UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~September 30, 2013~~March 31, 2014

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____________________________to_____________________________

Commission File Number: 001-33067

SELECTIVE INSURANCE GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)



New Jersey		22-2168890
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

40 Wantage Avenue
Branchville, New Jersey		07890
(Address of Principal Executive Offices)		(Zip Code)

(973) 948-3000

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yesx No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox

As of ~~September 30, 2013~~March 31, 2014, there were ~~55,774,851~~56,219,199 shares of common stock, par value $2.00 per share, outstanding.

Table of Contents



	SELECTIVE INSURANCE GROUP, INC.
	Table of Contents
		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of ~~September 30, 2013~~March 31, 2014 (Unaudited) and December 31, ~~2012~~2013	1

	Unaudited Consolidated Statements of Income for the Quarter Ended March 31, 2014 and ~~Nine Months Ended September 30, 2013 and 2012~~2013	2

	Unaudited Consolidated Statements of Comprehensive Income for the Quarter Ended March 31, 2014 and ~~Nine Months Ended September 30, 2013 and 2012~~2013	3

	Unaudited Consolidated Statements of Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013	4

	Unaudited Consolidated Statements of Cash Flow for the ~~Nine~~Three Months Ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013	5

	Notes to Unaudited Interim Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Forward-Looking Statements	3124

	Introduction	3124

	Critical Accounting Policies and Estimates	3125

	Financial Highlights of Results for ~~Third~~First Quarter ~~2013~~2014 and ~~Nine Months~~First Quarter 2013	3225

	Results of Operations and Related Information by Segment	3629

	Federal Income Taxes	5343

	Financial Condition, Liquidity, Short-term Borrowings, and Capital Resources	5343

	Ratings	5645

	Off-Balance Sheet Arrangements	5646

	Contractual Obligations, Contingent Liabilities, and Commitments	5746

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5746

Item 4.	Controls and Procedures	5746

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5847

Item 1A.	Risk Factors	5847

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5948

Item 5.	Other Information	49

Item 6.	Exhibits	6050

Signatures		6151

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PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS


SELECTIVE INSURANCE GROUP, INC. CONSOLIDATED BALANCE SHEETS	Unaudited					Unaudited
($ in thousands, except share amounts)	September 30, 2013			December 31, 2012		March 31, 2014			December 31, 2013
ASSETS
Investments:
Fixed maturity securities, held-to-maturity – at carrying value (fair value: $448,529 – 2013; $594,661 – 2012)	$	421,962		554,069
Fixed maturity securities, available-for-sale – at fair value (amortized cost: $3,573,751 – 2013; $3,130,683 – 2012)	3,633,432			3,296,013
Equity securities, available-for-sale – at fair value (cost: $158,323 – 2013; $132,441 – 2012)	180,506			151,382
Fixed income securities, held-to-maturity – at carrying value (fair value: $403,536 – 2014; $416,981 – 2013)						$	382,056		392,879
Fixed income securities, available-for-sale – at fair value (amortized cost: $3,748,456 – 2014; $3,675,977 – 2013)						3,815,853			3,715,536
Equity securities, available-for-sale – at fair value (cost: $162,370 – 2014; $155,350 – 2013)						197,687			192,771
Short-term investments (at cost which approximates fair value)	172,087			214,479		137,733			174,251
Other investments	108,073			114,076		106,720			107,875
Total investments (Note 5)	4,516,060			4,330,019		4,640,049			4,583,312
Cash	177			210		245			193
Interest and dividends due or accrued	36,044			35,984		36,967			37,382
Premiums receivable, net of allowance for uncollectible accounts of: $4,513 – 2013; $3,906 – 2012	569,214			484,388
Premiums receivable, net of allowance for uncollectible accounts of: $3,771 – 2014; $4,442 – 2013						553,912			524,870
Reinsurance recoverables, net	555,579			1,421,109		574,621			550,897
Prepaid reinsurance premiums	149,182			132,637		141,603			143,000
Current federal income tax	1,551			2,569		—			512
Deferred federal income tax	131,603			119,136		113,061			122,613
Property and equipment – at cost, net of accumulated depreciation and amortization of: $176,718 – 2013; $169,428 – 2012	50,020			47,131
Property and equipment – at cost, net of accumulated depreciation and amortization of: $181,959 – 2014; $179,192 – 2013						53,725			50,834
Deferred policy acquisition costs	177,211			155,523		177,678			172,981
Goodwill	7,849			7,849		7,849			7,849
Other assets	71,855			57,661		70,526			75,727
Total assets	$	6,266,345		6,794,216		$	6,370,236		6,270,170

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserve for loss and loss expenses	$	3,316,291		4,068,941		$	3,432,432		3,349,770
Unearned premiums	1,111,539			974,706		1,078,012			1,059,155
Notes payable (Note 9)	392,407			307,387
Notes payable						392,420			392,414
Current federal income tax						3,249			—
Accrued salaries and benefits	116,682			152,396		89,558			111,427
Other liabilities	205,217			200,194		189,034			203,476
Total liabilities	$	5,142,136		5,703,624		$	5,184,705		5,116,242

Stockholders’ Equity:
Preferred stock of $0 par value per share:	$	—		—		$	—		—
Authorized shares 5,000,000; no shares issued or outstanding
Common stock of $2 par value per share:
Authorized shares 360,000,000
Issued: 98,957,182 – 2013; 98,194,224 – 2012	197,914			196,388
Issued: 99,536,697 – 2014; 99,120,235 – 2013						199,073			198,240
Additional paid-in capital	284,067			270,654		294,365			288,182
Retained earnings	1,184,084			1,125,154		1,212,577			1,202,015
Accumulated other comprehensive income (Note 11)	17,083			54,040
Treasury stock – at cost (shares: 43,182,331 – 2013; 43,030,776 – 2012)	(558,939		)	(555,644	)
Accumulated other comprehensive income (Note 10)						41,529			24,851
Treasury stock – at cost (shares: 43,317,498– 2014; 43,198,622 – 2013)						(562,013		)	(559,360	)
Total stockholders’ equity	1,124,209			1,090,592		1,185,531			1,153,928
Commitments and contingencies (Note 14)
Commitments and contingencies
Total liabilities and stockholders’ equity	$	6,266,345		6,794,216		$	6,370,236		6,270,170

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended March 31,
($ in thousands, except per share amounts)	2013			2012		2013		2012		2014			2013
Revenues:
Net premiums earned	$	437,568		406,225		1,284,760		1,177,266		$	456,495		420,940
Net investment income earned	32,457			30,650		99,330		97,284		35,534			32,870
Net realized gains (losses):
Net realized gains:
Net realized investment gains	14,111			1,856		25,124		6,907		8,181			5,304
Other-than-temporary impairments	(680		)	(921	)	(3,107	)	(1,218	)	(963		)	(1,919	)
Other-than-temporary impairments on fixed maturity securities recognized in other comprehensive income	—			(2,023	)	(77	)	(2,241	)
Total net realized gains (losses)	13,431			(1,088	)	21,940		3,448
Other-than-temporary impairments on fixed income securities recognized in other comprehensive income										—			(30	)
Total net realized gains										7,218			3,355
Other income	3,357			1,085		9,677		7,129		9,824			2,784
Total revenues	486,813			436,872		1,415,707		1,285,127		509,071			459,949

Expenses:
Loss and loss expense incurred	283,317			272,251		832,760		813,060		320,546			269,849
Policy acquisition costs	145,314			131,849		428,570		391,026		149,266			139,528
Interest expense	5,570			4,725		16,971		14,148		5,561			5,831
Other expenses	8,127			7,733		27,852		24,080		8,614			15,873
Total expenses	442,328			416,558		1,306,153		1,242,314		483,987			431,081

Income from continuing operations, before federal income tax	44,485			20,314		109,554		42,813		25,084			28,868

Federal income tax expense (benefit):
Current	6,367			(5,088	)	20,041		1,590		6,538			7,453
Deferred	5,465			7,128		7,433		4,568		572			(890	)
Total federal income tax expense	11,832			2,040		27,474		6,158		7,110			6,563

Net income from continuing operations	32,653			18,274		82,080		36,655		17,974			22,305

Loss on disposal of discontinued operations, net of tax of $(538)	—			—		(997	)	—
Loss on disposal of discontinued operations, net of tax of $(538) - 2013										—			(997	)

Net income	$	32,653		18,274		81,083		36,655		$	17,974		21,308

Earnings per share:
Basic net income from continuing operations	$	0.59		0.33		1.48		0.67		$	0.32		0.40
Basic net loss from discontinued operations	—			—		(0.02	)	—		—			(0.02	)
Basic net income	$	0.59		0.33		1.46		0.67		$	0.32		0.38

Diluted net income from continuing operations	$	0.57		0.33		1.45		0.66		$	0.31		0.40
Diluted net loss from discontinued operations	—			—		(0.02	)	—		—			(0.02	)
Diluted net income	$	0.57		0.33		1.43		0.66		$	0.31		0.38

Dividends to stockholders	$	0.13		0.13		0.39		0.39		$	0.13		0.13

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended March 31,
($ in thousands)	2013			2012		2013		2012		2014			2013
Net income	$	32,653		18,274		81,083		36,655		$	17,974		21,308

Other comprehensive income, net of tax:
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during period	6,383			23,803		(50,576	)	41,777
Unrealized holding gains arising during period										21,426			2,394
Non-credit portion of other-than-temporary impairments recognized in other comprehensive income	—			1,315		50		1,457		—			20
Amount reclassified into net income:
Held-to-maturity securities	(307		)	(219	)	(1,172	)	(1,236	)	(296		)	(466	)
Non-credit other-than-temporary impairment	1			6		9		177
Realized (gains) losses on available for sale securities	(8,785		)	674		(16,107	)	(2,243	)
Total unrealized (losses) gains on investment securities	(2,708		)	25,579		(67,796	)	39,932
Non-credit other-than-temporary impairments										—			4
Realized gains on available for sale securities										(4,699		)	(3,884	)
Total unrealized gains (losses) on investment securities										16,431			(1,932	)

Defined benefit pension and post-retirement plans:
Net actuarial gain	—			—		28,600		—		—			28,600
Amounts reclassified into net income:
Net actuarial loss	513			904		2,222		2,712		247			1,196
Prior service cost	—			24		6		73		—			6
Curtailment expense	—			—		11		—		—			11
Total defined benefit pension and post-retirement plans	513			928		30,839		2,785		247			29,813
Other comprehensive (loss) income	(2,195		)	26,507		(36,957	)	42,717
Other comprehensive income										16,678			27,881
Comprehensive income	$	30,458		44,781		44,126		79,372		$	34,652		49,189

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	Nine Months ended September 30,					Three Months ended March 31,
($ in thousands)	2013			2012		2014			2013
Common stock:
Beginning of year	$	196,388		194,494		$	198,240		196,388
Dividend reinvestment plan (shares: 49,964 – 2013; 68,640 – 2012)	100			137
Stock purchase and compensation plans (shares: 712,994 – 2013; 698,723 – 2012)	1,426			1,397
Dividend reinvestment plan (shares: 15,283 – 2014; 17,314 – 2013)						31			35
Stock purchase and compensation plans (shares: 401,179 – 2014; 496,647 – 2013)						802			993
End of period	197,914			196,028		199,073			197,416

Additional paid-in capital:
Beginning of year	270,654			257,370		288,182			270,654
Dividend reinvestment plan	1,052			1,064		320			349
Stock purchase and compensation plans	12,361			9,093		5,863			5,714
End of period	284,067			267,527		294,365			276,717

Retained earnings:
Beginning of year	1,125,154			1,116,319		1,202,015			1,125,154
Net income	81,083			36,655		17,974			21,308
Dividends to stockholders ($0.39 per share – 2013 and 2012)	(22,153		)	(21,859	)
Dividends to stockholders ($0.13 per share – 2014 and 2013)						(7,412		)	(7,351	)
End of period	1,184,084			1,131,115		1,212,577			1,139,111

Accumulated other comprehensive income:
Beginning of year	54,040			42,294		24,851			54,040
Other comprehensive (loss) income	(36,957		)	42,717
Other comprehensive income						16,678			27,881
End of period	17,083			85,011		41,529			81,921

Treasury stock:
Beginning of year	(555,644		)	(552,149	)	(559,360		)	(555,644	)
Acquisition of treasury stock (shares: 151,555 – 2013; 176,513 – 2012)	(3,295		)	(3,154	)
Acquisition of treasury stock (shares: 118,876 – 2014; 146,436 – 2013)						(2,653		)	(3,176	)
End of period	(558,939		)	(555,303	)	(562,013		)	(558,820	)
Total stockholders’ equity	$	1,124,209		1,124,378		$	1,185,531		1,136,345

Selective Insurance Group, Inc. also has authorized, but not issued, 5,000,000 shares of preferred stock, without par value, of which 300,000 shares have been

designated Series A junior preferred stock, without par value.

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW	Nine Months ended September 30,					Three Months ended March 31,
($ in thousands)	2013			2012		2014			2013
Operating Activities
Net income	$	81,083		36,655		$	17,974		21,308

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	32,861			29,386		10,578			13,148
Sale of renewal rights						(8,000		)	—
Loss on disposal of discontinued operations	997			—		—			997
Stock-based compensation expense	7,428			6,263		4,176			3,692
Undistributed losses of equity method investments	248			1,090
Undistributed (gains) losses of equity method investments						(33		)	426
Net realized gains	(21,940		)	(3,448	)	(7,218		)	(3,355	)
Retirement income plan curtailment expense	16			—		—			16

Changes in assets and liabilities:
Increase in reserve for loss and loss expenses, net of reinsurance recoverables	112,876			37,463		58,938			38,556
Increase in unearned premiums, net of prepaid reinsurance and advance premiums	120,667			119,269		19,875			30,106
Decrease (increase) in net federal income taxes	8,990			(1,050	)
Decrease in net federal income taxes						4,332			5,290
Increase in premiums receivable	(84,826		)	(53,659	)	(29,042		)	(36,202	)
Increase in deferred policy acquisition costs	(21,688		)	(25,744	)	(4,697		)	(2,963	)
(Decrease) increase in interest and dividends due or accrued	(45		)	721
Increase in accrued salaries and benefits	8,286			5,365
Increase in accrued insurance expenses	6,895			299
Decrease in interest and dividends due or accrued						414			384
Decrease in accrued salaries and benefits						(21,869		)	(4,528	)
Decrease in accrued insurance expenses						(26,957		)	(12,378	)
Other-net	(13,859		)	15,144		17,293			(26,357	)
Net adjustments	156,906			131,099		17,790			6,832
Net cash provided by operating activities	237,989			167,754		35,764			28,140

Investing Activities
Purchase of fixed maturity securities, available-for-sale	(838,634		)	(676,408	)
Purchase of fixed income securities, available-for-sale						(182,809		)	(308,289	)
Purchase of equity securities, available-for-sale	(112,742		)	(41,004	)	(61,360		)	(2	)
Purchase of other investments	(7,864		)	(9,050	)	(4,615		)	(2,329	)
Purchase of short-term investments	(1,619,948		)	(1,231,519	)	(398,348		)	(644,274	)
Purchase of subsidiary	—			255
Sale of subsidiary	1,225			600		—			225
Sale of fixed maturity securities, available-for-sale	6,851			92,170
Sale of fixed income securities, available-for-sale						1,302			6,851
Sale of short-term investments	1,662,340			1,263,684		434,865			695,313
Redemption and maturities of fixed maturity securities, held-to-maturity	87,952			91,665
Redemption and maturities of fixed maturity securities, available-for-sale	413,722			297,980
Redemption and maturities of fixed income securities, held-to-maturity						9,396			28,644
Redemption and maturities of fixed income securities, available-for-sale						104,358			124,975
Sale of equity securities, available-for-sale	109,399			58,749		61,523			—
Distributions from other investments	10,546			13,910		5,704			3,447
Sale of other investments	—			1
Purchase of property and equipment	(10,493		)	(9,382	)	(5,699		)	(3,673	)
Sale of renewal rights						8,000			—
Net cash used in investing activities	(297,646		)	(148,349	)	(27,683		)	(99,112	)

Financing Activities
Dividends to stockholders	(20,532		)	(20,188	)	(6,948		)	(6,824	)
Acquisition of treasury stock	(3,295		)	(3,154	)	(2,653		)	(3,176	)
Net proceeds from stock purchase and compensation plans	4,305			2,586		1,261			1,164
Proceeds from issuance of notes payable, net of debt issuance costs	178,435			—		—			178,623
Repayment of notes payable	(100,000		)	—		—			(100,000	)
Excess tax benefits from share-based payment arrangements	1,479			904		770			1,271
Repayments of capital lease obligations	(768		)	—		(459		)	—
Net cash provided by (used in) financing activities	59,624			(19,852	)
Net decrease in cash	(33		)	(447	)
Net cash (used in) provided by financing activities						(8,029		)	71,058
Net increase in cash						52			86
Cash, beginning of year	210			762		193			210
Cash, end of period	$	177		315		$	245		296

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Organization

Selective Insurance Group, Inc., through its subsidiaries, (collectively referred to as “we,” “us,” or “our”) offers standard and excess and surplus lines (“E&S”) property and casualty insurance products. Selective Insurance Group, Inc. (referred to as the “Parent”) was incorporated in New Jersey in 1977 and its main offices are located in Branchville, New Jersey. The Parent’s common stock is publicly traded on the NASDAQ Global Select Market under the symbol “SIGI.”

We classify our business into three operating segments:

Our Standard Insurance Operations segment, which is comprised of both commercial lines ("Commercial Lines") and personal lines ("Personal Lines") business, sells property and casualty insurance products and services in the standard market, including flood insurance through the National Flood Insurance Program's ("~~NFIP"~~NFIPs") write-your-own ("WYO") program;

Our E&S Insurance Operations segment ~~which is comprised of~~sells Commercial Lines property and casualty insurance products and services ~~that are unavailable~~to insureds who have not obtained coverage in the standard ~~market due to market conditions or characteristics of the insured that are caused by the insured's claim history or the characteristics of their business;~~market; and

Our Investments segment, which invests the premiums collected by our Standard and E&S Insurance Operations ~~as well as~~and amounts generated through our capital management strategies, which may include the issuance of debt and equity securities.

NOTE 2. Basis of Presentation

These interim unaudited consolidated financial statements (“Financial Statements”) include the accounts of the Parent and its subsidiaries, and have been prepared in conformity with: (i) U.S. generally accepted accounting principles (“GAAP”); and (ii) the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The preparation of the Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported financial statement balances, as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. All significant intercompany accounts and transactions between the Parent and its subsidiaries are eliminated in consolidation.

Certain amounts in our prior years' Financial Statements and related notes have been reclassified to conform to the ~~2013~~2014 presentation. Such reclassifications had no effect on our net income, stockholders' equity, or cash flows.

These Financial Statements reflect all adjustments that, in our opinion, are normal, recurring, and necessary for a fair presentation of our results of operations and financial condition. The Financial Statements cover the ~~third~~first quarters ended ~~September 30, 2013~~March 31, 2014 (“~~Third~~First Quarter ~~2013~~2014”) and ~~September 30, 2012~~March 31, 2013 (“~~Third~~First Quarter ~~2012~~2013”~~) and the nine-month periods ended~~ ~~September 30, 2013~~ ("~~Nine Months 2013") and~~ ~~September 30, 2012~~ ("~~Nine Months 2012~~"). The Financial Statements do not include all of the information and disclosures required by GAAP and the SEC for audited annual financial statements. Results of operations for any interim period are not necessarily indicative of results for a full year. Consequently, the Financial Statements should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, ~~2012~~2013 (“~~2012~~2013 Annual Report”). filed with the SEC.

NOTE 3. Adoption of Accounting Pronouncements

~~In February~~In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income~~ ("ASU 2013-02"), which adds new disclosure requirements for items reclassified out of Accumulated Other Comprehensive Income ("AOCI"). ASU 2013-02 requires entities to disclose additional information about reclassification adjustments, including: (i) changes in AOCI balances by component; and (ii) significant items reclassified out of AOCI. Prospective application of ASU 2013-02 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. We have included the disclosures required by ASU 2013-02 in the notes to our Financial Statements, as required.

I~~n July 2013, the FASB issued ASU~~ No. 2013-11, Income Taxes, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) ("ASU 2013-11"). ASU 2013-11 applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. An unrecognized tax benefit is the difference between a tax position taken or expected to be taken in a tax return and the benefit that is more likely than not sustainable under examination. Under ASU 2013-11, an entity must net an unrecognized tax benefit, or a portion of an unrecognized tax benefit, against deferred tax assets for a net operating loss ("NOL") carryforward, a similar tax loss, or a tax credit carryforward except when:

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An NOL carryforward, a similar tax loss, or a tax credit carryfoward is not available as of the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position; or

The entity does not intend to use the deferred tax asset for this ~~purpose.~~

Ifpurpose.If either of these conditions exists, an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset.

ASU 2013-11 iswas effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance ~~will~~did not impact our financial condition or results of operation.

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Pronouncements to be effective in the future

In January 2014, the FASB issued ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects ("ASU 2014-01"). ASU 2014-01 applies to all reporting entities that invest in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for a low-income housing tax credit. ASU 2014-01 permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using a newly defined "proportional amortization method" if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as components of income tax expense (benefit). For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment is required to be accounted for as an equity method investment or a cost method investment.

ASU 2014-01 is effective for public business entities for annual periods and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this guidance will not have a material impact on our financial condition or results of operations.

NOTE 4. Statements of Cash Flow

Cash paid during ~~Nine Months 2013 and 2012~~the period for interest and federal income taxes was as follows:


	Nine Months ended September 30,			Three Months ended March 31,
($ in thousands)	2013		2012	2014		2013
Cash paid during the period for:
Interest	$	13,325	11,504	$	2,973	1,964
Federal income tax	17,000		6,300	2,000		—

Non-cash items:
Tax-free exchange of fixed income securities, AFS				—		8,470
Tax-free exchange of fixed income securities, HTM				15		7,168

At ~~September 30, 2013~~March 31, 2014, included in "Other assets" on the Consolidated Balance Sheets was $~~7.0~~6.1 million of cash received from the NFIP, which is restricted to pay flood claims under the WYO program.

NOTE 5. Investments

(a) The amortized cost, net unrealized gains and losses, carrying value, unrecognized holding gains and losses, and fair value of held-to-maturity (“HTM”) fixed ~~maturity~~income securities as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 were as follows:


September 30, 2013
March 31, 2014
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value
Foreign government	$	5,292	151		5,443	122	—	5,565	$	5,292	110		5,402	150	—	5,552
Obligations of state and political subdivisions	372,281		4,065		376,346	19,297	—	395,643	344,360		3,475		347,835	16,472	—	364,307
Corporate securities	29,228		(466	)	28,762	3,015	—	31,777	21,903		(341	)	21,562	2,902	—	24,464
Asset-backed securities (“ABS”)	5,890		(755	)	5,135	776	—	5,911	3,347		(621	)	2,726	640	—	3,366
Commercial mortgage-backed securities (“CMBS”)	7,241		(965	)	6,276	3,357	—	9,633	5,353		(822	)	4,531	1,316	—	5,847
Total HTM fixed maturity securities	$	419,932	2,030		421,962	26,567	—	448,529
Total HTM fixed income securities									$	380,255	1,801		382,056	21,480	—	403,536

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December 31, 2012
December 31, 2013
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses		Fair Value	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value
Foreign government	$	5,292	212		5,504	367	—		5,871	$	5,292	131		5,423	168	—	5,591
Obligations of state and political subdivisions	491,180		6,769		497,949	28,996	(23	)	526,922	348,109		4,013		352,122	17,634	—	369,756
Corporate securities	38,285		(812	)	37,473	4,648	—		42,121	28,174		(346	)	27,828	2,446	—	30,274
ABS	6,980		(1,052	)	5,928	1,170	—		7,098	3,413		(655	)	2,758	657	—	3,415
CMBS	8,406		(1,191	)	7,215	5,434	—		12,649	5,634		(886	)	4,748	3,197	—	7,945
Total HTM fixed maturity securities	$	550,143	3,926		554,069	40,615	(23	)	594,661
Total HTM fixed income securities										$	390,622	2,257		392,879	24,102	—	416,981

Unrecognized holding gains and losses of HTM securities are not reflected in the Financial Statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an other-than-temporary impairment (“OTTI”) charge is recognized on an HTM security, through the date of the balance sheet. Our HTM securities had an average duration of ~~2.3~~2.2 years as of ~~September 30, 2013~~March 31, 2014.

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~~During~~ ~~Nine Months 2013~~, 16 ~~securities with a carrying value of~~ ~~$39.6 million~~ ~~and a net unrecognized gain position of~~ ~~$1.4 million~~, were reclassified from an HTM designation to an available-for-sale (“AFS”) designation due to credit rating downgrades by Moody’s Investors Services ("Moody's") and/or Standard and Poor's Financial Services (“S&P”). These unexpected rating downgrades raised concerns about the issuers’ credit worthiness, which changed our intention to hold these securities to maturity.

(b) The cost/amortized cost, unrealized gains and losses, and fair value of AFS securities as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 were as follows:


September 30, 2013
March 31, 2014
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
U.S. government and government agencies	$	169,163	11,953	(330	)	180,786	$	161,428	10,007	(370	)	171,065
Foreign government	28,797		996	(84	)	29,709	31,538		912	(29	)	32,421
Obligations of states and political subdivisions	918,403		27,705	(16,610	)	929,498	963,237		26,617	(10,687	)	979,167
Corporate securities	1,629,698		47,932	(14,479	)	1,663,151	1,777,186		48,305	(9,793	)	1,815,698
ABS	150,179		1,063	(476	)	150,766	131,386		908	(360	)	131,934
CMBS¹	152,464		2,747	(3,263	)	151,948	172,386		4,686	(2,256	)	174,816
Residential mortgage-backed securities (“RMBS”)²	525,047		8,932	(6,405	)	527,574	511,295		7,210	(7,753	)	510,752
AFS fixed maturity securities	3,573,751		101,328	(41,647	)	3,633,432
AFS fixed income securities							3,748,456		98,645	(31,248	)	3,815,853
AFS equity securities	158,323		24,061	(1,878	)	180,506	162,370		35,434	(117	)	197,687
Total AFS securities	$	3,732,074	125,389	(43,525	)	3,813,938	$	3,910,826	134,079	(31,365	)	4,013,540


December 31, 2012
December 31, 2013
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
U.S. government and government agencies	$	241,874	17,219	(1	)	259,092	$	163,218	10,661	(504	)	173,375
Foreign government	28,813		1,540	(124	)	30,229	29,781		906	(72	)	30,615
Obligations of states and political subdivisions	773,953		44,398	(327	)	818,024	946,455		25,194	(20,025	)	951,624
Corporate securities	1,368,954		81,696	(402	)	1,450,248	1,707,928		44,004	(17,049	)	1,734,883
ABS	126,330		2,319	(9	)	128,640	140,430		934	(468	)	140,896
CMBS¹	133,763		4,572	(1,216	)	137,119	172,288		2,462	(3,466	)	171,284
RMBS²	456,996		15,961	(296	)	472,661	515,877		7,273	(10,291	)	512,859
AFS fixed maturity securities	3,130,683		167,705	(2,375	)	3,296,013
AFS fixed income securities							3,675,977		91,434	(51,875	)	3,715,536
AFS equity securities	132,441		19,400	(459	)	151,382	155,350		37,517	(96	)	192,771
Total AFS securities	$	3,263,124	187,105	(2,834	)	3,447,395	$	3,831,327	128,951	(51,971	)	3,908,307

¹ CMBS includes government guaranteed agency securities with a fair value of $~~35.5~~24.5 million at ~~September 30, 2013~~March 31, 2014 and $~~48.9~~30.0 million at December 31, ~~2012~~2013.

² RMBS includes government guaranteed agency securities with a fair value of $~~61.4~~48.2 million at ~~September 30, 2013~~March 31, 2014 and $~~91.0~~55.2 million at December 31, ~~2012~~2013.

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Unrealized gains and losses of AFS securities represent fair value fluctuations from the later of: (i) the date a security is designated as AFS; or (ii) the date that an OTTI charge is recognized on an AFS security, through the date of the balance sheet. These unrealized gains and losses are recorded in ~~AOCI~~Accumulated Other Comprehensive Income ("AOCI") on the Consolidated Balance Sheets.

