MCY

Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. Certain statements contained in this report are forward-looking statements based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the demand for the Company’s insurance products, inflation and general economic conditions, including general market risks associated with the Company’s investment portfolio; the accuracy and adequacy of the Company’s pricing methodologies; catastrophes in the markets served by the Company; uncertainties related to estimates, assumptions and projections generally; the possibility that actual loss experience may vary adversely from the actuarial estimates made to determine the Company’s loss reserves in general, including subrogation recovery estimates; the Company’s ability to obtain and the timing of the approval of premium rate changes for insurance policies issued in the states where it operates; legislation adverse to the automobile or homeowners insurance industry or business generally that may be enacted in the states where the Company operates; the Company’s success in managing its business in non-California states; the presence of competitors with greater financial resources and the impact of competitive pricing and marketing efforts; the Company's ability to successfully allocate the resources used in the states with reduced or exited operations to its operations in other states; changes in driving patterns and loss trends; acts of war and terrorist activities; effects of changing climate conditions; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases; court decisions and trends in litigation and health care and auto repair costs; changes in global trade policies, including trade barriers or restrictions; and legal, cybersecurity, regulatory and litigation risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the "SEC") on February 17, 2026. OVERVIEW A. General The operating results of property and casualty insurance companies are subject to significant quarter-to-quarter and year-to-year fluctuations due to the effect of competition on pricing, the frequency and severity of losses, the effect of weather and natural disasters on losses, general economic conditions, the general regulatory environment in states in which an insurer operates, state regulation of insurance including premium rates, changes in fair value of investments, and other factors such as changes in tax laws. The property and casualty insurance industry has been highly cyclical, with periods of high premium rates and shortages of underwriting capacity followed by periods of severe price competition and excess capacity. These cycles can have a significant impact on the Company’s ability to grow and retain business. This section discusses some of the relevant factors that management considers in evaluating the Company’s performance, prospects, and risks. It is not all-inclusive and is meant to be read in conjunction with the entirety of management’s discussion and analysis, the Company’s consolidated financial statements and notes thereto, and all other items contained within this Quarterly Report on Form 10-Q. B. Business The Company is primarily engaged in writing personal automobile insurance through 12 insurance subsidiaries (“Insurance Companies”) in 11 states, principally California. The Company also writes homeowners, commercial automobile, commercial property, mechanical protection, and umbrella insurance. The Company's insurance policies are mostly sold through independent agents who receive a commission for selling policies. The Company believes that it has thorough underwriting, pricing and claims handling processes that, together with its agent relationships, provide the Company with competitive advantages. 28 Table of Contents The following tables present direct premiums written, by state and line of insurance business, for the six months ended June 30, 2026 and 2025: Six Months Ended June 30, 2026 (Dollars in thousands) Private Passenger Automobile Homeowners Commercial Automobile Other Lines (2) Total California $ 1,610,984 $ 653,622 $ 183,077 $ 186,867 $ 2,634,550 82.4 % Texas 67,968 129,020 31,543 2,955 231,486 7.2 % Other states (1) 174,979 135,208 14,352 5,749 330,288 10.4 % Total $ 1,853,931 $ 917,850 $ 228,972 $ 195,571 $ 3,196,324 100.0 % 58.0 % 28.7 % 7.2 % 6.1 % 100.0 % Six Months Ended June 30, 2025 (Dollars in thousands) Private Passenger Automobile Homeowners Commercial Automobile Other Lines (2) Total California $ 1,522,978 $ 542,847 $ 150,820 $ 154,415 $ 2,371,060 80.9 % Texas 64,559 121,472 32,165 3,820 222,016 7.6 % Other states (1) 200,449 114,332 17,450 5,121 337,352 11.5 % Total $ 1,787,986 $ 778,651 $ 200,435 $ 163,356 $ 2,930,428 100.0 % 61.0 % 26.6 % 6.8 % 5.6 % 100.0 % ______________ (1) No individual state accounted for more than 5% of total direct premiums written. (2) No individual line of insurance business accounted for more than 5% of total direct premiums written. C. Regulatory and Legal Matters The DOI in each state in which the Company operates is responsible for conducting periodic financial, market conduct, and rating and underwriting examinations of the Insurance Companies in their states. Market conduct examinations typically review compliance with insurance statutes and regulations with respect to rating, underwriting, claims handling, billing, and other practices. The following table presents a summary of recent and upcoming examination: State Exam Type Exam Period Covered Status CA, FL, GA, IL, OK, TX Coordinated Multi-state Financial 2022-2025 Examination began in the second quarter of 2026. During the course of and at the conclusion of the examinations, the examining DOI generally reports findings to the Company. No material findings have been communicated to the Company related to the coordinated financial examination noted above. In late 2024, as part of the California insurance commissioner’s “Sustainable Insurance Strategy,” the California DOI issued two regulations that may impact how insurers price and write certain of their California property insurance policies: one allowing insurers to incorporate catastrophe modeling into rate-making with a requirement for them to align their share of insured properties in distressed wildfire-prone areas of the state to at least 85% of their state-wide market share or to increase their share by 5% in a two-year period; and the other allowing insurers to incorporate reinsurance costs into rate-making for certain specific catastrophe perils and wildfire exposures when meeting the same requirement governing the use of catastrophe modeling. The California insurance commissioner has also implemented changes to the California FAIR Plan, expanding coverage offerings and changing the assessment and recoupment processes in order to enhance market stability: the FAIR Plan’s member insurers may now request the California insurance commissioner’s prior approval to collect temporary supplemental fees from their own policyholders in order to recoup up to 50% of amounts assessed up to $1 billion in aggregate assessments in the industry and 100% of all amounts assessed over that $1 billion threshold for each of personal and 29 Table of Contents commercial lines of insurance business, and 100% of all amounts assessed over $2 billion in aggregate assessments in the industry for the combined personal and commercial lines of insurance business. In December 2025, the California DOI approved the Company's rate application, which incorporates catastrophe modeling and reinsurance costs into its ratemaking in accordance with the new regulations. The new rating plan became effective in July 2026 and the Company will adhere to the market-share requirements. In January 2025, the California DOI approved a 12% rate increase on the California homeowners line of insurance business. This rate increase became effective in March 2025. In December 