and domestic terrorism, but afford no coverage for NBCR events.

We are exposed to credit risk.

We face credit risk in several areas of our insurance operations, including from:

•Our reinsurers, which are obligated to make payments to us under our reinsurance agreements. Reinsurance credit risk can fluctuate over time, increasing during periods of high industry catastrophe losses. Reinsurers generally manage their large loss exposure through their own reinsurance programs, or retrocessions, about which we do not always have the full details. If our reinsurers have difficulty collecting on their retrocession programs or in reinstating retrocession coverage after a large loss, we may not receive timely or full payment of our reinsurance claims. This means that we have direct and indirect counterparty credit risk to our reinsurers and the reinsurance industry, which is global but relatively small.

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•Certain life insurance companies obligated to our policyholders or claimants under annuities we purchased as part of structured claims settlements, if they fail to fulfill their annuity contract obligations.

•Some of our independent distribution partners, who collect premiums from our policyholders for us.

•Some policyholders directly obligated to us for premium and/or deductible payments, the timing of which may be impacted by mandated payment moratoriums.

Our exposure to credit risk could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

We depend on distribution partners.

We market and sell our insurance products through independent, non-employee distribution partners. Insurance law and regulation makes us responsible for the business practices and customer interactions of our distribution partners. Independent distribution partners have, and we expect will continue to have, a significant role in overall insurance industry premium production. While our customers find advantages in using independent distribution partners, our reliance on independent distribution partners presents risks and challenges, including:

•Competition in our distribution channel, as independent distribution partners have access to products from multiple carriers and markets, and we must market our products and services to our distribution partners before they sell them to our mutual customers.

•Challenges in developing brand recognition that require us to closely coordinate with our distribution partners, as some customers cannot differentiate their insurance agent from their insurance carrier.

•Our market share growth is tied to the growth in market share controlled by our distribution partners. Independent retail insurance agencies control 85% of standard commercial lines business and 36% of standard personal lines business in the U.S. Consequently, expansion of our Standard Personal Lines market opportunity could be more limited than our Standard Commercial Lines business. More competitors have focused on lower-cost "direct-to-the-customer" distribution models that emphasize digital ease and technological efficiencies to address the discrepancy in agency control of Standard Personal Lines business. Continued advancements in "direct-to-the-customer" distribution models may impact the overall market share controlled by our independent distribution partners and make it more difficult for us to grow, or require us to establish relationships with more distribution partners.

•Aggregation and consolidation of our independent distribution partners and their market share, as some publicly-traded and private equity-backed independent distribution partners have deployed consolidation strategies to acquire other independent distribution partners and increase their market share ("Aggregators") over the last decade. If more of our independent distribution partners become Aggregators, or are acquired by Aggregators, Aggregator demands and influence on our business could increase. For example, Aggregators could develop and implement strategies to consolidate their business with fewer insurers and demand higher base and supplemental commissions. Aggregators accounted for approximately 33% of our DPW at December 31, 2020, up from 20% three years ago. Currently, no one distribution partner is responsible for 10% or more of our combined insurance operations' premium.

Our financial condition and results of operations are impacted by our independent distribution partners' success in marketing and selling our products and services.

National and global economic conditions could adversely and materially affect our business, results of operations, financial condition, and growth.

Unfavorable economic developments, such as those that occurred during the COVID-19 pandemic, could adversely affect our earnings if our policyholders need less insurance coverage, cancel existing insurance policies, modify coverage, or choose not to renew with us. An economic downturn also could lead to increased credit and premium receivable risk, failure of reinsurance counterparties and other financial institutions, limitations on our ability to issue new debt, reduced liquidity, and declines in our investments' fair value and financial strength ratings. These potential events and other economic factors could adversely and materially affect our business, results of operations, financial condition, and growth. During 2020, 29% of DPW in our Standard Commercial Lines business was based on payroll/sales of our underlying policyholders. An economic downturn in which our policyholders experience declines in revenue or employee count could adversely affect our audit and endorsement premium in our Standard Commercial Lines.

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A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and could have a material adverse effect on our financial condition and results of operations.

