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: June 30, ~~2017~~2018

¨ 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
~~Emerging growth~~Smaller reporting company o
		~~Smaller reporting~~Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 July ~~14, 2017,~~20, 2018, there were ~~58,364,187~~58,835,249 shares of common stock, par value $2.00 per share, outstanding.



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

Item 1.	Financial Statements

	Consolidated Balance Sheets as of June 30, ~~2017~~2018 (Unaudited) and December 31, ~~2016~~2017	1

	Unaudited Consolidated Statements of Income for the Quarter and Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	2

	Unaudited Consolidated Statements of Comprehensive Income for the Quarter and Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	3

	Unaudited Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	4

	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	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	2422

	Introduction	2422

	Critical Accounting Policies and Estimates	2523

	Financial Highlights of Results for Second Quarter and Six Months ~~2017~~2018 and Second Quarter and Six Months ~~2016~~2017	2523

	Results of Operations and Related Information by Segment	3029

	Federal Income Taxes	38

	Financial Condition, Liquidity, and Capital Resources	38

	Ratings	41

	Off-Balance Sheet Arrangements	41

	Contractual Obligations, Contingent Liabilities, and Commitments	4142

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	4243

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 6.	Exhibits	4344

Signatures		44



PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS.


SELECTIVE INSURANCE GROUP, INC. CONSOLIDATED BALANCE SHEETS	Unaudited					Unaudited
($ in thousands, except share amounts)	June 30, 2017			December 31, 2016		June 30, 2018			December 31, 2017
ASSETS
Investments:
Fixed income securities, held-to-maturity – at carrying value (fair value: $75,540 – 2017; $105,211 – 2016)	$	72,514		101,556
Fixed income securities, available-for-sale – at fair value (amortized cost: $4,923,005 – 2017; $4,753,759 – 2016)	5,018,722			4,792,540
Equity securities, available-for-sale – at fair value (cost: $131,463 – 2017; $120,889 – 2016)	161,694			146,753
Fixed income securities, held-to-maturity – at carrying value (fair value: $43,373 – 2018; $44,100 – 2017)						$	42,016		42,129
Fixed income securities, available-for-sale – at fair value (amortized cost: $5,153,737 – 2018; $5,076,716 – 2017)						5,137,653			5,162,522
Equity securities – at fair value (cost: $150,638 – 2018; $143,811 – 2017)						176,578			182,705
Short-term investments (at cost which approximates fair value)	133,706			221,701		164,118			165,555
Other investments	116,411			102,397		145,203			132,268
Total investments (Note 4 and 6)	5,503,047			5,364,947		5,665,568			5,685,179
Cash	8,628			458		4,876			534
Restricted cash						11,604			44,176
Interest and dividends due or accrued	40,231			40,164		40,978			40,897
Premiums receivable, net of allowance for uncollectible accounts of: $6,627 – 2017; $5,980 – 2016	764,340			681,611
Reinsurance recoverable, net of allowance for uncollectible accounts of: $5,200 – 2017; $5,500 – 2016	601,887			621,537
Premiums receivable, net of allowance for uncollectible accounts of: $10,100 – 2018; $10,000 – 2017						821,173			747,029
Reinsurance recoverable, net of allowance for uncollectible accounts of: $4,700 – 2018; $4,600 – 2017						544,979			594,832
Prepaid reinsurance premiums	151,898			146,282		157,561			153,493
Current federal income tax	—			2,486		—			3,243
Deferred federal income tax	60,388			84,840		51,615			31,990
Property and equipment – at cost, net of accumulated depreciation and amortization of: $206,847 – 2017; $198,729 – 2016	66,255			69,576
Property and equipment – at cost, net of accumulated depreciation and amortization of: $220,874 – 2018; $213,227 – 2017						62,731			63,959
Deferred policy acquisition costs	234,903			222,564		248,467			235,055
Goodwill	7,849			7,849		7,849			7,849
Other assets	88,778			113,534		88,272			78,195
Total assets	$	7,528,204		7,355,848		$	7,705,673		7,686,431

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserve for losses and loss expenses (Note 8)	$	3,731,221		3,691,719
Reserve for loss and loss expense (Note 8)						$	3,804,365		3,771,240
Unearned premiums	1,352,068			1,262,819		1,436,855			1,349,644
Long-term debt	438,894			438,667		439,331			439,116
Current federal income tax	2,104			—		5,090			—
Accrued salaries and benefits	103,177			132,880		85,372			131,850
Other liabilities	248,184			298,393		236,505			281,624
Total liabilities	$	5,875,648		5,824,478		$	6,007,518		5,973,474

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: 102,150,866 – 2017; 101,620,436 – 2016	204,302			203,241
Issued: 102,729,946 – 2018; 102,284,564 – 2017						205,460			204,569
Additional paid-in capital	359,982			347,295		381,641			367,717
Retained earnings	1,641,820			1,568,881		1,779,928			1,698,613
Accumulated other comprehensive income (loss) (Note 11)	24,497			(15,950	)
Treasury stock – at cost (shares: 43,788,147 – 2017; 43,653,237 – 2016)	(578,045		)	(572,097	)
Accumulated other comprehensive (loss) income (Note 11)						(84,517		)	20,170
Treasury stock – at cost (shares: 43,894,894 – 2018; 43,789,442 – 2017)						(584,357		)	(578,112	)
Total stockholders’ equity	$	1,652,556		1,531,370		$	1,698,155		1,712,957
Commitments and contingencies
Total liabilities and stockholders’ equity	$	7,528,204		7,355,848		$	7,705,673		7,686,431

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


SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME	Quarter ended June 30,					Six Months ended June 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands, except per share amounts)	2017			2016		2017		2016		2018			2017		2018		2017
Revenues:
Net premiums earned	$	568,030		531,932		1,128,884		1,054,390		$	604,836		568,030		1,196,664		1,128,884
Net investment income earned	41,430			31,182		78,849		61,951		45,553			41,430		88,784		78,849
Net realized gains (losses):
Net realized investment gains	2,951			2,314		5,381		3,203
Net realized and unrealized (losses) gains:
Net realized investment gains on disposals										54			2,951		4,785		5,381
Other-than-temporary impairments	(1,211		)	(559	)	(4,686	)	(4,152	)	(2,821		)	(1,211	)	(4,033	)	(4,686	)
Other-than-temporary impairments on fixed income securities recognized in other comprehensive income	(6		)	10		(6	)	10		—			(6	)	—		(6	)
Total net realized gains (losses)	1,734			1,765		689		(939	)
Unrealized gains (losses) on equity securities										1,115			—		(12,953	)	—
Total net realized and unrealized (losses) gains										(1,652		)	1,734		(12,201	)	689
Other income	3,291			3,868		6,532		4,819		3,179			3,291		5,358		6,532
Total revenues	614,485			568,747		1,214,954		1,120,221		651,916			614,485		1,278,605		1,214,954

Expenses:
Losses and loss expenses incurred	341,559			298,479		659,031		595,623
Policy acquisition costs	196,824			190,731		393,052		373,958
Loss and loss expense incurred										366,328			341,559		751,269		659,031
Amortization of deferred policy acquisition costs										122,661			116,578		243,754		231,928
Other insurance expenses										80,994			82,874		164,234		164,925
Interest expense	6,081			5,620		12,187		11,226		6,125			6,081		12,277		12,187
Other expenses	11,092			11,606		24,181		25,228
Corporate expenses										3,283			8,464		14,615		20,380
Total expenses	555,556			506,436		1,088,451		1,006,035		579,391			555,556		1,186,149		1,088,451

Income before federal income tax	58,929			62,311		126,503		114,186		72,525			58,929		92,456		126,503

Federal income tax expense:
Current	17,785			18,318		32,058		32,402		12,782			17,785		13,215		32,058
Deferred	(282		)	392		2,579		1,151		924			(282	)	1,497		2,579
Total federal income tax expense	17,503			18,710		34,637		33,553		13,706			17,503		14,712		34,637

Net income	$	41,426		43,601		91,866		80,633		$	58,819		41,426		77,744		91,866

Earnings per share:
Basic net income	$	0.71		0.75		1.57		1.40		$	1.00		0.71		1.32		1.57

Diluted net income	$	0.70		0.74		1.55		1.38		$	0.99		0.70		1.30		1.55

Dividends to stockholders	$	0.16		0.15		0.32		0.30		$	0.18		0.16		0.36		0.32

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


SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	Quarter ended June 30,					Six Months ended June 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2017			2016		2017		2016		2018			2017		2018		2017
Net income	$	41,426		43,601		91,866		80,633		$	58,819		41,426		77,744		91,866

Other comprehensive income, net of tax:
Unrealized gains on investment securities:
Unrealized holding gains arising during period	23,326			36,188		40,087		78,917
Other comprehensive income (loss), net of tax:
Unrealized (losses) gains on investment securities:
Unrealized holding (losses) gains arising during period										(18,955		)	23,326		(86,353	)	40,087
Non-credit portion of other-than-temporary impairments recognized in other comprehensive income	4			(6	)	4		(6	)	—			4		—		4
Amounts reclassified into net income:
Held-to-maturity securities	(28		)	(12	)	(60	)	(59	)	(6		)	(28	)	(16	)	(60	)
Realized (gains) losses on available-for-sale securities	(1,225		)	(1,145	)	(244	)	609
Total unrealized gains on investment securities	22,077			35,025		39,787		79,461
Realized losses (gains) on disposals of available-for-sale securities										2,267			(1,225	)	5,861		(244	)
Total unrealized (losses) gains on investment securities										(16,694		)	22,077		(80,508	)	39,787

Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	330			985		660		1,971		420			330		840		660
Total defined benefit pension and post-retirement plans	330			985		660		1,971		420			330		840		660
Other comprehensive income	22,407			36,010		40,447		81,432
Comprehensive income	$	63,833		79,611		132,313		162,065
Other comprehensive (loss) income										(16,274		)	22,407		(79,668	)	40,447
Comprehensive income (loss)										$	42,545		63,833		(1,924	)	132,313

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


SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	Six Months ended June 30,					Six Months ended June 30,
($ in thousands, except per share amounts)	2017			2016		2018			2017
Common stock:
Beginning of year	$	203,241		201,723		$	204,569		203,241
Dividend reinvestment plan (shares: 15,419 – 2017; 20,808 – 2016)	31			42
Stock purchase and compensation plans (shares: 515,011 – 2017; 569,034 – 2016)	1,030			1,138
Dividend reinvestment plan (shares: 12,373 – 2018; 15,419 – 2017)						25			31
Stock purchase and compensation plans (shares: 433,009 – 2018; 515,011 – 2017)						866			1,030
End of period	204,302			202,903		205,460			204,302

Additional paid-in capital:
Beginning of year	347,295			326,656		367,717			347,295
Dividend reinvestment plan	693			696		686			693
Stock purchase and compensation plans	11,994			12,757		13,238			11,994
End of period	359,982			340,109		381,641			359,982

Retained earnings:
Beginning of year	1,568,881			1,446,192
Beginning of year, as previously reported						1,698,613			1,568,881
Cumulative effect adjustment due to adoption of equity security guidance, net of tax (Note 2)						30,726			—
Cumulative effect adjustment due to adoption of stranded deferred tax guidance (Note 2)						(5,707		)	—
Balance at beginning of year, as adjusted						1,723,632			1,568,881
Net income	91,866			80,633		77,744			91,866
Dividends to stockholders ($0.32 per share – 2017; $0.30 per share – 2016)	(18,927		)	(17,583	)
Dividends to stockholders ($0.36 per share – 2018; $0.32 per share – 2017)						(21,448		)	(18,927	)
End of period	1,641,820			1,509,242		1,779,928			1,641,820

Accumulated other comprehensive income:
Beginning of year	(15,950		)	(9,425	)
Other comprehensive income	40,447			81,432
Accumulated other comprehensive (loss) income:
Beginning of year, as previously reported						20,170			(15,950	)
Cumulative effect adjustment due to adoption of equity security guidance, net of tax (Note 2)						(30,726		)	—
Cumulative effect adjustment due to adoption of stranded deferred tax guidance (Note 2)						5,707			—
Balance at beginning of year, as adjusted						(4,849		)	(15,950	)
Other comprehensive (loss) income						(79,668		)	40,447
End of period	24,497			72,007		(84,517		)	24,497

Treasury stock:
Beginning of year	(572,097		)	(567,105	)	(578,112		)	(572,097	)
Acquisition of treasury stock (shares: 134,910 – 2017; 138,007 – 2016)	(5,948		)	(4,419	)
Acquisition of treasury stock (shares: 105,452 – 2018; 134,910 – 2017)						(6,245		)	(5,948	)
End of period	(578,045		)	(571,524	)	(584,357		)	(578,045	)
Total stockholders’ equity	$	1,652,556		1,552,737		$	1,698,155		1,652,556

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.


SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS	Six Months ended June 30,					Six Months ended June 30,
($ in thousands)	2017			2016		2018			2017
Operating Activities
Net income	$	91,866		80,633		$	77,744		91,866

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	25,409			30,155		21,771			25,409
Stock-based compensation expense	8,372			7,203		9,636			8,372
Undistributed (gains) losses of equity method investments	(3,575		)	1,677
Undistributed gains of equity method investments						(1,628		)	(3,584	)
Distributions in excess of current year income of equity method investments						1,450			552
Loss on disposal of fixed assets	998			—		29			998
Net realized (gains) losses	(689		)	939
Net realized and unrealized losses (gains)						12,201			(689	)

Changes in assets and liabilities:
Increase in reserve for losses and loss expenses, net of reinsurance recoverable	59,152			41,986
Increase in reserve for loss and loss expense, net of reinsurance recoverable						82,978			59,152
Increase in unearned premiums, net of prepaid reinsurance	83,633			89,109		83,143			83,633
Decrease in net federal income taxes	7,263			2,380		9,887			7,263
Increase in premiums receivable	(82,729		)	(91,391	)	(74,144		)	(82,729	)
Increase in deferred policy acquisition costs	(12,339		)	(15,395	)	(13,412		)	(12,339	)
Increase in interest and dividends due or accrued	(204		)	(1,030	)
Decrease (increase) in interest and dividends due or accrued						2			(204	)
Decrease in accrued salaries and benefits	(29,703		)	(48,603	)	(46,478		)	(29,703	)
Decrease (increase) in other assets	24,953			(3,877	)
Increase in other assets						(6,550		)	(3,862	)
Decrease in other liabilities	(48,684		)	(34,659	)	(64,372		)	(48,684	)
Net cash provided by operating activities	123,723			59,127		92,257			95,451

Investing Activities
Purchase of fixed income securities, held-to-maturity	—			(4,235	)	(3,650		)	—
Purchase of fixed income securities, available-for-sale	(1,194,142		)	(411,538	)	(1,331,607		)	(1,194,142	)
Purchase of equity securities, available-for-sale	(22,115		)	(16,796	)
Purchase of equity securities						(46,402		)	(22,115	)
Purchase of other investments	(22,121		)	(17,734	)	(26,032		)	(22,121	)
Purchase of short-term investments	(2,259,305		)	(691,496	)	(1,462,238		)	(2,259,305	)
Sale of fixed income securities, available-for-sale	717,072			22,114		938,276			717,072
Sale of short-term investments	2,348,892			680,865		1,463,726			2,348,892
Redemption and maturities of fixed income securities, held-to-maturity	28,730			44,615		3,654			28,730
Redemption and maturities of fixed income securities, available-for-sale	300,430			264,244		311,590			300,430
Sale of equity securities, available-for-sale	6,289			83,793
Sale of equity securities						43,590			6,289
Sale of other investments						3,497			—
Distributions from other investments	9,843			13,380		15,927			9,300
Purchase of property and equipment	(7,047		)	(8,187	)	(6,733		)	(7,047	)
Net cash used in investing activities	(93,474		)	(40,975	)	(96,402		)	(94,017	)

Financing Activities
Dividends to stockholders	(17,922		)	(16,569	)	(20,437		)	(17,922	)
Acquisition of treasury stock	(5,948		)	(4,419	)	(6,245		)	(5,948	)
Net proceeds from stock purchase and compensation plans	4,045			4,368		3,930			4,045
Proceeds from borrowings	64,000			55,000		130,000			64,000
Repayments of borrowings	(64,000		)	(55,000	)	(130,000		)	(64,000	)
Excess tax benefits from share-based payment arrangements	—			1,761
Repayments of capital lease obligations	(2,254		)	(2,661	)	(1,333		)	(2,254	)
Net cash used in financing activities	(22,079		)	(17,520	)	(24,085		)	(22,079	)
Net increase in cash	8,170			632
Cash, beginning of year	458			898
Cash, end of period	$	8,628		1,530
Net decrease in cash and restricted cash						(28,230		)	(20,645	)
Cash and restricted cash, beginning of year						44,710			37,405
Cash and restricted cash, end of period						$	16,480		16,760

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

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation

As used herein, the "Company,” “we,” “us,” or “our” refers to Selective Insurance Group, Inc. (the "Parent"), and its subsidiaries, except as expressly indicated or unless the context otherwise requires. Our interim unaudited consolidated financial statements (“Financial Statements”) have been prepared by us in conformity with U.S. generally accepted accounting principles (“GAAP”) and 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 2018 presentation. Specifically, we reclassified restricted cash balances related to our participation in the National Flood Insurance Program ("NFIP") from other assets in our consolidated balance sheet into a separate line item on the face of that statement. Additionally, refer to Note 2. "Adoption of Accounting Pronouncements" below for a discussion of the retroactive restatements that are included in these financial statements in relation to the adoption of new accounting pronouncements for the treatment of restricted cash and distributions from equity method investments on the consolidated statements of cash flows.

Our 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. Our Financial Statements cover the second quarters ended June 30, 2018 (“Second Quarter 2018”) and June 30, 2017 (“Second Quarter 2017”) and ~~June 30, 2016~~ (“~~Second Quarter 2016”) and~~ the six-month periods ended June 30, 2018 ("Six Months 2018") and June 30, 2017 ("Six Months 2017"~~) and June 30, 2016 ("Six Months 2016"~~). 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, our 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, ~~2016~~2017 (“~~2016~~2017 Annual ~~Report~~”Report”) filed with the SEC.

NOTE 2. Adoption of Accounting Pronouncements

In ~~March~~January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting ~~Standard~~Standards Update ("ASU") ~~2016-09,~~ ~~Compensation - Stock Compensation: Improvements to Employee Share-based Payment Accounting~~ (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions. We adopted this guidance on January 1, 2017, which resulted in the following impacts on our consolidated financial statements:

~~Consolidated Statements of Income~~

The new standard requires that the tax effects of share-based compensation be recognized in the income tax provision as discrete items outside of the annual estimated expected tax rate. In addition, all excess tax benefits and tax deficiencies should be recognized as income tax benefit or expense in the income statement. Previously, these amounts were recorded in additional paid-in capital. In addition, in calculating potential common shares used to determine diluted earnings per share, GAAP requires us to use the treasury stock method. The new standard requires that assumed proceeds under the treasury stock method be modified to exclude the amount of excess tax benefits that would have been recognized in additional paid-in capital. These changes were adopted on a prospective basis. As a result of adoption, we recognized an income tax benefit in the Consolidated Statements of Income of $0.4 million in Second Quarter 2017 and $3.3 million in Six Months 2017 related to stock grants that have vested this year.

In recording share-based compensation expense, ASU 2016-09 allows companies to make a policy election as to whether they will include an estimate of awards expected to be forfeited or whether they will account for forfeitures as they occur. We have elected to include an estimate of forfeitures in the computation of our share-based compensation expense. As this treatment is consistent with previous guidance, this election had no impact on our consolidated financial statements.

~~Consolidated Statements of Cash Flows~~

ASU 2016-09 requires that excess tax benefits from share-based awards be reported as operating activities in the consolidated statement of cash flows. Previously, these cash flows were included in financing activities. We elected to apply this change on a prospective basis; therefore, no changes have been made to the prior periods disclosed in this report.

The standard also requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the consolidated statement of cash flows. This requirement has no impact to us as we have historically reported these cash flows as part of financing activities.

~~In October 2016, the FASB issued ASU 2016-17,~~ ~~Consolidation: Interests Held through Related Parties That Are Under Common Control~~ ("ASU 2016-17"). ASU 2016-17 changes how a decision maker considers indirect interests in a variable interest entity ("VIE") held under common control in making the primary beneficiary determination. ASU 2016-17 was effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. The adoption of ASU 2016-17 did not impact us, as we are not the decision maker in any of the VIEs in which we are invested.

~~Pronouncements to be effective in the future~~

~~In January 2016, the FASB issued ASU~~ 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 provides guidance to improve certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically the guidance: (i) requires equity ~~investments~~securities held in our investment portfolio to be measured at fair value with changes in fair value recognized in earnings; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost; (iv) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and (v) clarifies that the need for a valuation allowance on a deferred tax asset related to an available-for-sale ("AFS") security should be evaluated with other deferred tax assets.

We adopted ASU 2016-01 ~~is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Our adoption~~in the first quarter of ~~this guidance will require~~2018 and recognized a $30.7 million cumulative-effect adjustment to the ~~balance sheet as~~opening balances of ~~January 1, 2018 in an amount equal to~~accumulated other comprehensive income ("AOCI") and retained earnings, which represents the after-tax net unrealized gain ~~or loss~~ on our equity portfolio as of ~~year-end~~December 31, 2017. IfAdditionally, beginning in the first quarter of 2018, changes in unrealized gains or losses on this ~~guidance had been adopted as~~portfolio are no longer recorded to AOCI, but are instead recognized in income through "Unrealized gains (losses) on equity securities" on our Consolidated Statements of ~~the beginning of 2017, the cumulative-effect adjustment would have been approximately $17 million~~Income. See Note 4 (j) below for information regarding unrealized equity gains (losses) recognized in income in Second Quarter and ~~we would have recognized additional after-tax net income of approximately $3 million or $0.05 per diluted share, reflecting the change in fair value during~~ Six Months ~~2017.~~2018.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~ ~~(“ASU 2016-02”).~~ ~~ASU 2016-02 requires all lessees to recognize~~There were two accounting updates that we adopted with a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year, with early adoption permitted. ASU 2016-02 requires the application of a modified retrospective ~~approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented~~transition in the ~~financial statements. While we~~first quarter of 2018 that related to our statements of cash flows. These accounting updates impacted our categorization of distributions from equity method investees (ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15")) and the presentation of restricted cash (ASU 2016-18, Statement of Cash Flows: Restricted Cash ("ASU 2016-18")). These ASUs are ~~currently evaluating ASU 2016-02, we do not expect~~discussed below and the discussions are followed with a ~~material impact on our financial condition or results of operations from the adoption of this guidance.~~

~~In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses~~ (“ASU 2016-13”). ASU 2016-13 will change the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including, among others, held-to-maturity debt securities, trade receivables, and reinsurance receivables. ASU 2016-13 requires a valuation allowance to be calculated on these financial assets and that they be presented on the financial statements net of the valuation allowance. The valuation allowance is a measurement of expected losses that is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This methodology is referred to as the current expected credit loss model. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2018. We are currently evaluatingtable presenting the impact of ~~this guidance on our financial condition and results of operations.~~the prior period restatements.

In August 2016, the FASB issued ASU ~~2016-15,~~ ~~Statement~~2016-15. As mentioned above, this ASU adds guidance on the categorization of ~~Cash Flows~~ ~~(“ASU 2016-15”).~~distributions from equity method investees within the statement of cash flows. In accordance with this guidance, we made an accounting policy election to classify these distributions using the cumulative earnings approach. This election resulted in a restatement to operating and investing cash flows as outlined in the table below. ASU 2016-15 ~~adds~~also added or ~~clarifies~~clarified guidance on the cash flow classification of certain cash receipts and payments, ~~in the statement of cash flows,~~ including, but not limited to: (i) debt prepayment or debt

extinguishment costs; (ii) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; ~~(iii) distributions received from equity method investees;~~ and ~~(iv)~~(iii) separately identifiable cash flows and application of the predominance principle. ~~ASU 2016-15 is effective~~The updated guidance for ~~fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the~~these topics did not impact ~~of this guidance on~~ our statement of cash flows.

