Selective Insurance Group (SIGI) Risk Analysis

We are engaged in ordinary routine legal proceedings incidental to our insurance operations that include: - Indemnity or defense of third-party suits brought against our insureds;- Defense of actions brought against us by our insureds who disagree with our coverage decisions, some of which allege bad faith claims handling and seek extra-contractual damages, punitive damages, or other penalties;- Actions we file, primarily for declaratory judgment, seeking confirmation that we have made appropriate coverage decisions under our insurance contracts;- Actions brought against competitors or us by plaintiffs alleging improper business practices and sometimes seeking class status. Such actions historically have included issues and allegations, without limitation, related to (i) unfairly discriminatory underwriting practices, including the impact of credit score usage, (ii) managed care practices, such as provider reimbursement, and (iii) automobile claims practices; and - Actions we file against third parties and other insurers for subrogation and recovery of other amounts we paid on our insureds' behalf. Some of our legal proceedings may receive media attention due to their perceived newsworthiness and/or their relationship to various broad economic, political, social, and legal developments or trends. Such media stories could negatively impact our reputation. We expect 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 are inherently unpredictable, even with meritorious defenses. The same is true with case-specific litigation duration, as state dockets are often overcrowded. Generally, the longer a case is in litigation, the more expensive it can become. Because the amounts sought in specific 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. We have no material litigation risks related to climate change.

We market and sell our insurance products through independent, non-employee distribution partners. Independent distribution partners have – and we expect they will continue to have – a significant role in the overall production of insurance industry premium. While our customers find advantages in using independent distribution partners, our reliance on independent distribution partners presents risks and challenges, including: - Competition within our distribution channel, as we must market our products and services to independent distribution partners who can access multiple carriers and markets. - Brand recognition challenges because we closely coordinate marketing with our distribution partners and some customers do not differentiate their insurance agent from their insurer. - Our market share growth is tied to our distribution partners' market share. Consequently, growth in our Standard Personal Lines could be more limited than in our Standard Commercial Lines. Competitors have focused on lower-cost "direct-to-customer" distribution models emphasizing digital ease and efficiencies to grow market share in standard personal lines. Continued advancements in "direct-to-customer" distribution models may impact our independent distribution partners' overall market share, make it more difficult for us to grow, or require us to establish relationships with more distribution partners. - Aggregation and consolidation of our independent distribution partners and their market share. Some publicly traded and private equity-backed independent distribution partners have deployed consolidation strategies to acquire other independent distribution partners and increase their market share ("Aggregators") over the last decade. If more of our independent distribution partners become Aggregators or Aggregators acquire them, the demands and influence of Aggregators on our business could increase. For example, certain aggregators are pursuing strategies to consolidate their business with fewer insurers and demanding customized compensation agreements. Aggregators accounted for approximately 51% of our DPW at December 31, 2025, up from 46% in the prior year. No single distribution partner is responsible for 10% or more of our combined insurance operations' premium. Our financial condition and results of operations are impacted by the success of our independent distribution partners in marketing and selling our products and services.

We rely on complex financial and other statistical models, developed internally and by third parties, to 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, claims severity and frequency trends, catastrophe losses, reinsurance attachment and exhaustion points, investment performance, portfolio risk, and our economic capital position. Flaws or limitations in financial and statistical models, as well as their embedded assumptions could understate estimated losses. For example, a significant component of climate change risk is that the frequency and severity of extreme weather events may evolve differently relative to historical levels – leading to greater model uncertainty. In addition, increasing insurance regulatory interest in data and model use, combined with any potential restrictions on traditional rating factors or model use, could have a material adverse impact on our financial condition and operating results. In recognition of this risk, management's experience and sound business judgment must be used to interpret and apply model results.

