Executive Commentary

By Steve Firko Executive Vice President & COO

We finished 2025 at $498M in direct premium, which is $9.7M or 2% higher than 2024, but lower than our projected target. While we fell below our premium target, we were pleased that 90% of our customers chose to renew their insurance with PLM, which is well above the industry average and believe this reflects the value that our customers place on their relationship with PLM. Following that thread, we were also pleased to add over 700 new customers who saw value in PLM and chose to place their faith and trust in us to protect their businesses for an additional $39 million in premium.

Rate increases on average were lower than last year but continued their trend upward. This was true not only in lumber, but across the insurance industry overall. This was due primarily to deteriorating losses, particularly in the general liability, commercial auto, and umbrella lines of coverage that I will cover in more detail later.

As noted in the last Lumber Memo, we anticipated in our business plans that our clients would experience slower growth in 2025 due to various economic factors related to the housing industry, but the impact was greater than we had expected with exposures (sales, values and vehicles) falling below projections.

Another reason for our premium shortfall relative to target was our decision not to renew or walk away from a small number of larger accounts that did not want to partner with us on following loss control or risk mitigation recommendations to reduce the potential for losses. While this is unfortunate and the loss of premium stings, it is the right thing to do from a business and profitability standpoint. There is an old adage in the insurance business, “addition by subtraction.” Translation: Sometimes you need to let some customers and the premium associated with it go in order to remain profitable.

A LOOK AT PROFITABILITY

Property

Fortunately, our property results ended the year 2025 on a positive note despite some rather large fire losses that we believe were avoidable. An example of this were several large fires related to oily rags that spontaneously combusted because they were not stored and disposed of properly. It is a common exposure and hazard in wood working operations that is well known in the industry, yet we continue to see these losses occur even among the best run operations.

Another area that is often overlooked and affects all types of lumber-related risks either on the manufacturing side or wholesale/retail side, is employee break rooms. They are often equipped with secondhand, outdated appliances. While this helps limit expenses in the short term, old microwaves, refrigerators and coffee makers can be dangerous and costly if not properly maintained. We have seen entire facilities set ablaze because a refrigerator compressor malfunctioned on a Friday evening after everyone had gone home and nobody was around to respond.

And lastly, another often overlooked area that has caused some very large fire losses is the use of extension cords and power strips. During site visits with our insureds, our Loss Control and Business Development Representatives often find extension cords and power strips being used in employee break rooms, or in the shop, or the warehouse floor as a permanent solution for powering equipment. These items should never be used as a permanent solution! First, they are not designed or rated to be used as one. Second, they eventually get buried under sawdust and other materials, become frayed, and then get overloaded and cause a fire. Owners and safety managers should walk around their facilities with a certified electrician to identify and add proper electrical outlets for all types of equipment currently being powered using an extension cord and/or power strip. It is a simple fix, cost-effective solution to prevent a big fire will endanger your employees, customers, and shutter your business for an extended period to rebuild.

Casualty

While we ended the year on a positive note on the property side of the business in 2025 for PLM, the same cannot be said for the casualty side of our business. As noted in our last Lumber Memo, the most significant challenge facing both PLM and the broader insurance industry lies in the casualty lines of business, which includes general liability, auto, and umbrella coverages. We have spoken a lot about commercial auto issues over the years and have seen some improvement in our results with the number of new claims dropping for this line of business in 2025. However, the main source of the problem stems from the U.S. legal system and society’s evolving attitudes toward litigation. Issues such as nuclear verdicts, social inflation, and litigation funding are generating an upward pressure in loss reserve development in all casualty lines including auto, general liability and umbrella. Reasonable loss reserve expectations are increasingly proving to be inadequate, driven by the magnitude of settlements being handed down by the courts, in addition to a host of other issues that confront the U.S. economy and insurance industry.

To address these challenges, PLM is responding on several fronts. First, we are tightening our underwriting standards to ensure that we are appropriately managing risk in this evolving environment. As such, we have developed targeted initiatives and controls to address each of the identified drivers of loss. You will continue to see more information from PLM to raise awareness with our insureds and will share it with the broader lumber, woodworking and building material industry regarding the drivers of these losses and how we can work together to reduce their impact with a loss prevention mindset and partnership. We have been publishing articles in various trade journals, sending direct communication materials with specific loss prevention materials targeted by lumber industry segment, posting commentary on social media, and making risk management recommendations directly with our insureds during our site visits.

Regarding site visits, you can expect to see our PLM Loss Control Representatives (LCRs) and Business Development Representatives (BDRs) doing significantly more site visits to walk through your operations and provide targeted loss prevention recommendations. This includes the headquarter locations as well as secondary locations. Some of the areas our LCRs and BDRs will be focusing on when they meet with you at your place of business include:

Forklift Safety

• Evidence of training, certification and proper storage.
• Evidence of forklift safety guide documented and followed

Premises Liability

• Evidence of incident reports filed and stored properly with strong detail
• Review operations for adherence to fire safety and slips & falls
• Review maintenance process and checklists

Subcontractor/Installation Exposures

• Evidence of vetted subcontractors and strong contractual controls in place
• Evidence of consistent record keeping for both contracts and certificates of insurance

Fleet Safety

• Evidence of written procedures
• Confirmation of who is responsible for the procedures, evidence that they are followed, and actions taken for those who do not follow

From a financial perspective, we are reviewing all open claim files and increasing reserves where appropriate. In 2025, we added bulk (but not reported) reserves of nearly $60 million this year. The culmination of these reserve strengthening actions resulted in an underwriting loss of $20.7 million in 2025.

However, while we generated an underwriting loss due to the reserve strengthening actions noted above, I am pleased to report that we generated a net operating income of just under $2.4M and surplus grew by 3.2% to an all-time high of $225.4M aided in part by strong investment results, strong net income growth and a strong balance sheet. This marks the 7th year in a row of producing a net operating income and 10 out of the last 11 years. Furthermore, we significantly de-risked our investment portfolio in 2025 by reducing our equity holdings and increasing fixed income securities. Our balance sheet remains strong and will continue to be so in future years with the actions we have taken in 2025.

From a reinsurance perspective, our renewal for 2026 was very successful. We maintained our loyal panel of reinsurers with superior financial strength ratings and attracted new markets onto our program with similar superior financial ratings. I believe this is a testament to the long-term relationships we have developed over the years with our reinsurers. When visiting with our panel of reinsurance partners and prospective partners last fall as part of our renewal process, we reviewed the casualty focused initiatives noted earlier and they were very supportive of our efforts and felt we were addressing these issues head on with a solid plan that will be mutually beneficial to both our insureds and to PLM.

ADDRESSING OUR SERVICE STANDARDS

In the last Lumber Memo a few months back, our CEO John Smith addressed the slippage in meeting our service standards in several areas of the organization. He outlined the reasons why it was happening and provided the organizational changes we have made to resolve it moving forward. John also made a commitment from both him and the entire management team to resolve these issues as quickly and professionally as possible.

While we have made some progress as we re-staff and re-focus training of our teams on operational efficiency, improved communication, and customer service, I apologize that we are not yet back at the level of service we expect from ourselves, and the level of service that you have been accustomed to and deserve when dealing with PLM.

I want to assure you that we are working hard to resolve these issues and hope the trust and goodwill that we have built over the years affords us your patience as we take the necessary corrective actions. We value the faith and trust you have placed in us over the years to protect and service your business and hope we can continue to earn it moving forward.

As always, please do not hesitate to reach out to me directly with your thoughts and comments.