FG Financial Group, Inc. (FGF): PESTLE Analysis [Nov-2025 Updated]

You need to know exactly where FG Financial Group, Inc. (FGF) stands in this volatile market, and the 2025 PESTLE analysis cuts straight to the point: the company is caught in a classic financial squeeze. While the Federal Reserve's sustained higher interest rates, currently at 5.25%-5.50%, are a clear tailwind for their investment income, the underwriting side is battling constant pressure. Specifically, geopolitical tensions are driving up reinsurance costs, and the Environmental factor is brutal, with US Catastrophe (CAT) losses projected to exceed $100 billion annually. This analysis maps the near-term risks and opportunities, from the legal scrutiny on climate change disclosure to the estimated 8% salary inflation for actuaries, giving you the clear, actionable intelligence required to make your next strategic move.

FG Financial Group, Inc. (FGF) - PESTLE Analysis: Political factors

State-level regulatory pressure on property and casualty (P&C) rate increases is intense, especially in high-CAT states.

You are operating in a market where state regulators are actively prioritizing consumer affordability over carrier profitability, particularly in catastrophe-exposed (high-CAT) regions. This is a direct political headwind for FG Financial Group, Inc. (FGF)'s P&C and reinsurance segments. When a state like Florida or California experiences massive insured losses-like the estimated $30 billion from the Los Angeles wildfires in Q1 2025-insurers need significant rate hikes to maintain solvency.

But state insurance commissioners, who are often elected or politically appointed, push back hard to keep premiums down. For example, while the average US homeowner could see premiums rise by approximately $106 in 2025, the political pressure means increases in high-risk states like Florida and Louisiana are capped or delayed, even as they need increases potentially reaching $464 and $418, respectively. This regulatory friction forces carriers to limit capacity or exit markets, which, in turn, drives up the cost and demand for reinsurance, a core part of FGF's business model.

Here is a quick look at the direct regulatory impact in high-CAT states:

• California: New regulations mandate insurers to use forward-looking catastrophe models (instead of historical data) but also require them to write comprehensive policies in wildfire-prone areas equivalent to no less than 85% of their statewide market share.
• Rate Suppression: Limits on premium rate increases have been introduced or considered in states like Illinois and Hawaii, directly impacting the revenue side of the P&C underwriting equation.
• Actionable Insight: FGF must strategically allocate its reinsurance capacity to states where the political climate allows for adequate risk-adjusted pricing, or it will face margin compression.

Federal corporate tax stability is assumed, with the effective rate for large US corporations hovering near 21%, impacting retained earnings.

For the 2025 fiscal year, the federal corporate income tax rate remains a flat 21% for C corporations, a permanent provision established by the Tax Cuts and Jobs Act of 2017. This stability is a positive political factor, allowing for clear financial forecasting and capital planning. However, this simplicity is complicated by the Corporate Alternative Minimum Tax (CAMT), a 15% minimum tax on the adjusted financial statement income (AFSI) of C corporations, enacted under the Inflation Reduction Act.

The effective tax rate for a large, diversified holding company like FGF is therefore a calculation between the statutory 21% rate and the 15% CAMT floor on book income. While no imminent legislative changes are scheduled for 2025 to raise the 21% rate, the political debate around tax revenue and deficit reduction ensures this rate remains a near-term risk. The political environment is stable, but defintely volatile.

Increased scrutiny from the National Association of Insurance Commissioners (NAIC) on reserving practices for long-tail liabilities.

The National Association of Insurance Commissioners (NAIC) is increasing its regulatory focus on insurer solvency, particularly concerning long-tail liabilities (like long-term care or certain reinsurance obligations) and the use of complex, affiliated investments. This is a key political/regulatory trend for 2025. The NAIC formally adopted Actuarial Guideline 55 (AG 55) in August 2025.

AG 55 establishes new asset adequacy testing (AAT) requirements for US life insurers that cede asset-intensive business to offshore reinsurers. This is a direct response to regulatory concerns about the quality of assets backing long-duration liabilities. For FGF, which operates as an insurance and reinsurance holding company, this means increased compliance costs and a higher bar for demonstrating reserve adequacy, especially for any long-duration reinsurance treaties. The first reports under AG 55 are due on April 1, 2026, based on 2025 year-end reserves.

Geopolitical tensions (e.g., in Eastern Europe) drive up reinsurance costs, squeezing underwriting margins.

