UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: September 30, ~~2018~~2019

¨☐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.~~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~~

40 Wantage Avenue

Branchville, New Jersey07890

(Address of Principal Executive Offices) (Zip Code)



~~(973)~~ 973	948-3000
(Registrant’s Telephone Number, Including Area Code)

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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $2 per share	SIGI	NASDAQ Global Select Market

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. Yes ☒ No ☐

~~Yes~~ x No o

Indicate by check mark whether the registrant has submitted electronically 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). Yes ☒ No ☐

~~Yes~~ x 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 filerx	☒	Accelerated filer ☐		~~Accelerated filer~~ o
Non-accelerated filer o☐		Smaller reporting companyo	☐
		Emerging growth companyo	☐

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.

o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒

As of October ~~15, 2018,~~18, 2019, there were ~~58,888,985~~59,401,565 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 September 30, ~~2018~~2019 (Unaudited) and December 31, ~~2017~~2018	1

	Unaudited Consolidated Statements of Income for the Quarter and Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	2

	Unaudited Consolidated Statements of Comprehensive Income for the Quarter and Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	3

	Unaudited Consolidated Statements of Stockholders' Equity for the Quarter and Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	4

	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	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	23

	Introduction	23

	~~Critical Accounting Policies and Estimates~~	24

	Critical Accounting Policies and Estimates	24

	Financial Highlights of Results for Third Quarter and Nine Months ~~2018~~2019 and Third Quarter and Nine Months ~~2017~~2018	25

	Results of Operations and Related Information by Segment	30

	Federal Income Taxes	3938

	Financial Condition, Liquidity, and Capital Resources	3938

	Ratings	41

	Off-Balance Sheet Arrangements	41

	Contractual Obligations, Contingent Liabilities, and Commitments	42

	~~Off-Balance Sheet Arrangements~~Item 3.	43Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	~~Contractual Obligations, Contingent Liabilities,~~Controls and ~~Commitments~~Procedures	42

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	43

Item 3.2.	~~Quantitative~~Unregistered Sales of Equity Securities and ~~Qualitative Disclosures About Market Risk~~Use of Proceeds	43

Item 4.6.	~~Controls and Procedures~~	43

~~PART II. OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~	43

~~Item 1A.~~	~~Risk Factors~~Exhibits	44

~~Item 2.~~Signatures		~~Unregistered Sales of Equity Securities and Use of Proceeds~~	45

~~Item 6.~~	~~Exhibits~~	45

~~Signatures~~		4544



PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS.


SELECTIVE INSURANCE GROUP, INC. CONSOLIDATED BALANCE SHEETS	Unaudited					Unaudited
($ in thousands, except share amounts)	September 30, 2018			December 31, 2017		September 30, 2019			December 31, 2018
ASSETS
Investments:
Fixed income securities, held-to-maturity – at carrying value (fair value: $46,240 – 2018; $44,100 – 2017)	$	44,582		42,129
Fixed income securities, available-for-sale – at fair value (amortized cost: $5,216,964 – 2018; $5,076,716 – 2017)	5,190,156			5,162,522
Equity securities – at fair value (cost: $134,530 – 2018; $143,811 – 2017)	157,867			182,705
Fixed income securities, held-to-maturity – at carrying value (fair value: $28,356 – 2019; $38,317 – 2018)						$	26,925		37,110
Fixed income securities, available-for-sale – at fair value (amortized cost: $5,706,656 – 2019; $5,270,798 – 2018)						5,930,237			5,273,100
Equity securities – at fair value (cost: $77,779 – 2019; $138,144 – 2018)						79,213			147,639
Short-term investments (at cost which approximates fair value)	304,572			165,555		326,121			323,864
Other investments	163,930			132,268		189,243			178,938
Total investments (Note 4 and 6)	5,861,107			5,685,179		6,551,739			5,960,651
Cash	446			534		516			505
Restricted cash	12,386			44,176		9,647			16,414
Interest and dividends due or accrued	41,016			40,897		42,975			41,620
Premiums receivable, net of allowance for uncollectible accounts of: $10,100 – 2018; $10,000 – 2017	826,923			747,029
Reinsurance recoverable, net of allowance for uncollectible accounts of: $4,500 – 2018; $4,600 – 2017	603,827			594,832
Premiums receivable, net of allowance for uncollectible accounts of: $7,800 – 2019; $9,400 – 2018						860,480			770,518
Reinsurance recoverable, net of allowance for uncollectible accounts of: $4,400 – 2019; $4,500 – 2018						575,984			549,172
Prepaid reinsurance premiums	167,108			153,493		173,557			157,723
Current federal income tax	—			3,243
Deferred federal income tax	52,347			31,990		5,509			53,540
Property and equipment – at cost, net of accumulated depreciation and amortization of: $227,639 – 2018; $213,227 – 2017	64,225			63,959
Property and equipment – at cost, net of accumulated depreciation and amortization of: $223,518 – 2019; $211,657 – 2018						76,423			65,248
Deferred policy acquisition costs	258,033			235,055		279,239			252,612
Goodwill	7,849			7,849		7,849			7,849
Other assets	91,485			78,195		135,488			76,877
Total assets	$	7,986,752		7,686,431		$	8,719,406		7,952,729

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserve for loss and loss expense (Note 8)	$	3,925,155		3,771,240		$	4,055,631		3,893,868
Unearned premiums	1,483,794			1,349,644		1,570,226			1,431,932
Long-term debt	439,436			439,116		550,669			439,540
Current federal income tax	12,133			—		2,656			1,302
Accrued salaries and benefits	95,352			131,850		100,445			116,706
Other liabilities	292,362			281,624		302,403			277,579
Total liabilities	$	6,248,232		5,973,474		$	6,582,030		6,160,927

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: 102,786,738 – 2018; 102,284,564 – 2017	205,573			204,569
Issued: 103,421,301 – 2019; 102,848,394 – 2018						206,843			205,697
Additional paid-in capital	385,451			367,717		412,347			390,315
Retained earnings	1,824,607			1,698,613		2,012,499			1,858,414
Accumulated other comprehensive (loss) income (Note 11)	(92,576		)	20,170
Treasury stock – at cost (shares: 43,897,753 – 2018; 43,789,442 – 2017)	(584,535		)	(578,112	)
Accumulated other comprehensive income (loss) (Note 11)						98,426			(77,956	)
Treasury stock – at cost (shares: 44,021,732 – 2019; 43,899,840 – 2018)						(592,739		)	(584,668	)
Total stockholders’ equity	$	1,738,520		1,712,957		$	2,137,376		1,791,802
Commitments and contingencies
Total liabilities and stockholders’ equity	$	7,986,752		7,686,431		$	8,719,406		7,952,729

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 September 30,					Nine Months ended September 30,				Quarter ended September 30,					Nine Months ended September 30,
($ in thousands, except per share amounts)	2018			2017		2018		2017		2019			2018		2019		2018
Revenues:
Net premiums earned	$	614,277		572,055		1,810,941		1,700,939		$	653,620		614,277		1,928,812		1,810,941
Net investment income earned	52,443			40,446		141,227		119,295		55,826			52,443		164,949		141,227
Net realized and unrealized (losses) gains:
Net realized investment (losses) gains on disposals	(751		)	6,871		4,034		12,252
Net realized investment gains (losses) on disposals										20,425			(751	)	26,752		4,034
Unrealized losses on equity securities										(20,317		)	(2,610	)	(8,091	)	(15,563	)
Other-than-temporary impairments	(1,426		)	(43	)	(5,459	)	(4,729	)	(2,291		)	(1,426	)	(3,366	)	(5,459	)
Other-than-temporary impairments on fixed income securities recognized in other comprehensive income	—			(30	)	—		(36	)
Unrealized losses on equity securities	(2,610		)	—		(15,563	)	—
Total net realized and unrealized (losses) gains	(4,787		)	6,798		(16,988	)	7,487		(2,183		)	(4,787	)	15,295		(16,988	)
Other income	2,538			1,994		7,896		8,526		3,162			2,538		8,535		7,896
Total revenues	664,471			621,293		1,943,076		1,836,247		710,425			664,471		2,117,591		1,943,076

Expenses:
Loss and loss expense incurred	379,199			344,587		1,130,468		1,003,618		398,675			379,199		1,166,238		1,130,468
Amortization of deferred policy acquisition costs	124,511			118,143		368,265		350,071		136,572			124,511		399,647		368,265
Other insurance expenses	80,108			78,874		244,342		243,799		90,234			80,108		261,975		244,342
Interest expense	6,073			6,085		18,350		18,272		7,397			6,073		26,289		18,350
Corporate expenses	7,450			6,289		22,065		26,669		6,369			7,450		28,345		22,065
Total expenses	597,341			553,978		1,783,490		1,642,429		639,247			597,341		1,882,494		1,783,490

Income before federal income tax	67,130			67,315		159,586		193,818		71,178			67,130		235,097		159,586

Federal income tax expense:
Current	10,314			16,859		23,529		48,917		13,805			10,314		44,344		23,529
Deferred	1,381			3,738		2,878		6,317		1,223			1,381		989		2,878
Total federal income tax expense	11,695			20,597		26,407		55,234		15,028			11,695		45,333		26,407

Net income	$	55,435		46,718		133,179		138,584		$	56,150		55,435		189,764		133,179

Earnings per share:
Basic net income	$	0.94		0.80		2.26		2.37		$	0.94		0.94		3.20		2.26

Diluted net income	$	0.93		0.79		2.23		2.34		$	0.93		0.93		3.16		2.23

Dividends to stockholders	$	0.18		0.16		0.54		0.48

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 September 30,					Nine Months ended September 30,				Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2018			2017		2018		2017		2019			2018		2019		2018
Net income	$	55,435		46,718		133,179		138,584		$	56,150		55,435		189,764		133,179

Other comprehensive (loss) income, net of tax:
Unrealized (losses) gains on investment securities:
Unrealized holding (losses) gains arising during period	(17,036		)	10,874		(103,389	)	50,961
Non-credit portion of other-than-temporary impairments recognized in other comprehensive income	—			19		—		23
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during period										27,168			(17,036	)	174,483		(103,389	)
Amounts reclassified into net income:
Held-to-maturity securities	(6		)	(35	)	(22	)	(95	)	(2		)	(6	)	(26	)	(22	)
Non-credit other-than-temporary impairments	—			25		—		25
Realized losses (gains) on disposals of available-for-sale securities	8,563			(4,394	)	14,424		(4,638	)
Total unrealized (losses) gains on investment securities	(8,479		)	6,489		(88,987	)	46,276
Realized losses on disposals and other-than-temporary impairments of available-for-sale securities										2,229			8,563		351		14,424
Total unrealized gains (losses) on investment securities										29,395			(8,479	)	174,808		(88,987	)

Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	420			329		1,260		989		525			420		1,574		1,260
Total defined benefit pension and post-retirement plans	420			329		1,260		989		525			420		1,574		1,260
Other comprehensive (loss) income	(8,059		)	6,818		(87,727	)	47,265
Other comprehensive income (loss)										29,920			(8,059	)	176,382		(87,727	)
Comprehensive income	$	47,376		53,536		45,452		185,849		$	86,070		47,376		366,146		45,452

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

SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months ended September 30,
($ in thousands, except per share amounts) 2018 2017
Common stock:

Beginning of year $ 204,569
203,241
Dividend reinvestment plan (shares: 17,683 – 2018; 22,278 – 2017) 35
45
Stock purchase and compensation plans (shares: 484,491 – 2018; 537,588 – 2017) 969
1,075
End of period 205,573
204,361

Additional paid-in capital:

Beginning of year 367,717
347,295
Dividend reinvestment plan 1,013
1,025
Stock purchase and compensation plans 16,721
14,417
End of period 385,451
362,737

Retained earnings:

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 133,179
138,584
Dividends to stockholders ($0.54 per share – 2018; $0.48 per share – 2017) (32,204 ) (28,424 )
End of period 1,824,607
1,679,041

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 (87,727 ) 47,265
End of period (92,576 ) 31,315

Treasury stock:

Beginning of year (578,112 ) (572,097 )
Acquisition of treasury stock (shares: 108,311 – 2018; 136,012 – 2017) (6,423 ) (6,005 )
End of period (584,535 ) (578,102 )
Total stockholders’ equity $ 1,738,520
1,699,352



SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands, except share and per share amounts)	2019			2018		2019		2018
Common stock:
Beginning of period	$	206,665		205,460		205,697		204,569
Dividend reinvestment plan	9			10		31		35
Stock purchase and compensation plans	169			103		1,115		969
End of period	206,843			205,573		206,843		205,573

Additional paid-in capital:
Beginning of period	407,382			381,641		390,315		367,717
Dividend reinvestment plan	366			327		1,095		1,013
Stock purchase and compensation plans	4,599			3,483		20,937		16,721
End of period	412,347			385,451		412,347		385,451

Retained earnings:
Beginning of period, as previously reported	1,968,374			1,779,928		1,858,414		1,698,613
Cumulative effect adjustment due to adoption of equity security guidance, net of tax	—			—		—		30,726
Cumulative effect adjustment due to adoption of stranded deferred tax guidance	—			—		—		(5,707	)
Cumulative effect adjustment due to adoption of lease guidance, net of tax (Note 2)	—			—		342		—
Balance at beginning of period, as adjusted	1,968,374			1,779,928		1,858,756		1,723,632
Net income	56,150			55,435		189,764		133,179
Dividends to stockholders	(12,025		)	(10,756	)	(36,021	)	(32,204	)
End of period	2,012,499			1,824,607		2,012,499		1,824,607

Accumulated other comprehensive income (loss):
Beginning of period, as previously reported	68,506			(84,517	)	(77,956	)	20,170
Cumulative effect adjustment due to adoption of equity security guidance, net of tax	—			—		—		(30,726	)
Cumulative effect adjustment due to adoption of stranded deferred tax guidance	—			—		—		5,707
Balance at beginning of period, as adjusted	68,506			(84,517	)	(77,956	)	(4,849	)
Other comprehensive income (loss)	29,920			(8,059	)	176,382		(87,727	)
End of period	98,426			(92,576	)	98,426		(92,576	)

Treasury stock:
Beginning of period	(591,383		)	(584,357	)	(584,668	)	(578,112	)
Acquisition of treasury stock	(1,356		)	(178	)	(8,071	)	(6,423	)
End of period	(592,739		)	(584,535	)	(592,739	)	(584,535	)
Total stockholders’ equity	$	2,137,376		1,738,520		2,137,376		1,738,520

Dividends declared per share to stockholders	$	0.20		0.18		0.60		0.54

Common stock, shares outstanding:
Beginning of period	59,328,108			58,835,052		58,948,554		58,495,122
Dividend reinvestment plan	4,738			5,310		15,650		17,683
Stock purchase and compensation plan	83,979			51,482		557,257		484,491
Acquisition of treasury stock	(17,256		)	(2,859	)	(121,892	)	(108,311	)
End of period	59,399,569			58,888,985		59,399,569		58,888,985

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
Nine Months ended September 30,
($ in thousands) 2018 2017
Operating Activities

Net income $ 133,179
138,584

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 34,961
38,163
Stock-based compensation expense 12,150
10,139
Undistributed gains of equity method investments (4,243 ) (4,247 )
Distributions in excess of current year income of equity method investments 3,210
552
Loss on disposal of fixed assets 62
998
Net realized and unrealized losses (gains) 16,988
(7,487 )

Changes in assets and liabilities:

Increase in reserve for loss and loss expense, net of reinsurance recoverable 144,920
104,429
Increase in unearned premiums, net of prepaid reinsurance 120,535
115,855
Decrease in net federal income taxes 18,339
15,674
Increase in premiums receivable (79,894 ) (88,175 )
Increase in deferred policy acquisition costs (22,978 ) (19,592 )
Decrease (increase) in interest and dividends due or accrued 72
(1,088 )
Decrease in accrued salaries and benefits (36,498 ) (19,804 )
Increase in other assets (13,881 ) (6,304 )
(Decrease) increase in other liabilities (34,437 ) 12,621
Net cash provided by operating activities 292,485
290,318

Investing Activities

Purchase of fixed income securities, held-to-maturity (7,150 ) —
Purchase of fixed income securities, available-for-sale (1,974,253 ) (1,517,474 )
Purchase of equity securities (57,834 ) (44,480 )
Purchase of other investments (47,238 ) (34,586 )
Purchase of short-term investments (2,711,360 ) (3,025,824 )
Sale of fixed income securities, available-for-sale 1,382,677
811,991
Sale of short-term investments 2,572,399
3,032,802
Redemption and maturities of fixed income securities, held-to-maturity 3,923
36,092
Redemption and maturities of fixed income securities, available-for-sale 456,037
439,616
Sale of equity securities 79,676
19,007
Sale of other investments 3,497
—
Distributions from other investments 23,420
17,041
Purchase of property and equipment (11,150 ) (11,806 )
Net cash used in investing activities (287,356 ) (277,621 )

Financing Activities

Dividends to stockholders (30,694 ) (26,915 )
Acquisition of treasury stock (6,423 ) (6,005 )
Net proceeds from stock purchase and compensation plans 5,001
4,744
Proceeds from borrowings 130,000
64,000
Repayments of borrowings (130,000 ) (64,000 )
Repayments of capital lease obligations (4,891 ) (3,267 )
Net cash used in financing activities (37,007 ) (31,443 )
Net decrease in cash and restricted cash (31,878 ) (18,746 )
Cash and restricted cash, beginning of year 44,710
37,405
Cash and restricted cash, end of period $ 12,832
18,659



SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS	Nine Months ended September 30,
($ in thousands)	2019			2018
Operating Activities
Net income	$	189,764		133,179

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	42,346			34,961
Stock-based compensation expense	15,857			12,150
Undistributed gains of equity method investments	(8,832		)	(4,243	)
Distributions in excess of current year income of equity method investments	2,267			3,210
(Gain) loss on disposal of fixed assets	(21		)	62
Net realized and unrealized (gains) losses	(15,295		)	16,988

Changes in assets and liabilities:
Increase in reserve for loss and loss expense, net of reinsurance recoverable	134,951			144,920
Increase in unearned premiums, net of prepaid reinsurance	122,460			120,535
Decrease in net federal income taxes	2,408			18,339
Increase in premiums receivable	(89,962		)	(79,894	)
Increase in deferred policy acquisition costs	(26,627		)	(22,978	)
(Increase) decrease in interest and dividends due or accrued	(1,460		)	72
Decrease in accrued salaries and benefits	(16,261		)	(36,498	)
Increase in other assets	(35,810		)	(13,881	)
Increase (decrease) in other liabilities	414			(34,437	)
Net cash provided by operating activities	316,199			292,485

Investing Activities
Purchase of fixed income securities, held-to-maturity	—			(7,150	)
Purchase of fixed income securities, available-for-sale	(1,330,827		)	(1,974,253	)
Purchase of equity securities	(40,233		)	(57,834	)
Purchase of other investments	(41,248		)	(47,238	)
Purchase of short-term investments	(4,108,414		)	(2,711,360	)
Sale of fixed income securities, available-for-sale	461,825			1,382,677
Sale of short-term investments	4,106,643			2,572,399
Redemption and maturities of fixed income securities, held-to-maturity	10,062			3,923
Redemption and maturities of fixed income securities, available-for-sale	413,220			456,037
Sale of equity securities	125,302			79,676
Sale of other investments	18,016			3,497
Distributions from other investments	19,054			23,420
Purchase of property and equipment	(24,424		)	(11,150	)
Fixed asset disposals	35			—
Net cash used in investing activities	(390,989		)	(287,356	)

Financing Activities
Dividends to stockholders	(34,440		)	(30,694	)
Acquisition of treasury stock	(8,071		)	(6,423	)
Net proceeds from stock purchase and compensation plans	5,599			5,001
Proceeds from borrowings	355,757			130,000
Repayments of borrowings	(250,000		)	(130,000	)
Repayments of finance lease obligations	(811		)	(4,891	)
Net cash provided by (used in) financing activities	68,034			(37,007	)
Net decrease in cash and restricted cash	(6,756		)	(31,878	)
Cash and restricted cash, beginning of year	16,919			44,710
Cash and restricted cash, end of period	$	10,163		12,832

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 third quarters ended September 30, 2019 (“Third Quarter 2019”) and September 30, 2018 (“Third Quarter 2018~~”) and~~ ~~September 30, 2017~~ (“~~Third Quarter 2017~~”) and the nine-month periods ended September 30, ~~2018 ("~~2019 (“Nine Months ~~2018"~~2019”) and September 30, ~~2017 ("~~2018 (“Nine Months ~~2017"~~2018”). ~~The~~These Financial Statements do not include all of the information and disclosures required by GAAP and the SEC for audited annual financial statements. ~~Results~~Additionally, 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, ~~2017~~2018 (“~~2017~~2018 Annual Report”) filed with the SEC.

