0000230557us-gaap:false2021FY0000230557http://fasb.org/us-gaap/2021-01-31#OtherAssetshttp://fasb.org/us-gaap/2021-01-31#OtherAssetshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitieshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitieshttp://fasb.org/us-gaap/2021-01-31#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2021-01-31#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2021-01-31#LongTermDebthttp://fasb.org/us-gaap/2021-01-31#LongTermDebt0000230557sigi:StandardCommercialLinesMemberus-gaap:ShortdurationInsuranceContractsAccidentYear2015Membersigi:StandardCommercialLinesMembersigi:CommercialPropertyMember2019-12-31BusinessOwnersPoliciesMember2018-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

(Mark One)

 

 

For the fiscal year ended: December 31, 20202021

or

 

 

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 Jersey 07890

(Address of Principal Executive Offices) (Zip Code)

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

 

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.

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

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.

 

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.

The aggregate market value of the voting company common stock held by non-affiliates of the registrant, based on the closing price on the NASDAQNasdaq Global Select Market, was $3,092,111,015$4,787,831,538 on June 30, 2020.2021. As of February 4, 2021,January 31, 2022, the registrant had outstanding 59,882,18960,186,063 shares of common stock.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 20212022 Annual Meeting of Stockholders to be held on April 28, 2021,May 3, 2022, are incorporated by reference into Part III of this report.

PART I

Item 1. Business.

Selective Insurance Group, Inc. (“Parent”) is a New Jersey insurance holding company incorporated in 1977 that owns ten property and casualty insurance subsidiaries that("Insurance Subsidiaries"). The Insurance Subsidiaries sell products and services only in the United States ("U.S."). exclusively through independent insurance agents and wholesale brokers. 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 necessaryonly 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 NASDAQNasdaq Global Select Market under the symbols “SIGI” and "SIGIP," respectively. In 2020,2021, AM Best Company (“AM Best”) ranked us as the 38th39th largest property and casualty group in its annual list of “Top 200 U.S. Property/Casualty Writers,” based on 20192020 net premiums written (“NPW”). Since our founding in 1926, weWe have a long and successful history in the property and casualty industry including an "A" or highersince our founding in 1926. Our AM Best financial strength rating for the past 90 years.

We have three key sustainable competitive advantages:

We are rated bySeveral 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."obligations:

We believe that our ability to write insurance business is most influenced by our AM Best rating. Our independent distribution partners contemplaterecommend insurance carriers based, in part, on financial strength ratings, when recommending insurance carriers to customers, andwhich many of our customers also contemplate themconsider in their purchasing decisions. Distribution partners generally recommend higher ratedhigher-rated carriers to limit their potential liability for error and omission claims.claims by customers. Most of our customers often have minimum insurer rating requirements in loans, mortgages, and other agreements securing real and personal property.

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 debt credit ratings are as follows:

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 definesdefining certain industry-specific and other terms that are used inwe use as Exhibit 99.1 to this Form 10-K.

We discuss our approach to (i) physical, financial,social, and socialfinancial well-being of our employees; (ii) talent development and employee retention; and (iii) diversity, equity, and inclusion more fully below.

We invest significantly in our employees' physical, financialsocial, and socialfinancial well-being, which is essential to attracting and retaining the best talent. We are committed to fair pay and 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 employernon-elective and employer matching contributions, an employee stock purchase plan with the opportunitythat allows our stock to purchase company stockbe purchased at a discount, aand tuition reimbursement program, and a student loan repaymentrepayment. Most of our employees are eligible to participate in our annual cash incentive program, the funding and payout of which is based on the achievement of our financial and strategic objectives, and our long-term stock-based incentive compensation program. To promote the health and well-being of our employees, we also offer a range of competitive and convenient health and wellness programs. We also support theour employees' social well-being, of our employees, encouraging them to be connectedconnections with their colleagues and communities through various programs, such as paid time-offtime off for volunteer work and matching charitable donations.

We invest significant time and resources onin 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 ofvarious live instructor-led training courses and extensiveover 22,000 online skills training courses and resources. We also have leadership and talent development programs and initiatives at all levels of the organization. Among these areExamples include our (i) Next Generation of Leaders program, through which we identify internal leaders on whom we focusidentifies early- and mid-career management for focused development opportunities so theythat prepare them for future senior leadership, and (ii) RISE (Retain Include Support Engage) program, which is an accelerated professional development program for diverse individual contributors interested in first-level management positions.