Geopolitical instability remains a top-tier political risk that directly translates into higher operational costs for insurance and reinsurance businesses. The ongoing conflicts in Eastern Europe and the Middle East continue to drive global uncertainty, which in turn increases the cost of risk transfer.

For FGF, this is a double-edged sword: as a reinsurer, they can charge higher premiums, but as a primary insurer, their own reinsurance protection becomes more expensive. The general market trend for reinsurance rates is predicted to continue rising in 2025, particularly for property catastrophe coverage. The specific impact of geopolitical risk is most visible in specialty lines, such as maritime insurance, where war risk premiums for shipping to high-risk areas like Israeli ports have reportedly tripled from 0.2% to 0.7-1% of a ship's value in 2025. This spike in specialty risk pricing signals a broader hardening of the market due to political factors, increasing the cost of capital for all global reinsurers.

FG Financial Group, Inc. (FGF) - PESTLE Analysis: Economic factors

Federal Reserve's sustained higher interest rates boost investment income

The US Federal Reserve's monetary policy, while showing signs of easing, still maintains a restrictive stance, and that's a clear tailwind for FG Financial Group, Inc.'s investment portfolio. As of November 2025, the Federal Funds Rate target range is 3.75%-4.00%, a level significantly higher than the near-zero rates of a few years ago. This sustained higher-for-longer environment allows FGF to earn substantially more on the float-the pool of premiums collected but not yet paid out as claims.

For the property and casualty (P&C) sector, this means a better return on equity (ROE) from the investment side. Swiss Re projects that P&C portfolio yields will rise to 4.0% in 2025. This improved investment income helps offset underwriting volatility and is a primary driver of overall profitability. The higher rates mean FGF can reinvest maturing bonds at much more attractive yields, which is defintely a good thing for long-term book value growth.

Persistent inflation inflates claims costs

While the Fed's actions have cooled some price pressures, persistent inflation remains a major headwind for the underwriting side of the business. The annual Consumer Price Index (CPI) in the US was recorded at 3.0% in September 2025, with forecasts suggesting it will hold around 3.1% by the end of the year. This inflation is not abstract; it hits FGF directly by inflating claims costs.

For example, in commercial auto and property lines, the cost of labor and materials for repairs-like auto body work or construction-is higher. This is compounded by social inflation, the rising cost of insurance claims due to increased litigation and larger jury awards, which continues to drive up loss ratios in general liability and commercial auto liability lines. FGF must price its policies aggressively to keep pace with these escalating costs, or face a hit to its combined ratio (the measure of underwriting profitability).

Slowing US economic growth dampens new business demand

The consensus among forecasters points to a clear deceleration in US economic expansion. The Organisation for Economic Co-operation and Development (OECD) projects US real Gross Domestic Product (GDP) growth will fall to 1.8% in 2025, down from 2.8% in 2024. The Federal Reserve Bank of Philadelphia's survey echoes this, projecting real GDP growth at an annual rate of 1.9% for 2025.

This slowing growth directly impacts the demand for commercial insurance. When new business formation slows down, or existing businesses scale back investment, the market for new commercial insurance policies shrinks. For the P&C sector as a whole, Direct Premiums Written are forecast to grow by a more modest 5% in 2025, which is a deceleration from the exceptional expansion of previous years. FGF needs to be laser-focused on retaining existing clients and capturing market share, because the tide of overall economic growth is not lifting all boats as much anymore.

Rising cost of capital makes debt issuance for M&A more expensive

FG Financial Group, Inc.'s strategy heavily relies on mergers and acquisitions (M&A) to grow its platform and add new capabilities. However, the higher interest rate environment has made this key strategy more costly. The increased cost of capital has been a significant factor in the insurance broker M&A market, contributing to a 17% drop in deal count in 2024.

While M&A activity is expected to continue in 2025, the economics of a deal are tougher. Borrowing costs for debt issuance are elevated, and for large transactions, the expected returns in excess of the cost of debt-the spread-remain in negative territory. This strains the valuation equation, meaning FGF must be highly disciplined in its acquisition targets, focusing only on those with the strongest fundamentals and clear synergies to justify the higher financing expense.

• M&A deal count was down 17% in 2024 due to high cost of capital.
• High valuations continue to strain the cost of capital equation for large deals.
• FGF must pay a premium for growth, making debt-funded acquisitions riskier.