2025, the California DOI approved a 6.9% rate increase on the California homeowners line of insurance business. This rate increase became effective in July 2026. The California homeowners line of insurance business represented approximately 18% of the Company's total net premiums earned for the six months ended June 30, 2026. In addition, the Company intends to file an application with the California DOI in August 2026 for a rate increase of approximately 6% on the California private passenger automobile line of insurance business with a July 2027 effective date. The California private passenger automobile line of insurance business represented approximately 53% of the Company's total net premiums earned for the six months ended June 30, 2026. The Company is, from time to time, named as a defendant in various lawsuits or regulatory actions incidental to its insurance business. The majority of lawsuits brought against the Company relate to insurance claims that arise in the normal course of business and are reserved for through the reserving process. For a discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The Company establishes reserves for non-insurance claims related lawsuits, regulatory actions, and other contingencies when the Company believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. In addition, the Company accrues for anticipated legal defense costs associated with such lawsuits and regulatory actions. While actual losses may differ from the amounts recorded and the ultimate outcome of the Company's pending actions is generally not yet determinable, the Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition or cash flows. In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. For a discussion of any additional regulatory or legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. D. Critical Accounting Estimates Loss and Loss Adjustment Expense Reserves ("Loss Reserves") Preparation of the Company’s consolidated financial statements requires management’s judgment and estimates. The most significant is the estimate of loss reserves. Estimating loss reserves is a difficult process as many factors can ultimately affect the final settlement of a claim and, therefore, the loss reserve that is required. A key assumption in estimating loss reserves is the degree to which the historical data used to analyze reserves will be predictive of ultimate claim costs on incurred claims. Changes in the regulatory and legal environments, results of litigation, medical costs, the cost of repair materials, and labor rates, among other factors, can impact this assumption. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of a claim, the more variable the ultimate settlement amount could be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims. The Company calculates a loss reserve point estimate rather than a range. There is inherent uncertainty with estimates and this is particularly true with loss reserve estimates. This uncertainty comes from many factors which may include changes in claims reporting and settlement patterns, changes in the regulatory and legal environments, uncertainty over inflation rates, and uncertainty for unknown items. The Company does not make specific provisions for these uncertainties, rather it considers them in establishing its loss reserve by reviewing historical patterns and trends and projecting these out to current loss reserves. The underlying factors and assumptions that serve as the basis for preparing the loss reserve estimate include paid and incurred loss development factors, expected average costs per claim, inflation trends, expected loss ratios, industry data, and other relevant information. The Company also engages independent actuarial consultants to review the Company’s loss reserves and to provide the annual actuarial opinions under statutory accounting principles as required by state regulation. The Company analyzes loss reserves quarterly primarily using the incurred loss method, paid loss method, and average severity method coupled with the 30 Table of Contents claim count development method, as described below. When deciding among methods to use, the Company evaluates the credibility of each method based on the maturity of the data available and the claims settlement practices for each particular line of insurance business or coverage within a line of insurance business. The Company may also evaluate qualitative factors such as known changes in laws or legal rulings that could affect claims handling or other external environmental factors or internal factors that could affect the settlement of claims. When establishing the loss reserve, the Company will generally analyze the results from all of the methods used rather than relying on a single method. While these methods are designed to determine the ultimate losses on claims under the Company’s policies, there is inherent uncertainty in all actuarial models since they use historical data to project outcomes. The Company believes that the techniques it uses provide a reasonable basis in estimating loss reserves. •The incurred loss method analyzes historical incurred case loss (case reserves plus paid losses) development to estimate ultimate losses. The Company applies development factors against current case incurred losses by accident period to calculate ultimate expected losses. The Company believes that the incurred loss method provides a reasonable basis for evaluating ultimate losses, particularly in the Company’s larger, more established lines of insurance business which have a long operating history. •The paid loss method analyzes historical payment patterns to estimate the amount of losses yet to be paid. •The average severity method analyzes historical loss payments and/or incurred losses divided by closed claims and/or total claims to calculate an estimated average cost per claim. From this, the expected ultimate average cost per claim can be estimated. The average severity method coupled with the claim count development method provide meaningful information regarding inflation and frequency trends that the Company believes is useful in establishing loss reserves. The claim count development method analyzes historical claim count development to estimate future incurred claim count development for current claims. The Company applies these development factors against current claim counts by accident period to calculate ultimate expected claim counts. The Company analyzes catastrophe losses separately from non-catastrophe losses. The Company classifies certain losses as catastrophe losses based on catastrophe events designated by Property Claim Services, a unit of Insurance Services Office, Inc. For catastrophe losses, the Company generally determines claim counts based on claims reported and development expectations from previous catastrophes and applies an average expected loss per claim based on loss reserves established by adjusters and average losses on previous similar catastrophes. For catastrophe losses that are considered “total losses” where the entire dwelling was destroyed, the Company primarily estimates losses based on the expected amounts to be paid out on the policy limits. Homeowners policies have multiple coverages, including dwelling, additional replacement costs, additional living expenses, and personal property, and on a typical total loss, many, but not all, of the various coverage limits are exhausted. It can take up to five years or longer for total loss claims to close, and the Company will reevaluate its total loss estimates periodically based on many factors, including estimated costs to rebuild if a decision was made to rebuild, actual rebuilding costs incurred, estimated time to rebuild, value of personal belongings destroyed, expected duration for the homeowner to be displaced, and demand surge. In addition, subrogation may play an