The COVID-19 pandemic has accelerated our capabilities and cultural adaptation to a flexible work environment. As a result, we have instituted changes to increase flexibility and enhance employee engagement and productivity. During 2021, most of our office-based employees remained fully remote. In the future, when we return to the office, we will be well preparedadhering to lead usour new hybrid work policy that allows most employees to work remotely 40% of the time. To retain our best talent and foster a positive work-life balance, we invest in the future. We continue totalent development, and focus on talent development programs and employee retention. For the year, ourworkplace flexibility. Our employee turnover rate in 2021 was approximately 7%13%. 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."our workforce.

We recognize that when employees with diverse cultural backgrounds, ideas, and experiences work together,collaborate, it fosters innovation.can foster innovation that improves operational performance, products and services, customer experience, market opportunities, and revenue. We have initiatives to increase representation and cultivate greater inclusion of people with differences in gender,different ethnicity, race, age, sexual

orientation, gender identity and expression, and socio-economic background. We have taken steps toSome recent initiatives include (i) promote greaterincreasing gender and racial diversity in first-level management positionsour Next Generation of Leaders program, which was 79% in 2021 and 66% in 2020, and through the launch of various employee resource groups for women, Black, and LGBTQ+ employees, (ii) increasing the focus on leadership development programs for under-represented groups through our RISE program, (iii) implementing business objectives tied to create a pipelinesupporting and participating in diversity, equity and inclusion initiatives, (iv) enhanced hiring, retention, and promotion practices intended to increase futurethe level of diversity in seniorat all levels within the organization, and executive leadership, and (ii) increase members(v) increasing the size of our Board of Directors ("Board") who have, adding new directors with diverse backgrounds, with a wide range of skills, experience, and experience, including the addition of three directors who are Blackethnicity and Latinx.race.

As of December 31, 2020,2021, women represented 57%58% of our non-officer workforce and 31%32% of our officer workforce. We have three women on our Board,workforce, compared to 57% and increasing31% at December, 31, 2020, respectively. Increasing the representation of women in first-level, middle, and 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%80% of our workforce is White; and 18%20% of our workforce is a combination of Black, Latinos, Asians,Latin, Asian, and all other ethnicities combined.

We have four reportable segments:

We derive substantiallynearly all of our incomeincome/loss in three ways:

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 ofParent's long-term incentive compensation to our 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-GAAPnon-U.S. generally accepted accounting principles ("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)excluding after-tax net realized and unrealized gains and losses on investments, and (ii) after-tax debt retirement costs.investments.

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 incurrednet loss and loss expense incurred 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 net investment income, net realized and unrealized investment gains or losses, federal income taxes, or Parent income or expense. The loss and loss expense ratio is typically the largest contributor to our combined ratio and keyratio. Key drivers typically 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.

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 certainspecific risk and return objectives for the fixed income, equity, and other investment portfolios and comparing oureach portfolio's returns for each portfolio to a weighted-average benchmark of comparable indices.

We also useconsider return on common equity ("ROE") and non-generally accepted accounting principlesnon-GAAP 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 the sum of (i) our current estimated weighted average cost of capital and (ii) an appropriate spread over our estimated weighted average cost of capital. We also consider the current interest rate environment and (iii) property and casualty insurance industry market conditions.conditions when establishing our non-GAAP operating ROE target. For 2021,2022, our non-GAAP operating ROE target is 11%.

For further details regardingabout our 20202021 results related to these performance as it relates to ROE,measures, refer to "Financial Highlights of Results for Years Ended December 31, 2021, 2020, 2019, and 2018"2019" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this Form

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.

Our higher operating leverage resultsthan the industry average, coupled with our casualty-oriented business profile, has resulted 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, 20202021 was $2.96$2.88, compared to the U.S. commercial and personal lines average invested assets to statutory surplus of $2.07. Because we have$2.09 that Conning, Inc. reported in its Fourth Quarter 2021 Property-Casualty Forecast & Analysis (Source: ©2022 Conning, Inc. Used with permission.). Due to our higher investment leverage, we have adopted a slightly more conservative investment management philosophy with fixed income securities and short-term investments, representing more than 92%91% of our invested assets. TheseAs of December 31, 2021, these fixed income securities and short-term investments currently havehad a weighted average credit rating of "AA-"A+" and an effective duration of 3.9 years, compared to "AA-" and 3.8 years. Subjectyears as of December 31, 2020. The weighted average credit rating decline reflects a planned reduction in our sector allocation 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-backedagency residential mortgage-backed securities ("RMBS")over the past year. Given this asset class's very low reinvestment rates, we have reallocated these non-sale disposal cash flows into other high quality, but non-AAA ratedhigh-quality fixed income sectors, as we find theincluding corporate securities and other asset-backed security classes that lack a "AAA" rating but currently have a better 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.versus reward trade-off. For additional information about the design and