(c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, the fair value and gross pre-tax net unrealized/unrecognized loss by asset class and by length of time those securities have been in a net loss position:

September 30, 2013 Less than 12 months 12 months or longer
($ in thousands) Fair Value
Unrealized
Losses¹
Fair Value
Unrealized
Losses¹
AFS securities

U.S. government and government agencies $ 13,173
(327 ) 510
(3 )
Foreign government 1,056
(12 ) 2,925
(72 )
Obligations of states and political subdivisions 417,866
(16,610 ) —
—
Corporate securities 422,816
(14,200 ) 3,837
(279 )
ABS 87,786
(471 ) 302
(5 )
CMBS 69,322
(2,771 ) 2,030
(492 )
RMBS 202,428
(6,231 ) 1,579
(174 )
Total fixed maturity securities 1,214,447
(40,622 ) 11,183
(1,025 )
Equity securities 35,275
(1,878 ) —
—
Subtotal $ 1,249,722
(42,500 ) 11,183
(1,025 )


	Less than 12 months					12 months or longer
March 31, 2014										Less than 12 months				12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Unrecognized Gains²	Fair Value	Unrealized Losses¹		Unrecognized Gains²	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹
HTM securities
AFS securities
U.S. government and government agencies										$	13,119	(370	)	—	—
Foreign government										1,753		(9	)	2,978	(20	)
Obligations of states and political subdivisions	$	492	(20	)	19	571	(24	)	17	373,064		(9,984	)	20,096	(703	)
Corporate securities										464,163		(8,636	)	17,713	(1,157	)
ABS	—		—		—	2,476	(690	)	642	23,855		(360	)	—	—
CMBS										72,437		(1,962	)	7,466	(294	)
RMBS										221,314		(7,294	)	4,823	(459	)
Total fixed income securities										1,169,705		(28,615	)	53,076	(2,633	)
Equity securities										1,938		(117	)	—	—
Subtotal	$	492	(20	)	19	3,047	(714	)	659	$	1,171,643	(28,732	)	53,076	(2,633	)
Total AFS and HTM	$	1,250,214	(42,520	)	19	14,230	(1,739	)	659

December 31, 2012 Less than 12 months 12 months or longer
($ in thousands)
Fair
Value

Unrealized
Losses¹
Fair Value
Unrealized
Losses¹
AFS securities

U.S. government and government agencies $ 518
(1 ) —
—
Foreign government —
—
2,871
(124 )
Obligations of states and political subdivisions 32,383
(327 ) —
—
Corporate securities 50,880
(402 ) —
—
ABS 9,137
(9 ) —
—
CMBS 7,637
(19 ) 11,830
(1,197 )
RMBS 8,710
(59 ) 5,035
(237 )
Total fixed maturity securities 109,265
(817 ) 19,736
(1,558 )
Equity securities 15,901
(459 ) —
—
Subtotal $ 125,166
(1,276 ) 19,736
(1,558 )



	Less than 12 months					12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Unrecognized Gains²	Fair Value	Unrealized Losses¹		Unrecognized Gains²
HTM securities
Obligations of states and political subdivisions	$	—	—		—	445	(19	)	18
ABS	—		—		—	2,495	(621	)	592
Subtotal	$	—	—		—	2,940	(640	)	610
Total AFS and HTM	$	1,171,643	(28,732	)	—	56,016	(3,273	)	610



December 31, 2013	Less than 12 months				12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS securities
U.S. government and government agencies	$	16,955	(500	)	507	(4	)
Foreign government	2,029		(30	)	2,955	(42	)
Obligations of states and political subdivisions	442,531		(19,120	)	13,530	(905	)
Corporate securities	511,100		(15,911	)	14,771	(1,138	)
ABS	68,725		(468	)	—	—
CMBS	100,396		(2,950	)	6,298	(516	)
RMBS	268,943		(10,031	)	2,670	(260	)
Total fixed income securities	1,410,679		(49,010	)	40,731	(2,865	)
Equity securities	1,124		(96	)	—	—
Subtotal	$	1,411,803	(49,106	)	40,731	(2,865	)

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	Less than 12 months					12 months or longer				Less than 12 months					12 months or longer
($ in thousands)	Fair Value		Unrealized Losses¹		Unrecognized Gains²	Fair Value	Unrealized Losses¹		Unrecognized Gains²	Fair Value		Unrealized Losses¹		Unrecognized Gains²	Fair Value	Unrealized Losses¹		Unrecognized Gains²
HTM securities
Obligations of states and political subdivisions	$	1,218	(33	)	29	1,108	(47	)	38	$	65	(5	)	5	441	(20	)	14
ABS	—		—		—	2,860	(840	)	753	—		—		—	2,490	(655	)	621
Subtotal	1,218		(33	)	29	3,968	(887	)	791	65		(5	)	5	2,931	(675	)	635
Total AFS and HTM	$	126,384	(1,309	)	29	23,704	(2,445	)	791	$	1,411,868	(49,111	)	5	43,662	(3,540	)	635

¹Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI. In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to an HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position.

²Unrecognized gains represent fair value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security.

As evidenced by the table below, our net unrealized/unrecognized loss positions ~~increased~~improved by ~~$40.6~~$20.6 million as of ~~September 30, 2013~~March 31, 2014 compared to December 31, ~~2012~~2013 as follows:


($ in thousands)	($ in thousands)								($ in thousands)
September 30, 2013					December 31, 2012
March 31, 2014									March 31, 2014				December 31, 2013
Number of Issues	Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized/ Unrecognized Loss
501		80% - 99%	$	43,295	100	80% - 99%	$	2,701
466										80% - 99%	$	31,395	556	80% - 99%	$	51,835
—		60% - 79%	—		1	60% - 79%	233			60% - 79%	—		1	60% - 79%	176
1		40% - 59%	286		—	40% - 59%	—
—										40% - 59%	—		—	40% - 59%	—
—		20% - 39%	—		—	20% - 39%	—			20% - 39%	—		—	20% - 39%	—
—		0% - 19%	—		—	0% - 19%	—			0% - 19%	—		—	0% - 19%	—
			$	43,581			$	2,934			$	31,395			$	52,011

We have reviewed the securities in the tables above in accordance with our OTTI policy, as described in Note 2. “Summary of Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.” of our ~~2012~~2013 Annual Report.

At ~~September 30, 2013~~March 31, 2014, we had ~~502~~466 securities in an aggregate unrealized/unrecognized loss position of $~~43.6~~31.4 million, $~~1.1~~2.7 million of which have been in a loss position for more than 12 months. At December 31, ~~2012~~2013, we had ~~101~~557 securities in an aggregate unrealized/unrecognized loss position of $~~2.9~~52.0 million, $~~1.7~~2.9 million of which had been in a loss position for more than 12 months. During ~~Nine Months 2013,~~First Quarter 2014, interest rates on the 10-year U.S. Treasury Note ~~rose~~fell by 8531 basis points. This interest rate movement ~~has negatively impacted~~had a positive impact on our fixed ~~maturity~~income securities portfolio's valuation, thus ~~increasing~~decreasing the number of securities in a loss position and the corresponding dollar amount of unrealized losses. ~~The increase in the unrealized losses does not correspond to any issuer specific credit concerns; however, it does reflect an expected reduction in market value due to higher market interest rates.~~ For a discussion regarding the sensitivity of interest rate movements and the related impacts on the fixed ~~maturity~~income securities portfolio, refer to Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our ~~2012~~2013 Annual Report.

We do not intend to sell any securities in an unrealized/unrecognized loss position, nor do we believe we will be required to sell these securities, and therefore we have concluded that they are temporarily impaired as of ~~September 30, 2013~~March 31, 2014. This conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the investment security and underlying collateral. If our judgment about an individual security changes in the future, we may ultimately record a credit loss after having originally concluded that one did not exist, which could have a material impact on our net income and financial position in future periods.

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(d) Fixed ~~maturity~~income securities at ~~September 30, 2013~~March 31, 2014, by contractual maturity, are shown below. Mortgage-backed securities ("MBS") are included in the maturity tables using the estimated average life of each security. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations, with or without call or prepayment penalties.

Listed below are HTM fixed ~~maturity~~income securities at ~~September 30, 2013~~March 31, 2014:


($ in thousands)	Carrying Value		Fair Value	Carrying Value		Fair Value
Due in one year or less	$	72,099	74,953	$	80,337	81,332
Due after one year through five years	312,318		331,927	270,608		287,045
Due after five years through 10 years	34,747		38,176	31,111		35,159
Due after 10 years	2,798		3,473
Total HTM fixed maturity securities	$	421,962	448,529
Total HTM fixed income securities				$	382,056	403,536

Listed below are AFS fixed ~~maturity~~income securities at ~~September 30, 2013~~March 31, 2014:


($ in thousands)	Fair Value		Fair Value
Due in one year or less	$	324,743	$	425,744
Due after one year through five years	1,951,770		1,991,515
Due after five years through 10 years	1,329,795		1,345,666
Due after 10 years	27,124		52,928
Total AFS fixed maturity securities	$	3,633,432
Total AFS fixed income securities			$	3,815,853

(e) The following table summarizes our other investment portfolio by strategy and the remaining commitment amount associated with each strategy:


Other Investments	Carrying Value			September 30, 2013	Carrying Value			March 31, 2014
($ in thousands)	September 30, 2013		December 31, 2012	Remaining Commitment	March 31, 2014		December 31, 2013	Remaining Commitment
Alternative Investments
Secondary private equity	$	25,954	28,032	7,703	$	23,595	25,618	6,479
Private equity	18,951		18,344	10,502	21,117		20,192	9,959
Energy/power generation	17,049		18,640	7,076	17,978		17,361	6,984
Mezzanine financing	12,921		12,692	18,796	13,831		12,738	15,038
Distressed debt					10,882		11,579	2,971
Real estate	12,385		11,751	10,205	10,728		11,698	10,178
Distressed debt	11,911		12,728	2,964
Venture capital	7,018		7,477	400	7,019		7,025	350
Total alternative investments	106,189		109,664	57,646	105,150		106,211	51,959
Other securities	1,884		4,412	1,289	1,570		1,664	597
Total other investments	$	108,073	114,076	58,935	$	106,720	107,875	52,556

For a description of our seven alternative investment strategies, as well as information regarding redemption, restrictions, and fund liquidations, refer to Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of our ~~2012~~2013 Annual Report.

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The following table sets forth ~~aggregated~~gross summarized financial information for our other investments portfolio, ~~that is~~including the portion not owned by us. The investments are carried under the equity method of accounting. The last line of the table below reflects our share of the aggregate income, which is the portion included in our Financial Statements. As the majority of these investments ~~report~~reports results to us on a quarter lag, the summarized financial statement information for the ~~nine~~three-month periods ended ~~June 30~~December 31 is as follows:


Income Statement Information	Quarter ended June 30,				Nine Months ended June 30,			Quarter ended December 31,
($ in millions)	2013		2012		2013	2012		2013		2012
Net investment income	$	97.8	80.0		352.8	170.1		$	65.1	204.8
Realized gains	162.8		19.6		762.5	1,004.9		63.3		593.4
Net change in unrealized depreciation	104.8		(117.1	)	85.9	(551.1	)
Net income (loss)	$	365.4	(17.5	)	1,201.2	623.9
Net change in unrealized appreciation (depreciation)								505.9		(417.5	)
Net income								$	634.3	380.7
Selective’s insurance subsidiaries’ other investments income	$	2.6	0.5		10.1	5.5		$	5.2	3.6

(f) At ~~September 30, 2013~~March 31, 2014, we had fixed ~~maturity~~income securities, with a carrying value of $~~61.9~~61.8 million, that were pledged as collateral for our outstanding borrowing of $~~58.0~~58 million with the Federal Home Loan Bank of Indianapolis (“FHLBI”). This outstanding borrowing is included in “Notes payable” on the Consolidated Balance Sheets. In accordance with the terms of our agreement with the FHLBI, we retain all rights regarding these securities, which are included in the “U.S. government and government agencies,” “RMBS,” and “CMBS” classifications of our AFS fixed ~~maturity~~income securities portfolio.

Also at ~~September 30, 2013~~March 31, 2014, we had fixed ~~maturity~~income securities, with a carrying value of $~~21.3~~22.3 million, and short-term investments with a carrying value of $~~1.7~~0.2 million, that collateralize reinsurance obligations related to our 2011 acquisition of our E&S book of business. Similar to the FHLBI collateral discussion above, we retain all rights regarding these investments. These fixed ~~maturity~~income securities are included in the "Municipal," "Corporate," "U.S. government and government agencies," "RMBS," and "ABS" classifications of our AFS fixed ~~maturity~~income securities portfolio.

In addition, fixed ~~maturity~~income securities with a carrying value of $~~27.0~~26.2 million were on deposit with various state and regulatory agencies to comply with insurance laws. We retain all rights regarding these securities, which are primarily included in the "U.S. government and government agencies" classification of our AFS fixed ~~maturity~~income securities portfolio.

(g) The components of net investment income earned for the periods indicated were as follows:

Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2013 2012 2013 2012
Fixed maturity securities $ 30,569

30,839
90,956
93,948
Equity securities 1,341

1,268
4,422
3,785
Short-term investments 21

36
102
103
Other investments 2,639

497
10,110
5,460
Miscellaneous income —

41
—
105
Investment expenses (2,113 )
(2,031 ) (6,260 ) (6,117 )
Net investment income earned $ 32,457
30,650
99,330
97,284

~~Net investment income before tax~~ ~~increased~~ in both Third Quarter and Nine Months 2013 compared to the same periods last year, primarily due to higher income from our alternative investments. Partially offsetting this increase in Nine Months 2013 is a decrease in fixed maturity securities income due to lower investment yields than in the prior year period.



	Quarter ended March 31,
($ in thousands)	2014			2013
Fixed income securities	$	31,028		30,089
Equity securities	1,449			1,207
Short-term investments	19			52
Other investments	5,218			3,602
Investment expenses	(2,180		)	(2,080	)
Net investment income earned	$	35,534		32,870

(h) The following tables summarize OTTI by asset type for the periods indicated:


Third Quarter 2013	Gross			Included in Other Comprehensive Income (“OCI”)		Recognized in Earnings
First Quarter 2014				Included in Other Comprehensive Income (“OCI”)	Gross			Included in Other Comprehensive Income (“OCI”)		Recognized in Earnings
($ in thousands)	Gross		Gross		Gross		Included in Other Comprehensive Income (“OCI”)			Recognized in Earnings		Recognized in Earnings
AFS securities			Gross				Included in Other Comprehensive Income (“OCI”)					Recognized in Earnings
Equity securities	$	680		—		680		$	963		—		963
Total AFS Securities								963			—		963
OTTI losses	$	680		—		680		$	963		—		963

Table of Contents

Third Quarter 2012 Gross Included in OCI Recognized in Earnings
($ in thousands)
AFS fixed maturity securities

ABS $ 36
—
36
CMBS (1,504 ) (2,023 ) 519
Total AFS fixed maturities (1,468 ) (2,023 ) 555
Equity securities 2,389
—
2,389
OTTI losses $ 921
(2,023 ) 2,944



First Quarter 2013	Gross			Included in OCI		Recognized in Earnings
($ in thousands)	Gross			Included in OCI		Recognized in Earnings
AFS fixed income securities
RMBS	$	(22	)	(30	)	8
Total AFS fixed income securities	(22		)	(30	)	8
Equity securities	217			—		217
Total AFS securities	195			(30	)	225
Other investments	1,724			—		1,724
OTTI losses	$	1,919		(30	)	1,949

Nine Months 2013 Gross Included in OCI
Recognized in
Earnings
($ in thousands)
HTM fixed maturity securities:
ABS $ (44 ) (47 ) 3
Total HTM fixed maturity securities (44 ) (47 ) 3
AFS fixed maturity securities:

RMBS (22 ) (30 ) 8
Total AFS fixed maturity securities (22 ) (30 ) 8
Equity securities 1,326
—
1,326
Total AFS securities 1,304
(30 ) 1,334
Other investments 1,847
—
1,847
OTTI losses $ 3,107
(77 ) 3,184

Nine Months 2012 Gross Included in OCI
Recognized in
Earnings
($ in thousands)
AFS fixed maturity securities

ABS $ 98
—
98
CMBS (1,396 ) (2,023 ) 627
RMBS (44 ) (218 ) 174
Total AFS fixed maturity securities (1,342 ) (2,241 ) 899
Equity securities 2,560
—
2,560
OTTI losses $ 1,218
(2,241 ) 3,459

The OTTI charges in First Quarter 2014 relate to equity securities for which we have the intent to sell. The majority of the OTTI charges in ~~Nine Months~~First Quarter 2013 ~~relate~~ related to an investment in a limited liability company within our other investments portfolio that ~~has~~had sustained significant losses for which we dodid not anticipate recovery. ~~In addition, OTTI charges on our equity portfolio include: (i)~~ ~~$0.7 million~~ ~~recorded in Third Quarter 2013 on securities that we did not believe would recover in the near term; and (ii)~~ ~~$0.6 million~~ ~~recorded within the first half of 2013 primarily related to securities for which we had the intent to sell.~~ For a discussion of our evaluation for OTTI of fixed ~~maturity~~income securities, short-term investments, equity securities, and other investments, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data" of our ~~2012~~2013 Annual Report.

~~Table of Contents~~

The following tables set forth, for the periods indicated, credit loss impairments on fixed ~~maturity~~income securities for which a portion of the OTTI charge was recognized in OCI, and the corresponding changes in such amounts:

Quarter ended September 30,
($ in thousands) 2013 2012
Balance, beginning of period $ 7,488
6,775
Addition for the amount related to credit loss for which an OTTI was not previously recognized —
—
Reductions for securities sold during the period —
—
Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost —
—
Reductions for securities for which the entire amount previously recognized in OCI was recognized in earnings due to a decrease in cash flows expected —
—
Additional increases to the amount related to credit loss for which an OTTI was previously recognized —
519
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected —
—
Balance, end of period $ 7,488
7,294


	Nine Months ended September 30,			Quarter ended March 31,
($ in thousands)	2013		2012	2014		2013
Balance, beginning of period	$	7,477	6,602	$	7,488	7,477
Addition for the amount related to credit loss for which an OTTI was not previously recognized	—		—	—		—
Reductions for securities sold during the period	—		—	—		—
Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost	—		—	—		—
Reductions for securities for which the entire amount previously recognized in OCI was recognized in earnings due to a decrease in cash flows expected	—		—	—		—
Additional increases to the amount related to credit loss for which an OTTI was previously recognized	11		692	—		9
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	—		—	—		—
Balance, end of period	$	7,488	7,294	$	7,488	7,486

(i) The components of net realized gains, excluding OTTI charges, for the periods indicated were as follows:


	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended March 31,
($ in thousands)	2013			2012		2013		2012		2014			2013
HTM fixed maturity securities
HTM fixed income securities
Gains	$	32		40		35		195		$	—		—
Losses	(37		)	(90	)	(86	)	(196	)	(11		)	(37	)
AFS fixed maturity securities
AFS fixed income securities
Gains	662			2,168		2,580		2,941		158			951
Losses	(31		)	(262	)	(330	)	(379	)	(112		)	(253	)
AFS equity securities
Gains	13,801			—		24,272		4,775		8,317			5,671
Losses	(236		)	—		(407	)	(428	)	(171		)	(168	)
Short-term investments
Losses	—			—		—		(2	)
Other Investments
Other investments
Gains	—			—		—		1		—			—
Losses	(80		)	—		(940	)	—		—			(860	)
Total other net realized investment gains	14,111			1,856		25,124		6,907		8,181			5,304
Total OTTI charges recognized in earnings	(680		)	(2,944	)	(3,184	)	(3,459	)	(963		)	(1,949	)
Total net realized gains (losses)	$	13,431		(1,088	)	21,940		3,448
Total net realized gains										$	7,218		3,355

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Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold. ~~Of the~~The $~~14.1~~8.2 million and ~~$25.1~~$5.3 million in net realized gains in ~~Third~~First Quarter 2014 and ~~Nine Months~~First Quarter 2013,, ~~$13.5 million~~ ~~and~~ ~~$19.1 million~~, respectively, were primarily related to the sale of AFS equity securities due to ~~the~~a rebalancing of ~~our high-dividend yield strategy holdings within our equity portfolio. In addition,~~ ~~$4.7 million~~ ~~in net realized gains in~~ ~~Nine Months 2013~~ ~~related to the sale of a private equity security. Of the~~ ~~$6.9 million~~ ~~of net realized gains in~~ ~~Nine Months 2012~~, ~~$4.3 million~~ ~~were related to the sale of AFS equity securities due to the rebalancing of our high dividend yield strategy holdings within~~ our equity portfolio.

Proceeds from the sale of AFS securities were $~~67.2~~62.8 million in ~~Third~~First Quarter ~~2013~~ 2014 and ~~$116.3~~$6.9 million in ~~Nine Months 2013, and~~ ~~$55.0 million~~ ~~and~~ ~~$150.9 million~~ ~~in the same periods a year ago.~~First Quarter 2013.

NOTE 6. Fair Value Measurements

The following table presents the carrying amounts and estimated fair values of our financial instruments as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:


	September 30, 2013			December 31, 2012		March 31, 2014			December 31, 2013
($ in thousands)	Carrying Amount		Fair Value	Carrying Amount	Fair Value	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial Assets
Fixed maturity securities:
Fixed income securities:
HTM	$	421,962	448,529	554,069	594,661	$	382,056	403,536	392,879	416,981
AFS	3,633,432		3,633,432	3,296,013	3,296,013	3,815,853		3,815,853	3,715,536	3,715,536
Equity securities, AFS	180,506		180,506	151,382	151,382	197,687		197,687	192,771	192,771
Short-term investments	172,087		172,087	214,479	214,479	137,733		137,733	174,251	174,251
Receivable for proceeds related to sale of Selective HR Solution (“Selective HR”)	—		—	2,705	2,705
Financial Liabilities
Notes payable:
2.90% borrowings from FHLBI	13,000		13,392	13,000	13,595	13,000		13,243	13,000	13,319
1.25% borrowings from FHLBI	45,000		45,171	45,000	45,590	45,000		45,226	45,000	45,259
7.50% Junior Notes	—		—	100,000	101,480
7.25% Senior Notes						49,917		53,065	49,916	50,887
6.70% Senior Notes	99,492		100,200	99,475	107,707	99,503		102,810	99,498	98,247
7.25% Senior Notes	49,915		51,858	49,912	52,689
5.875% Senior Notes	185,000		153,550	—	—	185,000		165,316	185,000	146,298
Total notes payable	$	392,407	364,171	307,387	321,061	$	392,420	379,660	392,414	354,010

The fair values of our financial assets and liabilities are generated using various valuation techniques and are placed into the fair value hierarchy considering the following: (i) the highest priority is given to quoted prices in active markets for identical assets (Level 1); (ii) the next highest priority is given to quoted prices in markets that are not active or inputs that are observable either directly or indirectly, including quoted prices for similar assets in markets that are not active and other inputs that can be derived principally from, or corroborated by, observable market data for substantially the full term of the assets (Level 2); and (iii) the lowest priority is given to unobservable inputs supported by little or no market activity and that reflect our assumptions about the exit price, including assumptions that market participants would use in pricing the asset (Level 3). An asset or liability's classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. Transfers between levels in the fair value hierarchy are recognized at the end of the reporting period.

For a discussion of the techniques used to value the majority of our financial assets and liabilities, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our ~~2012~~2013 Annual Report. The 5.875% Senior Notes were valued based on a quoted market price (Level 1). The fair value at September 30, 2013 of the 6.70% Senior Notes due November 1, 2035 is based on a matrix pricing model prepared by an external pricing service due to the availability and nature of the pricing at the valuation date (Level 2).

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The following tables provide quantitative disclosures of our financial assets that were measured at fair value at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:


September 30, 2013			Fair Value Measurements Using
March 31, 2014								Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value at 9/30/13		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)¹	Significant Other Observable Inputs (Level 2)¹	Significant Unobservable Inputs (Level 3)	Assets Measured at Fair Value at 3/31/2014		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)¹	Significant Other Observable Inputs (Level 2)¹	Significant Unobservable Inputs (Level 3)
Description
Measured on a recurring basis:
AFS:
U.S. government and government agencies	$	180,786	50,871	129,915	—	$	171,065	51,796	119,269	—
Foreign government	29,709		—	29,709	—	32,421		—	32,421	—
Obligations of states and political subdivisions	929,498		—	929,498	—	979,167		—	979,167	—
Corporate securities	1,663,151		—	1,663,151	—	1,815,698		—	1,815,698	—
ABS	150,766		—	144,804	5,962	131,934		—	131,934	—
CMBS	151,948		—	150,339	1,609	174,816		—	174,816	—
RMBS	527,574		—	527,574	—	510,752		—	510,752	—
Total AFS fixed maturity securities	3,633,432		50,871	3,574,990	7,571
Total AFS fixed income securities						3,815,853		51,796	3,764,057	—
Equity securities	180,506		177,606	—	2,900	197,687		194,787	—	2,900
Total AFS Securities						4,013,540		246,583	3,764,057	2,900
Short-term investments	172,087		172,087	—	—	137,733		137,733	—	—
Total assets	$	3,986,025	400,564	3,574,990	10,471
Total assets measured at fair value						$	4,151,273	384,316	3,764,057	2,900


¹	There were no transfers of securities between Level 1 and Level 2.


December 31, 2012			Fair Value Measurements Using
December 31, 2013								Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value at 12/31/12		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)¹	Significant Other Observable Inputs (Level 2)¹	Significant Unobservable Inputs (Level 3)	Assets Measured at Fair Value at 12/31/13		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)¹	Significant Other Observable Inputs (Level 2)¹	Significant Unobservable Inputs (Level 3)
Description
Measured on a recurring basis:
AFS:
U.S. government and government agencies	$	259,092	115,861	123,442	19,789	$	173,375	52,153	121,222	—
Foreign government	30,229		—	30,229	—	30,615		—	30,615	—
Obligations of states and political subdivisions	818,024		—	818,024	—	951,624		—	951,624	—
Corporate securities	1,450,247		—	1,447,301	2,946	1,734,883		—	1,734,883	—
ABS	128,640		—	122,572	6,068	140,896		—	140,896	—
CMBS	137,119		—	129,957	7,162	171,284		—	171,284	—
RMBS	472,662		—	472,662	—	512,859		—	512,859	—
Total AFS fixed maturity securities	3,296,013		115,861	3,144,187	35,965
Total AFS fixed income securities						3,715,536		52,153	3,663,383	—
Equity securities	151,382		147,775	—	3,607	192,771		189,871	—	2,900
Total AFS Securities						3,908,307		242,024	3,663,383	2,900
Short-term investments	214,479		214,479	—	—	174,251		174,251	—	—
Receivable for proceeds related to sale of Selective HR	2,705		—	—	2,705
Total assets	$	3,664,579	478,115	3,144,187	42,277
Total assets measured at fair value						$	4,082,558	416,275	3,663,383	2,900


¹	There were no transfers of securities between Level 1 and Level 2.

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~~The following tables provide a summary of the~~There have been no changes in the fair value of securities measured using Level 3 ~~inputs and related quantitative information for the periods ended~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012~~:

prices during First Quarter 2014. The following table provides a summary of these changes during 2013:


September 30, 2013
December 31, 2013
($ in thousands)	Government			Corporate		ABS		CMBS		Equity		Receivable for Proceeds Related to Sale of Selective HR		Total		Government			Corporate			ABS			CMBS			Equity			Receivable for Proceeds Related to Sale of Selective HR Solutions ("Selective HR")			Total
Fair value, December 31, 2012	$	19,789		2,946		6,068		7,162		3,607		2,705		42,277		$	19,789		2,946			6,068			7,162			3,607			2,705			42,277
Total net (losses) gains for the period included in:
OCI¹	(537		)	(7	)	(106	)	681		3,935		—		3,966		(537		)	(7		)	(74		)	772			3,935			—			4,089
Net income^2,3	(76		)	—		—		354		—		(1,480	)	(1,202	)	(76		)	—			—			361			—			(1,480		)	(1,195		)
Purchases	—			—		—		—		—		—		—		—			—			—			—			—			—			—
Sales	—			—		—		—		—		—		—		—			—			—			—			—			—			—
Issuances	—			—		—		—		—		—		—		—			—			—			—			—			—			—
Settlements	(1,847		)	(168	)	—		(1,603	)	—		(225	)	(3,843	)	(1,847		)	(168		)	—			(2,420		)	—			(225		)	(4,660		)
Transfers into Level 3	—			—		—		—		—		—		—		—			—			—			—			—			—			—
Transfers out of Level 3	(17,329		)	(2,771	)	—		(4,985	)	(4,642	)	(1,000	)	(30,727	)	(17,329		)	(2,771		)	(5,994		)	(5,875		)	(4,642		)	(1,000		)	(37,611		)
Fair value, September 30, 2013	$	—		—		5,962		1,609		2,900		—		10,471
Fair value, December 31, 2013																$	—		$	—		$	—		$	—		$	2,900		$	—		$	2,900

¹Amounts are reported in “Unrealized holding (losses) gains ~~(losses)~~ arising during period” on the ~~Unaudited~~ Consolidated Statements of Comprehensive ~~Income.~~Income in our 2013 Annual Report.