NOTE 2. Adoption of Accounting Pronouncements

~~In January 2016, the~~The Financial Accounting Standards Board ("FASB") issued ~~Accounting Standards Update ("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 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 in the first quarter of 2018 and recognized a $30.7 million cumulative-effect adjustment to the opening balances of accumulated other comprehensive income ("AOCI") and retained earnings, which represents the after-tax net unrealized gain on our equity portfolio as of December 31, 2017. Additionally, beginning in the first quarter of 2018, changes in unrealized gains or losses on this portfolio are no longer recorded to AOCI, but are instead recognized in income through "Unrealized losses on equity securities" on our Consolidated Statements of Income. See Note 4 (j) below for information regarding unrealized equity losses recognized in income in Third Quarter and Nine Months 2018.

There were two accounting updates that we adopted with a retrospective transition in the 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 discussed below and the discussions are followed with a table presenting the impact of the prior period restatements.~~

In August 2016, the FASB issued ASU 2016-15. As mentioned above, this ASU adds guidance on the categorization of 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 also added or clarified guidance on the cash flow classification of certain cash receipts and payments, 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; and (iii) separately identifiable cash flows and application of the predominance principle. The updated guidance for these topics did not impact our statement of cash flows.

In November 2016, the FASB issued ASU 2016-18. ASU 2016-18 requires 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 containing cash, cash equivalents, and restricted cash. We have restricted cash related to our participation in the NFIP, which we had previously reported as part of "Other assets" on the Consolidated Balance Sheet. Beginning in the first quarter of 2018, we are reporting restricted cash in its own line item 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 Nine 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:~~

September 30, 2017
($ in thousands) Prior to Adoption After Adoption
Undistributed gains of equity method investments $ (5,157 ) (4,247 )
Distributions in excess of current year income of equity method investments —
552
Decrease (increase) in other assets 12,678
(6,304 )
Net cash provided by operating activities 307,838
290,318

Distributions from other investments 18,503
17,041
Net cash used in investing activities (276,159 ) (277,621 )

~~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 adopted ASU 2017-04 in the first quarter of 2018 and it had no impact on us.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income~~ ("ASU 2018-02"). ASU 2018-02 allows a one-time reclassification from AOCI to retained earnings for the stranded tax assets that 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 first quarter of 2018 and recognized a $5.7 million cumulative-effect adjustment for the deferred tax charge to income in the fourth quarter of 2017 that was associated with net unrealized gains on our investment portfolio and pension plan resulting from the enactment of Tax Reform.

~~Pronouncements to be effective in the future~~

~~The FASB has issued~~ new leasing guidance through ASU 2016-02, Leases, which was issued in February 2016, as well as additional implementation guidance that was issued in 2018 and 2019 (collectively referred to as "ASU 2016-02"). ASU 2016-02 requires all lessees to recognize assets and liabilities on their balance sheets for the rights and obligations created by leases with terms longer than 12 months. For leases with a term of 12 months or less, an accounting policy election is allowed to recognize lease expense on a straight-line basis over the lease term. Under the new lease guidance, we expect an increase in assets and liabilities as we will recognize operating leases for office space, fleet vehicles, and equipment on our balance sheet for the first time. However, these increases will not have a material impact to our financial condition.

ASU 2016-02 allows for certain practical expedients, accounting policy elections, and a transition method election. We ~~currently plan to adopt~~adopted practical expedients related to reassessing: (i) whether our existing contracts are, or contain, leases; (ii) lease classification for existing leases; and (iii) initial direct costs for existing leases. Additionally, we ~~plan to adopt~~adopted accounting policy elections to: (i)

aggregate lease and non-lease components of a contract into a single lease component; and (ii) expense short-term leases on a straight-line basis over the lease term. We ~~will be adopting~~adopted ASU 2016-02 oneffective January 1, ~~2019 with a cumulative-effect adjustment to the opening balance of retained earnings as of that date. We do not anticipate~~2019. See Note 12. "Leases" in this Form 10-Q for additional information regarding our leases and the impact of this guidance ~~to be material to~~on our financial condition orand results of operations.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. We adopted ASU 2018-07 ~~is effective for fiscal years beginning after December 15, 2018,~~in the first quarter of 2019 and ~~interim periods within those fiscal years. Early adoption is permitted. We do~~it did not ~~anticipate the adoption of this guidance to~~ have a material impact on our financial condition or results of operations.

Pronouncements to be effective in the future

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, as well as additional implementation guidance issued in 2018 and 2019 (collectively referred to as “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 ("HTM") debt securities, trade receivables, and reinsurance recoverables. ASU 2016-13 requires a valuation allowance to be calculated on 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. This ASU also made targeted changes to the impairment accounting model for available-for-sale ("AFS") debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. We are currently evaluating the impact of this guidance on our financial condition and results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements for fair value measurements. The modifications removed the following disclosure requirements: (i) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the

valuation processes for Level 3 fair value measurements. This ASU added the following disclosure requirements: (i) the changes in unrealized gains and losses for the period included in other comprehensive income ("OCI") for recurring Level 3 fair value measurements held at the end of the reporting period; and (ii) the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements. This update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. As the requirements of this literature are disclosure only, ASU 2018-13 will not impact our financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General: Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. These modifications include: (i) removing the requirement to disclose the amount in ~~AOCI~~accumulated other comprehensive income ("AOCI") expected to be recognized as components of net periodic benefit cost over the next fiscal year; and (ii) adding the requirement to disclose an explanation of the reasons for significant gains or losses related to changes in the benefit obligation for the period. This update is effective for fiscal years ending after December 15, 2020, with early adoption permitted. As the requirements of this literature are disclosure only, ASU 2018-14 will not impact our financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of this guidance on our financial condition or results of operations.

NOTE 3. Statements of Cash Flows

Supplemental cash flow information was as follows:



	Nine Months ended September 30,
($ in thousands)	2019		2018
Cash paid during the period for:
Interest	$	19,261	15,449
Federal income tax	42,000		7,193

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases¹	6,062		—
Operating cash flows from financing leases	12		—
Financing cash flows from finance leases	811		4,891

Non-cash items:
Corporate actions related to fixed income securities, AFS²	29,771		32,757
Corporate actions related to equity securities²	14,250		944
Assets acquired under finance lease arrangements	824		4,114
Assets acquired under operating lease arrangements¹	13,648		—
Non-cash purchase of property and equipment	108		—

Nine Months ended September 30,
($ in thousands) 2018 2017
Cash paid during the period for:

Interest $ 15,449
15,356
Federal income tax 7,193
39,000

Non-cash items:
Corporate actions related to fixed income securities, AFS¹
32,757
6,192
Corporate actions related to equity securities¹
944
4,725
Assets acquired under capital lease arrangements 4,114
278

¹Upon adoption of ASU 2016-02, effective January 1, 2019, we are required to disclose cash paid for amounts included in the measurement of operating lease liabilities, as well as supplemental non-cash information on operating lease liabilities arising from obtaining operating lease assets.

²Examples of such corporate actions include exchanges, non-cash acquisitions, and stock splits.

The following table provides a reconciliation of cash and restricted cash reported within the Consolidated Balance Sheets that equate to the amount reported in the Consolidated Statements of Cash Flows:



($ in thousands)	September 30, 2019		December 31, 2018
Cash	$	516	505
Restricted cash	9,647		16,414
Total cash and restricted cash shown in the Statements of Cash Flows	$	10,163	16,919

($ in thousands) September 30, 2018 December 31, 2017
Cash $ 446
534
Restricted cash 12,386
44,176
Total cash and restricted cash shown in the Statements of Cash Flows $ 12,832
44,710

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

NOTE 4. Investments

(a) ~~Information regarding our held-to-maturity ("HTM")~~Our HTM fixed income securities as of September 30, ~~2018 and~~2019 represented less than 1% of our total invested assets, down slightly compared to December 31, ~~2017 was as follows:~~2018. The carry value and net unrealized/unrecognized gains were $26.9 million and $1.5 million, respectively, at September 30, 2019, and $37.1 million and $1.3 million, respectively, at December 31, 2018. Included in the net unrealized/unrecognized gains were gross unrealized/unrecognized losses of less than $0.1 million at September 30, 2019 and $0.2 million at December 31, 2018.

September 30, 2018
($ in thousands)
Amortized
Cost

Net
Unrealized Gains
(Losses)

Carrying
Value

Unrecognized
Holding
Gains

Unrecognized Holding
Losses

Fair
Value
Obligations of states and political subdivisions $ 21,834
36
21,870
526
—
22,396
Corporate securities 22,798
(86 ) 22,712
1,132
—
23,844
Total HTM fixed income securities $ 44,632
(50 ) 44,582
1,658
—
46,240

December 31, 2017
($ in thousands)
Amortized
Cost

Net
Unrealized Gains
(Losses)

Carrying
Value

Unrecognized
Holding
Gains

Unrecognized Holding
Losses

Fair
Value
Obligations of states and political subdivisions $ 25,154
84
25,238
1,023
—
26,261
Corporate securities 16,996
(105 ) 16,891
1,003
(55 ) 17,839
Total HTM fixed income securities $ 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 date a security is designated as HTM through the date of the balance sheet.

(b) Information regarding our AFS securities as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as follows:



September 30, 2019
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	116,555	4,357	(12	)	120,900
Foreign government	20,947		573	—		21,520
Obligations of states and political subdivisions	1,127,709		62,910	(4	)	1,190,615
Corporate securities	1,762,981		78,345	(2,399	)	1,838,927
Collateralized loan obligations and other asset-backed securities ("CLO and other ABS")	764,038		8,998	(4,653	)	768,383
Commercial mortgage-backed securities ("CMBS")	524,441		31,435	(145	)	555,731
Residential mortgage-backed securities (“RMBS”)	1,389,985		44,710	(534	)	1,434,161
Total AFS fixed income securities	$	5,706,656	231,328	(7,747	)	5,930,237


September 30, 2018
December 31, 2018
($ 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	$	97,304	306	(1,148	)	96,462	$	120,092	1,810	(592	)	121,310
Foreign government	18,015		88	(120	)	17,983	23,202		36	(107	)	23,131
Obligations of states and political subdivisions	1,161,322		10,848	(7,261	)	1,164,909	1,121,615		19,485	(2,631	)	1,138,469
Corporate securities	1,662,613		6,342	(19,302	)	1,649,653	1,639,852		5,521	(27,965	)	1,617,408
Collateralized loan obligations and other asset-backed securities ("CLO and other ABS")	772,738		4,571	(2,540	)	774,769
Commercial mortgage-backed securities ("CMBS")	495,208		328	(5,987	)	489,549
Residential mortgage-backed securities (“RMBS”)	1,009,764		2,670	(15,603	)	996,831
Total AFS securities	$	5,216,964	25,153	(51,961	)	5,190,156
CLO and other ABS							720,193		4,112	(6,943	)	717,362
CMBS							527,409		3,417	(3,748	)	527,078
RMBS							1,118,435		12,988	(3,081	)	1,128,342
Total AFS fixed income securities							$	5,270,798	47,369	(45,067	)	5,273,100

December 31, 2017
($ in thousands)
Cost/
Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
AFS fixed income securities:
U.S. government and government agencies $ 49,326
647
(233 ) 49,740
Foreign government 18,040
526
(11 ) 18,555
Obligations of states and political subdivisions 1,539,307
44,245
(582 ) 1,582,970
Corporate securities 1,588,339
30,891
(1,762 ) 1,617,468
CLO and other ABS 789,152
6,508
(202 ) 795,458
CMBS 382,727
1,563
(841 ) 383,449
RMBS 709,825
6,487
(1,430 ) 714,882
Total AFS fixed income securities 5,076,716
90,867
(5,061 ) 5,162,522
AFS equity securities:
Common stock 129,696
38,287
(226 ) 167,757
Preferred stock 14,115
904
(71 ) 14,948
Total AFS equity securities 143,811
39,191
(297 ) 182,705
Total AFS securities $ 5,220,527
130,058
(5,358 ) 5,345,227

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 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 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 AFS securities in an unrealized/unrecognized loss position averaged approximately 2%1% of amortized cost at September 30, ~~2018~~2019 and approximately 1%2% at December 31, ~~2017.~~2018. Quantitative information regarding ~~unrealized~~these losses ~~on our AFS portfolio~~ is provided below. ~~Our HTM portfolio had $0.2 million of unrealized/unrecognized losses at September 30, 2018, and $0.1 million of unrealized/unrecognized losses at December 31, 2017.~~


September 30, 2018	Less than 12 months				12 months or longer			Total
September 30, 2019											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	$	26,414	(843	)	8,497	(305	)	34,911	(1,148	)	$	5,014	(11	)	498	(1	)	5,512	(12	)
Foreign government	7,281		(120	)	—	—		7,281	(120	)
Obligations of states and political subdivisions	411,980		(7,008	)	6,397	(253	)	418,377	(7,261	)	437		(4	)	—	—		437	(4	)
Corporate securities	1,140,349		(19,052	)	6,373	(250	)	1,146,722	(19,302	)	89,919		(1,862	)	15,867	(537	)	105,786	(2,399	)
CLO and other ABS	497,809		(2,479	)	4,335	(61	)	502,144	(2,540	)	176,999		(2,458	)	180,898	(2,195	)	357,897	(4,653	)
CMBS	376,359		(5,940	)	2,340	(47	)	378,699	(5,987	)	59,857		(126	)	7,665	(19	)	67,522	(145	)
RMBS	699,336		(14,727	)	19,183	(876	)	718,519	(15,603	)	84,408		(503	)	9,513	(31	)	93,921	(534	)
Total AFS securities	$	3,159,528	(50,169	)	47,125	(1,792	)	3,206,653	(51,961	)
Total AFS fixed income securities											$	416,634	(4,964	)	214,441	(2,783	)	631,075	(7,747	)


December 31, 2017	Less than 12 months				12 months or longer			Total
December 31, 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	$	23,516	(233	)	250	—		23,766	(233	)	$	6,693	(174	)	23,163	(418	)	29,856	(592	)
Foreign government	1,481		(11	)	—	—		1,481	(11	)	12,208		(93	)	1,482	(14	)	13,690	(107	)
Obligations of states and political subdivisions	107,514		(422	)	14,139	(160	)	121,653	(582	)	196,798		(2,074	)	42,821	(557	)	239,619	(2,631	)
Corporate securities	238,326		(1,744	)	3,228	(18	)	241,554	(1,762	)	1,041,952		(23,649	)	78,953	(4,316	)	1,120,905	(27,965	)
CLO and other ABS	74,977		(196	)	1,655	(6	)	76,632	(202	)	516,106		(6,750	)	16,800	(193	)	532,906	(6,943	)
CMBS	154,267		(773	)	5,214	(68	)	159,481	(841	)	229,338		(2,548	)	66,294	(1,200	)	295,632	(3,748	)
RMBS	269,485		(1,285	)	11,200	(145	)	280,685	(1,430	)	139,338		(1,660	)	45,661	(1,421	)	184,999	(3,081	)
Total AFS fixed income securities	869,566		(4,664	)	35,686	(397	)	905,252	(5,061	)	$	2,142,433	(36,948	)	275,174	(8,119	)	2,417,607	(45,067	)
AFS equity securities:
Common stock	4,727		(226	)	—	—		4,727	(226	)
Preferred stock	3,833		(71	)	—	—		3,833	(71	)
Total AFS equity securities	8,560		(297	)	—	—		8,560	(297	)
Total AFS	$	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~~$37.3 million decrease in the ~~less than 12 months~~ unrealized loss position ~~was due to higher~~reflected: (i) lower interest rates, with ~~a 94-basis~~an 87-basis point ~~increase~~decrease in 2-year U.S. Treasury Note yields and a ~~66-basis~~102-basis point ~~increase~~decrease in 10-year U.S. Treasury Note yields during Nine Months 2019; and (ii) tightening option adjusted corporate credit spreads, with a 38-basis point decrease in the ~~nine-month period ending September 30, 2018.~~Bloomberg Barclays U.S. Aggregate Corporate Bond Index during Nine Months 2019. We do not currently intend to sell any of the securities in the tables above, nor will we be required to sell any of these securities. 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 ~~2017~~2018 Annual Report, we have concluded that they are temporarily impaired as we believe: (i) they will mature at par value; (ii) they have not incurred a credit impairment; and (iii) future values of these securities will fluctuate with changes in interest rates. 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 September 30, ~~2018~~2019, by contractual maturity, are shown below. Mortgage-backed securities 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 September 30, ~~2018~~2019:


	AFS		HTM		AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	176,545	14,017	14,150	$	310,387	4,754	4,773
Due after one year through five years	2,107,663		20,518	21,926	3,296,126		16,334	17,589
Due after five years through 10 years	2,759,167		10,047	10,164	2,191,633		5,837	5,994
Due after 10 years	146,781		—	—	132,091		—	—
Total fixed income securities	$	5,190,156	44,582	46,240	$	5,930,237	26,925	28,356

(e) The following table summarizes our other investment portfolio by strategy:



Other Investments	September 30, 2019				December 31, 2018
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹
Alternative Investments
Private equity	$	105,922	97,552	203,474	84,352	93,688	178,040
Private credit	37,710		109,797	147,507	41,682	81,453	123,135
Real assets	21,828		22,534	44,362	27,862	27,129	54,991
Total alternative investments	165,460		229,883	395,343	153,896	202,270	356,166
Other securities	23,783		—	23,783	25,042	—	25,042
Total other investments	$	189,243	229,883	419,126	178,938	202,270	381,208

Other Investments September 30, 2018 December 31, 2017
($ in thousands) Carrying Value Remaining Commitment
Maximum Exposure to Loss¹
Carrying Value Remaining Commitment
Maximum Exposure to Loss¹
Alternative Investments

   Private equity $ 75,508
99,346
174,854
52,251
99,026
151,277
   Private credit 37,525
85,747
123,272
37,743
94,959
132,702
   Real assets 25,214
33,088
58,302
25,379
27,014
52,393
Total alternative investments 138,247
218,181
356,428
115,373
220,999
336,372
Other securities 25,683
—
25,683
16,895
—
16,895
Total other investments $ 163,930
218,181
382,111
132,268
220,999
353,267

¹The maximum exposure to loss includes both the carry value of these investments and the related ~~unfunded~~remaining 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 are contractually committed to make additional investments up to the remaining commitments outlined above; however, 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.~~these investments. We have not provided any non-contractual financial support at any time during ~~2018~~2019 or ~~2017.~~2018.