A significant financial strength rating downgrade, particularly from AM Best, would affect our ability to write new or renewal business. Most policyholders are required by various third-party agreements to use a carrier with a specified minimum AM Best or S&P rating. Downgrades in our credit ratings also could make it more expensive for us to access capital markets. We cannot predict the possible rating actions NRSROs might take that could adversely affect our business or our potential actions in response. Any significant downgrade in our financial strength and credit ratings could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. For additional information on our current financial strength and credit ratings, refer to "Overview" in Item 1. "Business." of this Form 10-K.

Markets for insurance products and services are highly competitive and subject to rapid technological change, and we may be unable to compete effectively.

We offer our insurance products and services in a highly competitive market characterized by aggressive price competition and downward pressure on gross margins, introduction of new products and services, evolving industry standards, continual improvement in product pricing based on performance characteristics, rapid competitor adoption of technological advancements, and consumer and business price sensitivity. Our ability to compete successfully depends heavily on our ability to ensure timely and consistent introduction of innovative new products and services through digital platforms.

We face substantial competition from a wide range of property and casualty insurance companies for customers, distribution partners, and employees. Competitors include public, private, and mutual insurance companies. Many competitors are larger and may have lower operating costs, lower cost of capital, or the ability to absorb greater risk while maintaining their financial strength ratings. Other competitors, such as mutual or reciprocal companies, are owned by or operated cooperatively for insureds and, unlike us, do not have shareholders who evaluate return on equity performance. Consequently, some competitors may be able to price their products more competitively.

The Internet has emerged as a significant competitive marketplace for existing and new competitors. Established insurance competitors, such as The Progressive Corporation, are beginning to explore broader digital offerings on the Internet, while new competitors, such as Lemonade, Root, Metromile, and Next, continue to emerge. Because the Internet makes it easier and less expensive to bundle products and services, it also is possible that companies conducting business on the Internet, in the future, could enter the insurance business or form strategic alliances with insurers. Changes in competitors and competition, particularly on the Internet, could cause changes in the supply or demand for insurance and adversely affect our business.

The increasing importance of the Internet, technology, and digital strategy in our industry also highlights our need to attract and retain employees in difficult-to-fill data science, advanced analytics, and IT roles – and the potential negative impact if we fail in so doing.

We have less loss experience data than our larger competitors.

Insurers rely on access to reliable data about their policyholders and loss experience to build complex analytics and predictive models that assess risk profitability, reserve adequacy, adverse claim development potential, recovery opportunities, fraudulent activities, and customer buying habits. Because we use and rely on the aggregated industry loss data assembled by rating bureaus under the anti-trust exemptions of the McCarran-Ferguson Act, we likely would be at a competitive disadvantage to larger insurers if Congress repealed the McCarran-Ferguson Act.

We expect the use of data science and analytics to continue to increase and become more complex and accurate, particularly with larger sets of relevant data. Some larger competitors have significantly more data about the performance of their underwritten risks. In comparison, we may not have sufficient volumes of loss experience data to analyze and project our future costs as accurately or granularly. To supplement our data, we use industry loss experience from ISO, AAIS, NCCI, and other publicly available sources. While relevant, industry data may not correlate specifically to the performance of risks we have underwritten and may not be as predictive as data on a larger book of our own business.

We are subject to various modeling risks that could have a material adverse impact on our business results.

We rely on complex financial and other statistical models, developed internally and by third parties, that predict (i) underwriting results on individual risks and our overall portfolio, (ii) claims fraud and other claims impacts, such as escalation, (iii) impacts from catastrophes, (iv) enterprise risk management capital scenarios, and (v) investment portfolio changes. We rely on these financial and other statistical models to analyze historical loss costs and pricing, trends in claims severity and frequency, the occurrence of catastrophe losses, determining reinsurance attachment and exhaustion points, investment performance, portfolio risk, and our economic capital position. Flaws in these financial and other statistical models, or in the embedded assumptions, could lead to increased losses. We believe that statistical models are extremely valuable in monitoring and controlling risk, but they are not a substitute for senior management's experience or judgment.