Our strong financial strength and lower financial and underwriting risk profile has permitted us historically to operate with higher operating and investment leverage than theour industry as a whole allowswhole. This strategy, while requiring us to balance growth and profit, provides us the opportunity to generate more ROE from ourhigher underwriting and investment portfolios.portfolio ROEs, assuming profitable operations. We generate 0.9 points of ROE for each point on the combined ratio and 2.42.3 points of ROE for each point of pre-tax investment yield. This allows us to generateIn 2021, we generated a 14.8% ROE and a 14.3% non-GAAP operating ROE, exceeding our 2021 11% ROE target, driven by strong returnsunderwriting income and investment results, which included higher gains on our alternative investment portfolio, as discussed further in "Financial Highlights of Results for our shareholdersYears Ended December 31, 2021, 2020, and we believe it is a competitive advantage, particularly2019" in a low interest rate environment.Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K.

We derive all of our insurance operations revenue from selling insurance policies to businesses and individuals in return for insurance premiums. The vast 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 insured claims and related expenses for insured lossesclaims that have not yet been settled and for unreported insurance claims.or reported. 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,Similarly, we maintain an internal reinsurance pooling agreement inby which each companyInsurance Subsidiary 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.

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

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

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 onprofitability, competitive research and feedback from our independent distribution partners, and the potential impact of the product or service will have in making our customer’scustomers’ 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 credible 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 selectedfiled rates.

We have developed predictive models for many of our Standard Commercial and Standard Personal Lines whichthat we use to further refine the statistical rating agencies' rating plans or to independently develop our own rating 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,existing or potential policies based on their expected loss potential, which serve as input intopotential. These groupings are inputs in the underwriting and pricing process for individual risks. For our Standard Personal Lines, weWe use these models to develop factors in our filed Standard Personal Lines rating plans. In all cases, the predictive capabilities of these models are dependentdepend on the quantity and quality of available statistical data. Therefore,Consequently, we may supplement them with other competitive market information or underwriting judgment.

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

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.with lower-limits profiles. 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:

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$3 million per risk for property claims and $2 million per occurrence respectively.for casualty claims. 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.

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

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 states by year-end 2022 with the additions of Idaho, Vermont, and Alabamaby adding, subject to regulatory approval. We also anticipate further geographicapprovals, Vermont, Alabama, and Idaho. This expansion should allow us to issue policies to customers who have exposures in other selectedthese states, beyond 2022. Ultimately, we expectallowing us to be licensedcompete more effectively against insurers with national footprints. Our ultimate plan is to distributeexpand our Standard Commercial Lines insurance policies infootprint throughout the 48-state Continental U.S. andWe currently do not intend to expand the District of Columbia. This expansion will position us to cover customers that are basedstates in our core geographic footprint that have additional exposures currently outside of our core footprint, allowing us to compete against insurers with national footprints.which we write Standard Personal Lines.

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

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

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

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%38% of our DPW, excluding the flood line of business, in 2020.2021.

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 business model provides the customercustomers with a wider choice of insurance products, more competitive pricing, and individualized risk-based consultation.

We have approximately 1,4001,430 distribution partners selling our Standard Commercial Lines business, and 850 of these distribution partners also sell our Standard Personal Linesstandard lines business. These 1,4001,430 distribution partners sell our products and services through approximately 2,4002,500 office locations. We also have approximately 6,0006,200 distribution partners selling our flood insurance products.

Our distribution partners forWe have approximately 80 wholesale general agents, with an aggregated 320 office locations, selling our E&S Lines are 90business. We have granted these 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.

Our primary marketing strategy is to:

We continue to evolve our technology and field model by maintaining a strong focus on innovation. This allows us to provideinnovation, providing our customers and distribution partners 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.

We leverage technology in our business. We have madebusiness and make significant investments in ITinformation technology ("IT") platforms, integrated systems, and Internet-based applications, and have utilized predictive models for over 15 years in our Standard Commercial Lines underwriting.cloud-based solutions.

We make these technology investments to provide:

As part of our digital strategy, we provide our Standard Commercial Lines and Standard Personal Lines customers with a mobile application and a web-basedself-service portal. Our mobile application received Best Mobile App Awards' Platinum Award for "Best Mobile Design," in the summer of 2020. As of December 31, 2021, 47% of our customers registered for these digital self-service capabilities. Both the application and portal both of which we encourage policyholders to adopt foruse on-demand self-service

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 majorprimary business and corporate areas, meets regularly to review all majorsignificant initiatives and receives status reports on the status of other projects. The EPMO is an important factor in the success of our business strategy and technology implementations.