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- and nine-month periods~~three-month period ended June 30 is included in our Third Quarter ~~and Nine Months~~ results. This information is as follows:



Income Statement Information	Quarter ended September 30,				Nine Months ended September 30,
($ in millions)	2019			2018	2019	2018
Net investment (loss) income	$	(14.0	)	11.9	10.1	(29.9	)
Realized gains	121.1			124.8	370.4	1,348.3
Net change in unrealized appreciation (depreciation)	1,739.4			1,434.3	4,517.4	695.8
Net income	$	1,846.5		1,571.0	4,897.9	2,014.2
Insurance subsidiaries’ alternative investments income	$	5.2		7.1	13.0	10.6

Income Statement Information Quarter ended September 30, Nine Months ended September 30,
($ in millions) 2018 2017 2018 2017
Net investment income (loss) $ 11.9

0.6
(29.9 ) (61.8 )
Realized gains (losses) 124.8

43.3
1,348.3
(261.0 )
Net change in unrealized appreciation 1,434.3

1,296.3
695.8
3,186.3
Net gain $ 1,571.0

1,340.2
2,014.2
2,863.5
Selective’s insurance subsidiaries’ alternative investments gain $ 7.1
2.7
10.6
9.5

(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 September 30, ~~2018~~2019 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 September 30, ~~2018:~~2019:



($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	—	—	22.9	22.9
Obligations of states and political subdivisions	—		—	3.9	3.9
Corporate securities	—		—	0.3	0.3
CMBS	7.3		19.6	—	26.9
RMBS	57.4		81.1	—	138.5
Total pledged as collateral	$	64.7	100.7	27.1	192.5

($ in millions) FHLBI Collateral FHLBNY Collateral State and Regulatory Deposits Total
U.S. government and government agencies $ —
—
22.2
22.2
Obligations of states and political subdivisions —
—
3.8
3.8
CMBS 7.2
9.4
—
16.6
RMBS 57.8
76.3
—
134.1
Total pledged as collateral $ 65.0
85.7
26.0

176.7

(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 September 30, ~~2018~~2019 or December 31, ~~2017.~~2018.

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


	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2018			2017		2018		2017		2019			2018		2019		2018
Fixed income securities	$	45,088		38,865		130,903		113,424		$	50,749		45,088		150,689		130,903
Equity securities	2,079			1,605		5,876		4,492		1,885			2,079		5,265		5,876
Short-term investments	867			396		2,001		1,023		1,410			867		5,213		2,001
Other investments	7,211			2,659		10,868		9,493		5,267			7,211		13,421		10,868
Investment expenses	(2,802		)	(3,079	)	(8,421	)	(9,137	)	(3,485		)	(2,802	)	(9,639	)	(8,421	)
Net investment income earned	$	52,443		40,446		141,227		119,295		$	55,826		52,443		164,949		141,227

(i) OTTI charges were ~~$1.4~~$2.3 million and ~~$0.1~~$1.4 million in Third Quarter ~~2018~~2019 and Third Quarter ~~2017,~~2018, respectively, and ~~$5.5~~$3.4 million and ~~$4.8~~$5.5 million in Nine Months ~~2018~~2019 and Nine Months ~~2017,~~2018, respectively. All of ~~the OTTI~~these charges ~~in 2018 and a majority of the charges in 2017~~ were related to securities for which we had the intent to ~~sell, with each security type's charge not exceeding 1% of its amortized cost.~~sell. 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 ~~2017~~2018 Annual Report.

(j) Net realized and unrealized gains and losses (excluding OTTI charges) for Third Quarter 2019 and ~~Nine Months~~ 2018 ~~and 2017~~ included the following:



	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2019			2018		2019			2018
Net realized gains (losses) on the disposals of securities:
Fixed income securities	$	(1,141	)	(9,413	)	2,063			(13,922	)
Equity securities	21,602			8,665		24,733			17,960
Short-term investments	(36		)	2		(21		)	1
Other investments	—			(5	)	(23		)	(5	)
Net realized gains (losses) on the disposal of securities	20,425			(751	)	26,752			4,034
OTTI charges	(2,291		)	(1,426	)	(3,366		)	(5,459	)
Net realized gains (losses)	18,134			(2,177	)	23,386			(1,425	)
Unrealized (losses) recognized in income on equity securities	(20,317		)	(2,610	)	(8,091		)	(15,563	)
Total net realized and unrealized investment (losses) gains	$	(2,183	)	(4,787	)	$	15,295		(16,988	)

Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2018 2017 2018 2017
Net realized (losses) gains on the disposals of securities:
Fixed income securities $ (9,413 ) 1,996
(13,922 ) 6,566
Equity securities 8,665
4,875
17,960
5,225
Short-term investments 2
—
1
—
Other investments (5 ) —
(5 ) 461
Net realized gains on the disposal of securities (751 ) 6,871
4,034
12,252
OTTI charges (1,426 ) (73 ) (5,459 ) (4,765 )
Net realized (losses) gains (2,177 ) 6,798
(1,425 ) 7,487
Unrealized (losses) recognized in income on equity securities¹
(2,610 ) —
(15,563 ) —
Total net realized and unrealized investment (losses) gains $ (4,787 ) 6,798
$ (16,988 ) 7,487

¹~~Includes unrealized holding gains~~Unrealized (losses) ~~of: (i) $5.5 million~~recognized in ~~Third Quarter 2018 and $4.2 million in Nine Months 2018~~income on equity securities, ~~remaining~~as reflected in ~~our portfolio as of September 30, 2018; and (ii) $(8.1) million in Third Quarter 2018 and $(19.8) million~~ in ~~Nine Months 2018 on equity securities sold during~~ the ~~respective periods.~~table above, include the following:



	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2019			2018		2019			2018
Unrealized gains (losses) recognized in income on equity securities:
On securities remaining in our portfolio at September 30, 2019	$	1,109		5,476		1,805			4,199
On securities sold in each respective period	(21,426		)	(8,086	)	(9,896		)	(19,762	)
Total unrealized (losses) recognized in income on equity securities	$	(20,317	)	(2,610	)	$	(8,091	)	(15,563	)

The components of net realized gains on disposals of securities for the periods indicated were as follows:



	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2019			2018		2019		2018
HTM fixed income securities
Gains	$	—		—		1		2
Losses	—			—		(15	)	—
AFS fixed income securities
Gains	1,078			462		5,565		5,056
Losses	(2,219		)	(9,875	)	(3,488	)	(18,980	)
Equity securities
Gains	21,630			10,584		24,868		20,209
Losses	(28		)	(1,919	)	(135	)	(2,249	)
Short-term investments
Gains	2			3		18		6
Losses	(38		)	(1	)	(39	)	(5	)
Other investments
Gains	—			—		7		—
Losses	—			(5	)	(30	)	(5	)
Total net realized gains on disposals of securities	$	20,425		(751	)	26,752		4,034

Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2018 2017 2018 2017
HTM fixed income securities
Gains $ —
—
2
44
Losses —
—
—
(1 )
AFS fixed income securities

Gains 462
2,070
5,056
8,337
Losses (9,875 ) (74 ) (18,980 ) (1,814 )
Equity securities

Gains 10,584
4,875
20,209
5,225
Losses (1,919 ) —
(2,249 ) —
Short-term investments
Gains 3
—
6
2
Losses (1 ) —
(5 ) (2 )
Other investments
Gains —
—
—
480
Losses (5 )
—
(5 ) (19 )
Total net realized gains (losses) on disposals of securities $ (751 )
6,871
4,034
12,252

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 sales of AFS fixed income securities were ~~$444.4~~$89.7 million and ~~$94.9~~$444.4 million in Third Quarter ~~2018~~2019 and Third Quarter ~~2017,~~2018, respectively, and ~~$1,382.7~~$461.8 million and ~~$812.0~~$1,382.7 million in Nine Months ~~2018~~2019 and Nine Months ~~2017,~~2018, respectively. Proceeds from the sales of equity securities were ~~$36.1~~$95.2 million and ~~$12.7~~$36.1 million in Third Quarter ~~2018~~2019 and Third Quarter ~~2017,~~2018, respectively, and ~~$79.7~~$125.3 million and ~~$19.0~~$79.7 million in Nine Months ~~2018~~2019 and Nine Months ~~2017,~~2018, respectively.

NOTE 5. Indebtedness

~~Our long-term~~The table below provides a summary of our outstanding debt ~~balance has not changed materially since~~at September 30, 2019 and December 31, ~~2017. However,~~2018:



Outstanding Debt	Issuance Date	Maturity Date	Interest Rate		Original Amount		2019	Carry Value
($ in thousands)	Issuance Date	Maturity Date	Interest Rate		Original Amount		Debt Discount and Unamortized Issuance Costs	September 30, 2019	December 31, 2018
Description
Long term
Issuance:
Senior Notes	3/1/2019	3/1/2049	5.375	%	$	300,000	9,065	290,935	—

Redemption:
Senior Notes	2/8/2013	2/9/2043	5.875	%	185,000		—	—	180,771

Other Outstanding:
FHLBI	12/16/2016	12/16/2026	3.03	%	60,000		—	60,000	60,000
FHLBNY	8/15/2016	8/16/2021	1.56	%	25,000		—	25,000	25,000
FHLBNY	7/21/2016	7/21/2021	1.61	%	25,000		—	25,000	25,000
Senior Notes	11/3/2005	11/1/2035	6.70	%	100,000		889	99,111	99,069
Senior Notes	11/16/2004	11/15/2034	7.25	%	50,000		281	49,719	49,700

Finance lease obligations¹								904	—
Total long-term debt							10,235	550,669	439,540

¹ Concurrent with the adoption of ASU 2016-02 discussed in Note 2. "Adoption of Accounting Pronouncements," finance lease obligations are now captured in Long-term debt on our Consolidated Balance Sheets.

Short-Term Debt Activity

Short-term debt activity included the following in Nine Months 2019:

On March 7, 2019, Selective Insurance Company of America ~~("SICA"~~(“SICA”) borrowed ~~the following~~ short-term funds ~~in the first quarter~~ of ~~2018~~$50 million from the ~~FHLBNY:~~

~~On February 27, 2018, SICA borrowed $75 million~~FHLBNY at an interest rate of ~~1.75%~~2.64%. This borrowing was repaid on March ~~20, 2018; and~~28, 2019.

On ~~March 28, 2018,~~August 5, 2019, SICA borrowed ~~$55~~short-term funds of $15 million from the FHLBNY at an interest rate of ~~1.98%~~2.29%. This borrowing was repaid on ~~April 18, 2018.~~August 12, 2019.

Long-Term Debt Activity

In the first quarter of 2019, we issued $300 million of 5.375% Senior Notes due 2049 at a discount of $5.9 million which, when coupled with debt issuance costs of approximately $3.3 million, resulted in net proceeds from the offering of $290.8 million. The 5.375% Senior Notes pay interest on March 1 and September 1 of each year. The first interest payment was made on September 1, 2019. A portion of the proceeds from this debt issuance was used to fully redeem the $185 million aggregate principal amount of our 5.875% Senior Notes due 2043, with the remaining $106 million being used for general corporate purposes. The 5.875% Senior Notes had pre-tax debt retirement costs of $4.2 million, or $3.3 million after tax, which was recorded in Interest expense on the Consolidated Statements of Income in the first quarter of 2019.

For detailed information on our indebtedness, see Note 10. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of our ~~2017~~2018 Annual Report.

NOTE 6. Fair Value Measurements

~~Our~~The financial assets in our investment portfolio are primarily measured at fair value as disclosed on the Consolidated Balance Sheets. The following table presents the carrying amounts and estimated fair values of our financial liabilities as of September 30, 2019 and December 31, 2018:



	September 30, 2019			December 31, 2018
($ in thousands)	Carrying Amount		Fair Value	Carrying Amount		Fair Value
Financial Liabilities
Long-term debt:
7.25% Senior Notes	49,909		65,770	49,907		57,032
6.70% Senior Notes	99,476		125,954	99,462		107,075
5.875% Senior Notes	—		—	185,000		177,230
5.375% Senior Notes	294,136		352,156	—		—
1.61% borrowings from FHLBNY	25,000		24,838	25,000		24,218
1.56% borrowings from FHLBNY	25,000		24,808	25,000		24,162
3.03% borrowings from FHLBI	60,000		63,741	60,000		58,905
Subtotal long-term debt	553,521		657,267	444,369		448,622
Unamortized debt issuance costs	(3,756	)		(4,829	)
Finance lease obligations	904			—
Total long-term debt	550,669			439,540

For a discussion of our long-term debt ~~are provided~~activity in 2019, see Note 5. "Indebtedness" in this ~~footnote~~Form 10-Q, and ~~the related carry values have changed by less than 1% during Nine Months 2018. For~~for a discussion of the fair value ~~and~~ hierarchy ~~of the~~and 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 ~~2017~~2018 Annual Report.

The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at September 30, ~~2018~~2019 and December 31, ~~2017:~~2018:



September 30, 2019			Fair Value Measurements Using
($ in thousands)	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	$	120,900	41,619	79,281	—
Foreign government	21,520		—	21,520	—
Obligations of states and political subdivisions	1,190,615		—	1,190,615	—
Corporate securities	1,838,927		—	1,822,577	16,350
CLO and other ABS	768,383		—	748,504	19,879
CMBS	555,731		—	555,731	—
RMBS	1,434,161		—	1,434,161	—
Total AFS fixed income securities	5,930,237		41,619	5,852,389	36,229
Equity securities:
Common stock²	76,179		42,988	—	—
Preferred stock	3,034		3,034	—	—
Total equity securities	79,213		46,022	—	—
Short-term investments	326,121		319,599	6,522	—
Total assets measured at fair value	$	6,335,571	407,240	5,858,911	36,229

September 30, 2018 Fair Value Measurements Using
($ in thousands) 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 $ 96,462
76,760
19,702
—
Foreign government 17,983
—
17,983
—
Obligations of states and political subdivisions 1,164,909
—
1,164,909
—
Corporate securities 1,649,653
—
1,649,653
—
CLO and other ABS 774,769
—
770,628
4,141
CMBS 489,549
—
489,549
—
RMBS 996,831
—
996,831
—
Total AFS fixed income securities 5,190,156
76,760
5,109,255
4,141
Equity securities:
Common stock²
154,845
124,445
—
—
Preferred stock 3,022
3,022
—
—
Total equity securities 157,867
127,467
—
—
Short-term investments 304,572
303,572
1,000
—
Total assets measured at fair value $ 5,652,595
507,799
5,110,255

4,141



December 31, 2018			Fair Value Measurements Using
($ in thousands)	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	$	121,310	78,381	42,929	—
Foreign government	23,131		—	23,131	—
Obligations of states and political subdivisions	1,138,469		—	1,138,469	—
Corporate securities	1,617,408		—	1,617,408	—
CLO and other ABS	717,362		—	709,953	7,409
CMBS	527,078		—	527,078	—
RMBS	1,128,342		—	1,128,342	—
Total AFS fixed income securities	5,273,100		78,381	5,187,310	7,409
Equity securities:
Common stock²	144,727		107,397	—	—
Preferred stock	2,912		2,912	—	—
Total equity securities	147,639		110,309	—	—
Short-term investments	323,864		321,370	2,494	—
Total assets measured at fair value	$	5,744,603	510,060	5,189,804	7,409

December 31, 2017 Fair Value Measurements Using
($ in thousands) 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 $ 49,740
24,652
25,088
—
Foreign government 18,555
—
18,555
—
Obligations of states and political subdivisions 1,582,970
—
1,582,970
—
Corporate securities 1,617,468
—
1,617,468
—
CLO and other ABS 795,458
—
795,458
—
CMBS 383,449
—
376,895
6,554
RMBS 714,882
—
714,882
—
Total AFS fixed income securities 5,162,522
24,652
5,131,316
6,554
AFS equity securities:
Common stock²
167,757
138,640
—
5,398
Preferred stock 14,948
14,948
—
—
Total AFS equity securities 182,705
153,588
—
5,398
Total AFS securities 5,345,227
178,240
5,131,316
11,952
Short-term investments 165,555
165,555
—
—
Total assets measured at fair value $ 5,510,782
343,795
5,131,316
11,952


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

Investments amounting to ~~$30.4~~$33.2 million at September 30, ~~2018,~~2019, and ~~$23.7~~$37.3 million at December 31, ~~2017,~~2018, 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.

The following table provides a summary of Level 3 changes in Nine Months 2019:



September 30, 2019
($ in thousands)	Corporate Securities		CLO and Other ABS		Total
Fair value, December 31, 2018	—		7,409		7,409
Total net (losses) gains for the period included in:
OCI	(69	)	(14	)	(83	)
Net income	—		244		244
Purchases	—		18,404		18,404
Sales	—		—		—
Issuances	—		—		—
Settlements	—		(105	)	(105	)
Transfers into Level 3	16,419		13,603		30,022
Transfers out of Level 3	—		(19,662	)	(19,662	)
Fair value, September 30, 2019	16,350		19,879		36,229

There were no material changes in the fair value of securities measured using Level 3 prices in Nine Months ~~2017. The following table provides a summary of Level 3 changes in Nine Months 2018:~~

September 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:
OCI —
—
—
Net income —
—
—
Purchases —
—
4,141
Sales —
—
—
Issuances —
—
—
Settlements —
—
—
Transfers into Level 3 —
—
—
Transfers out of Level 3 (6,554 ) (5,398 ) —
Fair value, September 30, 2018 $ —
—
4,141
2018.

The following tables provide quantitative information regarding our financial assets and liabilities that were disclosed at fair value at September 30, ~~2018~~2019 and December 31, ~~2017~~2018:


September 30, 2018			Fair Value Measurements Using
September 30, 2019								Fair Value Measurements Using
($ in thousands)	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)	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	$	22,396	—	22,396	—	$	9,426	—	9,426	—
Corporate securities	23,844		—	11,583	12,261	18,930		—	18,930	—
Total HTM fixed income securities	$	46,240	—	33,979	12,261	$	28,356	—	28,356	—

Financial Liabilities
Long-term debt:
7.25% Senior Notes	$	57,733	—	57,733	—	$	65,770	—	65,770	—
6.70% Senior Notes	106,760		—	106,760	—	125,954		—	125,954	—
5.875% Senior Notes	184,778		184,778	—	—
5.375% Senior Notes						352,156		—	352,156	—
1.61% borrowings from FHLBNY	23,936		—	23,936	—	24,838		—	24,838	—
1.56% borrowings from FHLBNY	23,871		—	23,871	—	24,808		—	24,808	—
3.03% borrowings from FHLBI	57,795		—	57,795	—	63,741		—	63,741	—
Total long-term debt	$	454,873	184,778	270,095	—	$	657,267	—	657,267	—



December 31, 2018			Fair Value Measurements Using
($ in thousands)	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	$	17,969	—	17,969	—
Corporate securities	20,348		—	20,348	—
Total HTM fixed income securities	$	38,317	—	38,317	—

Financial Liabilities
Long-term debt:
7.25% Senior Notes	$	57,032	—	57,032	—
6.70% Senior Notes	107,075		—	107,075	—
5.875% Senior Notes	177,230		177,230	—	—
1.61% borrowings from FHLBNY	24,218		—	24,218	—
1.56% borrowings from FHLBNY	24,162		—	24,162	—
3.03% borrowings from FHLBI	58,905		—	58,905	—
Total long-term debt	$	448,622	177,230	271,392	—

December 31, 2017 Fair Value Measurements Using
($ in thousands) 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 $ 26,261
—
26,261
—
Corporate securities 17,839
—
12,306
5,533
Total HTM fixed income securities $ 44,100
—
38,567
5,533

Financial Liabilities

Long-term debt:
7.25% Senior Notes $ 61,391
—
61,391
—
6.70% Senior Notes 116,597
—
116,597
—
5.875% Senior Notes 186,332
186,332
—
—
1.61% borrowings from FHLBNY 24,270
—
24,270
—
1.56% borrowings from FHLBNY 24,210
—
24,210
—
3.03% borrowings from FHLBI 60,334
—
60,334
—
Total long-term debt $ 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 ~~2017~~2018 Annual Report.