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Risks Related to Our Investments Segment

Our investments are exposed to credit risk, interest rate fluctuation, and changes in value.

We depend on income from our investment portfolio for a significant portion of our revenue and earnings. Our investments can be negatively affected by liquidity, credit deterioration, financial results, market and economic conditions, political risk, including changes in U.S. Presidential administration, sovereign risk, interest rate fluctuations, or other factors. Our investment portfolio's value is subject to credit risk from the issuers, and/or guarantors and insurers, of the securities we hold, and other counterparties in certain transactions. Defaults on any of our investments by any issuer, guarantor, insurer, or other counterparty could reduce our net investment income and net realized investment gains - or result in investment losses. We are subject to the risk that the issuers or guarantors of fixed income securities we own may default on principal and interest payment obligations.

Additionally, we are exposed to interest rate risk, primarily related to the market price, and cash flow variability associated with changes in interest rates. Consequently, the value and liquidity of our cash, cash equivalents, and marketable and non-marketable securities may fluctuate substantially. Future fluctuations in the value of our cash, cash equivalents, and marketable and non-marketable securities could result in significant losses and have a material adverse impact on our financial condition and operating results.

Significant future declines in investment value also could require further losses recorded on securities we intend to sell and credit losses. For more information regarding market interest rate, credit, and equity price risk, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” of this Form 10-K.

We have securities tied to LIBOR, which may be eliminated by the end of 2021.

As of December 31, 2020, approximately 13% of our fixed income securities portfolio was comprised of floating rate securities tied to the U.S. dollar-denominated London Interbank Offered Rate ("LIBOR"), expected to be eliminated by the end of 2021. The global banking industry has used LIBOR as a primary metric to calculate interest rates for numerous types of debt obligations, including personal and commercial loans, interest rate swaps, and other derivative products. In anticipation of LIBOR's elimination, the U.S. Federal Reserve established the Alternative Reference Rates Committee ("ARRC") to select a replacement index for U.S. Dollar LIBOR. The ARRC, comprised of a broad group of private-market participants, including banks, asset managers, insurers, and industry regulators, identified the Secured Overnight Financing Rate ("SOFR") as the recommended benchmark rate to replace LIBOR. SOFR is based on overnight repurchase agreement transactions backed by Treasury securities. The ARRC announced a paced transition plan for this new rate, including specific steps and timelines designed to encourage the adoption of SOFR. We continue to monitor the potential impact, if any, the elimination of LIBOR and the transition to SOFR will have on our floating rate investments' performance.

We are subject to the types of risks inherent in investing in private limited partnerships.

Our other investments include investments in private limited partnerships that invest in various strategies, such as private equity, private credit, and real assets. The primary assets and liabilities underlying the investments in these limited partnerships generally do not have quoted prices in active markets for the same or similar assets, so their valuation is subject to a higher level of subjectivity and unobservable inputs than substantially all of our other investments. Because these limited partnership investments are recorded under the equity method of accounting, any valuation decreases could negatively impact our results of operations. We currently expect to increase our allocation to these investments, which may produce additional variability in our net investment income.

The determination of the amount of credit losses taken on our investments is highly subjective and could materially impact our results of operations or our financial position.

The determination of the amount of credit losses taken on our investments is based on our periodic evaluation and assessment of our investments and known and inherent risks associated with the various asset classes. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in credit losses at the time of evaluation. There can be no assurance that management has accurately assessed the level of credit losses taken as reflected in our Financial Statements. For further information about our evaluation and considerations for determining whether a security has a credit loss, please refer to “Critical Accounting Policies and Estimates” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” of this Form 10-K.

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Risks Related to Evolving Laws, Regulation, and Public Policy Debates

We are subject to complex and changing laws, regulations, and public policy debates that expose us to regulatory scrutiny, potential liabilities, increased costs, reputational harm, and other adverse effects on our business.