Here's the quick math: a higher risk-free rate (like the 10-year Treasury yield, which was around 4.62% in January 2025) automatically increases the discount rate used in a Discounted Cash Flow (DCF) valuation, reducing the present value of any target company. This forces buyers like FGF to either pay less or accept a lower internal rate of return (IRR). Your next step is to have the M&A team re-run all target models using a 100 basis point higher cost of debt assumption.

FG Financial Group, Inc. (FGF) - PESTLE Analysis: Social factors

You are operating in a market where public sentiment is now a direct financial risk, and it's changing how you price everything from liability to property reinsurance. Social factors-the cultural and demographic trends-are not abstract issues; they translate directly into higher claims costs and a fierce battle for the right talent. For a specialty reinsurance and investment management firm like FG Financial Group, Inc., managing these shifts is crucial for reserve adequacy and underwriting profitability in 2025.

Growing public awareness of climate change increases demand for specialized, granular insurance products.

The public's growing awareness of climate change and Environmental, Social, and Governance (ESG) issues is creating a clear market opportunity for specialized reinsurance products. Consumers and businesses are actively seeking 'green' or sustainable insurance options, which means carriers-and by extension, their reinsurers like FG Financial Group, Inc.-must innovate or lose out on premium growth. This isn't just a feel-good trend; it's a willingness to pay more for risk alignment.

Here's the quick math: A Q3 2025 poll of industry insiders found that 41.9% of business executives see offering green insurance products as very important. More importantly, 59.1% of consumers stated they would be willing to pay more for a policy if the company demonstrated strong ethical and environmentally friendly commitments. This shift is driving demand for highly granular, climate-resilient products, such as parametric insurance, which pays out based on a pre-defined trigger (like wind speed) instead of actual damage.

Shifting demographics and remote work trends alter risk profiles for commercial and personal lines, requiring new product development.

The permanent shift to remote and hybrid work models has fundamentally changed commercial and personal risk profiles, which impacts the underlying insurance policies that FG Financial Group, Inc. reinsures. Over 70% of U.S. workers are now engaged in some form of remote or hybrid work. This decentralization has created new, complex exposures that traditional policies didn't cover.

For commercial lines, the biggest shifts are in cyber and liability. Remote work dramatically increases cybersecurity vulnerabilities, as employees use less secure personal networks and devices. Also, the line between work and home is blurred, raising new questions about workplace safety and liability for accidents that occur in an employee's home office. Carriers are responding with enhanced Employment Practices Liability (EPL) policies and tailored workers' compensation programs, which is where a specialty reinsurer can find new business.

• Cyber risk exposure is rising due to unsecured home networks.
• Workplace safety liability is extending to remote home environments.
• Demand for enhanced EPL insurance to cover remote-specific issues is growing.

Increased social inflation, where jury awards and litigation costs rise faster than general economic inflation, is a major threat to reserve adequacy.

Social inflation-the trend of rising claims costs driven by cultural and legal dynamics rather than just economic inflation-is arguably the single largest threat to the profitability of property and casualty (P&C) reinsurance in 2025. This phenomenon is characterized by 'nuclear verdicts,' which are jury awards exceeding $10 million.

The numbers are staggering and demand a significant re-evaluation of loss reserving. The average jury verdict award in favor of plaintiffs in federal court was $16.2 million in 2024, a dramatic increase from $9.2 million in 2022. For insurance-related cases, total damages showed a 187% increase between the 2015-2019 period and the 2020-2024 period, rising to $3.2 billion from $1.1 billion. This trend is fueled by factors like third-party litigation funding and a societal preference for punishing large corporations.

As an analyst, I'm defintely watching this. This trend impacts FG Financial Group, Inc.'s specialty P&C reinsurance segment directly, forcing higher pricing and requiring more conservative reserving to cover these unpredictable, high-dollar claims.

Talent shortage in actuarial and data science roles pushes up salary costs by an estimated 8% in the financial sector.

The shortage of specialized talent, particularly actuaries with strong data science skills, is a major operational cost pressure for all financial firms, including FG Financial Group, Inc. The demand for these professionals to build complex climate and social inflation risk models is outstripping supply, leading to significant wage inflation.

The market is highly competitive in 2025. For credentialed mid-level actuaries (FSA or FCAS) with 5-7 years of experience, base salaries now average between $155K and $190K, representing a year-over-year increase of approximately 6% to 8%. Actuaries who can blend traditional risk modeling with data science skills (like Python or R) are commanding an even higher premium, often earning 10% to 15% more than their peers. This talent war means FG Financial Group, Inc. must budget for higher compensation and invest heavily in training to retain its key risk-modeling personnel.

