What changed in this filing

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Item 1A. Risk Factors

2021-02-25 compared with 2020-03-02 · 184 added, 194 removed, 210 unchanged (64% of the section changed)

3 unchanged sentences

The occurrence of any of these risks could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.

Risks Related to Our Business and Our Industry

Risks Related to Our Business, Industry, and Operations

Our loss reserves may be inadequate to cover our actual losses, which could have a material adverse effect on our financial condition, results of operations and cash flows.

12 unchanged sentences

There is, however, no precise method for evaluating the impact of any specific factor on the adequacy of reserves, and actual results may deviate, perhaps substantially, from our reserve estimates.

For instance, the following uncertainties may have an impact on the adequacy of our resources:

For instance, the following uncertainties may have an impact on the adequacy of our reserves:

• When we write "occurrence" policies, we are obligated to pay covered claims, up to the contractually agreed amount, for any covered loss that occurs while the policy is in force.

44 unchanged sentences

As a result of these factors and contingencies, our reliance on assumptions and data used to evaluate our entire reinsurance portfolio and specifically to estimate a PML is subject to a high degree of uncertainty that could result in actual losses that are materially different from our PML estimates and our financial results could be adversely affected.

The failure of any of the loss limitations or exclusions we employ, or changes in other claims or coverage issues, could have a material adverse effect on our financial condition or results of operations.

Although we seek to mitigate our loss exposure through a variety of methods, the future is inherently unpredictable.

It is difficult to predict the timing, frequency and severity of losses with statistical certainty.

It is not possible to completely eliminate our exposure to unforecasted or unpredictable events and, to the extent that losses from such risks occur, our financial condition and results of operations could be materially adversely affected.

For instance, various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, which have been negotiated to limit our risks, may not be enforceable in the manner we intend.

At the present time, we employ a variety of endorsements to our policies that limit exposure to known risks.

As industry practices and legal, judicial, social and other conditions change, unexpected and unintended issues related to claims and coverage may emerge.

In addition, we design our policy terms to manage our exposure to expanding theories of legal liability like those which have given rise to claims for lead paint, asbestos, mold, construction defects and environmental matters.

Many of the policies we issue also include conditions requiring the prompt reporting of claims to us and entitle us to decline coverage in the event of a violation of those conditions.

Also, many of our policies limit the period during which a policyholder may bring a claim under the policy, which in many cases is shorter than the statutory period under which such claims can be brought against our policyholders.

While these exclusions and limitations help us assess and reduce our loss exposure and help eliminate known exposures to certain risks, it is possible that a court or regulatory authority could nullify or void an exclusion or legislation could be enacted modifying or barring the use of such endorsements and limitations.

These types of governmental actions could result in higher than anticipated losses and loss adjustment expenses, which could have a material adverse effect on our financial condition or results of operations.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge.

Three examples of unanticipated risks that have adversely affected the insurance industry are:

• Asbestos liability applied to manufacturers of products and contractors who installed those products.

• Apportionment of liability arising from subsidence claims assigned to subcontractors who may have been involved in mundane tasks (such as installing sheetrock in a home).

• Court decisions, such as the 1995 Montrose decision in California, that read policy exclusions narrowly so as to expand coverage, thereby requiring insurers to create and write new exclusions.

These issues may adversely affect our business by either broadening coverage beyond our underwriting intent or by increasing the number or size of claims.

In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes.

As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.

We may be unable to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us.

We use reinsurance to help manage our exposure to insurance risks.

Reinsurance is a practice whereby one insurer, called the reinsurer, agrees to indemnify another insurer, called the ceding insurer, for all or part of the potential liability arising from one or more insurance policies issued by the ceding insurer.

The availability and cost of reinsurance are subject to prevailing market conditions, both in terms of price and available capacity, which can affect our business volume and profitability.

In addition, reinsurance programs are generally subject to renewal on an annual basis.

We may not be able to obtain reinsurance on acceptable terms or from entities with satisfactory creditworthiness.

If we are unable to obtain new reinsurance facilities or to renew expiring facilities, our net exposures would increase.

In such event, if we are unwilling to bear an increase in our net exposure, we would have to reduce the level of our underwriting commitments, which would reduce our revenues.

Many reinsurance companies have begun to exclude certain coverages from, or alter terms in, the reinsurance contracts we enter into with them.

Some exclusions are with respect to risks that we cannot exclude in policies we write due to business or regulatory constraints.

In addition, reinsurers are imposing terms, such as lower per-occurrence and aggregate limits, on direct insurers that do not wholly cover the risks written by these direct insurers.

As a result, we, like other direct insurance companies, write insurance policies which to some extent do not have the benefit of reinsurance protection.

These gaps in reinsurance protection expose us to greater risk and greater potential losses.

For example, certain reinsurers have excluded coverage for terrorist acts or priced such coverage at rates higher than the underlying risk.

Many direct insurers, including us, have written policies without terrorist act exclusions and in many cases we cannot exclude terrorist acts because of regulatory constraints.

We may, therefore, be exposed to potential losses as a result of terrorist acts.

What changed 10-K

Item 1A. Risk Factors