Our operations are subject to complex and changing state and federal laws, regulations, and public policy debates on subjects, including, without limitation, the following:

•Pricing and underwriting practices;

•Claims practices;

•Loss and loss adjustment expense reserves;

•Exiting geographic markets and/or canceling or non-renewing policies;

•Environmental, social, and governance ("ESG") issues, including ESG investment mandates;

•Assessments for guaranty funds and second-injury funds, and other mandatory assigned risks and reinsurance;

•The types, quality, and concentration of investments we make;

•Minimum capital requirements for the Insurance Subsidiaries;

•Dividends from our Insurance Subsidiaries to the Parent;

•Privacy and data security;

•Tax;

•Antitrust;

•Consumer protection;

•Advertising;

•Sales;

•Billing and e-commerce;

•Intellectual property ownership and infringement;

•Digital platforms;

•Internet, telecommunications, and mobile communications;

•Media and digital content;

•Availability of third-party software applications and services;

•Labor and employment;

•Anti-money laundering; and

•Workplace environmental, health, and safety issues.

We continue to monitor and engage in industry and public policy discussions about related legislative and regulatory changes. Changes to laws and regulations can adversely affect our business by increasing our costs, limiting our ability to offer a product or service to customers, requiring changes to our business practices, or otherwise making our products and services less attractive to customers.

If Congress enacted a law directly regulating insurance, particularly insurer solvency oversight, and state regulators remained responsible for rate approval, we could be subject to a conflicting and inconsistent regulatory framework that could impact our profitability and capital adequacy.

While we underwrite risks only in the U.S., international regulatory developments, particularly in the European Union (“EU”) related to global capital standards, may influence U.S. regulators as they develop or revise domestic regulatory standards. The International Association of Insurance Supervisors proposed Basic Capital Standards for Global Systemically Important Insurers and a uniform capital framework for internationally active insurers in 2014. Two years later, the EU enacted Solvency II, which established new insurer capital adequacy and risk management requirements intended to reduce the possibility of consumer loss or market disruption by European insurers. Despite these international regulatory changes and continued public policy discussion, RBC remains the NAIC capital adequacy standard. The FIO, in coordination with the Federal Reserve, state regulators, and other regulatory bodies, has been exploring group capital standards. In the fourth quarter of 2020, the NAIC's Group Capital Calculation Working Group adopted the basic structure of its new Group Capital Calculation, along with the model law changes necessary to incorporate it as a requirement for U.S. insurance groups in state law.

We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations. However, we can provide no assurance that our employees, contractors, or independent distribution partners will not violate such laws and regulations or our policies and procedures. To some degree, we have multiple regulators whose authority may overlap and may have different interpretations and/or regulations related to the same legal issues. This creates the risk that one regulator's position or interpretation may conflict with another regulator on the same issue. The cost of complying with various, potentially conflicting laws and regulations, and changes in those laws and regulations, could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

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Insurers are subject to intense regulatory, political, and media scrutiny. We are subject to government market conduct review and investigations, legal actions, and penalties. There can be no assurance that our business will not be materially adversely affected by the outcomes of such examinations, investigations, or media scrutiny in the future. If we are found to have violated laws and regulations, it could materially adversely affect our reputation, financial condition, and operating results.

Our business is subject to a variety of state, federal, and other laws, rules, policies, and other obligations regarding data protection.

We are subject to federal, state, and international laws relating to the collection, use, retention, security, and transfer of personally identifiable information (“PII”). Federal laws include the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, the Drivers Privacy Protection Act, the Health Insurance Portability and Accountability Act, and Federal Trade Commission policies. Several states, like New York, Nevada, and California, have passed laws in this area, and other jurisdictions are considering imposing additional restrictions or creating new rights concerning PII. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing requirements may cause us to incur substantial costs or require us to change our business practices. Noncompliance could result in significant reputational harm, penalties, and legal liability.

In the same year that it adopted Solvency II, the EU adopted the General Data Protection Regulation ("GDPR"). Effective since 2018 after a two-year implementation period, GDPR regulates data protection and privacy in the EU and transfers of personal data outside the EU. GDPR’s main tenet is to give individuals primary control over their personal data. While GDPR has no direct impact on U.S. companies like us without an EU presence, it and any future EU data privacy actions may influence U.S. regulators over time.