Our business relies heavily 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 personally identifiable information, about our operations.operations, employees, agents, and customers and their employees and property. We have a dedicated unit responsible for implementing and reporting on cybersecurity risks and controls led by our Senior Vice President, Enterprise Strategy and Execution. We work with carefully selected industry-leading security consulting and technology partners and follow security-minded design principles. The cybersecurity team receives oversight and executive support through engagement with our Executive Risk Committee ("ERC"). Similarly, the team works with our Enterprise Risk Management ("ERM") function on business alignment and procuring cybersecurity insurance. Our cybersecurity program balances responsiveness to rapidly-changing threats with ensuring long-term results. It focuses on six key areas:

To advancecontinue advancing (i) an organizational culture of innovation, (ii) our nimbleness,agility, (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:actions, which include the following:

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.

We believe our unique field model is a competitive advantage. To support and build better and stronger relationships with our independent distribution partners, we employ a unique field model in whichour (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 managepersonnel managing our customer, relationships. This field model builds betterclaimant, and strongerdistribution partner relationships, with our independent distribution partners due to our field employees' close proximity and direct interaction(iii) teams are provided 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, 2020,2021, we had approximately 2,4002,440 employees, 730 of whom 675 are normally home-based, 950935 are based in our regional offices, andwith the remainder are in our corporate office. Currently, as a result ofDue to the COVID-19 pandemic, the majoritymost of our office-based employees are temporarily working remotely from home.remained fully remote throughout 2021.

Our underwriting process by segment is as follows:

Our USC services certain Standard Commercial Lines and Standard Personal Lines accounts designated bythat our independent distribution partners.partners designate. 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 ofhaving us handle USC transactions, our distribution partners agree to receive a slightly lower than standard commission on the associated premium. As of December 31, 2020,2021, our USC was servicing NPW of $85.5$93.2 million, which represents 3% of our total NPW.

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 importantessential 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:

We deploy specializedhave been executing a multi-year claims handlingmodernization strategy to improve our claims organization’s ability to process claims more efficiently through improved workflows and enhanced capabilities for our employees, customers, and distribution partners. In 2021, we introduced enhanced capabilities, such as follows:

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.

We face substantial competition in the insurance marketplace, including from public, private, and mutual insurance companies, somewith varied levels of which have better brand recognition, and/or lowerscale and operational efficiency, capital bases, book of business diversification and cost of capital. ManyLike us, many of our competitors like us, rely on independent partners for the distribution ofto distribute 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, theThe property and casualty insurance market is highly competitive andin each of our insurance segments, with 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, price, 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.

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.security issuances. 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%2021, 15% 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 holdinvest in both public and private equity securities, commercial mortgage loans, short-term investments, and other investments. Other investments primarily includes alternative investments.investments, which are limited partnership investments in private equity, private credit, and real estate strategies.

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.value per common share. Our investment strategy and objectives are managed by our Management Investment Committee ("MIC") and are executed by our internal investment team and relationships with multipleits external investment managers. This committee ismanager relationships. The MIC, comprised of senior management andappointed by our Board's Finance Committee, is responsible for (i) setting and implementing the investment objectives and the asset allocation, (ii) administering investment policies, (iii) selecting qualified external investment managers and advisors, and (iv) monitoring performance, transactions, and certain risk metrics, in the execution of our investment strategy. Members of this committee are appointed by ourThe Board's Finance Committee. The Finance Committee reviews and makes recommendations to our Board with respect to certain financial affairs andon our policies and other financial matters, including, but not limited to,without limitation, investments and investment policies and guidelines, financial planning, capital structure and management, dividend policy and dividends, share repurchases, and strategic plans and transactions.

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.

InsuranceThe regulation and taxation of insurance is regulated, primarily overseen at the state level because of the U.S. Congress's delegation in the McCarran-Ferguson Act. The primary public policy behind insurance regulation is protecting policyholders and claimants over all other constituencies, including shareholders. InsuranceProperty and casualty insurance activities regulated by the states include the following:

Our various state insurance regulators are members of the National Association of Insurance Commissioners ("NAIC"). The NAIC, which 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, anAn NAIC model statute, however, only becomes a law after a state legislature enacts it,legislative enactments, and an NAIC model rule only becomes a regulation after a state insurance department promulgates it.promulgation. Adoption of specific NAIC model laws and regulations is a condition of the NAIC Financial Regulations Standards and Accreditation Program. This program permits state insurance departments to recognize and rely on the financial examinations and reviews their counterparts conduct, creating efficiencies and limiting overlapping examinations of the same insurance companies.