important role in the catastrophe loss estimate. For additional discussion on subrogation, see disclosures on the Palisades and Eaton wildfires in Note 10. Loss and Loss Adjustment Expense Reserves, of the Notes to Consolidated Financial Statements. At June 30, 2026 and December 31, 2025, the Company recorded its point estimate of approximately $3.67 billion and $3.63 billion ($3.64 billion and $3.60 billion, net of reinsurance), respectively, in loss reserves, which included approximately $2.23 billion and $2.12 billion ($2.23 billion and $2.12 billion, net of reinsurance), respectively, of incurred but not reported loss reserves (“IBNR”). IBNR includes estimates, based upon past experience, of ultimate developed costs, which may differ from case estimates, unreported claims that occurred on or prior to June 30, 2026 and December 31, 2025, and estimated future payments for reopened claims. Management believes that the liability for loss reserves is adequate to cover the ultimate net cost of losses and loss adjustment expenses incurred to date; however, since the provisions are necessarily based upon estimates, the ultimate liability may be more or less than such provisions. The Company evaluates its loss reserves quarterly. When management determines that the estimated ultimate claim cost requires a decrease for previously reported accident years, favorable development occurs and a reduction in losses and loss adjustment expenses is reported in the current period. If the estimated ultimate claim cost requires an increase for previously reported accident years, unfavorable development occurs and an increase in losses and loss adjustment expenses is reported in the current period. For a further discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. 31 Table of Contents RESULTS OF OPERATIONS Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025 Revenues Net premiums earned and net premiums written for the three months ended June 30, 2026 increased 9.6% and 5.3%, respectively, from the corresponding period in 2025. The increase in net premiums earned was primarily due to a rate increase in the California homeowners line of insurance business and increases in the number of policies written in the California automobile and homeowners lines of insurance business, partially offset by an increase in ceded premiums earned. The increase in net premiums written was primarily due to increases in the number of policies written in the California automobile and homeowners lines of insurance business, partially offset by an increase in ceded premiums written. Net premiums earned included ceded premiums earned of $62.6 million and $54.4 million for the three months ended June 30, 2026 and 2025, respectively. Net premiums written included ceded premiums written of $62.6 million and $3.9 million for the three months ended June 30, 2026 and 2025, respectively. The increase in ceded premiums earned resulted mostly from an increase in the annual reinsurance premium under the Treaty due to higher reinsurance coverage and rates and growth in the covered book of business, combined with the accelerated expensing of the remaining annual reinsurance premiums of $26 million in the first quarter of 2025 under the Treaty ended June 30, 2025 for use of reinsurance coverages following the Palisades and Eaton wildfires, partially offset by reinsurance reinstatement premiums earned of $51 million in the second quarter of 2025 related to reinstating the fully exhausted reinsurance coverage layers following the Palisades and Eaton wildfires. The increase in ceded premiums written resulted mostly from an increase in the annual reinsurance premium under the Treaty due to higher reinsurance coverage and rates and growth in the covered book of business, combined with the accelerated expensing of the remaining annual reinsurance premiums of $26 million in the first quarter of 2025 under the Treaty ended June 30, 2025 for use of reinsurance coverages following the Palisades and Eaton wildfires. Net premiums earned, a GAAP measure, represents the portion of net premiums written that is recognized as revenue in the financial statements for the periods presented and earned on a pro-rata basis over the term of the policies. Net premiums written is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period, net of any applicable reinsurance. Net premiums written is a statutory measure designed to determine production levels. The following is a reconciliation of net premiums earned to net premiums written: Three Months Ended June 30, 2026 2025 (Amounts in thousands) Net premiums earned $ 1,497,767 $ 1,366,738 Change in net unearned premiums 61,278 114,069 Net premiums written $ 1,559,045 $ 1,480,807 Expenses Loss and expense ratios are used to interpret the underwriting experience of property and casualty insurance companies. The following table presents the Insurance Companies’ loss, expense, and combined ratios determined in accordance with GAAP: Three Months Ended June 30, 2026 2025 Loss ratio 65.0 % 68.8 % Expense ratio 24.9 % 23.7 % Combined ratio 89.9 % 92.5 % Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned. The loss ratio for the second quarter of 2026 and 2025 was affected by favorable development of approximately $35 million and unfavorable development of approximately $4 million, respectively, on prior accident years' loss and loss adjustment expense reserves. The favorable development for the second quarter of 2026 was primarily attributable to lower than estimated losses and loss adjustment expenses in the automobile and homeowners lines of insurance business. The unfavorable development for the 32 Table of Contents second quarter of 2025 was not significant and resulted from ongoing analyses of loss trends. In addition, the 2026 loss ratio was negatively impacted by approximately $71 million of catastrophe losses net of reinsurance, excluding unfavorable development of approximately $4 million on prior years' catastrophe losses, primarily due to storms in Texas and Oklahoma. The 2025 loss ratio was negatively impacted by approximately $15 million of catastrophe losses, excluding favorable development of approximately $2 million on prior years' catastrophe losses, primarily due to storms in Texas and Oklahoma. Excluding the effects of estimated prior accident years’ loss development and catastrophe losses, the loss ratio was 62.6% and 67.4% for the second quarter of 2026 and 2025, respectively. The decrease in the loss ratio was primarily due to the rate increase discussed above and a decrease in loss frequency in the private passenger automobile line of insurance business, partially offset by an increase in loss severity in the private passenger automobile line of insurance business. Expense ratio is calculated by dividing the sum of policy acquisition costs and other operating expenses by net premiums earned. The expense ratio for the three months ended June 30, 2026 increased from the corresponding period in 2025, which was largely attributable to increases in profitability-based accruals and advertising expenses, partially offset by the rate increase discussed above. Combined ratio is equal to loss ratio plus expense ratio and is the key measure of underwriting performance traditionally used in the property and casualty insurance industry. A combined ratio under 100% generally reflects profitable underwriting results, and a combined ratio over 100% generally reflects unprofitable underwriting results. Income tax expense was $63.8 million and $40.3 million for the three months ended June 30, 2026 and 2025, respectively. The increase in income tax expense was primarily due to a $120.6 million increase in total pre-tax income. The Company’s effective income tax rate can be affected by several factors. These generally relate to large changes in the composition of fully taxable income, including net realized