In November 2016, the FASB issued ASU ~~2016-18,~~ ~~Statement of Cash Flows: Restricted Cash~~ ~~("ASU 2016-18").~~2016-18. ASU 2016-18 requires ~~that~~ restricted cash and restricted cash equivalents to be included with cash and cash equivalents in the reconciliation of beginning and ending cash on the statements of cash flows. This update also requires a reconciliation of the statement of the cash flows to the balance sheet if the balance sheet includes more than one line item ofcontaining cash, cash equivalents, and restricted cash. ~~ASU 2016-18 is effective, with retrospective adoption, for annual periods beginning after December 15, 2017, and interim periods within those annual periods.~~ We ~~currently~~ have restricted cash ~~associated with~~related to our participation in the ~~National Flood Insurance Program ("NFIP")~~NFIP, which we had previously reported as part of "Other assets" on the Consolidated Balance Sheet. Beginning in ~~"Other assets." This literature will impact~~ the ~~presentation~~first quarter of ~~this~~2018, we are reporting restricted cash in its own line item ~~in both~~on the Consolidated Balance Sheets to aid in the reconciliation of the amounts presented on the Consolidated Statements of Cash Flows. We have also restated prior year balances on the Consolidated Balance Sheets to conform to the current year presentation.

The adoption of this guidance resulted in a restatement of operating cash flows in Six Months 2017 to remove the impact of the change in restricted cash from operating activities and include the restricted cash balance in the reconciliation of beginning and ending cash balances on the Statements of Cash Flows. In addition, we have included the required reconciliation in Note 3. "Statements of Cash Flows" below.

ASU 2016-15 and ASU 2016-18 resulted in the following line item restatements within operating and investing cash flows on the Statements of Cash Flows:



	June 30, 2017
(in thousands)	Prior to Adoption		After Adoption
Undistributed gains of equity method investments	(3,575	)	(3,584	)
Distributions in excess of current year income of equity method investments	—		552
Decrease (increase) in other assets	24,953		(3,862	)
Net cash provided by operating activities	123,723		95,451

Distributions from other investments	9,843		9,300
Net cash used in investing activities	(93,474	)	(94,017	)

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates the second step of the two part goodwill impairment test, which

required entities to determine the fair value of individual assets and liabilities of a reporting unit to measure the goodwill impairment. Under the new guidance, a goodwill impairment is calculated as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update should be applied on a prospective basis for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We ~~do not expect a material~~adopted ASU 2017-04 in the first quarter of 2018 and it had no impact on ~~our financial condition or results of operations from the adoption of this guidance.~~us.

In ~~March 2017,~~February 2018, the FASB issued ASU ~~2017-07,~~2018-02, ~~Compensation-Retirement Benefits:Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~Income Statement - Reporting Comprehensive Income ("ASU ~~2017-07"~~2018-02"). ASU ~~2017-07 requires~~2018-02 allows a one-time reclassification from AOCI to retained earnings for the stranded tax assets that ~~an employer report a pension plan's service cost~~were created in AOCI from the enactment of the Tax Cuts and Jobs Act of 2017 ("Tax Reform"). We adopted ASU 2018-02 in the ~~same line item or line items as other compensation costs arising from services rendered by pertinent employees during~~first quarter of 2018 and recognized a $5.7 million cumulative-effect adjustment for the ~~period. ASU 2017-07 also requires that other components of net benefit cost be presented~~deferred tax charge to income in the ~~income statement separately~~fourth quarter of 2017 that was associated with net unrealized gains on our investment portfolio and pension plan resulting from the ~~service cost component. If a separate line item or items are not used, the line item or items used~~enactment of Tax Reform.

Pronouncements to be effective in the ~~income statement~~future

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to ~~present~~Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). The amendments in ASU 2018-07 expand the ~~other components~~scope of ~~net benefit cost must be disclosed.~~Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU ~~2017-07~~2018-07 is effective for ~~annual periods~~fiscal years beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted at the beginning of an annual period. As our pension plan was frozen as of March 2016, we ceased accruing additional service fee costs at that time. Therefore, the application of this guidance is not anticipated to impact our financial condition, results of operations, or disclosures.

~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Receivables-Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities~~ ("ASU 2017-08"). ASU 2017-08 revises the amortization period for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 is effective for annual periods2018, and interim periods within those ~~annual periods beginning after December 15, 2018, with early~~fiscal years. Early adoption is permitted. ~~This ASU does not~~We are currently evaluating the impact ~~us, as we amortize premium on these callable debt securities to the earliest call date.~~

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation - Stock Compensation: Scope of Modification Accounting~~ ("ASU 2017-09"). ASU 2017-09 provides clarification about which changes to the terms or conditions of a share-based payment award would require the application of modification accounting. ASU 2017-09 is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The adoption of this guidance ~~is not anticipated to impact us, as we currently record modifications in accordance with this ASU.~~on our financial condition and results of operations.

NOTE 3. Statements of Cash Flows

Supplemental cash flow information was as follows:

Six Months ended June 30,
($ in thousands) 2017 2016
Cash paid during the period for:

Interest $ 11,963
10,986
Federal income tax 27,000
29,000

Non-cash items:
Exchange of fixed income securities, AFS 1,029
17,702
Corporate actions related to equity securities, AFS¹
—
3,032
Assets acquired under capital lease arrangements 278
2,999
Non-cash purchase of property and equipment —
577

¹~~Examples of such corporate actions include non-cash acquisitions and stock splits.~~



	Six Months ended June 30,
($ in thousands)	2018		2017
Cash paid (refunded) during the period for:
Interest	$	12,064	11,963
Federal income tax	4,193		27,000

Non-cash items:
Exchange of fixed income securities, AFS	32,101		1,029
Non-cash acquisition of fixed income securities, AFS	32		—
Assets acquired under capital lease arrangements	—		278
Non-cash purchase of property and equipment	18		—

~~Included in "Other assets" on~~The following table provides a reconciliation of cash and restricted cash reported within the Consolidated Balance Sheets ~~was~~ ~~$8.1 million~~ ~~at June 30, 2017 and $8.9 million at June 30, 2016~~that equate to the amount reported in the Consolidated Statements of Cash Flows:



($ in thousands)	June 30, 2018		December 31, 2017
Cash	$	4,876	534
Restricted cash	11,604		44,176
Total cash and restricted cash shown in the Statements of Cash Flows	$	16,480	44,710

Amounts included in restricted cash represent cash received from the NFIP, which is restricted to pay flood claims under the Write Your Own ~~("WYO") program.~~Program.

NOTE 4. Investments

(a) Information regarding our held-to-maturity ("HTM") fixed income securities as of June 30, ~~2017~~2018 and December 31, ~~2016~~2017 was as follows:


June 30, 2017
June 30, 2018
($ 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
Obligations of states and political subdivisions	$	53,734	185		53,919	1,703	—	55,622	$	22,490	49		22,539	721	—		23,260
Corporate securities	18,714		(119	)	18,595	1,323	—	19,918	19,567		(90	)	19,477	761	(125	)	20,113
Total HTM fixed income securities	$	72,448	66		72,514	3,026	—	75,540	$	42,057	(41	)	42,016	1,482	(125	)	43,373


December 31, 2016
December 31, 2017
($ 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
Obligations of states and political subdivisions	$	77,466	317		77,783	2,133	—		79,916	$	25,154	84		25,238	1,023	—		26,261
Corporate securities	22,711		(143	)	22,568	1,665	(158	)	24,075	16,996		(105	)	16,891	1,003	(55	)	17,839
Commercial mortgage-backed securities ("CMBS")	1,220		(15	)	1,205	15	—		1,220
Total HTM fixed income securities	$	101,397	159		101,556	3,813	(158	)	105,211	$	42,150	(21	)	42,129	2,026	(55	)	44,100

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.

(b) Information regarding our AFS securities as of June 30, ~~2017~~2018 and December 31, ~~2016~~2017 was as follows:



June 30, 2018
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	39,368	291	(763	)	38,896
Foreign government	18,024		87	(129	)	17,982
Obligations of states and political subdivisions	1,240,487		17,622	(4,442	)	1,253,667
Corporate securities	1,630,998		6,617	(23,131	)	1,614,484
Collateralized loan obligations and other asset-backed securities ("CLO and other ABS")	768,466		4,948	(1,817	)	771,597
Commercial mortgage-backed securities ("CMBS")	457,344		258	(6,009	)	451,593
Residential mortgage-backed securities (“RMBS”)	999,050		2,726	(12,342	)	989,434
Total AFS securities	$	5,153,737	32,549	(48,633	)	5,137,653


June 30, 2017
December 31, 2017
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	66,932	1,103	(32	)	68,003	$	49,326	647	(233	)	49,740
Foreign government	18,157		557	—		18,714	18,040		526	(11	)	18,555
Obligations of states and political subdivisions	1,360,211		45,641	(1,086	)	1,404,766	1,539,307		44,245	(582	)	1,582,970
Corporate securities	1,782,993		39,041	(524	)	1,821,510	1,588,339		30,891	(1,762	)	1,617,468
Collateralized loan obligations and other asset-backed securities ("CLO and other ABS")	698,594		4,108	(178	)	702,524
CLO and other ABS							789,152		6,508	(202	)	795,458
CMBS	277,320		2,128	(243	)	279,205	382,727		1,563	(841	)	383,449
Residential mortgage-backed securities (“RMBS”)	718,798		6,068	(866	)	724,000
RMBS							709,825		6,487	(1,430	)	714,882
Total AFS fixed income securities	4,923,005		98,646	(2,929	)	5,018,722	5,076,716		90,867	(5,061	)	5,162,522
AFS equity securities:
Common stock	115,315		30,108	(987	)	144,436	129,696		38,287	(226	)	167,757
Preferred stock	16,148		1,110	—		17,258	14,115		904	(71	)	14,948
Total AFS equity securities	131,463		31,218	(987	)	161,694	143,811		39,191	(297	)	182,705
Total AFS securities	$	5,054,468	129,864	(3,916	)	5,180,416	$	5,220,527	130,058	(5,358	)	5,345,227

December 31, 2016
($ in thousands)
Cost/
Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
AFS fixed income securities:
U.S. government and government agencies $ 75,139
2,230
(36 ) 77,333
Foreign government 26,559
322
(16 ) 26,865
Obligations of states and political subdivisions 1,366,287
18,610
(5,304 ) 1,379,593
Corporate securities 1,976,556
27,057
(5,860 ) 1,997,753
CLO and other ABS 527,876
1,439
(355 ) 528,960
CMBS 256,356
1,514
(1,028 ) 256,842
RMBS 524,986
3,006
(2,798 ) 525,194
Total AFS fixed income securities 4,753,759
54,178
(15,397 ) 4,792,540
AFS equity securities:
Common stock 104,663
26,250
(305 ) 130,608
Preferred stock 16,226
274
(355 ) 16,145
Total AFS equity securities 120,889
26,524
(660 ) 146,753
Total AFS securities $ 4,874,648
80,702
(16,057 ) 4,939,293

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~~other-than-temporary impairment ("OTTI") charge is recognized on an AFS security, through the date of the balance sheet. These unrealized gains and losses are recorded in ~~"Accumulated other comprehensive income (loss)" ("AOCI")~~AOCI on the Consolidated Balance Sheets. As of the first quarter of 2018, equity securities are no longer required to be included in the table above with the adoption of new accounting guidance through which unrealized gains and losses on equity securities are no longer recognized in AOCI, but are instead recognized through income. Refer to Note 2. "Adoption of Accounting Pronouncements" for additional information regarding the adoption of ASU 2016-01.

(c) The severity of impairment on securities in an unrealized/unrecognized loss position averaged approximately 1% of amortized cost at both June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. Quantitative information regarding unrealized losses on our AFS portfolio is provided below. Our HTM portfolio had $0.3 million of unrealized/unrecognized losses at June 30, 2018, and $0.1 million of unrealized/unrecognized losses at December 31, 2017.


June 30, 2017	Less than 12 months				12 months or longer			Total
June 30, 2018											Less than 12 months				12 months or longer			Total
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹		Fair Value	Unrealized Losses¹		Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income securities:
U.S. government and government agencies	$	12,670	(32	)	—	—		12,670	(32	)	$	28,005	(763	)	—	—		28,005	(763	)
Foreign government											7,740		(129	)	—	—		7,740	(129	)
Obligations of states and political subdivisions	107,387		(1,086	)	—	—		107,387	(1,086	)	342,653		(4,316	)	3,422	(126	)	346,075	(4,442	)
Corporate securities	72,991		(517	)	2,531	(7	)	75,522	(524	)	1,147,312		(22,989	)	2,762	(142	)	1,150,074	(23,131	)
CLO and other ABS	156,406		(178	)	—	—		156,406	(178	)	427,307		(1,813	)	774	(4	)	428,081	(1,817	)
CMBS	42,671		(243	)	—	—		42,671	(243	)	378,523		(6,009	)	—	—		378,523	(6,009	)
RMBS	179,293		(860	)	449	(6	)	179,742	(866	)	739,217		(11,962	)	10,895	(380	)	750,112	(12,342	)
Total AFS fixed income securities	571,418		(2,916	)	2,980	(13	)	574,398	(2,929	)
AFS equity securities:
Common stock	18,423		(987	)	—	—		18,423	(987	)
Total AFS equity securities	18,423		(987	)	—	—		18,423	(987	)
Total AFS	$	589,841	(3,903	)	2,980	(13	)	592,821	(3,916	)
Total AFS securities											$	3,070,757	(47,981	)	17,853	(652	)	3,088,610	(48,633	)


December 31, 2016	Less than 12 months				12 months or longer			Total
December 31, 2017											Less than 12 months				12 months or longer			Total
($ in thousands)	Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹		Fair Value	Unrealized Losses¹		Fair Value		Unrealized Losses¹		Fair Value	Unrealized Losses¹		Fair Value	Unrealized Losses¹
AFS fixed income securities:
U.S. government and government agencies	$	6,419	(36	)	—	—		6,419	(36	)	$	23,516	(233	)	250	—		23,766	(233	)
Foreign government	13,075		(16	)	—	—		13,075	(16	)	1,481		(11	)	—	—		1,481	(11	)
Obligations of states and political subdivisions	306,509		(5,304	)	—	—		306,509	(5,304	)	107,514		(422	)	14,139	(160	)	121,653	(582	)
Corporate securities	462,902		(5,771	)	4,913	(89	)	467,815	(5,860	)	238,326		(1,744	)	3,228	(18	)	241,554	(1,762	)
CLO and other ABS	189,795		(354	)	319	(1	)	190,114	(355	)	74,977		(196	)	1,655	(6	)	76,632	(202	)
CMBS	82,492		(1,021	)	1,645	(7	)	84,137	(1,028	)	154,267		(773	)	5,214	(68	)	159,481	(841	)
RMBS	279,480		(2,489	)	8,749	(309	)	288,229	(2,798	)	269,485		(1,285	)	11,200	(145	)	280,685	(1,430	)
Total AFS fixed income securities	1,340,672		(14,991	)	15,626	(406	)	1,356,298	(15,397	)	869,566		(4,664	)	35,686	(397	)	905,252	(5,061	)
AFS equity securities:
Common stock	11,271		(305	)	—	—		11,271	(305	)	4,727		(226	)	—	—		4,727	(226	)
Preferred stock	6,168		(355	)	—	—		6,168	(355	)	3,833		(71	)	—	—		3,833	(71	)
Total AFS equity securities	17,439		(660	)	—	—		17,439	(660	)	8,560		(297	)	—	—		8,560	(297	)
Total AFS	$	1,358,111	(15,651	)	15,626	(406	)	1,373,737	(16,057	)	$	878,126	(4,961	)	35,686	(397	)	913,812	(5,358	)

¹Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI.

The increase in the less than 12 months unrealized loss position was driven by higher interest rates, with a 65-basis point increase in 2-year U.S. Treasury Note yields and a 45-basis point increase in the 10-year U.S. Treasury Note yields during Six Months 2018. We do not intend to sell any of the securities in the tables above, nor dowill we ~~believe we will~~ be required to sell any of these securities. ~~We have also reviewed~~Considering these factors, and in accordance with our review of these securities under our OTTI policy, as described in Note 2. “Summary of Significant Accounting Policies” within Item 8. “Financial Statements and Supplementary Data.” of our ~~2016~~2017 Annual Report,~~, and~~ we have concluded that they are temporarily impaired. 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.

(d) Fixed income securities at June 30, ~~2017~~2018, 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 the contractual maturities of fixed income securities at June 30, ~~2017~~2018:


	AFS		HTM		AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	306,493	34,521	34,898	$	186,138	8,309	8,383
Due after one year through five years	2,095,055		29,648	31,498	2,034,623		27,160	28,544
Due after five years through 10 years	2,379,624		8,345	9,144	2,733,420		6,547	6,446
Due after 10 years	237,550		—	—	183,472		—	—
Total fixed income securities	$	5,018,722	72,514	75,540	$	5,137,653	42,016	43,373

(e) We evaluate the alternative investments and tax credit investments included in our other investments portfolio to determine whether those investments are VIEs and if so, whether consolidation is required. A VIE is an entity that either has equity investors that lack certain essential characteristics of a controlling financial interest or lacks sufficient funds to finance its own activities without financial support provided by other entities. We consider several significant factors in determining if our investments are VIEs and if we are the primary beneficiary, including whether we have: (i) the power to direct activities of the VIE; (ii) the ability to remove the decision maker of the VIE; (iii) the ability to participate in making decisions that are significant to the VIE; and (iv) the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE. We have determined that the investments in our other investment portfolio are VIEs, but that we are not the primary beneficiary and therefore, consolidation is not required.

The following table summarizes our other investment portfolio by strategy:


Other Investments	June 30, 2017				December 31, 2016			June 30, 2018				December 31, 2017
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹
Alternative Investments
Private equity	$	46,945	76,027	122,972	41,135	76,774	117,909	$	59,681	110,833	170,514	52,251	99,026	151,277
Private credit	29,942		57,391	87,333	28,193	40,613	68,806	40,916		89,757	130,673	37,743	94,959	132,702
Real assets	20,783		31,237	52,020	14,486	22,899	37,385	23,430		36,588	60,018	25,379	27,014	52,393
Total alternative investments	97,670		164,655	262,325	83,814	140,286	224,100	124,027		237,178	361,205	115,373	220,999	336,372
Other securities	18,741		—	18,741	18,583	3,400	21,983	21,176		—	21,176	16,895	—	16,895
Total other investments	$	116,411	164,655	281,066	102,397	143,686	246,083	$	145,203	237,178	382,381	132,268	220,999	353,267

¹The maximum exposure to loss includes both the carry value of these investments and the related unfunded commitments. In addition, tax credits that have been previously recognized in Other securities are subject to the risk of recapture, which we do not consider significant.

We do not have a future obligation to fund losses or debts on behalf of the investments above; however, we are contractually committed to make additional investments up to the remaining commitment outlined above. We have not provided any non-contractual financial support at any time during ~~2017~~2018 or ~~2016.~~2017.

For a description of our 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 ~~2016 Annual Report~~.

The following table sets forth gross summarized financial information for our other investments portfolio, including the portion not owned by us. The majority of these investments are carried under the equity method of accounting. The last line of the table below reflects our share of the aggregate income or loss, which is the portion included in our Financial Statements. As the majority of these investments report results to us on a one quarter lag, the summarized financial statement information for the ~~three~~three- and six-month periods ended March 31 is included in our Second Quarter and Six Months results. This information is as follows:

Income Statement Information Quarter ended June 30, Six Months ended June 30,
($ in millions) 2017
2016 2017 2016
Net investment (loss) income $ (9.9 )
(4.6 ) (62.4 ) 37.0
Realized gains (70.2 )
193.2
(304.3 ) 981.1
Net change in unrealized depreciation 1,418.5

(253.9 ) 1,890.0
(1,236.5 )
Net gain $ 1,338.4

(65.3 ) 1,523.3
(218.4 )
Selective’s insurance subsidiaries’ other investments gain (loss) $ 5.2

(0.6 ) 6.8
(1.7 )



Income Statement Information	Quarter ended June 30,					Six Months ended June 30,
($ in millions)	2018			2017		2018		2017
Net investment loss	$	(6.4	)	(88.0	)	(41.8	)	(62.4	)
Realized gains (losses)	629.5			(69.2	)	1,223.5		(304.3	)
Net change in unrealized (depreciation) appreciation	(1,200.2		)	1,328.5		(738.6	)	1,890.0
Net (loss) gain	$	(577.1	)	1,171.3		443.1		1,523.3
Selective’s insurance subsidiaries’ alternative investments gain	$	1.9		5.2		3.5		6.8

(f) We have pledged certain AFS fixed income securities as collateral related to our relationships with the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"). In addition, certain securities were on deposit with various state and regulatory agencies at June 30, ~~2017~~2018 to comply with insurance laws. We retain all rights regarding all securities pledged as collateral.

The following table summarizes the market value of these securities at June 30, ~~2017:~~2018:


($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	3.1	—	23.9	27.0	$	—	—	22.3	22.3
Obligations of states and political subdivisions	—		—	2.0	2.0	—		—	3.1	3.1
CMBS	3.6		4.8	—	8.4	7.2		9.6	—	16.8
RMBS	60.6		51.9	—	112.5	58.2		79.8	—	138.0
Total pledged as collateral	$	67.3	56.7	25.9	149.9	$	65.4	89.4	25.4	180.2

(g) We did not have exposure to any credit concentration risk of a single issuer greater than 10% of our stockholders' equity, other than certain U.S. government-backed investments, as of June 30, ~~2017~~2018 or December 31, ~~2016.~~

2017.

(h) The components of pre-tax net investment income earned were as follows:


	Quarter ended June 30,					Six Months ended June 30,					Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2017			2016		2017			2016		2018			2017		2018			2017
Fixed income securities	$	37,668		31,753		$	74,559		63,397		$	43,774		37,668		$	85,815		74,559
Equity securities	1,419			2,204		2,887			4,434		1,820			1,419		3,797			2,887
Short-term investments	377			142		627			301		611			377		1,134			627
Other investments	5,231			(611	)	6,834			(1,677	)	2,094			5,231		3,657			6,834
Investment expenses	(3,265		)	(2,306	)	(6,058		)	(4,504	)	(2,746		)	(3,265	)	(5,619		)	(6,058	)
Net investment income earned	$	41,430		31,182		$	78,849		61,951		$	45,553		41,430		$	88,784		78,849

(i) ~~The following tables summarize~~ OTTI ~~by asset type~~charges were $2.8 million and $1.2 million in Second Quarter 2018 and Second Quarter 2017, respectively, and $4.0 million and $4.7 million in Six Months 2018 and Six Months 2017, respectively. All of the OTTI charges in 2018 and a majority of the charges in 2017 were related to securities for which we had the ~~periods indicated:~~

Second Quarter 2017 Gross Included in Other Comprehensive Income ("OCI") Recognized in
Earnings
($ in thousands)
AFS fixed income securities:
U.S. government and government agencies $ 2
—
2
Obligations of states and political subdivisions 239
—
239
Corporate securities 381
—
381
CLO and other ABS 62
—
62
CMBS 220
—
220
RMBS 71
(6 ) 77
Total AFS fixed income securities 975
(6 ) 981
AFS equity securities:
Common stock 46
—
46
Total AFS equity securities 46
—
46
Other Investments 190
—
190
Total OTTI losses $ 1,211
$ (6 ) $ 1,217

Second Quarter 2016 Gross Included in OCI Recognized in
Earnings
($ in thousands)
AFS fixed income securities:
Corporate securities $ 104
—
104
RMBS 98
10
88
Total AFS fixed income securities 202
10
192
AFS equity securities:
Common stock 357
—
357
Total AFS equity securities 357
—
357
Total OTTI losses $ 559
10
549

Six Months 2017 Gross Included in Other Comprehensive Income ("OCI") Recognized in
Earnings
($ in thousands)
AFS fixed income securities:
U.S. government and government agencies $ 31
—
31
Obligations of states and political subdivisions 612
—
612
Corporate securities 575
—
575
CLO and other ABS 85
—
85
CMBS 670
—
670
RMBS 1,163
(6 ) 1,169
Total AFS fixed income securities 3,136
(6 ) 3,142
AFS equity securities:
Common stock 1,360
—
1,360
Total AFS equity securities 1,360
—
1,360
Other Investments 190
—
190
Total OTTI losses $ 4,686
$ (6 ) $ 4,692

Six Months 2016 Gross Included in OCI Recognized in
Earnings
($ in thousands)
AFS fixed income securities:
Corporate securities $ 1,077
—
1,077
RMBS 98
10
88
Total AFS fixed income securities 1,175
10
1,165
AFS equity securities:
Common stock 2,974
—
2,974
Preferred stock 3
—
3
Total AFS equity securities 2,977
—
2,977
Total OTTI losses $ 4,152
10
4,142

intent to sell, with each security type's charge not exceeding 1% of its fair value. For a discussion of our evaluation for OTTI, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our ~~2016~~2017 Annual Report.