²Amounts are reported in “Net realized ~~gains (losses)”~~gains” for realized gains and losses and “Net investment income earned” for amortization of securities on the ~~Unaudited~~ Consolidated Statements of ~~Income.~~Income in our 2013 Annual Report.

³For the receivable related to the sale of Selective HR, amounts in ~~“Loss~~"Loss on disposal of discontinued operations, net of ~~tax”~~tax" relate to an impairment charge and amounts in ~~“Other income”~~"Other income" relate to interest accretion ~~on the Unaudited Consolidated Statements of Income.~~

December 31, 2012
($ in thousands) Government Corporate ABS CMBS Equity
Receivable for
Proceeds
Related to Sale
of Selective HR
Total
Fair value, December 31, 2011 $ 21,741
2,603
—
354
—
3,212
27,910
Total net (losses) gains for the period included in:

OCI¹
(22 ) 185
68
858
—
—
1,089
Net income^2,3
(193 ) —
—
(51 ) —
244
—
Purchases —
—
7,300
5,611
—
—
12,911
Sales —
—
—
—
—
—
—
Issuances —
—
—
—
—
—
—
Settlements (1,737 ) (630 ) —
(624 ) —
(751 ) (3,742 )
Transfers into Level 3 —
788
—
8,247
3,607
—
12,642
Transfers out of Level 3 —
—
(1,300 ) (7,233 ) —
—
(8,533 )
Fair value, December 31, 2012 $ 19,789
2,946
6,068
7,162
3,607
2,705
42,277

¹~~Amounts are reported in “Unrealized holding gains arising during period” on the Consolidated Statements of Comprehensive Income in our~~ ~~2012 Annual Report~~.

²~~Amounts are reported in “Net realized gains (losses)” for realized gains and losses and “Net investment income earned” for amortization for the CMBS securities~~ on the Consolidated Statements of Income in our ~~2012~~2013 Annual Report.

³~~Amounts are reported in “Other income” for the receivable related to the sale of Selective HR on the Consolidated Statements of Income in our~~ ~~2012 Annual Report~~ ~~and are related to interest accretion on the receivable.~~

As discussed in Note 2. "Summary of Significant Accounting Policies," in Item 8. "Financial Statements and Supplementary Data." in our ~~2012~~2013 Annual Report, the fair value of our Level 3 fixed ~~maturity~~income securities is typically obtained through non-binding broker quotes based on unobservable inputs, which we review for reasonableness. AtThere were no fixed income securities measured using Level 3 inputs at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013. However, in 2013, fixed ~~maturity~~income securities with ~~aggregate fair values of~~ ~~$7.6 million~~ ~~and~~ ~~$36.0 million, respectively, were measured using Level 3 inputs primarily due to the availability and nature of the pricing used at the valuation dates.~~

~~During Nine Months 2013, fixed maturity securities with an aggregate~~a fair value of ~~$25.1~~$32.0 million were transferred out of Level 3 ~~due to the availability of Level 2 pricing that was not available previously.~~

~~Table of Contents~~

In ~~2012, fixed maturity securities with a fair value of~~ ~~$9.0 million~~ ~~were transferred into Level 3~~ during the year. These transfers were primarily related to securities that had been previously priced using Level 2 inputs, but due to the availability and nature of the pricing used at the valuation dates, were priced using Level 3 inputs at ~~December 31, 2012. In addition, certain of these transfers related to securities that had previously been classified as HTM, and therefore not measured at fair value, for which available pricing at~~ ~~December 31, 2012~~ ~~used Level 3 inputs. Securities with a fair value of~~ ~~$8.5 million~~ ~~were transferred out of Level 3~~year due to the availability of Level 2 pricing at December 31, ~~2012~~2013 that was not available previously.

Equity securities with fair values of $2.9 million ~~and~~ ~~$3.6 million~~were measured using Level 3 inputs at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013~~, respectively. During 2012, two non-publicly traded~~. An equity ~~securities were transferred into Level 3 due to the nature~~security with a fair value of ~~the quotes used at the valuation date. One of these securities~~$4.6 million was transferred out of Level 3 ~~and into~~during 2013 due to the availability of Level 2 pricing at ~~March 31, 2013, as~~ the ~~pricing as~~date of that date was based on a quoted price in an inactive market. This security was subsequently sold in the second quarter of 2013 for an amount that approximated the March 31, 2013 value. At each reporting date, we review the fair value of the remaining Level 3 security for reasonableness.

At ~~December 31, 2012~~,transfer. In addition, the receivable related to the sale of Selective HR was contingent on the purchaser's ability to retain business subsequent to the sale. At that time, the fair value of this receivable was measured using unobservable inputs, the most significant of which was our assumption regarding the retention of business. In the first quarter ofsettled during 2013 ~~we reached an agreement with the purchaser to settle this receivable for an aggregate of~~ ~~$1.0 million, which was paid in two installments. As~~and as a result ~~the receivable~~ was also transferred out of Level 3. ~~See Note 12. "Discontinued Operations" of this Form 10-Q for a discussion of the impairment charge that was recorded on this receivable in the first quarter of 2013.~~

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The following tables provide quantitative information regarding our financial assets and liabilities that were disclosed at fair value at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:


September 30, 2013			Fair Value Measurements Using
March 31, 2014								Fair Value Measurements Using
($ in thousands)	Assets/ Liabilities Disclosed at Fair Value at 9/30/2013		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Assets/ Liabilities Disclosed at Fair Value at 3/31/2014		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial Assets
HTM:
Foreign government	$	5,565	—	5,565	—	$	5,552	—	5,552	—
Obligations of states and political subdivisions	395,643		—	395,643	—	364,307		—	364,307	—
Corporate securities	31,777		—	31,777	—	24,464		—	24,464	—
ABS	5,911		—	4,854	1,057	3,366		—	3,366	—
CMBS	9,633		—	9,633	—	5,847		—	5,847	—
Total HTM fixed maturity securities	$	448,529	—	447,472	1,057
Total HTM fixed income securities						$	403,536	—	403,536	—
Financial Liabilities
Notes payable:
2.90% borrowings from FHLBI	$	13,392	—	13,392	—	$	13,243	—	13,243	—
1.25% borrowings from FHLBI	45,171		—	45,171	—	45,226		—	45,226	—
7.25% Senior Notes						53,065		—	53,065	—
6.70% Senior Notes	100,200		—	100,200	—	102,810		—	102,810	—
7.25% Senior Notes	51,858		—	51,858	—
5.875% Senior Notes	153,550		153,550	—	—	165,316		165,316	—	—
Total notes payable	$	364,171	153,550	210,621	—	$	379,660	165,316	214,344	—


December 31, 2012			Fair Value Measurements Using
December 31, 2013								Fair Value Measurements Using
($ in thousands)	Assets/ Liabilities Disclosed at Fair Value at 12/31/2012		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Assets/ Liabilities Disclosed at Fair Value at 12/31/2013		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial Assets
HTM:
Foreign government	$	5,871	—	5,871	—	$	5,591	—	5,591	—
Obligations of states and political subdivisions	526,922		—	526,922	—	369,756		—	369,756	—
Corporate securities	42,121		—	37,289	4,832	30,274		—	30,274	—
ABS	7,097		—	5,698	1,399	3,415		—	3,415	—
CMBS	12,650		—	12,650	—	7,945		—	7,945	—
Total HTM fixed maturity securities	$	594,661	—	588,430	6,231
Total HTM fixed income securities						$	416,981	—	416,981	—
Financial Liabilities
Notes payable:
2.90% borrowings from FHLBI	$	13,595	—	13,595	—	$	13,319	—	13,319	—
1.25% borrowings from FHLBI	45,590		—	45,590	—	45,259		—	45,259	—
7.50% Junior Notes	101,480		101,480	—	—
7.25% Senior Notes						50,887		—	50,887	—
6.70% Senior Notes	107,707		107,707	—	—	98,247		—	98,247	—
7.25% Senior Notes	52,689		—	52,689	—
5.875% Senior Notes						146,298		146,298	—	—
Total notes payable	$	321,061	209,187	111,874	—	$	354,010	146,298	207,712	—

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NOTE 7. Reinsurance

The following table contains a listing of direct, assumed, and ceded reinsurance amounts for premiums written, premiums earned, and loss and loss expenses incurred for the periods indicated. For more information concerning reinsurance, refer to Note 8. “Reinsurance” in Item 8. “Financial Statements and Supplementary Data.” of our ~~2012~~2013 Annual Report.


	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended March 31,
($ in thousands)	2013			2012		2013		2012		2014			2013
Premiums written:
Direct	$	570,849		520,943		1,650,855		1,504,429		$	557,891		528,816
Assumed	22,053			17,976		34,913		44,712		7,850			8,482
Ceded	(100,154		)	(88,401	)	(280,719	)	(252,888	)	(88,991		)	(87,174	)
Net	$	492,748		450,518		1,405,049		1,296,253		$	476,750		450,124
Premiums earned:
Direct	$	518,307		474,055		1,516,454		1,389,373		$	536,700		494,066
Assumed	11,066			18,595		32,480		49,683		10,185			12,463
Ceded	(91,805		)	(86,425	)	(264,174	)	(261,790	)	(90,390		)	(85,589	)
Net	$	437,568		406,225		1,284,760		1,177,266		$	456,495		420,940
Loss and loss expense incurred:
Direct	$	350,648		327,883		1,055,248		881,537		$	358,349		365,646
Assumed	7,264			13,970		22,758		35,039		7,479			9,074
Ceded	(74,595		)	(69,602	)	(245,246	)	(103,516	)	(45,282		)	(104,871	)
Net	$	283,317		272,251		832,760		813,060		$	320,546		269,849

The growth in direct premium written ("DPW") for our ten insurance subsidiaries ("Insurance Subsidiaries") in ~~both~~ ~~Third~~First Quarter ~~and Nine Months 2013~~2014 compared to ~~Third~~First Quarter ~~and Nine Months 2012~~ ~~reflects: (i)~~2013 reflects pure price increases and retention that we have achieved in our Standard Insurance ~~Operations; and (ii) strong retention in our Standard Insurance~~ Operations.

Direct premiums earned increases in ~~Third~~First Quarter ~~and Nine Months 2013~~2014 were consistent with the fluctuation in DPW for the twelve-month period ended ~~September 30, 2013~~March 31, 2014 as compared to the twelve-month period ended ~~September 30, 2012~~.March 31, 2013.

~~Assumed premiums written for~~ ~~Nine Months 2013~~ decreased compared to the same period last year as E&S business, which was previously written through a reinsurance fronting agreement, is now written directly by our Insurance Subsidiaries. Decreases in assumed premiums earned in ~~Third Quarter and Nine Months 2013~~ ~~compared to~~ ~~Third Quarter and Nine Months 2012~~ ~~were driven by the E&S premiums.~~

~~Direct loss and loss expense incurred in~~ ~~Nine Months 2013~~ ~~included an increase of approximately~~ ~~$128 million~~ related to flood losses covered under the NFIP for Hurricane Sandy, which occurred in October 2012. Total estimated gross flood losses covered by the Insurance Subsidiaries' WYO policies under the NFIP program for this storm were ~~$1,179 million~~ at ~~September 30, 2013~~ ~~and~~ ~~$1,052 million~~ at ~~December 31, 2012, of which approximately~~ ~~$1,148 million~~ ~~was paid through~~ ~~September 30, 2013~~.

~~As all flood losses are fully ceded under the NFIP, the increase in direct loss and loss expense drives the corresponding increase in our ceded losses.~~

The ceded premiums and losses related to our participation in the NFIP, under which 100% of our flood premiums, losses, and loss expenses are ceded to the NFIP, are as follows:


NFIP	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended March 31,
($ in thousands)	2013			2012		2013		2012		2014			2013
Ceded premiums written	$	(64,196	)	(58,923	)	(183,364	)	(171,172	)	$	(57,303	)	(56,707	)
Ceded premiums earned	(57,920		)	(53,222	)	(169,697	)	(157,895	)	(58,286		)	(55,327	)
Ceded loss and loss expense incurred	(34,879		)	(32,702	)	(162,780	)	(24,534	)	(7,379		)	(76,176	)

2018

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NOTE 8. Segment Information

The disaggregated results of our three operating segments are used by senior management to manage our operations. These segments are evaluated based on the following:

Our Standard Insurance Operations segment and our E&S Insurance Operations segment are evaluated based on statutory underwriting results (net premiums earned, incurred loss and loss expenses, policyholders dividends, policy acquisition costs, and other underwriting expenses), and statutory combined ratios; and

Our Investments segment is evaluated based on after-tax net investment income and net realized gains and losses.

In computing the results of each segment, we do not make adjustments for interest expense or net general corporate ~~expenses, or federal income taxes.~~expenses. While we do not fully allocate taxes to all segments, we do allocate taxes to our investments segment as we manage that segment on after-tax results. We do not maintain separate investment portfolios for the segments and therefore, do not allocate assets to the segments.

In First Quarter 2014, we sold the renewal rights to our $38 million self-insured group, or "SIG," book of business within the Standard Insurance Operations segment. We decided to opportunistically sell this very small and specialized book of pooled business as a significant portion of the business was produced outside of our standard lines footprint, and proved difficult to grow. As this was a renewal rights sale, we will continue to service policies that were in force at the date of the sale. We continue to remain active in the municipal and public school marketplace for individual risks that procure traditional insurance programs rather than pooling arrangements. The proceeds from this sale, which amounted to $8 million, are included in "Miscellaneous income" within the table below as a component of the Standard Insurance Operations revenue.

The following summaries present revenues from continuing operations (net investment income and net realized gains on investments in the case of the Investments segment) and pre-tax income from continuing operations for the individual segments:


Revenue by Segment	Quarter ended September 30,				Nine Months ended September 30,		Quarter ended March 31,
($ in thousands)	2013		2012		2013	2012	2014		2013
Standard Insurance Operations:
Net premiums earned:
Commercial automobile	$	79,138	72,758		230,191	214,782	$	82,216	74,347
Workers compensation	66,510		65,592		197,449	198,064	69,413		66,084
General liability	100,925		93,763		298,394	276,538	108,818		97,703
Commercial property	57,004		52,197		165,356	151,945	60,186		53,415
Businessowners’ policies	19,629		17,749		56,794	51,872	20,869		18,540
Bonds	4,705		4,713		14,244	14,076	4,756		4,764
Other	3,051		2,921		9,036	9,202	3,183		2,992
Total standard Commercial Lines	330,962		309,693		971,464	916,479
Total Standard Commercial Lines							349,441		317,845
Personal automobile	38,513		38,295		115,432	113,648	38,226		38,393
Homeowners	32,374		29,919		95,211	86,685	33,298		31,135
Other	3,827		3,591		10,655	10,037	3,294		3,508
Total standard Personal Lines	74,714		71,805		221,298	210,370
Total Standard Personal Lines							74,818		73,036
Total Standard Insurance Operations net premiums earned	405,676		381,498		1,192,762	1,126,849	424,259		390,881
Miscellaneous income	3,342		1,009		9,590	6,904	9,819		2,720
Total Standard Insurance Operations revenue	409,018		382,507		1,202,352	1,133,753	434,078		393,601
E&S Insurance Operations:
Net premiums earned	31,892		24,727		91,998	50,417	32,236		30,059
Investments:
Net investment income	32,457		30,650		99,330	97,284	35,534		32,870
Net realized investment gains (losses)	13,431		(1,088	)	21,940	3,448
Net realized investment gains							7,218		3,355
Total investment revenues	45,888		29,562		121,270	100,732	42,752		36,225
Total all segments	486,798		436,796		1,415,620	1,284,902	509,066		459,885
Other income	15		76		87	225	5		64
Total revenues from continuing operations	$	486,813	436,872		1,415,707	1,285,127	$	509,071	459,949

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Income from Continuing Operations before Federal Income Tax Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2013 2012 2013 2012
Standard Insurance Operations:

Commercial Lines underwriting gain (loss) $ 8,776
(651 ) 24,621
(14,666 )
Personal Lines underwriting gain 1,362
7,220
4,360
2,903
Total Standard Insurance Operations underwriting gain (loss), before federal income tax 10,138
6,569
28,981
(11,763 )
GAAP combined ratio 97.5 % 98.3
97.6
101.0
Statutory combined ratio 96.0 % 96.9
96.6
100.1

E&S Insurance Operations:
Underwriting gain (loss) 13
(5,708 ) (2,186 ) (15,701 )
GAAP combined ratio 100.0 % 123.1
102.4
131.1
Statutory combined ratio 100.5 % 121.6
101.9
120.3

Investments:

Net investment income 32,457
30,650
99,330
97,284
Net realized investment gains (losses) 13,431
(1,088 ) 21,940
3,448
Total investment income, before federal income tax 45,888
29,562
121,270
100,732

Total all segments 56,039
30,423
148,065
73,268
Interest expense (5,570 ) (4,725 ) (16,971 ) (14,148 )
General corporate and other expenses (5,984 ) (5,384 ) (21,540 ) (16,307 )
Income from continuing operations before federal income tax $ 44,485
20,314
109,554
42,813

~~NOTE 9. Indebtedness~~

~~(a) Notes Payable~~

~~In the first quarter of 2013, we issued~~ ~~$185 million~~ of ~~5.875%~~ Senior Notes due 2043. The Senior Notes pay interest on February 15, May 15, August 15, and November 15 of each year, beginning on May 15, 2013, and at maturity. The notes are callable by us on or after February 8, 2018, at a price equal to 100% of their principal outstanding amount, plus accrued and unpaid interest to, but excluding, the date of redemption. A portion of the proceeds from this debt issuance was used to fully redeem the ~~$100 million~~ ~~aggregate principal amount of our~~ ~~7.5%~~ ~~Junior Subordinated Notes due 2066, which had an associated~~ ~~$3.3 million~~ ~~pre-tax write-off for the remaining capitalized debt issuance costs on these notes. Of the remaining net proceeds,~~ ~~$57.1 million~~ ~~was used to make capital contributions to the Insurance Subsidiaries, while the balance was used for general corporate purposes.~~

~~(b) Short-Term Debt~~

Our line of credit ("Line of Credit") with Wells Fargo Bank, National Association, as administrative agent, and Branch Banking and Trust Company (BB&T), was renewed effective September 26, 2013 with a borrowing capacity of ~~$30 million, which can be increased to~~ ~~$50 million~~ with the approval of both lending partners. The Line of Credit provides the Parent with an additional source of short-term liquidity. The interest rate on our Line of Credit varies and is based on, among other factors, the Parent’s debt ratings. The Line of Credit expires on September 26, 2017. There have been no balances outstanding under this Line of Credit or the previous credit facility at September 30, 2013 or at any time during Nine Months 2013.

The Line of Credit agreement contains representations, warranties, and covenants that are customary for credit facilities of this type, including, without limitation, financial covenants under which we are obligated to maintain a minimum consolidated net worth, minimum combined statutory surplus, and maximum ratio of consolidated debt to total capitalization, as well as covenants limiting our ability to: (i) merge or liquidate; (ii) incur debt or liens; (iii) dispose of assets; (iv) make certain investments and acquisitions; and (v) engage in transactions with affiliates. The Line of Credit permits collateralized borrowings by the two Insurance Subsidiaries domiciled in Indiana ("Indiana Subsidiaries") from the FHLBI so long as the aggregate amount borrowed does not exceed ~~10%~~ ~~of the respective Indiana Subsidiary’s admitted assets from the preceding calendar year.~~

~~Table of Contents~~

~~The table below outlines information regarding certain of the covenants in the Line of Credit:~~



Income from Continuing Operations before Federal Income Tax	Quarter ended March 31,
($ in thousands)	2014			2013
Standard Insurance Operations:
Commercial Lines underwriting (loss) gain	$	(3,630	)	6,102
Personal Lines underwriting (loss) gain	(2,360		)	5,973
Total Standard Insurance Operations underwriting (loss) gain, before federal income tax	(5,990		)	12,075
GAAP combined ratio	101.4		%	96.9	%
Statutory combined ratio	101.1		%	96.8	%

E&S Insurance Operations:
Underwriting gain	975			86
GAAP combined ratio	97.0		%	99.7	%
Statutory combined ratio	97.9		%	98.2	%

Investments:
Net investment income	35,534			32,870
Net realized investment gains	7,218			3,355
Total investment income, before federal income tax	42,752			36,225
Tax on investment income	11,575			9,205
Total investment income, after federal income tax	31,177			27,020



	~~Required as of~~ ~~September 30, 2013~~	~~Actual as of~~ ~~September 30, 2013~~
~~Consolidated net worth~~	~~$785 million~~	~~$1.1 billion~~
~~Statutory surplus~~	~~Not less than $750 million~~	~~$1.2 billion~~
~~Debt-to-capitalization ratio~~¹	~~Not to exceed 35%~~	~~26.0%~~
~~A.M. Best financial strength rating~~	~~Minimum of A-~~	A

¹~~Calculated in accordance with the Line of Credit agreement.~~

~~For additional information related to all our outstanding debt, refer to Note 10. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of our 2012 Annual Report.~~



Reconciliation of Segment Results to Income from Continuing Operations, before Federal Income Tax	Quarter ended March 31,
($ in thousands)	2014			2013
Standard Insurance Operations underwriting (loss) gain, before federal income tax	$	(5,990	)	12,075
E&S Insurance Operations underwriting gain, before federal income tax	975			86
Investment income, before federal income tax	42,752			36,225
Total all segments	37,737			48,386
Interest expense	(5,561		)	(5,831	)
General corporate and other expenses	(7,092		)	(13,687	)
Income from continuing operations, before federal income tax	$	25,084		28,868

NOTE ~~10.~~9. Retirement Plans

The following table shows the net periodic benefit cost related to the Retirement Income Plan for Selective Insurance Company of America (“Retirement Income Plan”) and the ~~Supplemental Excess Retirement Plan (jointly referred~~life insurance benefits provided to eligible Selective Insurance Company of America retirees (referred to as the "Retirement ~~Income~~Life Plan") ~~were amended~~. For more information concerning these plans, refer to Note 15. “Retirement Plans” in ~~the first quarter~~Item 8.“Financial Statements and Supplementary Data.” of our 2013 ~~to curtail the accrual of additional benefits for all employees eligible to participate in the plans after~~ Annual Report.~~March 31, 2016. The curtailment of the plans resulted in a net actuarial gain recognized in OCI of~~ ~~$44.0 million~~ ~~on a pre-tax basis.~~

As a result of the curtailment, the Retirement Income Plan was re-measured as of March 31, 2013. When determining the most appropriate discount rate to be used in the valuation, we considered, among other factors, our expected payout patterns of the Retirement Income Plan's obligations, as well as our investment strategy. We ultimately selected the rate that we believe best represents our estimate of the inherent interest rate at which the Retirement Income Plan's liabilities can be effectively settled. The expected rate of return on plan assets at ~~March 31, 2013~~ ~~remained at~~ ~~7.40%, consistent with our~~ ~~December 31, 2012~~ ~~assumption. For re-measurement, we determined that the most appropriate discount rate was~~ ~~4.66%, up slightly from~~ ~~4.42%~~ ~~determined as of December 31, 2012.~~

~~Eligible employees impacted by the curtailment of the Retirement Income Plan began receiving, on April 5, 2013, an enhanced company contribution to the Selective Insurance Retirement Savings Plan of~~ 4% ~~of base salary, which is the enhanced company contribution currently provided to all employees not eligible to participate in the Retirement Income Plan.~~



	Retirement Income Plan Quarter ended March 31,					Retirement Life Plan Quarter ended March 31,
($ in thousands)	2014			2013		2014	2013
Components of Net Periodic Benefit Cost:

Net Periodic Benefit Cost:
Service cost	$	1,627		2,449		—	—
Interest cost	3,254			3,303		73	70
Expected return on plan assets	(3,919		)	(3,848	)	—	—
Amortization of unrecognized prior service cost	—			10		—	—
Amortization of unrecognized net actuarial loss	367			1,822		13	18
Curtailment expense	—			16		—	—
Total net periodic cost	$	1,329		3,752		86	88

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~~The funded status of the Retirement Income Plan recognized in the Consolidated Balance Sheets as of~~ ~~September 30, 2013, the valuation of which was updated as of March 31, 2013 as a result of the first quarter curtailment discussed above, and~~ ~~December 31, 2012, was as follows:~~

Retirement Income Plan
($ in thousands) September 30, 2013 December 31, 2012
Change in Benefit Obligation:
Benefit obligation, beginning of year $ 302,647
254,009
Service cost 2,449
8,091
Interest cost 3,303
12,981
Actuarial (gain) losses (11,485 ) 33,596
Benefits paid (1,598 ) (6,030 )
Impact of curtailment (29,603 ) —
Benefit obligation, end of period $ 265,713
302,647

Change in Fair Value of Assets:
Fair value of assets, beginning of year $ 207,150
182,614
Actual return on plan assets, net of expenses 6,760
21,896
Contribution by employer to funded plans 2,650
8,550
Contribution by employer to unfunded plans 30
120
Benefits paid (1,598 ) (6,030 )
Fair value of assets, end of period $ 214,992
207,150

Funded status $ (50,721 ) (95,497 )

Amount Recognized in Consolidated Balance Sheet:
Liabilities $ (50,721 ) (95,497 )
Net pension liability, end of period $ (50,721 ) (95,497 )

Amount Recognized in AOCI:
Prior service cost $ —
26
Net actuarial loss 57,543
103,365
Total $ 57,543
103,391

Other Information:
Accumulated benefit obligation $ 257,412
265,899

Weighted-Average Liability Assumptions:
Discount Rate 4.66 % 4.42
Rate of compensation increase 4.00 % 4.00

~~Table of Contents~~

~~The following table shows the cost of the Retirement Income Plan and the life insurance benefit ("Retirement Life Plan") for the quarterly and nine month periods ended~~ ~~September 30, 2013~~ ~~and~~ ~~September 30, 2012~~:



	Retirement Income Plan Quarter ended March 31,			Retirement Life Plan Quarter ended March 31,
	2014		2013	2014		2013
Weighted-Average Expense Assumptions:
Discount rate	5.16	%	4.42	4.85	%	4.42
Expected return on plan assets	6.92		7.40	—		—
Rate of compensation increase	4.00		4.00	—		—

Retirement Income Plan
Quarter ended September 30, Retirement Life Plan
Quarter ended September 30,
($ in thousands) 2013 2012 2013 2012
Components of Net Periodic Benefit Cost and Other Amounts Recognized in OCI:

Net Periodic Benefit Cost:
Service cost $ 1,857
2,154
—
—
Interest cost 3,053
3,230
69
73
Expected return on plan assets (3,986 ) (3,547 ) —
—
Amortization of unrecognized prior service cost —
38
—
—
Amortization of unrecognized net actuarial loss 772
1,383
18
8
Total net periodic cost $ 1,696
3,258
87
81

Other Changes in Plan Assets and Benefit Obligations Recognized in OCI:
Reversal of amortization of net actuarial loss $ (772 ) (1,383 ) (18 ) (8 )
Reversal of amortization of prior service cost —
(38 ) —
—
Total recognized in OCI $ (772 ) (1,421 ) (18 ) (8 )

Total recognized in net periodic benefit cost and OCI $ 924
1,837
69
73

Retirement Income Plan
Nine Months ended September 30, Retirement Life Plan
Nine Months ended September 30,
($ in thousands) 2013 2012 2013 2012
Components of Net Periodic Benefit Cost and Other Amounts Recognized in OCI:

Net Periodic Benefit Cost:
Service cost $ 6,163
6,462
—
—
Interest cost 9,407
9,690
208
221
Expected return on plan assets (11,819 ) (10,641 ) —
—
Amortization of unrecognized prior service cost 10
113
—
—
Amortization of unrecognized net actuarial loss 3,366
4,149
53
23
Curtailment expense 16
—
—
—
Total net periodic cost $ 7,143
9,773
261
244

Other Changes in Plan Assets and Benefit Obligations Recognized in OCI:
Net actuarial gain due to curtailment $ (44,000 ) —
—
—
Reversal of amortization of net actuarial loss (3,366 ) (4,149 ) (53 ) (23 )
Reversal of amortization of prior service cost (10 ) (113 ) —
—
Curtailment expense (16 ) —
—
—
Total recognized in OCI $ (47,392 ) (4,262 ) (53 ) (23 )

Total recognized in net periodic benefit cost and OCI $ (40,249 ) 5,511
208
221

~~The amortization of prior service cost related~~We presently anticipate contributing $9.8 million to the Retirement Income Plan ~~is determined using a straight-line amortization~~in 2014, $2.7 million of ~~the cost over the average remaining service period~~which has been funded as of ~~employees expected to receive benefits under the Retirement Income Plan.~~

~~Table of Contents~~

~~The estimated net actuarial loss for the Retirement Income Plan that will be amortized from AOCI into net periodic benefit cost during the~~ ~~2013~~ ~~fiscal year is~~ ~~$4.1 million~~.