investment gains or losses, tax-exempt investment income, non-deductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. Income tax expense of $63.8 million on pre-tax income of $327.3 million, including tax-exempt investment income of $34.5 million, resulted in an effective tax rate of 19.5%, below the statutory tax rate of 21%, for the three months ended June 30, 2026, and income tax expense of $40.3 million on pre-tax income of $206.7 million, including tax-exempt investment income of $22.7 million, resulted in an effective tax rate of 19.5% for the corresponding period in 2025. Investments The following table presents the investment results of the Company: Three Months Ended June 30, 2026 2025 (Dollars in thousands) Average invested assets at cost (1) $ 6,887,886 $ 5,703,599 Net investment income (2) (3) Before income taxes $ 89,763 $ 78,759 After income taxes $ 76,622 $ 66,021 Average annual yield on investments (2) (3) Before income taxes 4.5 % 4.7 % After income taxes 3.9 % 3.9 % Net realized investment gains $ 86,512 $ 23,480 __________ (1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets excluding cash for each period. (2) Net investment income includes approximately $11.9 million and $12.5 million of interest income earned on cash (approximately $9.4 million and $9.9 million after tax) for the three months ended June 30, 2026 and 2025, respectively. Average annual yield on investments does not include interest income earned on cash. (3) Higher net investment income before and after income taxes for the three months ended June 30, 2026 compared to the corresponding period in 2025 resulted largely from higher average invested assets. Average annual yield on investments before income taxes decreased, primarily due to an increase in tax-exempt investments with lower pre-tax yields. 33 Table of Contents The following tables present the components of net realized investment gains or losses included in net income: Three Months Ended June 30, 2026 Gains (Losses) Recognized in Net Income Sales Changes in fair value Total (Amounts in thousands) Net realized investment gains (losses) Fixed maturity securities (1) (2) $ (120) $ 21,393 $ 21,273 Equity securities (1) (3) 28,883 31,347 60,230 Short-term investments (1) — (12) (12) Note receivable (1) — (56) (56) Options sold 5,043 34 5,077 Total $ 33,806 $ 52,706 $ 86,512 Three Months Ended June 30, 2025 Gains (Losses) Recognized in Net Income Sales Changes in fair value Total (Amounts in thousands) Net realized investment gains (losses) Fixed maturity securities (1) (2) $ (146) $ (8,423) $ (8,569) Equity securities (1) (3) 11,640 19,253 30,893 Short-term investments (1) — (7) (7) Notes receivable (1) — 117 117 Options sold 1,599 (553) 1,046 Total $ 13,093 $ 10,387 $ 23,480 __________ (1)The changes in fair value of the investment portfolio and notes receivable resulted from application of the fair value option. (2)The increase in fair value of fixed maturity securities for the second quarter of 2026 primarily resulted from the improvement in overall market conditions affecting fixed maturity securities. The decrease in fair value of fixed maturity securities for the second quarter of 2025 primarily resulted from increases in certain long-term market interest rates. (3)The increases in fair value of equity securities for the second quarters of 2026 and 2025 primarily resulted from the overall improvement in equity markets. Net Income Three Months Ended June 30, 2026 2025 (Amounts in thousands, except per share data) Net income $ 263,502 $ 166,472 Basic average shares outstanding 55,389 55,389 Diluted average shares outstanding 55,389 55,389 Basic Per Share Data: Net income $ 4.76 $ 3.01 Net realized investment gains, net of tax $ 1.23 $ 0.33 Diluted Per Share Data: Net income $ 4.76 $ 3.01 Net realized investment gains, net of tax $ 1.23 $ 0.33 34 Table of Contents Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025 Revenues Net premiums earned and net premiums written for the six months ended June 30, 2026 increased 11.3% and 11.2%, respectively, from the corresponding period in 2025. The increases in net premiums earned and net premiums written were primarily due to a rate increase in the California homeowners line of insurance business and increases in the number of policies written in the California automobile and homeowners lines of insurance business, combined with decreases in ceded premiums earned and ceded premiums written. Net premiums earned included ceded premiums earned of $125.2 million and $161.1 million for the six months ended June 30, 2026 and 2025, respectively. Net premiums written included ceded premiums written of $125.1 million and $160.7 million for the six months ended June 30, 2026 and 2025, respectively. The decreases in ceded premiums earned and written resulted mostly from reinstatement premiums earned and written of $101 million in the first half of 2025 under the Treaty ended June 30, 2025 related to reinstating the fully exhausted reinsurance coverage layers following the Palisades and Eaton wildfires, partially offset by an increase in the annual reinsurance premium under the Treaty due to higher reinsurance coverage and rates and growth in the covered book of business. The following is a reconciliation of net premiums earned to net premiums written: Six Months Ended June 30, 2026 2025 (Amounts in thousands) Net premiums earned $ 2,950,180 $ 2,649,808 Change in net unearned premiums 158,983 145,380 Net premiums written $ 3,109,163 $ 2,795,188 Expenses The following table presents the Insurance Companies’ loss, expense, and combined ratios determined in accordance with GAAP: Six Months Ended June 30, 2026 2025 Loss ratio 64.6 % 81.5 % Expense ratio 25.0 % 23.9 % Combined ratio 89.6 % 105.4 % The loss ratio for the first half of 2026 and 2025 was affected by favorable development of approximately $44 million and $47 million, respectively, on prior accident years' loss and loss adjustment expense reserves. The favorable development for the first half of 2026 was primarily attributable to lower than estimated losses and loss adjustment expenses in the automobile line of insurance business, partially offset by adverse development on the homeowners line of insurance business. The favorable development for the first half of 2025 was primarily attributable to lower than estimated losses and loss adjustment expenses in the private passenger automobile and homeowners lines of insurance business. In addition, the 2026 loss ratio was negatively impacted by approximately $107 million of catastrophe losses net of reinsurance, primarily due to storms in Texas and Oklahoma, excluding unfavorable development of approximately $61 million on prior years' catastrophe losses resulting primarily from the Palisades and Eaton wildfires. The 2025 loss ratio was negatively impacted by approximately $474 million of catastrophe losses, excluding favorable development of approximately $14 million on prior years' catastrophe losses, primarily due to the Palisades and Eaton wildfires in California and storms in Texas and Oklahoma. Excluding the effects of estimated prior accident years’ loss development and catastrophe losses, the loss ratio was 62.5% and 65.4% for the first half of 2026 and 2025, respectively. The decrease in the loss ratio was primarily due to the rate increase and the decrease in ceded premiums earned that are discussed above, partially offset by an increase in loss severity in the private passenger automobile line of insurance business. 