(j) Net realized and unrealized gains and losses (excluding OTTI charges) for Second Quarter and Six Months 2018 and 2017 included the following:



	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2018			2017		2018			2017
Net realized (losses) gains on the disposals of securities:
Fixed income securities	$	(1,174	)	2,606		(4,509		)	4,570
Equity securities	1,226			350		9,295			350
Short-term investments	2			—		(1		)	—
Other investments	—			(5	)	—			461
Net realized gains on the disposal of securities	54			2,951		4,785			5,381
OTTI charges	(2,821		)	(1,217	)	(4,033		)	(4,692	)
Net realized (losses) gains	(2,767		)	1,734		752			689
Unrealized gains (losses) recognized in income on equity securities¹	1,115			—		(12,953		)	—
Total net realized and unrealized investment (losses) gains	$	(1,652	)	1,734		$	(12,201	)	689

¹Includes unrealized holding gains (losses) of: (i) $2.3 million in Second Quarter 2018 and $(2.7) million in Six Months 2018 on equity securities remaining in our portfolio as of June 30, 2018; and (ii) $(1.2) million in Second Quarter 2018 and $(10.3) million in Six Months 2018 on equity securities sold during the period.

~~(j)~~ The components of net realized gains ~~excluding OTTI charges,~~on disposals of securities for the periods indicated were as follows:


	Quarter ended June 30,					Six Months ended June 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2017			2016		2017		2016		2018			2017		2018		2017
HTM fixed income securities
Gains	$	44		3		44		3		$	—		44		2		44
Losses	—			—		(1	)	(1	)	—			—		—		(1	)
AFS fixed income securities
Gains	2,715			365		6,267		985		1,971			2,715		4,594		6,267
Losses	(153		)	(5	)	(1,740	)	(41	)	(3,145		)	(153	)	(9,105	)	(1,740	)
AFS equity securities
Equity securities
Gains										1,226			350		9,625		350
Losses										—			—		(330	)	—
Short-term investments
Gains	350			2,171		350		2,501		2			—		3		2
Losses	—			(220	)	—		(240	)	—			—		(4	)	(2	)
Other investments
Gains	—			—		480		—		—			—		—		480
Losses	(5		)	—		(19	)	(4	)	—			(5	)	—		(19	)
Total net realized gains (excluding OTTI charges)	$	2,951		2,314		5,381		3,203
Total net realized gains on disposals of securities										$	54		2,951		4,785		5,381

Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold. ~~Proceeds from the sale of AFS securities were $123.1 million and $88.7 million~~Net realized gains in Second Quarter ~~2017 and Second Quarter 2016, respectively, and $723.4 million and $105.9 million in Six Months 2017~~ and Six Months ~~2016, respectively. This increase was~~2018 were primarily driven by opportunistic sales in our equity portfolio and higher trading volume in our fixed income securities ~~portfolio related to~~portfolio. Proceeds from the ~~recent hiring~~sales of ~~new external investment managers.~~AFS fixed income securities were $262.9 million and $122.3 million in Second Quarter 2018 and Second Quarter 2017, respectively, and $938.3 million and $717.1 million in Six Months 2018 and Six Months 2017, respectively. Proceeds from the sales of equity securities were $2.9 million and $0.8 million in Second Quarter 2018 and Second Quarter 2017, respectively, and $43.6 million and $6.3 million in Six Months 2018 and Six Months 2017, respectively.

NOTE 5. Indebtedness

Our long-term debt balance has not changed materially since December 31, ~~2016.~~2017. However, ~~on February 28, 2017,~~ Selective Insurance Company of America ("SICA") borrowed ~~$64 million in~~the following short-term funds in the first quarter of 2018 from the ~~FHLBNY~~FHLBNY:

On February 27, 2018, SICA borrowed $75 million at an interest rate of ~~0.75%~~1.75%. This borrowing was repaid on March ~~21, 2017.~~20, 2018; and

On March 28, 2018, SICA borrowed $55 million at an interest rate of 1.98%. This borrowing was repaid on April 18, 2018.

For detailed information on our indebtedness, see Note 10. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of our ~~2016~~2017 Annual Report.

NOTE 6. Fair Value Measurements

Our financial assets are measured at fair value as disclosed on the Consolidated Balance Sheets. The fair values of our long-term debt are provided in this footnote and the related carry values have ~~improved since December 31, 2016, but not~~changed by ~~more~~less than ~~5% in the aggregate.~~1% during Six Months 2018. For a discussion of the fair value and hierarchy of the techniques used to value our financial assets and liabilities, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our ~~2016~~2017 Annual Report.

The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at June 30, ~~2017~~2018 and December 31, ~~2016~~:2017:


June 30, 2017			Fair Value Measurements Using
June 30, 2018								Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value at 6/30/2017		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		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 fixed income securities:
U.S. government and government agencies	$	68,003	24,828	43,175	—	$	38,896	22,479	16,417	—
Foreign government	18,714		—	18,714	—	17,982		—	17,982	—
Obligations of states and political subdivisions	1,404,766		—	1,404,766	—	1,253,667		—	1,253,667	—
Corporate securities	1,821,510		—	1,821,510	—	1,614,484		—	1,614,484	—
CLO and other ABS	702,524		—	702,524	—	771,597		—	768,408	3,189
CMBS	279,205		—	279,205	—	451,593		—	451,593	—
RMBS	724,000		—	724,000	—	989,434		—	989,434	—
Total AFS fixed income securities	5,018,722		24,828	4,993,894	—	5,137,653		22,479	5,111,985	3,189
AFS equity securities:
Common stock	144,436		135,966	—	8,470
Equity securities:
Common stock²						172,157		145,038	—	—
Preferred stock	17,258		17,258	—	—	4,421		4,421	—	—
Total AFS equity securities	161,694		153,224	—	8,470
Total AFS securities	5,180,416		178,052	4,993,894	8,470
Total equity securities						176,578		149,459	—	—
Short-term investments	133,706		133,706	—	—	164,118		163,120	998	—
Total assets measured at fair value	$	5,314,122	311,758	4,993,894	8,470	$	5,478,349	335,058	5,112,983	3,189


December 31, 2016			Fair Value Measurements Using
December 31, 2017								Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value at 12/31/2016		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		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 fixed income securities:
U.S. government and government agencies	$	77,333	27,520	49,813	—	$	49,740	24,652	25,088	—
Foreign government	26,865		—	26,865	—	18,555		—	18,555	—
Obligations of states and political subdivisions	1,379,593		—	1,379,593	—	1,582,970		—	1,582,970	—
Corporate securities	1,997,753		—	1,997,753	—	1,617,468		—	1,617,468	—
CLO and other ABS	528,960		—	528,960	—	795,458		—	795,458	—
CMBS	256,842		—	256,842	—	383,449		—	376,895	6,554
RMBS	525,194		—	525,194	—	714,882		—	714,882	—
Total AFS fixed income securities	4,792,540		27,520	4,765,020	—	5,162,522		24,652	5,131,316	6,554
AFS equity securities:
Common stock	130,608		122,932	—	7,676
Common stock²						167,757		138,640	—	5,398
Preferred stock	16,145		16,145	—	—	14,948		14,948	—	—
Total AFS equity securities	146,753		139,077	—	7,676	182,705		153,588	—	5,398
Total AFS securities	4,939,293		166,597	4,765,020	7,676	5,345,227		178,240	5,131,316	11,952
Short-term investments	221,701		221,701	—	—	165,555		165,555	—	—
Total assets measured at fair value	$	5,160,994	388,298	4,765,020	7,676	$	5,510,782	343,795	5,131,316	11,952


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


²	Investments amounting to $27.1 million at June 30, 2018, and $23.7 million at December 31, 2017, were measured at fair value using net asset value per share (or its practical expedient) and have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to total assets measured at fair value.

There were no material changes in the fair value of securities measured using Level 3 ~~inputs since December 31, 2016.~~prices in Six Months 2017. The following table provides a summary of Level 3 changes in Six Months 2018:



June 30, 2018
($ in thousands)	CMBS			Common Stock		CLO and Other ABS
Fair value, December 31, 2017	$	6,554		5,398		—
Total net (losses) gains for the period included in:
Other comprehensive income ("OCI")	—			—		—
Net income	—			—		—
Purchases	—			—		3,189
Sales	—			—		—
Issuances	—			—		—
Settlements	—			—		—
Transfers into Level 3	—			—		—
Transfers out of Level 3	(6,554		)	(5,398	)	—
Fair value, June 30, 2018	$	—		—		3,189

The following tables provide quantitative information regarding our financial assets and liabilities that were disclosed at fair value at June 30, ~~2017~~2018 and December 31, ~~2016~~2017:


June 30, 2017			Fair Value Measurements Using
June 30, 2018								Fair Value Measurements Using
($ in thousands)	Assets/ Liabilities Disclosed at Fair Value at 6/30/2017		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		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:
Obligations of states and political subdivisions	$	55,622	—	55,622	—	$	23,260	—	23,260	—
Corporate securities	19,918		—	13,960	5,958	20,113		—	11,628	8,485
Total HTM fixed income securities	$	75,540	—	69,582	5,958	$	43,373	—	34,888	8,485

Financial Liabilities
Long-term debt:
7.25% Senior Notes	$	58,690	—	58,690	—	$	57,231	—	57,231	—
6.70% Senior Notes	112,573		—	112,573	—	108,453		—	108,453	—
5.875% Senior Notes	188,767		188,767	—	—	186,924		186,924	—	—
1.61% borrowings from FHLBNY	24,521		—	24,521	—	23,979		—	23,979	—
1.56% borrowings from FHLBNY	24,462		—	24,462	—	23,915		—	23,915	—
3.03% borrowings from FHLBI	60,837		—	60,837	—	58,483		—	58,483	—
Total long-term debt	$	469,850	188,767	281,083	—	$	458,985	186,924	272,061	—


December 31, 2016			Fair Value Measurements Using
December 31, 2017								Fair Value Measurements Using
($ in thousands)	Assets/ Liabilities Disclosed at Fair Value at 12/31/2016		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		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:
Obligations of states and political subdivisions	$	79,916	—	79,916	—	$	26,261	—	26,261	—
Corporate securities	24,075		—	16,565	7,510	17,839		—	12,306	5,533
CMBS	1,220		—	1,220	—
Total HTM fixed income securities	$	105,211	—	97,701	7,510	$	44,100	—	38,567	5,533

Financial Liabilities
Long-term debt:
7.25% Senior Notes	$	56,148	—	56,148	—	$	61,391	—	61,391	—
6.70% Senior Notes	108,333		—	108,333	—	116,597		—	116,597	—
5.875% Senior Notes	176,860		176,860	—	—	186,332		186,332	—	—
1.61% borrowings from FHLBNY	24,286		—	24,286	—	24,270		—	24,270	—
1.56% borrowings from FHLBNY	24,219		—	24,219	—	24,210		—	24,210	—
3.03% borrowings from FHLBI	59,313		—	59,313	—	60,334		—	60,334	—
Total long-term debt	$	449,159	176,860	272,299	—	$	473,134	186,332	286,802	—

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 ~~2016~~2017 Annual ~~Report~~.Report.


	Quarter ended June 30,					Six Months ended June 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2017			2016		2017		2016		2018			2017		2018			2017
Premiums written:
Direct	$	706,408		665,862		1,390,228		1,312,140		$	753,363		706,408		$	1,467,597		1,390,228
Assumed	6,488			7,788		12,179		14,108		6,536			6,488		12,807			12,179
Ceded	(99,082		)	(95,510	)	(189,889	)	(182,749	)	(104,651		)	(99,082	)	(200,596		)	(189,889	)
Net	$	613,814		578,140		1,212,518		1,143,499		$	655,248		613,814		$	1,279,808		1,212,518
Premiums earned:
Direct	$	654,588		612,406		1,301,316		1,219,067		$	696,723		654,588		$	1,380,456		1,301,316
Assumed	6,063			7,171		11,842		13,441		6,612			6,063		12,736			11,842
Ceded	(92,621		)	(87,645	)	(184,274	)	(178,118	)	(98,499		)	(92,621	)	(196,528		)	(184,274	)
Net	$	568,030		531,932		1,128,884		1,054,390		$	604,836		568,030		$	1,196,664		1,128,884
Loss and loss expense incurred:
Loss and loss expenses incurred:
Direct	$	389,550		362,064		731,672		723,703		$	391,014		389,550		$	811,930		731,672
Assumed	7,766			6,140		12,203		12,495		2,364			7,766		10,368			12,203
Ceded	(55,757		)	(69,725	)	(84,844	)	(140,575	)	(27,050		)	(55,757	)	(71,029		)	(84,844	)
Net	$	341,559		298,479		659,031		595,623		$	366,328		341,559		$	751,269		659,031

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:


Ceded to NFIP	Quarter ended June 30,					Six Months ended June 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2017			2016		2017		2016		2018			2017		2018			2017
Ceded premiums written	$	(63,808	)	(63,906	)	(120,142	)	(117,154	)	$	(66,341	)	(63,808	)	$	(123,010	)	(120,142	)
Ceded premiums earned	(57,655		)	(56,667	)	(114,932	)	(113,481	)	(60,143		)	(57,655	)	(119,134		)	(114,932	)
Ceded loss and loss expense incurred	(15,140		)	(24,261	)	(21,681	)	(64,979	)
Ceded loss and loss expenses incurred										(10,261		)	(15,140	)	(25,980		)	(21,681	)

NOTE 8. ~~Reserves~~Reserve for ~~Losses~~Loss and Loss ~~Expenses~~Expense

The table below provides a roll forward of ~~reserves~~reserve for ~~losses~~loss and loss ~~expenses for beginning and ending reserve~~expense balances:

Six Months ended June 30,
($ in thousands) 2017 2016
Gross reserves for losses and loss expenses, at beginning of year $ 3,691,719
3,517,728
Less: reinsurance recoverable on unpaid losses and loss expenses, at beginning of year 611,200
551,019
Net reserves for losses and loss expenses, at beginning of year 3,080,519
2,966,709
Incurred losses and loss expenses for claims occurring in the:

Current year 684,877
624,159
Prior years (25,846 ) (28,536 )
Total incurred losses and loss expenses 659,031
595,623
Paid losses and loss expenses for claims occurring in the:

Current year 171,724
146,849
Prior years 425,521
402,255
Total paid losses and loss expenses 597,245
549,104
Net reserves for losses and loss expenses, at end of period 3,142,305
3,013,228
Add: Reinsurance recoverable on unpaid losses and loss expenses, at end of period 588,916
576,941
Gross reserves for losses and loss expenses at end of period $ 3,731,221
3,590,169



	Six Months ended June 30,
($ in thousands)	2018			2017
Gross reserve for loss and loss expense, at beginning of year	$	3,771,240		3,691,719
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year	585,855			611,200
Net reserve for loss and loss expense, at beginning of year	3,185,385			3,080,519
Incurred loss and loss expense for claims occurring in the:
Current year	756,855			684,877
Prior years	(5,586		)	(25,846	)
Total incurred loss and loss expense	751,269			659,031
Paid loss and loss expense for claims occurring in the:
Current year	214,169			171,724
Prior years	457,441			425,521
Total paid loss and loss expense	671,610			597,245
Net reserve for loss and loss expense, at end of period	3,265,044			3,142,305
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period	539,321			588,916
Gross reserve for loss and loss expense at end of period	$	3,804,365		3,731,221

The $72.0 million increase in current year loss and loss expense incurred illustrated in the table above was primarily driven by non-catastrophe property losses, as well as an increase in exposure due to premium growth. Non-catastrophe property losses, which increased $44.0 million, to $188.7 million, in Six Months 2018, were principally related to the early January deep freeze in our footprint states and a relatively large number of severe fire losses.

Prior year development in Six Months 2018 of $5.6 million included $12.0 million of favorable casualty development partially offset by $6.4 million of unfavorable property development. The favorable casualty development included $33.0 million of development in our workers compensation line of business, partially offset by unfavorable development of $15.0 million in our commercial automobile line of business and $6.0 million in our excess and surplus ("E&S") casualty lines.

Prior year development in Six Months 2017 of $25.8 million was primarily driven by favorable prior year casualty reserve development of $37.4 million in our general liability line of business and $15.3 million in our workers compensation line of business. This was partially offset by unfavorable ~~casualty reserve~~ development of $21.0 million in our commercial automobile line of business and $4.0 million in our personal automobile line of business.

~~Prior year development in Six Months 2016~~For a discussion of ~~$28.5 million was primarily due~~the trends and recent developments impacting these lines, refer to ~~favorable casualty reserve development~~the "Critical Accounting Policies and Estimates" section of ~~$22.0 million~~Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." in our general liability line of business and $21.0 million in our workers compensation line of business. This was partially offset by unfavorable casualty reserve development of $13.0 million in our commercial automobile line of business and $3.0 million in our E&S segment.2017 Annual Report.

NOTE 9. Segment Information

The disaggregated results of our four reportable segments are used by senior management to manage our operations. These reportable segments are evaluated as follows:

Our Standard Commercial Lines, Standard Personal Lines, and ~~Excess and Surplus ("~~E~~&S")~~&S Lines are evaluated based on ~~statutory~~before and after-tax underwriting results (net premiums earned, incurred ~~losses~~loss and loss ~~expenses,~~expense, policyholder dividends, policy acquisition costs, and other underwriting expenses), and ~~statutory~~ combined ratios.

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; however, we do partially allocate taxes to various segments. Furthermore, we~~expenses. We do not maintain separate investment portfolios for the segments and therefore, do not allocate assets to the segments.

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


Revenue by Segment	Quarter ended June 30,			Six Months ended June 30,			Quarter ended June 30,				Six Months ended June 30,
($ in thousands)	2017		2016	2017	2016		2018			2017	2018		2017
Standard Commercial Lines:
Net premiums earned:
Commercial automobile	$	108,316	98,896	215,445	194,315		$	122,104		108,316	240,335		215,445
Workers compensation	79,460		75,251	158,786	151,251		80,021			79,460	158,844		158,786
General liability	141,503		129,283	281,487	257,368		153,002			141,503	302,831		281,487
Commercial property	78,052		73,591	154,443	143,769		82,162			78,052	162,488		154,443
Businessowners’ policies	24,989		24,651	49,834	48,555		25,829			24,989	51,420		49,834
Bonds	6,986		5,665	13,484	11,129		8,335			6,986	16,469		13,484
Other	4,288		3,940	8,529	7,779		4,559			4,288	8,989		8,529
Miscellaneous income	3,016		3,567	5,876	4,257		2,882			3,016	4,708		5,876
Total Standard Commercial Lines revenue	446,610		414,844	887,884	818,423		478,894			446,610	946,084		887,884
Standard Personal Lines:
Net premiums earned:
Personal automobile	37,663		35,881	74,613	71,661		41,810			37,663	82,252		74,613
Homeowners	32,467		33,411	65,167	66,311		32,223			32,467	64,424		65,167
Other	1,542		1,532	3,093	3,057		1,644			1,542	3,257		3,093
Miscellaneous income	275		301	656	561		297			275	649		656
Total Standard Personal Lines revenue	71,947		71,125	143,529	141,590		75,974			71,947	150,582		143,529
E&S Lines:
Net premiums earned:
Commercial liability	39,054		36,940	76,966	73,796
Commercial property	13,710		12,891	27,037	25,399
Casualty lines							39,379			39,054	77,919		76,966
Property lines							13,768			13,710	27,436		27,037
Miscellaneous income	—		—	—	1		—			—	1		—
Total E&S Lines revenue	52,764		49,831	104,003	99,196		53,147			52,764	105,356		104,003
Investments:
Net investment income	41,430		31,182	78,849	61,951		45,553			41,430	88,784		78,849
Net realized investment gains (losses)	1,734		1,765	689	(939	)
Net realized and unrealized investment (losses) gains							(1,652		)	1,734	(12,201	)	689
Total Investments revenue	43,164		32,947	79,538	61,012		43,901			43,164	76,583		79,538
Total revenues	$	614,485	568,747	1,214,954	1,120,221		$	651,916		614,485	1,278,605		1,214,954



Income Before and After Federal Income Tax	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2018			2017		2018		2017
Standard Commercial Lines:
Underwriting gain, before federal income tax	$	41,016		34,759		47,820		77,305
Underwriting gain, after federal income tax	32,403			22,593		37,778		50,248
Combined ratio	91.4		%	92.2		94.9		91.2

Standard Personal Lines:
Underwriting gain (loss), before federal income tax	$	4,805		(5,768	)	3,299		(662	)
Underwriting gain (loss), after federal income tax	3,796			(3,749	)	2,606		(430	)
Combined ratio	93.7		%	108.0		97.8		100.5

E&S Lines:
Underwriting (loss) gain, before federal income tax	$	(7,789	)	1,319		(8,354	)	2,889
Underwriting (loss) gain, after federal income tax	(6,154		)	857		(6,600	)	1,878
Combined ratio	114.7		%	97.5		107.9		97.2

Investments:
Net investment income	$	45,553		41,430		88,784		78,849
Net realized and unrealized investment (losses) gains	(1,652		)	1,734		(12,201	)	689
Total investment income, before federal income tax	43,901			43,164		76,583		79,538
Tax on investment income	7,617			11,734		12,843		21,336
Total investment income, after federal income tax	$	36,284		31,430		63,740		58,202

Income Before Federal Income Tax Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2017 2016 2017 2016
Standard Commercial Lines:

Underwriting gain $ 34,759
40,173
77,305
71,105
GAAP combined ratio 92.2 % 90.2
91.2
91.3
Statutory combined ratio 90.6
88.6
89.5
89.1

Standard Personal Lines:
Underwriting (loss) gain $ (5,768 ) 6,125
(662 ) 14,730
GAAP combined ratio 108.0 % 91.4
100.5
89.6
Statutory combined ratio 105.9
89.9
99.8
90.1

E&S Lines:
Underwriting gain (loss) $ 1,319
(2,521 ) 2,889
(1,103 )
GAAP combined ratio 97.5 % 105.1
97.2
101.1
Statutory combined ratio 97.0
102.7
96.5
100.6

Investments:

Net investment income $ 41,430
31,182
78,849
61,951
Net realized investment losses 1,734
1,765
689
(939 )
Total investment income, before federal income tax 43,164
32,947
79,538
61,012
Tax on investment income 11,734
8,275
21,336
14,538
Total investment income, after federal income tax
$ 31,430

24,672
58,202
46,474


Reconciliation of Segment Results to Income Before Federal Income Tax	Quarter ended June 30,					Six Months ended June 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2017			2016		2017		2016		2018			2017		2018		2017
Underwriting gain (loss), before federal income tax
Underwriting gain (loss)
Standard Commercial Lines	$	34,759		40,173		77,305		71,105		$	41,016		34,759		47,820		77,305
Standard Personal Lines	(5,768		)	6,125		(662	)	14,730		4,805			(5,768	)	3,299		(662	)
E&S Lines	1,319			(2,521	)	2,889		(1,103	)	(7,789		)	1,319		(8,354	)	2,889
Investment income, before federal income tax	43,164			32,947		79,538		61,012
Investment income										43,901			43,164		76,583		79,538
Total all segments	73,474			76,724		159,070		145,744		81,933			73,474		119,348		159,070
Interest expense	(6,081		)	(5,620	)	(12,187	)	(11,226	)	(6,125		)	(6,081	)	(12,277	)	(12,187	)
General corporate and other expenses	(8,464		)	(8,793	)	(20,380	)	(20,332	)
Corporate expenses										(3,283		)	(8,464	)	(14,615	)	(20,380	)
Income, before federal income tax	$	58,929		62,311		126,503		114,186		$	72,525		58,929		92,456		126,503

NOTE 10. Retirement Plans

SICA's primary pension plan is the Retirement Income Plan for Selective Insurance Company of America (the “Pension Plan”). SICA also sponsors the Supplemental Excess Retirement Plan (the “Excess Plan”) and a life insurance benefit plan. All plans are closed to new entrants and benefits ceased accruing under the Pension Plan and the Excess Plan after March 31, 2016. For more information concerning SICA's retirement plans, refer to Note 14. “Retirement Plans” in Item 8. “Financial Statements and Supplementary Data.” of our ~~2016~~2017 Annual Report.

