
	Three Months Ended March 31,
	2026		2025

	(Amounts in thousands)
Gross reserves, beginning of period	$	3,633,338	$	3,152,031
Reinsurance recoverables on unpaid losses, beginning of period	(34,008)		(28,645)
Net reserves, beginning of period	3,599,330		3,123,386
Incurred losses and loss adjustment expenses related to:
Current year	942,045		1,271,847
Prior years	(9,095)		(51,034)
Total incurred losses and loss adjustment expenses	932,950		1,220,813
Loss and loss adjustment expense payments related to:
Current year	290,085		406,513
Prior years	629,443		529,188
Total payments	919,528		935,701
Net reserves, end of period	3,612,752		3,408,498
Reinsurance recoverables on unpaid losses, end of period	33,449		384,083
Gross reserves, end of period	$	3,646,201	$	3,792,581

The decrease in the provision for insured events of prior years during the three months ended March 31, 2026 of $9.1 million was primarily attributable to lower than estimated losses in the automobile line of insurance business, partially offset by adverse development on the homeowners line of insurance business, including adverse development on the prior years' catastrophe losses. The decrease in the provision for insured events of prior years during the three months ended March 31, 2025 of $51.0 million was primarily attributable to lower than estimated losses in the automobile line of insurance business, and the homeowners line of insurance business, including favorable development on the prior years' catastrophe losses.

For the three months ended March 31, 2026 and 2025, the Company incurred catastrophe losses net of reinsurance of approximately $93 million and $447 million, respectively. The majority of 2026 catastrophe losses resulted from adverse reserve development on the Palisades and Eaton wildfires, and storms in California, Texas and Oklahoma. The majority of 2025 catastrophe losses resulted from the Palisades and Eaton wildfires. The Company experienced unfavorable development of approximately $57 million and favorable development of approximately $12 million on prior years' catastrophe losses for the three months ended March 31, 2026 and 2025, respectively.

In January 2025, extreme wind-driven wildfires caused widespread damage across parts of Southern California, primarily in the communities of Pacific Palisades and Altadena. The two largest of these Southern California wildfires are known as the Palisades and Eaton wildfires. The following table presents the components of net losses and loss adjustment expenses from the Palisades and Eaton wildfires as of March 31, 2026 and December 31, 2025 and for the three months ended March 31, 2026:


	As of March 31, 2026		As of December 31, 2025		For the Three Months Ended March 31, 2026

	(Amounts in thousands)
Gross losses and loss adjustment expenses (6)	$	2,285,227	$	2,191,752	$	93,475
Subrogation recoverable - Eaton fire (1) ***	(558,887)		(537,506)		(21,381)
Subrogation recovered and recoverable - Palisades fire (2) ***	(50,204)		(48,026)		(2,178)
Reinsurance recovered and recoverable (3)	(1,293,500)		(1,293,500)		—
Net catastrophe losses and loss adjustment expenses on Eaton and Palisades fires before FAIR Plan (6)	$	382,636	$	312,720	$	69,916
					—
Company's share of FAIR Plan losses and loss adjustment expenses (4)	$	91,296	$	92,717	$	(1,421)
Recoupable portion of FAIR Plan losses and loss adjustment expenses (5)	(25,000)		(25,000)		—
Net FAIR Plan losses and loss adjustment expenses	$	66,296	$	67,717	$	(1,421)
					—
Net losses and loss adjustment expenses on Eaton and Palisades fires (6)	$	448,932	$	380,437	$	68,495

(1) The Company is actively pursuing subrogation against Southern California Edison ("SCE") on the Eaton fire. The Company recorded approximately $559 million in estimated subrogation recoveries, or approximately 55% of its estimated ultimate losses on the Eaton fire, as an offset against loss and loss adjustment expense reserves in its consolidated balance sheet at March 31, 2026. Although SCE has not admitted that its equipment caused the Eaton fire, significant evidence indicates that SCE's equipment was the cause of the Eaton fire. In September 2025, SCE disclosed that it is probable that SCE will incur material losses from the Eaton fire and entered into a negotiated agreement without litigation with one insurance company to pay 52% of the losses incurred. In February 2026, Edison International, parent company of SCE, commented that SCE has settled two subrogation claims on the Eaton fire with insurance companies for an average of 55% of the losses incurred.

(2) In June 2025, the Company sold its subrogation rights on the Palisades fire to a third party for a guaranteed percentage of losses incurred plus a share in the amount recovered above a certain threshold (“Upside Recovery’). The recovery amount from the guaranteed percentage of losses is approximately $50 million, with $32 million received as of March 31, 2026. The remaining balance of approximately $18 million at March 31, 2026 will be settled each quarter based on the amount of claims payments the Company makes subsequent to the previous settlement date. The Company did not record an amount for the potential Upside Recovery.

(3) The Company’s catastrophe reinsurance program for the treaty year ended June 30, 2025 provides approximately $1,290 million of limits on a per occurrence basis after covered catastrophe losses exceed the Company’s retention of $150 million. The $1,290 million of limits used for the Palisades and Eaton wildfires was reduced by $6.5 million for ineligible parametric coverage. The Company also utilized $10 million from a separate property excess of loss reinsurance treaty making the total reinsurance used for the Palisades and Eaton wildfires approximately $1,294 million.

(4) The Company is a member of the California FAIR Plan, the state's fire insurer of last resort. To the extent the FAIR Plan has losses exceeding its capital and reinsurance coverage, the FAIR Plan can assess its member companies for the shortfall based on each company’s California market share. The Company's share of the FAIR Plan losses from the Palisades and Eaton wildfires was approximately $91 million, which was recorded as part of the Company's losses and loss adjustment expenses from the Palisades and Eaton wildfires.

(5) The FAIR Plan assessed the Company $50 million to strengthen the FAIR Plan's capital position following the Palisades and Eaton wildfires in the first quarter of 2025. The California Department of Insurance ("DOI") allows for recoupment of 50% or $25 million of the $50 million assessment via a temporary surcharge to the Company's policyholders. The Company has received approval from the California DOI to recoup the $25 million, which partially offset the Company's share of the FAIR Plan's losses of $91 million. As of March 31, 2026, the Company has recouped approximately $4.5 million from its policyholders.

(“SSAP”) No. 55 paragraph 15 require salvage and subrogation recoverables to be deducted from the liability for unpaid claims; therefore, loss and loss adjustment expense reserves on the Company's consolidated balance sheets is shown net of estimated salvage and subrogation recoverables, and losses and loss adjustment expenses on its consolidated statements of operations is shown net of salvage and subrogation. The Company applies this accounting method for salvage and subrogation in a consistent manner for both GAAP and statutory reporting purposes.

As of March 31, 2026, the Company has paid out approximately $1,550 million for losses and loss adjustment expenses related to the Palisades and Eaton wildfires excluding the Fair Plan losses. The Company has collected the full reinsurance recoverable amounts on these losses and loss adjustment expenses, except for approximately $14 million remaining on the catastrophe bond that will be billed over the next few quarters.