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:

Rating agencies althoughare not formal regulators, but they 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 examineevaluate 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 circumstancessimulation scenarios change, they react differently to changes in economic conditions, underwriting and investment portfolio mix, and capital. Consequently, we analyze capital adequacy model divergence while managing our capital, risk profile, and growth objectives. Rating agencies also updaterevise and changeupdate their capital adequacy models and requirements more frequently than the NAIC doesupdates its financial monitoring tools. In December 2021, S&P issued its initial draft of a material update to its Risk-Based Capital Adequacy methodology; its first in more than 10 years. The draft is comprehensive, covering all the original criteria. S&P expects the updated methodology will change up to 10% of its ratings. We analyze this divergenceexpect the final Risk-Based Capital Adequacy methodology update to be released and implemented in capital adequacy models as we manage our capital, risk profile, and growth objectives.2022.

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

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:

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.

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:

Our internal control framework deploys three-linesthree lines of defense:

We use Enterprise Risk Management (“ERM”)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 the 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") thatThe ERC 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 asto analyze and manage specific major risks, including the Emerging Risk Committee and the Underwriting Committee, for detailed analysis and management of specific major risks.Committee. The Chief Risk Officer reports on the ERC's activities, analyses, and findings to the Board or the appropriate Board committee on the ERC's activities, analyses, and provides afindings, providing quarterly updateupdates on certainspecific risk metrics.

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 and reviewed by our Board, with their domiciliary regulator after review by our Board.regulators.

We have not had to modifysignificantly modified our existing internal controls or processes in any significant way in response to the pandemic and weCOVID-19 pandemic. We also have not experienced any material impact to our internal control environment over financial reporting, despite having the majoritymost of our employees working remotely in response2021 due 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.

Our risk governance structure facilitates robusteffective risk dialogueconversations across all levels and disciplines of the organization. It alsoorganization and promotes robuststrong risk management practices, which served us well in 2020 as we evaluated and managed the emerging risk of COVID-19.practices. All of our strategies and controls, however, have inherent limitations. We cannot be certain that an event or series of unanticipated events will (i) not occur and generate losses greater than we expect and (ii) 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.

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 common 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.

Risks Relatedother types of policies, such as commercial property or businessowners policies; and (iii) “silent cyber” exposures that may exist if courts, regardless of intent, interpret policy forms without specific related coverage exclusions to COVID-19provide coverage for a cyber-related incident.

Governmental actionsWe provide cyber-specific policies to contain or delay the spread of the COVID-19 pandemic since early March 2020 have disrupted ordinary business commerceour commercial lines and impacted financialpersonal lines customers through 100% reinsured solutions with highly-rated specialty cyber markets. These governmental actions,markets allow us to mitigate our underwriting risk, meet our customers’ needs for cyber insurance, and develop our expertise in the cyber insurance market. Our other insurance policies provide some first- and third-party cyber coverages:

An increase in natural or man-made catastrophe losses, including a systemic cyber-attack resulting in an aggregation of property and/or casualty cyber losses, will reduce our net income and stockholders’ equity and could have a material adverse effect on our liquidity, financial strength, and debt ratings. In addition, the closer a catastrophe occurs to the end of a reporting period, the more likely we cannot predict the extent, duration,have limited information to estimate loss and possible alteration based on future COVID-19-related developments, could materially and adversely affectloss expense reserves, adding greater uncertainty to our results of operations, financial position, and liquidity.

We maintain reserves for our estimated liability for loss and loss expense associated with reported and unreported insurance claims. Estimating loss and loss expense reserves is inherently uncertain, and there is no method for precisely estimating the globalultimate liability for the settlement of claims. We base our loss and United States domestic economies,loss expense reserve estimates on our internal comprehensive reserve review, which utilizes our own loss experience, including claims payment and reporting patterns, as well as our view of underlying trends in claims frequency and severity. The results are supplemented with some sectorsother subjective considerations, such as travelprojected impacts from various broad economic, political, social, and leisure, retail, energy, and real estate more significantly affected than others;

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 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 impactbe inadequate to cover actual loss costs, understating our revenue,future loss and loss expense liquidity, or regulatory capital and surplus, and operations, particularly as these relate, without limitation, to the following:reserves.

related contamination, the existence of a pandemic, and/or the resultingcontinuing government shutdown ordersactions cause physical loss of or damage to property continues to be the subject of much debate and litigation. WeWhile the insurance industry has won most of the cases at the trial level, many cases are now on appeal and 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

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.

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 ofTypically, our reinsurance contracts have annual terms. coverages align with the coverages offered under our primary insurance policies.