We make statements about our use and disclosure of PII through our privacy policy, information provided on our website, and other public statements. If we fail to comply with these public statements or federal, state, and international privacy-related and data protection laws and regulations, we could be subject to litigation or governmental actions. Such proceedings could impact our reputation and result in penalties, including ongoing audit requirements and significant legal liability.

We are engaged in ordinary routine legal proceedings incidental to our insurance operations that, because litigation outcomes are inherently unpredictable, could impact our reputation and/or have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

We are engaged in ordinary routine legal proceedings incidental to our insurance operations that include:

•Defense of or indemnity for third-party suits brought against our insureds;

•Defense of actions brought against us by our insureds who disagree with our coverage decisions, some of which allege bad faith claims handling and seek extra-contractual damages, punitive damages, or other penalties;

•Actions we file, primarily for declaratory judgment, seeking confirmation that we have made appropriate coverage decisions under our insurance contracts;

•Actions brought against us or competitors alleging improper business practices and sometimes seeking class status. Such actions historically have included issues and allegations, without limitation, related to (i) unfairly discriminatory underwriting practices, including the impact of credit score usage, (ii) managed care practices, such as provider reimbursement, and (iii) automobile claims practices; and

•Actions we file against third parties and other insurers for subrogation and recovery of other amounts we paid on behalf of our insureds.

From time-to-time, legal proceedings in which we are involved may receive media attention based on their perceived newsworthiness and/or relationship to a variety of broad economic, political, social, and legal developments or trends. Such media stories could negatively impact our reputation.

We expect that any potential ultimate liability for ordinary routine legal proceedings incidental to our insurance business will not be material to our consolidated financial condition after considering estimated loss provisions. Litigation outcomes, however, are inherently unpredictable even with meritorious defenses. The time a case is in litigation also is unpredictable, as state court dockets are increasingly overcrowded. Generally, the longer a case is in litigation the more expensive it can become. Because the amounts sought in certain of these actions are large or indeterminate, any adverse outcomes could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

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Risks Related to Our Corporate Structure and Governance

We are a holding company, and our ability to declare dividends to our shareholders, pay indebtedness, and enter into affiliate transactions may be limited because our Insurance Subsidiaries are regulated.

Restrictions on our Insurance Subsidiaries' ability to pay dividends, make loans or advances to the Parent, or enter into transactions with affiliates may materially affect our ability to pay dividends on our preferred stock and common stock, or repay our indebtedness.

In 2021, the Insurance Subsidiaries can provide the Parent with $241 million in ordinary annual dividends under applicable state regulation. Still, their ability to pay dividends or make loans or advances is subject to their domiciliary state insurance regulator's approval or review. For additional details regarding dividend restrictions, see Note 22. “Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds” in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

The Parent’s ability to pay dividends to its common stockholders is also impacted by covenants in its credit agreement (the “Line of Credit”) among the Parent, the lenders named therein (the “Lenders”), and the Bank of Montreal, Chicago Branch, as Administrative Agent, that obligate it to, among other things, maintain a minimum consolidated net worth and a maximum ratio of debt to capitalization. Under the terms of our Preferred Stock, the Parent's ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of its common stock or any shares of the Parent that rank junior to, or on parity with, the Preferred Stock will be subject to certain restrictions if the Parent does not declare and pay (or set aside) dividends on the Preferred Stock for the last preceding dividend period. For additional details about the Line of Credit’s financial covenants, see Note 11. “Indebtedness” in Item 8. "Financial Statements and Supplementary Data" of this Form 10-K. For additional details about conditions related to our Preferred Stock, see Note 17. "Preferred Stock" in Item 8. "Financial Statements and Supplementary Data" of this Form 10-K.

Because we are a New Jersey corporation and an insurance holding company, we may be less attractive to potential acquirers and the value of our common stock could be adversely affected.