	Quarter ended September 30,					Nine Months ended September 30,					Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2018			2017		2018			2017		2019			2018		2019			2018
Premiums written:
Direct	$	752,834		706,918		$	2,220,431		2,097,146		$	785,680		752,834		$	2,359,441		2,220,431
Assumed	7,084			8,506		19,891			20,685		6,882			7,084		18,770			19,891
Ceded	(108,250		)	(111,147	)	(308,846		)	(301,036	)	(115,634		)	(108,250	)	(326,939		)	(308,846	)
Net	$	651,668		604,277		$	1,931,476		1,816,795		$	676,928		651,668		$	2,051,272		1,931,476
Premiums earned:
Direct	$	706,497		666,048		$	2,086,953		1,967,364		$	752,872		706,497		$	2,221,257		2,086,953
Assumed	6,484			7,623		19,220			19,465		6,356			6,484		18,660			19,220
Ceded	(98,704		)	(101,616	)	(295,232		)	(285,890	)	(105,608		)	(98,704	)	(311,105		)	(295,232	)
Net	$	614,277		572,055		$	1,810,941		1,700,939		$	653,620		614,277		$	1,928,812		1,810,941
Loss and loss expenses incurred:
Direct	$	477,427		455,728		$	1,289,357		1,187,400		$	437,618		477,427		$	1,297,975		1,289,357
Assumed	6,529			5,420		16,897			17,623		4,362			6,529		13,975			16,897
Ceded	(104,757		)	(116,561	)	(175,786		)	(201,405	)	(43,305		)	(104,757	)	(145,712		)	(175,786	)
Net	$	379,199		344,587		$	1,130,468		1,003,618		$	398,675		379,199		$	1,166,238		1,130,468

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 September 30,					Nine Months ended September 30,
($ in thousands)	2019			2018		2019			2018
Ceded premiums written	$	(74,864	)	(70,100	)	$	(206,451	)	(193,110	)
Ceded premiums earned	(65,847		)	(61,448	)	(191,914		)	(180,582	)
Ceded loss and loss expenses incurred	(27,459		)	(89,396	)	(62,208		)	(115,376	)

Ceded to NFIP Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2018 2017 2018 2017
Ceded premiums written $ (70,100 ) (68,132 ) $ (193,110 ) (188,274 )
Ceded premiums earned (61,448 ) (59,847 ) (180,582 ) (174,779 )
Ceded loss and loss expenses incurred (89,396 ) (112,994 ) (115,376 ) (134,675 )

Excluding the impact of our participation in the NFIP, ceded loss and loss expenses incurred increased in Nine Months 2019 compared to the respective prior year, due to one significant fire loss in the second quarter of 2019, which added $17.4 million to ceded loss and loss expenses. The elevated ceded loss and loss expenses incurred related to our participation in the NFIP in Third Quarter and Nine Months 2018 were due to Hurricane Florence, which impacted our footprint in September 2018.

NOTE 8. Reserve for Loss and Loss Expense

The table below provides a roll forward of reserve for loss and loss expense balances:



	Nine Months ended September 30,
($ in thousands)	2019			2018
Gross reserve for loss and loss expense, at beginning of year	$	3,893,868		3,771,240
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year	537,388			585,855
Net reserve for loss and loss expense, at beginning of year	3,356,480			3,185,385
Incurred loss and loss expense for claims occurring in the:
Current year	1,200,878			1,148,032
Prior years	(34,640		)	(17,564	)
Total incurred loss and loss expense	1,166,238			1,130,468
Paid loss and loss expense for claims occurring in the:
Current year	384,436			369,036
Prior years	631,589			610,734
Total paid loss and loss expense	1,016,025			979,770
Net reserve for loss and loss expense, at end of period	3,506,693			3,336,083
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period	548,938			589,072
Gross reserve for loss and loss expense at end of period	$	4,055,631		3,925,155

Nine Months ended September 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 1,148,032
1,037,079
Prior years (17,564 ) (33,461 )
Total incurred loss and loss expense 1,130,468
1,003,618
Paid loss and loss expense for claims occurring in the:

Current year 369,036
314,686
Prior years 610,734
581,186
Total paid loss and loss expense 979,770
895,872
Net reserve for loss and loss expense, at end of period 3,336,083
3,188,265
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period 589,072
647,535
Gross reserve for loss and loss expense at end of period $ 3,925,155
3,835,800

Prior year reserve development in Nine Months 2019 of $34.6 million included $41.0 million of favorable casualty reserve development, partially offset by $6.4 million of unfavorable property reserve development. The favorable casualty reserve development included $33.0 million in our workers compensation line of business and $10.0 million in our general liability line

~~The $111.0~~of business, partially offset by $2.0 million ~~increase~~of unfavorable casualty reserve development in ~~current year loss and loss expense incurred illustrated in the table above was primarily driven by: (i) non-catastrophe property losses; (ii) an increase in current year loss costs on~~ our ~~commercial~~personal automobile line of business; and (iii) an increase in exposure due to premium growth. Non-catastrophe property losses, which increased $61.9 million, to $278.5 million, in Nine Months 2018, were partially related to the early January 2018 deep freeze in our footprint states and a relatively large number of fire losses over the course of the year.business.

Prior year reserve development in Nine Months 2018 of $17.6 million included $24.0 million of favorable casualty reserve development, partially offset by $6.4 million of unfavorable property reserve development. The favorable casualty reserve development included $53.0 million of development in our workers compensation line of business and $8.0 million in our general liability line of business, partially offset by ~~unfavorable development of~~ $25.0 million of unfavorable casualty reserve development in our commercial automobile line of business and $12.0 million in our excess and surplus ("E&S") casualty lines.

Prior year development in Nine Months 2017 of $33.5 million was primarily driven by favorable prior year casualty reserve development of $48.3 million in our general liability line of business and $29.3 million in our workers compensation line of business. This was partially offset by unfavorable development of $26.0 million in our commercial automobile line of business, $10.0 million in our E&S segment, and $4.0 million in our personal automobile line of business.

For a discussion of the trends and recent developments impacting these lines, refer to the "Critical Accounting Policies and Estimates" section of Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." in our ~~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~~4 reportable segments are evaluated as follows:

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

Our Investments segment is primarily evaluated based on after-tax net investment income and its ROE contribution. Also included in Investment segment results are after-tax net realized and unrealized gains and ~~losses.~~losses, which are not included in non-GAAP operating income.

In computing the results of each segment, we do not make adjustments for interest expense or corporate 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 September 30,					Nine Months ended September 30,
($ in thousands)	2019			2018		2019	2018
Standard Commercial Lines:
Net premiums earned:
Commercial automobile	$	141,182		124,862		408,706	365,197
Workers compensation	75,478			78,784		232,657	237,628
General liability	169,084			154,974		495,402	457,805
Commercial property	89,215			83,056		262,418	245,544
Businessowners’ policies	26,371			25,994		78,624	77,414
Bonds	8,990			8,778		26,861	25,247
Other	4,841			4,608		14,326	13,597
Miscellaneous income	2,782			2,228		7,544	6,936
Total Standard Commercial Lines revenue	517,943			483,284		1,526,538	1,429,368
Standard Personal Lines:
Net premiums earned:
Personal automobile	43,226			42,772		129,777	125,024
Homeowners	31,529			32,293		95,672	96,717
Other	1,983			2,092		5,709	5,349
Miscellaneous income	380			310		991	959
Total Standard Personal Lines revenue	77,118			77,467		232,149	228,049
E&S Lines:
Net premiums earned:
Casualty lines	47,171			42,179		136,455	120,098
Property lines	14,550			13,885		42,205	41,321
Miscellaneous income	—			—		—	1
Total E&S Lines revenue	61,721			56,064		178,660	161,420
Investments:
Net investment income	55,826			52,443		164,949	141,227
Net realized and unrealized investment (losses) gains	(2,183		)	(4,787	)	15,295	(16,988	)
Total Investments revenue	53,643			47,656		180,244	124,239
Total revenues	$	710,425		664,471		2,117,591	1,943,076

Revenue by Segment Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2018 2017 2018 2017
Standard Commercial Lines:

Net premiums earned:

Commercial automobile $ 124,862
111,711
365,197
327,156
Workers compensation 78,784
77,580
237,628
236,366
General liability 154,974
141,059
457,805
422,546
Commercial property 83,056
78,151
245,544
232,594
Businessowners’ policies 25,994
25,019
77,414
74,853
Bonds 8,778
7,420
25,247
20,904
Other 4,608
4,310
13,597
12,839
Miscellaneous income 2,228
1,712
6,936
7,588
Total Standard Commercial Lines revenue 483,284
446,962
1,429,368
1,334,846
Standard Personal Lines:
Net premiums earned:
Personal automobile 42,772
38,612
125,024
113,225
Homeowners 32,293
32,215
96,717
97,382
Other 2,092
1,774
5,349
4,867
Miscellaneous income 310
282
959
938
Total Standard Personal Lines revenue 77,467
72,883
228,049
216,412
E&S Lines:
Net premiums earned:
Casualty lines 42,179
40,090
120,098
117,056
Property lines 13,885
14,114
41,321
41,151
Miscellaneous income —
—
1
—
Total E&S Lines revenue 56,064
54,204
161,420
158,207
Investments:

Net investment income 52,443
40,446
141,227
119,295
Net realized and unrealized investment (losses) gains (4,787 ) 6,798
(16,988 ) 7,487
Total Investments revenue 47,656
47,244
124,239
126,782
Total revenues $ 664,471
621,293
1,943,076
1,836,247

Income Before and After Federal Income Tax Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2018 2017 2018 2017
Standard Commercial Lines:

Underwriting gain, before federal income tax $ 26,333
35,329
74,153
112,634
Underwriting gain, after federal income tax 20,803
22,964
58,581
73,212
Combined ratio 94.5 % 92.1
94.8
91.5

Standard Personal Lines:
Underwriting gain, before federal income tax $ 3,158
8,179
6,457
7,517
Underwriting gain, after federal income tax 2,495
5,316
5,101
4,886
Combined ratio 95.9 % 88.7
97.2
96.5

E&S Lines:
Underwriting gain (loss), before federal income tax $ 3,506
(11,063 ) (4,848 ) (8,174 )
Underwriting gain (loss), after federal income tax 2,770
(7,191 ) (3,830 ) (5,313 )
Combined ratio 93.7 % 120.4
103.0
105.2

Investments:

Net investment income $ 52,443
40,446
141,227
119,295
Net realized and unrealized investment (losses) gains (4,787 ) 6,798
(16,988 ) 7,487
Total investment income, before federal income tax 47,656
47,244
124,239
126,782
Tax on investment income 8,562
13,236
21,405
34,572
Total investment income, after federal income tax
$ 39,094

34,008
102,834
92,210



Income Before and After Federal Income Tax	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2019			2018		2019	2018
Standard Commercial Lines:
Underwriting gain, before federal income tax	$	30,016		26,333		92,974	74,153
Underwriting gain, after federal income tax	23,713			20,803		73,450	58,581
Combined ratio	94.2		%	94.5		93.9	94.8
ROE contribution	4.5			4.9		5.0	4.5

Standard Personal Lines:
Underwriting (loss) gain, before federal income tax	$	(631	)	3,158		7,074	6,457
Underwriting (loss) gain, after federal income tax	(499		)	2,495		5,588	5,101
Combined ratio	100.8		%	95.9		96.9	97.2
ROE contribution	(0.1		)	0.6		0.4	0.4

E&S Lines:
Underwriting gain (loss), before federal income tax	$	1,916		3,506		9,439	(4,848	)
Underwriting gain (loss), after federal income tax	1,514			2,770		7,457	(3,830	)
Combined ratio	96.9		%	93.7		94.7	103.0
ROE contribution	0.3			0.6		0.5	(0.3	)

Investments:
Net investment income	$	55,826		52,443		164,949	141,227
Net realized and unrealized investment (losses) gains	(2,183		)	(4,787	)	15,295	(16,988	)
Total investment segment income, before federal income tax	53,643			47,656		180,244	124,239
Tax on investment segment income	10,884			8,562		34,733	21,405
Total investment segment income, after federal income tax	$	42,759		39,094		145,511	102,834
ROE contribution of after-tax net investment income	8.6			10.0		9.1	9.0


Reconciliation of Segment Results to Income Before Federal Income Tax	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2018			2017		2018		2017		2019			2018		2019		2018
Underwriting gain (loss)
Standard Commercial Lines	$	26,333		35,329		74,153		112,634		$	30,016		26,333		92,974		74,153
Standard Personal Lines	3,158			8,179		6,457		7,517		(631		)	3,158		7,074		6,457
E&S Lines	3,506			(11,063	)	(4,848	)	(8,174	)	1,916			3,506		9,439		(4,848	)
Investment income	47,656			47,244		124,239		126,782		53,643			47,656		180,244		124,239
Total all segments	80,653			79,689		200,001		238,759		84,944			80,653		289,731		200,001
Interest expense	(6,073		)	(6,085	)	(18,350	)	(18,272	)	(7,397		)	(6,073	)	(26,289	)	(18,350	)
Corporate expenses	(7,450		)	(6,289	)	(22,065	)	(26,669	)	(6,369		)	(7,450	)	(28,345	)	(22,065	)
Income, before federal income tax	$	67,130		67,315		159,586		193,818		$	71,178		67,130		235,097		159,586

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 ~~2017~~2018 Annual Report.

The following tables provide information regarding the Pension Plan:



	Pension Plan					Pension Plan
	Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2019			2018		2019		2018
Net Periodic Pension Cost (Benefit):
Interest cost	$	3,376		3,095		10,129		9,285
Expected return on plan assets	(5,278		)	(5,681	)	(15,835	)	(17,044	)
Amortization of unrecognized net actuarial loss	644			494		1,931		1,481
Total net periodic pension cost (benefit)¹	$	(1,258	)	(2,092	)	(3,775	)	(6,278	)

Pension Plan Pension Plan
Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2018 2017 2018 2017
Net Periodic Benefit Cost:
Interest cost $ 3,095
3,111
9,285
9,332
Expected return on plan assets (5,681 ) (4,854 ) (17,044 ) (14,563 )
Amortization of unrecognized net actuarial loss 494
481
1,481
1,444
Total net periodic benefit cost¹
$ (2,092 ) (1,262 ) (6,278 ) (3,787 )

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



	Pension Plan
	Nine Months ended September 30,
	2019		2018
Weighted-Average Expense Assumptions:
Discount rate	4.46	%	3.78	%
Effective interest rate for calculation of interest cost	4.12		3.46
Expected return on plan assets	6.50		6.36

Pension Plan
Nine Months ended September 30,
2018 2017
Weighted-Average Expense Assumptions:
Discount rate 3.78 % 4.41 %
Effective interest rate for calculation of interest cost 3.46
3.83
Expected return on plan assets 6.36
6.24

NOTE 11. Comprehensive Income

The components of comprehensive income, both gross and net of tax, for Third Quarter and Nine Months 2019 and Third Quarter and Nine Months 2018 ~~and 2017 are~~were as follows:



Third Quarter 2019
($ in thousands)	Gross			Tax		Net
Net income	$	71,178		15,028		56,150
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period	34,392			7,224		27,168
Amounts reclassified into net income:
HTM securities	(3		)	(1	)	(2	)
Realized losses on disposals and OTTI of AFS securities	2,821			592		2,229
Total unrealized gains on investment securities	37,210			7,815		29,395
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	665			140		525
Total defined benefit pension and post-retirement plans	665			140		525
Other comprehensive income	37,875			7,955		29,920
Comprehensive income	$	109,053		22,983		86,070


Third Quarter 2018
($ in thousands)	Gross			Tax		Net
Net income	$	67,130		11,695		55,435
Components of other comprehensive loss:
Unrealized losses on investment securities:
Unrealized holding losses during the period	(21,565		)	(4,529	)	(17,036	)
Amounts reclassified into net income:
HTM securities	(8		)	(2	)	(6	)
Realized losses on disposals and OTTI of AFS securities	10,839			2,276		8,563
Total unrealized losses on investment securities	(10,734		)	(2,255	)	(8,479	)
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	532			112		420
Total defined benefit pension and post-retirement plans	532			112		420
Other comprehensive loss	(10,202		)	(2,143	)	(8,059	)
Comprehensive income	$	56,928		9,552		47,376

Third Quarter 2018
($ in thousands) Gross Tax Net
Net income $ 67,130
11,695
55,435
Components of other comprehensive loss:

Unrealized losses on investment securities:

Unrealized holding losses during period (21,565 ) (4,529 ) (17,036 )
Amounts reclassified into net income:
HTM securities (8 ) (2 ) (6 )
Realized losses on disposals of AFS securities 10,839
2,276
8,563
    Total unrealized losses on investment securities (10,734 ) (2,255 ) (8,479 )
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:

Net actuarial loss 532
112
420
    Total defined benefit pension and post-retirement plans 532
112
420
Other comprehensive loss (10,202 ) (2,143 ) (8,059 )
Comprehensive income $ 56,928
9,552
47,376

Third Quarter 2017
($ in thousands) Gross Tax Net
Net income $ 67,315
20,597
46,718
Components of OCI:

Unrealized gains on investment securities:

Unrealized holding gains during period 16,729
5,855
10,874
Non-credit portion of OTTI recognized in OCI 30
11
19
Amounts reclassified into net income:
HTM securities (54 ) (19 ) (35 )
Non-credit OTTI 38
13
25
Realized gains on disposals of AFS securities (6,760 ) (2,366 ) (4,394 )
    Total unrealized gains on investment securities 9,983
3,494
6,489
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:

Net actuarial loss 507
178
329
    Total defined benefit pension and post-retirement plans 507
178
329
Other comprehensive income 10,490
3,672
6,818
Comprehensive income $ 77,805
24,269
53,536



Nine Months 2019
($ in thousands)	Gross			Tax		Net
Net income	$	235,097		45,333		189,764
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period	220,864			46,381		174,483
Amounts reclassified into net income:
HTM securities	(33		)	(7	)	(26	)
Realized losses on disposals and OTTI of AFS securities	444			93		351
Total unrealized gains on investment securities	221,275			46,467		174,808
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	1,993			419		1,574
Total defined benefit pension and post-retirement plans	1,993			419		1,574
Other comprehensive income	223,268			46,886		176,382
Comprehensive income	$	458,365		92,219		366,146


Nine Months 2018
($ in thousands)	Gross			Tax		Net
Net income	$	159,586		26,407		133,179
Components of other comprehensive loss:
Unrealized losses on investment securities:
Unrealized holding losses during the period	(130,873		)	(27,484	)	(103,389	)
Amounts reclassified into net income:
HTM securities	(28		)	(6	)	(22	)
Realized losses on disposals and OTTI of AFS securities	18,258			3,834		14,424
Total unrealized losses on investment securities	(112,643		)	(23,656	)	(88,987	)
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	1,595			335		1,260
Total defined benefit pension and post-retirement plans	1,595			335		1,260
Other comprehensive loss	(111,048		)	(23,321	)	(87,727	)
Comprehensive income	$	48,538		3,086		45,452

Nine Months 2018
($ in thousands) Gross Tax Net
Net income $ 159,586
26,407
133,179
Components of other comprehensive loss:

Unrealized losses on investment securities:

Unrealized holding losses during period (130,873 ) (27,484 ) (103,389 )
Amounts reclassified into net income:
HTM securities (28 ) (6 ) (22 )
Realized losses on disposals of AFS securities 18,258
3,834
14,424
    Total unrealized losses on investment securities (112,643 ) (23,656 ) (88,987 )
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:

Net actuarial loss 1,595
335
1,260
    Total defined benefit pension and post-retirement plans 1,595
335
1,260
Other comprehensive loss (111,048 ) (23,321 ) (87,727 )
Comprehensive income $ 48,538
3,086
45,452