Retirement Income Plan
Nine Months ended September 30, Retirement Life Plan
Nine Months ended September 30,
2013 2012 2013 2012
Weighted-Average Expense Assumptions:
Discount rate 4.66 % 5.16 4.42 % 5.16
Expected return on plan assets 7.40
7.75 —
—
Rate of compensation increase 4.00
4.00 —
—

~~The following table presents future benefit payments expected under the Retirement Income Plan:~~

($ in thousands) Retirement Income Plan
Benefits Expected to be Paid in Future Years
Fiscal Years:
2013 $ 7,586
2014 8,384
2015 9,148
2016 9,942
2017 10,810
2018-2022 67,447

~~For additional information regarding our retirement plans, refer to Note 15. "Retirement Plans" included in Item 8. "Financial Statements and Supplementary Data." of our 2012 Annual Report.~~March 31, 2014.

NOTE ~~11.~~10. Comprehensive Income

The components of comprehensive income, both gross and net of tax, for ~~Third~~First Quarter ~~and Nine Months 2013~~2014 and ~~2012~~2013 are as follows:



First Quarter 2014
($ in thousands)	Gross			Tax		Net
Net income	$	25,084		7,110		17,974
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period	32,964			11,538		21,426
Amounts reclassified into net income:
HTM securities	(456		)	(160	)	(296	)
Realized gains on AFS securities	(7,229		)	(2,530	)	(4,699	)
Net unrealized gains	25,279			8,848		16,431
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	380			133		247
Prior service cost	—			—		—
Defined benefit pension and post-retirement plans	380			133		247
Other comprehensive income	25,659			8,981		16,678
Comprehensive income	$	50,743		16,091		34,652


Third Quarter 2013
First Quarter 2013
($ in thousands)	Gross			Tax		Net		Gross			Tax		Net
Net income	$	44,485		11,832		32,653		$	27,333		6,025		21,308
Components of OCI:
Unrealized losses on investment securities:
Unrealized gains during the period	9,820			3,437		6,383
Unrealized gains on investment securities:
Unrealized holding gains during the period								3,684			1,290		2,394
Non-credit OTTI recognized in OCI								30			10		20
Amounts reclassified into net income:
HTM securities	(472		)	(165	)	(307	)	(717		)	(251	)	(466	)
Non-credit OTTI	1			—		1		7			3		4
Realized gains on AFS securities	(13,516		)	(4,731	)	(8,785	)	(5,976		)	(2,092	)	(3,884	)
Net unrealized losses	(4,167		)	(1,459	)	(2,708	)	(2,972		)	(1,040	)	(1,932	)
Defined benefit pension and post-retirement plans:
Net actuarial losses								44,000			15,400		28,600
Amounts reclassified into net income:
Net actuarial loss	790			277		513		1,840			644		1,196
Prior service cost								10			4		6
Curtailment expense								16			5		11
Defined benefit pension and post-retirement plans	790			277		513		45,866			16,053		29,813
Other comprehensive loss	(3,377		)	(1,182	)	(2,195	)
Other comprehensive income								42,894			15,013		27,881
Comprehensive income	$	41,108		10,650		30,458		$	70,227		21,038		49,189

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Third Quarter 2012
($ in thousands) Gross Tax Net
Net income $ 20,314
2,040
18,274
Components of OCI:

Unrealized gains on investment securities:

Unrealized holding gains during the period 36,620
12,817
23,803
Non-credit OTTI recognized in OCI 2,023
708
1,315
Amounts reclassified into net income:
HTM securities (336 ) (117 ) (219 )
Non-credit OTTI 9
3
6
Realized losses on AFS securities 1,037
363
674
Net unrealized gains 39,353
13,774
25,579
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:

Net actuarial loss 1,391
487
904
Prior service cost 38
14
24
Defined benefit pension and post-retirement plans 1,429
501
928
Other comprehensive income 40,782
14,275
26,507
Comprehensive income $ 61,096
16,315
44,781

Nine Months 2013
($ in thousands) Gross Tax Net
Net income $ 108,019
26,936
81,083
Components of OCI:

Unrealized losses on investment securities:

Unrealized holding losses during the period (77,810 ) (27,234 ) (50,576 )
Non-credit OTTI recognized in OCI 77
27
50
Amounts reclassified into net income:
HTM securities (1,803 ) (631 ) (1,172 )
Non-credit OTTI 14
5
9
Realized gains on AFS securities (24,780 ) (8,673 ) (16,107 )
Net unrealized losses (104,302 ) (36,506 ) (67,796 )
Defined benefit pension and post-retirement plans:

Net actuarial gain 44,000
15,400
28,600
Amounts reclassified into net income:

Net actuarial loss 3,419
1,197
2,222
Prior service cost 10
4
6
Curtailment expense 16
5
11
Defined benefit pension and post-retirement plans 47,445
16,606
30,839
Other comprehensive loss (56,857 ) (19,900 ) (36,957 )
Comprehensive income $ 51,162
7,036
44,126

~~Table of Contents~~

Nine Months 2012
($ in thousands) Gross Tax Net
Net income $ 42,813
6,158
36,655
Components of OCI:

Unrealized gains on investment securities:

Unrealized holding gains during the period 64,273
22,496
41,777
Non-credit OTTI recognized in OCI 2,241
784
1,457
Amounts reclassified into net income:
HTM securities (1,901 ) (665 ) (1,236 )
Non-credit OTTI 272
95
177
Realized gains on AFS securities (3,451 ) (1,208 ) (2,243 )
Net unrealized gains 61,434
21,502
39,932
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:

Net actuarial loss 4,172
1,460
2,712
Prior service cost 113
40
73
Defined benefit pension and post-retirement plans 4,285
1,500
2,785
Other comprehensive income 65,719
23,002
42,717
Comprehensive income $ 108,532
29,160
79,372

The balances of, and changes in, each component of AOCI (net of taxes) as of ~~September 30, 2013~~March 31, 2014 are as follows:


September 30, 2013	Net Unrealized (Loss) Gain on Investment Securities
March 31, 2014														Net Unrealized (Loss) Gain on Investment Securities
($ in thousands)	OTTI Related			HTM Related		All Other		Investments Subtotal		Defined Benefit Pension and Post-Retirement Plans		Total AOCI		OTTI Related			HTM Related		All Other		Investments Subtotal		Defined Benefit Pension and Post-Retirement Plans		Total AOCI
Balance, December 31, 2012	$	(1,658	)	2,594		121,391		122,327		(68,287	)	54,040
Balance, December 31, 2013														$	(1,599	)	1,467		51,635		51,503		(26,652	)	24,851
OCI before reclassifications	50			(103	)	(50,473	)	(50,526	)	28,600		(21,926	)	—			—		21,426		21,426		—		21,426
Amounts reclassified from AOCI	9			(1,172	)	(16,107	)	(17,270	)	2,239		(15,031	)	—			(296	)	(4,699	)	(4,995	)	247		(4,748	)
Net current period OCI	59			(1,275	)	(66,580	)	(67,796	)	30,839		(36,957	)	—			(296	)	16,727		16,431		247		16,678
Balance, September 30, 2013	$	(1,599	)	1,319		54,811		54,531		(37,448	)	17,083
Balance, March 31, 2014														$	(1,599	)	1,171		68,362		67,934		(26,405	)	41,529

~~Table of Contents~~

The reclassifications out of AOCI for ~~Third~~First Quarter ~~and~~ ~~Nine Months 2013~~2014 are as follows:


	Amount Reclassified from AOCI						Affected Line Item in the Unaudited Consolidated Statement of Income
($ in thousands)	Quarter ended September 30, 2013			Nine Months ended September 30, 2013				Quarter ended March 31, 2014			Affected Line Item in the Unaudited Consolidated Statement of Income
OTTI related
Amortization of non-credit OTTI losses on HTM securities
	$	1		14			Net investment income earned
	1			14			Income (loss) from continuing operations, before federal income tax
	—			(5		)	Total federal income tax expense (benefit)
	1			9			Net income
HTM related
Unrealized gains and losses on HTM disposals	(19		)	(170		)	Net realized investment gains
Unrealized losses on HTM disposals								24			Net realized gains
Amortization of net unrealized gains on HTM securities	(453		)	(1,633		)	Net investment income earned	(480		)	Net investment income earned
	(472		)	(1,803		)	Income (loss) from continuing operations, before federal income tax	(456		)	Income from continuing operations, before federal income tax
	165			631			Total federal income tax expense (benefit)	160			Total federal income tax expense
	(307		)	(1,172		)	Net income	(296		)	Net income
Realized gains and losses on AFS
Realized gains and losses on AFS disposals	(13,516		)	(24,780		)	Net realized investments gains
Realized gains on AFS disposals and OTTI								(7,229		)	Net realized gains
	(13,516		)	(24,780		)	Income (loss) from continuing operations, before federal income tax	(7,229		)	Income from continuing operations, before federal income tax
	4,731			8,673			Total federal income tax expense (benefit)	2,530			Total federal income tax expense
	(8,785		)	(16,107		)	Net income	(4,699		)	Net income
Defined benefit pension and post-retirement life plans
Net actuarial loss	159			717			Loss and loss expense incurred	87			Loss and loss expense incurred
	631			2,702			Policy acquisition costs	293			Policy acquisition costs
	790			3,419			Income (loss) from continuing operations, before federal income tax

Prior service cost	—			7			Loss and loss expense incurred
	—			3			Policy acquisition costs
	—			10			Income (loss) from continuing operations, before federal income tax

Curtailment expense	—			16			Policy acquisition costs
	—			16			Income (loss) from continuing operations, before federal income tax

Total defined benefit pension and post-retirement life	790			3,445			Income (loss) from continuing operations, before federal income tax
Total defined benefit pension and post-retirement life plans								380			Income from continuing operations, before federal income tax
	(277		)	(1,206		)	Total federal income tax expense (benefit)	(133		)	Total federal income tax expense
	513			2,239			Net income	247			Net income

Total reclassifications for the period	$	(8,578	)	$	(15,031	)	Net income	$	(4,748	)	Net income

~~Note 12. Discontinued Operations~~

~~In the fourth quarter of 2009, we sold~~ ~~100%~~ of our interest in Selective HR for proceeds to be received over a 10-year period. These proceeds were based on the ability of the purchaser to retain and generate new worksite lives though the independent agents who distribute the products. We settled the remaining receivable for an aggregate of ~~$1.0 million, which was received in two installments during the second quarter of 2013, in full and final settlement of the contingent purchase price. An impairment of~~ ~~$1.5 million~~ ~~was recorded in the first quarter of 2013 and is included in "Loss on disposal of discontinued operations, net of tax" in the Unaudited Consolidated Statements of Income.~~

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Note ~~13.~~11. Litigation

In the ordinary course of conducting business, we are named as defendants in various legal proceedings. Most of these proceedings are claims litigation involving our Insurance Subsidiaries as either: ~~(a)~~(i) liability insurers defending or providing indemnity for third-party claims brought against insureds; or ~~(b)~~(ii) insurers defending first-party coverage claims brought against them. We account for such activity through the establishment of unpaid loss and loss expense reserves. We expect that the ultimate liability, if any, with respect to such ordinary course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to our consolidated financial condition, results of operations, or cash flows.

Our Insurance Subsidiaries are also from time to time involved in other legal actions, some of which assert claims for substantial amounts. These actions include, among others, putative class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance policies. Our Insurance Subsidiaries also are involved from time to time in individual actions in which extra-contractual damages, punitive damages, or penalties are sought, such as claims alleging bad faith in the handling of insurance claims. We believe that we have valid defenses to these cases. We expect that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to our consolidated financial condition. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, an adverse outcome in certain matters could, from time to time, have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

~~Note 14. Commitments and Contingencies~~

At ~~September 30, 2013, we had contractual obligations that expire at various dates through~~ ~~2026~~ ~~to invest up to an additional~~ ~~$58.9 million~~ ~~in alternative and other investments. There is no certainty that all of such additional investments will be required.~~

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In this Quarterly Report on Form 10-Q, we discuss and make statements regarding our intentions, beliefs, current expectations, and projections regarding our company’s future operations and performance. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by words such as “anticipates,” “believes,” “expects,” “will,” “should,” and “intends” and their negatives. We caution prospective investors that such forward-looking statements are not guarantees of future performance. Risks and uncertainties are inherent in our future performance. Factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, those discussed under Item 1A. “Risk Factors” below in Part II “Other ~~Information”.~~Information.” These risk factors may not be exhaustive. We operate in a continually changing business environment and new risk factors emerge from time to time. We can neither predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied in any forward-looking statements in this report. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this report might not occur. We make forward-looking statements based on currently available information and assume no obligation to update these statements due to changes in underlying factors, new information, future developments, or otherwise.

Introduction

We classify our business into three operating segments:

Our Standard Insurance Operations -segment, which is comprised of both commercial lines ("Commercial Lines") and personal lines ("Personal Lines") business, sells property and casualty insurance products and services ~~that are sold~~ in the standard ~~marketplace;~~market, including flood insurance through the National Flood Insurance Program's ("NFIPs") write-your-own ("WYO") program;

~~Excess and Surplus ("~~Our E~~&S")~~&S Insurance Operations ~~- comprised of~~segment sells Commercial Lines property and casualty insurance products and services ~~that are unavailable~~to insureds who have not obtained coverage in the standard ~~market due to market conditions or characteristics of the insured that are caused by the insured's claim history or the characteristics of their business;~~market; and

Our Investments -segment, which invests the premiums collected by our Standard and E&S Insurance Operations ~~as well as~~and amounts generated through our capital management strategies, which may include the issuance of debt and equity securities.

Our Standard Insurance Operations products and services are sold through nine subsidiaries that write Commercial Lines and Personal Lines business, some of which write flood business through the ~~National Flood Insurance Program's ("NFIP") write-your-own ("WYO")~~NFIP's WYO program. Two of these subsidiaries, Selective Casualty Insurance Company ("SCIC") and Selective Fire and Casualty Insurance Company ("SFCIC"), were created in 2012. These subsidiaries began writing direct premium in 2013 and have been included in our reinsurance pooling agreement as of July 1, 2012.

Our E&S Insurance Operations products and services are sold through ~~a subsidiary that was acquired in December 2011.~~one subsidiary. This subsidiary, Mesa Underwriters Specialty Insurance Company ("MUSIC"), provides us with a nationally-authorized non-admitted platform to write commercial and personal E&S lines business. For additional information regarding our E&S acquisitions, refer to Note 12. “Business Combinations” in Item 8. “Financial Statements and Supplementary Data.” contained in our Annual Report on Form 10-K for the year ended December 31, 2012 ("2012 Annual Report").

Our ten insurance subsidiaries are collectively referred to as the "Insurance ~~Subsidiaries".~~Subsidiaries."

The purpose of Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of the consolidated results of operations and financial condition and known trends and uncertainties that may have a material impact in future periods. Consequently, investors should read the MD&A in conjunction with the consolidated financial statements in our ~~2012~~2013 Annual ~~Report.~~Report filed with the U.S. Securities and Exchange Commission ("SEC").

In the MD&A, we will discuss and analyze the following:

Critical Accounting Policies and Estimates;

Financial Highlights of Results for ~~the~~ ~~third~~ ~~quarters ended~~ ~~September 30, 2013~~ (“~~Third~~First Quarter ~~2013~~”)2014 and ~~September 30, 2012~~ (“~~Third~~First Quarter ~~2012”) and the nine-month periods ended~~ ~~September 30, 2013~~ ("~~Nine Months 2013") and~~ ~~September 30, 2012~~ ("~~Nine Months 2012");~~

2013;

Results of Operations and Related Information by Segment;

Federal Income Taxes;

Financial Condition, Liquidity, Short-term Borrowings, and Capital Resources;

Ratings;

Off-Balance Sheet Arrangements; and

Contractual Obligations, Contingent Liabilities, and Commitments.

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Critical Accounting Policies and Estimates

These unaudited interim consolidated financial statements include amounts based on our informed estimates and judgments for those transactions that are not yet complete. Such estimates and judgments affect the reported amounts in the consolidated financial statements. Those estimates and judgments most critical to the preparation of the consolidated financial statements involve the following: (i) reserves for loss and loss expenses; (ii) ~~deferred policy acquisition costs; (iii)~~ pension and post-retirement benefit plan actuarial assumptions; ~~(iv)~~(iii) other-than-temporary investment impairments; and ~~(v)~~(iv) reinsurance. These estimates and judgments require the use of assumptions about matters that are highly uncertain and, therefore, are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements. For additional information regarding our critical accounting policies, refer to our ~~2012~~2013 Annual Report, pages 44 through 53. However, for changes related to actuarial assumptions used in the measurement of the Retirement Income Plan for Selective Insurance Company of America and the Supplemental Excess Retirement Plan (jointly referred to as the "Retirement Income Plan"), see Note 10. "Retirement Plans" of this Form 10-Q.52.

Financial Highlights of Results for ~~Third~~First Quarter ~~2013~~2014and ~~Nine Months~~First Quarter 2013¹


	Quarter ended September 30,							Nine Months ended September 30,						Quarter ended March 31,
($ and shares in thousands, except per share amounts)	2013			2012	Change % or Points			2013		2012	Change % or Points			2014			2013	Change % or Points
Generally Accepted Accounting Principles ("GAAP") measures:
Revenues	$	486,813		436,872	11		%	1,415,707		1,285,127	10		%	$	509,071		459,949	11		%
Pre-tax net investment income	32,457			30,650	6			99,330		97,284	2			35,534			32,870	8
Pre-tax net income	44,485			20,314	119			108,019		42,813	152			25,084			27,333	(8	)
Net income	32,653			18,274	79			81,083		36,655	121			17,974			21,308	(16	)
Diluted net income per share	0.57			0.33	73			1.43		0.66	117			0.31			0.38	(18	)
Diluted weighted-average outstanding shares	56,900			55,862	2			56,719		55,717	2			57,172			56,455	1
GAAP combined ratio	97.7		%	99.8	(2.1	)	pts	97.9		102.3	(4.4	)	pts	101.1		%	97.1	4.0		pts
Statutory combined ratio²	96.3		%	98.4	(2.1	)		96.9		101.2	(4.3	)		100.8		%	96.8	4.0
Return on average equity	11.7		%	6.6	5.1			9.8		4.5	5.3			6.1		%	7.7	(1.6	)
Non-GAAP measures:
Operating income³	$	23,922		18,982	26		%	$	67,819	34,414	97		%	$	13,283		20,124	(34	)	%
Diluted operating income per share³	0.42			0.34	24			1.20		0.62	94			0.23			0.36	(36	)
Operating return on average equity³	8.6		%	6.9	1.7		pts	8.2		4.2	4.0		pts	4.5		%	7.2	(2.7	)	pts


¹	Refer to the Glossary of Terms attached to our ~~2012~~2013 Annual Report as Exhibit 99.1 for definitions of terms used in this Form 10-Q.


²	~~Nine Months~~The statutory combined ratio for First Quarter 2013 ~~includes~~ ~~0.4~~included 1.3 points related to the Retirement Income Plan amendments that ~~curtail~~curtailed the accrual of additional benefits for all eligible employees participating in the plans after March 31, 2016.

Operating income is used as an important financial measure by us, analysts, and investors, because the realization of investment gains and losses on sales in any given period is largely discretionary as to timing. In addition, these realized investment gains and losses, as well as other-than-temporary impairments (“OTTI”) that are charged to earnings and the results of discontinued operations, could distort the analysis of trends. See below for a reconciliation of operating income to net income in accordance with GAAP. Operating return on average equity is calculated by dividing annualized operating income by average stockholders’ equity.

The following table reconciles operating income and net income for the periods presented above:


	Quarter ended September 30,				Nine Months ended September 30,			Quarter ended March 31,
($ in thousands, except per share amounts)	2013		2012		2013		2012	2014		2013
Operating income	$	23,922	18,982		67,819		34,414	$	13,283	20,124
Net realized gains (losses), net of tax	8,731		(708	)	14,261		2,241
Net realized gains, net of tax								4,691		2,181
Loss on disposal of discontinued operations, net of tax	—		—		(997	)	—	—		(997	)
Net income	$	32,653	18,274		81,083		36,655	$	17,974	21,308

Diluted operating income per share	$	0.42	0.34		1.20		0.62	$	0.23	0.36
Diluted net realized gains (losses) per share	0.15		(0.01	)	0.25		0.04
Diluted net realized gains per share								0.08		0.04
Diluted net loss from disposal of discontinued operations per share	—		—		(0.02	)	—	—		(0.02	)
Diluted net income per share	$	0.57	0.33		1.43		0.66	$	0.31	0.38

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Over the long term, we target a return on average equity that is three points higher than our ~~historic~~ cost of capital, ~~of approximately 9%~~or 12%, excluding the impact of realized gains and losses, which is referred to as operating return on average equity. Our operating return on average equity was ~~8.6%~~4.5% in ~~Third~~First Quarter ~~2013~~2014 compared to ~~6.9%~~7.2% in ~~Third~~First Quarter ~~2012. For Nine Months 2013 and Nine Months 2012, our operating return on average equity was~~ ~~8.2%~~ ~~and~~ ~~4.2%, respectively.~~2013. Our operating return on average equity contribution by component is as follows:


Operating Return on Average Equity	Quarter ended September 30,				Nine Months ended September 30,				Quarter ended March 31,
	2013		2012		2013		2012		2014		2013
Insurance Operations	2.4	%	0.2		2.1		(2.2	)
Standard Insurance Operations									(1.3	)%	2.8	%
E&S Insurance Operations									0.2	%	—
Investments	8.8		8.5		9.0		9.0		9.1	%	8.9	%
Other	(2.6	)	(1.8	)	(2.9	)	(2.6	)	(3.5	)%	(4.5	)%
Total	8.6		6.9		8.2		4.2		4.5	%	7.2	%

~~Improvements~~Our operating return on average equity in First Quarter 2014 reflects a higher GAAP combined ratio of 101.1% compared to 97.1% in First Quarter 2013. Extreme winter weather was a significant driver of our First Quarter 2014 results. Information concerning these property losses, as well as other variances are as follows:

Catastrophe losses for First Quarter 2014 were $34 million, or 7.5 points, compared to $1.6 million, or 0.4 points, in First Quarter 2013. The majority of these catastrophe losses were attributed to weather events defined by Insurance Services Office property claims service ("PCS") as CATs 31 and 32 in January, which brought freezing temperatures and snowstorms to our 22-state standard lines footprint.

Non-catastrophe property losses in First Quarter 2014 that were at one of the highest levels that we have experienced in recent years. The impact varied by line but, for both standard lines and E&S, non-catastrophe property losses for First Quarter 2014 were approximately $91 million, or 20 points, on our total combined ratio. This was about 5 points higher than First Quarter 2013 and 6 points higher than the non-catastrophe property loss quarterly average over the last three-year period. These non-catastrophe property losses were primarily the result of roof collapses, frozen pipes, and fires which were often related to the extreme weather experienced throughout our footprint states.

Partially offsetting these losses were:

Renewal pure price increases of 7.6% that we achieved in full-year 2013, which are currently earning in at about 7.3%. This earned rate is above the loss cost trend of approximately 3%. After taking into account the incremental expenses associated with the additional premium, the net benefit to the combined ratio is about 2.5 points.

Favorable prior year casualty development in First Quarter 2014 that was $14 million, or 3.1 points, compared to favorable prior year casualty development of $2 million, or 0.4 points, in First Quarter 2013. We experienced stable workers compensation trends in the quarter with no development either favorable or unfavorable. The level of releases in First Quarter 2014 was driven by improving claim trends within our general liability line of business for the 2009 through 2012 accident years.

$8 million, or 1.8 points, in other income for the March 2014 sale of the renewal rights to our self-insured group, or "SIG," book of pooled public entity business. Although we did not solicit buyers, we decided to sell this very small and specialized book of business when the opportunity presented itself because it had significant production outside of our standard lines footprint, and proved difficult to grow. We, however, have retained our substantial individual risk public entity book of business and we will continue to look for opportunities to grow it.

The remaining fluctuation in our operating return on average equity ~~generated from our Insurance Subsidiaries reflect increases in underwriting profitability of $9.3~~ ~~million in~~was driven by reduced corporate expenses that included the ~~quarter and $54.3~~ ~~million in~~following: (i) the ~~year-to-date period. These fluctuations were driven primarily by: (i) higher underwriting profitability in our Standard Insurance Operations of $3.6~~ ~~million and $40.7~~ ~~million, respectively, reflecting the impact of earning renewal pure price increases, which exceeded loss costs trends over the past year~~; ~~and (ii) improvements in our E&S Insurance Operations of $5.7~~ ~~million and $13.5~~ million, respectively. E&S operations were primarily affected by: (i) earned premiums that now reflect the full operations of this business following the acquisition in 2011; (ii) renewal pure price increases; and (iii) a decrease in initial start-up expenditures.

~~Our investment segment's contribution to operating return on equity was relatively consistent both in Third~~First Quarter ~~and Nine Months~~ 2013 compared to the same periods last year. Higher income from our alternative investments was partially offset by lower income on our fixed maturity securities portfolio. This portfolio has been negatively impacted by the interest rate environment, which has lowered reinvestment yields when comparing periods.

The operating return on average equity generated by our Insurance Subsidiaries and our Investments segment was partially offset by: (i) long-term compensation to our employees, which increases as our stock price improves; (ii) interest expense on our issued debt; and (iii) the first quarter of 2013 write-off of unamortized debt costs related to the redemption of our ~~7.5%~~previously outstanding 7.50% Junior Subordinated ~~Notes.~~

Notes due 2066, that resulted in capitalized debt issue costs of $3.3 million, pre-tax, being charged to expense; and (ii) reduced long-term employee compensation expense associated with changes in our stock price. These items are captured within the "Other" component in the table above.

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The following table provides a quantitative foundation for analyzing our overall Insurance ~~Subsidiaries~~Subsidiaries' underwriting results:


All Lines		Quarter ended September 30,							Nine Months ended September 30,							Quarter ended March 31,
($ in thousands)		2013			2012	Change % or Points			2013	2012		Change % or Points				2014				2013	Change % or Points
GAAP Insurance Operations Results:	GAAP Insurance Operations Results:														GAAP Insurance Operations Results:
Net premiums written ("NPW")		$	492,748		450,518	9		%	1,405,049	1,296,253		8		%		$	476,750			450,124	6		%
Net premiums earned (“NPE”)		437,568			406,225	8			1,284,760	1,177,266		9				456,495				420,940	8
Less:
Loss and loss expense incurred		283,317			272,251	4			832,760	813,060		2				320,546				269,849	19
Net underwriting expenses incurred		142,774			132,428	8			421,812	388,841		8				139,726				137,844	1
Dividends to policyholders		1,326			685	94			3,393	2,829		20				1,238				1,086	14
Underwriting gain (loss)		$	10,151		861	1,079		%	26,795	(27,464	)	198		%
Underwriting (loss) gain																$	(5,015	)		12,161	(141	)	%
GAAP Ratios:
Loss and loss expense ratio		64.7		%	67.0	(2.3	)	pts	64.8	69.1		(4.3	)	pts		70.2			%	64.1	6.1		pts
Underwriting expense ratio		32.7			32.6	0.1			32.8	33.0		(0.2	)			30.6				32.7	(2.1	)
Dividends to policyholders ratio		0.3			0.2	0.1			0.3	0.2		0.1				0.3				0.3	—
Combined ratio		97.7			99.8	(2.1	)		97.9	102.3		(4.4	)			101.1				97.1	4.0
Statutory Ratios:
Loss and loss expense ratio		64.7			66.9	(2.2	)		64.8	69.0		(4.2	)
Underwriting expense ratio		31.3			31.3	—			31.8	32.0		(0.2	)
Loss and loss expense ratio¹																70.2				64.1	6.1
Underwriting expense ratio¹																30.3				32.4	(2.1	)
Dividends to policyholders ratio		0.3			0.2	0.1			0.3	0.2		0.1				0.3				0.3	—
Combined ratio		96.3		%	98.4	(2.1	)	pts	96.9	101.2		(4.3	)	pts
Combined ratio¹																100.8			%	96.8	4.0		pts

¹ Statutory ratios for First Quarter 2013 included 0.3 points in the loss and loss expense ratio, 1.0 points in the underwriting ratio, and 1.3 points in the combined ratio related to the Retirement Income Plan amendments that curtailed the accrual of additional benefits for all eligible employees participating in the plans after March 31, 2016.

The growth in NPW for our Insurance Subsidiaries in ~~Third~~First Quarter ~~2013~~ ~~and~~ ~~Nine Months 2013~~2014 compared to ~~the prior year periods reflects the following~~First Quarter 2013 was primarily driven by renewal pure price increases and strong retention in our Standard Commercial Lines Insurance ~~Operations: (i) renewal pure price increases; (ii) strong retention; and (iii) new business.~~Operations.