The following tables provide information regarding the Pension Plan:


										Pension Plan					Pension Plan
	Pension Plan Quarter ended June 30,					Pension Plan Six Months ended June 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2017			2016		2017		2016		2018			2017		2018		2017
Net Periodic Benefit Cost:
Service cost	$	—		—		—		1,606
Interest cost	3,110			3,101		6,221		6,203		$	3,095		3,110		6,190		6,221
Expected return on plan assets	(4,855		)	(3,988	)	(9,709	)	(7,976	)	(5,681		)	(4,855	)	(11,363	)	(9,709	)
Amortization of unrecognized net actuarial loss	482			1,481		963		2,961		493			482		987		963
Total net periodic cost	$	(1,263	)	594		(2,525	)	2,794
Total net periodic benefit cost¹										$	(2,093	)	(1,263	)	(4,186	)	(2,525	)

¹ The components of net periodic benefit cost are included within "Loss and loss expense incurred" and "Other insurance expenses" on the Consolidated Statements of Income.


					Pension Plan
	Pension Plan Six Months ended June 30,				Six Months ended June 30,
	2017		2016		2018		2017
Weighted-Average Expense Assumptions:
Discount rate	4.41	%	4.69	%	3.78	%	4.41	%
Effective interest rate for calculation of service cost	n/a		4.52
Effective interest rate for calculation of interest cost	3.83		4.02		3.46		3.84
Expected return on plan assets	6.24		6.37		6.36		6.24
Rate of compensation increase	n/a		4.00

NOTE 11. Comprehensive Income

The components of comprehensive income, both gross and net of tax, for Second Quarter and Six Months ~~2017~~2018 and ~~2016~~2017 are as follows:

Second Quarter 2017
($ in thousands) Gross Tax Net
Net income $ 58,929
17,503
41,426
Components of OCI:

Unrealized gains on investment securities:

Unrealized holding gains during period 35,887
12,561
23,326
Non-credit portion of OTTI recognized in OCI 6
2
4
Amounts reclassified into net income:
HTM securities (43 ) (15 ) (28 )
Realized gains on AFS securities (1,885 ) (660 ) (1,225 )
Total unrealized gains on investment securities 33,965
11,888
22,077
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:

Net actuarial loss 508
178
330
Total defined benefit pension and post-retirement plans 508
178
330
Other comprehensive income 34,473
12,066
22,407
Comprehensive income $ 93,402
29,569
63,833


Second Quarter 2016
Second Quarter 2018
($ in thousands)								Gross			Tax		Net
Net income								$	72,525		13,706		58,819
Components of other comprehensive loss:
Unrealized losses on investment securities:
Unrealized holding losses during period								(23,993		)	(5,038	)	(18,955	)
Amounts reclassified into net income:
HTM securities								(8		)	(2	)	(6	)
Realized losses on disposals of AFS securities								2,870			603		2,267
Total unrealized losses on investment securities								(21,131		)	(4,437	)	(16,694	)
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss								531			111		420
Total defined benefit pension and post-retirement plans								531			111		420
Other comprehensive loss								(20,600		)	(4,326	)	(16,274	)
Comprehensive income								$	51,925		9,380		42,545


Second Quarter 2017
($ in thousands)	Gross			Tax		Net		Gross			Tax		Net
Net income	$	62,311		18,710		43,601		$	58,929		17,503		41,426
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during period	55,675			19,487		36,188		35,887			12,561		23,326
Non-credit portion of OTTI recognized in OCI	(10		)	(4	)	(6	)	6			2		4
Amounts reclassified into net income:
HTM securities	(19		)	(7	)	(12	)	(43		)	(15	)	(28	)
Realized gains on AFS securities	(1,762		)	(617	)	(1,145	)
Realized gains on disposals of AFS securities								(1,885		)	(660	)	(1,225	)
Total unrealized gains on investment securities	53,884			18,859		35,025		33,965			11,888		22,077
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	1,517			532		985		508			178		330
Total defined benefit pension and post-retirement plans	1,517			532		985		508			178		330
Other comprehensive income	55,401			19,391		36,010		34,473			12,066		22,407
Comprehensive income	$	117,712		38,101		79,611		$	93,402		29,569		63,833

Six Months 2017
($ in thousands) Gross Tax Net
Net income $ 126,503
34,637
91,866
Components of OCI:

Unrealized gains on investment securities:

Unrealized holding gains during period 61,672
21,585
40,087
Non-credit portion of OTTI recognized in OCI 6
2
4
Amounts reclassified into net income:
HTM securities (92 ) (32 ) (60 )
Realized gains on AFS securities (375 ) (131 ) (244 )
Total unrealized gains on investment securities 61,211
21,424
39,787
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:

Net actuarial loss 1,015
355
660
Total defined benefit pension and post-retirement plans 1,015
355
660
Other comprehensive income 62,226
21,779
40,447
Comprehensive income $ 188,729
56,416
132,313


Six Months 2016
Six Months 2018
($ in thousands)								Gross			Tax		Net
Net income								$	92,456		14,712		77,744
Components of other comprehensive loss:
Unrealized losses on investment securities:
Unrealized holding losses during period								(109,308		)	(22,955	)	(86,353	)
Amounts reclassified into net income:
HTM securities								(20		)	(4	)	(16	)
Realized losses on disposals of AFS securities								7,419			1,558		5,861
Total unrealized losses on investment securities								(101,909		)	(21,401	)	(80,508	)
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss								1,063			223		840
Total defined benefit pension and post-retirement plans								1,063			223		840
Other comprehensive loss								(100,846		)	(21,178	)	(79,668	)
Comprehensive loss								$	(8,390	)	(6,466	)	(1,924	)


Six Months 2017
($ in thousands)	Gross			Tax		Net		Gross			Tax		Net
Net income	$	114,186		33,553		80,633		$	126,503		34,637		91,866
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during period	121,412			42,495		78,917		61,672			21,585		40,087
Non-credit portion of OTTI recognized in OCI	(10		)	(4	)	(6	)	6			2		4
Amounts reclassified into net income:
HTM securities	(91		)	(32	)	(59	)	(92		)	(32	)	(60	)
Realized losses on AFS securities	937			328		609
Realized gains on disposals of AFS securities								(375		)	(131	)	(244	)
Total unrealized gains on investment securities	122,248			42,787		79,461		61,211			21,424		39,787
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	3,033			1,062		1,971		1,015			355		660
Total defined benefit pension and post-retirement plans	3,033			1,062		1,971		1,015			355		660
Other comprehensive income	125,281			43,849		81,432		62,226			21,779		40,447
Comprehensive income	$	239,467		77,402		162,065		$	188,729		56,416		132,313

The balances of, and changes in, each component of AOCI (net of taxes) as of June 30, ~~2017~~2018 were as follows:


June 30, 2017										Defined Benefit Pension and Post-Retirement Plans
June 30, 2018																											Defined Benefit Pension and Post-Retirement Plans
	Net Unrealized Gain on Investment Securities											Total AOCI			Net Unrealized Gains (Losses) on Investment Securities																Total AOCI
($ in thousands)	OTTI Related			HTM Related		All Other		Investments Subtotal				Total AOCI		Defined Benefit Pension and Post-Retirement Plans				OTTI Related				HTM Related			All Other					Investments Subtotal
Balance, December 31, 2016	$	(150	)	102		42,170		42,122			(15,950	)
Balance, December 31, 2017																$	(59	)		(14	)		80,648			80,575			(60,405	)	Total AOCI		20,170
Cumulative effect adjustments																	(12		)		(2	)		(12,792	)		(12,806	)		(12,213	)		(25,019	)
Balance, December 31, 2017 as adjusted																(71		)		(16	)		67,856			67,769			(72,618	)		(4,849	)
OCI before reclassifications	4			—		40,087		40,091			—				40,091			—				—			(86,353	)		(86,353	)		—			(86,353	)
Amounts reclassified from AOCI	—			(60	)	(244	)	(304	)	660			356			—				(16	)		5,861		��	5,845			840			6,685
Net current period OCI	4			(60	)	39,843		39,787		660			40,447			—				(16	)		(80,492	)		(80,508	)		840			(79,668	)
Balance, June 30, 2017	$	(146	)	42		82,013		81,909		(57,412	)		24,497
Balance, June 30, 2018																$	(71	)		(32	)		(12,636	)		(12,739	)		(71,778	)		(84,517	)

The reclassifications out of AOCI were as follows:


	Quarter ended June 30,					Six Months ended June 30,				Affected Line Item in the Unaudited Consolidated Statement of Income	Quarter ended June 30,					Six Months ended June 30,				Affected Line Item in the Unaudited Consolidated Statements of Income
($ in thousands)	2017			2016		2017		2016			2018			2017		2018		2017
HTM related
Unrealized losses on HTM disposals	17			60		30		88		Net realized gains (losses)	$	(7	)	17		(6	)	30		Net realized and unrealized (losses) gains
Amortization of net unrealized gains on HTM securities	(60		)	(79	)	(122	)	(179	)	Net investment income earned	(1		)	(60	)	(14	)	(122	)	Net investment income earned
	(43		)	(19	)	(92	)	(91	)	Income before federal income tax	(8		)	(43	)	(20	)	(92	)	Income before federal income tax
	15			7		32		32		Total federal income tax expense	2			15		4		32		Total federal income tax expense
	(28		)	(12	)	(60	)	(59	)	Net income	(6		)	(28	)	(16	)	(60	)	Net income
Realized (gains) losses on AFS and OTTI
Realized (gains) losses on AFS disposals and OTTI	(1,885		)	(1,762	)	(375	)	937		Net realized gains (losses)
Realized losses (gains) on AFS and OTTI
Realized losses (gains) on AFS disposals and OTTI											2,870			(1,885	)	7,419		(375	)	Net realized and unrealized (losses) gains
	(1,885		)	(1,762	)	(375	)	937		Income before federal income tax	2,870			(1,885	)	7,419		(375	)	Income before federal income tax
	660			617		131		(328	)	Total federal income tax expense	(603		)	660		(1,558	)	131		Total federal income tax expense
	(1,225		)	(1,145	)	(244	)	609		Net income	2,267			(1,225	)	5,861		(244	)	Net income
Defined benefit pension and post-retirement life plans
Net actuarial loss	111			329		221		658		Losses and loss expenses incurred	113			111		225		221		Loss and loss expense incurred
	397			1,188		794		2,375		Policy acquisition costs	418			397		838		794		Other insurance expenses
Total defined benefit pension and post-retirement life	508			1,517		1,015		3,033		Income before federal income tax	531			508		1,063		1,015		Income before federal income tax
	(178		)	(532	)	(355	)	(1,062	)	Total federal income tax expense	(111		)	(178	)	(223	)	(355	)	Total federal income tax expense
	330			985		660		1,971		Net income	420			330		840		660		Net income

Total reclassifications for the period	$	(923	)	(172	)	356		2,521		Net income	$	2,681		(923	)	6,685		356		Net income

NOTE 12. ~~Related Party Transactions~~Federal Income Taxes

~~BlackRock, Inc., a leading publicly traded investment management firm (“BlackRock”), has purchased~~(a) On December 22, 2017, Tax Reform was signed into law, which among other implications, reduced our ~~common shares in the ordinary course of its investment business and has previously filed Schedules 13G/A~~statutory corporate tax rate from 35% to 21% beginning with ~~the SEC. On April 10, 2017, BlackRock filed a Schedule 13G/A reporting beneficial ownership as of March 31, 2017, of 12.7% of~~ our common stock. In connection with purchasing our common shares, BlackRock filed the necessary filings with insurance regulatory authorities. On the basis of those filings, BlackRock is deemed not to be a controlling person for the purposes of applicable insurance law.

We are required to disclose related party information for our transactions with BlackRock. BlackRock is highly regulated, serves its clients as a fiduciary, and has a diverse platform of active (alpha) and index (beta) investment strategies across asset classes that enables it to tailor investment outcomes and asset allocation solutions for clients. BlackRock also offers the ~~BlackRock Solutions~~^® ~~investment and risk management technology platform,~~ ~~Aladdin~~^®, risk analytics, advisory and technology services and solutions to a broad base of institutional and wealth management investors. In Second Quarter 2017 and Six Months 2017, we incurred BlackRock-related expenses of $0.5 million and $1.0 million for services rendered, respectively. No material expenses were incurred with BlackRock in Second Quarter 2016 and Six Months 2016. Amounts payable for such services at June 30, 2017 and December 31, 2016, were $0.9 million and $0.4 million, respectively. All contracts with BlackRock were consummated in the ordinary course of business on an arm's-length basis.2018 tax year.

We ~~have no~~continue to provide provisional amounts for loss reserve discounting because the Internal Revenue Service ("IRS") has not yet issued guidance with regard to the discount rates to be used under Tax Reform. For additional ~~material transactions with related parties other than those disclosed in~~information, refer to Note ~~16. "Related Party Transactions" included~~13. "Federal Income Taxes" in Item 8. "Financial Statements and Supplementary Data." of our ~~2016~~2017 Annual Report.

During 2018, we will continue to monitor IRS guidance to complete the analysis of loss reserve discounting.

(b) A reconciliation of federal income tax on income at the corporate rate to the effective tax rate is as follows:



	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2018			2017		2018		2017
Statutory tax rate	21		%	35		21		35
Tax at statutory rate	$	15,231		20,625		19,416		44,276
Tax-advantaged interest	(1,393		)	(2,757	)	(2,904	)	(5,564	)
Dividends received deduction	(210		)	(625	)	(336	)	(956	)
Stock-based compensation	(82		)	(374	)	(2,548	)	(3,323	)
Other	160			634		1,084		204
Federal income tax expense	$	13,706		17,503		14,712		34,637

NOTE 13. 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 ten insurance subsidiaries ("Insurance Subsidiaries") as either: (i) liability insurers defending or providing indemnity for third-party claims brought against our customers; or (ii) insurers defending first-party coverage claims brought against them. We account for such activity through the establishment of unpaid ~~losses~~loss and loss expense reserves. We expect that any potential ultimate liability in such ordinary course claims litigation will not be material to our consolidated financial condition, results of operations, or cash flows after consideration of provisions made for potential losses and costs of defense.

From time to time, our Insurance Subsidiaries also are named as defendants 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. Similarly, our Insurance Subsidiaries are also named from time-to-time in individual actions seeking extra-contractual damages, punitive damages, or penalties, some of which allege bad faith in the handling of insurance claims. We believe that we have valid defenses to these cases. We expect that any potential ultimate liability in any such lawsuit will not be material to our consolidated financial condition, after consideration of provisions made for estimated losses. Nonetheless, given the inherent unpredictability of litigation and the large or indeterminate amounts sought in certain of these actions, an adverse outcome in certain matters could possibly have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

As of June 30, ~~2017,~~2018, we do not believe the Company was involved in any legal action that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

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

Forward-Looking Statements

As used herein, the "Company," "we," "us," or "our" refers to Selective Insurance Group, Inc. (the "Parent"), and its subsidiaries, except as expressly indicated or unless the context otherwise requires. 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.” 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

The Parent, through its ten insurance subsidiaries, collectively referred to as the "Insurance Subsidiaries," offers property and casualty insurance products in the standard and excess and surplus ("E&S") marketplaces. We classify our business into four reportable segments, which are as follows:

Standard Commercial Lines;

Standard Personal Lines;

E&S Lines; and

Investments.

For further details regarding these segments, refer to Note 9. "Segment Information" in Item 1. "Financial Statements." of this Form 10-Q and Note 11. "Segment Information" in Item 8. "Financial Statements and Supplementary Data." of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 ("~~2016~~2017 Annual ~~Report~~"Report").

Our Standard Commercial and Standard Personal Lines products and services are written through nine of our Insurance Subsidiaries, some of which write flood business through the Write Your Own ("WYO") program of the National Flood Insurance Program ("NFIP"). Our E&S products and services are written through one subsidiary, Mesa Underwriters Specialty Insurance Company ("MUSIC"). This subsidiary provides us with a nationally-authorized non-admitted platform to offer insurance products and services to customers who have not obtained coverage in the standard marketplace.

The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated results of operations and financial condition, as well as known trends and uncertainties, that may have a material impact in future periods. Consequently, investors should read the MD&A in conjunction with Item 1. "Financial Statements." of this Form 10-Q and the consolidated financial statements in our ~~2016~~2017 Annual Report filed with the U.S. Securities and Exchange ~~Commission ("SEC").~~Commission.

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

Critical Accounting Policies and Estimates;

Financial Highlights of Results for the second quarters ended June 30, 2018 (“Second Quarter 2018”) and June 30, 2017 (“Second Quarter 2017”) and ~~June 30, 2016~~ (“~~Second Quarter 2016”) and~~ the six-month periods ended June 30, 2018 ("Six Months 2018") and June 30, 2017 ("Six Months 2017"~~) and June 30, 2016 ("Six Months 2016"~~);

Results of Operations and Related Information by Segment;

Federal Income Taxes;

Financial Condition, Liquidity, and Capital Resources;

Ratings;

Off-Balance Sheet Arrangements; and

Contractual Obligations, Contingent Liabilities, and Commitments.

Critical Accounting Policies and Estimates

Our 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 that were most critical to the preparation of the consolidated financial statements involved the following: (i) reserves for loss and loss ~~expenses;~~expense; (ii) pension and post-retirement benefit plan actuarial assumptions; (iii) investment valuation and other-than-temporary-impairments ("OTTI"); and (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 pages 3736 through 4544 of our ~~2016~~2017 Annual ~~Report~~.Report.

Financial Highlights of Results for Second Quarter and Six Months ~~2017~~2018 and Second Quarter and Six Months ~~2016~~2017¹


($ and shares in thousands, except per share amounts)	Quarter ended June 30,				Change % or Points				Six Months ended June 30,					Change % or Points			Quarter ended June 30,				Change % or Points			Six Months ended June 30,				Change % or Points
($ and shares in thousands, except per share amounts)	2017			2016				2017				2016				2018			2017		Change % or Points		2018			2017		Change % or Points
Generally Accepted Accounting Principles ("GAAP") measures:					Change % or Points									Change % or Points
Revenues	$	614,485		568,747	8		%		$	1,214,954			1,120,221	8		%	$	651,916		614,485	6		%	$	1,278,605		1,214,954	5		%
After-tax net investment income	30,303			23,525	29				57,754				47,085	23			37,589			30,303	24			73,379			57,754	27
Pre-tax net income	58,929			62,311	(5	)			126,503				114,186	11
After-tax underwriting income																	30,045			19,702	52			33,784			51,696	(35	)
Net income before federal income tax																	72,525			58,929	23			92,456			126,503	(27	)
Net income	41,426			43,601	(5	)			91,866				80,633	14			58,819			41,426	42			77,744			91,866	(15	)
Diluted net income per share	0.70			0.74	(5	)			1.55				1.38	12			0.99			0.70	41			1.30			1.55	(16	)
Diluted weighted-average outstanding shares	59,222			58,598	1				59,185				58,552	1			59,597			59,222	1			59,579			59,185	1
GAAP combined ratio	94.7		%	91.8	2.9		pts		93.0		%		92.0	1.0		pts
Statutory combined ratio	93.1			90.1	3.0				91.4				90.4	1.0
Combined ratio																	93.7		%	94.7	(1.0	)	pts	96.4		%	93.0	3.4		pts
Invested assets per dollar of stockholders' equity	$	3.33		3.39	(2	)	%		$	3.33			3.39	(2	)	%	$	3.34		3.33	—		%	$	3.34		3.33	—		%
After-tax yield on investments	2.2		%	1.8	0.4		pts		2.1		%		1.8	0.3		pts	2.7		%	2.2	0.5		pts	2.6		%	2.1	0.5		pts
Annualized return on average equity ("ROE")	10.2			11.5	(1.3	)			11.5				10.9	0.6			14.0			10.2	3.8			9.1			11.5	(2.4	)
Non-GAAP measures:
Operating income²	$	40,299		42,454	(5	)	%		$	91,418			81,244	13		%
Diluted operating income per share²	0.68			0.72	(6	)			1.54				1.39	11
Annualized operating ROE²	9.9		%	11.2	(1.3	)	pts		11.5		%		11.0	0.5		pts

Non-Generally Accepted Accounting Principles ("GAAP") operating income²																	$	60,124		40,299	49		%	$	87,383		91,418	(4	)	%
Diluted non-GAAP operating income per share²																	1.01			0.68	49			1.46			1.54	(5	)
Annualized non-GAAP operating ROE²																	14.3		%	9.9	4.4		pts	10.2		%	11.5	(1.3	)	pts


¹	Refer to the Glossary of Terms attached to our ~~2016~~2017 Annual Report as Exhibit 99.1 for definitions of terms used in this Form 10-Q.

~~Operating~~Non-GAAP operating income is used as an important financial measure by us, analysts, and investors, because the realization of investment gains and losses on sales of securities in any given period is largely discretionary as to timing. In addition, these net realized investment gains and losses, as well as OTTI that are charged to earnings, and ~~the results of discontinued operations,~~unrealized gains and losses on equity securities, could distort the analysis of trends.