Nine Months 2017
($ in thousands) Gross Tax Net
Net income $ 193,818
55,234
138,584
Components of OCI:

Unrealized gains on investment securities:

Unrealized holding gains during period 78,401
27,440
50,961
Non-credit portion of OTTI recognized in OCI 36
13
23
Amounts reclassified into net income:
HTM securities (146 ) (51 ) (95 )
Non-credit OTTI 38
13
25
Realized gains on disposals of AFS securities (7,135 ) (2,497 ) (4,638 )
    Total unrealized gains on investment securities 71,194
24,918
46,276
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:

Net actuarial loss 1,522
533
989
    Total defined benefit pension and post-retirement plans 1,522
533
989
Other comprehensive income 72,716
25,451
47,265
Comprehensive income $ 266,534
80,685
185,849

The balances of, and changes in, each component of AOCI (net of taxes) as of September 30, ~~2018~~2019 were as follows:



September 30, 2019								Defined Benefit Pension and Post-Retirement Plans
	Net Unrealized Gains (Losses) on Investment Securities									Total AOCI
($ in thousands)	OTTI Related			HTM Related		All Other	Investments Subtotal			Total AOCI
Balance, December 31, 2018	$	(71	)	71		1,888	1,888	(79,844	)	(77,956	)
OCI before reclassifications	—			—		174,483	174,483	—		174,483
Amounts reclassified from AOCI	—			(26	)	351	325	1,574		1,899
Net current period OCI	—			(26	)	174,834	174,808	1,574		176,382
Balance, September 30, 2019	$	(71	)	45		176,722	176,696	(78,270	)	98,426

September 30, 2018
Defined Benefit
Pension and Post-Retirement Plans

Net Unrealized Gains (Losses) on Investment Securities Total AOCI
($ in thousands)
OTTI
Related

HTM
Related

All
Other

Investments
Subtotal

Balance, December 31, 2017 $ (59 ) (14 ) 80,648
80,575
(60,405 ) 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 —
—
(103,389 ) (103,389 ) —
(103,389 )
Amounts reclassified from AOCI —
(22 ) 14,424
14,402
1,260
15,662
Net current period OCI —
(22 ) (88,965 ) (88,987 ) 1,260
(87,727 )
Balance, September 30, 2018 $ (71 ) (38 ) (21,109 ) (21,218 ) (71,358 ) (92,576 )

The reclassifications out of AOCI were as follows:



	Quarter ended September 30,					Nine Months ended September 30,				Affected Line Item in the Unaudited Consolidated Statements of Income
($ in thousands)	2019			2018		2019		2018
HTM related
Unrealized (gains) losses on HTM disposals	$	(3	)	11		(12	)	5		Net realized and unrealized (losses) gains
Amortization of net unrealized gains on HTM securities	—			(19	)	(21	)	(33	)	Net investment income earned
	(3		)	(8	)	(33	)	(28	)	Income before federal income tax
	1			2		7		6		Total federal income tax expense
	(2		)	(6	)	(26	)	(22	)	Net income
Realized losses on AFS and OTTI
Realized losses on AFS disposals and OTTI	2,821			10,839		444		18,258		Net realized and unrealized (losses) gains
	2,821			10,839		444		18,258		Income before federal income tax
	(592		)	(2,276	)	(93	)	(3,834	)	Total federal income tax expense
	2,229			8,563		351		14,424		Net income
Defined benefit pension and post-retirement life plans
Net actuarial loss	146			112		436		337		Loss and loss expense incurred
	519			420		1,557		1,258		Other insurance expenses
Total defined benefit pension and post-retirement life	665			532		1,993		1,595		Income before federal income tax
	(140		)	(112	)	(419	)	(335	)	Total federal income tax expense
	525			420		1,574		1,260		Net income

Total reclassifications for the period	$	2,752		8,977		1,899		15,662		Net income

Quarter ended September 30, Nine Months ended September 30, Affected Line Item in the Unaudited Consolidated Statements of Income
($ in thousands) 2018 2017 2018 2017
OTTI related
Non-credit OTTI on disposed securities $ —
38
—
38
Net realized and unrealized (losses) gains
—
38
—
38
Income before federal income tax
—
(13 ) —
(13 ) Total federal income tax expense
—
25
—
25
Net income
HTM related
Unrealized losses on HTM disposals $ 11
11
5
41
Net realized and unrealized (losses) gains
Amortization of net unrealized gains on HTM securities (19 ) (65 ) (33 ) (187 ) Net investment income earned
(8 ) (54 ) (28 ) (146 ) Income before federal income tax
2
19
6
51
Total federal income tax expense
(6 ) (35 ) (22 ) (95 ) Net income
Realized losses (gains) on AFS and OTTI
Realized losses (gains) on AFS disposals and OTTI 10,839
(6,760 ) 18,258
(7,135 ) Net realized and unrealized (losses) gains
10,839
(6,760 ) 18,258
(7,135 ) Income before federal income tax
(2,276 ) 2,366
(3,834 ) 2,497
Total federal income tax expense
8,563
(4,394 ) 14,424
(4,638 ) Net income
Defined benefit pension and post-retirement life plans
Net actuarial loss 112
110
337
331
Loss and loss expense incurred
420
397
1,258
1,191
Other insurance expenses
Total defined benefit pension and post-retirement life 532
507
1,595
1,522
Income before federal income tax
(112 ) (178 ) (335 ) (533 ) Total federal income tax expense
420
329
1,260
989
Net income

Total reclassifications for the period $ 8,977
(4,075 ) 15,662
(3,719 ) Net income

NOTE 12. ~~Federal Income Taxes~~Leases

~~(a) On December 22, 2017, Tax Reform~~We have various operating leases for office space, equipment, and fleet vehicles. In addition, we have various finance leases for computer hardware. Such lease agreements, which expire at various dates through 2030, are generally renewed or replaced by similar leases.

We determine if an arrangement is a lease on the commencement date of the contract. Lease assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. The lease asset and liability are measured by the present value of the future minimum lease payments over the lease term. Our fleet vehicle leases include a residual value guarantee; however, it is not probable of being owed. Therefore, there is no impact to the lease liability or lease asset. To measure the present value, the discount rate available in the contract is used. If the discount rate is not readily determinable, our incremental borrowing rate is used. The lease asset is then adjusted to exclude lease incentives. We recognize variable lease payments in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is calculated using the straight-line method.

Upon adoption of ASU 2016-02 on January 1, 2019, we recorded operating lease right-of-use assets of $20.7 million with related lease liabilities of $21.0 million. The differential of $0.3 million was ~~signed into law, which among other implications, reduced our statutory corporate tax rate from 35%~~recognized, on an after-tax basis, as a cumulative-effect adjustment to ~~21% beginning with our 2018 tax year.~~the opening balance of retained earnings as of January 1, 2019. Financing lease right-of-use assets and the related lease liabilities were $0.9 million as of January 1, 2019. See Note 2. "Adoption of Accounting Pronouncements" in this Form 10-Q for additional information regarding ASU 2016-02 and accounting policy elections made.

We 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 information, refer to Note 13. "Federal Income Taxes"The components of lease expense in ~~Item 8. "Financial Statements~~Third Quarter and ~~Supplementary Data." of our 2017 Annual Report.~~

~~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~~Nine Months 2019 were as follows:



($ in thousands)	Quarter ended September 30, 2019			Nine Months ended September 30, 2019
Operating lease cost, included in Other insurance expenses on the Consolidated Statements of Income	$	2,234		6,631
Finance lease cost:
Amortization of assets, included in Other insurance expenses on the Consolidated Statements of Income	217			816
Interest on lease liabilities, included in Interest expense on the Consolidated Statements of Income	5			12
Total finance lease cost	222			828

Variable lease cost, included in Other insurance expenses on the Consolidated Statements of Income	(548		)	120

Short-term lease cost, included in Other insurance expenses on the Consolidated Statements of Income	502			1,677

The following table provides supplemental information regarding our operating and finance leases.

Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2018 2017 2018 2017
Statutory tax rate 21 % 35
21
35
Tax at statutory rate $ 14,097
23,560
33,513
67,836
Tax-advantaged interest (1,338 ) (2,915 ) (4,242 ) (8,479 )
Dividends received deduction (107 ) (382 ) (443 ) (1,338 )
Stock-based compensation (415 ) (86 ) (2,963 ) (3,409 )
Other (542 ) 420
542
624
Federal income tax expense $ 11,695
20,597
26,407
55,234



	September 30, 2019
Weighted-average remaining lease term
Operating leases	6	years
Finance leases	2
Weighted-average discount rate
Operating leases	3.4	%
Finance leases¹	2.0

¹Prior to adoption of ASU 2016-02, our historical capital lease liability and asset were measured using an un-discounted cash flow stream due to immateriality of the capital lease population.

Operating and finance lease asset and liability balances are included within the following line items on the Consolidated Balance Sheets:



($ in thousands)	September 30, 2019
Operating leases
Other assets	$	28,348
Other liabilities	29,218
Finance leases
Property and equipment - at cost, net of accumulated depreciation and amortization	899
Long-term debt	904

At September 30, 2019, the maturities of our lease liabilities were as follows:



($ in thousands)	Finance Leases		Operating Leases	Total
Year ended December 31,
2019 (excluding the nine months ended September 30, 2019)	$	171	2,071	2,242
2020	451		8,164	8,615
2021	248		6,033	6,281
2022	54		4,443	4,497
2023	—		3,232	3,232
Thereafter	—		11,446	11,446
Total lease payments	924		35,389	36,313
Less: imputed interest	20		3,230	3,250
Less: leases that have not yet commenced	—		2,941	2,941
Total lease liabilities	$	904	29,218	30,122

At December 31, 2018, the maturities of our lease liabilities for capital and operating leases were as follows:



($ in thousands)	Capital Leases		Operating Leases	Total
2019	$	728	7,762	8,490
2020	141		7,355	7,496
2021	22		5,083	5,105
2022	—		3,641	3,641
2023	—		2,900	2,900
Thereafter	—		9,698	9,698
Total minimum payment required	$	891	36,439	37,330

Refer to Note. 3 "Statements of Cash Flows" in this Form 10-Q for supplemental cash and non-cash transactions included in the measurement of operating and finance lease liabilities.

NOTE 13. Litigation

In the ordinary course of conducting business, we ~~are~~can be named as defendants in various legal ~~proceedings.~~actions. Most ~~of these proceedings~~ are claims litigation involving our ~~ten insurance subsidiaries ("~~Insurance ~~Subsidiaries")~~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 loss and loss expense reserves. WeIn ordinary course claims litigation, we expect that any potential ultimate liability, ~~in such ordinary course claims litigation~~after consideration of provisions made for potential losses and costs of defense, will not be material to our consolidated financial condition, results of operations, or cash ~~flows after consideration of provisions made for potential losses and costs of defense.~~flows.

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~~Plaintiffs may style these actions ~~include, among others,~~as putative class actions ~~seeking~~and seek judicial certification of a state or national ~~class. Such putative~~ class ~~actions have alleged,~~ for ~~example,~~allegations such as improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance ~~policies.~~policies or improper reimbursement for automobile parts. Similarly, our Insurance Subsidiaries ~~are also~~can be named ~~from time-to-time~~ in individual actions seeking extra-contractual damages, punitive damages, or penalties, ~~some of which allege~~often alleging bad faith in the handling of insurance claims. We believe that we have valid defenses to these ~~cases. We~~allegations and we account for such activity through the establishment of unpaid loss and loss expense reserves. In these other legal actions, we expect that any potential ultimate liability, ~~in any such lawsuit~~after consideration of provisions made for estimated losses, will not be material to our consolidated financial ~~condition, after consideration of provisions made for estimated losses.~~condition. Nonetheless, ~~given~~litigation outcomes are inherently unpredictable and, because the ~~inherent unpredictability of litigation and the large or indeterminate~~ amounts sought in certain of these actions anare large or indeterminate, it is possible that any adverse ~~outcome in certain matters~~outcomes could ~~possibly~~ have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

As of September 30, ~~2018,~~2019, we do not believe ~~the Company was~~we are involved in any legal action that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

~~NOTE 14. Subsequent Events~~

Hurricane Michael made landfall on October 10, 2018 in the Florida Panhandle as a powerful Category 4 hurricane and continued into Georgia and other southeastern states. While relatively early given the complexity of losses involved, we currently estimate our losses from this event to be approximately $10 million.

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, ~~2017~~2018 ("~~2017~~2018 Annual 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").~~Company. 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 ~~2017~~2018 Annual Report filed with the U.S. Securities and Exchange Commission. Within this MD&A, all prior year amounts for non-catastrophe property losses, and the related ratios, have been adjusted to include the related loss expenses, which is consistent with the current year presentation.

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

Critical Accounting Policies and Estimates;

~~Financial Highlights of Results for the~~ ~~third~~ ~~quarters ended~~ ~~September 30, 2018~~ (“~~Third Quarter 2018”) and~~ ~~September 30, 2017~~ (“~~Third Quarter 2017”) and the nine-month periods ended September 30, 2018 ("Nine Months 2018") and September 30, 2017 ("Nine Months 2017");~~


•	Financial Highlights of Results for the third quarters ended September 30, 2019 (“Third Quarter 2019”) and September 30, 2018 (“Third Quarter 2018”) and the nine-month periods ended September 30, 2019 (“Nine Months 2019”) and September 30, 2018 (“Nine Months 2018”);

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 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 3637 through 4446 of our ~~2017~~2018 Annual Report.

Financial Highlights of Results for Third Quarter and Nine Months ~~2018~~2019 and Third Quarter and Nine Months~~2017~~ 2018¹


($ and shares in thousands, except per share amounts)	Quarter ended September 30,				Change % or Points		Nine Months ended September 30,				Change % or Points				Quarter ended September 30,						Change % or Points				Nine Months ended September 30,						Change % or Points
($ and shares in thousands, except per share amounts)	2018			2017	Change % or Points		2018			2017				2019				2018			Change % or Points			2019				2018			Change % or Points
Revenues	$	664,471		621,293	7	%	$	1,943,076		1,836,247	Change % or Points	6		%		$	710,425			664,471		7		%		$	2,117,591			1,943,076		9		%
After-tax net investment income	42,875			29,590	45		116,254			87,344	33				45,374				42,875		6				134,319				116,254		16
After-tax underwriting income	26,068			21,089	24		59,852			72,785	(18	)			24,728				26,068		(5	)			86,495				59,852		45
Net income before federal income tax	67,130			67,315	—		159,586			193,818	(18	)			71,178				67,130		6				235,097				159,586		47
Net income	55,435			46,718	19		133,179			138,584	(4	)			56,150				55,435		1				189,764				133,179		42
Diluted net income per share	0.93			0.79	18		2.23			2.34	(5	)			0.93				0.93		—				3.16				2.23		42
Diluted weighted-average outstanding shares	59,711			59,323	1		59,626			59,232	1				60,057				59,711		1				59,960				59,626		1
Combined ratio	94.6		%	94.3	0.3	pts	95.8		%	93.4	2.4		pts		95.2		%		94.6		0.6		pts		94.3		%		95.8		(1.5	)	pts
Invested assets per dollar of stockholders' equity	$	3.37		3.36	—	%	$	3.37		3.36	—		%		$	3.07			3.37		(9	)	%		$	3.07			3.37		(9	)	%
After-tax yield on investments	3.0		%	2.1	0.9	pts	2.7		%	2.1	0.6		pts		2.8		%		3.0		(0.2	)	pts		2.9		%		2.7		0.2		pts
Annualized return on average equity ("ROE")	12.9			11.2	1.7		10.3			11.4	(1.1	)
Book value per share															$	35.98			29.52		22		%		$	35.98			29.52		22		%
Dividends declared per share to stockholders															0.20				0.18		11				0.60				0.54		11
Annualized return on equity ("ROE")															10.7				12.9		(2.2	)	pts		12.9				10.3		2.6		pts

Non-Generally Accepted Accounting Principles ("GAAP") operating income²	$	59,216		42,300	40	%	$	146,599		133,718	10		%		$	58,765			59,216		(1	)	%		$	181,870			146,599		24		%
Diluted non-GAAP operating income per share²	0.99			0.72	38		2.46			2.26	9				0.97				0.99		(2	)			3.02				2.46		23
Annualized non-GAAP operating ROE²	13.8		%	10.1	3.7	pts	11.3		%	11.0	0.3		pts		11.2		%		13.8		(2.6	)	pts		12.3		%		11.3		1.0		pts


¹	Refer to the Glossary of Terms attached to our ~~2017~~2018 Annual Report as Exhibit 99.1 for definitions of terms used in this Form 10-Q.

Non-GAAP operating income is used as an important financial measure by us, analysts, and investors, because the realization of net 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~~ unrealized gains and losses on equity securities, and the debt retirement costs could distort the analysis of trends.

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


Reconciliation of net income to non-GAAP operating income	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended September 30,				Nine Months ended September 30,
($ in thousands)	2018			2017		2018		2017		2019		2018		2019		2018
Net income	$	55,435		46,718		133,179		138,584		$	56,150	55,435		189,764		133,179

Net realized and unrealized losses (gains), before tax	4,787			(6,798	)	16,988		(7,487	)	2,183		4,787		(15,295	)	16,988
Tax on net realized and unrealized losses (gains)	(1,006		)	2,380		(3,568	)	2,621
Net realized and unrealized losses (gains)	3,781			(4,418	)	13,420		(4,866	)

Debt retirement costs, before tax										—		—		4,175		—
Tax on reconciling items										432		(1,006	)	3,226		(3,568	)
Non-GAAP operating income	$	59,216		42,300		146,599		133,718		$	58,765	59,216		181,870		146,599

Reconciliation of net income per share to non-GAAP operating income per share Quarter ended September 30, Nine Months ended September 30,
2018 2017 2018 2017
Diluted net income per share $ 0.93
0.79
2.23
2.34

Net realized and unrealized losses (gains), before tax 0.08
(0.11 ) 0.28
(0.13 )
Tax on net realized and unrealized losses (gains) (0.02 ) 0.04
(0.05 ) 0.05
Net realized and unrealized losses (gains) 0.06
(0.07 ) 0.23
(0.08 )

Diluted non-GAAP operating income per share $ 0.99
0.72
2.46
2.26



Reconciliation of net income per diluted share to non-GAAP operating income per diluted share	Quarter ended September 30,				Nine Months ended September 30,
	2019		2018		2019		2018
Net income per diluted share	$	0.93	0.93		3.16		2.23
Net realized and unrealized losses (gains), before tax	0.04		0.08		(0.26	)	0.28
Debt retirement costs, before tax	—		—		0.07		—
Tax on reconciling items	—		(0.02	)	0.05		(0.05	)
Non-GAAP operating income per diluted share	$	0.97	0.99		3.02		2.46


Reconciliation of annualized ROE to annualized non-GAAP operating ROE	Quarter ended September 30,				Nine Months ended September 30,				Quarter ended September 30,				Nine Months ended September 30,
	2018		2017		2018		2017
									2019		2018		2019		2018
Annualized ROE	12.9	%	11.2		10.3		11.4		10.7	%	12.9		12.9		10.3

Net realized and unrealized losses (gains), before tax	1.1		(1.6	)	1.3		(0.6	)	0.4		1.1		(1.0	)	1.3
Tax on net realized and unrealized losses (gains)	(0.2	)	0.5		(0.3	)	0.2
Net realized and unrealized losses (gains)	0.9		(1.1	)	1.0		(0.4	)

Debt retirement costs, before tax									—		—		0.3		—
Tax on reconciling items									0.1		(0.2	)	0.1		(0.3	)
Annualized non-GAAP operating ROE	13.8	%	10.1		11.3		11.0		11.2	%	13.8		12.3		11.3

The components of our annualized ROE are as follows:


Annualized ROE Components	Quarter ended September 30,				Change Points			Nine Months ended September 30,					Change Points			Quarter ended September 30,					Change Points			Nine Months ended September 30,					Change Points
	2018		2017				2018			2017			Change Points		2019			2018			Change Points		2019			2018			Change Points
Standard Commercial Lines Segment	4.9	%	5.4		Change Points	(0.5	)		4.5			6.0		(1.5	)		4.5	%		4.9		(0.4	)		5.0			4.5		0.5
Standard Personal Lines Segment	0.6		1.3		(0.7	)		0.4			0.4		—			(0.1	)		0.6		(0.7	)		0.4			0.4		—
E&S Lines Segment	0.6		(1.7	)	2.3			(0.3	)		(0.4	)	0.1			0.3			0.6		(0.3	)		0.5			(0.3	)	0.8
Total Insurance operations	6.1		5.0		1.1			4.6			6.0		(1.4	)
Total insurance operations																4.7			6.1		(1.4	)		5.9			4.6		1.3

Investment income	10.0		7.1		2.9			9.0			7.2		1.8			8.6			10.0		(1.4	)		9.1			9.0		0.1
Net realized and unrealized (losses) gains	(0.9	)	1.1		(2.0	)		(1.0	)		0.4		(1.4	)		(0.5	)		(0.9	)	0.4			0.8			(1.0	)	1.8
Total Investments segment	9.1		8.2		0.9			8.0			7.6		0.4
Total investments segment																8.1			9.1		(1.0	)		9.9			8.0		1.9

Other	(2.3	)	(2.0	)	(0.3	)		(2.3	)		(2.2	)	(0.1	)		(2.1	)		(2.3	)	0.2			(2.9	)		(2.3	)	(0.6	)

Annualized ROE	12.9	%	11.2		1.7			10.3			11.4		(1.1	)		10.7	%		12.9		(2.2	)		12.9			10.3		2.6

In Third Quarter 2019, we generated net income per diluted share of $0.93, in line with the same quarter a year ago. Non-GAAP operating income per diluted share was $0.97, compared to $0.99 a year ago. The Third Quarter 2019 results were impacted by: (i) higher than expected levels of non-catastrophe property loss and loss expenses of $5 million, after-tax, or $0.09 per diluted share; and (ii) $3 million of after-tax employee severance-related expenses, split between underwriting and corporate expenses on the Consolidated Statements of Income, that accounted for $0.05 per diluted share. On a year-to-date basis, non-catastrophe property loss and loss expenses were generally in line with expected levels.