35 Table of Contents The expense ratio for the six months ended June 30, 2026 increased from the corresponding period in 2025, which was largely attributable to increases in profitability-based accruals and advertising expenses, partially offset by the rate increase and the decrease in ceded premiums earned that are discussed above. Income tax expense was $109.1 million and $6.3 million for the six months ended June 30, 2026 and 2025, respectively. The increase in income tax expense was primarily due to a $498.5 million increase in total pre-tax income. Income tax expense of $109.1 million on pre-tax income of $563.0 million, including tax-exempt investment income of $66.2 million, resulted in an effective tax rate of 19.4%, below the statutory tax rate of 21%, for the six months ended June 30, 2026, and income tax expense of $6.3 million on pre-tax income of $64.5 million, including tax-exempt investment income of $43.6 million, resulted in an effective tax rate of 9.8% for the corresponding period in 2025. Investments The following table presents the investment results of the Company: Six Months Ended June 30, 2026 2025 (Dollars in thousands) Average invested assets at cost (1) $ 6,764,700 $ 5,686,645 Net investment income (2) (3) Before income taxes $ 175,399 $ 160,238 After income taxes $ 149,482 $ 133,872 Average annual yield on investments (2) (3) Before income taxes 4.5 % 4.7 % After income taxes 3.9 % 4.0 % Net realized investment gains $ 81,970 $ 46,801 __________ (1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets excluding cash for each period. (2) Net investment income includes approximately $23.1 million and $25.6 million of interest income earned on cash (approximately $18.2 million and $20.2 million after tax) for the six months ended June 30, 2026 and 2025, respectively. Average annual yield on investments does not include interest income earned on cash. (3) Higher net investment income before and after income taxes for the six months ended June 30, 2026 compared to the corresponding period in 2025 resulted largely from higher average invested assets. Average annual yield on investments before income taxes decreased, primarily due to an increase in tax-exempt investments with lower pre-tax yields, combined with lower yields on floating rate investments resulting from lower short-term market interest rates. Average annual yield on investments after income taxes decreased, primarily due to lower yields on floating rate investments resulting from lower short-term market interest rates. The following tables present the components of net realized investment gains or losses included in net income: Six Months Ended June 30, 2026 Gains (Losses) Recognized in Net Income Sales Changes in fair value Total (Amounts in thousands) Net realized investment gains (losses) Fixed maturity securities (1) (2) $ (9,254) $ 5,917 $ (3,337) Equity securities (1) (3) 47,981 28,955 76,936 Short-term investments (1) — 5 5 Note receivable (1) — (123) (123) Options sold 8,606 (117) 8,489 Total $ 47,333 $ 34,637 $ 81,970 36 Table of Contents Six Months Ended June 30, 2025 Gains (Losses) Recognized in Net Income Sales Changes in fair value Total (Amounts in thousands) Net realized investment gains (losses) Fixed maturity securities (1) (2) $ (17,165) $ 8,984 $ (8,181) Equity securities (1) (3) 60,191 (7,509) 52,682 Short-term investments (1) — (10) (10) Notes receivable (1) — 600 600 Options sold 2,701 (991) 1,710 Total $ 45,727 $ 1,074 $ 46,801 __________ (1)The changes in fair value of the investment portfolio and notes receivable resulted from application of the fair value option. (2)The increase in fair value of fixed maturity securities for the first half of 2026 primarily resulted from the improvement in overall market conditions affecting the Company's fixed maturity securities. The increase in fair value of fixed maturity securities for the first half of 2025 primarily resulted from decreases in overall long-term market interest rates. (3)The increase in fair value of equity securities for the first half of 2026 primarily resulted from the overall improvement in equity markets. The decrease in fair value of equity securities for the first half of 2025 primarily resulted from the decline in equity markets associated with the Company's equity securities. Net Income Six Months Ended June 30, 2026 2025 (Amounts in thousands, except per share data) Net income $ 453,922 $ 58,145 Basic average shares outstanding 55,389 55,389 Diluted average shares outstanding 55,389 55,389 Basic Per Share Data: Net income $ 8.20 $ 1.05 Net realized investment gains, net of tax $ 1.17 $ 0.67 Diluted Per Share Data: Net income $ 8.20 $ 1.05 Net realized investment gains, net of tax $ 1.17 $ 0.67 LIQUIDITY AND CAPITAL RESOURCES A. Cash Flows The Company has generated positive cash flow from operations in each full year since the public offering of its common stock in November 1985. The Company does not attempt to match the duration and timing of asset maturities with those of liabilities; rather, it manages its portfolio with a view towards maximizing total return with an emphasis on after-tax income. With combined cash and short-term investments of $2,069.2 million at June 30, 2026, the Company believes its cash flow from future operations is adequate to satisfy its liquidity requirements. Investment maturities are also available to meet the Company’s liquidity needs. However, the Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that the Company’s sources of funds will be sufficient to meet its liquidity needs or that the Company will not be required to raise additional funds to meet those needs or for future business expansion, through the sale of equity or debt securities or from credit facilities with lending institutions. 37 Table of Contents Net cash provided by operating activities for the six months ended June 30, 2026 was $543.3 million, an increase of $240.4 million from the corresponding period in 2025. The increase was primarily due to an increase in premium collections and a decrease in payments for losses and loss adjustment expenses, net of reinsurance, partially offset by increases in payments for operating expenses and income taxes. The Company utilized the cash provided by operating activities during the six months ended June 30, 2026 primarily for the net purchases of investment securities and payment of dividends to its shareholders. The following table presents the estimated fair value of fixed maturity securities at June 30, 2026 by contractual maturity in the next five years: Fixed Maturity Securities (Amounts in thousands) Due in one year or less $ 269,933 Due after one year through two years 156,353 Due after two years through three years 174,154 Due after three years through four years 182,107 Due after four years through five years 142,162 Total due within five years $ 924,709 B. Reinsurance For California homeowners policies, the Company has reduced its catastrophe exposure from earthquakes by placing earthquake risks directly with the California Earthquake Authority ("CEA"). However, the Company continues to have catastrophe exposure to fires following an earthquake. The Company is the assuming reinsurer under a Catastrophe Portfolio Participation Reinsurance Contract (the "Contract") effective through December 31, 2028. The Company reimburses a group of affiliates of a ceding company for a proportional share of a portfolio of catastrophe losses based on the premiums ceded to the Company under the Contract, to the extent the actual loss ratio exceeds the threshold loss ratio of 73.5%. The total assumed premium under the Contract is $15.0 million for each of the 12-month periods ending December 31, 2025 through 2028. The total possible amount of losses for the Company under the Contract is $30.0 million for each of the 12-month periods ending December 31, 2025 through 2028. The Company recognized incurred losses of approximately $1.1 million and $(0.4) million for the three months ended June 30, 2026 and 2025, respectively, and $(4.1) million and $(2.0) million for the six months ended June 30, 2026 and 2025, respectively, under the Contract. The negative incurred losses for the three months ended June 30, 2025 and the six months ended June 