Our business heavily relies on IT and application systems connected to or accessed through the Internet. Consequently, a malicious cyber-attack could affect us. Our systems also house 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 operations, damage our reputation, and result in monetary damages that are difficult to quantify. These potential impacts from a malicious cyber-attack could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. Through encryption and authentication technologies, we have implemented system- and process-based risk mitigations intended to secure our IT systems and prevent unauthorized access to or loss of sensitive data. Cyber-attack sophistication evolves daily, so our security measures may not sufficiently address all eventualities. We may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management, or other irregularities. We implement new technologies, including AI, to increase operational efficiencies. These new technologies may increase the risk of cyber attacks. We also rely on third-party technology providers whose cyber-attack risks may be higher or lower than ours, depending on their profile and the maturity of their security programs. To the extent possible and practical, we review third-party control environments and align their risk exposure with our business requirements and risk tolerances. Any disruption or breach of our systems or data security could damage our reputation, result in monetary damages that are difficult to estimate, and have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings. To mitigate this risk, we have and expect to continue to (i) conduct disaster recovery exercises, employee education programs, and tabletop exercises, and (ii) develop and invest in a variety of controls to prevent, detect, and appropriately react to cyber-attacks, including frequently testing our systems' security and access controls. We have insurance coverage for certain cybersecurity risks, including privacy breach incidents, which may be insufficient to indemnify against all arising losses or types of claims. In addition to the risk of cyber-attacks, we face system availability risk. Our business relies heavily on various IT and application systems. We have robust business continuity plans designed to minimize the duration and impact of an unexpected loss of availability of any of these systems. Nevertheless, we could experience an event that impacts one or more of these systems, including those based in facilities where our vendors or we operate. Such events could disrupt our ability to conduct business and negatively impact our results of operations, despite our business continuity plans.

Our alternative investments include private limited partnerships that invest in various strategies, such as private equity, private credit, and real assets. The primary assets and liabilities underlying these limited partnership investments generally do not have quoted prices in active markets for the same or similar assets. Consequently, their valuation is subject to a higher level of subjectivity and unobservable inputs than most of our other investments. We record these limited partnership investments under the equity method of accounting, so valuation decreases could negatively impact our results of operations.

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 determining the ultimate liability for claims settlement. We base our loss and loss expense reserve estimates on our internal in-depth reserve review, which uses our loss experience, claims payment and reporting patterns, and our assessment of underlying claims frequency and severity trends. We supplement the estimates with other subjective considerations, including projected impacts from economic, political, social, and legal developments or trends, such as inflation, judicial trends and tort decisions, and various state legislative initiatives. We cannot predict the timing or impact of these developments or trends with certainty; nor can we be certain that the reserves we establish are adequate or will remain so in the future. We review our reserve position quarterly and adjust it as determined appropriate. 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 to inform our product pricing, aimed at generating an adequate risk-adjusted return. If our future loss cost trend estimates prove to be understated, our pricing of future new and renewal business could be inadequate to cover actual loss costs, and our future loss and loss expense reserves could be understated. Three examples of how loss and loss expense reserves might be affected by economic, political, social, or legal developments or trends are: - If economic inflation, including medical inflation, is higher than our assumptions, our loss and loss expense reserves for our longer tail lines of business could be insufficient. For example, 2022 inflation rates reflected in the overall consumer price index ("CPI"), the Core CPI, and the Producer Price Index, were higher than in 2021. While inflation moderated in subsequent years, it remains elevated relative to the Federal Reserve's long-term 2% target. The workers compensation line of business is particularly susceptible to inflation due to its extended payment pattern and exposure to medical care services and commodities. While medical inflation has been low for several years, it has risen recently and, in combination with rising utilization, is driving increases in workers compensation medical severities. If this trend continues and medical care costs increase significantly or persist at a higher level for an extended period, our overall loss and loss expense reserves could be materially impacted. Our short-tail property lines of business are also susceptible to inflation due to their exposure to increased labor and material costs. - Social inflation refers to the phenomenon where societal factors, such as attitudes, perceptions, and cultural changes, contribute to increased insurance claims costs and litigation. It often results in higher payouts in legal settlements and jury awards, and affects insurance premiums for businesses and individuals. This inflation is driven by various factors, including changing jury attitudes, increased litigation funding, larger awards in court cases, legal system abuse, insurance coverage gaps, increased willingness to undergo surgery, and novel interpretations of liability. Social inflation can affect all lines of business. However, the automobile liability, general liability, and corresponding umbrella lines of business involving bodily injury to third-party claimants tend to be more susceptible to social inflationary impacts. Our reserve for loss and loss expense could be insufficient if impacts from social inflation exceed our assumptions. - Various states have expanded or could expand the statute of limitations for civil actions alleging sexual abuse. By retroactively permitting previously time-barred claims, these "reviver" laws may result in insurance claims that could significantly increase loss costs and require new reserves or re-evaluation of previously established reserves. Since reviver statutes have been enacted, we have received some notices of claims or potential claims for alleged acts, some that may have occurred several decades ago. Without prior experience, we cannot estimate the number of "reviver" claims notices we may receive. Most notices (i) are blanket notices sent by attorneys representing claimants unsure of the alleged assailant or supervising entity's insurer or policy (if any) and (ii) may not implicate any of our or a predecessor's insurance policies. For those we determine implicate one of our or a predecessor's policy, we (i) have investigated or are investigating facts, (ii) have evaluated policy terms, (iii) believe we have appropriate coverage defenses to most of these claims and/or sufficient reinsurance protections, and (iv) have considered these factors in establishing our reserves, which we believe provide a reasonable estimate of the aggregate ultimate net exposure for these claims. We face related litigation risks because policyholders and claimants may challenge our coverage positions. We discuss these risks further below in the Risk Factor entitled, "We are engaged in ordinary routine legal proceedings incidental to our insurance operations that are inherently unpredictable and could impact our reputation and/or have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods." For further discussion on our loss and loss expense reserves, please see the "Critical Accounting Policies and Estimates" section of Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." and Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