We generated 18% growth in book value per share through Nine Months 2019. The strong growth in book value per share was driven by net income and appreciation in the value of our fixed income securities portfolio, which experienced net unrealized after-tax gains of approximately $29 million during Third Quarter 2019 and $175 million during Nine Months 2019. This growth was partially offset by dividends paid to shareholders.

In addition to strong growth in book value per share, the financial results this year continue to build on our five-year track record of consistently generating double-digit non-GAAP operating ROEs on an annual basis. Our annualized non-GAAP operating ROE of 12.3% in Nine Months 2019 was 30 basis points above our 2019 target of 12% and 100 basis points higher than the annualized non-GAAP operating ROE in Nine Months 2018.

Despite exceeding our target, our annualized non-GAAP operating ROE was negatively impacted by net unrealized after-tax gains of $175 million on our fixed income securities portfolio, which decreased our annualized non-GAAP operating ROE by 60 basis points. We currently expect interest rates to remain low, which will likely put pressure on our ROE and non-GAAP operating ROE in 2020.

Insurance Operations

Our insurance operations' ROE improved by 1.1 points for the quarter, primarily reflecting the lower corporate tax rate provided under the Tax Cuts and Jobs Act of 2017 (“Tax Reform”). Our pre-tax profitability in our overall insurance operations remained consistent with last year, with a combined ratio of 94.6%segments delivered profitable results in Third Quarter ~~2018~~and Nine Months 2019, contributing to a combined annualized ROE in the quarter of 4.7% and in the year-to-date period of 5.9%. The Third Quarter 2019 annualized ROE decreased 1.4 points compared to ~~94.3% in~~ Third Quarter ~~2017. Despite the benefits from Tax Reform, the insurance operations' non-GAAP operating ROE declined 1.4 points for Nine Months~~ 2018, ~~compared to Nine Months 2017,~~ reflecting an increase in our combined ratio of 0.6 points. The increase was principally driven by higher non-catastrophe property loss and loss expenses and a higher expense ratio. The higher expense ratio of 1.6 points reflected the following: (i) a 0.5-point increase in employee-related expenses, including 0.3 points for employee severance-related expenses noted above; and (ii) a 0.6-point increase in profit-based compensation to ~~95.8%~~our distribution partners and employees.

The annualized ROE in Nine Months ~~2018,~~2019 increased 1.3 points compared to ~~93.4% in~~ Nine Months ~~2017,~~2018, because of the improvement in the combined ratio of 1.5 points. The combined ratio improvement was principally driven ~~by a higher level~~by: (i) lower levels of non-catastrophe property ~~losses~~loss and ~~a lower level~~loss expenses; and (ii) higher levels of favorable prior year casualty reserve development. These improvements were partially offset by the increase in the expense ratio of 0.6 points, which reflected a 0.4-point increase in profit-based compensation to our distribution partners and employees.

The following table provides quantitative information for analyzing the combined ratio:


All Lines		Quarter ended September 30,				Change % or Points			Nine Months ended September 30,				Change % or Points				Quarter ended September 30,				Change % or Points				Nine Months ended September 30,				Change % or Points
($ in thousands)		2018			2017	Change % or Points			2018			2017				2019			2018		Change % or Points			2019			2018		Change % or Points
Insurance Operations Results:	Insurance Operations Results:												Change % or Points				Insurance Operations Results:
Net premiums written ("NPW")		$	651,668		604,277	8		%	$	1,931,476		1,816,795	6		%		$	676,928		651,668	4		%		$	2,051,272		1,931,476	6		%
Net premiums earned (“NPE”)		614,277			572,055	7			1,810,941			1,700,939	6				653,620			614,277	6				1,928,812			1,810,941	7
Less:
Loss and loss expense incurred		379,199			344,587	10			1,130,468			1,003,618	13				398,675			379,199	5				1,166,238			1,130,468	3
Net underwriting expenses incurred		199,791			193,975	3			598,437			582,469	3				222,599			199,791	11				648,693			598,437	8
Dividends to policyholders		2,290			1,048	119			6,274			2,875	118				1,045			2,290	(54	)			4,394			6,274	(30	)
Underwriting income		$	32,997		32,445	2		%	$	75,762		111,977	(32	)	%		$	31,301		32,997	(5	)	%		$	109,487		75,762	45		%
Combined Ratios:
Loss and loss expense ratio		61.7		%	60.2	1.5		pts	62.5		%	59.0	3.5		pts		60.9		%	61.7	(0.8	)	pts		60.5		%	62.5	(2.0	)	pts
Underwriting expense ratio		32.5			33.9	(1.4	)		33.0			34.2	(1.2	)			34.1			32.5	1.6				33.6			33.0	0.6
Dividends to policyholders ratio		0.4			0.2	0.2			0.3			0.2	0.1				0.2			0.4	(0.2	)			0.2			0.3	(0.1	)
Combined ratio		94.6			94.3	0.3			95.8			93.4	2.4				95.2			94.6	0.6				94.3			95.8	(1.5	)

Our Third Quarter and Nine Months ~~2018~~2019 results continue to reflect our efforts to: (i) achieve ~~meaningful~~ overall renewal ~~rate level~~pure price increases at levels that ~~we believe exceed~~are in line with expected loss ~~cost inflation;~~trend; (ii) generate new business; and (iii) improve the underlying profitability of our business through various underwriting and claims initiatives. ~~Our~~We continue to execute on our strategy for disciplined NPW growth, ~~of 8% for~~with 4% growth in Third Quarter ~~2018~~2019 and 6% ~~for~~growth in Nine Months ~~2018,~~2019 compared to the same prior year ~~periods,~~periods. This growth was primarily due to renewal pure price increases and new business growth in our Standard Commercial Lines. Our growth was aided by the net appointment of 7657 retail agents, ~~in Nine Months 2018 and 109 retail agents in 2017,~~ excluding agency consolidations. ~~Included in these net appointments were 38 agents appointed in our new states of Arizona, New Hampshire, and Colorado.~~

Loss and Loss Expenses

The decreases in the loss and loss expense ratio ~~increased 1.5 points in Third Quarter 2018 and 3.5 points in Nine Months 2018 compared to the same prior year~~during both periods presented above were driven by the following:


	Third Quarter 2018						Third 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
Catastrophe losses¹	$	28.1		4.6		pts	$	23.7		4.1		pts	0.5		pts
(Favorable) prior year casualty reserve development	(12.0		)	(2.0	)		(9.9		)	(1.7	)		(0.3	)
Non-catastrophe property losses	89.8			14.6			71.8			12.6			2.0
Total	105.9			17.2			85.6			15.0			2.2
¹Included in these catastrophe losses were $15.0 million, or 2.4 combined ratio points, in Third Quarter 2018 related to Hurricane Florence and $14.4 million, or 2.5 combined ratio points, in Third Quarter 2017 related to Hurricanes Harvey and Irma.

	Nine Months 2018						Nine Months 2017									Third Quarter 2019						Third Quarter 2018
($ in millions)	Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Change in Ratio			Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Change in Ratio
Catastrophe losses	$	72.9		4.0		pts	$	65.3		3.8		pts	0.2		pts	$	24.2		3.7		pts	$	28.1		4.6		pts	(0.9	)	pts
(Favorable) prior year casualty reserve development	(24.0		)	(1.3	)		(38.6		)	(2.3	)		1.0			(14.0		)	(2.1	)		(12.0		)	(2.0	)		(0.1	)
Non-catastrophe property losses	278.5			15.4			216.5			12.7			2.7
Non-catastrophe property loss and loss expenses																108.8			16.7			100.8			16.4			0.3
Total	327.4			18.1			243.2			14.2			3.9			119.0			18.3			116.9			19.0			(0.7	)


																Nine Months 2019						Nine Months 2018
($ 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																$	74.5		3.9		pts	$	72.9		4.0		pts	(0.1	)	pts
(Favorable) prior year casualty reserve development																(41.0		)	(2.1	)		(24.0		)	(1.3	)		(0.8	)
Non-catastrophe property loss and loss expenses																309.6			16.1			310.9			17.2			(1.1	)
Total																343.1			17.9			359.8			19.9			(2.0	)

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


(Favorable)/Unfavorable Prior Year Casualty Reserve Development	Quarter ended September 30,						Nine Months ended September 30,				Quarter ended September 30,						Nine Months ended September 30,
($ in millions)	2018				2017		2018		2017		2019				2018		2019		2018
General liability	$	(8.0	)		(10.9	)	(8.0	)	(48.3	)	$	(3.0	)		(8.0	)	(10.0	)	(8.0	)
Commercial automobile	10.0				5.0		25.0		26.0		—				10.0		—		25.0
Workers compensation	(20.0		)		(14.0	)	(53.0	)	(29.3	)	(13.0		)		(20.0	)	(33.0	)	(53.0	)
Bonds	—				—		—		(2.0	)
Total Standard Commercial Lines	(18.0		)		(19.9	)	(36.0	)	(53.6	)	(16.0		)		(18.0	)	(43.0	)	(36.0	)

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

E&S	6.0				10.0		12.0		10.0		—				6.0		—		12.0

Total (favorable) prior year casualty reserve development	$	(12.0	)		(9.9	)	(24.0	)	(38.6	)	$	(14.0	)		(12.0	)	(41.0	)	(24.0	)

(Favorable) impact on loss ratio	(2.0		)	pts	(1.7	)	(1.3	)	(2.3	)	(2.1		)	pts	(2.0	)	(2.1	)	(1.3	)

As illustrated in the table above, we have seen the most significant favorable prior year casualty reserve development in our workers compensation and general liability lines of business and the most significant unfavorable prior year casualty reserve development in our commercial automobile and E&S lines of business. The following provides some qualitative discussion around the actions we have taken regarding these lines of business:

~~Workers Compensation~~

We continue to execute on various claims process enhancements and underwriting initiatives to improve our mix of business based on expected profitability. Our workers compensation book of business, which represents approximately 16% of our Standard Commercial Lines business, continues to benefit from: (i) claims initiatives, such as reducing workers compensation medical costs through more favorable Preferred Provider Organization ("PPO") contracts and greater PPO penetration; (ii) better outcomes driven by our workers compensation strategic case unit; and (iii) an improved mix of business in this line that shifts towards lower hazard and smaller accounts from higher hazard and larger accounts. In addition, this line has benefited in recent years from lower than anticipated medical inflation. For a full discussion of the claims initiatives we have deployed, refer to the “Reserves for Loss and Loss Expense” section within Critical Accounting Policies and Estimates in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” of our 2017 Annual Report.

~~Commercial Automobile~~

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 Third Quarter and Nine Months 2018, we recorded unfavorable prior year casualty reserve development of $10 million and $25 million, respectively, on this line, mainly for accident years 2016 and 2017. The industry-wide statutory combined ratio for 2018 is expected to average approximately 114%, and our combined ratio was 118.2% for Third Quarter 2018 and 112.8% for Nine Months 2018. We achieved renewal pure price increases on this line of 7.5% in Third Quarter 2018 and 7.4% in Nine 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.

~~General Liability~~

Our general liability line continues to be a profitable book of business for us. This business includes a diverse set of exposures, and therefore can be influenced by a variety of factors. In recent years, we have been favorably impacted by decreasing frequencies and relatively benign severity trends within this line, although this favorable development has moderated in Nine Months 2018, with the $8 million of development being reflective of favorable development on loss adjustment expenses.

~~E&S~~

Our E&S segment continues to perform below our target level and remains an area of focus for us as we continue to experience unfavorable development on prior accident years. We have been taking steps to address profitability in this segment through targeted price increases, shifts in business mix, and improved underwriting standards. We believe our current in-force book of business is priced adequately and is positioned well for future profitability.

For additional qualitative discussions regarding reserve development, please refer to the insurance segment sections below in "Results of Operations and Related Information by Segment."

~~Underwriting Expenses~~Investments Segment

~~The underwriting expense ratio decreased 1.4 points~~Net investment income, after tax, grew 6% in Third Quarter ~~2018~~2019 and ~~1.2 points~~16% in Nine Months ~~2018 compared to the respective prior year periods due to the following:~~

A 0.5-point and 0.6-point decrease in employee-related expenses in Third Quarter 2018 and Nine Months 2018, respectively, reflecting reductions in both periods of 0.2 points for profit-based compensation to employees, driven by the higher combined ratio resulting in a reduced level of underwriting income for both periods, and 0.2-points for pension and medical benefit costs.

A 0.4-point and 0.3-point decrease in supplemental commissions to our distribution partners in Third Quarter 2018 and Nine Months 2018, respectively, compared to Third Quarter 2017 and Nine Months 2017, driven by the higher combined ratio resulting in a reduced level of underwriting income for both periods.

~~Investments Segment~~

In total, our Investments segment contributed 9.1 points to our overall annualized ROE in Third Quarter 2018, compared to 8.2 points in Third Quarter 2017, and 8.0 points in Nine Months 2018, compared to 7.6 points in Nine Months 2017. Excluding the impact of net realized and unrealized losses, the Investment segment's contribution to non-GAAP operating ROE improved by 2.9 points in the quarter and 1.8 points in the year-to-date period compared to the respective prior year periods.

The investment income improvement included 1.4 points of benefit from Tax Reform in Third Quarter 2018 and 1.2 points in Nine Months 2018. The remaining improvement in both periods reflected pre-tax net investment income growth of 30% in Third Quarter 2018 and 18% in Nine Months 20182019, compared to the same prior year periods, principally driven by: (i) cash flows from operations that were 22% of NPW in the quarter and 15% of NPW in the year-to-date period; (ii) $106 million in net proceeds from our 5.375% Senior Notes issuance earlier in 2019; and (iii) alternative investment income that, for Nine Months 2019, was $2.4 million higher than the comparable prior year period. Net investment income, after tax, contributed 8.6 points to ROE in Third Quarter 2019 and 9.1 points in Nine Months 2019, compared to 10.0 points in Third Quarter 2018 and 9.0 points in Nine Months 2018.

Net realized and unrealized gains and losses reduced ROE by 0.5 points in Third Quarter 2019, compared to a reduction of 0.9 points in Third Quarter 2018. Net realized and unrealized gains and losses increased ROE by 0.8 points in Nine Months 2019, compared to a reduction of 1.0 point in Nine Months 2018. The improvement in both periods was primarily driven by ~~higher yields~~a reduction in realized losses on our fixed income securities portfolio, ~~during~~which was driven by less opportunistic sales. During Third Quarter 2019, we sold a significant portion of our public equity securities and generated $21.6 million of realized gains on the ~~year~~sale, which was principally offset by a $21.4 million reversal of previously-recorded unrealized gains on these securities.

Other

Our interest and ~~improved returns on~~corporate expenses, which are primarily comprised of stock compensation expense at the holding company

level, reduced ROE by 2.1 points and 2.9 points in Third Quarter and Nine Months 2019, respectively, compared to 2.3 points in both Third Quarter and Nine Months 2018. The quarter-to-date variance was driven primarily by a 0.6-point decrease in stock compensation expense related to our ~~alternative investment portfolio in~~liability-based awards, as the ~~quarter. Yields on our fixed income portfolio improved due to active investment management and security selection, coupled with the year-to-date~~stock price increase in Third Quarter 2019 was less than the ~~90-day LIBOR~~increase in Third Quarter 2018, partially offset by a 0.3-point increase in stock compensation expense associated with employee severance-related expenses.

In addition, on March 1, 2019, Selective issued 5.375% Senior Notes with an aggregate principal amount of ~~approximately 70~~$300 million, the proceeds of which were used, in part, to redeem our 5.875% Senior Notes with an aggregate principal balance of $185 million that became callable last year. As a result of this redemption, we incurred after-tax debt retirement costs of $3.3 million, which reduced our ROE by 0.2 points ~~as 17% of our fixed income portfolio is invested~~ in ~~floating rate securities that reset based principally on this rate.~~Nine Months 2019. These costs have been excluded from non-GAAP operating income.

Outlook

~~Despite~~We ended 2018 with record levels of capital and liquidity and our strong Nine Months 2019 results have continued to improve our financial ~~performance~~position. In the first quarter of 2019, we executed our first institutional public debt offering with the issuance of $300 million aggregate principal amount of 5.375% Senior Notes.

For 2019, we have established a non-GAAP operating ROE target of 12%, which is an appropriate return for our shareholders based on our current estimated weighted average cost of capital, the current interest rate environment, and property and casualty insurance market conditions, and have exceeded our target with 12.3% annualized non-GAAP operating ROE through Nine Months 2019.

As we head into the closing months of 2019, our focus will be on the following areas:

Achieving written renewal pure price increases that are in ~~2017~~line with expected loss trend. We achieved renewal pure price increases on our overall insurance operations of 3.6% in Nine Months 2019.

Delivering on our strategy for continued disciplined growth, which will be driven by the addition of new agents,

greater "share of wallet" in our existing agents’ offices, and ~~expectations for 2018,~~geographic expansion. Our longer-term Standard Commercial Lines target is to attain a 3% market share in the states in which we operate, by appointing distribution partner relationships approximating 25% of their markets and seeking an average "share of wallet" of 12% across the relationships. This goal represents an additional premium opportunity in excess of $2.7 billion in our 27 state footprint. In Nine Months 2019, we achieved NPW growth of 6%. Our current agency market share stands at over 20%, and our average "share of wallet" is approximately 8% in our legacy states.