NPE increases in ~~Third~~First Quarter ~~2013~~ ~~and~~ ~~Nine Months 2013~~2014 were consistent with the fluctuations in NPW for the twelve-month period ended ~~September 30, 2013~~March 31, 2014 compared to the twelve-month period ended ~~September 30, 2012.~~March 31, 2013.

The combined ratio improved for both the quarterly and year-to-date periods. This improvement was driven by renewal pure price increases that are exceeding loss trends in our Standard Insurance Operations. In addition, the improvementincrease in the combined ~~ratios in~~ ~~Third~~ratio for First Quarter ~~2013~~ ~~and~~ ~~Nine Months 2013~~2014 was ~~also~~primarily driven by property results that were impacted by extreme winter weather. For a discussion on these property losses as well as other variances, see the following in our E&S Insurance Operations: (i) earned premiums that now reflect the full operations of this business; (ii) underwriting improvements, including renewal pure price increases; and (iii) a decrease in initial start-up expenditures and acquisition costs.discussion above.

Outlook

In their ~~2012~~2013 year-end review, dated February 4, 2014, A.M. Best and Company ("A.M. Best") projected an industry combined ratio of ~~101.2%~~99.4% for ~~2013. However, continued improvements~~2014. Their report cited: "In looking ahead to 2014, A.M. Best expects premiums to continue growing through price increases, but the pace of these rate changes are expected to slow and temper growth in premium." Underwriting results should improve slightly on the pricing environment, coupled with modest exposure growth from the slowly improving economy, and underwriting actions taken to insulate balance sheets against further impact from the challenging investment environment, produced an underwriting profit for the industry through the first six monthsrate level achieved in recent years, although less favorable development of ~~2013 with~~prior years’ loss reserves is anticipated. In addition, a ~~combined ratio of 96.5%.~~

~~Reflecting the improved results, Selective now expects to generate a 2013 full year statutory combined ratio of approximately 95.5%, excluding 2.5 points~~more normal level of catastrophe losses ~~a net improvement of one point from previously issued guidance. This assumes no prior year casualty reserve development in~~could increase combined ratios by almost 200 basis points, and the ~~fourth quarter. In addition, investment income~~industry will ~~be approximately $95 - $100 million, after tax, and weighted average shares at year end 2013 are anticipated~~continue to be ~~approximately 57 million.~~

~~In addition, we expect our E&S Insurance Operations~~challenged by the relatively low investment yields that are expected to produce a combined ratio between 100% and 102% for 2013, and be at profitability levels similar to our Standard Insurance Operations in 2014. We also expect to achieve an overall statutory combined ratiopersist through 2014, as well as the slow recovery from the recession of ~~92% by year-end 2014, excluding three points of expected catastrophe losses. Our Insurance Subsidiaries reported a statutory combined ratio, excluding catastrophe losses, of~~ ~~93.6%~~ ~~for~~ ~~Third Quarter 2013~~ ~~and~~ ~~94.3%~~ ~~for~~ ~~Nine Months 2013~~.2007 through 2009.

~~A key component of meeting our combined ratio targets is our ability to generate Commercial Lines renewal pure price increases in excess of our predicted loss trends.~~ Although A.M. Best is ~~maintaining~~continuing to maintain its negative outlook for the commercial lines market reflecting "the uncertainty around loss-reserve development and continued low profit margins driven by low investment yields," it ~~does anticipate~~anticipates a 99.9% statutory combined ratio driven by: (i) a more normal level of catastrophe losses; (ii) less favorable loss-reserve development; and (iii) loss trends that ~~sustained~~are partially offset by lower pricing. For personal lines, A.M. Best maintains a stable outlook in the coming year reflecting ongoing stability of the auto line and successful carriers continuing to enhance the granularity of their home pricing ~~momentum~~models. Standard & Poor's ("S&P"), while maintaining a stable outlook on the property and casualty industry, believes that "rate increases will ~~continue~~lose steam and fail to outpace loss cost trends" in ~~2013. We achieved~~2014.

In early 2012, we laid out a three-year plan to achieve overall annual renewal pure price increases of 5% to 8%. Our expectation for full-year 2014 is 6% to 7%, and we achieved 6.4% in First Quarter 2014. In addition, we are revising our previously disclosed expectations for our Standard Personal Lines and our E&S Lines as we are currently expecting this business, as well as our Standard Commercial Lines business, to each achieve renewal pure price increases of 6% to 7% for

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full-year 2014. In our Standard Commercial Lines, we have achieved renewal pure price increases for 20 consecutive quarters, including 6.4% for First Quarter 2014, 7.6% for full-year 2013, and 6.3% for full-year 2012. The 7.6% renewal pure price increase in 2013 translated into earned price increases of ~~7.6% for standard Commercial~~7.3% in First Quarter 2014 which is above loss cost trends of approximately 3%. The 6% to 7% overall renewal pure price increases that we expect to achieve in 2014 are also above loss cost trends, and will continue to add to profitability in 2015. Furthermore in First Quarter 2014, we achieved renewal pure price increases of 6.8% in our Standard Personal Lines, and ~~8.0% for standard Personal Lines~~4.1% in ~~Nine Months 2013. While these increases demonstrate the overall strength of the relationships that we have with~~ our ~~independent retail agents, even in difficult economic and competitive times, we are expecting overall price increases in 2014 will be between 6% and 7.5%.~~E&S Lines.

~~Although interest rates~~Our First Quarter 2014 statutory combined ratio, excluding catastrophes, was 93.3%, which is in line with our stated full-year 2014 goal of 92%. The catastrophe losses in First Quarter 2014 of $34 million added 7.5 points to our statutory combined ratio, compared to our full-year catastrophe loss expectation of four points. This increased level of catastrophe losses was related to extreme winter weather, primarily driven by weather events defined by PCS as CATs 31 and 32 in January.

The yield on the 10-year U.S. Treasury ~~Note rose~~Notes fell by 8531 basis points ~~during Nine Months 2013, they are still low by historical standards.~~in First Quarter 2014. The continued low interest rate environment has several significant impacts on our business, some of which are beneficial and some of which present a challenge to us. The benefits include lower inflation rates that suppress loss trends, as well as reduce our cost of capital. However, the ~~low~~ interest rate environment presents a significant challenge in generating after-tax ~~returns~~return on our investment portfolio as fixed ~~maturity~~income securities mature and money is re-invested at lower rates. ~~Even if~~Because maturing and called bonds generally carry a higher book yield than is available in the current ~~interest rate levels were~~market, we expect the yield on the overall investment portfolio to ~~increase by 50 basis~~continue to decline, albeit at a less significant pace than we have been experiencing.

In 2014, we expect to generate:

A full-year combined ratio of 92% excluding catastrophe losses and assuming no additional prior year casualty reserve development;

Four points ~~per year~~of catastrophe losses for the ~~next few years, book yields on our overall portfolio would continue to underperform 2012 book yield levels until~~year;

After-tax investment income of approximately ~~2017.~~$100 million; and

Weighted-average shares of approximately 57.4 million.

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Results of Operations and Related Information by Segment

Insurance Operations

Standard Insurance Operations

Our Standard Insurance Operations segment, which represents 93% of our combined insurance operations NPW, sells insurance products and services primarily in 22 states in the Eastern and Midwestern U.S. and the District of Columbia, through approximately 1,100 independent retail insurance agencies. This segment consists of two components: (i) Commercial Lines, which markets primarily to businesses and represents approximately ~~82%~~83% of the segment's NPW; and (ii) Personal Lines, including our flood business, which markets primarily to individuals and represents approximately ~~18%~~17% of the segment's NPW.


	Quarter ended September 30,							Nine Months ended September 30,						Quarter ended March 31,
($ in thousands)	2013			2012	Change % or Points			2013	2012		Change % or Points			2014				2013	Change % or Points
GAAP Insurance Operations Results:
NPW	$	457,173		420,754	9		%	1,308,428	1,212,355		8		%	$	446,688			421,744	6		%
NPE	405,676			381,498	6			1,192,762	1,126,849		6			424,259				390,881	9
Less:
Loss and loss expense incurred	262,697			251,694	4			771,948	772,430		—			300,666				250,731	20
Net underwriting expenses incurred	131,515			122,550	7			388,440	363,353		7			128,345				126,989	1
Dividends to policyholders	1,326			685	94			3,393	2,829		20			1,238				1,086	14
Underwriting gain (loss)	$	10,138		6,569	54		%	28,981	(11,763	)	346		%
Underwriting (loss) gain														$	(5,990	)		12,075	(150	)	%
GAAP Ratios:
Loss and loss expense ratio	64.8		%	66.0	(1.2	)	pts	64.7	68.5		(3.8	)	pts	70.9			%	64.1	6.8		pts
Underwriting expense ratio	32.4			32.1	0.3			32.6	32.2		0.4			30.2				32.5	(2.3	)
Dividends to policyholders ratio	0.3			0.2	0.1			0.3	0.3		—			0.3				0.3	—
Combined ratio	97.5			98.3	(0.8	)		97.6	101.0		(3.4	)		101.4				96.9	4.5
Statutory Ratios:
Loss and loss expense ratio¹	64.7			65.9	(1.2	)		64.7	68.6		(3.9	)		70.9				64.2	6.7
Underwriting expense ratio¹	31.0			30.8	0.2			31.6	31.2		0.4			29.9				32.3	(2.4	)
Dividends to policyholders ratio	0.3			0.2	0.1			0.3	0.3		—			0.3				0.3	—
Combined ratio¹	96.0		%	96.9	(0.9	)	pts	96.6	100.1		(3.5	)	pts	101.1			%	96.8	4.3		pts

~~Nine Months~~Statutory ratios for First Quarter 2013 ~~includes 0.2~~ included 0.3 points in the loss and loss expense ratio, ~~0.3~~1.1 points in the underwriting ~~expense~~ ratio, and ~~0.5~~1.4 points in the combined ratio related to the Retirement Income Plan amendments ~~recorded in the first quarter of 2013~~ that ~~curtail the accrual of additional benefits for all eligible employees participating in the plans after March 31, 2016.~~

~~The improvements in NPW in Third Quarter and Nine Months 2013 compared to Third Quarter and Nine Months 2012 are primarily the result of the following:~~

Quarter ended September 30, 2013 Quarter ended September 30, 2012
($ in millions) Renewal Pure Price Increase Retention Renewal Pure Price Increase Retention
Standard Commercial Lines 7.9 % 83 % 6.6 83
Standard Personal Lines 7.5 86 6.9 87

Nine Months ended September 30, 2013 Nine Months ended September 30, 2012
($ in millions) Renewal Pure Price Increase Retention Renewal Pure Price Increase Retention
Standard Commercial Lines 7.6 % 82 % 6.0 82
Standard Personal Lines 8.0 86 6.1 86

~~In addition, new business was up $15.8 million, or 23%, in Third Quarter 2013 and $25.3 million, or 11%, in Nine Months 2013 mainly driven by our standard Commercial Lines operations.~~

~~Table of Contents~~

~~NPE increases in~~ ~~Third Quarter~~ ~~and~~ ~~Nine Months 2013~~ ~~were consistent with the fluctuations in NPW for the twelve-month period ended~~ ~~September 30, 2013~~ ~~as compared to the twelve-month period ended~~ ~~September 30, 2012~~.

~~The GAAP loss and loss expense ratio improved 1.2 points in~~ ~~Third Quarter 2013~~ ~~and 3.8 points in~~ ~~Nine Months 2013~~ compared to the same periods a year ago. The improvement in the ratio reflects the earning of Standard Insurance Operations renewal pure price increases that averaged 6.3% in 2012 and 7.7% in Nine Months 2013, both of which exceed our projected loss trend of 3%. In addition, the following variances are included in the GAAP loss and loss expense ratio:

Quarter ended September 30, 2013 Quarter ended September 30, 2012
($ in millions) Loss and Loss Expense Incurred
Impact on
Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses $ 10.9
2.7 pts 8.6
2.3 pts 0.4
Non-catastrophe property losses 54.8
13.5 53.3
14.0 (0.5 )
Favorable prior year casualty reserve development 3.5
0.8 7.0
1.8 1.0

Nine Months ended September 30, 2013 Nine Months ended September 30, 2012
($ in millions) Loss and Loss Expense Incurred
Impact on
Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses $ 29.3
2.5 pts 45.5
4.0 pts (1.5 )
Non-catastrophe property losses 165.7
13.9 161.8
14.4 (0.5 )
Favorable prior year casualty reserve development 9.5
0.8 15.0
1.3 0.5

~~The breakdown of favorable prior year casualty reserve development by line of business for the periods indicated is as follows:~~

Favorable/(Unfavorable) Prior Year Casualty Reserve Development Quarter ended September 30, Nine Months ended September 30,
($ in millions) 2013 2012 2013 2012
General liability $ 3.0
—
12.0
—

Commercial automobile —
2.0
—
4.5

Workers compensation (3.5 ) —
(14.0 ) —

Businessowners' policies 2.0
2.5
8.0
6.0

Homeowners 1.0
2.0
2.5
5.0

Personal automobile 1.0
0.5
1.0
(0.5 )
Total favorable prior year casualty reserve development $ 3.5
7.0
9.5
15.0

Favorable impact on loss ratio 0.8
pts 1.8
pts. 0.8
pts. 1.3
pts.

~~Table of Contents~~

~~Review of Underwriting Results by Line of Business~~

Standard Commercial Lines
Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2013 2012
Change
% or
Points
2013 2012
Change
% or
Points

GAAP Insurance Operations Results:

NPW $ 376,373
341,318
10
% 1,080,213
990,568
9
%
NPE 330,962
309,693
7
971,464
916,479
6

Less:

Loss and loss expense incurred 209,771
206,974
1
614,226
622,102
(1 )
Net underwriting expenses incurred 111,089
102,685
8
329,224
306,214
8

Dividends to policyholders 1,326
685
94
3,393
2,829
20

Underwriting gain (loss) $ 8,776
(651 ) 1,448
% 24,621
(14,666 ) 268
%
GAAP Ratios:

Loss and loss expense ratio 63.4
% 66.8
(3.4 ) pts 63.2
67.9
(4.7 ) pts
Underwriting expense ratio 33.5
33.2
0.3
34.0
33.4
0.6

Dividends to policyholders ratio 0.4
0.2
0.2
0.3
0.3
—

Combined ratio 97.3
100.2
(2.9 ) 97.5
101.6
(4.1 )
Statutory Ratios:

Loss and loss expense ratio¹
63.3
66.7
(3.4 ) 63.2
67.9
(4.7 )
Underwriting expense ratio¹
31.9
31.9
—
32.7
32.3
0.4

Dividends to policyholders ratio¹
0.4
0.2
0.2
0.3
0.3
—

Combined ratio 95.6
% 98.8
(3.2 ) pts 96.2
100.5
(4.3 ) pts


¹	Nine Months 2013 includes 0.1 points in the loss and loss expense ratio, 0.4 points in the underwriting expense ratio, and 0.5 points in the combined ratio related to the Retirement Income Plan amendments recorded in the first quarter of 2013 that curtailcurtailed the accrual of additional benefits for all eligible employees participating in the plans after March 31, 2016.

The ~~increase~~improvements in NPW in ~~Third~~First Quarter ~~and~~ ~~Nine Months 2013~~ 2014 compared to ~~Third~~First Quarter ~~and~~ ~~Nine Months 2012~~ ~~is primarily the result of~~ 2013 include the following:

Quarter ended September 30, Nine Months ended September 30,
($ in millions) 2013 2012 2013 2012
Retention 83
% 83
82
82
Renewal pure price increases 7.9
6.6
7.6
6.0
New business $ 74.9
56.1
217.3
184.6



	Quarter ended March 31, 2014				Quarter ended March 31, 2013
($ in millions)	Renewal Pure Price Increase		Retention		Renewal Pure Price Increase		Retention
Standard Commercial Lines	6.4	%	84	%	7.5	%	83	%
Standard Personal Lines	6.8		82		8.5		87

The decrease in the Standard Personal Lines retention was driven by targeted actions that we have taken to reduce our exposure to certain coverages that have historically been less profitable for us. Excluding the impact of these targeted actions, retention remains strong and comparable to last year.

NPE increases in ~~Third~~First Quarter ~~and~~ ~~Nine Months 2013~~ 2014 were consistent with the fluctuations in NPW for the twelve-month period ended ~~September 30, 2013~~March 31, 2014 as compared to the twelve-month period ended ~~September 30, 2012~~.March 31, 2013.

Table of Contents

The GAAP loss and loss expense ratio ~~improved by 3.4~~increased 6.8 points in ~~Third~~First Quarter ~~2013~~ ~~and 4.7 points in~~ ~~Nine Months 2013~~2014 compared to ~~the same periods a year ago.~~First Quarter 2013. The ~~improvement~~increase in ~~the~~this ratio ~~reflects the earning~~was primarily driven by extreme winter weather, including: (i) an increased level of ~~standard Commercial Lines~~catastrophe losses; and (ii) higher non-catastrophe property losses. These losses were partially offset by: (i) Standard Insurance Operations renewal pure price increases that ~~averaged 6.2%~~amounted to 6.5% in ~~2012~~First Quarter 2014 and 7.6% in ~~Nine Months~~full year 2013, ~~both~~the earning of which ~~exceed~~exceeds our 3% projected loss ~~trend of approximately 3%. The following variances also impacted~~trend; and (ii) favorable prior year casualty reserve development. Quantitative information regarding the ~~GAAP loss~~property losses and ~~loss expense ratio~~the reserve development is as follows:


	Third Quarter 2013				Third Quarter 2012						First Quarter 2014						First Quarter 2013
($ in millions)	Losses Incurred		Impact on Loss Ratio		Losses Incurred	Impact on Loss Ratio		Change in Ratio			Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Loss and Loss Expense Incurred		Impact on Loss and Loss Expense Ratio			Change in Ratio
Catastrophe losses	$	2.2	0.7	pts	6.8	2.2	pts	(1.5	)	pts	$	34.2		8.1		pts	1.3		0.3		pts	7.8
Non-catastrophe property losses	34.9		10.5		34.1	11.0		(0.5	)		86.2			20.3			60.7		15.5			4.8
Favorable prior year casualty reserve development	1.5		0.4		4.5	1.6		1.2			(14.0		)	(3.3	)		(2.5	)	(0.6	)		(2.7	)

The breakdown of favorable prior year casualty reserve development in our Standard Insurance Operations by line of business is as follows:



Favorable/(Unfavorable) Prior Year Casualty Reserve Development	Quarter ended March 31,
($ in millions)	2014			2013
General liability	$	11.0		4.0
Commercial automobile	—			—
Workers compensation	—			(7.5	)
Businessowners' policies	1.0			3.0
Homeowners	—			1.5
Personal automobile	2.0			1.0
Other	$	—		0.5
Total favorable prior year casualty reserve development	$	14.0		2.5

Favorable impact on loss ratio	3.3		pts	0.6		pts

Favorable prior year casualty reserve development of $14 million in First Quarter 2014 was driven by improving claim trends for the 2009 through 2012 accident years on our general liability line of business. Excluding the impact of the workers compensation line of business prior year development in First Quarter 2013, the remainder of the casualty lines experienced a level of development comparable in First Quarter 2014 to First Quarter 2013.

The improvement in the GAAP underwriting expense ratio of 2.3 points in First Quarter 2014 compared to First Quarter 2013 was primarily driven by income generated from the renewal rights sale of our SIG book of business for $8 million, or 1.9 points. For additional information regarding the sale, see Note 8. “Segment Information” in Item 1. “Financial Statements” of this Form 10-Q.

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Review of Underwriting Results by Line of Business

Nine Months 2013 Nine Months 2012
($ in millions) Losses Incurred
Impact on
Loss Ratio

Losses
Incurred
Impact on
Loss Ratio
Change in Ratio
Catastrophe losses $ 12.1
1.2 pts 29.1
3.2 pts (2.0 ) pts
Non-catastrophe property losses 99.7
10.3 102.5
11.2 (0.9 )
Favorable prior year casualty reserve development 6.0
0.6 10.5
1.2 0.6



Standard Commercial Lines
	Quarter ended March 31,
($ in thousands)	2014				2013	Change % or Points
GAAP Insurance Operations Results:
NPW	$	379,350			353,189	7		%
NPE	349,441				317,845	10
Less:
Loss and loss expense incurred	242,639				203,139	19
Net underwriting expenses incurred	109,194				107,518	2
Dividends to policyholders	1,238				1,086	14
Underwriting (loss) gain	$	(3,630	)		6,102	159		%
GAAP Ratios:
Loss and loss expense ratio	69.4			%	63.9	5.5		pts
Underwriting expense ratio	31.2				33.9	(2.7	)
Dividends to policyholders ratio	0.4				0.3	0.1
Combined ratio	101.0				98.1	2.9
Statutory Ratios:
Loss and loss expense ratio¹	69.4				63.9	5.5
Underwriting expense ratio¹	30.5				33.4	(2.9	)
Dividends to policyholders ratio	0.4				0.3	0.1
Combined ratio¹	100.3			%	97.6	2.7		pts

¹ Statutory ratios for First Quarter 2013 included 0.4 points in the loss and loss expense ratio, 1.0 points in the underwriting ratio, and 1.4 points in the combined ratio related to the Retirement Income Plan amendments that curtailed the accrual of additional benefits for all employees eligible to participate in the plans after March 31, 2016.

The increase in NPW in First Quarter 2014 compared to First Quarter 2013 is primarily the result of the following:



	Quarter ended March 31,
($ in millions)	2014		2013
Retention	84	%	83
Renewal pure price increases	6.4		7.5

NPE increases in First Quarter 2014 were consistent with the fluctuations in NPW for the twelve-month period ended March 31, 2014 compared to the twelve-month period ended March 31, 2013.

The GAAP loss and loss expense ratio increased 5.5 points in First Quarter 2014 compared to First Quarter 2013 driven by extreme winter weather, including: (i) an increased level of catastrophe losses; and (ii) higher non-catastrophe property losses. These losses were partially offset by the following: (i) renewal pure price increases that averaged 6.4% in First Quarter 2014 and 7.6% in full-year 2013, the earning of which exceeds our projected loss trend of approximately 3%; and (ii) favorable prior year casualty reserve development. Quantitative information regarding the property losses and the reserve development is as follows:



	First Quarter 2014						First Quarter 2013
($ in millions)	Losses Incurred			Impact on Loss Ratio			Losses Incurred		Impact on Loss Ratio			Change in Ratio
Catastrophe losses	$	25.9		7.4		pts	0.7		0.2		pts	7.2		pts
Non-catastrophe property losses	58.8			16.8			37.0		11.6			5.2
Favorable prior year casualty reserve development	(12.0		)	(3.5	)		(0.5	)	(0.1	)		(3.4	)

The improvement in the GAAP underwriting expense ratio of 2.7 points in First Quarter 2014 compared to First Quarter 2013 was primarily driven by the income generated from the renewal rights sale of our SIG book of business for $8 million, or 2.3 points. For additional information regarding the sale, see Note 8. “Segment Information” in Item 1. “Financial Statements” of this Form 10-Q.

Table of Contents

The following is a discussion of our most significant standard Commercial Lines of ~~business:~~

business and their respective statutory results:


General Liability	General Liability													General Liability
		Quarter ended September 30,							Nine Months ended September 30,						Quarter ended March 31,
($ in thousands)		2013			2012	Change % or Points			2013	2012	Change % or Points				2014			2013	Change % or Points
Statutory NPW		$	115,866		106,020	9		%	335,503	305,870	10		%		$	119,504		109,405	9		%
Direct new business		20,169			16,737	21			60,809	53,050	15				19,835			19,781	—
Retention		82		%	83	(1	)	pts	81	81	—		pts		84		%	83	1		pts
Renewal pure price increases		9.3		%	7.2	2.1			8.8	6.8	2.0				7.6		%	8.5	(0.9	)
Statutory NPE		100,925			93,763	8		%	298,394	276,538	8		%		108,818			97,703	11		%
Statutory combined ratio		96.2		%	100.4	(4.2	)	pts	95.7	101.0	(5.3	)	pts		80.7		%	95.9	(15.2	)	pts
% of total statutory standard Commercial Lines NPW		31		%	31				31	31					32		%	31

The growth in NPW and NPE for our general liability business in ~~both~~ ~~Third~~First Quarter ~~and~~ ~~Nine Months 2013~~ ~~reflect: (i)~~ 2014 reflects renewal pure price ~~increases; (ii)~~increases and strong ~~retention; and (iii) higher new business.~~retention.

The statutory combined ratio improvement for ~~both~~ ~~Third~~First Quarter ~~and~~ ~~Nine Months 2013~~ 2014 was ~~due to: (i) the impact of favorable prior year casualty reserve development of $3.0 million, or 3.0 points, and $12.0 million, or 4.0 points, in~~ ~~Third Quarter~~ ~~and~~ ~~Nine Months 2013, respectively, compared to no prior year casualty reserve development in~~ ~~Third Quarter~~ ~~and~~ ~~Nine Months 2012; and (ii) the impact of earned~~driven by renewal pure price increases of 7.6% that ~~have exceeded~~continue to outpace loss cost ~~trends. Partially offsetting these items was~~trends on this line as well as the ~~impact of the Retirement Income Plan curtailment charge of $1.4 million, which increased the overall combined ratio by 0.4 points for~~ ~~Nine Months 2013~~.

following:

Commercial Automobile
Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2013 2012
Change
% or
Points
2013 2012
Change
% or
Points

Statutory NPW $ 91,715
80,725
14
% 257,841
231,475
11 %
  Direct new business 16,420
12,040
36
47,490
39,466
20
  Retention 83
% 84
(1.0 ) pts 82
82
— pts
  Renewal pure price increases 8.0
% 5.6
2.4
7.4
4.9
2.5
Statutory NPE 79,138
72,758
9
% 230,191
214,782
7 %
Statutory combined ratio 97.1
% 95.7
1.4
pts 96.8
96.1
0.7 pts
% of total statutory standard Commercial Lines NPW 24
% 24

24
23



	First Quarter 2014						First Quarter 2013
($ in millions)	(Benefit) Expense			Impact on Combined Ratio			(Benefit) Expense		Impact on Combined Ratio			Change Points
Favorable prior year casualty reserve development	$	(11.0	)	(10.1	)	pts	(4.0	)	(4.1	)	pts	(6.0	)	pts
Sale of SIG renewal rights	(2.1		)	(1.8	)		—		—			(1.8	)
Retirement Income Plan curtailment charge	—			—			1.4		1.3			(1.3	)



Commercial Automobile
	Quarter ended March 31,
($ in thousands)	2014			2013	Change % or Points
Statutory NPW	$	89,122		81,872	9		%
Direct new business	14,806			14,904	(1	)
Retention	83		%	83	—		pts
Renewal pure price increases	6.2		%	7.0	(0.8	)
Statutory NPE	82,216			74,347	11		%
Statutory combined ratio	94.9		%	98.0	(3.1	)	pts
% of total statutory standard Commercial Lines NPW	23		%	23

The growth in NPW and NPE for our commercial automobile business in ~~both~~ ~~Third~~First Quarter ~~and~~ ~~Nine Months 2013~~ ~~reflect: (i)~~ 2014 reflects renewal pure price ~~increases;~~increases and strong retention.

The statutory combined ratio improvement for First Quarter 2014 is primarily driven by the following: (i) earned price increases that are outpacing loss costs on this line of business; (ii) ~~strong retention;~~income of 1.7 points related to the the renewal rights sale of our SIG book of business; and (iii) ~~higher new business.~~the Retirement Income Plan curtailment charge that increased the overall combined ratio by 1.3 points for First Quarter 2013.

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~~The~~



Workers Compensation
	Quarter ended March 31,
($ in thousands)	2014			2013	Change % or Points
Statutory NPW	$	75,971		75,405	1		%
Direct new business	13,658			13,879	(2	)
Retention	82		%	82	—		pts
Renewal pure price increases	4.9		%	8.1	(3.2	)
Statutory NPE	69,413			66,084	5		%
Statutory combined ratio	105.9		%	118.9	(13.0	)	pts
% of total statutory standard Commercial Lines NPW	20		%	21

First Quarter 2014 NPW remained consistent with First Quarter 2013. NPE increases in First Quarter 2014 were consistent with the fluctuations in NPW for the ~~statutory combined ratios for~~ ~~Third Quarter~~ ~~and~~ ~~Nine Months 2013~~ ~~were impacted by~~twelve-month period ended March 31, 2014 compared to the ~~following:~~

Quarter ended September 30, 2013 Quarter ended September 30, 2012
($ in millions) Loss and Loss Expense Incurred
Impact on
Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses $ 0.1
0.1
pts 0.7
0.9 pts (0.8 )
Favorable prior year casualty reserve development —
—
2.0
2.7 2.7
twelve-month period ended March 31, 2013.