Reconciliations of net income, net income per share, and annualized ROE to non-GAAP operating income, non-GAAP operating income per share, and annualized non-GAAP operating ROE, respectively, are provided in the tables below:

Reconciliation of net income to operating income Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2017 2016 2017 2016
Net income $ 41,426
43,601
91,866
80,633
Exclude: Net realized (gains) losses (1,734 ) (1,765 ) (689 ) 939
Exclude: Tax on net realized (gains) losses 607
618
241
(328 )
Operating income $ 40,299
42,454
91,418
81,244



Reconciliation of net income to non-GAAP operating income	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2018			2017		2018		2017
Net income	$	58,819		41,426		77,744		91,866
Net realized losses (gains) and OTTI	2,767			(1,734	)	(752	)	(689	)
Net unrealized (gains) losses recognized in income on equity securities	(1,115		)	—		12,953		—
Net realized (gains) losses, OTTI, and unrealized (gains) losses	1,652			(1,734	)	12,201		(689	)
Tax expense (benefit)	(347		)	607		(2,562	)	241
Non-GAAP operating income	$	60,124		40,299		87,383		91,418

Reconciliation of net income per share to operating income per share Quarter ended June 30, Six Months ended June 30,
2017 2016 2017 2016
Diluted net income per share $ 0.70
0.74
1.55
1.38
Exclude: Net realized (gains) losses per share (0.03 ) (0.03 ) (0.01 ) 0.02
Exclude: Tax on net realized (gains) losses per share 0.01
0.01
—
(0.01 )
Diluted operating income per share $ 0.68
0.72
1.54
1.39



Reconciliation of net income per share to non-GAAP operating income per share	Quarter ended June 30,					Six Months ended June 30,
	2018			2017		2018		2017
Diluted net income per share	$	0.99		0.70		1.30		1.55
Net realized losses (gains) and OTTI	0.05			(0.03	)	(0.01	)	(0.01	)
Net unrealized (gains) losses recognized in income on equity securities	(0.02		)	—		0.21		—
Net realized (gains) losses, OTTI, and unrealized (gains) losses	0.03			(0.03	)	0.20		(0.01	)
Tax expense (benefit)	(0.01		)	0.01		(0.04	)	—
Diluted non-GAAP operating income per share	$	1.01		0.68		1.46		1.54

Reconciliation of annualized ROE to annualized operating ROE Quarter ended June 30, Six Months ended June 30,
2017 2016 2017 2016
Annualized ROE 10.2 % 11.5
11.5
10.9
Exclude: Net realized (gains) losses (0.4 ) (0.5 ) (0.1 ) 0.1
Exclude: Tax on net realized (gains) losses 0.1
0.2
0.1
—
Annualized operating ROE 9.9 % 11.2
11.5
11.0



Reconciliation of annualized ROE to annualized non-GAAP operating ROE	Quarter ended June 30,				Six Months ended June 30,
	2018		2017		2018		2017
Insurance operations	7.2	%	4.9		4.0		6.5
Investment income¹	9.0		7.5		8.6		7.3
Other	(1.9	)	(2.5	)	(2.4	)	(2.3	)
Net realized (losses) gains and OTTI	(0.7	)	0.4		0.1		0.1
Net unrealized gains (losses) recognized in income on equity securities	0.3		—		(1.5	)	—
Total net realized (losses) gains, OTTI, and unrealized gains (losses)¹	(0.4	)	0.4		(1.4	)	0.1
Tax on net realized losses (gains), OTTI, and unrealized (gains) losses¹	0.1		(0.1	)	0.3		(0.1	)
Annualized ROE	14.0	��%	10.2		9.1		11.5

Annualized ROE	14.0		10.2		9.1		11.5
Net realized losses (gains) and OTTI	0.7		(0.4	)	(0.1	)	(0.1	)
Net unrealized (gains) losses recognized in income on equity securities	(0.3	)	—		1.5		—
Net realized (gains) losses, OTTI, and unrealized (gains) losses	0.4		(0.4	)	1.4		(0.1	)
Tax expense (benefit)	(0.1	)	0.1		(0.3	)	0.1
Annualized non-GAAP operating ROE	14.3	%	9.9		10.2		11.5

¹Investment segment results are the combination of "Net investment income earned," "Net realized and unrealized losses," and "Tax on net realized and unrealized losses."

After the severe winter weather losses incurred in the first quarter of 2018, our strong results in Second Quarter 2018 resulted in a 14.0% annualized ROE for Second Quarter 2018 and a 9.1% annualized ROE for Six Months 2018. The 3.8-point increase in annualized ROE in Second Quarter 2018 compared to Second Quarter 2017 was driven by: (i) an improvement in underwriting results, as the combined ratio was lower by 1.0 points in Second Quarter 2018 compared to Second Quarter 2017; (ii) an increase in investment income due to higher yields on our fixed income securities portfolio; (iii) a decrease in other expenses, as Second Quarter 2018 included a benefit related to stock compensation expense as a result of stock price fluctuations that have impacted the fair value of our liability awards; and (iv) a 1.9-point benefit from the lower corporate tax rate provided for in the Tax Cuts and Jobs Act of 2017 ("Tax Reform"). The 2.4-point decrease in annualized ROE in Six Months 2018 compared to Six Months 2017 reflects: (i) a 3.4-point increase in our combined ratio from 93.0% in Six Months 2017 to 96.4% in Six Months 2018; and (ii) the impact of net unrealized losses on equity securities in our income statement; partially offset by a 0.9-point benefit from the lower corporate tax rate provided for in Tax Reform. The combined ratio increase was primarily driven by non-catastrophe property losses that were 3.0 points higher than Six Months 2017, mostly due to the severe winter weather and a relatively large number of severe fire losses in the first quarter of 2018.

Our Second Quarter and Six Months ~~2017~~2018 results continue to reflect our ~~hard work to drive~~efforts to: (i) achieve renewal pure price increases at the account level within our Standard Commercial Lines segment and overall rate level increases in our Standard Personal Lines ~~segments as well as our~~and E&S ~~segment,~~segments; (ii) generate new ~~business,~~business; and (iii) improve the underlying profitability of our ~~book of~~ business through various underwriting and claims initiatives. Our net premiums written ("NPW") growth of 7% for Second Quarter 2018 and 6% infor Six Months 2017 was driven by our strong franchise value with our "ivy league" distribution partners. Over the past eight years, our Standard Commercial Lines renewal pure price increases have cumulatively outperformed the Willis Towers Watson Commercial Lines Pricing (or CLIPs) survey by approximately 1,800 basis points, while maintaining high retention rates. In addition, NPW growth2018 was aided by the net appointment of 46109 retail agents in ~~2016~~2017 and 1066 retail agents in Six Months ~~2017, which is exclusive of 25~~2018, excluding agency consolidations. Included in these net appointments were 26 agents that ~~have been~~were appointed in our ~~expansion states. These expansion state~~new states of

Arizona and New Hampshire in 2017 and 12 agents ~~will begin generating premium for us~~that were appointed in ~~the second half of 2017.~~Arizona, New Hampshire, and Colorado in Six Months 2018.

In addition to the cumulative renewal pure ~~renewal~~ price increases we have achieved over the past several years, we have ~~benefited from~~driven underwriting and claims process enhancements, ~~as well as a shift in~~and have improved our mix of business ~~mix towards higher quality accounts.~~based on expected future profitability. For example, our workers compensation book of business, which represents approximately ~~20%~~17% of our Standard Commercial Lines business, continues to benefit from the steps we have taken in recent years to increase premium rates and improve the business mix by shifting towards lower hazard and smaller accounts from higher hazard and larger accounts. Additionally,from: (i) claims initiatives, such as ~~having an increased focus on~~ reducing workers compensation medical costs through more favorable Preferred Provider Organization ("PPO") contracts and greater PPO ~~penetration, have helped improve profitability of this line. The~~penetration; and (ii) better outcomes driven by our workers compensation ~~statutory combined ratio was a profitable 86.9%~~strategic case unit. In addition, we continue to work towards an improved mix of business in ~~Six Months 2017. Our E&S segment has also seen some improvement in underwriting results as we have continued to deploy our corporate claims practices into~~ this line, that shifts towards lower hazard and smaller ~~operation; although we have not yet met our financial targets for this segment.~~accounts from higher hazard and larger accounts. For a full discussion of the claims initiatives that we have deployed, refer to the “Reserves for Loss and Loss ~~Expenses”~~Expense” section within Critical Accounting Policies and Estimates in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations.” of our ~~2016~~2017 Annual Report.

~~After-tax~~Our commercial automobile line of business has been unprofitable in recent years and remains a significant area of focus for both the industry and us, as we continue to drive various initiatives to improve profitability in this line of business. For Second Quarter and Six Months 2018, we recorded unfavorable prior year casualty reserve development of $7.0 million and $15.0 million, respectively, mainly for accident years 2015 through 2017. The industry-wide statutory combined ratio for 2018 is expected to average approximately 112% as the industry has been experiencing higher than expected claim frequencies largely due to increased miles driven as a result of lower unemployment, lower gasoline prices, and an increase in distracted driving. Our combined ratio was 108.8% for Second Quarter 2018 and 110.0% for Six Months 2018. We achieved renewal pure price increases on this line of 7.5% in Second Quarter 2018 and 7.4% in Six Months 2018. We expect on-going industry-wide profitability issues to drive new and renewal pricing higher for this line of business. We have also been managing our commercial automobile in-force book of business in targeted industry segments and reducing our relative exposure in higher hazard classes to improve the underlying profitability of this business.

Our E&S Lines segment also remains a focus area, with a combined ratio of 114.7% for Second Quarter 2018 and 107.9% for Six Months 2018. We face a competitive environment in this segment, and our pricing and underwriting initiatives aimed at improving profitability have resulted in a decline in new business volume. To improve our profitability, we have increased new and renewal pricing, implemented business mix changes, and enhanced claims management practices. We expect continued pressure on NPW growth in this segment until we achieve our risk-adjusted return expectations.

Pre-tax net investment income grew ~~23%~~10% in Second Quarter 2018 and 13% in Six Months ~~2017~~2018 compared to ~~Six Months 2016,~~the same prior year periods, driven by higher yields on our fixed income portfolio and improved returns on our alternative investments. In 2016, we determined that a more active management approach to our investment portfolio was necessary to maximize the risk-adjusted after-tax income and total return of the portfolio in an investment environment of low interest rates, while maintaining a similar level of credit quality and duration risk.securities portfolio. We have ~~increased our long-term target risk asset allocation and modestly increased~~continued to diversify our exposure to ~~non-investment grade~~risk assets and move towards a long-term allocation of approximately 10% of total invested assets. Risk assets, which principally include public equities, high-yield fixed income securities, ~~private equity investments,~~ and private ~~credit strategies to further diversify our allocation within risk assets. Our risk~~ assets, ~~which include public equities, non-investment grade fixed income securities, private equity investments, and other limited partnership private investments,~~ represented 7%7.6% of our total invested assets at June 30, ~~2017 and may increase to approximately 10% over time.~~2018.

~~The improvements to our underwriting profitability and the more active management of our investment portfolio contributed to our long-term goal of generating~~We generated an annualized non-GAAP operating ROE ~~that is approximately 300 basis points~~of 14.3% in ~~excess of our weighted average cost of capital over time. Our annualized operating ROE increased~~Second Quarter 2018 and 10.2% in Six Months ~~2017 to 11.5%,~~2018, compared to ~~11.0%~~9.9% in Second Quarter 2017 and 11.5% in Six Months ~~2016,~~2017. The 4.4-point increase in Second Quarter 2018 compared to Second Quarter 2017 was mainly due to the increase in underwriting income and investment income, ~~mentioned~~as discussed above. ~~Our annualized ROE and operating ROE contributions~~The 1.3-point decrease in Six Months 2018 compared to Six Months 2017 was mainly due to lower levels of underwriting income as discussed above, partially offset by ~~component are as follows:~~an increase in investment income.

ROE Quarter ended June 30, Six Months ended June 30,
2017 2016 2017 2016
Insurance segments 4.9 % 7.5
6.5 % 7.5
Investment income¹
7.5
6.2
7.3
6.4
Other (2.5 ) (2.5 ) (2.3 ) (2.9 )
Net realized gains (losses)¹, net of tax at 35%
0.3
0.3
—
(0.1 )
Annualized ROE 10.2
11.5
11.5
10.9
Exclude: Net realized gains (losses)¹, net of tax at 35%
(0.3 ) (0.3 ) —
0.1
Annualized operating ROE 9.9 % 11.2
11.5 % 11.0
Weighted average cost of capital, as of the prior year-end 8.5 % 8.7
8.5 % 8.7

¹~~Investment segment results are the combination of "Net investment income earned" and "Net realized losses".~~

��

Insurance ~~Segments~~Operations

The key metric in understanding our insurance segments’ contribution to annualized non-GAAP operating ROE is the GAAP combined ratio. The following table provides a quantitative foundation for analyzing this ratio:


All Lines	Quarter ended June 30,				Change % or Points			Six Months ended June 30,				Change % or Points				Quarter ended June 30,					Change % or Points			Six Months ended June 30,					Change % or Points
($ in thousands)	2017			2016	Change % or Points			2017			2016			2018				2017			Change % or Points		2018			2017			Change % or Points
GAAP Insurance Operations Results:												Change % or Points
Insurance Operations Results:															Insurance Operations Results:
NPW	$	613,814		578,140	6		%	$	1,212,518		1,143,499	6		%		$	655,248			613,814	7		%	$	1,279,808			1,212,518	6		%
Net premiums earned (“NPE”)	568,030			531,932	7			1,128,884			1,054,390	7				604,836				568,030	6			1,196,664				1,128,884	6
Less:
Losses and loss expenses incurred	341,559			298,479	14			659,031			595,623	11
Loss and loss expense incurred																366,328				341,559	7			751,269				659,031	14
Net underwriting expenses incurred	194,237			188,058	3			388,494			370,764	5				198,899				194,237	2			398,646				388,494	3
Dividends to policyholders	1,924			1,618	19			1,827			3,271	(44	)			1,577				1,924	(18	)		3,984				1,827	118
Underwriting gain	$	30,310		43,777	(31	)	%	$	79,532		84,732	(6	)	%
GAAP Ratios:
Underwriting income																$	38,032			30,310	25		%	$	42,765			79,532	(46	)	%
Combined Ratios:
Loss and loss expense ratio	60.2		%	56.1	4.1		pts	58.4		%	56.5	1.9		pts		60.5			%	60.2	0.3		pts	62.8			%	58.4	4.4		pts
Underwriting expense ratio	34.2			35.4	(1.2	)		34.4			35.2	(0.8	)			32.9				34.2	(1.3	)		33.3				34.4	(1.1	)
Dividends to policyholders ratio	0.3			0.3	—			0.2			0.3	(0.1	)			0.3				0.3	—			0.3				0.2	0.1
Combined ratio	94.7			91.8	2.9			93.0			92.0	1.0				93.7				94.7	(1.0	)		96.4				93.0	3.4
Statutory Ratios:
Loss and loss expense ratio	60.0			56.0	4.0			58.2			56.4	1.8
Underwriting expense ratio	32.8			33.8	(1.0	)		33.0			33.7	(0.7	)
Dividends to policyholders ratio	0.3			0.3	—			0.2			0.3	(0.1	)
Combined ratio	93.1		%	90.1	3.0		pts	91.4		%	90.4	1.0		pts

The ~~GAAP combined~~loss and loss expense ratio increased ~~by 2.9~~0.3 points in Second Quarter ~~2017~~2018 and ~~1.0 point~~increased 4.4 points in Six Months ~~2017~~2018 compared to the same prior year periods, ~~last year,~~ driven ~~by:~~by the following:

Second Quarter 2017 Second Quarter 2016
($ in millions) Losses and Loss Expenses Incurred Impact on
Loss and Loss Expense Ratio Losses and Loss
Expenses
Incurred Impact on
Loss and Loss Expense Ratio Change in Ratio
Catastrophe losses $ 29.3
5.2
pts $ 8.4
1.6
pts 3.6
pts
Non-catastrophe property losses 73.3
12.9
64.3
12.1
0.8

Favorable prior year casualty reserve development (14.3 ) (2.5 ) (10.0 ) (1.9 ) (0.6 )
Total 88.3
15.6
62.7
11.8
3.8


	Six Months 2017						Six Months 2016								Second Quarter 2018						Second Quarter 2017
($ in millions)	Losses and Loss Expenses Incurred			Impact on Loss and Loss Expense Ratio			Losses and Loss Expenses 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	$	41.5		3.7		pts	$	22.8		2.2		pts	1.5	pts	$	18.7		3.1		pts	$	29.3		5.2		pts	(2.1	)	pts
(Favorable) prior year casualty reserve development															(4.0		)	(0.7	)		(14.3		)	(2.5	)		1.8
Non-catastrophe property losses	144.7			12.8			130.8			12.4			0.4		82.9			13.7			73.3			12.9			0.8
Favorable prior year casualty reserve development	(28.7		)	(2.5	)		(27.0		)	(2.6	)		0.1
Total	157.5			14.0			126.6			12.0			2.0		97.6			16.1			88.3			15.6			0.5


															Six Months 2018						Six Months 2017
($ 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															$	44.8		3.7		pts	$	41.5		3.7		pts	—		pts
(Favorable) prior year casualty reserve development															(12.0		)	(1.0	)		(28.7		)	(2.5	)		1.5
Non-catastrophe property losses															188.7			15.8			144.7			12.8			3.0
Total															221.5			18.5			157.5			14.0			4.5

The Second Quarter 2017 catastrophe losses included $11.9 million of development, or 2.1 points, from prior period storms. The most significant of these were three hail storms that occurred in March 2017 that added $8.8 million, or 1.5 points, to Second Quarter 2017 losses.

Details of the ~~favorable~~ prior year casualty reserve development were as follows:


(Favorable)/Unfavorable Prior Year Casualty Reserve Development	Quarter ended June 30,						Six Months ended June 30,				Quarter ended June 30,						Six Months ended June 30,
($ in millions)	2017				2016		2017		2016		2018				2017		2018		2017
General liability	$	(15.0	)		(11.0	)	(37.4	)	(22.0	)	$	—			(15.0	)	—		(37.4	)
Commercial automobile	15.0				8.0		21.0		13.0		7.0				15.0		15.0		21.0
Workers compensation	(15.3		)		(9.0	)	(15.3	)	(21.0	)	(17.0		)		(15.3	)	(33.0	)	(15.3	)
Bonds	(2.0		)		—		(2.0	)	—		—				(2.0	)	—		(2.0	)
Total Standard Commercial Lines	(17.3		)		(12.0	)	(33.7	)	(30.0	)	(10.0		)		(17.3	)	(18.0	)	(33.7	)

Homeowners	1.0				—		1.0		—		—				1.0		—		1.0
Personal automobile	2.0				—		4.0		—		—				2.0		—		4.0
Total Standard Personal Lines	3.0				—		5.0		—		—				3.0		—		5.0

E&S	—				2.0		—		3.0		6.0				—		6.0		—

Total (favorable) prior year casualty reserve development	$	(14.3	)		(10.0	)	(28.7	)	(27.0	)	$	(4.0	)		(14.3	)	(12.0	)	(28.7	)

(Favorable) impact on loss ratio	(2.5		)	pts	(1.9	)	(2.5	)	(2.6	)	(0.7		)	pts	(2.5	)	(1.0	)	(2.5	)

The underwriting expense ratio decreased 1.3 points and 1.1 points in Second Quarter and Six Months 2018 compared to the same prior year periods due to the following:

A 0.8-point and 0.6-point decrease in employee-related expenses in Second Quarter 2018 and Six Months 2018, respectively. These decreases included a reduction in profit-based compensation to our employees of 0.3 points in the quarter and 0.2 points in the year-to-date period.

A 0.3-point decrease in supplemental commissions to our distribution partners in both periods compared to Second Quarter 2017 and Six Months 2017.

For a qualitative discussion of this reserve development, please refer to the respective insurance segment section below in

"Results of Operations and Related Information by Segment."

~~Improvements in the GAAP underwriting expense ratio in Second Quarter 2017 of 1.2 points and Six Months 2017 of 0.8 points compared to the same periods last year included the following:~~

~~A 0.3-point and 0.2-point decrease in supplemental commissions to our distribution partners in Second Quarter 2017 and Six Months 2017, respectively; and~~

A 0.3-point and 0.4-point decrease in pension expense in Second Quarter 2017 and Six Months 2017, respectively. As our pension plan ceased accruing benefits on March 31, 2016, we extended the amortization period for the net actuarial loss from the average remaining service life of active participants to the average remaining life expectancy of plan participants. This reduced amortization, coupled with interest costs in the quarter, did not fully offset the expected return on our pension assets, thereby creating the benefit that reduced our overall expense ratio. For additional information on our pension plan, refer to Note 10. "Retirement Plans" in Item 1. "Financial Statements." of this Form 10-Q.

~~Investments Segment~~

In total, our investment segment contributed 7.8 points to our overall annualized ROE in Second Quarter 2017 and 7.3 points in Six Months 2017, compared to 6.5 points and 6.3 points in Second Quarter and Six Months 2016, respectively. These increases were driven by improved yields on our fixed income securities portfolio. Additionally, our alternative investment portfolio reported pre-tax income of $5.2 million in Second Quarter 2017 and $6.8 million in Six Months 2017 compared to pre-tax losses of $0.6 million and $1.7 million in Second Quarter and Six Months 2016, respectively, which were negatively impacted by the energy sector in the prior year.

Other

Our interest and other corporate expenses, which are primarily comprised of ~~expenses~~stock compensation expense at the holding company level, ~~reduced our overall~~contributed an annualized ROE ~~by 2.5~~of (1.9) points in ~~both~~Second Quarter 2018, and (2.4) points in Six Months 2018 compared to (2.5) points in Second Quarter 2017 and ~~Second Quarter 2016 and 2.3~~(2.3) points in Six Months ~~2017 compared to 2.9 points in Six Months 2016.~~2017. The ~~year-to-date~~quarter-to-date variance was driven primarily by a 1.6-point decrease in stock compensation expense as a result of stock price fluctuations that have impacted the ~~tax effects~~fair value of ~~share-based compensation, which benefited~~ our ~~overall annualized ROE by 0.4 points~~liability awards.

Outlook

Despite our strong financial performance in ~~Six Months 2017. We do not expect this tax benefit~~2017 and expectations for 2018, the U.S. property and casualty insurance industry continues to be ~~replicated throughout~~characterized by an abundance of capital, intense competition, and low overall premium growth. According to A.M. Best Company's ("A.M. Best") "US Property/Casualty: 2018 Review & Preview," for 2018, rate increases are expected to remain in the ~~remainder~~low single digits for most lines of ~~2017. We had~~business. A.M. Best is estimating an overall statutory combined ratio for the industry for 2018 of 100.0% and an estimated after-tax return on surplus of 5.8%. A.M. Best also estimates that property and casualty insurance industry loss and loss expense reserve adequacy peaked several years ago and has been declining since that time. In addition, changes in economic conditions, including changes in U.S. trade policies and the imposition of tariffs on imports, may lead to higher inflation and increase loss costs above expected trends, which would negatively impact our profitability and the property and casualty insurance industry profitability as a whole. Unanticipated inflation would impact both the claim payments that are made during the current year, as well as estimates of the loss and loss expense ~~reductions and increased stability related~~reserves for claims to ~~our share-based payment awards beginning~~be settled in ~~2017, as we have restructured~~the future. For a further discussion, please refer to Item 1A. "Risk Factors" in our 2017 ~~awards~~Annual Report, under the subsection entitled, "Risks Related to Our Insurance Operations."

Our long-term growth plans include: (i) building our "ivy league" distribution partnerships to be ~~more aligned with grant date fair value expense treatment and lowered~~representative of at least 25% of the allocation to awards that require fair value adjustments subsequent to grant date. However, the 16% increase in our stock price during Six Months 2017 has resulted in fair value adjustments to our outstanding awards during Six Months 2017 that have offset the savings associated with the structural changes made to the awards granted in 2017.

~~For additional information on the tax effects of share-based compensation, refer to Note 2. "Adoption of Accounting Pronouncements" in Item 1. "Financial Statements." of this Form 10-Q.~~

~~Outlook~~

In 2017, we continue to focus on seeking out additional growth opportunities in our insurance operations while achieving rate and working towards our profit targets. We have been able to achieve NPW growth that has exceeded the industry’s growth rate, while at the same time generating solid underwriting margins. In addition, we have about a 1.3% standard commercial linesavailable market share in ~~the 22 states in which we operate and~~each of our ~~long-term goal is to increase this market share to approximately 3%. By offering~~Standard Commercial Lines states; (ii) increasing our ~~distribution partners superior technology solutions and customer experience, we are targeting a 12%~~ share of the ~~standard commercial lines~~ business within ~~our independent agencies,~~these distribution partners, which we refer to as our "share of ~~wallet.~~wallet," ~~As of June 30, 2017, our share of wallet with agencies with~~to 12%, which ~~we have an established relationship was 8%. We are also seeking to increase our agency appointments over time to represent~~translates into a ~~25%~~3% market share ~~of the states~~in each state in which we ~~are fully operational, from our current 18% share. We believe our relationships with our distribution partners are among~~write Standard Commercial Lines business; and (iii) geographic expansion. To date, we write Standard

Commercial Lines business in 25 states and the ~~strongest in the industry and underpin our success. During Six Months~~District of Columbia, which, at a 3% market share, would create a corporate Standard Commercial Lines profile of approximately $5 billion of NPW.