30, 2026 and 2025 resulted primarily from favorable development on prior years' catastrophe losses that had previously been ceded to the Company under the Contract. The Company is the assuming reinsurer under a Property Quota Share Reinsurance Contract ("Quota Share Contract") effective through December 31, 2026 and reimburses ceding companies for a proportional share of losses based on the premiums ceded to the Company under the Quota Share Contract. The total annual assumed premium under the Quota Share Contract is approximately $17 million and $11 million for the 12 months ending December 31, 2026 and 2025, respectively. The total annual possible amount of losses that can be ceded to the Company under the Quota Share Contract is approximately $60 million and $32 million for the 12 months ending December 31, 2026 and 2025, respectively. The Company recognized incurred losses of approximately $3.4 million and $2.1 million for the three months ended June 30, 2026 and 2025, respectively, and $6.9 million and $4.2 million for the six months ended June 30, 2026 and 2025, respectively, under the Quota Share Contract. The Company is the assuming reinsurer under a Catastrophe Quota Share Reinsurance Agreement ("Quota Share Agreement") effective through December 31, 2026 and reimburses ceding companies for a proportional share of losses based on the premiums ceded to the Company under the Quota Share Agreement. The total assumed premium under the Quota Share Agreement is approximately $5 million for the 12 months ending December 31, 2026. The total possible amount of losses for the Company under the Quota Share Agreement is approximately $12 million for the 12 months ending December 31, 2026. The Company recognized incurred losses of approximately $0.5 million and $1.9 million for the three and six months ended June 30, 2026, respectively, under the Quota Share Agreement. The Quota Share Agreement commenced on January 1, 2026. The Company is the ceding party to a Catastrophe Reinsurance Treaty (the "Treaty") covering a wide range of perils that is effective through June 30, 2027. For the 12 months ending June 30, 2027 and 2026, the Treaty provides approximately $2,790 million and $2,140 million of coverage, respectively, on a per occurrence basis after covered catastrophe losses exceed the Company retention limit of $200 million. The Treaty ending June 30, 2027 and 2026 each excludes coverage for any 38 Table of Contents Florida business and for California earthquake losses on fixed property policies such as homeowners, but does cover losses from fires following an earthquake. The Treaty ending June 30, 2027 and 2026 each includes additional restrictions as noted below. Coverage terms and conditions also vary among various participants in different layers of coverage. Coverage on individual catastrophes provided for the 12 months ending June 30, 2027 under the Treaty is presented below in various layers: Catastrophe Losses and LAE In Excess of Up to Percentage of Coverage (Amounts in millions) Retained $ — $ 200 — % Layer of Coverage 200 400 95.0 Layer of Coverage (1) 400 1,600 100.0 Layer of Coverage (2) 1,600 1,750 100.0 Layer of Coverage (3) 1,750 2,000 100.0 Layer of Coverage (1) 2,000 3,000 100.0 __________ (1) Layer of Coverage represents multiple actual treaty layers that are grouped for presentation purposes. (2) The coverage of this layer is provided by a catastrophe bond that is in effect from July 15, 2025 through July 14, 2028. This layer is not subject to reinstatement. (3) 60% of this layer is provided by a catastrophe bond that is in effect from July 1, 2026 through June 30, 2029, with the remaining provided by traditional reinsurers at equivalent terms. This layer is not subject to reinstatement. Coverage on individual catastrophes provided for the 12 months ended June 30, 2026 under the Treaty is presented below in various layers: Catastrophe Losses and LAE In Excess of Up to Percentage of Coverage (Amounts in millions) Retained $ — $ 200 — % Layer of Coverage (1) 200 300 90.0 Layer of Coverage (2) 300 1,600 100.0 Layer of Coverage (3) 1,600 1,750 100.0 Layer of Coverage (2) 1,750 2,350 100.0 __________ (1) 10% of this layer is not subject to reinstatement. The percent of coverage of 90% noted for this layer is for the first catastrophe event. In the event of the second catastrophe, the percent of coverage for this layer is 80%. (2) Layer of Coverage represents multiple actual treaty layers that are grouped for presentation purposes. (3) The coverage of this layer is provided by a catastrophe bond that is in effect from July 15, 2025 through July 14, 2028. This layer is not subject to reinstatement. The table below presents the combined total reinsurance premiums under the Treaty (annual premiums and reinstatement premiums) for the 12 months ending June 30, 2027 and 2026, respectively: Treaty Annual Premium (1) Reinstatement Premium (2) Total Combined Premium (2) (Amounts in millions) For the 12 months ending June 30, 2027 $ 229 $ — $ 229 For the 12 months ended June 30, 2026 $ 237 $ — $ 237 __________ (1) The decrease in the annual premium is primarily due to decreases in reinsurance rates resulting from increases in coverage capacity in the reinsurance market. (2) The reinstatement premium and the total combined premium for the treaty period ending June 30, 2027 are projected amounts to be paid based on the latest information available. The reinstatement premium and the total combined premium for the treaty period ended June 30, 2026 are based on actual amounts paid. 39 Table of Contents The Treaty ending June 30, 2027 and 2026 each provides for one full reinstatement of coverage limits except for certain layers of coverage noted in the tables above. Reinstatement premiums are based on the amount of reinsurance benefits used by the Company at 100% of the annual premium rate, with the exception of the reinstatement restrictions noted in the tables above, up to the maximum reinstatement premium of approximately $202 million and $221 million if the full amount of benefits is used for the 12 months ending June 30, 2027 and 2026, respectively. The total amount of reinstatement premiums is recorded as ceded reinstatement premiums written at the time of the catastrophe event based on the total amount of reinsurance benefits expected to be used for the event, and such reinstatement premiums are recognized ratably over the remaining term of the Treaty as ceded reinstatement premiums earned. The catastrophe events that occurred in 2026 caused approximately $93 million in losses and loss adjustment expenses to the Company before reinsurance, resulting primarily from storms in Texas and Oklahoma. The catastrophe events that occurred in 2025 caused approximately $1,879 million in losses and loss adjustment expenses to the Company before reinsurance as of June 30, 2026, resulting primarily from the Palisades and Eaton wildfires in California and storms in Texas, Oklahoma and California. Catastrophe losses for the events that occurred in 2025 was reduced by approximately $612 million of subrogation recorded on the Palisades and Eaton wildfires. All of the reinsurance benefits available for the 12 months ended June 30, 2025 under the Treaty, approximately $1,290 million, were used for losses from the Palisades and Eaton wildfires in the first quarter of 2025, and limits totaling $1,238 million were reinstated. See Note 10. Loss and Loss Adjustment Expense Reserves of the Notes to Consolidated Financial Statements for additional information. None of the 2025 catastrophe events, other than the Palisades and Eaton wildfires, individually resulted in losses in excess of the Company’s per-occurrence retention limit of $200 million and $150 million under the Treaty for the 12 months ended June 30, 2026 and 2025, respectively. The Company carries a commercial umbrella reinsurance treaty and