Nine Months ended September 30, 2013 Nine Months ended September 30, 2012
($ in millions) Loss and Loss Expense Incurred
Impact on
Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses $ (0.9 ) (0.4 ) pts 2.2
1.0 pts (1.4 )
Favorable prior year casualty reserve development —
—
4.5
2.1 2.1

~~In addition,~~ ~~Nine Months 2013~~ ~~included $1.0 million, or 0.4 points, related to the Retirement Income Plan curtailment charge.~~

Workers Compensation
Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2013 2012
Change
% or
Points
2013 2012 Change
% or
Points
Statutory NPW $ 70,461
66,320
6
% 214,455
206,272
4
%
  Direct new business 14,459
8,535
69
43,151
33,905
27

  Retention 82
% 83
(1 ) pts 82
81
1
pts
  Renewal pure price increases 7.9
% 8.5
(0.6 ) 7.8
8.0
(0.2 )
Statutory NPE 66,510
65,592
1
% 197,449
198,064
—
%
Statutory combined ratio 118.2
% 115.9
2.3
pts 118.4
113.1
5.3
pts
% of total statutory standard Commercial Lines NPW 19
% 19

20
21

~~NPW increased by 6% in~~ ~~Third Quarter~~ ~~and 4% in~~ ~~Nine Months 2013, respectively, compared to~~ ~~Third Quarter~~ ~~and~~ ~~Nine Months 2012, driven by higher renewal pure price increases.~~

~~The workers compensation book of business represents 20% of our total statutory standard Commercial Lines net premium written for Nine Months 2013, which is a decrease from 24% at the end of 2008.~~ While we continue to view workers compensation in the context of an overall account, we remain very focused on improving this competitive line of business through underwriting, where we achieved renewal pure price increases of ~~7.9%~~4.9% for ~~Third~~First Quarter ~~2013 and 7.8% for Nine Months 2013.~~2014. We are applying all the underwriting tools we have to move pricing higher and write the best risks. We also have a number of claims initiatives aimed at proactively managing return-to-work programs and higher severity claims.

The improvement in the statutory combined ratio was primarily attributable to the following:



	First Quarter 2014						First Quarter 2013
($ in millions)	(Benefit) Expense			Impact on Combined Ratio			(Benefit) Expense		Impact on Combined Ratio		Change Points
Unfavorable prior year casualty reserve development	$	—		—		pts	$	7.4	11.1	pts	(11.1	)	pts
Sale of SIG renewal rights	(1.5		)	(2.0	)		—		—		(2.0	)
Retirement Income Plan curtailment charge	—			—			1.2		1.7		(1.7	)

The First Quarter 2013 unfavorable prior year casualty reserve development was primarily driven by development on the 2012 accident year and a single large claim prior to 2003.



Commercial Property
	Quarter ended March 31,
($ in thousands)	2014			2013	Change % or Points
Statutory NPW	$	64,096		57,760	11		%
Direct new business	14,495			14,385	1
Retention	83		%	82	1		pts
Renewal pure price increases	5.5		%	5.6	(0.1	)
Statutory NPE	60,186			53,415	13		%
Statutory combined ratio	131.4		%	86.6	44.8		pts
% of total statutory standard Commercial Lines NPW	17		%	16

NPW and NPE increased in First Quarter 2014 compared to First Quarter 2013 primarily due to renewal pure price increases and strong retention.

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The increase in the statutory combined ~~ratios for both periods was primarily attributable to the impact of prior year casualty reserve development as follows:~~

~~Third~~ratio in First Quarter ~~2013~~ was unfavorable by $3.5 million, or 5.3 points, driven primarily by development in several accident years from 2008 and prior; and $14.0 million, or 7.2 points, unfavorable development in Nine Months 2013 driven primarily by development in several accident years from 2008 and prior and on the 2012 accident year.

~~Third Quarter~~ ~~and~~ ~~Nine Months 2012~~ ~~reflect no prior year casualty reserve development.~~

~~In addition, the Retirement Income Plan curtailment increased the workers compensation statutory combined ratio by 0.6 points in~~ ~~Nine Months 2013~~.

Commercial Property
Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2013 2012
Change
% or
Points
2013 2012
Change
% or
Points

Statutory NPW $ 69,578
62,259
12
% 186,531
168,481
11
%
  Direct new business 16,966
12,577
35
45,747
38,624
18

  Retention 82
% 83
(1 ) pts 81
81
—
pts
  Renewal pure price increases 5.8
% 4.9
0.9
5.6
4.2
1.4

Statutory NPE 57,004
52,197
9
% 165,356
151,945
9
%
Statutory combined ratio 67.0
% 81.3
(14.3 ) pts 77.8
93.7
(15.9 ) pts
% of total statutory standard Commercial Lines NPW 18
% 18

17
17

~~NPW and NPE increased in both~~ ~~Third Quarter~~ ~~and~~ ~~Nine Months 2013~~2014 compared to the same prior year ~~periods primarily due to: (i) improvement in new business; (ii) renewal pure price increases; and (iii) strong retention.~~

~~The improvement in the statutory combined ratio in~~ ~~Third Quarter~~ ~~and~~ ~~Nine Months 2013~~ ~~compared to the same prior year periods~~period was due to:


	Third Quarter 2013				Third Quarter 2012						First Quarter 2014						First Quarter 2013
($ in millions)	Losses Incurred		Impact on Loss Ratio		Losses Incurred	Impact on Loss Ratio		Change in Ratio			(Benefit) Expense			Impact on Combined Ratio			(Benefit) Expense	Impact on Combined Ratio		Change % or Points
Catastrophe losses	$	0.9	1.6	pts	2.2	4.2	pts	(2.6	)	pts	$	18.9		31.5		pts	1.8	3.4	pts	28.1		pts
Non-catastrophe property losses	14.8		25.9		19.3	37.0		(11.1	)		36.4			60.5			20.6	38.6		21.9
Sale of SIG renewal rights											(1.4		)	(2.2	)		—	—		(2.2	)
Retirement Income Plan curtailment charge											—			—			0.8	1.5		(1.5	)

Nine Months 2013 Nine Months 2012
($ in millions) Losses Incurred
Impact on
Loss Ratio

Losses
Incurred
Impact on
Loss Ratio
Change in Ratio
Catastrophe losses $ 10.4
6.3 pts 18.0
11.8 pts (5.5 ) pts
Non-catastrophe property losses 48.7
29.5 60.2
39.6 (10.1 )



Standard Personal Lines
	Quarter ended March 31,
($ in thousands)	2014				2013	Change % or Points
GAAP Insurance Operations Results:
NPW	$	67,338			68,555	(2	)	%
NPE	74,818				73,036	2
Less:
Loss and loss expense incurred	58,027				47,592	22
Net underwriting expenses incurred	19,151				19,471	(2	)
Underwriting (loss) gain	$	(2,360	)		5,973	(140	)	%
GAAP Ratios:
Loss and loss expense ratio	77.6			%	65.2	12.4		pts
Underwriting expense ratio	25.6				26.6	(1.0	)
Combined ratio	103.2				91.8	11.4
Statutory Ratios:
Loss and loss expense ratio¹	77.6				65.3	12.3
Underwriting expense ratio¹	26.9				27.1	(0.2	)
Combined ratio¹	104.5			%	92.4	12.1		pts

~~Additionally,~~¹ Statutory ratios for First Quarter 2013 included 0.1 points in the ~~statutory~~loss and loss expense ratio, 1.2 points in the underwriting ratio, and 1.3 points in the combined ratio ~~was increased by 0.5 points during Nine Months 2013 due~~related to the Retirement Income Plan ~~curtailment charge.~~

~~Table~~amendments that curtailed the accrual of ~~Contents~~

Standard Personal Lines
Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2013 2012
Change
% or
Points
2013 2012
Change
% or
Points

GAAP Insurance Operations Results:

NPW $ 80,800
79,436
2
% 228,215
221,787
3
%
NPE 74,714
71,805
4
221,298
210,370
5

Less:

Loss and loss expense incurred 52,926
44,720
18
157,722
150,328
5

Net underwriting expenses incurred 20,426
19,865
3
59,216
57,139
4

Underwriting gain $ 1,362
7,220
(81 ) % 4,360
2,903
50
%
GAAP Ratios:

Loss and loss expense ratio 70.8
% 62.3
8.5
pts 71.3
71.5
(0.2 ) pts
Underwriting expense ratio 27.4
27.6
(0.2 ) 26.7
27.1
(0.4 )
Combined ratio 98.2
89.9
8.3
98.0
98.6
(0.6 )
Statutory Ratios:

Loss and loss expense ratio¹
70.9
62.3
8.6
71.4
71.5
(0.1 )
Underwriting expense ratio¹
26.7
26.5
0.2
26.2
26.9
(0.7 )
Combined ratio¹
97.6
% 88.8
8.8
pts 97.6 % 98.4
(0.8 ) pts

~~Nine Months 2013~~ includes 0.1 points in the loss and loss expense ratio, 0.3 points in the underwriting expense ratio, and 0.4 points in the combined ratio related to the Retirement Income Plan amendments recorded in the first quarter of 2013 that curtail the accrual of additional benefits for all eligible employees participatingadditional benefits for all employees eligible to participate in the plans after March 31, 2016.

The ~~improvements~~decrease in NPW ~~are~~is primarily ~~the result~~driven by a decrease in new business of $1.9 million. Partially offsetting this decrease are the following:


	Quarter ended September 30,			Nine Months ended September 30,		Quarter ended March 31,
($ in millions)	2013		2012	2013	2012	2014		2013
Retention	86	%	87	86	86	82	%	87
Renewal pure price increase	7.5		6.9	8.0	6.1	6.8		8.5

The decrease in retention was driven by targeted actions that we have taken to reduce our exposure to certain coverages that have historically been less profitable for us. Excluding the impact of these targeted actions, retention remains strong and comparable to last year.

NPE increases in ~~Third~~First Quarter ~~2012~~ ~~and~~ ~~Nine Months 2013~~,2014 compared to ~~the same periods last year,~~First Quarter 2013, are consistent with the fluctuations in NPW for the twelve-month period ended ~~September 30, 2013~~March 31, 2014 as compared to the twelve-month period ended ~~September 30, 2012~~.March 31, 2013.

Table of Contents

The variance in the loss and loss expense ratios was driven by ~~premiums outpacing~~extreme winter weather, including: (i) an increased level of catastrophe losses; and (ii) higher non-catastrophe property losses. Partially offsetting these losses were renewal pure price increases of 6.8% for First Quarter 2014 and 7.8% for full-year 2013, the earning of which exceeds our projected loss ~~costs in~~ ~~Third Quarter~~ ~~and~~ ~~Nine Months 2013~~ ~~compared to~~ ~~Third Quarter~~ ~~and~~ ~~Nine Months 2012~~,cost trend for the casualty component of our Personal Lines. Quantitative information regarding the property losses are as ~~well as the following:~~follows:

Third Quarter 2013 Third Quarter 2012
($ in millions) Loss and Loss Expense Incurred
Impact on
Loss and Loss Expense Ratio

Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses¹
$ 8.7
11.7
pts 1.8
2.6
pts 9.1
pts
Non-catastrophe property losses 19.9
26.6
19.2
26.8
(0.2 )
Flood claims handling fees (1.1 ) (1.4 ) (1.1 ) (1.5 ) (0.1 )
Favorable prior year casualty reserve development 2.0
2.7
2.5
3.5
0.8


¹	~~Third Quarter 2013 catastrophe losses include $7.5 million, or 10.0 points, related to severe thunderstorms in the Midwest that occurred in August 2013.~~

~~Table of Contents~~


	Nine Months 2013						Nine Months 2012								First Quarter 2014				First Quarter 2013
($ in millions)	Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Loss and Loss Expense Incurred		Impact on Loss and Loss Expense Ratio			Change in Ratio			Loss and Loss Expense Incurred		Impact on Loss and Loss Expense Ratio		Loss and Loss Expense Incurred	Impact on Loss and Loss Expense Ratio		Change in Ratio
Catastrophe losses	$	17.1		7.7		pts	16.4		7.8		pts	(0.1	)	pts	$	8.3	11.1	pts	0.5	0.7	pts	10.4	pts
Non-catastrophe property losses	66.0			29.8			59.4		28.2			1.6			27.4		36.6		23.8	32.5		4.1
Flood claims handling fees	(3.9		)	(1.7	)		(2.0	)	(1.0	)		(0.7	)
Favorable prior year casualty reserve development	3.5			1.7			4.5		2.2			0.5

The ~~improvements~~improvement in the GAAP underwriting expense ~~ratios were~~ratio was driven by higher direct premiums written in our flood business ~~that,~~ coupled with an increase in the flood expense allowance for issuing and servicing ~~these~~ policies, ~~increased our expense allowance earned~~which results in a larger commission being received from ~~our participation in~~ the NFIP. On a statutory basis, the favorable flood impact was more than offset by higher supplemental commissions to agents in the quarter, and was partially offset by the first quarter of 2013 Retirement Income Plan curtailment expense in the year-to-date period.NFIP year over year.

E&S Insurance Operations

Our E&S Insurance Operations segment, which represents 7% of our combined insurance operations NPW, sells Commercial Lines insurance products and services in all 50 states and the District of Columbia through approximately ~~100~~85 wholesale general agents. Insurance policies in this segment typically cover business risks with unique characteristics, such as the nature of the business or its claim history, that ~~are difficult to profitably insure~~have not obtained coverage in the standard commercial ~~lines market.~~marketplace. E&S insurers have more flexibility in coverage terms and rates compared to standard market insurers, generally resulting in policies with higher rates, and terms and conditions that are customized for specific risks.


	Quarter ended September 30,								Nine Months ended September 30,							Quarter ended March 31,
($ in thousands)	2013			2012		Change % or Points			2013		2012		Change % or Points			2014			2013	Change % or Points
GAAP Insurance Operations Results:
NPW	$	35,575		29,764		20		%	96,621		83,898		15		%	$	30,062		28,380	6		%
NPE	31,892			24,727		29			91,998		50,417		82			32,236			30,059	7
Less:
Loss and loss expense incurred	20,620			20,557		—			60,812		40,630		50			19,880			19,118	4
Net underwriting expenses incurred	11,259			9,878		14			33,372		25,488		31			11,381			10,855	5
Underwriting gain (loss)	$	13		(5,708	)	100		%	(2,186	)	(15,701	)	86		%
Underwriting gain																$	975		86	1,034		%
GAAP Ratios:
Loss and loss expense ratio	64.7		%	83.1		(18.4	)	pts	66.1		80.6		(14.5	)	pts	61.7		%	63.6	(1.9	)	pts
Underwriting expense ratio	35.3			40.0		(4.7	)		36.3		50.5		(14.2	)		35.3			36.1	(0.8	)
Combined ratio	100.0			123.1		(23.1	)		102.4		131.1		(28.7	)		97.0			99.7	(2.7	)
Statutory Ratios:
Loss and loss expense ratio	64.7			83.0		(18.3	)		66.2		79.3		(13.1	)		61.7			63.6	(1.9	)
Underwriting expense ratio	35.8			38.6		(2.8	)		35.7		41.0		(5.3	)		36.2			34.6	1.6
Combined ratio	100.5		%	121.6		(21.1	)	pts	101.9		120.3		(18.4	)	pts	97.9		%	98.2	(0.3	)	pts

The improvement in the combined ratio in First Quarter 2014 was driven by significant underwriting actions that we have implemented to improve profitability, including achieving new business pricing of 6.4% and renewal pure price increases of 4.1% in First Quarter 2014, partially offset by non-catastrophe property losses that were 6.8 points higher than last year. In addition, on a GAAP basis, the underwriting expense ratio benefited by the impact of a lower than anticipated supplemental commissions payment to wholesale general agents of $1.1 million from First Quarter 2013. While the recognition of this benefit was immediate on a statutory basis, as evident in the lower statutory underwriting expense ratio in First Quarter 2013, the commission adjustment was deferred and amortized as part of policy acquisition costs on a GAAP basis.

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Our E&S business is a small operation whose combined ratios are significantly impacted by premium growth as well as volatility in loss and loss expenses and underwriting expenses. The improvement in the combined ratios in ~~Third Quarter 2013~~ ~~and~~ ~~Nine Months 2013~~ was driven by a reduction in acquisition and integration costs from 2012 as well as significant underwriting actions to improve profitabilty. Partially offsetting the above was unfavorable prior year casualty reserve development of approximately $2.5 million in Nine Months 2013. There was no prior year casualty reserve development in Third Quarter 2013 or at any time in Nine Months 2012.

Although year-over-year and quarter-to-quarter comparisons of this business are difficult considering the volatility caused by the items discussed above, results are tracking in line with our expectations to achieve between a 100% and 102% combined ratio for 2013.

~~Reinsurance~~

~~We have successfully completed negotiations of our July 1, 2013 Standard Insurance Operations excess of loss treaties with highlights as follows:~~

~~Property Excess of Loss~~

The property excess of loss treaty ("Property Treaty") was renewed with substantially the same terms as the expiring treaty providing for the following per risk coverage of $38.0 million in excess of a $2.0 million retention:

~~The per occurrence cap on the total program is $84.0 million.~~

The first layer continues to have unlimited reinstatements. The annual aggregate limit for the second layer, which is $30.0 million in excess of $10.0 million, is consistent with the prior year treaty at $120.0 million.

~~Consistent with the prior year treaty, the Property Treaty excludes nuclear, biological, chemical, and radiological terrorism losses.~~

~~Casualty Excess of Loss~~

~~The casualty excess of loss treaty (“Casualty Treaty”) was renewed with substantially the same terms as the expiring treaty providing the following per occurrence coverage:~~

~~The first through sixth layers provide coverage for 100% of up to $88.0 million in excess of a $2.0 million retention.~~

~~Consistent with the prior year treaty, the Casualty Treaty excludes nuclear, biological, chemical, and radiological terrorism losses.~~

~~Annual aggregate terrorism limits remain the same as the prior year treaty at $201.0 million.~~

Investments

Our investment philosophy includes certain return and risk objectives for the fixed ~~maturity,~~income, equity, and other investment portfolios. Although yield and income generation remain the key drivers to our investment strategy, our overall philosophy is to invest with a long-term horizon along with predominantly a “buy-and-hold” approach. The primary fixed ~~maturity~~income portfolio return objective is to maximize after-tax investment yield and income while balancing risk. A secondary objective is to meet or exceed a weighted-average benchmark of public fixed income indices. Within the equity portfolio, the high dividend yield strategy is designed to generate consistent dividend income while maintaining an expected tracking error to the ~~Standard & Poor's Rating Services ("~~S~~&P")~~&P 500 Index. Additional equity strategies are focused on meeting or exceeding strategy specific benchmarks of public equity indices. The return objective of the other investment portfolio, which includes alternative investments, is to meet or exceed the S&P 500 Index.


Total Invested Assets
($ in thousands)	September 30, 2013		December 31, 2012	Change %		March 31, 2014		December 31, 2013	Change %
Total invested assets	$	4,516,060	4,330,019	4	%	$	4,640,049	4,583,312	1	%
Unrealized gain – before tax	83,894		188,197	(55	)	104,515		79,236	32
Unrealized gain – after tax	54,531		122,328	(55	)	67,935		51,504	32

~~Table of Contents~~

The increase in our investment portfolio compared to year-end ~~2012~~2013 was ~~driven~~ primarily ~~by:~~due to: (i) ~~strong operating~~ cash flows provided by operating activities of ~~$238~~$35.8 million; and (ii) ~~net proceeds from our debt issuance~~an increase in ~~February 2013. These increases were partially offset by a~~ ~~$104.3 million~~pre-tax ~~decrease in~~ unrealized gains ~~primarily from a decrease~~of $25.3 million. These gains were driven by increases in the market value of our fixed ~~maturity~~income securities portfolio ~~driven by the rise in~~as interest rates decreased during ~~Nine Months 2013.~~First Quarter 2014. During ~~Nine Months 2013,~~First Quarter 2014, interest rates on the 10-year U.S. Treasury Note ~~rose~~fell by 8531 basis points. ~~The cash generated from~~While the decrease in interest rates benefited the unrealized gains on our ~~insurance operations segments, as well as net amounts generated from~~portfolio, our ~~capital management strategies executed in~~after-tax purchase yield was only 1.9% during First Quarter 2014, thereby putting pressure on existing investment income yields within the ~~first quarter of 2013, were used to invest primarily in corporate bonds, structured securities, and municipal bonds within our fixed maturity securities~~ portfolio.

We structure our portfolio conservatively with a focus on: (i) asset diversification; (ii) investment quality; (iii) liquidity, particularly to meet the cash obligations of our insurance operations segments; (iv) consideration of taxes; and (v) preservation of capital. We believe that we have a high quality and liquid investment portfolio. The breakdown of our investment portfolio is as follows:


	September 30, 2013		December 31, 2012	March 31, 2014		December 31, 2013
U.S. government obligations	4	%	6	4	%	4
Foreign government obligations	1		1	1		1
State and municipal obligations	29		31	29		28
Corporate securities	38		34	39		39
Mortgage-backed securities (“MBS”)	15		14	15		15
Asset-backed securities (“ABS”)	3		3	3		3
Total fixed maturity securities	90		89
Total fixed income securities				91		90
Equity securities	4		3	4		4
Short-term investments	4		5	3		4
Other investments	2		3	2		2
Total	100	%	100	100	%	100

Fixed ~~Maturity~~Income Securities

The average duration of the fixed ~~maturity~~income securities portfolio as of ~~September 30, 2013~~March 31, 2014 was 3.5 years, including short-term investments, compared to the Insurance Subsidiaries’ liability duration of approximately ~~3.9~~3.8 years. The current duration of the fixed ~~maturity~~income securities portfolio is within our historical range, and is monitored and managed to maximize yield while managing interest rate risk at an acceptable level. We are experiencing continued pressure on the yields within our fixed ~~maturity~~income securities portfolio, as higher yielding bonds that are either maturing or have been sold are being replaced with lower yielding bonds that are currently available in the marketplace. We manage liquidity with a laddered maturity structure and an appropriate level of short-term investments to avoid liquidation of available-for-sale ("AFS") fixed ~~maturity~~income securities in the ordinary course of business. We typically have a long investment time horizon, and every purchase or sale is made with the intent of maximizing risk adjusted investment returns in the current market environment while balancing capital preservation.

Table of Contents

Our fixed ~~maturity~~income securities portfolio had a weighted average credit rating of “AA-” as of ~~September 30, 2013~~.March 31, 2014. The following table presents the credit ratings of our fixed ~~maturity~~income securities portfolio:


Fixed Maturity Security Rating	September 30, 2013		December 31, 2012
Fixed Income Security Rating				March 31, 2014		December 31, 2013
Aaa/AAA	15	%	16	16	%	15
Aa/AA	45		47	45		45
A/A	27		25	25		26
Baa/BBB	12		10	13		13
Ba/BB or below	1		2	1		1
Total	100	%	100	100	%	100

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The following table summarizes the fair value, unrealized gain (loss) balances, and the weighted average credit qualities of our AFS fixed ~~maturity~~income securities at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:


	September 30, 2013					December 31, 2012			March 31, 2014					December 31, 2013
($ in millions)	Fair Value		Unrealized Gain (Loss)		Weighted Average Credit Quality	Fair Value	Unrealized Gain (Loss)	Weighted Average Credit Quality	Fair Value		Unrealized Gain (Loss)		Weighted Average Credit Quality	Fair Value	Unrealized Gain (Loss)		Weighted Average Credit Quality
AFS Fixed Maturity Portfolio:
AFS Fixed Income Portfolio:
U.S. government obligations	$	180.8	11.6		AA+	259.1	17.2	AA+	$	171.1	9.6		AA+	173.4	10.1		AA+
Foreign government obligations	29.7		0.9		AA-	30.2	1.4	AA-	32.4		0.9		AA-	30.6	0.8		AA-
State and municipal obligations	929.5		11.1		AA	818.0	44.1	AA	979.2		15.9		AA+	951.6	5.2		AA
Corporate securities	1,663.1		33.5		A	1,450.3	81.3	A	1,815.7		38.5		A	1,734.9	27.0		A
ABS									131.9		0.5		AAA	140.9	0.5		AAA
MBS	679.5		2.0		AA+	609.8	19.0	AA	685.6		1.9		AA+	684.1	(4.0	)	AA+
ABS	150.8		0.6		AAA	128.6	2.3	AAA
Total AFS fixed maturity portfolio	$	3,633.4	59.7		AA-	3,296.0	165.3	AA-
Total AFS fixed income portfolio									$	3,815.9	67.3		AA-	3,715.5	39.6		AA-
State and Municipal Obligations:
General obligations	$	438.6	5.8		AA+	352.3	20.5	AA+	$	478.6	7.2		AA+	472.0	2.6		AA+
Special revenue obligations	490.9		5.3		AA	465.7	23.6	AA	500.6		8.7		AA	479.6	2.6		AA
Total state and municipal obligations	$	929.5	11.1		AA	818.0	44.1	AA	$	979.2	15.9		AA+	951.6	5.2		AA
Corporate Securities:
Financial	$	522.7	13.0		A	438.0	23.2	A	$	568.5	13.2		A	534.1	11.7		A
Industrials	112.2		4.1		A-	104.2	7.4	A-	135.9		4.4		A-	135.1	3.7		A-
Utilities	143.5		1.0		A-	124.2	6.6	BBB+	155.1		1.7		A-	146.5	(0.3	)	A-
Consumer discretionary	189.4		3.6		A-	134.7	8.3	BBB+	213.9		5.1		A-	190.6	2.7		A-
Consumer staples	164.2		4.3		A	163.6	8.6	A	176.4		3.7		A	171.9	3.0		A
Healthcare	170.8		4.0		A	178.2	11.0	A+	174.7		4.2		A	168.5	3.1		A
Materials	94.9		1.4		BBB+	71.9	4.6	A-	104.1		2.3		A-	101.2	1.4		A-
Energy	88.0		1.2		A-	77.4	4.3	A-	104.2		1.7		A-	93.7	0.9		A-
Information technology	105.6		(0.2	)	A+	100.1	3.2	A	125.5		0.7		A+	121.2	(0.6	)	A+
Telecommunications services	64.3		0.6		BBB+	46.7	2.8	BBB+	50.0		1.1		BBB+	64.7	1.0		BBB+
Other	7.5		0.5		AA+	11.3	1.3	AA+	7.4		0.4		AA+	7.4	0.4		AA+
Total corporate securities	$	1,663.1	33.5		A	1,450.3	81.3	A	$	1,815.7	38.5		A	1,734.9	27.0		A
ABS:
ABS									$	131.5	0.5		AAA	140.4	0.4		AAA
Sub-prime ABS¹									0.4		—		D	0.5	0.1		D
Total ABS									131.9		0.5		AAA	140.9	0.5		AAA
MBS:
Government guaranteed agency commercial mortgage-backed securities ("CMBS")	$	35.5	1.0		AA+	48.9	2.3	AA+	$	24.5	0.5		AA+	30.0	0.9		AA+
Other agency CMBS	9.1		(0.3	)	AA+	1.2	—	AA+	10.6		(0.2	)	AA+	9.1	(0.3	)	AA+
Non-agency CMBS	107.4		(1.2	)	AA	87.1	1.1	AA-	139.7		2.1		AA+	132.2	(1.5	)	AA+
Government guaranteed agency residential MBS ("RMBS")	61.4		1.8		AA+	91.0	3.3	AA+	48.3		1.3		AA+	55.2	1.4		AA+
Other agency RMBS	418.9		0.1		AA+	331.3	11.3	AA+	417.6		(2.3	)	AA+	411.5	(5.1	)	AA+
Non-agency RMBS	42.0		0.5		A-	44.3	0.9	A-	40.5		0.4		A-	41.4	0.6		A-
Alternative-A (“Alt-A”) RMBS	5.2		0.1		A+	6.0	0.1	AA-	4.4		0.1		A	4.7	—		A
Total MBS	$	679.5	2.0		AA+	609.8	19.0	AA	$	685.6	1.9		AA+	684.1	(4.0	)	AA+
ABS:
ABS	$	150.0	0.5		AAA	127.2	2.0	AAA
Alt-A ABS²	—		—		—	0.8	0.2	D
Sub-prime ABS^{1, 2}	0.8		0.1		CCC	0.6	0.1	D
Total ABS	150.8		0.6		AAA	128.6	2.3	AAA

¹WeSubprime ABS consists of one security whose issuer is currently expected by rating agencies to default on its obligations.We define sub-prime exposure as exposure to direct and indirect investments in non-agency residential mortgages with average FICO^® scores below 650.