•

Continuing to enhance the customer experience strategy that we have been highlighting over the past few years, including value-added technologies and services such as: (i) our “Selective^® Drive” program, which was first introduced to certain commercial automobile policyholders through our distribution partners in the fourth quarter of 2018; (ii) proactive communications in relation to product recalls, possible loss activity, policy changes, and risk management activities; (iii) Security Mentor, a product provided to our customers to better understand and manage cybersecurity risks; (iv) technology usage to reduce claim cycle time, such as SWIFTClaim^® fast tracking; and (v) digital self-service capabilities for our customers.

Improving profitability in our lines of business by: (i) generating overall renewal pure price increases that are in line with expected loss trend; (ii) actively managing new and renewal books of business in targeted industry segments, which we expect will have a positive impact on profitability through business mix; (iii) deploying sophisticated claims tools, including enhanced modeling and segmentation strategies, which we expect will improve loss experience; and (iv) within our E&S segment, exiting some underperforming classes, while entering into new distribution relationships.

Actively managing the investment portfolio to enhance after-tax yields while managing credit, duration, and liquidity

risk. There was a significant decline in interest rates in Nine Months 2019, which demonstrates the need to maintain a strong focus on underwriting discipline to generate adequate returns on invested capital.

Our agile approach to driving underwriting, pricing and claims improvements is best demonstrated by our combined ratio that has averaged 94.0% since 2014, well ahead of the U.S. property and casualty ~~insurance~~ industry continues to be 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 low single digits for most lines of business. A.M. Best is estimating an overall statutoryaverage combined ratio for the industry for 2018 of 100.0%, and an estimated after-tax return on surplus of 5.8%. Industry results through six-months 2018, as reported by A.M. Best in an August 2018 report, reflected an industry combined ratio of 96.4%, including 4.2-points of catastrophe losses. In their Review & Preview, A.M. Best also estimated 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 increased 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 claim payments madeaveraged 99.6% during the ~~current year, as~~same period. Our strong technical and underwriting capabilities, underwriting leverage of 1.4x, and proven track record of effectively managing renewal pricing and retention, position us well ~~as estimates~~for continued success in this low interest rate environment. As we look to the remainder of ~~loss~~2019, we remain pleased with our financial and ~~loss expense reserves for claims to be paid in~~strategic position. Our steadfast focus on underwriting discipline, combined with the ~~future. For a further discussion, please refer to Item 1A. "Risk Factors" in our 2017 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 representative of at least 25% of the available market share in each of our Standard Commercial Lines states; (ii) increasing our share of the business within these distribution partners, which we refer to as our "share of wallet," to 12%, which translates into a 3% market share in each state in which we write Standard Commercial Lines business; and (iii) geographic expansion. To date, we write Standard Commercial Lines business in 27 states and the District of Columbia, which, at a 3% market share, would create a corporate Standard Commercial Lines profile of approximately $5 billion of NPW.

Effective July 1, 2017, we opened Arizona and New Hampshire for Standard Commercial Lines business. Effective January 1, 2018, we started writing Standard Commercial Lines business in Colorado, and on October 1, 2018, we began writing Standard Commercial Lines business in New Mexico and Utah. We have appointed an aggregate of 52 agents in these states, with appointments controlling approximately 10-20% of these states' available Standard Commercial Lines premium. We expect to open Arizona and Utah for Standard Personal Lines business in the fourth quarter 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 deployed our newest underwriting tool that provides real-time insights into how each prospective new business account compares with similar accounts already in our portfolio. We believe this tool positions us better to profitably grow the business regardless of overall market dynamics.

~~As an organization,~~investments we are making ~~significant investments focused on enhancing the~~today in our franchise distribution model, sophisticated underwriting tools and technology, and overall customer experience in an omni-channel environment, ~~including efforts to obtain: (i) stronger customer engagement through multiple communication touch points, such as mobile notifications~~will position us for continued long-term success.

For 2019, Conning, Inc.'s ("Conning") third quarter 2019 "Property-Casualty Forecast & Analysis" forecasts a property and ~~billing alerts; (ii) a 360-degree view~~casualty insurance industry statutory combined ratio 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 distribution partners and their primary agency management system vendors to ensure we present our customers96.7%, with a ~~seamless experience.~~return on equity of 8.5%. This suggests an operating return on equity of approximately 7.5%, after excluding Conning's forecasted after-tax realized gains. We ~~recognize that~~feel positive about the overall environment, and believe 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 should, over time, enhancemajor initiatives highlighted above set the ~~quality of our business.~~stage for continued financial outperformance.

Our investment portfolio generated pre-tax net investment income of $141.2 million in Nine Months 2018, which was an 18% increase over the same period in 2017. We have generated strong investment returns, while maintaining a similar level of credit quality and duration risk on the portfolio, as a result of: (i) active investment management and security selection, principally in our core fixed income portfolio; and (ii) the 70-point increase in 90-day LIBOR in 2018, as 17% of our fixed income portfolio is invested in floating rate securities that reset based principally on this rate. Additionally, risk assets, which principally include high-yield fixed income securities, equities, and our alternative investments portfolio, were 7.3% of our overall portfolio as of September 30, 2018, which was slightly down from year-end 2017. During 2018, we have been actively managing our risk asset portfolio and trimmed our exposure to public equities and high-yield fixed income securities as a result of market conditions during the year. Overall, we have been gradually diversifying our portfolio, and will work towards modestly increasing our risk asset allocation over time, up to approximately 10% of our invested assets, depending on market conditions.

After three quarters of results, ~~we are increasing~~ our full-year 2018 after-tax net investment income guidance by $6 million, to $156 million, as well as increasing catastrophe losses by 0.5 points, to 4.0 points. All other assumptions remain the same. Our full-year expectations are as follows:

A GAAP combined ratio, excluding catastrophe losses, of ~~92.0%, which is unchanged from prior guidance.~~91.0%. This assumes no fourth quarter ~~2018 prior year~~prior-year casualty reserve development;

Catastrophe losses of ~~4.0 points reflecting two hurricanes;~~3.5 points;

After-tax net investment income of ~~$156 million;~~$180 million, which includes $14 million after-tax net investment income from our alternative investments;

An overall effective tax rate of approximately ~~18%~~19%, which includes an effective tax rate of ~~17%~~18.5% 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;~~items; and

Weighted average shares of ~~59.6 million.~~60 million on a diluted basis.

Results of Operations and Related Information by Segment

Standard Commercial Lines Segment


	Quarter ended September 30,				Change % or Points			Nine Months ended September 30,				Change % or Points				Quarter ended September 30,				Change % or Points				Nine Months ended September 30,				Change % or Points
($ in thousands)	2018			2017	Change % or Points			2018			2017				2019			2018		Change % or Points			2019			2018		Change % or Points
Insurance Segments Results:												Change % or Points
NPW	$	502,312		472,051	6		%	$	1,526,318		1,434,516	6		%		$	532,921		502,312	6		%		$	1,636,983		1,526,318	7		%
NPE	481,056			445,250	8			1,422,432			1,327,258	7				515,161			481,056	7				1,518,994			1,422,432	7
Less:
Loss and loss expense incurred	291,110			254,870	14			858,550			749,310	15				304,038			291,110	4				895,999			858,550	4
Net underwriting expenses incurred	161,323			154,003	5			483,455			462,439	5				180,062			161,323	12				525,627			483,455	9
Dividends to policyholders	2,290			1,048	119			6,274			2,875	118				1,045			2,290	(54	)			4,394			6,274	(30	)
Underwriting income	$	26,333		35,329	(25	)	%	$	74,153		112,634	(34	)	%		$	30,016		26,333	14		%		$	92,974		74,153	25		%
Combined Ratios:
Loss and loss expense ratio	60.5		%	57.3	3.2		pts	60.4		%	56.5	3.9		pts		59.0		%	60.5	(1.5	)	pts		59.0		%	60.4	(1.4	)	pts
Underwriting expense ratio	33.5			34.6	(1.1	)		34.0			34.8	(0.8	)			35.0			33.5	1.5				34.6			34.0	0.6
Dividends to policyholders ratio	0.5			0.2	0.3			0.4			0.2	0.2				0.2			0.5	(0.3	)			0.3			0.4	(0.1	)
Combined ratio	94.5			92.1	2.4			94.8			91.5	3.3				94.2			94.5	(0.3	)			93.9			94.8	(0.9	)

The increases in NPW in ~~this segment of our business increased 6% in both~~ the ~~current~~ quarter and year-to-date periods reflected in the table above were driven byby: (i) direct new business; and (ii) renewal pure price increases and strong retention. However, we are experiencing heightened competition in this segment, particularly related to new business, which decreased 7% in Third Quarter 2018 compared to Third Quarter 2017, as illustrated in the table below.increases.


	Quarter ended September 30,				Change % or Points				Nine Months ended September 30,					Change % or Points		Quarter ended September 30,					Change % or Points				Nine Months ended September 30,				Change % or Points
($ in millions)	2018			2017			2018				2017		2019			2018				2019	Change % or Points			2018					Change % or Points
Direct new business																$	96.5		90.4		7		%		316.2		289.5		9		%
Renewal pure price increases																3.5			3.7		(0.2	)			3.3		3.5		(0.2	)
Retention	84		%	85	Change % or Points		(1	)	pts		83	%		Change % or Points	84	(1	)	pts	84		%	84			—	pts		83	%		83	—	pts
Renewal pure price increases	3.7			2.7	1.0				3.5			2.9		0.6
Direct new business	$	90.4		96.9	(7	)	%		$	289.5		284.4		2	%

The loss and loss expense ratio ~~increased 3.2~~decreased 1.5 points in Third Quarter ~~2018~~2019 compared to Third Quarter ~~2017,~~2018, and ~~3.9~~decreased 1.4 points in Nine Months ~~2018~~2019 compared to Nine Months ~~2017. These increases~~2018, and were driven by the following:


	Third Quarter 2018						Third Quarter 2017								Third Quarter 2019						Third Quarter 2018
($ in millions)	Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Change in Ratio		Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Change in Ratio
Catastrophe losses	$	22.1		4.6		pts	$	14.3		3.2		pts	1.4	pts	$	14.8		2.9		pts	$	22.1		4.6		pts	(1.7	)	pts
Non-catastrophe property losses	60.1			12.5			49.1			11.0			1.5
Non-catastrophe property loss and loss expenses															76.7			14.9			67.1			13.9			1.0
(Favorable) prior year casualty reserve development	(18.0		)	(3.7	)		(19.9		)	(4.5	)		0.8		(16.0		)	(3.1	)		(18.0		)	(3.7	)		0.6
Total	64.2			13.4			43.5			9.7			3.7		75.5			14.7			71.2			14.8			(0.1	)

															Nine Months 2019						Nine Months 2018
	Nine Months 2018						Nine 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		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	$	52.0		3.7		pts	$	38.1		2.9		pts	0.8	pts	$	52.1		3.4		pts	$	52.0		3.7		pts	(0.3	)	pts
Non-catastrophe property losses	187.9			13.2			147.0			11.1			2.1
Non-catastrophe property loss and loss expenses															213.8			14.1			208.3			14.6			(0.5	)
(Favorable) prior year casualty reserve development	(36.0		)	(2.5	)		(53.6		)	(4.0	)		1.5		(43.0		)	(2.8	)		(36.0		)	(2.5	)		(0.3	)
Total	203.9			14.4			131.5			10.0			4.4		222.9			14.7			224.3			15.8			(1.1	)

In addition to the items described above, during the quarter there was a 1.1-point improvement in current year loss costs. This improvement reflects the impact of elevated frequencies we experienced during Third Quarter 2018 related to the then current accident year.

For additional information regarding ~~the~~ favorable prior year casualty reserve development by line of business, see the "Financial Highlights of Results for Third Quarter and Nine Months ~~2018~~2019 and Third Quarter and Nine Months ~~2017"~~2018" section above and the line of business discussions below.

There was a ~~1.1-point decrease~~1.5-point increase in the underwriting expense ratio in Third Quarter ~~2018~~2019 compared to Third Quarter ~~2017,~~2018, and a ~~0.8-point decrease~~0.6-point increase in the underwriting expense ratio in Nine Months ~~2018~~2019 compared to Nine Months ~~2017.~~2018. The ~~significant drivers~~primary driver was increased profit-based expenses to our distribution partners and employees of ~~these variances were as follows:~~

~~A reduction in employee-related expenses of 0.4~~0.6 points in the quarter and ~~0.5 points year to date. These decreases included: (i) lower profit-based compensation to our employees of 0.2~~0.4 points in the quarter and year to date, driven by the higher combined ratio resulting in a reduced level of underwriting income for both periods; and (ii) lower pension and medical benefit costs of 0.2 points in the quarter and year to date.year-to-date period.

A reduction in profit-based compensation to our distribution partners of 0.3 points in the quarter and 0.2 points year to date, driven by the higher combined ratio resulting in a reduced level of underwriting income for both periods.

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


General Liability	General Liability																		General Liability
		Quarter ended September 30,				Change % or Points			Nine Months ended September 30,							Change % or Points				Quarter ended September 30,						Change % or Points			Nine Months ended September 30,							Change % or Points
($ in thousands)		2018			2017			2018			2017					Change % or Points		2019				2018				Change % or Points		2019			2018					Change % or Points
NPW		$	160,105		147,858	Change % or Points		8	%		$	494,984			461,716			7		%		$	172,471		160,105			8	%		$	536,448			494,984			8	%
Direct new business		26,768			28,067	(100	)		86,210				84,986			1				27,788				26,768		4			92,288				86,210			7
Retention		85		%	85	—		pts	84			%	83			1		pts		85			%	85		—		pts	83			%	84			(1	)	pts
Renewal pure price increases		2.9			2.4	0.5			2.7				2.5			0.2				3.3				2.9		0.4			2.7				2.7			—
NPE		$	154,974		141,059	10		%	$	457,805			422,546			8		%		$	169,084			154,974		9		%	$	495,402			457,805			8		%
Underwriting income		24,374			24,003	2			54,074				85,326			(37	)			22,399				24,374		(8	)		62,232				54,074			15
Combined ratio		84.3		%	83.0	1.3		pts	88.2			%	79.8	%		8.4		pts		86.8			%	84.3		2.5		pts	87.4			%	88.2	%		(0.8	)	pts
% of total Standard Commercial Lines NPW		32			31				32				32							32				32					33				32

The fluctuations in the combined ratio increases in Third Quarter 2018 compared to Third Quarter 2017, and Nine Months 2018 compared to Nine Months 2017, were driven primarily by lower favorable prior year casualty reserve development, asratios illustrated in the table ~~below.~~above included the following:


	Third Quarter 2018						Third Quarter 2017								Third Quarter 2019						Third Quarter 2018
($ in millions)	Loss and Loss Expense Incurred			Impact on Combined Ratio			Loss and Loss Expense Incurred			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	$	(8.0	)	(5.2	)	pts	$	(10.9	)	(7.7	)	pts	2.5	pts	$	(3.0	)	(1.8	)	pts	$	(8.0	)	(5.2	)	pts	3.4		pts

															Nine Months 2019						Nine Months 2018
	Nine Months 2018						Nine Months 2017
($ in millions)	Loss and Loss Expense Incurred			Impact on Combined Ratio			Loss and Loss Expense Incurred			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	$	(8.0	)	(1.7	)	pts	$	(48.3	)	(11.4	)	pts	9.7	pts	$	(10.0	)	(2.0	)	pts	$	(8.0	)	(1.7	)	pts	(0.3	)	pts

The Third Quarter and Nine Months ~~2018~~2019 reserve development was primarily attributable to favorable reserve development on loss severities in accident years 2015 through 2017. The Third Quarter and Nine Months 2018 reserve development was primarily attributable to favorable reserve development on loss adjustment expenses in accident years 2014 through 2017.



Commercial Automobile
	Quarter ended September 30,						Change % or Points			Nine Months ended September 30,						Change % or Points
($ in thousands)	2019				2018		Change % or Points			2019				2018		Change % or Points
NPW	$	150,765			135,579		11		%	$	453,201			399,506		13		%
Direct new business	24,096				23,363		3			80,840				70,668		14
Retention	85			%	82		3		pts	82			%	83		(1	)	pts
Renewal pure price increases	7.5				7.5		—			7.4				7.4		—
NPE	$	141,182			124,862		13		%	$	408,706			365,197		12		%
Underwriting loss	(11,398		)		(22,785	)	50			(28,919		)		(46,922	)	38
Combined ratio	108.1			%	118.2		(10.1	)	pts	107.1			%	112.8		(5.7	)	pts
% of total Standard Commercial Lines NPW	28				27					28				26

The ~~Third Quarter and Nine Months 2017 development was primarily attributable to lower claims frequencies and severities primarily~~increases in ~~accident years 2015 and prior, particularly~~NPW shown in the ~~products liability and excess liability segments.~~

~~In addition, the lower combined ratio benefited from a lower underwriting expense ratio, which decreased by 0.3 points~~table above reflect renewal pure price increases on this line, coupled with an increase in ~~Third Quarter 2018 compared~~new business as we continue to ~~Third Quarter 2017, and by 1.1 points~~write commercial automobile policies as part of our overall customer accounts. The growth in NPW of 13% in Nine Months ~~2018~~2019 compared to Nine Months ~~2017, primarily attributable~~2018 reflects an 8% growth in vehicle counts and a 7.4% renewal pure price increase, reflecting our efforts to ~~the aforementioned items discussed~~improve profitability on this line by actively implementing price increases in ~~the overall Commercial Lines Segment above.~~recent years.

Commercial Automobile
Quarter ended September 30,
Change
% or
Points
Nine Months ended September 30, Change
% or
Points
($ in thousands) 2018 2017 2018 2017
NPW $ 135,579
121,749
11
% $ 399,506
358,198
12
%
  Direct new business 23,363
21,906
7
70,668
61,456
15

  Retention 82
% 86
(4 ) pts 83
% 84
(1 ) pts
  Renewal pure price increases 7.5
6.5
1.0
7.4
6.7
0.7

NPE $ 124,862
111,711
12
% $ 365,197
327,156
12
%
Underwriting loss (22,785 ) (16,098 ) 42
(46,922 ) (41,621 ) 13

Combined ratio 118.2
% 114.4
3.8
pts 112.8
% 112.7
0.1
pts
% of total Standard Commercial Lines NPW 27
26

26
25

The ~~increase in the~~ combined ratio ~~of 3.8 points in Third Quarter 2018 compared to Third Quarter 2017, and 0.1 points in Nine Months 2018 compared to Nine Months 2017, was~~improvements outlined above were driven by the following:


	Third Quarter 2018				Third Quarter 2017							Third Quarter 2019				Third Quarter 2018
($ in millions)	Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		Impact on Combined 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	$	20.5	16.4	pts	$	18.5	16.6	pts	(0.2	)	pts
Non-catastrophe property loss and loss expenses												$	26.5	18.8	pts	$	21.9	17.6	pts	1.2		pts
Unfavorable prior year casualty reserve development	10.0		8.0		5.0		4.5		3.5			—		—		10.0		8.0		(8.0	)
Catastrophe losses	0.4		0.3		0.5		0.5		(0.2	)		1.2		0.9		0.4		0.3		0.6
Total	30.9		24.7		24.0		21.6		3.1			27.7		19.7		32.3		25.9		(6.2	)


	Nine Months 2018				Nine Months 2017							Nine Months 2019				Nine Months 2018
($ in millions)	Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		Impact on Combined 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	$	61.4	16.8	pts	$	48.9	14.9	pts	1.9		pts
Non-catastrophe property loss and loss expenses												$	75.5	18.5	pts	$	65.6	18.0	pts	0.5		pts
Unfavorable prior year casualty reserve development	25.0		6.8		26.0		7.9		(1.1	)		—		—		25.0		6.8		(6.8	)
Catastrophe losses	1.9		0.5		1.6		0.5		—			2.3		0.6		1.9		0.5		0.1
Total	88.3		24.1		76.5		23.3		0.8			77.8		19.1		92.5		25.3		(6.2	)

Our commercial automobile line of business has not experienced prior year casualty reserve development in 2019. The ~~significant drivers of the~~unfavorable development ~~were as follows:~~

in Third Quarter 2018 and Nine Months ~~2018: Development~~2018 was primarily due to higher ~~casualty claims frequencies, as well as increases in claim severities, primarily in accident years 2016 and 2017.~~

~~Third Quarter and Nine Months 2017: Development was mainly due to higher casualty~~ claim frequencies, and to some ~~increases in claim~~extent severities, in accident years 2015 through 2017.