a per-risk property reinsurance treaty, and seeks facultative arrangements for large property risks. In addition, the Company has other reinsurance in force that is not material to the consolidated financial statements. If any reinsurers are unable to perform their obligations under a reinsurance treaty, the Company will be required, as primary insurer, to discharge all obligations to its policyholders in their entirety. C. Invested Assets Portfolio Composition An important component of the Company’s financial results is the return on its investment portfolio. The Company’s investment strategy emphasizes safety of principal and consistent income generation, within a total return framework. The investment strategy has historically focused on maximizing after-tax yield with a primary emphasis on maintaining a well-diversified, investment grade, fixed income portfolio to support the underlying liabilities and achieve return on capital and profitable growth. The Company believes that investment yield is maximized by selecting assets that perform favorably on a long-term basis and by disposing of certain assets to enhance after-tax yield and minimize the potential effect of downgrades and defaults. The Company believes that this strategy enables the optimal investment performance necessary to sustain investment income over time. The Company’s portfolio management approach utilizes a market risk and consistent asset allocation strategy as the primary basis for the allocation of interest sensitive, liquid and credit assets as well as for determining overall below investment grade exposure and diversification requirements. Within the ranges set by the asset allocation strategy, tactical investment decisions are made in consideration of prevailing market conditions. 40 Table of Contents The following table presents the composition of the total investment portfolio of the Company at June 30, 2026: Cost (1) Fair Value (Amounts in thousands) Fixed maturity securities: U.S. government bonds $ 14,927 $ 14,757 Municipal securities 3,719,122 3,741,325 Mortgage-backed securities 535,913 526,008 Corporate securities 693,648 692,938 Collateralized loan obligations 763,032 750,504 Other asset-backed securities 75,460 63,012 5,802,102 5,788,544 Equity securities: Common stock 674,453 836,610 Non-redeemable preferred stock 52,205 38,367 Private equity investment 5,000 5,000 Private equity funds measured at net asset value (2) 129,271 94,235 860,929 974,212 Short-term investments 368,338 368,357 Total investments $ 7,031,369 $ 7,131,113 ______________ (1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. (2) The fair value is measured using the NAV practical expedient. See Note 5. Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information. At June 30, 2026, 44.7% of the Company’s total investment portfolio at fair value and 55.1% of its total fixed maturity securities at fair value were invested in tax-exempt state and municipal bonds. Equity holdings consist of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, private equity funds, and private equity investment which is a direct investment in a private company. At June 30, 2026, 92.7% of short-term investments consisted of highly rated short-duration securities redeemable on a daily or weekly basis. Fixed Maturity Securities and Short-Term Investments Fixed maturity securities include debt securities, which are mostly long-term bonds and other debt with maturities of at least one year from purchase, and which may have fixed or variable principal payment schedules, may be held for indefinite periods of time, and may be used as a part of the Company’s asset/liability strategy or sold in response to changes in interest rates, anticipated prepayments, risk/reward characteristics, liquidity needs, tax planning considerations, or other economic factors. Short-term instruments include money market accounts, options, and short-term bonds that are highly rated short duration securities and redeemable within one year. A primary exposure for the fixed maturity securities is interest rate risk. The longer the duration, the more sensitive the asset is to market interest rate fluctuations. As assets with longer maturity dates tend to produce higher current yields, the Company’s historical investment philosophy has resulted in a portfolio with a moderate duration. The Company's portfolio is heavily weighted in investment grade tax-exempt municipal bonds. Fixed maturity securities purchased by the Company typically have call options attached, which further reduce the duration of the asset as interest rates decline. The holdings that are heavily weighted with high coupon issues, are expected to be called prior to maturity. Modified duration measures the length of time it takes, on average, to receive the present value of all the cash flows produced by a bond, including reinvestment of interest. As it measures four factors (maturity, coupon rate, yield and call terms) which determine sensitivity to changes in interest rates, modified duration is considered a better indicator of price volatility than simple maturity alone. 41 Table of Contents The following table presents the maturities and durations of the Company's fixed maturity securities: June 30, 2026 December 31, 2025 (in years) Fixed Maturity Securities Nominal average maturity: excluding short-term investments 16.4 14.7 including short-term investments 15.4 13.8 Call-adjusted average maturity: excluding short-term investments 5.2 4.8 including short-term investments 4.9 4.5 Modified duration reflecting anticipated early calls: excluding short-term investments 4.4 4.6 including short-term investments 4.1 4.4 Another exposure related to the fixed maturity securities is credit risk, which is managed by maintaining a weighted-average portfolio credit quality rating of AA- and, A+, at fair value, at June 30, 2026 and December 31, 2025, respectively. The Company's municipal bond holdings, of which 85.3% were tax exempt, represented 55.1% of its fixed maturity securities portfolio at June 30, 2026, at fair value, and are broadly diversified geographically. See Part I-Item 3. Quantitative and Qualitative Disclosures About Market Risks for a breakdown of municipal bond holdings by state. To calculate the weighted-average credit quality ratings disclosed throughout this Quarterly Report on Form 10-Q, individual securities were weighted based on fair value and credit quality ratings assigned by nationally recognized securities rating organizations. Taxable holdings consist principally of investment grade issues. At June 30, 2026, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $9.1 million and $24.7 million, respectively, at fair value, and represented 0.2% and 0.4%, respectively, of total fixed maturity securities. At December 31, 2025, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $10.1 million and $50.6 million, respectively, at fair value, and represented 0.2% and 0.9%, respectively, of total fixed maturity securities. The overall credit ratings for the Company’s fixed maturity securities portfolio were relatively stable during the six months ended June 30, 2026, with 96.7% of fixed maturity securities at fair value experiencing no change in their overall rating. 2.5% and 0.8% of fixed maturity securities at fair value experienced upgrades and downgrades, respectively, during the six months ended June 30, 2026. 