In 2017, we ~~appointed 35 of the 85 new agents we are planning for this year, net of agency terminations.~~

~~Our expansion plans are well on track for~~opened Arizona and New ~~Hampshire.~~Hampshire for Standard Commercial Lines business, and effective January 1, 2018, we started writing Standard Commercial Lines business in Colorado. We have appointed ~~a total~~an aggregate of 2538 agents in these states, with appointments ~~in each state~~ controlling ~~about 25%~~approximately 10%-20% of that state's available ~~commercial lines~~Standard Commercial Lines premium. We ~~began quoting~~expect to open New Mexico and Utah for Standard Commercial Lines business ~~during Second Quarter 2017,~~and Arizona and Utah for Standard Personal Lines business by the end of 2018.

Investing in the development and implementation of leading technologies to enhance our underwriting is integral to our overall strategy. The ability to segment our business and present specific account-level pricing guidance to our underwriters based on expected future profitability has positioned us to achieve strong renewal pure price without negatively impacting retention. We continue to expand the use of our newest underwriting tool that provides real-time insights into how each prospective new business account compares with ~~policies being effective~~similar accounts already in our portfolio. We believe this tool positions us better to grow the business regardless of overall market dynamics.

As an organization, we are making significant investments focused on ~~or after July 1, 2017. Our approach~~enhancing the overall customer experience in an omni-channel environment, including efforts to ~~entering these states has been consistent~~obtain: (i) stronger customer engagement through multiple communication touch points, such as mobile notifications and billing alerts; (ii) a 360-degree view of our customers to provide a more integrated service experience; (iii) increased capabilities to allow customers to interact with us in a 24x7 environment in a manner of their choosing; and (iv) deeper insight into metrics regarding customer satisfaction. To that end, we have recently deployed a new customer experience desktop to our contact center employees, and are working closely with our ~~agent franchise business model,~~distribution partners and primary agency management system vendors to ensure we present our customers with a seamless experience. We recognize that our customers' expectations on how they engage with us and our agents are rapidly evolving, and we continue to strive towards providing "best-in-class" customer service in a 24-hour, 365-day environment. Our goals in this area are centered around leveraging technology to improve customer retention rates, which ~~is predicated around~~should, over time, enhance the quality of our ~~field-based underwriting, claims, and customer service.~~business.

~~In our Investments segment, we~~Our investment portfolio generated ~~after-tax~~pre-tax net investment income of ~~$57.8~~$88.8 million in Six Months ~~2017~~2018, which was a 13% increase over the same period in 2017. We have generated strong investment returns while maintaining a similar level of credit quality and ~~are~~duration risk on ~~track to meet~~the portfolio, as a result of active investment management and security selection, principally in our ~~full-year guidance outlined below. Our challenge in 2017 is navigating the increased market volatility that may accompany uncertainty regarding fiscal~~core fixed income portfolio. Risk assets, which principally include high-yield fixed income securities, equities, and ~~monetary policy changes. For instance, the potential impact of limiting or eliminating tax-advantage municipal bond interest may be significant to the returns~~our alternative investment portfolio, were 7.6% of our ~~municipal bond portfolio. Likewise, a reduction in the corporate tax rate or a border-adjustment tax may~~overall portfolio as of June 30, 2018, which is consistent with year-end 2017. We have ~~significant repercussions in the marketplace. Weighing these risks when seeking new opportunities,~~been gradually diversifying our portfolio, and ~~managing the risks for existing positions and sectors in the portfolio,~~ will ~~be a key focus throughout the remainder~~likely continue to modestly increase our risk asset allocation over time, up to approximately 10% of ~~the year.~~

~~In summary, we are positioning ourselves for a more competitive environment with a focus~~our invested assets, depending on generating adequate returns for our shareholders. We are preparing ourselves for changes in a period of heightened uncertainty surrounding interest rates, tax law changes, legislative changes, and inflation. We also have a number of internal strategic initiatives in place to enhance our technological offerings to our agents while improving the overall customer experience.market conditions.

After ~~two quarters of better than expected~~Second Quarter 2018 results, we are ~~revising~~confirming our full-year ~~expectations to~~2018 guidance, which is the following:

A ~~statutory~~GAAP combined ratio, excluding catastrophe losses, of ~~89.5%, an improvement of 100 basis points from our original guidance.~~92.0%. This assumes no additional prior year casualty reserve development;

Catastrophe losses of 3.5 points;

After-tax net investment income of ~~$113~~$150 million, upwhich includes $8 million of after-tax net investment income from our ~~original guidance~~alternative investments;

An overall effective tax rate of ~~$110 million;~~approximately 18%, which includes an effective tax rate of 17% for net investment income, reflecting a tax rate of 5.25% for tax-advantaged municipal bonds and a tax rate of 21% for all other investments; and

Weighted average shares of ~~59.2~~59.6 million.

Results of Operations and Related Information by Segment

Standard Commercial Lines Segment


	Quarter ended June 30,				Change % or Points			Six Months ended June 30,				Change % or Points				Quarter ended June 30,				Change % or Points				Six Months ended June 30,				Change % or Points
($ in thousands)	2017			2016	Change % or Points			2017			2016				2018			2017		Change % or Points			2018			2017		Change % or Points
GAAP Insurance Operations Results:												Change % or Points
Insurance Segments Results:
NPW	$	478,917		449,008	7		%	$	962,465		904,071	6		%		$	514,930		478,917	8		%		$	1,024,006		962,465	6		%
NPE	443,594			411,277	8			882,008			814,166	8				476,012			443,594	7				941,376			882,008	7
Less:
Losses and loss expenses incurred	252,876			221,618	14			494,440			444,968	11
Loss and loss expense incurred																273,934			252,876	8				567,440			494,440	15
Net underwriting expenses incurred	154,035			147,868	4			308,436			294,822	5				159,485			154,035	4				322,132			308,436	4
Dividends to policyholders	1,924			1,618	19			1,827			3,271	(44	)			1,577			1,924	(18	)			3,984			1,827	118
Underwriting gain	$	34,759		40,173	(13	)	%	$	77,305		71,105	9		%
GAAP Ratios:
Underwriting income																$	41,016		34,759	18		%		$	47,820		77,305	(38	)	%
Combined Ratios:
Loss and loss expense ratio	57.1		%	53.9	3.2		pts	56.0		%	54.7	1.3		pts		57.6		%	57.1	0.5		pts		60.3		%	56.0	4.3		pts
Underwriting expense ratio	34.7			35.9	(1.2	)		35.0			36.2	(1.2	)			33.5			34.7	(1.2	)			34.2			35.0	(0.8	)
Dividends to policyholders ratio	0.4			0.4	—			0.2			0.4	(0.2	)			0.3			0.4	(0.1	)			0.4			0.2	0.2
Combined ratio	92.2			90.2	2.0			91.2			91.3	(0.1	)			91.4			92.2	(0.8	)			94.9			91.2	3.7
Statutory Ratios:
Loss and loss expense ratio	56.9			53.8	3.1			56.0			54.5	1.5
Underwriting expense ratio	33.3			34.4	(1.1	)		33.3			34.2	(0.9	)
Dividends to policyholders ratio	0.4			0.4	—			0.2			0.4	(0.2	)
Combined ratio	90.6		%	88.6	2.0		pts	89.5		%	89.1	0.4		pts

The increases in NPW in ~~Second Quarter~~the quarter and ~~Six Months 2017 compared to Second Quarter and Six Months 2016~~year-to-date periods reflected in the table above were driven by: (i) direct new business; (ii) renewal pure price increases; and (iii) ~~solid~~strong retention.


	Quarter ended June 30,				Six Months ended June 30,				Quarter ended June 30,				Six Months ended June 30,
($ in millions)	2017			2016	2017			2016	2018			2017	2018			2017
Retention	83		%	83	83		%	83	84		%	83	84		%	83
Renewal pure price increases	3.1			2.6	3.1			2.7	3.5			3.1	3.4			3.1
Direct new business	$	98.0		95.5	$	187.5		183.2	$	101.1		98.0	$	199.0		187.5

The NPE increases in Second Quarter and Six Months 2017 compared to Second Quarter and Six Months 2016 were consistent with the fluctuation in NPW for the twelve-month period ended June 30, 2017 compared with the twelve-month period ended June 30, 2016.

~~The GAAP~~ loss and loss expense ratio increased ~~3.2~~0.5 points in Second Quarter ~~2017~~2018 compared to Second Quarter ~~2016~~2017 and ~~1.3~~4.3 points in Six Months ~~2017~~2018 compared to Six Months ~~2016, reflecting~~2017. These increases were driven by the ~~following items, which were partially offset by underwriting improvements, claims initiatives, and earned rate that outpaced loss costs:~~following:

Second Quarter 2017
Second Quarter 2016

($ in millions) Losses and Loss Expenses Incurred Impact on
Loss and Loss Expense Ratio

Losses and Loss
Expenses
Incurred Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses $ 17.0
3.8
pts $ 3.6
0.9
pts 2.9
pts
Non-catastrophe property losses 48.2
10.9

41.6
10.1

0.8

Favorable prior year casualty reserve development (17.3 ) (3.9 )

(12.0 ) (2.9 )
(1.0 )
Total 47.9
10.8
33.2
8.1
2.7


	Six Months 2017						Six Months 2016									Second Quarter 2018						Second Quarter 2017
($ in millions)	Losses and Loss Expenses Incurred			Impact on Loss and Loss Expense Ratio			Losses and Loss Expenses 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	$	23.9		2.7		pts	$	15.3		1.9		pts	0.8		pts	$	10.1		2.1		pts	$	17.0		3.8		pts	(1.7	)	pts
Non-catastrophe property losses	98.0			11.1			85.2			10.5			0.6			57.0			12.0			48.2			10.9			1.1
Favorable prior year casualty reserve development	(33.7		)	(3.8	)		(30.0		)	(3.7	)		(0.1	)
(Favorable) prior year casualty reserve development																(10.0		)	(2.1	)		(17.3		)	(3.9	)		1.8
Total	88.2			10.0			70.5			8.7			1.3			57.1			12.0			47.9			10.8			1.2


																Six Months 2018						Six Months 2017
($ 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																$	29.9		3.2		pts	$	23.9		2.7		pts	0.5		pts
Non-catastrophe property losses																127.8			13.6			98.0			11.1			2.5
(Favorable) prior year casualty reserve development																(18.0		)	(1.9	)		(33.7		)	(3.8	)		1.9
Total																139.7			14.9			88.2			10.0			4.9

For additional information regarding the favorable prior year casualty reserve development by line of business, see the "Financial Highlights of Results for Second Quarter and Six Months ~~2017~~2018 and Second Quarter and Six Months ~~2016"~~2017" section above and the line of business discussions below.

~~The decreases~~There was a 1.2-point decrease in the ~~GAAP~~ underwriting expense ratio in ~~both~~Second Quarter 2018 compared to Second Quarter 2017, and a 0.8-point decrease in the underwriting expense ratio in Six Months 2018 compared to Six Months 2017. The significant drivers of these variances were as follows:

A reduction in employee-related expenses of 0.7 points in the quarter and ~~year-to-date periods of 1.2~~0.5 points ~~were primarily attributable to:~~year to date. These decreases included: (i) lower ~~pension expense~~profit-based compensation to our employees of 0.3 points in the quarter and ~~0.4~~0.2 points year to date; and (ii) lower medical costs of 0.3 points in the ~~year-to-date period;~~quarter and ~~(ii) lower supplemental commissions~~0.2 points year to date.

A reduction in profit-based compensation to our distribution partners of ~~approximately~~0.3 points in the quarter and 0.2 points ~~in both periods. In addition, labor expenses decreased as a percentage of premium as we recognized productivity gains relative~~year to ~~the growth of our business.~~date.

The following is a discussion of our most significant Standard Commercial Lines of ~~business and their respective statutory results:~~business:


General Liability	General Liability																	General Liability
		Quarter ended June 30,				Change % or Points			Six Months ended June 30,						Change % or Points				Quarter ended June 30,					Change % or Points			Six Months ended June 30,						Change % or Points
($ in thousands)		2017			2016			2017			2016				Change % or Points		2018				2017			Change % or Points		2018			2017				Change % or Points
Statutory NPW		$	158,721		145,489	Change % or Points		9	%		$	313,858		290,195			8		%
NPW																			$	170,370			158,721	7		%	$	334,879			313,858		7		%
Direct new business		30,012			28,865	4			56,919				54,976		4				29,725				30,012	(1	)		59,442				56,919		4
Retention		84		%	83	1		pts	84			%	83		1		pts		84			%	84	—		pts	84			%	84		—		pts
Renewal pure price increases		2.9			1.6	1.3			2.6				1.8		0.8				2.4				2.9	(0.5	)		2.5				2.6		(0.1	)
Statutory NPE		$	141,503		129,283	9		%	$	281,487			257,368		9		%
Statutory combined ratio		78.4		%	83.5	(5.1	)	pts	75.8			%	83.4		(7.6	)	pts
% of total statutory Standard Commercial Lines NPW		33			32				33				32
NPE																			$	153,002			141,503	8		%	$	302,831			281,487		8		%
Underwriting income																			15,758				26,769	(41	)		29,700				61,323		(52	)
Combined ratio																			89.7			%	81.1	8.6		pts	90.2			%	78.2	%	12.0		pts
% of total Standard Commercial Lines NPW																			33				33				33				33

The ~~statutory~~ combined ratio ~~decrease~~increase in Second Quarter ~~and Six Months 2017~~2018 compared to Second Quarter ~~and Six Months 2016~~2017 was driven primarily ~~by: (i)~~by a decline in favorable prior year casualty reserve development, as illustrated in the tables below; (ii) lower supplemental commissions to our distribution partners of 0.3 points in each period; and (iii) lower pension expense of 0.3 points in the quarter and 0.5 points in the year-to-date period.table below.

Second Quarter 2017 Second Quarter 2016

($ in millions) (Benefit) Expense Impact on
Combined Ratio
(Benefit) Expense Impact on
Combined Ratio
Change
Points

Favorable prior year casualty reserve development $ (15.0 ) (10.6 ) pts $ (11.0 ) (8.5 ) pts (2.1 ) pts


	Six Months 2017						Six Months 2016									Second Quarter 2018				Second Quarter 2017
($ in millions)	(Benefit) Expense			Impact on Combined Ratio			(Benefit) Expense			Impact on Combined Ratio			Change Points			Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred			Impact on Combined Ratio			Change Points
Favorable prior year casualty reserve development	$	(37.4	)	(13.3	)	pts	$	(22.0	)	(8.5	)	pts	(4.8	)	pts
(Favorable) prior year casualty reserve development																$	—	—	pts	$	(15.0	)	(10.6	)	pts	10.6	pts


																Six Months 2018				Six Months 2017
($ in millions)																Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred			Impact on Combined Ratio			Change Points
(Favorable) prior year casualty reserve development																$	—	—	pts	$	(37.4	)	(13.3	)	pts	13.3	pts

The ~~significant drivers of the development were as follows:~~

Second Quarter and Six Months ~~2017: Development~~2017 development was primarily attributable to lower claims frequencies and severities primarily in accident years 2015 and prior, particularly in the products liability and excess liability segments.

Partially offsetting the prior year casualty development is the underwriting expense ratio, which decreased by 1.9 points in Second Quarter 2018 compared to Second Quarter 2017 and by 1.5 points in Six Months ~~2016: Development was~~2018 compared to Six Months 2017, primarily attributable to ~~lower claims frequencies and severities~~the aforementioned items discussed in the ~~2012 through 2014 accident years, particularly in the products liability and excess liability segments.~~overall Commercial Lines Segment above.


Commercial Automobile	Commercial Automobile																Commercial Automobile
		Quarter ended June 30,				Change % or Points			Six Months ended June 30,						Change % or Points			Quarter ended June 30,						Change % or Points				Six Months ended June 30,						Change % or Points
($ in thousands)		2017			2016			2017				2016			Change % or Points		2018				2017					2018				2017				Change % or Points
Statutory NPW		$	119,063		108,888	Change % or Points	9	%		$	236,449			217,096		9	%
NPW																		$	134,082			119,063		Change % or Points	13		%		$	263,927			236,449		12		%
Direct new business		20,990			20,682	1			39,550				39,272		1			25,016				20,990		19				47,305				39,550		20
Retention		84		%	84	—	pts		84			%	84		—	pts		84			%	84		—		pts		84			%	84		—		pts
Renewal pure price increases		6.9			4.8	2.1			6.7				4.9		1.8			7.5				6.9		0.6				7.4				6.7		0.7
Statutory NPE		$	108,316		98,896	10	%		$	215,445			194,315		11	%
Statutory combined ratio		114.1		%	107.0	7.1	pts		109.9			%	106.0		3.9	pts
% of total statutory Standard Commercial Lines NPW		25			24				25				24
NPE																		$	122,104			108,316		13		%		$	240,335			215,445		12		%
Underwriting loss																		(10,773		)		(17,355	)	(38	)			(24,137		)		(25,523	)	(5	)
Combined ratio																		108.8			%	116.0		(7.2	)	pts		110.0			%	111.8		(1.8	)	pts
% of total Standard Commercial Lines NPW																		26				25						26				25

The ~~increases~~decreases in the ~~statutory~~ combined ratio of 7.2 points in Second Quarter 2018 compared to Second Quarter 2017 and 1.8 points in Six Months 2018 compared to Six Months 2017 ~~compared to the prior year periods~~ were driven ~~by:~~

~~Unfavorable~~by a decrease in unfavorable prior year casualty reserve development, ~~that was~~partially offset by higher by 5.7 points in Second Quarter 2017 and 3.0 points in Six Months 2017. This development was mainly due to higher casualty claim frequency, and some increases in claim severity, in accident years 2015 and 2016; and

~~Catastrophe losses that were higher by 0.6 points in Second Quarter 2017 and 0.3 points in Six Months 2017.~~

non-catastrophe property losses. Quantitative information ~~regarding~~on the prior year development and ~~catastrophe~~property losses is as follows:

Second Quarter 2017 Second Quarter 2016
($ in millions) Losses Incurred
Impact on
Loss Ratio
Losses Incurred
Impact on
Loss Ratio
Change in Ratio
Unfavorable prior year casualty reserve development $ 15.0
13.8
pts $ 8.0
8.1
pts 5.7
pts
Catastrophe losses 0.9
0.8
0.2
0.2
0.6

Total 15.9
14.6
8.2
8.3
6.3


	Six Months 2017				Six Months 2016						Second Quarter 2018				Second Quarter 2017
($ in millions)	Losses Incurred		Impact on Loss Ratio		Losses Incurred		Impact on Loss Ratio		Change in Ratio		Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		Impact on Combined Ratio		Change in Ratio
Non-catastrophe property losses											$	19.7	16.1	pts	$	14.6	13.5	pts	2.6		pts
Unfavorable prior year casualty reserve development	$	21.0	9.7	pts	$	13.0	6.7	pts	3.0	pts	7.0		5.7		15.0		13.8		(8.1	)
Catastrophe losses	1.1		0.5		0.3		0.2		0.3		0.7		0.5		0.9		0.8		(0.3	)
Total	22.1		10.2		13.3		6.9		3.3		27.4		22.3		30.5		28.1		(5.8	)

Workers Compensation
Quarter ended June 30,
Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in thousands) 2017 2016 2017 2016
Statutory NPW $ 81,354
79,074
3
% $ 173,194
170,386
2
%
  Direct new business 17,269
17,081
1
34,306
34,811
(1 )
  Retention 83
% 84
(1 ) pts 83
% 84
(1 ) pts
  Renewal pure price increases 0.5
1.3
(0.8 ) 0.6
1.5
(0.9 )
Statutory NPE $ 79,460
75,251
6
% $ 158,786
151,251
5
%
Statutory combined ratio 78.3
% 87.7
(9.4 ) pts 86.9
% 84.3
2.6
pts
% of total statutory Standard Commercial Lines NPW 17
18

18
19

The variances in the statutory combined ratio in Second Quarter and Six Months 2017 compared to the same prior year periods were due primarily to: (i) prior year casualty reserve development, as shown in the tables below; (ii) lower supplemental commissions to our distribution partners of 0.8 points in the quarter and 0.6 points in the year-to-date period; and (iii) lower pension expense of 0.4 points in the quarter and 0.6 points in the year-to-date period.

Second Quarter 2017 Second Quarter 2016
($ in millions) (Benefit) Expense Impact on
Combined Ratio (Benefit) Expense Impact on
Combined Ratio
Change
Points

Favorable prior year casualty reserve development $ (15.3 ) (19.3 ) pts $ (9.0 ) (12.0 ) pts (7.3 ) pts


	Six Months 2017						Six Months 2016								Six Months 2018				Six Months 2017
($ in millions)	(Benefit) Expense			Impact on Combined Ratio			(Benefit) Expense			Impact on Combined Ratio			Change Points		Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		Impact on Combined Ratio		Change in Ratio
Favorable prior year casualty reserve development	$	(15.3	)	(9.6	)	pts	$	(21.0	)	(13.9	)	pts	4.3	pts
Non-catastrophe property losses															$	40.9	17.0	pts	$	30.4	14.1	pts	2.9		pts
Unfavorable prior year casualty reserve development															15.0		6.2		21.0		9.7		(3.5	)
Catastrophe losses															1.5		0.6		1.1		0.5		0.1
Total															57.4		23.8		52.5		24.3		(0.5	)

The significant drivers of the development were as follows:

Second Quarter and Six Months 2018: Development was primarily due to higher claims frequencies, and to some extent severities, in accident years 2015 through 2017.

Second Quarter and Six Months 2017: Development was mainly due to higher casualty claim frequencies, and some increases in claim severities, in accident years 2015 and 2016.

In addition to the items described above, the combined ratio on this line benefited from the underwriting ratio, which was 1.1 points lower in Second Quarter 2018 compared to Second Quarter 2017 and 0.9 points lower in Six Months 2018 compared to Six Months 2017. These reductions were primarily attributable to the same items discussed in the overall Commercial Lines Segment above.



Workers Compensation
	Quarter ended June 30,				Change % or Points			Six Months ended June 30,				Change % or Points
($ in thousands)	2018			2017	Change % or Points			2018			2017	Change % or Points
NPW	$	81,995		81,354	1		%	$	170,901		173,194	(1	)	%
Direct new business	16,070			17,269	(7	)		33,418			34,306	(3	)
Retention	84		%	83	1		pts	84		%	83	1		pts
Renewal pure price (decreases) increases	0.3			0.5	(0.2	)		0.1			0.6	(0.5	)
NPE	$	80,021		79,460	1		%	$	158,844		158,786	—		%
Underwriting income	21,795			16,738	30			38,221			17,892	114
Combined ratio	72.8		%	78.9	(6.1	)	pts	75.9		%	88.7	(12.8	)	pts
% of total Standard Commercial Lines NPW	16			17				17			18

The decreases in the combined ratio in Second Quarter and Six Months 2018 compared to the same prior year periods were driven by favorable prior year casualty reserve development, as well as a 1.5-point reduction in the combined ratio due to lower current year loss costs in both the quarter and year-to-date periods. Favorable prior year development, which in all cases was primarily due to lower severities in accident years 2016 and ~~prior.~~prior, was as follows:



	Second Quarter 2018						Second Quarter 2017
($ in millions)	Loss and Loss Expense Incurred			Impact on Combined Ratio			Loss and Loss Expense Incurred			Impact on Combined Ratio			Change Points
(Favorable) prior year casualty reserve development	$	(17.0	)	(21.2	)	pts	$	(15.3	)	(19.3	)	pts	(1.9	)	pts


	Six Months 2018						Six Months 2017
($ in millions)	Loss and Loss Expense Incurred			Impact on Combined Ratio			Loss and Loss Expense Incurred			Impact on Combined Ratio			Change Points
(Favorable) prior year casualty reserve development	$	(33.0	)	(20.8	)	pts	$	(15.3	)	(9.6	)	pts	(11.2	)	pts

Additionally, there was a 1.2-point decrease in the underwriting expense ratio in Second Quarter ~~and Six Months 2016: Development~~of 2018 compared to Second Quarter 2017, which was primarily ~~due to lower severities in accident years 2013 and prior.~~

~~For more information regarding the initiatives that we have undertaken regarding this line of business, refer~~attributable to the ~~Standard Market Workers Compensation Line of Business discussion within~~same items discussed in the ~~Reserves for Losses and Loss Expenses section of "Critical Accounting Policies and Estimates" of our 2016 Annual Report.~~overall Commercial Lines Segment above.