The availability, amount, and cost of reinsurance depend on market conditions, including retrocessional reinsurance market capacity. ThisMost of our reinsurance contracts have annual terms, so reinsurance costs may fluctuate significantly and not necessarily correlate to the loss experience of our specific book of business. In general, we canState insurance regulators generally permit us to consider catastrophe reinsurance expense in our filed rates and rating plans. Any other disproportionate increaseHowever, the degree and timing of regulatory

approval may not align with the actual expense impact from new reinsurance terms. Disproportionate increases in our reinsurance expense that we cannot include in our filed rates and rating plans will reduce our earnings. If we do not obtain expectedare unable to negotiate desired reinsurance amounts or terms, our reinsurance expenses could increase, we may assumeexperience (i) increased reinsurance expense, (ii) increased risk forassumption on individual or aggregate claim losses, and (iii) limitations on our ability to write future business could be adversely affected.business.

Catastrophes impact many property and casualty insurance lines, but commercialCommercial property and homeowners coverages have 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 ourOur reinsurance coverage couldmay prove to be inadequate, particularly if:

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 are required to participate in TRIPRA, which wasnow 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$419 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,In 2022, the federal government will pay 80% of losses andabove the deductible, with the insurer retainsretaining 20%. Although TRIPRA’s provisions provideTRIPRA will mitigate some mitigation toof 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 the Treasury does not certify certain futurespecific terrorist events as happened(as occurred with the 2013 Boston Marathon bombing and the 2015 San Bernardino shootings,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.

Many states in which we writemandate that commercial property insurance mandate that wepolicies cover fire following an act of terrorism - regardless of whether the insured opted to purchasepurchased 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 homeowner policies exclude nuclear losses but they do not exclude biological or chemical losses. Our current reinsurance programs generally provide coverage forcover losses from conventional acts of foreign and domestic terrorism acts, but afford no coverage fornot NBCR events.

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

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 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:

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

Unfavorable economic developments, such as those that occurred duringincreased inflation levels and the COVID-19 pandemic,effect, lifting, or lapsing of COVID-19-related governmental directives experienced in 2021, 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. Inflation and unemployment increases could significantly impact our claims severity across multiple lines of business and could result in adverse reserve development. Heightened levels of economic inflation also could cause higher interest rates, which would likely result in unrealized losses within our portfolio of fixed income securities and lower total returns from our other invested assets. The effect, lifting, or lapsing of COVID-19-related governmental directives in 2021 disrupted supply chains and caused shortages of products, services, and labor. These economic condition-induced shortages may impact our ability to attract and retain labor, including increasing attrition rates, wages, and the cost and difficulty of obtaining third-party resources. 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%2021, 28% of DPW in our Standard Commercial Lines business was based on payroll/payroll or sales of our underlying policyholders. An economic downturn in which our policyholders experience declines in revenue or employee count could adversely affect our total written premium, including audit and endorsement premium in our Standard Commercial Lines.premium.

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, primarily with lenders, to usemaintain insurance policies from a carrier with a specified minimum AM Best or S&P rating. Downgrades in our credit ratingsCredit rating downgrades could 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.

We offer our insurance products and services in a highly competitive market characterized by aggressive price competition and downward pressure on grossunderwriting margins, introduction of new products and services, evolving industry standards, continual improvement in product pricing based on performance characteristics and larger data sets, 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 relative operating costs, lower cost of capital, or thegreater ability to absorb greateror diversify more 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 equityROE performance. Consequently, some competitors may be able to price their products more competitively.

The Internet has emerged as a significant competitive digital marketplace for existing and new competitors. Established insurance competitors, such as The Progressive Corporation, are beginning to explore broader digital Internet offerings, on the Internet, while new competitors with variations on traditional business models have emerged, such as Lemonade, Root, Metromile, and Next, continue to emerge.Next. Because the Internet makes it easier and less expensive to bundle products and services, it also is possible that non-insurance companies

conducting business on the Internet in the future, could enter the insurance business or form strategic alliances with insurers.insurers in the future. 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.

Insurers relydepend 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 relydepend on the aggregated industry loss data assembled by rating bureaus under the anti-trustantitrust 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, weWe use industry loss experience from ISO, AAIS, NCCI, and other publicly available sources.sources to supplement our data. While relevant, industry data may not correlate specifically to the performance of our underwritten risks we have underwritten and may not be as predictive as data on a larger book of our own business.

We rely on complex financial and other statistical models, developed internally and by third parties, thatto 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 oftrends, 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 thetheir embedded assumptions, could lead to increased losses. We believe thatOur statistical models are extremely valuableuseful in monitoring and controlling risk, but they are not a substitute for senior management's experience or judgment.

