Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial instruments. The major components of market risk affecting us are credit risk, interest rate risk, and equity price risk. Credit Risk Our fixed maturity securities, equity securities, other invested assets, and cash and cash equivalents are exposed to credit risk, which we attempt to mitigate through issuer and industry diversification. Our investment guidelines include limitations on the minimum rating of fixed maturity securities and concentrations of a single issuer. We also bear credit risk with respect to the reinsurers, which can be significant considering that some loss reserves remain outstanding for an extended period of time. We are required to pay losses even if a reinsurer refuses or fails to meet its obligations to us under the applicable reinsurance agreement(s). We continually monitor the financial condition and financial strength ratings of our reinsurers. Additionally, we bear credit risk with respect to premiums receivable, which is generally diversified due to the large number of entities comprising our policyholder base and their dispersion across many different industries and geographies. In addition, we also bear credit risk with respect to our banking and lending relationships. We mitigate this risk by maintaining relationships with highly rated financial institutions and monitoring their financial condition on an ongoing basis. Economic disruptions caused by ongoing financial market volatility, inflationary pressures, heightened geopolitical conditions, and tariff uncertainty have impacted the credit risk associated with certain of our investment holdings. As of June 30, 2026, we maintained a $1.1 million allowance for CECL on our fixed maturity portfolio. See Note 5 to the consolidated financial statements. Interest Rate Risk Investments Our fixed maturity securities are exposed to interest rate risk, which is the risk of a change in fair value resulting from changes in prevailing interest rates, which we monitor through duration. Our fixed maturity investments (excluding cash and cash equivalents) had a duration of 4.5, which is measured by their sensitivity to changes in interest rates, at June 30, 2026. Our investment strategy balances consideration of duration, yield, and credit risk. We continually monitor the changes in interest rates and their impact on our liquidity and ability to meet our obligations. Sensitivity Analysis The fair values or cash flows of our market sensitive investments are subject to potential losses in future earnings resulting from changes in interest rates and other market conditions. Our sensitivity analysis applies a hypothetical parallel shift in market rates and reflects what we believe are reasonably possible near-term changes in those rates (covering a period of time going forward up to one year from the date of the consolidated financial statements). Actual results may differ from the hypothetical change in market rates assumed in this disclosure. This sensitivity analysis does not reflect the results of any action that we may take to mitigate such hypothetical losses in fair value. We use fair values to measure our potential loss in this model, which includes fixed maturity securities and short-term investments. For invested assets, we use modified duration modeling to calculate changes in fair values. Durations on invested assets are adjusted for call, put, and interest rate reset features. Invested asset portfolio durations are calculated on a market value weighted basis, excluding accrued investment income, using holdings as of June 30, 2026. The estimated changes in fair 42 values on our fixed maturity securities and short-term investments, which had an aggregate value of $2,059.6 million as of June 30, 2026, based on specific changes in interest rates are as follows: Hypothetical Changes in Interest Rates Estimated Pre-tax Increase (Decrease) in Fair Value (in millions, except percentages) 300 basis point rise $ (255.1) (12.4) % 200 basis point rise (171.6) (8.3) 100 basis point rise (85.3) (4.1) 50 basis point rise (41.9) (2.0) 50 basis point decline 41.5 2.0 100 basis point decline 79.8 3.9 200 basis point decline 149.5 7.3 300 basis point decline 216.1 10.5 The most significant assessment of the effects of hypothetical changes in interest rates on investment income would be based on GAAP guidance related to "Receivables- Nonrefundable Fees and Other Costs," which requires amortization adjustments for mortgage-backed securities. The rates at which the mortgages underlying mortgage-backed securities are prepaid, and therefore the average life of mortgage-backed securities, can vary depending on changes in interest rates (for example, mortgages tend to prepay faster and the average life of mortgage-backed securities falls when interest rates decline). Adjustments for changes in amortization are based on revised average life assumptions and would have an impact on investment income if a significant portion of our commercial and residential mortgage-backed securities were purchased at significant discounts or premiums to par value. As of June 30, 2026, the par value of our commercial and residential mortgage-backed securities holdings was $786.7 million, and the amortized cost was 99.5% of par value. The commercial and residential mortgage-backed securities portion of the portfolio totaled 34.8% of total investments as of June 30, 2026. Agency-backed residential mortgage pass-throughs represented 86.9% of the residential mortgage-backed securities portion of the portfolio as of June 30, 2026. Equity Price Risk Equity price risk is the risk of a decline in market value of the equity securities we hold in our investment portfolio. Adverse changes in the market prices of the equity securities we hold in our investment portfolio could result in decreases in the fair value of our total assets on our Consolidated Balance Sheets and in net realized and unrealized gains and losses on our Consolidated Statements of Comprehensive Income (Loss). Economic and market disruptions caused by geopolitical conditions, inflationary pressures, and tariff uncertainty, have resulted in volatility in the fair value of our equity securities. We mitigate our exposure to equity price risk through dollar-cost averaging and by diversifying our equity holdings across several industry sectors. The table below shows the sensitivity of our equity securities at fair value to price changes as of June 30, 2026: (in millions) Cost Fair Value 10% Fair Value Decrease Pre-tax Impact on Decrease in Total Equity Securities 10% Fair Value Increase Pre-tax Impact on Increase in Total Equity Securities Equity securities $ 87.1 $ 171.5 $ 154.4 $ (17.1) $ 188.7 $ 17.2 Effects of Inflation In recent years, economic slowdowns, financial market volatility, monetary and fiscal policy measures, heightened geopolitical tensions and fluctuations in interest rates have contributed to higher levels of inflation and may continue to lead to elevated levels of inflation in future periods. Higher levels of inflation than we have anticipated could significantly impact our financial statements and results of operations. Our estimates for losses and LAE include assumptions about the timing of closure and future payment of claims and claims handling expenses, such as medical treatments and litigation costs. To the extent that inflation causes these costs to increase above established reserves, we will be required to increase those reserves for losses and LAE, reducing our earnings in the period in which our assumptions are revised. Higher levels of wage inflation can specifically impact the payrolls of our insureds, which is the basis for the premiums we charge, as well as the amount of future indemnity losses we may incur. Higher levels of inflation could also adversely impact certain of our operating expenses and, in the case of wage inflation, could adversely impact our payroll expenses. 43 Elevated market interest rates in recent years, intended to aid in the suppression of inflation, can negatively impact the market value of our existing fixed maturity investments, despite our ability and intent to hold these investments to maturity. Higher interest rates, however, have also contributed to an increase in our net investment income.