FG Financial Group, Inc. (FGF) - PESTLE Analysis: Technological factors

Rapid adoption of Artificial Intelligence (AI) and Machine Learning (ML) in claims processing is expected to cut cycle times by 15% across the industry.

You need to look past the buzzwords and see the hard financial benefit of Artificial Intelligence (AI) and Machine Learning (ML). For an insurer like FG Financial Group, Inc., the core opportunity is in claims. Industry data for 2025 shows that firms aggressively adopting AI are seeing claims processing times drop by as much as 59%, moving the average resolution time from days to just hours.

While the industry average for cycle time reduction is a solid 15%, the real strategic advantage comes from the speed and accuracy of automated triage. This isn't just about cutting costs; it's a direct driver of customer satisfaction, which keeps your renewal rates healthy. If you're not using AI to assess damage via image recognition or flag simple claims for instant payout, you're defintely losing ground on efficiency and client experience.

Here's the quick math on AI adoption's impact:

• AI-driven systems process 31% of all claims volume in 2025.
• Fraud detection accuracy improved by 78% with machine learning.
• AI-powered image recognition boosted damage assessment efficiency by 54%.

Insurtech partnerships are critical for maintaining competitive pricing and improving customer experience, especially for digital-native clients.

The days of building every piece of technology in-house are over. Insurtech partnerships-collaborations with agile, specialized technology startups-are now a mandatory part of the competitive landscape. For FG Financial Group, Inc., whose strategy includes merchant banking and a focus on innovative structures, leveraging these external platforms is faster and cheaper than internal development.

These partnerships are focused on two things: better pricing and a better digital experience. They use advanced machine learning to streamline the development of predictive and data-driven pricing models, which is essential for maintaining a profitable book of business. The trend is moving toward API-driven partnerships and digital ecosystems, which allow for seamless integration of specialized tools into your existing operations.

Cybersecurity risks are escalating, with the average cost of a data breach in the financial sector exceeding $6 million in 2025.

The financial sector is the second most expensive industry for a data breach, and the cost is rising. The average cost for a single data breach in financial services is now approximately $6.08 million in 2025.

This massive number is why cybersecurity is a strategic, not just an IT, priority. The cost is driven by regulatory fines, lost business, and the sheer expense of detection and escalation. The good news is that organizations using AI and automation in their security operations are seeing breach costs that are, on average, over $2 million lower. Your defense needs to be as advanced as the threat. The rise of AI-driven attacks, which are used to scale phishing and social engineering campaigns, makes this investment non-negotiable.

Telematics data from vehicles and smart homes offers better risk segmentation but requires significant data infrastructure investment.

Telematics-the blending of telecommunications and informatics to monitor and transmit data-is no longer a niche product; it's a core underwriting tool. The global insurance telematics market is projected to reach $3,542.1 million in 2025 and is expected to grow at a Compound Annual Growth Rate (CAGR) of 18.5% through 2035.

This data, gathered from in-vehicle devices and smart home sensors, allows for Usage-Based Insurance (UBI) models that price risk based on actual behavior, not just demographics. This is a huge opportunity for better risk segmentation and personalized pricing, but it demands a robust, scalable, and cloud-based data infrastructure to handle the real-time data flow. The investment is in cloud platforms that can scale storage and computing resources dynamically.

FGF's Strategic Pivot to Blockchain and Tokenization

The most significant technological factor for FG Financial Group, Inc. (FGF) in 2025 is its dramatic strategic pivot. Following a successful $200 million private placement, the company is changing its name to FG Nexus Inc. and launching an Ethereum Treasury Strategy.

This is a clear move to position the company as a leader in blockchain innovation and the tokenization of real-world assets (RWAs). This shift completely redefines the technological landscape for the firm, moving it from a traditional reinsurance and merchant banking model to one focused on decentralized finance (DeFi) infrastructure. This is a high-risk, high-reward bet on the future of financial technology.

The immediate actions following this pivot include:

• Implementing an Ethereum Treasury Strategy.
• Focusing on the tokenization of real-world assets (RWAs).
• Leveraging the $200 million private placement to fund this new strategy.

FG Financial Group, Inc. (FGF) - PESTLE Analysis: Legal factors

You're running a diversified holding company like FG Financial Group, Inc., which means you don't just face one set of legal risks; you face three: P&C insurance, reinsurance, and investment management. The legal landscape in 2025 is less about new, sweeping federal laws and more about the cumulative, costly effect of state-level actions, especially around data and climate. That complexity is where your compliance costs are rising fastest.