We depend on income from our investment portfolio for a significant portion of our revenue and earnings. Our investments can be negatively affected by (i) liquidity, (ii) credit deterioration, (iii) financial results, (iv) public equity and/or debt market andchanges, (v) economic conditions, including heightened levels of economic inflation and any ongoing COVID-19-related governmental orders, (vi) political risk, including changes in U.S. Presidential administration,(vii) sovereign risk, (viii) interest rate fluctuations, or (ix) other factors.factors, including climate change risk and civil unrest. 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.

Significant future declines in investment value alsodeclines 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.

As of December 31, 2020,2021, approximately 13%15% of our fixed income securities portfolio was comprised ofhad floating rate securities primarily tied to the 1- and 3-month 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 U.S. 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. Effective December 31, 2021, LIBOR can no longer be used as a benchmark reference rate in new issue loans, securitized products, and other floating rate instruments. Effective June 30, 2023, LIBOR will cease to exist and require remaining floating rate securities to transition to SOFR. Consequently, our fixed income securities portfolio may be subject to (i) interest rate and prepayment risk associated with the resetting of our floating rate coupons from LIBOR to SOFR, (ii) potential rating agency downgrades, (iii) reduced trading liquidity on securities with insufficient fallback transition language, and (iv) lower returns associated with basis risk from a reference rate mismatch between liabilities and assets in certain securitized assets. 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 have and continue to evaluate and monitor other LIBOR risks across the organization.

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. WeBecause of their return relative to risk, we currently expect to slightly 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 based on our periodicquarterly 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 reflectedrecorded 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.

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

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 related to capital adequacy and risk management requirements 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 theand drafted model law changes necessary to incorporate itthat provide for its adoption as a state law requirement for U.S. insurance groups ingroups. It is expected that state law.legislatures will begin to adopt the group capital calculation model law by year-end 2022. The changes could increase the amount of capital our insurance subsidiaries are required to hold.

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.

In the same year that it adopted Solvency II, theThe EU adopted the General Data Protection Regulation ("GDPR"). in 2016. 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. WhileBecause we do not write coverages in the EU, GDPR has no direct impact on us. Some U.S. companies like us without an EU presence, it and any futurestates have subsequently incorporated individual-control mechanisms into state privacy laws. Future EU data privacy actions maylikely will 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 internationalstate 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 include:

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.

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,Based on these restrictions, the maximum in ordinary annual dividends the Insurance Subsidiaries can provide the Parent with $241 million in ordinary annual dividends under applicable state regulation. Still, their2022 is $322 million. Their ability to pay dividends or make loans or advances, however, is subject to their domiciliary state insurance regulator'sregulators' 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, thatAgent. These covenants obligate itthe Parent 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.

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. The New Jersey Department of Banking and Insurance Commissioner, who regulates seven of our Insurance Subsidiaries, also considers whether (i) the acquisition of control of an insurer would be adverse to the public interest or the protection of existing and future policyholders or (ii) persons seeking control would use control adversely to the public interest or the protection of policyholders.

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.

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 bysystems. We have robust business continuity plans, which are designed to minimize the duration and impact of an unplannedunexpected loss of availability unrelated to malicious cyber-attacks. A failure inof any of these systems. Nevertheless, we could experience an event that impacts one or more of these systems, including those atbased in facilities where we or our vendors operate, systems,which may interrupt our ability to operate and negatively impact our results of operations.operations, despite our business continuity plans.

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'statutory 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 purchasingusing 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 andexpect. Given our higher operating leverage than that of our industry, an event or series of unanticipated events could have a more material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.ratings compared to our industry.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our headquarters occupy a 315,000 square foot building located on aan owned 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. Our headquarters site also contains our ground-mount solar facility that annually generates approximately three million kilowatt hours ("kWh") of electricity that we sell to others.

Item 3. Legal Proceedings.

Incidental to our insurance operations, we are routinely engaged in ordinary routine legal proceedings that, because litigationwith inherently unpredictable outcomes are inherently unpredictable,that could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods. For additional information regarding our legal risks, refer to Item 1A. “Risk Factors.” and Note 21. "Litigation" included in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K. As of December 31, 2020,2021, we have no material pending legal proceedings that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

PART II

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a) Market Information

Our common stock is traded on the NASDAQNasdaq Global Select Market under the symbol “SIGI.”

We had 3,0512,949 common stockholders of record as of February 4, 2021,January 31, 2022, according to the records maintained by our transfer agent.

(c) Dividends

Dividends on shares of our common stock are declared and paid at the discretion of the Board of Directors (the "Board") based on our results of operations, financial condition, capital requirements, contractual restrictions, and other relevant factors. We currently expect to continue to pay quarterly cash dividends on shares of our common stock in the future.