Commercial Property
	Quarter ended June 30,				Change % or Points			Six Months ended June 30,						Change % or Points			Quarter ended June 30,						Change % or Points			Six Months ended June 30,					Change % or Points
($ in thousands)	2017			2016			2017			2016				Change % or Points		2018			2017				Change % or Points		2018			2017			Change % or Points
Statutory NPW	$	81,971		79,354	Change % or Points		3	%		$	162,474		154,998			5	%
NPW																	$	88,376			81,971		8		%	$	173,581			162,474	7		%
Direct new business	19,850			20,339	(2	)		37,163				38,149		(3	)		19,928				19,850		—			39,412				37,163	6
Retention	82		%	82	—		pts	82			%	82		—		pts	82			%	82		—		pts	82			%	82	—		pts
Renewal pure price increases	1.6			2.7	(1.1	)		2.0				2.5		(0.5	)		3.2				1.6		1.6			2.8				2.0	0.8
Statutory NPE	$	78,052		73,591	6		%	$	154,443			143,769		7		%
Statutory combined ratio	101.4		%	78.2	23.2		pts	93.7			%	84.8		8.9		pts
% of total statutory Standard Commercial Lines NPW	17			18				17				17
NPE																	$	82,162			78,052		5		%	$	162,488			154,443	5		%
Underwriting income (loss)																	9,944				(1,631	)	(710	)		(2,497		)		9,093	(127	)
Combined ratio																	87.9			%	102.1		(14.2	)	pts	101.5			%	94.1	7.4		pts
% of total Standard Commercial Lines NPW																	17				17					17				17

The ~~fluctuation~~decrease in the ~~statutory~~ combined ratio in Second Quarter 2018 compared Second Quarter 2017, and the increase in the combined ratio in Six Months 2018 compared to Six Months 2017, ~~compared to Second Quarter and Six Months 2016 was~~were driven by the following:

Second Quarter 2017
Second Quarter 2016

($ in millions) (Benefit) Expense Impact on
Combined Ratio

(Benefit) Expense Impact on
Combined Ratio
Change
% or
Points

Catastrophe losses $ 14.4
18.5 pts
$ 2.9
4.0 pts 14.5 pts
Non-catastrophe property losses 31.0
39.7

23.2
31.5
8.2
Total 45.4
58.2 26.1
35.5 22.7


	Six Months 2017				Six Months 2016						Second Quarter 2018				Second Quarter 2017
($ in millions)	(Benefit) Expense		Impact on Combined Ratio		(Benefit) Expense		Impact on Combined Ratio		Change % or Points		Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		Impact on Combined Ratio		Change % or Points
Catastrophe losses											$	7.8	9.4	pts	$	14.4	18.5	pts	(9.1	)	pts
Non-catastrophe property losses	$	58.1	37.6	pts	$	46.3	32.2	pts	5.4	pts	29.3		35.6		31.0		39.7		(4.1	)
Total											37.1		45.0		45.4		58.2		(13.2	)


											Six Months 2018				Six Months 2017
($ in millions)											Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		Impact on Combined Ratio		Change % or Points
Catastrophe losses	20.5		13.3		13.1		9.1		4.2		$	22.5	13.9	pts	$	20.5	13.3	pts	0.6		pts
Non-catastrophe property losses											72.4		44.5		58.1		37.6		6.9
Total	78.6		50.9		59.4		41.3		9.6		94.9		58.4		78.6		50.9		7.5

~~The increase in~~Lower catastrophe losses in Second Quarter 2017 included $7.4 million, or 9.4 points, related to prior period storms. The most significant of these were three hail storms from March 2017 that added $5.5 million, or 7.0 points, to Second Quarter 2017 losses. The increase inand non-catastrophe property losses in Second Quarter ~~and Six Months 2017 was driven by higher fire and weather-related losses than in~~2018 compared to Second Quarter 2017 partially offset the severe winter weather losses that we experienced in the first quarter of 2018. On a year -date-basis, the increase in our combined ratio continues to reflect these higher property losses from the first quarter of 2018, which were principally related to the January deep freeze in our footprint states and ~~Six Months 2016, reflecting volatility from period to period that is normally associated with our commercial property line~~a relatively large number of ~~business.~~severe fire losses.

Standard Personal Lines Segment


	Quarter ended June 30,					Change % or Points				Six Months ended June 30,					Change % or Points				Quarter ended June 30,					Change % or Points				Six Months ended June 30,					Change % or Points
($ in thousands)	2017				2016				2017				2016		Change % or Points			2018			2017			Change % or Points			2018			2017			Change % or Points
GAAP Insurance Operations Results:						Change % or Points
Insurance Segments Results:
NPW	$	78,107			75,576	3		%		$	142,803			137,545	4		%		$	83,934		78,107		7		%		$	151,795		142,803		6		%
NPE	71,672				70,824	1				142,873				141,029	1				75,677			71,672		6				149,933			142,873		5
Less:
Losses and loss expenses incurred	54,725				42,212	30				99,015				81,907	21
Loss and loss expense incurred																			49,260			54,725		(10	)			104,699			99,015		6
Net underwriting expenses incurred	22,715				22,487	1				44,520				44,392	—				21,612			22,715		(5	)			41,935			44,520		(6	)
Underwriting (loss) gain	$	(5,768	)		6,125	(194	)	%		$	(662	)		14,730	104		%
GAAP Ratios:
Underwriting income (loss)																			$	4,805		(5,768	)	183		%		$	3,299		(662	)	598		%
Combined Ratios:
Loss and loss expense ratio	76.3			%	59.6	16.7		pts		69.3			%	58.1	11.2		pts		65.1		%	76.3		(11.2	)	pts		69.8		%	69.3		0.5		pts
Underwriting expense ratio	31.7				31.8	(0.1	)			31.2				31.5	(0.3	)			28.6			31.7		(3.1	)			28.0			31.2		(3.2	)
Combined ratio	108.0				91.4	16.6				100.5				89.6	10.9				93.7			108.0		(14.3	)			97.8			100.5		(2.7	)
Statutory Ratios:
Loss and loss expense ratio	76.4				59.6	16.8				69.3				58.1	11.2
Underwriting expense ratio	29.5				30.3	(0.8	)			30.5				32.0	(1.5	)
Combined ratio	105.9			%	89.9	16.0		pts		99.8			%	90.1	9.7		pts

The increases in NPW in Second Quarter and Six Months ~~2017~~2018 compared to Second Quarter and Six Months ~~2016~~2017 were due primarily to: (i) ~~an increase in~~ new business; (ii) renewal pure price increases; and (iii) improving retention.


	Quarter ended June 30,				Six Months ended June 30,				Quarter ended June 30,				Six Months ended June 30,
($ in millions)	2017			2016	2017			2016	2018			2017	2018			2017
New business	$	13.2		9.6	$	24.6		17.0	$	15.9		13.2	$	27.7		24.6
Retention	84		%	83	84		%	82	85		%	84	85		%	84
Renewal pure price increases	2.6			5.2	2.7			5.1	3.4			2.6	3.6			2.7

The NPE increases in Second Quarter and Six Months 2017 compared to Second Quarter and Six Months 2016 were consistent with the fluctuations in NPW for the twelve-month period ended June 30, 2017 compared with the twelve-month period ended June 30, 2016.

~~The GAAP~~ loss and loss expense ratio ~~increased 16.7~~decreased 11.2 points in Second Quarter ~~2017~~2018 compared to Second Quarter ~~2016~~2017 and ~~11.2~~increased 0.5 points in Six Months ~~2017~~2018 compared to Six Months ~~2016. The quantitative breakout~~2017 . Quantitative information on the drivers of these ~~drivers were~~fluctuations is as follows:

Second Quarter 2017 Second Quarter 2016
($ in millions) Losses and Loss Expenses Incurred
Impact on
Loss and Loss Expense Ratio

Losses and Loss
Expenses
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses $ 9.4
13.0
pts $ 2.1
3.0
pts 10.0 pts
Unfavorable prior year casualty reserve development 3.0
4.2
—
—
4.2
Non-catastrophe property losses 20.0
27.9
18.4
25.9
2.0
Flood claims handling fees (0.8 ) (1.1 ) (0.9 ) (1.3 ) 0.2
Total 31.6
44.0
19.6
27.6
16.4


															Second Quarter 2018				Second Quarter 2017
($ 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
Non-catastrophe property losses															$	19.8	26.2	pts	$	20.0	27.9	pts	(1.7	)	pts
Catastrophe losses															5.8		7.7		9.4		13.0		(5.3	)
Unfavorable prior year development															—		—		3.0		4.2		(4.2	)
Total															25.6		33.9		32.4		45.1		(11.2	)


	Six Months 2017						Six Months 2016								Six Months 2018				Six Months 2017
($ in millions)	Losses and Loss Expenses Incurred			Impact on Loss and Loss Expense Ratio			Losses and Loss Expenses 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	$	13.3		9.3		pts	$	4.3		3.1		pts	6.2	pts	$	12.7	8.4	pts	$	13.3	9.3	pts	(0.9	)	pts
Unfavorable prior year casualty reserve development	5.0			3.5			—			—			3.5		—		—		5.0		3.5		(3.5	)
Non-catastrophe property losses	36.4			25.4			34.7			24.6			0.8		45.5		30.3		36.4		25.4		4.9
Flood claims handling fees	(1.4		)	(1.0	)		(2.0		)	(1.4	)		0.4
Total	53.3			37.2			37.0			26.3			10.9		58.2		38.7		54.7		38.2		0.5

Lower catastrophe and non-catastrophe property losses in Second Quarter 2018 compared to Second Quarter 2017 provided some offset to the property losses we experienced in the first quarter of 2018. On a year-to-date basis, non-catastrophe property losses remain higher than last year principally related to the January 2018 deep freeze in our footprint states and a relatively large number of severe fire losses.

~~The~~Unfavorable prior year casualty reserve development in Second Quarter and Six Months 2017 was primarily driven by increased frequency and severity in the personal automobile liability line for accident ~~year~~ 2016.

The ~~GAAP~~underwriting expense ratio ~~remained relatively flat~~decreased 3.1 points in Second Quarter ~~and Six Months 2017~~2018 compared to Second Quarter 2017 and 3.2 points in Six Months ~~2016.~~2018 compared to Six Months 2017. The significant drivers of these variances were as follows:

A reduction in costs of 1.3 points in the quarter and 1.0 points year to date associated with the internally-developed software platform used in this segment of our business, which was fully amortized in the fourth quarter of 2017.

~~E&S Insurance Operations~~

A reduction in employee-related expenses of 1.0 points in the quarter and 0.8 points year to date . These decreases included: (i) lower profit-based compensation to our employees of 0.3 points in the quarter and 0.2 points year to date; and (ii) lower medical costs of 0.2 points in the quarter and 0.1 points year to date.

Quarter ended June 30,
Change
% or
Points
Six Months ended June 30,
Change
% or
Points

($ in thousands) 2017 2016 2017 2016
GAAP Insurance Operations Results:

NPW $ 56,790
53,556
6
% $ 107,250
101,883
5
%
NPE 52,764
49,831
6
104,003
99,195
5

Less:

Losses and loss expenses incurred 33,958
34,649
(2 ) 65,576
68,748
(5 )
Net underwriting expenses incurred 17,487
17,703
(1 ) 35,538
31,550
13

Underwriting gain (loss) $ 1,319
(2,521 ) 152
% $ 2,889
(1,103 ) 362
%
GAAP Ratios:

Loss and loss expense ratio 64.4
% 69.5
(5.1 ) pts 63.0
% 69.3
(6.3 ) pts
Underwriting expense ratio 33.1
35.6
(2.5 ) 34.2
31.8
2.4

Combined ratio 97.5
105.1
(7.6 ) 97.2
101.1
(3.9 )
Statutory Ratios:

Loss and loss expense ratio 64.3
69.6
(5.3 ) 63.2
69.3
(6.1 )
Underwriting expense ratio 32.7
33.1
(0.4 ) 33.3
31.3
2.0

Combined ratio 97.0
% 102.7
(5.7 ) pts 96.5
% 100.6
(4.1 ) pts

A 0.6-point reduction in commissions to our distribution partners in both the quarter and year-to-date periods, including 0.4-points related to profit-based commissions.

~~The increase~~E&S Lines Segment



	Quarter ended June 30,					Change % or Points			Six Months ended June 30,					Change % or Points
($ in thousands)	2018				2017	Change % or Points			2018				2017	Change % or Points
Insurance Segments Results:
NPW	$	56,384			56,790	(1	)	%	$	104,007			107,250	(3	)	%
NPE	53,147				52,764	1			105,355				104,003	1
Less:
Loss and loss expense incurred	43,134				33,958	27			79,130				65,576	21
Net underwriting expenses incurred	17,802				17,487	2			34,579				35,538	(3	)
Underwriting (loss) income	$	(7,789	)		1,319	(691	)	%	$	(8,354	)		2,889	(389	)	%
Combined Ratios:
Loss and loss expense ratio	81.2			%	64.4	16.8		pts	75.1			%	63.0	12.1		pts
Underwriting expense ratio	33.5				33.1	0.4			32.8				34.2	(1.4	)
Combined ratio	114.7				97.5	17.2			107.9				97.2	10.7

We continue to focus on profitability drivers in our E&S operations and have been actively managing price increases. While NPW ~~in Second Quarter and Six Months 2017 compared~~has declined as a consequence of these actions, our primary focus is to ~~Second Quarter and Six Months 2016 was due primarily~~bring this segment to targeted levels of profitability. Quantitative information regarding new business and price increases is as follows:


	Quarter ended June 30,				Six Months ended June 30,			Quarter ended June 30,				Six Months ended June 30,
($ in millions)	2017			2016	2017		2016	2018			2017	2018			2017
Direct new business	$	24.9		25.4	48.7		47.9	$	20.3		24.9	$	38.5		48.7
Price increases	3.7		%	4.3	5.6	%	4.1
Casualty new/renewal price increases								5.9		%	5.8	6.5		%	8.1

The NPE increases in Second Quarter and Six Months ~~2017,~~2018 compared to Second Quarter and 2017 Six Months ~~2016,~~2017 were consistent with the ~~fluctuations~~fluctuation in NPW for the twelve-month period ended June 30, ~~2017~~2018 compared with the twelve-month period ended June 30, ~~2016.~~2017.

The ~~GAAP~~ loss and loss expense ratio ~~decreased 5.1~~increased 16.8 points in Second Quarter ~~2017~~2018 and ~~6.3~~12.1 points in Six Months ~~2017~~2018 compared to the same prior year periods, ~~reflecting underwriting improvements, claims initiatives, and earned rate that outpaced loss costs, which~~driven by the items outlined in ~~total decreased~~the table below as well as higher current year loss costs that increased the combined ratio by ~~approximately 2.5~~4.7 points in both the quarter and ~~3.5 points~~year-to-date periods. The unfavorable prior year casualty reserve development outlined in the ~~year-to-date period, along with the following:~~table below was primarily driven by increased frequencies and severities in accident years 2015 and 2016.

Second Quarter 2017 Second Quarter 2016
($ in millions) Losses and Loss Expenses Incurred Impact on
Loss and Loss Expense Ratio Losses and Loss
Expenses
Incurred Impact on
Loss and Loss Expense Ratio Change in Ratio
Non-catastrophe property losses $ 5.1
9.7 pts $ 4.4
8.7 pts 1.0
pts
Catastrophe losses 3.0
5.7 2.7
5.4 0.3

Unfavorable prior year casualty reserve development —
— 2.0
4.0 (4.0 )
Total 8.1
15.4 9.1
18.1 (2.7 )


	Six Months 2017				Six Months 2016							Second Quarter 2018				Second Quarter 2017
($ in millions)	Losses and Loss Expenses Incurred		Impact on Loss and Loss Expense Ratio		Losses and Loss Expenses 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	$	4.4	4.2	pts	$	3.2	3.2	pts	1.0		pts
Unfavorable prior year casualty reserve development	—		—		3.0		3.0		(3.0	)		$	6.0	11.3	pts	$	—	—	pts	11.3		pts
Non-catastrophe property losses	10.4		10.0		10.8		10.9		(0.9	)		6.1		11.5		5.1		9.7		1.8
Catastrophe losses												2.8		5.3		3.0		5.7		(0.4	)
Total	14.8		14.2		17.0		17.1		(2.9	)		14.9		28.1		8.1		15.4		12.7


												Six Months 2018				Six Months 2017
($ 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
Unfavorable prior year casualty reserve development												$	6.0	5.7	pts	$	—	—	pts	5.7		pts
Non-catastrophe property losses												15.4		14.6		10.4		10.0		4.6
Catastrophe losses												2.2		2.1		4.4		4.2		(2.1	)
Total												23.6		22.4		14.8		14.2		8.2

There was a ~~2.5-point~~1.4-point decrease in the GAAP underwriting expense ratio in Second Quarter 2017 compared to Second Quarter 2016, driven primarily by the growth in premiums earned, which has more than outpaced the increase in fixed expenses, and lower supplemental commissions to our wholesale general agents of 0.8 points. These were partially offset by a higher allocation of corporate support services to this segment.

~~The 2.4-point increase in the GAAP~~ underwriting expense ratio in Six Months ~~2017~~2018 compared to Six Months ~~2016~~2017, which was primarily driven by ~~a lower cash incentive plan payment~~0.8-point reductions in ~~the first quarter of 2016 for employees in this segment based on 2015 underwriting results~~profit-based compensation to both our distribution partners and ~~a higher allocation of corporate support services to this segment in 2017.~~employees.

Reinsurance

We have successfully completed negotiations of our July 1, ~~2017~~2018 excess of loss treaties, which provide coverage for our Standard Commercial Lines, Standard Personal Lines, and E&S Lines. The renewal of these treaties included some enhancements in terms and conditions, with the same structure as the expiring treaties as follows:

Property Excess of Loss

The property excess of loss treaty ("Property Treaty") provides $58.0 million of coverage in excess of a $2.0 million retention:

The per occurrence cap on the first and second layers is $84.0 million.

The first layer has unlimited reinstatements and a limit of $8.0 million in excess of $2.0 million.

The annual aggregate limit, for the $30.0 million in excess of $10.0 million second layer, is $120.0 million.

A third layer has a limit of $20.0 million in excess of $40.0 million, with an annual aggregate limit of approximately ~~$75.5~~$75.0 million.

The Property Treaty excludes nuclear, biological, chemical, and radiological ("NBCR") terrorism losses.

Casualty Excess of Loss

The casualty excess of loss treaty (“Casualty Treaty”) provides $88.0 million of coverage in excess of a $2.0 million retention:

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

The Casualty Treaty includes a $25.0 million limit, per life, on our workers compensation business, which remains unchanged from the prior treaty.

The Casualty Treaty excludes NBCR terrorism losses and has annual aggregate non-NBCR terrorism limits of $208.0 million.

Investments

The primary objective of the investment portfolio is to maximize ~~risk-adjusted~~ after-tax net investment income and the overall total return of the portfolio, while maintaining ~~our historic~~a high credit quality core fixed income portfolio and managing our duration risk profile. Our investment philosophy includes certain return and risk objectives for the fixed income, equity, and other investment portfolios. After-tax yield and net investment income generation are key drivers to our investment strategy, which we believe will be obtained through ~~more~~ active management of the portfolio.


Total Invested Assets
($ in thousands)	June 30, 2017		December 31, 2016	Change % or Points			June 30, 2018		December 31, 2017	Change % or Points
Total invested assets	$	5,503,047	5,364,947	3		%	$	5,665,568	5,685,179	—		%
Invested assets per dollar of stockholders' equity	3.33		3.50	(5	)		3.34		3.32	1
Unrealized gain – before tax	126,014		64,803	94
Unrealized gain – after tax	81,909		42,122	94
Unrealized gain – before tax¹							9,816		124,679	(92	)
Unrealized gain – after tax¹							7,755		80,575	(90	)

¹Includes unrealized gains on fixed income securities and equity securities.

~~The increase in invested~~Invested assets remained relatively unchanged at June 30, ~~2017~~2018 compared to December 31, ~~2016 was primarily driven by operating cash flow of $123.7 million, and an increase~~2017. The decrease in unrealized gains ~~of $61.2 million. The $61.2 million change in unrealized gains~~during Six Months 2018 was driven by our fixed income securities portfolio, which was ~~favorably~~unfavorably impacted by ~~tightening credit spreads and a decrease in risk-free~~rising interest rates.

Fixed Income Securities

At June 30, ~~2017,~~2018, our fixed income securities portfolio represented ~~93%~~92% of our total invested assets, largely unchanged compared to December 31, ~~2016.~~2017. The effective ~~duration and spread~~ duration of the fixed income securities portfolio as of June 30, ~~2017~~2018 was ~~3.7~~4.0 years, ~~and 4.4 years, respectively, including short-term investments. The~~compared to the Insurance Subsidiaries’ liability duration isas of December 31, 2017 of approximately ~~4.0~~3.8 years. Effective duration provides an approximate measure of the portfolio's price sensitivity to a change in interest rates, while spread duration provides an approximate measure of the portfolio's price sensitivity to spread changes, which are the differences between the yields on particular debt instruments and the yields of U.S. Treasury debt securities with similar maturities. The effective ~~and spread durations~~duration of the fixed income securities portfolio ~~are~~is monitored and managed to maximize yield while managing interest rate risk and credit risk ~~respectively,~~ at an acceptable level. Approximately 17% of our fixed income security portfolio at June 30, 2018 was invested in floating securities that are primarily indexed to the three-month London Interbank Offered Rate ("LIBOR"). We maintain a well-diversified portfolio across sectors, credit quality, and maturities that affords us ample liquidity. ~~Every purchase or sale is~~Purchases and sales are made with the intent of maximizing ~~risk-adjusted~~ investment returns in the current market environment while balancing capital preservation. Over time, we may seek to increase or decrease the duration and overall credit quality of the portfolio based on market conditions.

Our fixed income securities portfolio had a weighted average credit rating of ~~"AA-"~~“ AA- ,” with 97% of the securities in the portfolio being investment grade quality, at both June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. Within our fixed income securities portfolio, we maintained an allocation of non-investment grade high-yield securities, which represented 3% of our fixed income securities portfolio as of both June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The sector composition and credit quality of our major asset categories within our fixed income securities portfolio did not significantly change from December 31, 2016. However, we have recently increased our exposure to floating rate fixed income securities, which is largely reflective of our increased allocation to collateralized loan obligations ("CLO"). Floating rate securities represented approximately 17% of our fixed income securities portfolio as of June 30, 2017, compared to 13% as of December 31, 2016. The increase in floating rate instruments, which are primarily indexed to the 90-day LIBOR, will increase the sensitivity of changes to our book yield and investment income.2017.

For details regarding the credit quality of our portfolio, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” of our ~~2016~~2017 Annual Report.