The key takeaway is this: the legal environment is forcing P&C insurers to spend more on compliance and litigation defense, with the cost of a single data breach or climate-related misstep now carrying a potential fine of up to $7,988 per intentional violation in California alone. You need to map these state-specific liabilities to your operational footprint today.

Increased litigation risk related to climate change disclosure and underwriting practices is a new legal frontier for P&C insurers

The legal risk tied to climate change has moved from a theoretical long-term issue to a near-term liability. We are seeing a rise in what are called 'climate-washing' lawsuits and shareholder derivative actions, where investors sue directors for failing their fiduciary duty to manage material climate risk. This isn't about the weather itself, but about your disclosure of the financial impact of that weather.

The numbers show why this is critical for P&C: global insured losses from natural disasters exceeded $100 billion in 2023, and the frequency of smaller, costly events is spreading risk geographically. Insurers are now under pressure to prove their underwriting models accurately reflect this reality. In the US, the average annual catastrophe losses are around $66.2 billion, putting a target on any insurer perceived to be under-reserving or mispricing risk. California's Senate Bill 261, for instance, requires large companies to report on their climate-related financial risks by January 1, 2026, creating a clear, legally mandated disclosure standard that will fuel future litigation if ignored.

Here's the quick math on the exposure:

• Physical Risk Litigation: Lawsuits over policy language interpretation and coverage denial after catastrophic events like wildfires or floods.
• Transition Risk Litigation: Shareholder suits alleging directors failed to disclose material financial risks from the shift to a low-carbon economy.
• Underwriting Liability: Regulatory action if state insurance departments deem underwriting practices discriminatory or non-compliant with new climate-risk standards.

State-specific data privacy laws (like California's CCPA) necessitate complex, costly compliance frameworks for handling customer data

Data privacy is a patchwork of state laws, and California's Consumer Privacy Act (CCPA), as amended by the California Privacy Rights Act (CPRA), is the most expensive piece of the quilt. For a financial firm, the complexity is that the CCPA applies to all consumer data not covered by the federal Gramm-Leach-Bliley Act (GLBA), like data collected from website visitors or employees.

The cost of non-compliance jumped in 2025. The California Privacy Protection Agency increased its fines, effective January 1, 2025, to account for inflation. This means a single, intentional violation can now cost up to $7,988 per consumer. Plus, the annual gross revenue threshold for CCPA applicability also rose to $26,625,000, capturing more mid-sized businesses. This is not a one-time fix; it's a permanent, multi-million-dollar operating expense for legal and IT to manage data rights, automated decision-making technology (ADMT) disclosures, and risk assessments that begin in 2026.

You defintely need to ensure your data mapping is perfect.

Regulatory hurdles for new reinsurance structures and capital deployment across international borders remain complex

As a holding company involved in reinsurance, deploying capital across borders faces significant friction. The global push for regulatory harmonization, led by the International Association of Insurance Supervisors (IAIS) with the Insurance Capital Standard (ICS), is meant to simplify things, but in the near term, it creates a dual-compliance burden.

Reinsurers must prepare for ICS's formal adoption while still navigating jurisdiction-specific rules like the US's state-based Risk-Based Capital (RBC) regime. Furthermore, many countries are tightening local control over capital. For example, in a major market like India, the government is increasing the Foreign Direct Investment (FDI) limit in insurance to 100% in 2025, but with the condition that the entire premium is invested locally. This limits the free flow of capital back to the parent company. Even popular alternative structures like reinsurance sidecars in Bermuda and the Cayman Islands require navigating a complex web of US cedants' state-level regulations to gain National Association of Insurance Commissioners (NAIC) qualification. This regulatory friction slows down capital deployment and increases the cost of structuring new deals.

Antitrust scrutiny of large insurance mergers and acquisitions could slow strategic growth plans

The appetite for antitrust enforcement remains high in 2025, especially in the financial sector, which has seen significant consolidation. Federal agencies like the Department of Justice (DOJ) and the Federal Trade Commission (FTC) are scrutinizing deals based on the 2023 Merger Guidelines, which set a lower bar for presuming anticompetitive harm.