Recent geopolitical developments, including military conflict in the Middle East, have contributed to increased volatility in global energy markets and international shipping activity. Though we only write business domestically in the United States, and our insurance operations do not have direct exposure to businesses or individuals in the Middle East, these developments have resulted in higher energy and transportation costs, supply-chain delays, and volatility in global financial markets. Such conditions may adversely affect global economic activity and the market value of our investment portfolio and could increase our loss costs and reinsurance expense.

Losses from natural and human-made catastrophes can negatively impact our financial results. Examples include hurricanes, tornadoes, windstorms, earthquakes, hail, thunderstorms, severe winter weather, derechos, floods, and fires, some of which are related to climate change, as well as criminal and terrorist acts, including cyber-attacks, civil unrest, and explosions. The frequency and severity of these catastrophes are inherently unpredictable, and both have increased globally in recent years. In many cases, the increase in catastrophe losses relates to small- to- medium-sized events that primary insurers retain rather than cede to reinsurers. We use sophisticated catastrophe modeling techniques to manage our exposure, but actual exposure and loss experience can materially differ from catastrophe model estimates. For example, catastrophe models did not fully estimate the potential for some recent catastrophe losses (such as Winter Storm Elliott freeze losses in December 2022) and the concurrent economic inflation on construction costs. Our most significant natural and/or human-made catastrophe exposures are (i) hurricanes impacting the Eastern U.S., (ii) severe convective storms, including hailstorms and tornadoes, (iii) winter storms, (iv) wildfires, (v) earthquakes, and (vi) terrorism events. Single storms could adversely impact our financial results; however, we could experience more than one severe catastrophic event in any given calendar year. We track our severe weather and catastrophe losses using definitions and information from Insurance Services Office, Inc.'s ("ISO") Property Claim Services unit, an internationally recognized authority on insured property losses from catastrophes in the U.S., Puerto Rico, and the U.S. Virgin Islands. Certain factors can impact our estimates of ultimate costs for natural and/or human-made catastrophes, including: - Inability to access portions of the affected areas after a catastrophic event;- Scarcity of necessary labor and materials that delay repairs and increase our loss costs;- Regulatory uncertainties, including new or expanded interpretations of coverage;- Residual market assessment-related increases in our catastrophe losses;- Potential fraud and inflated repair costs, partly driven by (a) demand surge post-event and (b) opportunistic service providers;- Higher loss expenses due to shortages of claims adjusters available to appraise damage;- Late claims reporting;- Escalation of business interruption costs due to infrastructure disruption; and - Whether the U.S. Secretary of the Treasury certifies an event as a terrorist act under TRIPRA. Natural catastrophes Temperature changes can affect weather patterns and the frequency and/or severity of catastrophes, including hurricanes, severe convective storms, wildfires, and flooding – all of which could increase our catastrophe losses relative to historical levels. A significant component of climate change risk is that the frequency and severity of extreme weather events may evolve differently relative to historical levels – leading to greater model uncertainty. Climate change models project significant differences in global regional warming above pre-industrial levels, depending on future climate mitigation levels and geographic location. These global regional differences, whether attributable to nature or human activities, include increases in (i) mean temperature in most land and ocean regions, (ii) hot extremes in most inhabited regions, (iii) heavy precipitation in several regions, and (iv) the probability of drought and precipitation deficits in some regions. Human-made catastrophes Cyber Attacks and Incidents The risk of a wide-scale criminal or terrorist cyber-attack has become more significant and has drawn increased attention from IT and national security experts, U.S. policymakers, the U.S. military, and the insurance industry. There is general recognition that a wide-scale cyber-attack simultaneously impacting multiple victims is more likely, and systemic risk in the insurance industry has increased. We have identified three primary sources of