We are a New Jersey company, and provisions of the New Jersey Shareholders’ Protection Act and our Amended and Restated Certificate of Incorporation may discourage, delay, or prevent us from being acquired. A supermajority of our shareholders must approve (i) certain business combinations with interested shareholders, or (ii) any amendment to the related provisions of our Amended and Restated Certificate of Incorporation unless certain conditions are met. These conditions may relate to, among other things, the interested stockholder’s acquisition of stock, the approval of the business combination by disinterested members of our Board and disinterested stockholders, and the price and payment of the consideration proposed in the business combination. In addition to considering the effects of any action on our shareholders (including any offer or proposal to acquire the Parent), our Board may consider: (i) the long-term, as well as the short-term, interests of the Parent and our shareholders, including the possibility that these interests may best be served by the continued independence of the Parent; (ii) the effects of the action on the Parent's employees, suppliers, creditors, and customers; and (iii) the effects of the action on the community in which the Parent operates.

These provisions of our Amended and Restated Certificate of Incorporation and New Jersey law could deprive our common shareholders of an opportunity to receive a premium over the prevailing market price in the event of a hostile takeover and may adversely affect the value of our common stock.

Because we own insurance subsidiaries, any party seeking to acquire 10% or more of our common stock must seek prior approval from the subsidiaries' domiciliary insurance regulators and file extensive information about their business operations and finances.

Risks Related to Our General Operations

We, our distribution partners, and our vendors are subject to attempted cyber-attacks, other cybersecurity risks, and system availability risk.

Our business heavily relies on IT and application systems that may be accessed from, or are connected to, the Internet. Consequently, a malicious cyber-attack could affect us. Our systems also contain proprietary and confidential information, including PII, about our operations, employees, agents, and customers and their employees and property. A malicious cyber-attack on (i) our systems, (ii) our distribution partners or their key operating systems, and (iii) any other of our third-party partners or vendors and their key operating systems may interrupt our ability to operate, damage our reputation and result in monetary damages that are difficult to quantify, and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

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We have implemented systems and processes, through encryption and authentication technologies, intended to mitigate or secure our IT systems and prevent unauthorized access to, or loss of, sensitive data. Our security measures may not be sufficient for all eventualities, as cyber-attacks are continuing to evolve daily. We may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management, or other irregularities. Any disruption or breach of our systems or data security could damage our reputation, result in monetary damages that are difficult to quantify, and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. To mitigate this risk, we have and expect to continue to (i) conduct employee education programs and tabletop exercises and (ii) develop and invest in a variety of controls to prevent, detect, and appropriately react to cyber-attacks, including frequently testing our systems' security and access controls. We have insurance coverage for certain cybersecurity risks, including privacy breach incidents, which provides coverage up to $30 million above a $1 million deductible. Such coverage may be insufficient to indemnify all losses or types of claims that may arise.

In addition to cyber-attack risk, we face system availability risk. Our business relies heavily on various IT and application systems that may be impacted by an unplanned loss of availability unrelated to malicious cyber-attacks. A failure in one or more systems, including those at facilities where we or our vendors operate systems, may interrupt our ability to operate and negatively impact our results of operations.

Our long-term strategy to deploy operational leverage is dependent on the success of our risk management strategies, and their failure could have a material adverse effect on our financial condition or results of operations.

As an insurer, we assume risk from our policyholders. Our long-term strategy includes the use of above-average operational leverage, which can be measured as the ratio of NPW to our equity or policyholders' surplus. We balance and mitigate our operational leverage risk with several risk management strategies within our insurance operations to achieve a balance of growth and profit, including purchasing significant amounts of reinsurance, a disciplined approach to reserving, and a conservative investment philosophy. These strategies have inherent limitations. We cannot be certain that an event or series of unanticipated events will not occur and result in losses greater than we expect and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our headquarters occupy a 315,000 square foot building located on a 56-acre site zoned for office and professional use in Branchville, New Jersey, and is also the home to our solar facility. The site is owned by a subsidiary that also owns abutting property in Frankford, New Jersey. We lease all our other facilities from unrelated parties. The principal office locations of our insurance operations are listed in the “Geographic Markets” section of Item 1. “Business.” of this Form 10-K. Our Investments operations are principally located in leased space in Farmington, Connecticut. Our facilities provide adequate space for our present needs and, if additional space is needed, should be available on reasonable terms.

Item 3. Legal Proceedings.