Net Investment Income

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


	Quarter ended June 30,					Six Months ended June 30,				Quarter ended June 30,					Change % or Points				Six Months ended June 30,					Change % or Points
($ in thousands)	2017			2016		2017		2016		2018			2017					2018			2017			Change % or Points
Fixed income securities	$	37,668		31,753		74,559		63,397		$	43,774		37,668		Change % or Points	16	%			85,815			74,559		15	%
Equity securities	1,419			2,204		2,887		4,434		1,820			1,419		28				3,797			2,887		32
Short-term investments	377			142		627		301		611			377		62				1,134			627		81
Other investments	5,231			(611	)	6,834		(1,677	)	2,094			5,231		(60	)			3,657			6,834		(46	)
Investment expenses	(3,265		)	(2,306	)	(6,058	)	(4,504	)	(2,746		)	(3,265	)	(16	)			(5,619	)		(6,058	)	(7	)
Net investment income earned – before tax	41,430			31,182		78,849		61,951		45,553			41,430		10				88,784			78,849		13
Net investment income tax expense	(11,127		)	(7,657	)	(21,095	)	(14,866	)	(7,964		)	(11,127	)	(28	)			(15,405	)		(21,095	)	(27	)
Net investment income earned – after tax	$	30,303		23,525		57,754		47,085		$	37,589		30,303		24				73,379			57,754		27
Effective tax rate	26.9		%	24.6		26.8		24.0		17.5		%	26.9		(9.4	)	pts		17.4			26.8		(9.4	)	pts
Annualized after-tax yield on fixed income securities	2.2			2.0		2.2		2.0		2.8			2.2		0.6				2.7			2.2		0.5
Annualized after-tax yield on investment portfolio	2.2			1.8		2.1		1.8		2.7			2.2		0.5				2.6			2.1		0.5

The increase in pre-tax net investment income in ~~both~~ Second Quarter ~~2017~~and Six Months 2018 compared to Second Quarter and Six Months 2017 was driven primarily by our fixed income securities portfolio, which benefited ~~fromimproved~~from improved new money reinvestment yields ~~our increased allocation to non-investment~~and repositioning of the investment grade securities as a result of active investment management and ~~repositioning within the investment grade~~security selection, principally in our core fixed income portfolio. In addition, with approximately 17% of our fixed income portfolio invested in floating rate securities that primarily reset based on the 90-day LIBOR, we have benefited from the 64-point rise in LIBOR in Six Months 2018. These improvements were partially offset by lower returns on our alternative investments within our other investment portfolio, ~~increased in both periods due~~primarily related to ~~valuation improvements~~our energy-sector related investments. On an after-tax basis, we benefited from a decrease in the ~~private equity and energy-related sectors.~~effective tax rate as a result of Tax Reform. See the "Federal Income Taxes" discussion below for additional information regarding the impact of this legislation.

Realized and Unrealized Gains and Losses

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. Net realized and unrealized gains ~~(losses)~~and losses for the indicated periods were as follows:

Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2017 2016 2017 2016
Net realized gains, excluding OTTI $ 2.9
2.3
5.4
3.2
OTTI (1.2 ) (0.5 ) (4.7 ) (4.1 )
Total net realized gains (losses) 1.7
1.8
0.7
(0.9 )



	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2018			2017		2018		2017
Net realized gains on disposals, excluding OTTI	$	54		2,951		4,785		5,381
OTTI charges	(2,821		)	(1,217	)	(4,033	)	(4,692	)
Unrealized gains (losses) recognized in income on equity securities	1,115			—		(12,953	)	—
Total net realized and unrealized (losses) gains	$	(1,652	)	1,734		(12,201	)	689

The increase in net realized and unrealized losses in Second Quarter 2018 compared to Second Quarter 2017 was driven by OTTI charges recognized in earnings. The increase in net realized and unrealized losses in Six Months 2018 compared to Six Months 2017 was driven by market value fluctuations on our equity portfolio, which are recorded through income due to an accounting change in the first quarter of 2018. For ~~further discussion of our realized gains and losses, as well as our OTTI methodology,~~information on this accounting change, see Note 2. ~~“Summary~~"Adoption of ~~Significant~~ Accounting ~~Policies” in Item 8. “Financial Statements and Supplementary Data.” of our~~ ~~2016 Annual Report. For additional information about our OTTI charges, see Note 4. "Investments"~~Pronouncements" in Item 1. "Financial Statements." of this Form 10-Q. For further discussion of our OTTI methodology, see Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2017 Annual Report.

Federal Income Taxes

The following table provides information regarding federal income taxes:


	Quarter ended June 30,				Six Months ended June 30,		Quarter ended June 30,				Six Months ended June 30,
($ in millions)	2017			2016	2017	2016	2018			2017	2018	2017
Federal income tax expense	$	17.5		18.7	34.6	33.6	$	13.7		17.5	14.7	34.6
Effective tax rate	29.7		%	30.0	27.4	29.4	18.9		%	29.7	15.9	27.4

On December 22, 2017, Tax Reform was signed into law, which among other provisions, reduced our statutory corporate tax rate from 35% to 21% beginning on January 1, 2018. The reduction in the effective tax rate in the table above ~~differs from the statutory tax rate of 35% primarily because of tax-advantaged interest~~

~~and dividend income. The decrease in our effective tax rate in~~for Second Quarter and Six Months ~~2017~~2018 compared to Second Quarter and Six Months ~~2016~~2017 reflects: (i) the lower statutory rate; (ii) the contribution of tax-advantaged interest and dividend income in relation to overall pre-tax income this year compared to last; and (iii) an increase in the tax benefit of our share-based payment awards that are recognized through income, which was driven ~~primarily~~ by growth in our ~~adoption of ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting~~ ("ASU 2016-09") on January 1, 2017, which requires that the tax effects of share-based compensation be recognized in the income tax provision as discrete items outside of the annual estimated expected tax rate. All excess tax benefits and tax deficiencies are recognized as income tax benefit or expense in the income statement and reducedstock price.

In general, our effective tax rate ~~by 0.6 points~~differs from the statutory rate principally due to the benefit of tax-advantaged interest and ~~2.6 points in Second Quarter and Six Months 2017, respectively. Previously, these amounts were recorded in additional paid-in capital.~~dividend income, which are taxed at lower rates. For ~~further information~~a reconciliation of tax expense at the statutory rate to tax expense on our ~~adoption~~Consolidated Statements of ~~ASU 2016-09,~~Income, refer to Note ~~2. "Adoption of Accounting Pronouncements"~~12. "Federal Income Taxes" in Item 1. "Financial Statements." of this Form 10-Q.

~~We believe that our~~Our future effective tax rate will continue to be impacted by similar items, assuming no significant changes to

tax laws. However, for full-year 2018, we expect an overall effective tax rate of approximately 18%, which is higher than our effective tax rate for Six Months 2018, as we expect a greater income contribution from our insurance operations for the ~~U.S. federal income tax structure is currently under significant debate as a result~~remainder of the ~~last~~

~~Presidential election. We are unable~~year compared to ~~provide an estimate~~the relative contribution during the first half of the ~~magnitude of potential changes.~~year.

Financial Condition, Liquidity, 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, excluding restricted cash, and short-term investment position of ~~$142~~$169 million at June 30, ~~2017~~2018 was comprised of ~~$21~~$36 million at the Parent and ~~$121~~$133 million at the Insurance Subsidiaries. Short-term investments are generally maintained in "AAA" rated money market funds approved by the National Association of Insurance Commissioners. The Parent maintains a fixed income security investment portfolio containing high-quality, highly-liquid government and corporate fixed income securities. This portfolio amounted to ~~$84~~$90 million at June 30, 2018 and December 31, 2017, for a total of $126 million of cash and liquid investments at the Parent at June 30, 2018, compared to ~~$74~~$114 million at December 31, ~~2016.~~2017. We expect to continue to increase the level of cash and invested assets at the Parent over time, although there will be fluctuations in these balances based on various factors, including the amount and availability of dividends from our Insurance Subsidiaries, investment income, expenses, and other liquidity needs of the Parent. Our target is to hold cash and other liquid assets at the Parent sufficient to meet two years of its expected annual needs.

Sources of Liquidity

Sources of cash for the Parent have historically consisted of dividends from the Insurance Subsidiaries, the investment portfolio discussed above, 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.

Insurance Subsidiary Dividends

We currently anticipate that the Insurance Subsidiaries will pay ~~$80~~$100 million in total dividends to the Parent in 2018, a $20 million increase compared to $80 million paid in 2017, of which ~~$40~~$50 million was paid during Six Months ~~2017.~~2018. As of ~~June 30,~~December 31, 2017, our allowable ordinary maximum dividend was ~~$199~~$211 million for ~~2017, which is a $6 million increase from December 31, 2016 due to an Indiana regulation change regarding the calculation of ordinary dividends, which impacted two of our insurance subsidiaries.~~2018.

Any dividends to the Parent are subject to the approval and/or review of the insurance regulators in the respective Insurance Subsidiaries' 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 19. “Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds” in Item 8. “Financial Statements and Supplementary Data.” of our ~~2016~~2017 Annual Report.

The Insurance Subsidiaries 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 continually provide a source of cash flows for claims payments in the ordinary course of business. The effective duration of the fixed income securities portfolio ~~including short-term investments,~~ was ~~3.7~~4.0 years as of June 30, ~~2017,~~2018, while the liabilities of the Insurance Subsidiaries ~~have~~had a duration as of ~~4.0~~December 31, 2017 of 3.8 years. As protection for the capital resources of the Insurance Subsidiaries, we purchase reinsurance coverage for significantly large claims or catastrophes that may occur during the year.

Line of Credit

The Parent's line of credit with Wells Fargo Bank, National Association, as administrative agent, and Branch Banking and Trust Company (BB&T) (referred to as our "Line of Credit"), was renewed effective December 1, 2015 with a borrowing capacity of $30 million, which can be increased to $50 million with the approval of both lending partners. This Line of Credit expires on December 1, 2020 and has an interest rate which varies and is based on, among other factors, the Parent's debt ratings. There were no balances outstanding under the Line of Credit at June 30, ~~2017~~2018 or at any time during ~~2017.~~2018.

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, a minimum combined statutory surplus, and a 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 table below outlines information regarding certain of the covenants in the Line of Credit:



	Required as of June 30, ~~2017~~2018	Actual as of June 30, ~~2017~~2018
Consolidated net worth	Not less than ~~$1.1~~$1.2 billion	$1.7 billion
Statutory surplus	Not less than $750 million	$1.7 billion
Debt-to-capitalization ratio¹	Not to exceed 35%	~~21.2%~~20.6%
A.M. Best financial strength rating	Minimum of A-	A


¹	Calculated in accordance with the Line of Credit agreement.

Several of our Insurance Subsidiaries are members of certain branches of the Federal Home Loan Bank, which provides those subsidiaries with additional access to liquidity. Membership is as follows:



Branch	Insurance Subsidiary Member
Federal Home Loan Bank of Indianapolis ("FHLBI")	Selective Insurance Company of South Carolina ("SICSC")¹ Selective Insurance Company of the Southeast ("SICSE")¹
Federal Home Loan Bank of New York ("FHLBNY")	Selective Insurance Company of America ("SICA") Selective Insurance Company of New York ("SICNY")

¹These subsidiaries are jointly referred to as the "Indiana Subsidiaries" as they are domiciled in Indiana.

The Line of Credit permits aggregate borrowings from the FHLBI and the FHLBNY up to 10% of the respective member company’s admitted assets for the previous year end. Additionally, as SICNY is domiciled in New York, this company's borrowings from the FHLBNY are limited to the lower of 5% of admitted assets for the most recently completed fiscal quarter or 10% of admitted assets for the previous year end.

All borrowings from both the FHLBI and the FHLBNY are required to be secured by investments pledged as collateral. For additional information regarding collateral outstanding, refer to Note 4. "Investments" in Item 1. "Financial Statements." of this Form 10-Q. The following table provides information on the remaining capacity for Federal Home Loan Bank borrowings ~~as of June 30, 2017~~ based on these restrictions, as well as the amount of additional stock that would need to be purchased to allow these member companies to borrow their remaining capacity:


($ in millions)	Admitted Assets		Borrowing Limitation		Amount Borrowed	Remaining Capacity	Additional Stock Requirements	Admitted Assets		Borrowing Limitation			Amount Borrowed	Remaining Capacity	Additional Stock Requirements
								Admitted Assets					Amount Borrowed	Remaining Capacity	Additional Stock Requirements
SICSC	$	644.9	$	64.5	32.0	32.5	1.4	$	648.0	Borrowing Limitation		$	64.8	32.0	32.8	1.4
SICSE	490.7		49.1		28.0	21.1	0.9	507.5		50.8			28.0	22.8	1.0
SICA	2,314.2		231.4		50.0	181.4	8.2	2,434.9		243.5			50.0	193.5	8.7
SICNY	427.4		21.4		—	21.4	1.0	445.8		22.3			—	22.3	1.0
Total			$	366.4	110.0	256.4	11.5			$	381.4		110.0	271.4	12.1

Short-term Borrowings

In ~~the first quarter of 2017,~~Six Months 2018, SICA ~~borrowed $64~~borrowed: (i) $75 million from the FHLBNY, which was repaid on March ~~21, 2017.~~20, 2018; and (ii) $55 million from the FHLBNY, which was repaid on April 18, 2018. For further

information regarding this borrowing, see Note 5. "Indebtedness" in Item 1. "Financial Statements." of this Form 10-Q.

Intercompany Loan Agreements

The Parent has lending agreements with the Indiana Subsidiaries that have been approved by the Indiana Department of Insurance, which provide additional liquidity to the Parent. 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. The following table provides information on the Parent’s borrowings and remaining borrowing capacity from the Indiana Subsidiaries:


($ in millions)	Admitted Assets as of December 31, 2016		Borrowing Limitation				Amount Borrowed	Remaining Capacity		Admitted Assets as of December 31, 2017	Borrowing Limitation		Amount Borrowed		Remaining Capacity
As of June 30, 2017	Admitted Assets as of December 31, 2016							Remaining Capacity		Admitted Assets as of December 31, 2017	Borrowing Limitation		Amount Borrowed		Remaining Capacity
As of June 30, 2018										Admitted Assets as of December 31, 2017	Borrowing Limitation		Amount Borrowed		Remaining Capacity
SICSC	$	644.9	Borrowing Limitation		$	64.5	Amount Borrowed		27.0	Admitted Assets as of December 31, 2017	Borrowing Limitation		Amount Borrowed	37.5	Remaining Capacity
SICSE	490.7		49.1				18.0	31.1		507.5	50.8		18.0		32.8
Total			$	113.6			45.0	68.6			$	115.6	45.0		70.6

Capital Market Activities

The Parent had no private or public issuances of stock or debt instruments during Six Months ~~2017.~~2018.

Uses of Liquidity

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. Our next two principal ~~debt repayment is~~

repayments, each in the amount of $25 million, are due in ~~2021.~~2021, with the next following principal payment due in 2026. We

have $185 million of Senior Notes due February 9, 2043 that became callable on February 8, 2018, which we may elect to call, in whole or in part, at any time. If we were to call and redeem these Senior Notes, we would expense the associated unamortized debt issuance costs. The balance of the unamortized debt issuance costs associated with our $185 million of Senior Notes was $4.4 million at June 30, 2018.

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.

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 June 30, ~~2017,~~2018, we had GAAP stockholders' equity and statutory surplus of $1.7 billion. With total debt of ~~$438.9~~$439.3 million, our debt-to-capital ratio was approximately ~~21.0%~~20.6% at June 30, ~~2017.~~2018.

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 commissions to our distribution partners, 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, calling existing debt, repurchasing shares of the Parent’s common stock, and increasing stockholders’ dividends.

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 by 7%~~decreased to ~~$28.32~~$28.86 as of June 30, ~~2017,~~2018, from ~~$26.42~~$29.28 as of December 31, ~~2016,~~2017, due to ~~$1.55 in net income and $0.68~~$1.37 in unrealized ~~gains~~losses on our investment portfolio ~~partially offset by $0.32~~and $0.36 in dividends to our ~~shareholders.~~shareholders, partially offset by $1.30 in net income per share.

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. We have been rated “A” or higher by A.M. Best for the past 8788 years. A downgrade from A.M. Best to a rating below ~~“A-~~“A-” is an event of default under our Line of Credit and could affect our ability to write new business with customers and/or distribution partners, 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.

Our ratings have not changed from those reported in our "Ratings" section of Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." in our ~~2016~~2017 Annual Report and continue to be as follows:



NRSRO	Financial Strength Rating	Outlook
A.M. Best	A	Stable
Moody's Investor Services ("Moody's")	A2	Stable
Fitch Ratings ("Fitch")	A+	Stable
Standard & Poor's Global Ratings ("S&P")	A	Stable

In the first quarter of 2018, Moody’s reaffirmed our "A2" rating with a "stable" outlook. In taking this action, Moody’s cited our solid risk-adjusted capitalization, strong asset quality, and underwriting profitability, as well as our good regional presence and established independent agency support.

In Second Quarter ~~2017,~~2018, Fitch reaffirmed our "A+" rating with a "stable" outlook. In taking this action, Fitch cited our strong underwriting results, solid capitalization with growth in stockholders' equity, ~~stable leverage metrics,~~strong business profile, and stable interest coverage metrics.

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 June 30, ~~2017~~2018 and December 31, ~~2016~~2017, 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.

Contractual Obligations, Contingent Liabilities, and Commitments

Our future cash payments associated with: (i) loss and loss expense reserves; (ii) contractual obligations pursuant to operating leases for office space and equipment; and (iii) debt have not materially changed since December 31, ~~2016.~~2017. As of June 30, ~~2017,~~2018, we had contractual obligations that expire at various dates through ~~2030~~2036 that may require us to invest up to ~~$165~~$237.2 million in alternative ~~and other~~ investments. There is no certainty that any such additional investment will be required. Additionally, as of June 30, ~~2017,~~2018, we had the following contractual ~~obligations that expire in 2019 to invest $12.0~~obligations: (i) $27.9 million in a non-publicly traded common stock within our ~~AFS portfolio.~~equity portfolio that expire through 2023, and (ii) $16.8 million in a non-publicly traded collateralized loan obligation in our fixed income securities portfolio that expires in 2030. We expect to have the capacity to repay and/or refinance these obligations as they come due.

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. For additional details on transactions with related parties, see Note ~~12.~~16. "Related Party Transactions" in Item 1.8. "Financial ~~Statements.~~Statements and Supplementary Data." ~~of this Form 10-Q.~~in our 2017 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 ~~2016~~2017 Annual ~~Report~~.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 (the “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 in Internal Control – Integrated Framework ("COSO Framework") in 2013. Based on this 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

Except for internal controls over financial reporting related to the implementation of a new investment accounting platform, 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 Six Months ~~2017~~2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management reviewed and tested the effectiveness of internal controls over financial reporting related to the new investment accounting platform and concluded they were effective.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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: (i) liability insurers defending or providing indemnity for third-party claims brought against our customers; or (ii) insurers defending first-party coverage claims brought against them. We account for such activity through the establishment of unpaid losses and loss expense reserves. We expect that any potential ultimate liability in such ordinary course claims litigation will not be material to our consolidated financial condition, results of operations, or cash flows after consideration of provisions made for potential losses and costs of defense.

From time to time, our insurance subsidiaries also are named as defendants 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. Similarly, our Insurance Subsidiaries are also named from time-to-time in individual actions seeking extra-contractual damages, punitive damages, or penalties, some of which allege bad faith in the handling of insurance claims. We believe that we have valid defenses to these cases. We expect that any potential ultimate liability in any such lawsuit will not be material to our consolidated financial condition, after consideration of provisions made for estimated losses. Nonetheless, given the inherent unpredictability of litigation and the large or indeterminate amounts sought in certain of these actions, an adverse outcome in certain matters could possibly 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. These risk factors might affect, alter, or change actions that we might take in executing 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 potential future impact, if any, they might have on our business. There have been no material changes from the risk factors disclosed in Item 1A. “Risk Factors.” in our ~~2016~~2017 Annual ~~Report.~~Report other than as discussed below.

We face risks regarding our flood business because of uncertainties regarding the NFIP.

We are the fifth largest insurance group participating in the WYO arrangement of the NFIP, which is managed by the Mitigation Division of the Federal Emergency Management Agency (“FEMA”) in the U.S. Department of Homeland Security. Under the arrangement, we receive an expense allowance for policies written and a servicing fee for claims administered, and all losses are 100% reinsured by the Federal Government. The current expense allowance is 30.9% of direct premium written. The servicing fee is the combination of 0.9% of direct premium written and 1.5% of incurred losses.

As a WYO carrier, we are required to follow certain NFIP procedures in the administration of flood policies and claims. Some of these requirements may differ from our normal business practices and may present a reputational risk to our brand. While insurance companies are regulated by the states and the NFIP requires WYO carriers to be licensed in the states in which they operate, the NFIP is a federal program and WYO carriers are fiscal agents of the U.S. Government and must follow the NFIP's directives. Consequently, we have the risk that directives from the NFIP and a state regulator on the same issue may conflict.

The NFIP was authorized until July 31, 2018. On July 25, 2018, the U.S. House of Representatives passed a four-month extension authorizing the NFIP until November 30, 2018. On July 31, 2018, the U.S. Senate passed the four-month extension and President Trump signed the extension bill. There continues to be significant public policy and political debate in Congress about extension of the NFIP and solutions for flood risk throughout the country. In November 2017, the U.S. House of Representatives passed the 21st Century Flood Reform Act, which would extend the NFIP for five years but reduce the WYO expense allowance over a three-year period by three points, from its current 30.9% to 27.9%. The bill also proposes changes in certain operational processes and provides incentives for the private flood insurance market. The U.S. Senate has yet to consider this bill. FEMA, on its own initiative however, revised the arrangement by: (i) reducing the WYO’s expense allowance by one percentage point, from 30.9% to 29.9% effective October 2018; and (ii) eliminating the provision allowing FEMA to increase a WYO’s expense allowance by one percentage point to cover additional incurred expenses.

Our flood business could be impacted by: (i) a lapse in program authorization; (ii) any mandate for primary insurance carriers to provide flood insurance; or (iii) private writers becoming more prevalent in the marketplace. The uncertainty created by the public policy debate and politics of flood insurance reform make it difficult for us to predict the future of the NFIP and our continued participation in the 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 Second Quarter ~~2017~~2018:

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
April 1 – 30, 2017 792
$ 50.14
—
—
May 1 - 31, 2017 4,835
51.74
—
—
June 1 - 30, 2017 1,636
49.78
—
—
Total 7,263
$ 51.12
—
—



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
April 1 – 30, 2018	461	$	60.50	—	—
May 1 - 31, 2018	1,821	55.78		—	—
June 1 - 30, 2018	—	—		—	—
Total	2,282	$	56.74	—	—

¹During Second Quarter ~~2017~~2018, ~~2,428~~488 shares were purchased from employees and non-employee directors in connection with the vesting of restricted stock units and ~~4,835~~1,794 shares were purchased from employees in connection with option exercises. These repurchases were made to satisfy tax withholding obligations and/or option costs with respect to those ~~employees.~~individuals. 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. 2014 Omnibus Stock ~~Plan and the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan As Amended and Restated Effective as of May 1, 2010.~~Plan. The shares purchased in connection with the option exercises were purchased at the current market prices of our common stock on the dates the options were exercised.

ITEM 6. EXHIBITS.



Exhibit No.
* 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.

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



Date:	August 2, 2018		By: /s/ Gregory E. Murphy	~~July 27, 2017~~
			Gregory E. Murphy

		Chairman of the Board and Chief Executive Officer

Date:	August 2, 2018		By: /s/ Mark A. Wilcox	~~July 27, 2017~~
			Mark A. Wilcox

		Executive Vice President and Chief Financial Officer

		(principal financial officer)



Second Quarter 2017	Gross		Included in Other Comprehensive Income ("OCI")			Recognized in Earnings
($ in thousands)	Gross		Included in Other Comprehensive Income ("OCI")			Recognized in Earnings
AFS fixed income securities:
U.S. government and government agencies	$	2	—			2
Obligations of states and political subdivisions	239		—			239
Corporate securities	381		—			381
CLO and other ABS	62		—			62
CMBS	220		—			220
RMBS	71		(6		)	77
Total AFS fixed income securities	975		(6		)	981
AFS equity securities:
Common stock	46		—			46
Total AFS equity securities	46		—			46
Other Investments	190		—			190
Total OTTI losses	$	1,211	$	(6	)	$	1,217



Second Quarter 2016	Gross		Included in OCI	Recognized in Earnings
($ in thousands)	Gross		Included in OCI	Recognized in Earnings
AFS fixed income securities:
Corporate securities	$	104	—	104
RMBS	98		10	88
Total AFS fixed income securities	202		10	192
AFS equity securities:
Common stock	357		—	357
Total AFS equity securities	357		—	357
Total OTTI losses	$	559	10	549