²~~Alt-A ABS and subprime ABS each consist of one security whose issuer is currently expected by rating agencies to default on its obligations.~~

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The following tables provide information regarding our held-to-maturity (“HTM”) fixed ~~maturity~~income securities and their credit qualities at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013:


September 30, 2013
March 31, 2014
($ in millions)	Fair Value		Carry Value	Unrecognized Holding Gain (Loss)	Unrealized Gain (Loss) in Accumulated Other Comprehensive Income ("AOCI")		Total Unrealized/ Unrecognized Gain (Loss)	Weighted Average Credit Quality	Fair Value		Carry Value	Unrecognized Holding Gain (Loss)	Unrealized Gain (Loss) in Accumulated Other Comprehensive Income ("AOCI")		Total Unrealized/ Unrecognized Gain (Loss)	Weighted Average Credit Quality
HTM Fixed Maturity Portfolio:
HTM Fixed Income Portfolio:
Foreign government obligations	$	5.6	5.5	0.1	0.2		0.3	AA+	$	5.6	5.4	0.2	0.1		0.3	AA+
State and municipal obligations	395.6		376.3	19.3	4.1		23.4	AA	364.3		347.9	16.4	3.4		19.8	AA
Corporate securities	31.8		28.8	3.0	(0.5	)	2.5	A	24.5		21.6	2.9	(0.3	)	2.6	A+
ABS									3.3		2.7	0.6	(0.6	)	—	AA+
MBS	9.6		6.3	3.3	(1.0	)	2.3	AA	5.8		4.5	1.3	(0.8	)	0.5	AAA
ABS	5.9		5.1	0.8	(0.8	)	—	A+
Total HTM fixed maturity portfolio	$	448.5	422.0	26.5	2.0		28.5	AA
Total HTM fixed income portfolio									$	403.5	382.1	21.4	1.8		23.2	AA
State and Municipal Obligations:
General obligations	$	124.2	118.7	5.5	2.3		7.8	AA	$	117.5	112.6	4.9	1.7		6.6	AA
Special revenue obligations	271.4		257.6	13.8	1.8		15.6	AA	246.8		235.3	11.5	1.7		13.2	AA
Total state and municipal obligations	$	395.6	376.3	19.3	4.1		23.4	AA	$	364.3	347.9	16.4	3.4		19.8	AA
Corporate Securities:
Financial	$	7.4	6.8	0.6	(0.2	)	0.4	BBB+	$	2.3	1.9	0.4	(0.1	)	0.3	A-
Industrials	7.9		6.8	1.1	(0.2	)	0.9	A	7.1		6.0	1.1	(0.2	)	0.9	A+
Utilities	14.6		13.3	1.3	(0.1	)	1.2	A+	13.6		12.2	1.4	—		1.4	A+
Consumer discretionary	1.9		1.9	—	—		—	AA	1.5		1.5	—	—		—	AA
Total corporate securities	$	31.8	28.8	3.0	(0.5	)	2.5	A	$	24.5	21.6	2.9	(0.3	)	2.6	A+
MBS:
Non-agency CMBS	$	9.6	6.3	3.3	(1.0	)	2.3	AA
Total MBS	$	9.6	6.3	3.3	(1.0	)	2.3	AA
ABS:
ABS	$	3.4	3.3	0.1	(0.1	)	—	BBB+	$	0.8	0.8	—	—		—	AA
Alt-A ABS	2.5		1.8	0.7	(0.7	)	—	AAA	2.5		1.9	0.6	(0.6	)	—	AAA
Total ABS	$	5.9	5.1	0.8	(0.8	)	—	A+	$	3.3	2.7	0.6	(0.6	)	—	AA+
MBS:
Non-agency CMBS									$	5.8	4.5	1.3	(0.8	)	0.5	AAA
Total MBS									$	5.8	4.5	1.3	(0.8	)	0.5	AAA

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December 31, 2012
December 31, 2013
($ in millions)	Fair Value		Carry Value	Unrecognized Holding Gain (Loss)	Unrealized Gain (Loss) in AOCI		Total Unrealized/ Unrecognized Gain (Loss)		Weighted Average Credit Quality	Fair Value		Carry Value	Unrecognized Holding Gain (Loss)	Unrealized Gain (Loss) in AOCI		Total Unrealized/ Unrecognized Gain (Loss)	Weighted Average Credit Quality
HTM Portfolio:
Foreign government obligations	$	5.9	5.5	0.4	0.2		0.6		AA+	$	5.6	5.4	0.2	0.1		0.3	AA+
State and municipal obligations	526.9		498.0	28.9	6.8		35.7		AA	369.8		352.2	17.6	4.0		21.6	AA
Corporate securities	42.1		37.5	4.6	(0.8	)	3.8		A	30.3		27.8	2.5	(0.3	)	2.2	A
ABS										3.4		2.8	0.6	(0.6	)	—	AA+
MBS	12.7		7.2	5.5	(1.2	)	4.3		AA-	7.9		4.7	3.2	(0.9	)	2.3	AA-
ABS	7.1		5.9	1.2	(1.1	)	0.1		A
Total HTM portfolio	$	594.7	554.1	40.6	3.9		44.5		AA	$	417.0	392.9	24.1	2.3		26.4	AA
State and Municipal Obligations:
General obligations	$	174.4	166.0	8.4	3.8		12.2		AA	$	118.5	113.1	5.4	2.0		7.4	AA
Special revenue obligations	352.5		332.0	20.5	3.0		23.5		AA	251.3		239.1	12.2	2.0		14.2	AA
Total state and municipal obligations	$	526.9	498.0	28.9	6.8		35.7		AA	$	369.8	352.2	17.6	4.0		21.6	AA
Corporate Securities:
Financial	$	9.6	8.3	1.3	(0.7	)	0.6		BBB+	$	7.3	6.8	0.5	(0.1	)	0.4	BBB+
Industrials	11.9		10.4	1.5	(0.2	)	1.3		A+	7.8		6.8	1.0	(0.2	)	0.8	A+
Utilities	15.1		13.4	1.7	—		1.7		A+	13.2		12.2	1.0	—		1.0	A+
Consumer discretionary	3.5		3.4	0.1	0.1		0.2		AA	2.0		2.0	—	—		—	AA
Materials	2.0		2.0	—	—		—		BBB
Total corporate securities	$	42.1	37.5	4.6	(0.8	)	3.8		A	$	30.3	27.8	2.5	(0.3	)	2.2	A
MBS:
Non-agency CMBS	$	12.7	7.2	5.5	(1.2	)	4.3		AA-
Total MBS	$	12.7	7.2	5.5	(1.2	)	4.3		AA-
ABS:
ABS	$	4.7	4.2	0.5	(0.3	)	0.2		BBB+	$	0.9	0.9	—	—		—	A
Alt-A ABS	2.4		1.7	0.7	(0.8	)	(0.1	)	AAA	2.5		1.9	0.6	(0.6	)	—	AAA
Total ABS	$	7.1	5.9	1.2	(1.1	)	0.1		A	$	3.4	2.8	0.6	(0.6	)	—	AA+
MBS:
Non-agency CMBS										$	7.9	4.7	3.2	(0.9	)	2.3	AA-
Total MBS										$	7.9	4.7	3.2	(0.9	)	2.3	AA-

A portion of our AFS and HTM municipal bonds contain insurance enhancements. The following table provides information regarding these insurance-enhanced securities as of ~~September 30, 2013~~March 31, 2014:

Insurers of Municipal Bond Securities

($ in thousands)

Fair Value

Ratings

with

Insurance

Ratings

without

Insurance

Fair Value

Ratings

with

Insurance

Ratings

without

Insurance

National Public Finance Guarantee Corporation, a subsidiary of MBIA, Inc.

157,628

AA-

196,191

AA-

Assured Guaranty

146,494

AA-

142,463

AA-

Ambac Financial Group, Inc.

70,884

58,800

Other

11,183

A+

10,631

A+

Total

386,189

AA-

408,085

AA-

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The following table details the top 10 state exposures of the municipal bond portion of our fixed ~~maturity~~income securities portfolio at ~~September 30, 2013~~March 31, 2014:


State Exposures of Municipal Bonds	State Exposures of Municipal Bonds									State Exposures of Municipal Bonds
		General Obligation			Special Revenue		Fair Value		Weighted Average Credit Quality		General Obligation					Special Revenue		Fair Value		% of Total	Weighted Average Credit Quality
($ in thousands)		Local		State			Fair Value	Local				State				Special Revenue		Fair Value		% of Total	Weighted Average Credit Quality
Texas		$	69,301	1,079	Special Revenue	41,701		112,081	Weighted Average Credit Quality			AA+
Texas¹											$	56,190		1,075		46,854		104,119		8%	AA+
Washington		34,877		6,717	51,569		93,163		AA		35,566			6,811		47,510		89,887		7%	AA
New York		9,735		—	68,579		78,314		AA+		9,740			—		79,184		88,924		7%	AA+
Florida		—		15,139	52,909		68,048		AA-		—			15,267		49,597		64,864		5%	AA
Arizona		7,923		—	53,279		61,202		AA		7,850			—		53,368		61,218		4%	AA
Colorado		31,824		—	16,741		48,565		AA-		31,624			—		16,793		48,417		4%	AA-
Maryland											25,374			—		19,120		44,494		3%	AA+
Missouri		16,349		10,065	18,846		45,260		AA+		16,089			10,046		18,357		44,492		3%	AA+
North Carolina											13,000			8,200		23,076		44,276		3%	AA
California		3,299		—	41,168		44,467		AA-		8,691			—		33,177		41,868		3%	AA
North Carolina		13,133		5,924	23,328		42,385		AA
Ohio		9,436		9,440	19,831		38,707		AA
Other		153,772		123,668	308,656		586,096		AA		151,638			139,566		295,449		586,653		44%	AA
		349,649		172,032	696,607		1,218,288		AA		355,762			180,965		682,485		1,219,212		91%	AA
Pre-refunded/escrowed to maturity bonds		51,207		4,250	51,397		106,854		AA+		53,259			13,927		57,076		124,262		9%	AA+
Total		$	400,856	176,282	748,004		1,325,142		AA		$	409,021		194,892		739,561		1,343,474		100%	AA

% of Total Portfolio											30		%	15	%	55	%	100	%

There has been concern regarding the stress on state and local governments emanating from declining revenues, large unfunded liabilities, and entrenched cost structures. We are comfortable with the quality, composition, and diversification of our $¹~~1.3 billion~~ ~~municipal bond portfolio. Our municipal bond portfolio is very high quality with an average~~ AA ~~rating and is well laddered with~~ ~~44%~~ ~~maturing within~~ ~~three years, and another~~ ~~15%~~ ~~maturing between~~ ~~three and five years. The weightings of the municipal bond portfolio are: (i)~~ ~~57%~~ ~~of high-quality revenue bonds that have dedicated revenue streams; (ii)~~ ~~30%~~ ~~of local general obligation bonds; and (iii)~~ ~~13%~~ ~~of state general obligation bonds. In addition, approximately~~ 8% ~~of the municipal bond portfolio has been pre-refunded, meaning assets have been placed in trust to fund the debt service and maturity of the bonds. Our largest state exposure is to Texas, at~~ 8% ~~excluding the impact of pre-refunded bonds.~~ Of the $6956 million in local Texas general obligation bonds, $2321 million represents investments in Texas Permanent School Fund bonds, which are considered to have lower ~~risk.~~risk as a result of the bond guarantee program that supports these bonds.

The sector composition and credit quality of our special revenue bonds did not significantly change from December 31, ~~2012~~2013. For details regarding our special revenue bond sectors and additional information regarding credit risk associated with our portfolio, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” of our ~~2012~~2013 Annual Report.

To manage and mitigate exposure on our MBS portfolio, we perform analysis both at the time of purchase and as part of the ongoing portfolio evaluation. This analysis includes review of loan-to-value ratios, geographic spread of the assets securing the bond, delinquencies in payments for the underlying mortgages, gains/losses on sales, evaluations of projected cash flows, as well as other information that aids in determining the health of the underlying assets. We also consider the overall credit environment, economic conditions, total projected return on the investment, and overall asset allocation of the portfolio in our decisions to purchase or sell structured securities.

~~Table of Contents~~

~~Our top Eurozone exposures as of~~ ~~September 30, 2013~~ ~~were as follows:~~

September 30, 2013
($ in millions) Corporate Securities Foreign Government Securities Equity Securities Total Exposure
Country:

Netherlands $ 15.7
—
—
15.7
Luxembourg 8.4
—
—
8.4
Germany —
5.6
—
5.6
Ireland

—
2.2
2.2
France 2.6
—

2.6
Total $ 26.7
5.6
2.2
34.5

Uncertainty about the ability of certain sovereign issuers to fully repay their debt triggered significant turbulence in global financial markets in 2012 but has abated in 2013. The sovereign debt crisis has been particularly concentrated in the Eurozone, and a number of member countries have been repeatedly downgraded by the major ratings agencies. As of ~~September 30, 2013~~, we had no direct exposure to issuers domiciled in Italy, Greece, Portugal, or Spain, four of the more economically troubled nations in the Eurozone. We do not own any derivative exposures such as credit default swaps. Outside of the effect foreign economies have on the underlying investments, we have minimal exposure to Euro depreciation or appreciation.

Equity Securities

Our equity securities portfolio was 4% of invested assets as of both ~~September 30,~~March 31, 2014 and December 31, 2013,~~, up~~ while the value of this portfolio increased slightly to $197.7 million from ~~year-end 2012.~~$192.8 million over the same time period. During ~~Nine Months 2013~~,First Quarter 2014, we rebalanced our high dividend yield strategy holdings within this portfolio, generating purchases of $~~109.5~~61.4 million and sales ~~which~~of securities that had an original cost of $~~85.4~~53.3 million. ~~Also contributing to the increase in this portfolio's value were unrealized gains, which increased~~

Unrealized/Unrecognized Losses

Our net unrealized/unrecognized loss positions improved by $~~3.2~~20.6 million in, to $31.4 million, as of ~~Nine Months~~March 31, 2014 compared to December 31, 2013. The majority of this improvement was in our fixed income securities portfolio, which had a loss position of $31.3 million as of March 31, 2014.

The following table presents amortized cost and fair value information for our AFS fixed income securities that were in an unrealized loss position at March 31, 2014 by contractual maturity:



($ in thousands)	Amortized Cost		Fair Value	Unrealized Loss
One year or less	$	4,002	3,923	79
Due after one year through five years	456,443		450,103	6,340
Due after five years through ten years	786,554		761,899	24,655
Due after ten years	7,030		6,856	174
Total	$	1,254,029	1,222,781	31,248

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The following table presents amortized cost and fair value information for our HTM fixed income securities that were in an unrealized/unrecognized loss position at March 31, 2014 by contractual maturity:



($ in thousands)	Amortized Cost		Fair Value	Unrecognized/Unrealized Loss
One year or less	$	446	445	1
Due after one year through five years	2,524		2,495	29
Total	$	2,970	2,940	30

We have reviewed the securities in the table above in accordance with our Other-than-Temporary Impairment ("OTTI") policy, which is discussed in Note 2. “Summary of Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.” of our 2013 Annual Report. We have concluded that these securities were temporarily impaired as of March 31, 2014 and December 31, 2013. For additional information regarding the unrealized/unrecognized losses in our AFS and HTM portfolios, see Note 5. “Investments” in Item 1. “Financial Statements” of this Form 10-Q.

Other Investments

As of ~~September 30, 2013~~March 31, 2014, other investments of $106.7 million represented 2% of our total invested assets. ~~The following table outlines a summary of our other investment portfolio by strategy and the remaining commitment amount associated with each strategy:~~

Other Investments Carrying Value Remaining Commitment
($ in thousands) September 30,
2013 December 31,
2012 September 30, 2013
Alternative Investments:

  Secondary private equity $ 25,954
28,032
7,703
  Private equity 18,951
18,344
10,502
  Energy/power generation 17,049
18,640
7,076
  Mezzanine financing 12,921
12,692
18,796
  Real estate 12,385
11,751
10,205
  Distressed debt 11,911
12,728
2,964
  Venture capital 7,018
7,477
400
Total alternative investments 106,189
109,664
57,646
Other securities 1,884
4,412
1,289
Total other investments $ 108,073
114,076
58,935

In addition to the capital that we have already invested to date, we are contractually obligated to invest up to an additional $~~58.9~~52.6 million in our other investments portfolio through commitments that currently expire at various dates through 2026. During the second quarter of 2013, we contracted for one new alternative investment within the private equity strategy. This investment, which has characteristics consistent with our other private equity strategy investments, has a commitment of $7.0 million, of which $0.9 million has been paid as of ~~September 30, 2013~~. For a description of our seven alternative investment strategies, ~~outlined above,~~ as well as redemption, restrictions, and fund liquidations, refer to Note 5. "Investments" in Item 1. "Financial Statements" of this Form 10-Q and Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of our ~~2012~~2013 Annual Report. ~~In addition, for information on current year activity, refer to Note 5. "Investments" in Item 1. "Financial Statements" of this Form 10-Q.~~

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Net Investment Income

The components of net investment income earned for the indicated periods were as follows:


	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended March 31,
($ in thousands)	2013			2012		2013		2012		2014			2013
Fixed maturity securities	$	30,569		30,839		90,956		93,948
Fixed income securities										$	31,028		30,089
Equity securities	1,341			1,268		4,422		3,785		1,449			1,207
Short-term investments	21			36		102		103		19			52
Other investments	2,639			497		10,110		5,460		5,218			3,602
Miscellaneous income	—			41		—		105
Investment expenses	(2,113		)	(2,031	)	(6,260	)	(6,117	)	(2,180		)	(2,080	)
Net investment income earned – before tax	32,457			30,650		99,330		97,284		35,534			32,870
Net investment income tax expense	(7,947		)	(7,156	)	(24,281	)	(23,305	)	(9,048		)	(8,031	)
Net investment income earned – after tax	$	24,510		23,494		75,049		73,979		$	26,486		24,839
Effective tax rate	24.5		%	23.3		24.4		24.0		25.5		%	24.4
Annual after-tax yield on fixed maturity securities						2.3		2.5
Annual after-tax yield on fixed income securities										2.2		%	2.3
Annual after-tax yield on investment portfolio						2.3		2.3		2.3		%	2.3

Net investment income before tax increased in ~~both Third~~First Quarter ~~and Nine Months 2013~~2014 compared to ~~the same periods last year~~First Quarter 2013 primarily due to higher income from our alternative investments. ~~Partially offsetting this~~In addition, higher income from our fixed income securities was driven by an increase in ~~Nine Months 2013 was a decrease in fixed maturity securities income due~~the size of this portfolio, which more than offset the lower yield earned this year compared to ~~lower investment yields than in the prior year period.~~last.

Realized Gains and Losses

~~Realized Gains and Losses (excluding OTTI)~~

Realized gains and losses, by type of security excluding OTTI charges, are determined on the basis of the cost of specific investments sold and are credited or charged to income. The components of net realized gains were as follows:

Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2013 2012 2013 2012
HTM fixed maturity securities
Gains $ 32
40
35
195
Losses (37 ) (90 ) (86 ) (196 )
AFS fixed maturity securities

Gains 662
2,168
2,580
2,941
Losses (31 ) (262 ) (330 ) (379 )
AFS equity securities

Gains 13,801
—
24,272
4,775
Losses (236 ) —
(407 ) (428 )
Short-term investments

Gains —
—
—
—
Losses —
—
—
(2 )
Other Investments
Gains —
—
—
1
Losses (80 ) —
(940 ) —
Total other net realized investment gains 14,111
1,856
25,124
6,907
Total OTTI charges recognized in earnings (680 ) (2,944 ) (3,184 ) (3,459 )
Total net realized gains (losses) $ 13,431
(1,088 ) 21,940
3,448

Our general philosophy for sales of securities is to reduce our exposure to securities and sectors based on economic evaluations and when the fundamentals for that security or sector have deteriorated, or to opportunistically trade out of securities to other securities with better economic return characteristics. We typically have a long investment time horizon, and every purchase or sale is made with the intent of maximizing risk adjusted investment returns in the current market environment while balancing capital preservation.

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~~Certain equity securities were sold at a loss that were in a continuous loss position for less than three months prior to their sale. The fair value of these securities was~~ ~~$3.0 million, with related~~ Total net ~~realized losses of~~ ~~$0.2 million, in~~ ~~Third Quarter 2013~~ ~~and~~ ~~$6.0 million, with related net realized losses of~~ ~~$0.4 million, in~~ ~~Nine Months 2013. There were no equity securities sold at a loss during~~ ~~Third Quarter 2012. In~~ ~~Nine Months 2012, we sold~~ ~~$8.1 million~~ ~~of equity securities with related net realized losses of~~ ~~$0.4 million~~.

~~In addition, we sold one fixed maturity security at a loss during~~ ~~Third Quarter 2012, which was in a continuous unrealized loss position for greater than 12 months, with a fair value as of the sale date of~~ ~~$4.8 million~~ ~~and related net realized loss of~~ ~~$0.2 million~~.

~~For additional discussion regarding~~ realized gains and losses ~~see Note 5. “Investments”~~amounted to $7.2 million in ~~Item 1. “Financial Statements” of this Form 10-Q.~~

~~Other-than-Temporary Impairments~~

~~The following table provides information regarding our~~First Quarter 2014 and $3.4 million in First Quarter 2013. These amounts included $1.0 million and $1.9 million in OTTI charges ~~recognized~~ in ~~earnings:~~

Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2013 2012 2013 2012
HTM fixed maturity securities:
ABS $ —
—
3
—
Total HTM fixed maturity securities —
—
3
—
AFS fixed maturity securities:

ABS —
36
—
98
CMBS —
519
—
627
RMBS —
—
8
174
Total AFS fixed maturity securities —
555
8
899
Equity securities 680
2,389
1,326
2,560
Total AFS securities 680
2,944
1,334
3,459
Other investments —
—
1,847
—
Total OTTI charges recognized in earnings $ 680

2,944
3,184
3,459
each period, respectively.

We regularly review our entire investment portfolio for declines in fair value. If we believe that a decline in the value of a particular investment is other than temporary, we record it as an OTTI, through realized losses in earnings for the credit-related portion and through unrealized losses in other comprehensive income ("OCI") for the non-credit related portion. If there is a decline in fair value of an equity security that we do not intend to hold, or if we determine that the decline is other than

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temporary, we write down the cost of the investment to fair value and record the charge through earnings as a component of realized losses.

For discussion of our realized gains and losses as well as our OTTI methodology, see Note 2. “Summary of Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.” of our ~~2012~~2013 Annual Report.

~~Unrealized/Unrecognized Losses~~

~~As reflected in the table below, our net unrealized/unrecognized loss positions increased by~~ ~~$40.6 million~~ ~~as of~~ ~~September 30, 2013~~ ~~compared to~~ ~~December 31, 2012~~ ~~as follows:~~

($ in thousands)
September 30, 2013 December 31, 2012
Number of Issues % of Market/Book Unrealized/ Unrecognized Loss
Number of
Issues
% of Market/Book Unrealized/ Unrecognized Loss
501 80% - 99% $ 43,295
100 80% - 99% 2,701
— 60% - 79% —
1 60% - 79% 233
1 40% - 59% 286
— 40% - 59% —
— 20% - 39% —
— 20% - 39% —
— 0% - 19% —
— 0% - 19% —
$ 43,581
2,934

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~~We have reviewed the securities in the table above in accordance with~~, and for qualitative information about our OTTI ~~policy, which is discussed in Note 2. “Summary of Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.” of our~~ ~~2012 Annual Report. We have concluded that these securities were temporarily impaired as of~~ ~~September 30, 2013~~ ~~and December 31, 2012. For additional information regarding the unrealized/unrecognized losses in our AFS and HTM portfolios,~~charges, see Note 5. ~~“Investments”~~"Investments" in Item 1. ~~“Financial Statements”~~"Financial Statements" of this

Form 10-Q.

~~Contractual Maturities~~

~~The following table presents amortized cost and fair value information for our AFS fixed maturity securities that were in an unrealized loss position at~~ ~~September 30, 2013~~ ~~by contractual maturity:~~

($ in thousands)
Amortized
Cost

Fair
Value
One year or less $ 14,576
14,352
Due after one year through five years 343,058
337,618
Due after five years through ten years 889,527
854,503
Due after ten years 20,116
19,157
Total $ 1,267,277
1,225,630

~~The following table presents amortized cost and fair value information for our HTM fixed maturity securities that were in an unrealized/unrecognized loss position at~~ ~~September 30, 2013~~ ~~by contractual maturity:~~

($ in thousands)
Amortized
Cost

Fair
Value
One year or less $ 739
731
Due after one year through five years 2,856
2,808
Total $ 3,595
3,539

Federal Income Taxes

The following table provides information regarding federal income taxes from continuing operations:


	Quarter ended September 30,				Nine Months ended September 30,		Quarter ended March 31,
($ in million)	2013			2012	2013	2012	2014			2013
Federal income tax expense from continuing operations	$	11.8		2.0	27.5	6.2	$	7.1		6.6
Effective tax rate	27		%	10	25	14	28		%	23

~~The increase~~Despite lower pre-tax net income in First Quarter 2014 compared to First Quarter 2013, federal income tax expense, as well as the effective tax rate have increased year over year. This increase is driven by our expectation of higher full-year insurance operations results in ~~Third Quarter~~ ~~and~~ ~~Nine Months 2013~~ ~~compared~~2014. We are required, through accounting rules, to record each quarter’s taxes at the ~~same prior year periods was primarily due to an improvement in underwriting results as compared to last year. For a discussion~~expected annual marginal tax rate regardless of ~~our underwriting results, see~~ the ~~"Results~~relative magnitude of ~~Operations and Related Information by Segment" section above.~~

the individual components within any one quarter.

Financial Condition, Liquidity, Short-term Borrowings, and Capital Resources

Capital resources and liquidity reflect our ability to generate cash flows from business operations, borrow funds at competitive rates, and raise new capital to meet operating and growth needs.

Liquidity

We manage liquidity with a focus on generating sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. Our cash and short-term investment position of ~~$172~~$138 million at ~~September 30, 2013~~March 31, 2014 was comprised of ~~$23~~$16 million at Selective Insurance Group, Inc. (the ~~“Parent”~~"Parent") and ~~$149~~$122 million at the Insurance Subsidiaries. This amount was lower than our aggregate $215 million cash and short-term investment position at December 31, 2012, as we were previously maintaining higher liquid assets to fund claim payments related to Hurricane Sandy. As those payments continue to be made, cash and short-term assets have declined. Short-term investments are generally maintained in "AAA" rated money market funds approved by the National Association of Insurance Commissioners. ~~During Nine Months 2013, the~~The Parent ~~continued~~continues to ~~build~~maintain a fixed ~~maturity~~income security investment portfolio containing high-quality, highly-liquid government and corporate fixed ~~maturity~~income securities to generate additional yield. This portfolio amounted to ~~$57~~$55 million at ~~September 30, 2013,~~March 31, 2014 compared to ~~$41~~$56 million at December 31, ~~2012.~~2013.

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Sources of cash for the Parent have historically consisted of dividends from the Insurance Subsidiaries, borrowings under lines of credit and loan agreements with certain Insurance Subsidiaries, and the issuance of stock and debt securities. We continue to monitor these sources, giving consideration to our long-term liquidity and capital preservation strategies.

We currently anticipate the Insurance Subsidiaries will pay approximately ~~$32~~$57.5 million in total dividends to the Parent in ~~2013.~~2014. Cash dividends of ~~$25~~$14.4 million were paid ~~through Nine Months 2013, which included approximately $11 million that were deemed extraordinary under New Jersey insurance regulations. The Insurance Subsidiaries are expected to pay $7 million~~ in ~~ordinary dividends throughout the remainder of 2013.~~First Quarter 2014. As of December 31, ~~2012,~~2013, our allowable ordinary maximum dividend was approximately ~~$106~~$127 million for ~~2013.~~2014.

Any dividends to the Parent are subject to the approval and/or review of the insurance regulators in the respective domiciliary states and are generally payable only from earned surplus as reported in the statutory annual statements of those subsidiaries as of the preceding December 31. Although past dividends have historically been met with regulatory approval, there is no assurance that future dividends that may be declared will be approved. For additional information regarding dividend restrictions, refer to Note 20. “Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds” in Item 8. “Financial Statements and Supplementary Data.” of our ~~2012~~2013 Annual Report.

In the first quarter of 2013, we issued $185 million of 5.875% Senior Notes due 2043. The Senior Notes pay interest on February 15, May 15, August 15, and November 15 of each year beginning on May 15, 2013, and on the date of maturity. The notes are callable by us on or after February 8, 2018, at a price equal to 100% of their principal amount, plus accrued and unpaid interest. A portion of the proceeds from this debt issuance was used to fully redeem the $100 million aggregate principal amount of our 7.5% Junior Subordinated Notes due 2066. Of the remaining net proceeds, $57.1 million was used to make capital contributions to the Insurance Subsidiaries while the balance was used for general corporate purposes. For additional information related to our outstanding debt, refer to Note 10. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of our 2012 Annual Report.