42 Table of Contents The following table presents the credit quality ratings of the Company’s fixed maturity securities by security type at fair value: June 30, 2026 (Dollars in thousands) Security Type AAA(1) AA(1) A(1) BBB(1) Non-Rated/Other(1) Total FairValue(1) U.S. government bonds: Treasuries $ 14,757 $ — $ — $ — $ — $ 14,757 Total 14,757 — — — — 14,757 100.0 % — % — % — % — % 100.0 % Municipal securities: Insured 76,468 254,189 86,776 24,716 1,002 443,151 Uninsured 217,825 1,585,190 1,340,190 145,025 9,944 3,298,174 Total 294,293 1,839,379 1,426,966 169,741 10,946 3,741,325 7.9 % 49.2 % 38.1 % 4.5 % 0.3 % 100.0 % Mortgage-backed securities: Commercial 15,924 — — — — 15,924 Agencies — 73,735 — — — 73,735 Non-agencies: Prime 253,124 182,077 — — 250 435,451 Alt-A — 367 77 — 454 898 Total 269,048 256,179 77 — 704 526,008 51.2 % 48.7 % — % — % 0.1 % 100.0 % Corporate securities: Basic Materials — — — 4,411 — 4,411 Communications — — — 3,703 — 3,703 Consumer, cyclical — — 19,786 13,465 — 33,251 Consumer, non-cyclical — 15,057 74,126 5,088 — 94,271 Energy — 6,333 — 37,024 — 43,357 Financial — 91,832 369,547 17,796 — 479,175 Industrial — — 6,068 11,080 — 17,148 Technology — — 1,778 — — 1,778 Utilities — — — 15,844 — 15,844 Total — 113,222 471,305 108,411 — 692,938 — % 16.3 % 68.1 % 15.6 % — % 100.0 % Collateralized loan obligations: Corporate 128,830 217,582 381,929 — 22,163 750,504 Total 128,830 217,582 381,929 — 22,163 750,504 17.2 % 29.0 % 50.8 % — % 3.0 % 100.0 % Other asset-backed securities 2,817 11,648 22,495 23,552 2,500 63,012 4.5 % 18.5 % 35.7 % 37.3 % 4.0 % 100.0 % Total $ 709,745 $ 2,438,010 $ 2,302,772 $ 301,704 $ 36,313 $ 5,788,544 12.3 % 42.1 % 39.8 % 5.2 % 0.6 % 100.0 % _____________ (1)Intermediate ratings are included at each level (e.g., AA includes AA+, AA and AA-). U.S. Government Bonds The Company had $14.8 million and $21.5 million, or 0.3% and 0.4% of its fixed maturity securities portfolio, at fair value, in U.S. government bonds at June 30, 2026 and December 31, 2025, respectively. Moody's and Fitch ratings for U.S. 43 Table of Contents government-issued debt were Aa1 and AA+, respectively, at June 30, 2026 and December 31, 2025. The modified duration of the U.S. government bonds portfolio reflecting anticipated early calls was 4.4 years and 2.9 years at June 30, 2026 and December 31, 2025, respectively. Municipal Securities The Company had $3.74 billion and $3.54 billion, or 64.6% and 65.2% of its fixed maturity securities portfolio, at fair value, in municipal securities at June 30, 2026 and December 31, 2025, respectively. At each of June 30, 2026 and December 31, 2025, the weighted-average rating of the Company’s total municipal securities was AA-. 14.7% and 18.9% of the Company's municipal securities, at fair value, were subject to federal taxes at June 30, 2026 and December 31, 2025, respectively. The modified duration of the municipal securities portfolio reflecting anticipated early calls was 4.4 years and 4.9 years at June 30, 2026 and December 31, 2025, respectively. At June 30, 2026 and December 31, 2025, $443.2 million and $456.8 million, respectively, of the Company's municipal securities, at fair value, were insured. The Company considers the strength of the underlying credit as a buffer against potential market value declines which may result from future rating downgrades of the bond insurers. In addition, the Company has a long-term time horizon for its municipal bond holdings, which generally allows it to recover the full principal amounts upon maturity and avoid forced sales prior to maturity of bonds that have declined in market value due to the bond insurers’ rating downgrades. Based on the uncertainty surrounding the financial condition of these insurers, it is possible that there will be future downgrades to below investment grade ratings by the rating agencies in the future, and such downgrades could impact the estimated fair value of municipal bonds. Mortgage-Backed Securities The Company had mortgage-backed securities portfolio of $526.0 million and $297.4 million, or 9.1% and 5.5% of the Company's fixed maturity securities portfolio at fair value, at June 30, 2026 and December 31, 2025, respectively. Substantially all of the Company's mortgage-backed securities portfolio at those dates was categorized as loans to “prime” residential and commercial real estate borrowers. The Company had holdings of $15.9 million and $11.2 million at fair value ($16.3 million and $11.3 million at amortized cost) in commercial mortgage-backed securities at June 30, 2026 and December 31, 2025, respectively. The weighted-average rating of the entire mortgage-backed securities portfolio was AA+ at each of June 30, 2026 and December 31, 2025. The modified duration of the mortgage-backed securities portfolio reflecting anticipated early calls was 4.1 years and 3.4 years at June 30, 2026 and December 31, 2025, respectively. Corporate Securities Corporate securities included in fixed maturity securities were as follows: June 30, 2026 December 31, 2025 (Dollars in thousands) Corporate securities at fair value $ 692,938 $ 751,602 Percentage of total fixed maturity securities portfolio 12.0 % 13.8 % Modified duration 3.1 years 2.9 years Weighted-average rating A A Collateralized Loan Obligations Collateralized loan obligations included in fixed maturity securities were as follows: June 30, 2026 December 31, 2025 (Dollars in thousands) Collateralized loan obligations at fair value $ 750,504 $ 722,794 Percentage of total fixed maturity securities portfolio 13.0 % 13.3 % Modified duration 6.1 years 5.9 years Weighted-average rating AA- AA- 44 Table of Contents Other Asset-Backed Securities Other asset-backed securities included in fixed maturity securities were as follows: June 30, 2026 December 31, 2025 (Dollars in thousands) Other asset-backed securities at fair value $ 63,012 $ 98,455 Percentage of total fixed maturity securities portfolio 1.1 % 1.8 % Modified duration 2.1 years 0.9 years Weighted-average rating A- A- Equity Securities Equity holdings of $974.2 million and $812.8 million at fair value, as of June 30, 2026 and December 31, 2025, respectively, consisted of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, private equity funds, and private equity investment which is a direct investment in a private company. The Company had a net gain (loss) of $29.0 million and $(7.5) million due to changes in fair value of the Company’s equity securities portfolio for the six months ended June 30, 2026 and 2025, respectively. The primary cause for the increase in fair value of the Company’s equity securities portfolio for the six months ended June 30, 2026 was the overall improvement in equity markets. The primary cause for the decrease in fair value of the Company’s equity securities portfolio for the six months ended June 30, 2025 was the decline in equity markets associated with the Company's equity securities. The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At June 30, 2026, 13.7% of the total investment portfolio at fair value was held in equity securities, compared to 12.4% at December 31, 2025. The Company reduced its equity security holdings in January 2025 to ensure ample liquidity for losses from the Palisades and Eaton wildfires and to reduce volatility in the investment portfolio (see "Equity Price Risk" under Item 3 below). D. Debt The Company's debts at June 30, 2026 were $900 million of senior unsecured notes that are publicly traded and $50 million drawn under an unsecured credit facility. For additional information on these debts, see Note 11. Notes Payable of the Notes to Consolidated Financial Statements. The Company was in compliance with all of the financial covenants pertaining to minimum statutory surplus, debt to total capital ratio, and risk based capital ratio under the unsecured credit facility at June 30, 2026. E. Regulatory Capital Requirements Among other considerations, industry and regulatory guidelines suggest that the ratio of a property and casualty insurer’s annual net premiums written to statutory policyholders’ surplus should not exceed 3.0 to 1. Based on the combined surplus of all the Insurance Companies of $2.77 billion at June 30, 2026, and net premiums written of $6.04 billion for the twelve months ended on that date, the ratio of net premiums written to surplus was 2.18 to 1 at June 30, 2026.