For a company like FG Financial Group, Inc., which seeks opportunistic, value-oriented investments, the focus is on 'serial acquisitions'-a strategy where a firm makes many small deals that, cumulatively, consolidate a market. Regulators are now challenging these roll-up strategies. State-level action is also a major new hurdle. For example, New York's S.B. 335, introduced in January 2025, would require any large merger to be simultaneously submitted for review by the state Attorney General, specifically to assess its impact on labor markets in New York. This means a strategic acquisition that might have previously cleared federal review now faces multiple, resource-intensive state reviews, significantly extending the deal timeline and increasing legal costs. It's a clear headwind against fast-paced strategic growth.

FG Financial Group, Inc. (FGF) - PESTLE Analysis: Environmental factors

Catastrophe (CAT) losses from severe weather events are projected to exceed $100 billion annually in the US, directly impacting reinsurance segment profitability.

You need to understand that the old 'peak peril' models are broken; the new normal is a constant, high-frequency drain on capital. Global insured losses from natural catastrophes are projected to approach $145 billion in 2025, continuing a 5-7% annual growth rate. This isn't just a global problem; the US alone accounted for an estimated $126 billion in total economic losses in the first half of 2025, marking the costliest first half on record. For the reinsurance segment of FG Financial Group, Inc. (FGF), this means traditional, broad-based property-catastrophe (P-CAT) exposure is a guaranteed headwind.

The company's strategy of deploying capital to highly structured, loss-capped contracts through its FG Reinsurance, Ltd. (FGRe) unit is defintely the right defensive move. This niche approach shields the portfolio from the full severity of the industry's rising loss curve, but it still requires careful selection to avoid being dragged down by the sheer frequency of mid-sized events that now aggregate into massive losses.

Here's the quick math: higher interest rates help the investment side, but the twin pressures of social inflation and CAT losses on the underwriting side are a constant headwind. Your next step is to have the Risk team model the impact of a 15% increase in claims severity due to social inflation by year-end.

Increased frequency of secondary perils (e.g., wildfires, hail, and flooding) makes traditional risk modeling less reliable.

The term 'secondary peril' is a dangerous misnomer now. These events-severe convective storms (SCS), wildfires, and floods-are the primary drivers of loss frequency. The catastrophic Los Angeles wildfires in January 2025 alone demonstrated this shift, with insured losses estimated to be as high as $45 billion. This single event became the most expensive wildfire event in history for insurers, forcing a fundamental reassessment of catastrophe modeling, especially in the urban-wildland interface.

This volatility is why traditional models, which historically focused on less frequent, high-severity hurricanes and earthquakes, are failing. The cumulative effect of these smaller, but more frequent, events is what's truly straining the industry's capital base. FGF's focus on collateralized reinsurance is an attempt to price and isolate this risk more precisely than the broader market can.

Coastal and wildfire-exposed property insurance markets face capacity withdrawal, creating opportunities for specialty insurers like FGF.

When major carriers pull back from high-risk zones, it creates a capacity vacuum that specialty players can fill, provided they can price the risk correctly. We are seeing this market retreat clearly in states like California, Florida, and Texas. For instance, the exposure carried by California's state-run insurer of last resort, the FAIR Plan, now exceeds $450 billion, far beyond its intended financial capacity.

This market dislocation is a direct opportunity for a specialty reinsurer like FGF. Their model of underwriting 'niche, loss-capped opportunities' is perfectly suited to step into the gap left by primary insurers who can no longer afford the volatility. The key is to be highly selective and to maintain tight contract structures, including higher attachment points, to shield against the medium-sized losses that are now so frequent.

• Capacity is shrinking for high-risk US properties.
• State-run plans are overextended; California's FAIR Plan exposure is over $450 billion.
• FGF can target the resulting high-margin, low-attachment reinsurance layers.

Pressure from environmental, social, and governance (ESG) investors to divest from high-carbon-emitting assets influences investment strategy.

ESG is no longer a soft issue; it's a hard financial risk for your investment portfolio. While the US regulatory environment for ESG remains politically fragmented, institutional investor demand is resilient. Sustainable funds, for example, generated median returns of 12.5% in the first half of 2025, outperforming traditional funds at 9.2%. This performance differential puts pressure on all financial institutions, including FGF, to align their investment strategy.

For a company that relies on its investment float to offset underwriting losses, the risk of holding stranded assets-like high-carbon-emitting assets that lose value due to policy changes or market sentiment-is a material threat. We are seeing a trend where firms are divesting carbon-intensive assets to fulfill net-zero pledges, often passing them to private entities. FGF must proactively assess the climate-related transition risk in its fixed-income and alternative investment portfolios to avoid a future write-down that could undermine its underwriting profitability.