potential insured exposure to cyber losses: (i) cyber-specific policies designed to cover both first-party and third-party losses; (ii) affirmative cyber coverage grants included in other types of policies, such as commercial property or businessowners' policies; and (iii) "silent cyber" exposures, otherwise known as non-affirmative cyber exposures, which describes cyber risk that is neither expressly covered nor excluded in insurance policies. This exposure may exist if courts, regardless of intent, interpret policy forms without specific related coverage exclusions to provide coverage for a cyber-related incident. Our cyber-specific policies for commercial lines and personal lines customers are 100% reinsured with highly-rated specialty cyber markets. These solutions allow us to meet our customers' cyber insurance needs while mitigating our underwriting risk as we develop our expertise in the cyber insurance market. Beyond our cyber-specific policies, some of our other insurance policies may provide coverage following a cyber event in certain circumstances: - We offer limited first-party affirmative cyber coverage in our commercial property and businessowners' policy forms. Our base property and businessowners' forms typically include a $2,500 or $10,000 cyber coverage grant that includes "virus and harmful code." Over 90% of our policies with virus/harmful code coverage on commercial property, businessowners', commercial output policy, or inland marine forms have sub-limits of $25,000 or lower. In addition, we apply cyber incident exclusions that eliminate coverage for malicious cyber except for the sub-limited coverage in the base ISO coverage forms and our property and businessowners' property "virus and harmful code" extension endorsements. - Most of our general liability and businessowners' policies exclude cyber-related liability losses, except for "bodily injury." Our specific cyber-exclusion and liability forms' lack of affirmative sub-limited cyber coverage effectively limits most "silent cyber" exposure. For new and renewal policies effective October 1, 2025, and later, we implemented ISO's cyber incident exclusion for general liability, which eliminates coverage for "bodily injury" and "property damage."- By statute, workers compensation policies cannot include cyber exclusions, and a cyber-attack-related workplace injury could trigger coverage. Terrorism We are required to participate in TRIPRA, now 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 must pay a significant deductible of specified losses before federal assistance is available. Our $684 million deductible is based on a percentage of our prior year's applicable Standard Commercial Lines and E&S Lines premiums. In 2026, the federal government will pay 80% of losses above the deductible, with the insurer retaining 20%. Although TRIPRA will mitigate some of our loss exposure to a large-scale terrorist attack, the size of our deductible and 20% co-participation 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 specific terrorist events, we could be required to pay terrorism-related covered losses without TRIPRA's risk-sharing benefits. We could also be required to pay terrorism-related losses for customers who declined terrorism coverage. Our primary workers compensation policies are required to cover terrorism risk, so TRIPRA applies to those policies. Insureds with non-workers compensation commercial policies can accept or decline our terrorism coverage or negotiate with us for other terms. In 2025, 83% of our Standard Commercial Lines non-workers compensation policyholders purchased terrorism coverage that included nuclear, biological, chemical, and radioactive ("NBCR") events. TRIPRA also applies to cyber liability insurance policies reported under a Terrorism Risk Insurance Program-eligible line of insurance. Many states mandate that commercial property policies cover fire following an act of terrorism - regardless of whether the insured purchased 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 Standard Personal Lines homeowner policies exclude nuclear losses but not biological, chemical, or conventional terrorism losses. Our current reinsurance programs cover some losses from conventional foreign and domestic terrorism acts but not NBCR events. An increase in natural or man-made catastrophe losses, including a systemic cyber-attack that results 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. The closer a catastrophe occurs to the end of a reporting period, the more likely we are to have limited information to estimate loss and loss expense reserves, increasing the uncertainty of our estimates. More comprehensive claims information available after a reporting period may result in reserve changes in subsequent periods.