The Parent had no private or public issuances of stock during ~~Nine Months 2013. In Third~~First Quarter ~~2013, the Parent renewed~~2014 and there were no borrowings under its $30 million line of credit ("Line of Credit"). For additional information regarding the renewal, see the "Short-Term Borrowings" section below and Note 9. "Indebtedness" in Item 1. "Financial Statements" of this Form 10-Q. The Parent had no borrowings under this Line of Credit or the previous credit facility at ~~September 30, 2013~~March 31, 2014 or at any time during ~~Nine Months 2013.~~First Quarter 2014.

We have two Insurance Subsidiaries domiciled in Indiana ("Indiana Subsidiaries") that are members of the Federal Home Loan Bank of Indianapolis ("FHLBI"),. These Insurance Subsidiaries are Selective Insurance Company of South Carolina ("SICSC") and Selective Insurance Company of the Southeast ("SICSE"). Membership in the FHLBI provides these subsidiaries with access to additional liquidity. The Indiana Subsidiaries' aggregate investment of $2.9 million provides them with the ability to borrow up to 20 times the total amount of the FHLBI common stock purchased, at comparatively low borrowing rates. All borrowings from the FHLBI are required to be secured by certain investments. For additional information regarding the required collateral, refer to Note 5. "Investments" in Item 1. "Financial Statements" of this Form 10-Q.

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The Parent's Line of Credit agreement permits collateralized borrowings by the Indiana Subsidiaries from the FHLBI so long as the aggregate amount borrowed does not exceed 10% of the respective Indiana Subsidiary's admitted assets from the preceding calendar year. Admitted assets amounted to ~~$496.7~~$542.4 million for SICSC and ~~$380.5~~$414.9 million for SICSE as of December 31, ~~2012,~~2013, for a borrowing capacity of approximately ~~$88~~$96 million. As our outstanding borrowing with the FHLBI is currently $58 million, the Indiana Subsidiaries have the ability to borrow approximately ~~$30~~$38 million more until the Line of Credit borrowing limit is met, of which ~~$22~~$30 million could be loaned to the Parent under lending agreements approved by the Indiana Department of Insurance. Similar to the Line of Credit agreement, these lending agreements limit borrowings by the Parent from the Indiana Subsidiaries to 10% of the admitted assets of the respective Indiana Subsidiary. For additional information regarding the Parent's Line of Credit, refer to the section below entitled “Short-term Borrowings.”

The Insurance Subsidiaries also generate liquidity through insurance float, which is created by collecting premiums and earning investment income before losses are paid. The period of the float can extend over many years. Our investment portfolio consists of maturity dates that are laddered to continually provide a source of cash flows for claims payments in the ordinary course of business. The duration of the fixed ~~maturity~~income securities portfolio including short-term investments was 3.5 years as of ~~September 30, 2013,~~March 31, 2014, while the liabilities of the Insurance Subsidiaries have a duration of ~~3.9~~3.8 years. In addition, the Insurance Subsidiaries purchase reinsurance coverage for protection against any significantly large claims or catastrophes that may occur during the year.

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The liquidity generated from the sources discussed above is used, among other things, to pay dividends to our shareholders. Dividends on shares of the Parent's common stock are declared and paid at the discretion of the Board of Directors based on our operating results, financial condition, capital requirements, contractual restrictions, and other relevant factors.

Our ability to meet our interest and principal repayment obligations on our debt, as well as our ability to continue to pay dividends to our stockholders, is dependent on liquidity at the Parent coupled with the ability of the Insurance Subsidiaries to pay dividends, if necessary, and/or the availability of other sources of liquidity to the Parent. Upcoming principal payments on our debt include $13 million in December 2014 and $45 million in December 2016. Subsequent to 2016, our next principal repayment is due in 2034. Restrictions on the ability of the Insurance Subsidiaries to declare and pay dividends, without alternative liquidity options, could materially affect our ability to service debt and pay dividends on common stock.

Short-term Borrowings

Our Line of Credit with Wells Fargo Bank, National Association, as administrative agent, and Branch Banking and Trust Company (BB&T), was renewed effective September 26, 2013 with a borrowing capacity of $30 million, which can be increased to $50 million with the approval of both lending partners.

The Line of Credit provides the Parent with an additional source of short-term liquidity. The interest rate on our Line of Credit varies and is based on, among other factors, the Parent’s debt ratings. The Line of Credit expires on September 26, 2017. There were no balances outstanding under ~~this~~the Line of Credit ~~or the previous credit facility~~ at ~~September 30, 2013~~March 31, 2014 or at any time during ~~Nine Months 2013~~.First Quarter 2014.

The Line of Credit agreement contains representations, warranties, and covenants that are customary for credit facilities of this type, including, without limitation, financial covenants under which we are obligated to maintain a minimum consolidated net worth, minimum combined statutory surplus, and maximum ratio of consolidated debt to total capitalization, as well as covenants limiting our ability to: (i) merge or liquidate; (ii) incur debt or liens; (iii) dispose of assets; (iv) make certain investments and acquisitions; and (v) engage in transactions with affiliates. The Line of Credit permits collateralized borrowings by the Indiana Subsidiaries from the FHLBI so long as the aggregate amount borrowed does not exceed 10% of the respective Indiana Subsidiary’s admitted assets from the preceding calendar year.

The table below outlines information regarding certain of the covenants in the Line of Credit:



	Required as of ~~September 30, 2013~~March 31, 2014	Actual as of ~~September 30, 2013~~March 31, 2014
Consolidated net worth	$~~785~~813 million	$~~1.1~~1.2 billion
Statutory surplus	Not less than $750 million	$~~1.2~~1.3 billion
Debt-to-capitalization ratio¹	Not to exceed 35%	~~26.0%~~25.1%
A.M. Best financial strength rating	Minimum of A-	A


¹	Calculated in accordance with the Line of Credit agreement.

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Capital Resources

Capital resources provide protection for policyholders, furnish the financial strength to support the business of underwriting insurance risks, and facilitate continued business growth. At ~~September 30, 2013,~~March 31, 2014, we had statutory surplus of ~~$1.2~~$1.3 billion, GAAP stockholders’ equity of ~~$1.1~~$1.2 billion, and total debt of $392.4 million, which equates to a debt-to-capital ratio of approximately ~~26%~~25%.

Our cash requirements include, but are not limited to, principal and interest payments on various notes payable, dividends to stockholders, payment of claims, payment of commitments under limited partnership agreements and capital expenditures, as well as other operating expenses, which include agents’ commissions, labor costs, premium taxes, general and administrative expenses, and income taxes. For further details regarding our cash requirements, refer to the section below entitled, “Contractual Obligations, Contingent Liabilities, and Commitments.”

We continually monitor our cash requirements and the amount of capital resources that we maintain at the holding company and operating subsidiary levels. As part of our long-term capital strategy, we strive to maintain capital metrics, relative to the macroeconomic environment, that support our targeted financial strength. Based on our analysis and market conditions, we may take a variety of actions, including, but not limited to, contributing capital to the Insurance Subsidiaries in our insurance operations, issuing additional debt and/or equity securities, repurchasing shares of the Parent’s common stock, and increasing stockholders’ dividends.

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Our capital management strategy is intended to protect the interests of the policyholders of the Insurance Subsidiaries and our stockholders, while enhancing our financial strength and underwriting capacity.

Book value per share increased to ~~$20.16~~$21.09 as of ~~September 30, 2013,~~March 31, 2014, from ~~$19.77~~$20.63 as of December 31, ~~2012,~~2013, due to ~~$1.45~~$0.32 in net income coupled with a ~~$0.55 benefit related to the first quarter of 2013 pension revaluation and curtailment.~~$0.29 increase in unrealized gains on our investment portfolio. These items were partially offset by ~~a $1.22 decrease in the unrealized gains on our investment portfolio driven by the rising interest rate environment, and $0.39~~$0.13 in dividends to our shareholders.

Ratings

We are rated by major rating agencies that issue opinions on our financial strength, operating performance, strategic position, and ability to meet policyholder obligations. We believe that our ability to write insurance business is most influenced by our rating from A.M. Best. In the second quarter of 2013, A.M. Best ~~re-affirmed~~reaffirmed our rating of “A"A (Excellent),”" their third highest of 13 financial strength ratings, with a “stable” outlook. The rating reflects our solid risk-adjusted capitalization, disciplined underwriting focus, increasing use of predictive modeling technology, strong independent retail agency relationships, and consistently stable loss reserves. We have been rated “A” or higher by A.M. Best for the past 83 years. A downgrade from A.M. Best to a rating below “A-” is an event of default under our Line of Credit and could affect our ability to write new business with customers and/or agents, some of whom are required (under various third-party agreements) to maintain insurance with a carrier that maintains a specified A.M. Best minimum rating.

Ratings by other major rating agencies are as follows:

Fitch Ratings ("Fitch") - Our “A+” rating was reaffirmed in ~~the second quarter of 2013,~~First Quarter 2014, citing our improved underwriting results, strong independent agency relationships, solid loss reserve position, and enhanced diversification through continued efforts to reduce our concentration in New Jersey. Our outlook ~~was revised to~~remained negative ~~reflecting~~citing increased levels of statutory and financial leverage, a moderate decline in the National Association of Insurance Commissioners ("NAIC") risk-based capital levels, and ~~diminished~~a moderate decline of our operating earnings-based interest coverage, ~~relative to historical performance.~~although Fitch noted that this measure has shown improvement in 2013.

S&P Ratings Services ("S&P") - ~~On July 11,~~In the third quarter of 2013, S&P lowered our financial strength rating to “A-” from “A” under their recently revised rating criteria. The rating reflects our strong business risk profile and moderately strong financial risk profile, built on a strong competitive position in the regional small to midsize commercial insurance markets in Mid-Atlantic states and strong capital and earnings. The rating revision reflects S&P's view of our capital and earnings volatility relative to our peers. The outlook for the rating is stable citing the expectation that we will sustain our strong competitive position and business risk profile while maintaining a strong capital and earnings profile.

Moody's Investor Service ("Moody's") - Our "A2" financial strength rating was reaffirmed in ~~the first quarter of~~First Quarter 2013 by Moody's, which cited our strong regional franchise with established independent agency support, along with solid risk adjusted capitalization and strong invested asset quality. Our outlook was revised to negative, citing that our underwriting results have lagged similarly rated peers.

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Our S&P, Moody's, and Fitch financial strength and associated credit ratings affect our ability to access capital markets. The interest rate on our Line of Credit varies and is based on, among other factors, the Parent's debt ratings. There can be no assurance that our ratings will continue for any given period of time or that they will not be changed. It is possible that positive or negative ratings actions by one or more of the rating agencies may occur in the future.

Off-Balance Sheet Arrangements

At ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, we did not have any material relationships with unconsolidated entities or financial partnerships, such entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, we are not exposed to any material financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.

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Contractual Obligations, Contingent Liabilities, and Commitments

Our future cash payments associated ~~with~~with: (i) loss and loss expense ~~reserves, as well as~~reserves; (ii) contractual obligations pursuant to operating leases for office space and ~~equipment,~~equipment; (iii) notes payable; and (iv) contractual obligations related to our alternative and other investments portfolio have not materially changed since December 31, ~~2012~~2013. ~~Our future cash payments associated with contractual obligations pursuant to our notes payable as of~~ ~~September 30, 2013~~ ~~are summarized below:~~

Contractual Obligations Payment Due by Period
Less than 1-3 3-5 More than
($ in millions) Total 1 year Years years 5 years
Notes payable $ 393.0
—
13.0
45.0
335.0
Interest on debt obligations 551.4
22.1
43.7
42.5
443.1
Total $ 944.4
22.1
56.7
87.5
778.1

We expect to have the capacity to repay and/or refinance ~~all of our contractual~~these obligations as they come due.

At ~~September 30, 2013, we had contractual obligations that expire at various dates through 2026 that may require us to invest up to an additional~~ ~~$58.9 million~~ ~~in alternative and other investments. There is no certainty that any such additional investment will be required.~~ We have issued no material guarantees on behalf of others and have no trading activities involving non-exchange traded contracts accounted for at fair value. We have no material transactions with related parties other than those disclosed in Note 17. "Related Party Transactions" included in Item 8. "Financial Statements and Supplementary Data." of our ~~2012~~2013 Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the information about market risk set forth in our ~~2012~~2013 Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), as of the end of the period covered by this report. In performing this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework in 1992. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are: (i) effective in recording, processing, summarizing, and reporting information on a timely basis that we are required to disclose in the reports that we file or submit under the Exchange Act; and (ii) effective in ensuring that information that we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. No changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during ~~Third~~First Quarter ~~2013~~2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In May 2013, the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) released its updated Internal Control - Integrated Framework (“Framework”). The COSO framework is widely used by public companies to comply with the Sarbanes-Oxley Act of 2002. The effective date for companies to transition to the new Framework is December 15, 2014 when the original framework will no longer be available. The Company is currently utilizing the original Framework.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Our Insurance Subsidiaries are also from time to time involved in other legal actions, some of which assert claims for substantial amounts. These actions include, among others, putative class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance policies. Our Insurance Subsidiaries are also involved from time to time in individual actions in which extra-contractual damages, punitive damages, or penalties are sought, such as claims alleging bad faith in the handling of insurance claims. We believe that we have valid defenses to these cases. We expect that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to our consolidated financial condition. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, an adverse outcome in certain matters could, from time to time, have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

ITEM 1A. RISK FACTORS

Certain risk factors exist that can have a significant impact on our business, liquidity, capital resources, results of operations, financial condition, and debt ratings. The impact of these risk factors could also impact certain actions that we take as part of our long-term capital strategy, including but not limited to, contributing capital to any or all of the Insurance Subsidiaries, issuing additional debt and/or equity securities, repurchasing our equity securities, redeeming our fixed income securities, or increasing or decreasing, stockholders dividends. We operate in a continually changing business environment and new risk factors emerge from time to time. Consequently, we can neither predict such new risk factors nor assess the impact, if any, they might have on our business in the future. There have been no material changes from the risk factors disclosed in Item 1A. “Risk Factors.” in our ~~2012~~2013 Annual Report other than as discussed below.

~~A downgrade or a potential downgrade in~~We face risks regarding our ~~financial strength or credit ratings could result in a loss~~flood business because of ~~business and could have a material adverse effect on our financial condition and results of operations.~~

uncertainties regarding the NFIP.

We are ~~rated~~the fifth largest insurance group participating in the write-your-own ("WYO") arrangement of the NFIP, which is managed by the Mitigation Division of Federal Emergency Management Agency (“FEMA”) in the U.S. Department of Homeland Security. For WYO participation, we receive an expense allowance for policies written and a servicing fee for claims administered. Under the program, all losses are 100% reinsured by the Federal Government. Currently, the expense allowance is 30.7% of premiums written. The servicing fee is the combination of 0.9% of direct written premiums and 1.5% of incurred losses.

The NFIP is funded by Congress. In 2012, after experiencing numerous short-term delays, Congress passed, and the President signed, the Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert-Waters Act”). The Biggert-Waters Act had two main goals: (i) to extend the NFIP to September 30, 2017; and (ii) to move the program to more market based rates for certain flood policyholders, which would put the program on ~~our~~a more firm financial ~~strength, primarily our ability to pay claims, by various Nationally Recognized Statistical Rating Organizations (“NRSROs”). Following~~standing while terminating the ~~acquisition~~process of ~~MUSIC,~~subsidizing certain rates. FEMA was implementing these rates throughout 2013, which created significant public discontent over the ~~newly-acquired company was included in our Insurance Subsidiaries' intercompany pooling agreement.~~ impact on a variety of homeowners.

As a result of that public pressure, on March 21, 2014, the ~~financial strength ratings from A.M. Best~~President signed into law the Homeowner Flood Insurance Affordability Act of 2014 (“Flood Affordability Act”). The Flood Affordability Act substantially modifies certain provisions of the Biggert-Waters Act, and ~~Fitch include MUSIC, while S&P and Moody's Investor Service have not yet taken any rating action on MUSIC. The financial strength ratings are as follows:~~makes certain other program changes. Significantly, the Flood Affordability Act substantially modifies many of the Biggert-Waters Act rate increases. Consequently, we will be working with FEMA to implement the new rate structures.



~~NRSRO~~	~~Financial Strength Rating~~	~~Outlook~~
~~A.M. Best and Company~~	~~“A”~~	~~Stable~~
~~S&P~~	~~“A-”~~	~~Stable~~
~~Moody's Investor Service~~	~~“A2”~~	~~Negative~~
~~Fitch~~	~~“A+”~~	~~Negative~~

As a WYO carrier, we are required to follow certain NFIP procedures when administering flood policies and claims. Some of these requirements may be different from our normal business practices and may present a reputational risk to our brand. Insurance companies are regulated by states; however, NFIP is a federal program and there may be instances where requirements placed on WYO carriers by NFIP are not consistent with the regulations of a particular state. Consequently, we have the risk that our regulators' positions may conflict with NFIP’s position on the same issue.

A significant rating downgrade, particularly from A.M. Best is an event of default under our Line of Credit and could affect our ability to write new business with customers, some of whom are required under various third-party agreements to maintain insurance with a carrier that maintains a specified minimum rating. The Line of Credit requires our Insurance Subsidiaries to maintain an A.M. Best rating of at least “A-” (one level below our current rating) and a default could lead to acceleration of any outstanding principal. Such an event also could trigger default provisions under certain of our other debt instruments and negatively impact our ability to borrow in the future. As a result, any significant downgrade in our financial strength ratings could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

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~~NRSROs also rate our long-term debt creditworthiness. Credit ratings indicate the ability of debt issuers to meet debt obligations in~~As a ~~timely manner and are important factors in our overall funding profile and ability to access certain types of liquidity. Our current credit ratings are as follows:~~



~~NRSRO~~	~~Credit Rating~~	~~Long Term Credit Outlook~~
~~A.M. Best and Company~~	~~“bbb+”~~	~~Stable~~
~~S&P~~	~~“BBB-”~~	~~Stable~~
~~Moody's Investor Services~~	~~“Baa2”~~	~~Negative~~
~~Fitch~~	~~“BBB+”~~	~~Negative~~

~~Downgrades in our credit ratings could have a material adverse effect on our financial condition and results of operations in many ways, including making it more expensive to access capital markets.~~

~~Because~~result of the ~~difficulties experienced by many financial institutions during~~passage of the ~~recent credit crisis, including insurance companies,~~Biggert-Waters Act and the subsequent substantial modification of many of its provisions, the NFIP remains under scrutiny by policymakers. The uncertainty behind the public ~~criticism~~policy debate and politics of ~~NRSROs, we believe~~flood insurance funding and reform make it ~~is possible that~~difficult for us to predict the ~~NRSROs: (i) will heighten their level~~future of ~~scrutiny~~the NFIP and the continued financial viability of ~~financial institutions; (ii) will increase~~our participation in the frequency and scope of their reviews; and (iii) may adjust upward the capital and other requirements employed in their models for maintaining certain rating levels. We cannot predict possible actions NRSROs may take regarding their ratings that could adversely affect our business or the possible actions we may take in response to any such action.program.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding our purchases of our common stock in ~~Third~~First Quarter ~~2013~~2014:

Period
Total Number of
Shares Purchased¹

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Programs
Maximum Number of
Shares that May Yet
Be Purchased Under the Announced Programs
July 1 – 31, 2013 —
$ —
—
—
August 1 – 31, 2013 72
24.45
—
—
September 1 – 30, 2013 370
23.83
—
—
Total 442
$ 23.93
—
—



Period	Total Number of Shares Purchased¹	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum Number of Shares that May Yet Be Purchased Under the Announced Programs
January 1 – 31, 2014	—	$	—	—	—
February 1 – 28, 2014	118,009	22.31		—	—
March 1 – 31, 2014	867	22.93		—	—
Total	118,876	$	22.31	—	—

¹During ~~Third~~First Quarter ~~2013~~2014, ~~442~~118,876 shares were purchased from employees in connection with the vesting of restricted stock units. These repurchases were made to satisfy tax withholding obligations with respect to those employees. These shares were not purchased as part of any publicly announced program. The shares that were purchased in connection with the vesting of restricted stock units were purchased at fair market value as defined in the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan As Amended and Restated Effective as of May 1, 2010.

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ITEM 5. OTHER INFORMATION

Our 2014 Annual Meeting of Stockholders was held on April 23, 2014. Voting was conducted in person and by proxy as follows:

(a) Stockholders voted to elect the following eleven nominees for a term of one year as follows:



	For	Against	Abstain
Paul D. Bauer	43,781,315	1,266,342	27,769
Annabelle G. Bexiga	44,062,513	986,845	26,068
A. David Brown	43,748,483	1,300,254	26,689
John C. Burville	44,018,801	1,021,147	35,478
Joan M. Lamm-Tennant	43,776,043	1,277,861	21,522
Michael J. Morrissey	44,093,553	956,818	25,055
Gregory E. Murphy	43,291,183	1,758,330	25,913
Cynthia S. Nicholson	44,029,855	1,017,594	27,977
Ronald L. O'Kelly	44,028,080	1,014,844	32,502
William M. Rue	38,827,160	6,226,516	21,750
J. Brian Thebault	42,785,334	2,264,388	25,704

There were 4,753,462 broker non-votes for each nominee.

(b) Stockholders voted to approve, on an advisory basis, the compensation of our named executive officers as disclosed in our Proxy Statement for the 2014 Annual Meeting of Stockholders. The votes were as follows: 42,744,633 shares voted for this proposal; 2,264,101 shares voted against it; and 66,692 shares abstained. There were 4,753,462 broker non-votes.

(c) Stockholders voted to approve the Selective Insurance Group, Inc. 2014 Omnibus Stock Plan. The votes were as follows: 42,732,671 shares voted for this proposal; 2,254,643 shares voted against it; and 88,112 shares abstained. There were 4,753,462 broker non-votes.

(d) Stockholders voted to approve the amendment and restatement of the Selective Insurance Group, Inc. 2014 Cash Incentive Plan and approve the performance goals set out under the plan for purposes of Section 162(m) of the Internal Revenue Code. The votes were as follows: 42,795,630 shares voted for this proposal; 2,204,677 shares voted against it; and 75,119 shares abstained. There were 4,753,462 broker non-votes.

(e) Stockholders voted to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ended December 31, 2014. The votes were as follows: 48,551,749 shares voted for this proposal; 1,191,261 shares voted against it; and 85,878 shares abstained.

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Item 6. EXHIBITS

(a) Exhibits:



Exhibit No.
* ~~10.1~~10.1+		~~Credit Agreement among~~ Selective Insurance Group, Inc.~~, the Lenders Named Therein~~ 2014 Omnibus Stock Plan Director Stock Option Agreement.
*10.2+		Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Stock Option Agreement.
*10.3+		Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Service-Based Restricted Stock Agreement.
*10.4+		Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Performance-Based Restricted Stock Agreement.
*10.5+		Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Service-Based Restricted Stock Unit Agreement.
*10.6+		Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Performance-Based Restricted Stock Unit Agreement.
*10.7+		Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Director Restricted Stock Unit Agreement.
*10.8+		Selective Insurance Group, Inc. Cash Incentive Plan Service-Based Cash Incentive Unit Award Agreement.
*10.9+		Selective Insurance Group, Inc. Cash Incentive Plan Performance-Based Cash Incentive Unit Award Agreement.
*10.10+		Selective Insurance Group, Inc. Non-Employee Directors’ Compensation and ~~Wells Fargo Bank, National Association, as Administrative Agent, dated~~Deferral Plan, As Amended and Restated Effective as of ~~September 26, 2013.~~May 1, 2014.
* 11		Statement Re: Computation of Per Share Earnings.
* 31.1		Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
* 31.2		Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
* 32.1		Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
* 32.2		Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
** 101.INS		XBRL Instance Document.
** 101.SCH		XBRL Taxonomy Extension Schema Document.
** 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
** 101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
** 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
** 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

* Filed herewith.

** Furnished and not filed herewith.

+ Management compensation plan or arrangement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

SELECTIVE INSURANCE GROUP, INC.

Registrant



By: /s/ Gregory E. Murphy	~~October 31, 2013~~April 24, 2014
Gregory E. Murphy
Chairman of the Board and Chief Executive Officer

By: /s/ Dale A. Thatcher	~~October 31, 2013~~April 24, 2014
Dale A. Thatcher
Executive Vice President and Chief Financial Officer
(principal accounting officer and principal financial officer)

6151



	Retirement Income Plan
($ in thousands)	September 30, 2013			December 31, 2012
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	302,647		254,009
Service cost	2,449			8,091
Interest cost	3,303			12,981
Actuarial (gain) losses	(11,485		)	33,596
Benefits paid	(1,598		)	(6,030	)
Impact of curtailment	(29,603		)	—
Benefit obligation, end of period	$	265,713		302,647

Change in Fair Value of Assets:
Fair value of assets, beginning of year	$	207,150		182,614
Actual return on plan assets, net of expenses	6,760			21,896
Contribution by employer to funded plans	2,650			8,550
Contribution by employer to unfunded plans	30			120
Benefits paid	(1,598		)	(6,030	)
Fair value of assets, end of period	$	214,992		207,150

Funded status	$	(50,721	)	(95,497	)



Amount Recognized in Consolidated Balance Sheet:
Liabilities	$	(50,721	)	(95,497	)
Net pension liability, end of period	$	(50,721	)	(95,497	)



Amount Recognized in AOCI:
Prior service cost	$	—	26
Net actuarial loss	57,543		103,365
Total	$	57,543	103,391



Other Information:
Accumulated benefit obligation	$	257,412	265,899



Weighted-Average Liability Assumptions:
Discount Rate	4.66	%	4.42
Rate of compensation increase	4.00	%	4.00



	Retirement Income Plan Quarter ended September 30,					Retirement Life Plan Quarter ended September 30,
($ in thousands)	2013			2012		2013		2012
Components of Net Periodic Benefit Cost and Other Amounts Recognized in OCI:

Net Periodic Benefit Cost:
Service cost	$	1,857		2,154		—		—
Interest cost	3,053			3,230		69		73
Expected return on plan assets	(3,986		)	(3,547	)	—		—
Amortization of unrecognized prior service cost	—			38		—		—
Amortization of unrecognized net actuarial loss	772			1,383		18		8
Total net periodic cost	$	1,696		3,258		87		81

Other Changes in Plan Assets and Benefit Obligations Recognized in OCI:
Reversal of amortization of net actuarial loss	$	(772	)	(1,383	)	(18	)	(8	)
Reversal of amortization of prior service cost	—			(38	)	—		—
Total recognized in OCI	$	(772	)	(1,421	)	(18	)	(8	)

Total recognized in net periodic benefit cost and OCI	$	924		1,837		69		73



	Retirement Income Plan Nine Months ended September 30,					Retirement Life Plan Nine Months ended September 30,
($ in thousands)	2013			2012		2013		2012
Components of Net Periodic Benefit Cost and Other Amounts Recognized in OCI:

Net Periodic Benefit Cost:
Service cost	$	6,163		6,462		—		—
Interest cost	9,407			9,690		208		221
Expected return on plan assets	(11,819		)	(10,641	)	—		—
Amortization of unrecognized prior service cost	10			113		—		—
Amortization of unrecognized net actuarial loss	3,366			4,149		53		23
Curtailment expense	16			—		—		—
Total net periodic cost	$	7,143		9,773		261		244

Other Changes in Plan Assets and Benefit Obligations Recognized in OCI:
Net actuarial gain due to curtailment	$	(44,000	)	—		—		—
Reversal of amortization of net actuarial loss	(3,366		)	(4,149	)	(53	)	(23	)
Reversal of amortization of prior service cost	(10		)	(113	)	—		—
Curtailment expense	(16		)	—		—		—
Total recognized in OCI	$	(47,392	)	(4,262	)	(53	)	(23	)

Total recognized in net periodic benefit cost and OCI	$	(40,249	)	5,511		208		221



($ in thousands)	Retirement Income Plan
Benefits Expected to be Paid in Future Years
Fiscal Years:
2013	$	7,586
2014	8,384
2015	9,148
2016	9,942
2017	10,810
2018-2022	67,447



	Quarter ended September 30, 2013				Quarter ended September 30, 2012
($ in millions)	Renewal Pure Price Increase		Retention		Renewal Pure Price Increase	Retention
Standard Commercial Lines	7.9	%	83	%	6.6	83
Standard Personal Lines	7.5		86		6.9	87



	Nine Months ended September 30, 2013				Nine Months ended September 30, 2012
($ in millions)	Renewal Pure Price Increase		Retention		Renewal Pure Price Increase	Retention
Standard Commercial Lines	7.6	%	82	%	6.0	82
Standard Personal Lines	8.0		86		6.1	86



Contractual Obligations	Payment Due by Period
			Less than	1-3	3-5	More than
($ in millions)	Total		1 year	Years	years	5 years
Notes payable	$	393.0	—	13.0	45.0	335.0
Interest on debt obligations	551.4		22.1	43.7	42.5	443.1
Total	$	944.4	22.1	56.7	87.5	778.1