On October 28, 2020,27, 2021, the Board approved a 9%12% increase in our common stock dividend to $0.25$0.28 per share. In addition, on January 28, 2021,February 3, 2022, the Board declared a $0.25$0.28 per share quarterly cash dividend on common stock that is payable March 1, 2021,2022, to stockholders of record as of February 12, 2021.15, 2022.

(d) Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information about our common stock authorized for issuance under equity compensation plans as of December 31, 2020:2021:

(e) Performance Graph

The following chart, produced by Research Data Group, Inc., depicts our performance for the period beginning December 31, 2015,2016, and ending December 31, 2020, as measured by2021, comparing total stockholder return on our common stock compared withto the total return of (i) the NASDAQ Composite Index and (ii) a select group of peer companies comprised of NASDAQ-listed companies in SIC Code 6330-6339, Fire, Marine, and Casualty Insurance.

This performance graph is not incorporated into any other filing we have made with the U.S. Securities and Exchange Commission ("SEC") and will not be incorporated by reference into any future SEC filing we may make with the SEC unless we so specifically

(f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information regarding our purchases of our common stock in the fourth quarter of 2020:2021:

Item 6. Selected Financial Data.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements in this report, including information incorporated by reference, are “forward-looking statements” as defined inby the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a safe harbor under the Securities Act of 1933 as amended, and the Securities Exchange Act of 1934 for forward-looking statements. These statements relate to our intentions, beliefs, projections, estimations, or forecasts of future events or futureand financial performance andperformance. They involve known and unknown risks, uncertainties, and other factors that may cause usour or the industry’sindustry actual results, activity levels, of activity, or performance to be materially differentdiffer from those expressed or implied by the forward-looking statements. In some cases, you maycan identify forward-looking statements by use of words such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “target,” “project,” “intend,” “believe,” “estimate,” “predict,” “potential,” “pro forma,” “seek,” “likely,” or “continue.“continue,” or other comparable terminology. Theseterms. Our forward-looking statements are only predictions, and we can give no assurance that such expectations will prove to be correct. We undertake no obligation, other than whatas federal securities laws may require, to publicly update or revise any forward-looking statements regardless of new information, future events, or other unknowns.for any reason.

Factors that could cause our actual results to differ materially from those projected, forecasted,what we project, forecast, or estimatedestimate in our forward-looking statements are discussed in further detail in Item 1A. “Risk Factors.” of this Form 10-K. These risk factors may not be exhaustive. We operate in a constantly changing business environment, and new risk factors may emerge at any time. We can neither predict these new risk factors nor assess their impact, if any, on our businesses or the extent any new factor or combination of factors may cause actual results to differ materially from any forward-looking statements. Given these risks, uncertainties, and assumptions, the forward-looking events we discuss in this report might not occur.

For more details about these segments, refer to Note 1. "Organization" and Note 12. "Segment Information" in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K.

We write our Standard Commercial and Standard Personal Lines products and services through nine of our insurance subsidiaries, some of which participate in the federal government's National Flood Insurance Program's ("NFIP") Write Your Own Program ("WYO"). We write our E&S products through another subsidiary, Mesa Underwriters Specialty Insurance Company, which provides us with a nationally-authorized non-admitted platform for customers who generally cannot obtain coverage in the standard marketplace. Collectively, we refer to our ten insurance subsidiaries as the "Insurance Subsidiaries".Subsidiaries."

The following is Management's Discussion and Analysis ("MD&A") of the consolidated results of operations and financial condition, as well as known trends and uncertainties, that may have a material impact in future periods. The MD&A discusses and analyzes our 2021 results in 2020 compared to 2019.2020. Investors should read the MD&A in conjunction with Item 8. "Financial Statements." of this Form 10-K. For discussion and analysis of our 20192020 results compared to 2018,2019, refer to Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations." of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.

In the MD&A, we will discuss and analyze the following:

We have identified the policies and estimates critical to our business operations and the understanding of our results of operations. In preparing our consolidated financial statements ("Financial Statements"), we are required to make estimates and

Significant periods of time can elapse between the occurrence of an insured loss, the reporting of the claim to us, and the final settlement and payment of the claim. To recognize liabilities for unpaid loss and loss expense, insurers establish reserves as balance sheet liabilities representing an estimate of amounts needed to pay reported and unreported net loss and loss expense. At December 31, 2020, we had recorded $4.3 billion of gross loss and loss expense reserves and $3.7 billion of net loss and loss expense reserves. At December 31, 2019, these gross and net reserves were $4.1 billion and $3.5 billion, respectively. The Insurance Subsidiaries' liability duration was approximately 3.7 years at December 31, 2020, up slightly from 3.6 years at December 31, 2019.