This line of business remains an area of focus for both us and ~~2016.~~

the industry, as profitability challenges continue to generate combined ratios that are higher than target levels. To address profitability in this line, we have been actively implementing price increases, which averaged 7.4% for Nine Months 2019. In addition to price increases, we have also been actively managing our new and renewal business, which we expect will have a positive impact on profitability through business mix improvement. Over the ~~items described above,~~longer term, we expect accounts that adopt our recently introduced Selective^® Drive program will have greater insight to their commercial auto risks and have the ~~combined ratio in this line of business was adversely impacted by higher current year~~potential to reduce their loss ~~costs of 4.4 points for the quarter, and 2.2 points for the year-to-date period, driven by continued elevated frequencies and to some extent severities.~~experience.


Workers Compensation	Workers Compensation																			Workers Compensation
		Quarter ended September 30,					Change % or Points				Nine Months ended September 30,						Change % or Points				Quarter ended September 30,						Change % or Points				Nine Months ended September 30,						Change % or Points
($ in thousands)		2018			2017				2018				2017				Change % or Points		2019				2018				Change % or Points		2019				2018				Change % or Points
NPW		$	77,827		80,252		Change % or Points		(3	)	%		$	248,728		253,446			(2	)	%		$	71,534		77,827			(8	)	%		$	238,037		248,728			(4	)	%
Direct new business		12,582			18,617		(32	)			46,000				52,923		(13	)			12,025				12,582		(4	)			46,765				46,000		2
Retention		84		%	85		(1	)	pts		84			%	84		—		pts		84			%	84		—		pts		83			%	84		(1	)	pts
Renewal pure price (decreases) increases		—			(0.4	)	0.4				0.1				0.3		(0.2	)			(2.7		)		—		(2.7	)			(2.8		)		0.1		(2.9	)
NPE		$	78,784		77,580		2		%		$	237,628			236,366		1		%		$	75,478			78,784		(4	)	%		$	232,657			237,628		(2	)	%
Underwriting income		23,380			14,661		59				61,601				32,553		89				17,333				23,380		(26	)			42,566				61,601		(31	)
Combined ratio		70.3		%	81.1		(10.8	)	pts		74.1			%	86.2		(12.1	)	pts		77.0			%	70.3		6.7		pts		81.7			%	74.1		7.6		pts
% of total Standard Commercial Lines NPW		16			17						16				18						13				16						15				16

The ~~decreases~~increases in the combined ratio in Third Quarter and Nine Months ~~2018~~2019 compared to the same prior year periods were driven by less favorable prior year casualty reserve development, as ~~well as a 1.5-point reduction in current year loss costs~~follows:



	Third Quarter 2019						Third Quarter 2018
($ 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	$	(13.0	)	(17.2	)	pts	$	(20.0	)	(25.4	)	pts	8.2	pts

	Nine Months 2019						Nine Months 2018
($ 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	)	(14.2	)	pts	$	(53.0	)	(22.3	)	pts	8.1	pts

The development in both Third Quarter and Nine Months 2019 was primarily due to lower severities in accident years 2017 and prior, and the ~~quarter~~development in both Third Quarter and ~~year-to-date periods. Favorable prior year development, which~~Nine Months 2018 was primarily due to lower severities in accident years 2016 and prior.

While reported profitability on this line remains strong due to favorable emergence on prior ~~was as follows:~~year reserves, current accident year margins do not support the continued negative pricing levels that are being set by the National Council on Compensation Insurance and independent state rating bureaus. A reduction or reversal in the trend of favorable frequencies and severities has the potential to significantly increase this line's combined ratio, which we are monitoring closely.

Third Quarter 2018 Third 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 $ (20.0 ) (25.4 ) pts $ (14.0 ) (18.0 ) pts (7.4 ) pts

Nine Months 2018 Nine 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 $ (53.0 ) (22.3 ) pts $ (29.3 ) (12.4 ) pts (9.9 ) pts



Commercial Property
	Quarter ended September 30,						Change % or Points			Nine Months ended September 30,					Change % or Points
($ in thousands)	2019				2018		Change % or Points			2019			2018		Change % or Points
NPW	$	97,393			89,737		9		%	$	284,861		263,318		8		%
Direct new business	22,527				18,073		25			64,960			57,485		13
Retention	83			%	83		—		pts	82		%	82		—		pts
Renewal pure price increases	2.8				3.3		(0.5	)		3.3			3.1		0.2
NPE	$	89,215			83,056		7		%	$	262,418		245,544		7		%
Underwriting (loss) income	(409		)		(6,768	)	(94	)		2,866			(9,266	)	131
Combined ratio	100.5			%	108.1		(7.6	)	pts	98.9		%	103.8		(4.9	)	pts
% of total Standard Commercial Lines NPW	18				18					17			17

Commercial Property
Quarter ended September 30,
Change
% or
Points
Nine Months ended September 30,
Change
% or
Points

($ in thousands) 2018 2017 2018 2017
NPW $ 89,737
84,664
6
% $ 263,318
247,138
7
%
Direct new business 18,073
18,451
(2 ) 57,485
55,614
3

Retention 83
% 83
—
pts 82
% 82
—
pts
Renewal pure price increases 3.3
1.4
1.9
3.1
1.7
1.4

NPE $ 83,056
78,151
6
% $ 245,544
232,594
6
%
Underwriting (loss) income (6,768 ) 7,824
(187 ) (9,266 ) 16,917
(155 )
Combined ratio 108.1
% 90.0
18.1
pts 103.8
% 92.7
11.1
pts
% of total Standard Commercial Lines NPW 18
18

17
17

The ~~increase~~decrease in the combined ratio in Third Quarter ~~2018~~2019 compared to Third Quarter ~~2017,~~2018, and the ~~increase~~decrease in the combined ratio in Nine Months ~~2018~~2019 compared to Nine Months ~~2017,~~2018, were driven by the following:


	Third Quarter 2018				Third Quarter 2017						Third Quarter 2019				Third Quarter 2018
($ in millions)	Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		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	$	20.1	24.2	pts	$	12.6	16.1	pts	8.1	pts	$	12.4	13.9	pts	$	20.1	24.2	pts	(10.3	)	pts
Non-catastrophe property losses	33.9		40.8		24.1		30.9		9.9
Non-catastrophe property loss and loss expenses											41.5		46.5		38.1		45.9		0.6
Total	54.0		65.0		36.7		47.0		18.0		53.9		60.4		58.2		70.1		(9.7	)


	Nine Months 2018				Nine Months 2017						Nine Months 2019				Nine Months 2018
($ in millions)	Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		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	$	42.6	17.4	pts	$	33.1	14.2	pts	3.2	pts	$	43.6	16.6	pts	$	42.6	17.4	pts	(0.8	)	pts
Non-catastrophe property losses	106.3		43.3		82.2		35.3		8.0
Non-catastrophe property loss and loss expenses											114.6		43.7		118.7		48.3		(4.6	)
Total	148.9		60.7		115.3		49.5		11.2		158.2		60.3		161.3		65.7		(5.4	)

~~Higher~~Lower catastrophe losses in Third Quarter ~~2018~~2019 compared to Third Quarter ~~2017 included~~2018 was driven by the impact of Hurricane Florence in ~~the current quarter, while the increase in~~September 2018. On a year-to-date basis, non-catastrophe property ~~losses reflected a higher number of fire losses~~loss and loss expenses were lower in Nine Month 2019 compared to ~~last year. On a year-to-date-basis, the increase in~~Nine Months 2018, as non-catastrophe property ~~losses continued to reflect the higher property losses from~~loss and loss expenses in the first quarter of 2018 ~~which~~ were ~~principally related to the~~elevated by a January deep freeze in our footprint states ~~coupled with~~and an increase in the ~~relatively large~~ number of severe fire ~~losses during the year.~~losses.

Standard Personal Lines Segment


	Quarter ended September 30,				Change % or Points				Nine Months ended September 30,				Change % or Points				Quarter ended September 30,					Change % or Points				Nine Months ended September 30,				Change % or Points
($ in thousands)	2018			2017				2018			2017		Change % or Points			2019				2018		Change % or Points			2019			2018		Change % or Points
Insurance Segments Results:					Change % or Points
NPW	$	84,735		81,195	4		%		$	236,530		223,998	6		%		$	81,639			84,735	(4	)	%		$	233,717		236,530	(1	)	%
NPE	77,157			72,601	6				227,090			215,474	5				76,738				77,157	(1	)			231,158			227,090	2
Less:
Loss and loss expense incurred	52,631			42,120	25				157,330			141,135	11				54,843				52,631	4				158,467			157,330	1
Net underwriting expenses incurred	21,368			22,302	(4	)			63,303			66,822	(5	)			22,526				21,368	5				65,617			63,303	4
Underwriting income	$	3,158		8,179	(61	)	%		$	6,457		7,517	(14	)	%
Underwriting (loss) income																	$	(631	)		3,158	(120	)	%		$	7,074		6,457	10		%
Combined Ratios:
Loss and loss expense ratio	68.2		%	58.0	10.2		pts		69.3		%	65.5	3.8		pts		71.4			%	68.2	3.2		pts		68.5		%	69.3	(0.8	)	pts
Underwriting expense ratio	27.7			30.7	(3.0	)			27.9			31.0	(3.1	)			29.4				27.7	1.7				28.4			27.9	0.5
Combined ratio	95.9			88.7	7.2				97.2			96.5	0.7				100.8				95.9	4.9				96.9			97.2	(0.3	)

NPW was down in both Third Quarter and Nine Months 2019 compared to the same prior year periods, reflecting the impact of a decrease in direct new business as a result of a competitive marketplace. Retention has decreased in both Third Quarter and Nine Months 2019 compared to the same periods last year, as we continue to achieve renewal pure price increases on our personal automobile line of business in excess of loss trends, while the industry has seen a softening in rate activity. Additionally, the deteriorating competitive position on our automobile business has led to lower new homeowners business, as we typically write policies at the account level, which include both automobile and homeowners coverage.

~~The increases in NPW reflected in the table above were driven by the following:~~


	Quarter ended September 30,				Change % or Points			Nine Months ended September 30,				Change % or Points		Quarter ended September 30,				Change % or Points			Nine Months ended September 30,				Change % or Points
($ in millions)	2018			2017	Change % or Points			2018			2017	Change % or Points		2019			2018	Change % or Points			2019			2018	Change % or Points
New business	$	13.1		13.6	(4	)	%	$	40.8		38.2	7	%
Direct new business														$	10.2		13.1	(22	)	%	$	31.1		40.8	(24	)	%
Retention	85		%	84	1		pts	85		%	84	1	pts	83		%	85	(2	)	pts	83		%	85	(2	)	pts
Renewal pure price increases	3.8			3.1	0.7			3.6			2.8	0.8		5.0			3.8	1.2			5.3			3.6	1.7

The loss and loss expense ratio increased ~~10.2~~3.2 points in Third Quarter ~~2018~~2019 compared to Third Quarter ~~2017,~~2018, and ~~3.8~~decreased 0.8 points in Nine Months ~~2018~~2019 compared to Nine Months ~~2017. Quantitative information on the~~2018. The drivers of these fluctuations isare as follows:


	Third Quarter 2018				Third Quarter 2017							Third Quarter 2019						Third Quarter 2018
($ in millions)	Loss and Loss Expense Incurred		Impact on Loss and Loss Expense Ratio		Loss and Loss Expense Incurred		Impact on Loss and Loss Expense Ratio		Change in Ratio			Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Loss and Loss Expense Incurred			Impact on Loss and Loss Expense Ratio			Change in Ratio
Non-catastrophe property losses	$	24.7	32.1	pts	$	19.1	26.3	pts	5.8		pts
Non-catastrophe property loss and loss expenses												$	25.2		32.8		pts	$	28.2		36.5		pts	(3.7	)	pts
Catastrophe losses	5.4		7.1		2.2		3.0		4.1			7.9			10.3			5.4			7.1			3.2
Unfavorable prior year development												2.0			2.6			—			—			2.6
Flood claims handling fees												(1.1		)	(1.4	)		(2.1		)	(2.7	)		1.3
Total	30.1		39.2		21.3		29.3		9.9			34.0			44.3			31.5			40.9			3.4

												Nine Months 2019						Nine Months 2018
	Nine Months 2018				Nine 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			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 loss and loss expenses												$	78.7		34.1		pts	$	80.4		35.4		pts	(1.3	)	pts
Catastrophe losses	$	18.1	8.0	pts	$	15.4	7.2	pts	0.8		pts	18.1			7.8			18.1			8.0			(0.2	)
Unfavorable prior year casualty reserve development	—		—		5.0		2.3		(2.3	)		2.0			0.9			—			—			0.9
Non-catastrophe property losses	70.2		30.9		55.4		25.7		5.2
Flood claims handling fees												(2.7		)	(1.2	)		(3.6		)	(1.6	)		0.4
Total	88.3		38.9		75.8		35.2		3.7			96.1			41.6			94.9			41.8			(0.2	)

Non-catastrophe property losses increased in Third Quarter 2018 compared to Third Quarter 2017 driven primarily by an increase in the number of fire and weather-related losses. Additionally, on a year-to-date basis, the increase in non-catastrophe property losses was partially related to the January 2018 deep freeze in our footprint states.

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

The underwriting expense ratio ~~decreased 3.0~~increased 1.7 points in the Third Quarter ~~2018~~2019 compared to Third Quarter ~~2017,~~2018, and ~~3.1~~

0.5 points in Nine Months ~~2018~~2019 compared to Nine Months ~~2017.~~2018. The ~~significant~~primary drivers of these ~~variances~~changes were ~~as follows:~~increased profit-based expenses to our distribution partners and employees.

~~A reduction~~E&S Lines Segment



	Quarter ended September 30,				Change % or Points			Nine Months ended September 30,					Change % or Points
($ in thousands)	2019			2018	Change % or Points			2019			2018		Change % or Points
Insurance Segments Results:
NPW	$	62,368		64,621	(3	)	%	$	180,572		168,628		7		%
NPE	61,721			56,064	10			178,660			161,419		11
Less:
Loss and loss expense incurred	39,794			35,458	12			111,772			114,588		(2	)
Net underwriting expenses incurred	20,011			17,100	17			57,449			51,679		11
Underwriting income (loss)	$	1,916		3,506	(45	)	%	$	9,439		(4,848	)	295		%
Combined Ratios:
Loss and loss expense ratio	64.5		%	63.2	1.3		pts	62.5		%	71.0		(8.5	)	pts
Underwriting expense ratio	32.4			30.5	1.9			32.2			32.0		0.2
Combined ratio	96.9			93.7	3.2			94.7			103.0		(8.3	)

NPW decreased 3% in ~~costs of 1.3 points~~Third Quarter 2019 and increased 7% in ~~the quarter and 1.1 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.~~

A reduction in employee-related expenses of 0.7 points in the quarter and 0.8 points year to date. Similar to our Standard Commercial Lines Segment these decreases included: (i) lower profit-based compensation to our employees; and (ii) lower pension and medical benefit costs.

~~A reduction in profit-based commissions of 0.3 points in both the quarter and year-to-date periods this year~~Nine Months 2019 compared to the respective prior year periods.

~~E&S Lines Segment~~

Quarter ended September 30,
Change
% or
Points
Nine Months ended September 30,
Change
% or
Points

($ in thousands) 2018 2017 2018 2017
Insurance Segments Results:

NPW $ 64,621
51,031
27
% $ 168,628
158,281
7
%
NPE 56,064
54,204
3
161,419
158,207
2

Less:

Loss and loss expense incurred 35,458
47,597
(26 ) 114,588
113,173
1

Net underwriting expenses incurred 17,100
17,670
(3 ) 51,679
53,208
(3 )
Underwriting (loss) income $ 3,506
(11,063 ) 132
% $ (4,848 ) (8,174 ) 41
%
Combined Ratios:

Loss and loss expense ratio 63.2
% 87.8
(24.6 ) pts 71.0
% 71.6
(0.6 ) pts
Underwriting expense ratio 30.5
32.6
(2.1 ) 32.0
33.6
(1.6 )
Combined ratio 93.7
120.4
(26.7 ) 103.0
105.2
(2.2 )

While this segment experienced an improved third quarter, partially driven by better than expected property losses, we continue to address profitability through targeted price increases, business mix shifts, and improved underwriting standards. Pricing on our in-force book of business is essentially at our targeted levels and our strategy in this segment is to pursue growth opportunistically if market conditions allow. Over the past ~~year,~~two-year period, we have taken steps to exit ~~some~~certain underperforming classes of E&S business, while entering into new distribution relationships. The ~~NPW~~premium growth ~~in Third Quarter 2018 reflects~~on a year-to-date basis continues to reflect the impact of one particularly large relationship that we ~~established~~reestablished in the second quarter of 2018. We do not anticipate the same level of year-over-year growth going forward from this relationship, as it has now been in place for a full year, which is in part the reason for the decline during the quarter compared to the same period last year.

Quantitative information ~~regarding new business and price increases~~on the premium in this segment is as follows:


	Quarter ended September 30,				Change % or Points		Nine Months ended September 30,				Change % or Points			Quarter ended September 30,				Change % or Points			Nine Months ended September 30,				Change % or Points
($ in millions)	2018			2017	Change % or Points		2018			2017	Change % or Points			2019			2018	Change % or Points			2019			2018	Change % or Points
Direct new business	$	32.2		20.6	56	%	$	70.8		69.3	2		%	$	23.1		32.2	(28	)	%	$	73.8		70.8	4		%
Overall new/renewal price increases¹	3.9		%	3.2	0.7	pts	5.2		%	5.5	(0.3	)	pts
Renewal pure price increases¹														3.7		%	4.9	(1.2	)	pts	4.4		%	5.3	(0.9	)	pts

¹~~The~~ E&S casualty ~~new/~~renewal price increases were ~~2.9% and 5.4% in~~3.0% for Third Quarter 2019, compared to 5.2% for Third Quarter 2018, and ~~Third Quarter 2017, respectively, and 5.4% and 8.0% in~~4.0% for Nine Months ~~2018 and~~2019, compared to 6.2% for Nine Months ~~2017, respectively.~~2018.

The ~~NPE increases~~combined ratio increased 3.2 points in Third Quarter ~~and Nine Months 2018~~2019 compared to Third Quarter ~~and Nine Months 2017 were consistent with the fluctuation in NPW for the twelve-month period ended September 30, 2018 compared with the twelve-month period ended September 30, 2017.~~

~~The loss and loss expense ratio decreased 24.6 points in Third Quarter~~ 2018, and ~~0.6~~improved 8.3 points in Nine Months ~~2018~~2019 compared to Nine Months 2018, primarily due to the ~~same prior year periods, driven primarily by~~items outlined in the ~~following:~~tables and commentary below:


	Third Quarter 2018				Third Quarter 2017							Third Quarter 2019				Third Quarter 2018
($ in millions)	Loss and Loss Expense Incurred		Impact on Loss and Loss Expense Ratio		Loss and Loss Expense Incurred		Impact on Loss and Loss Expense Ratio		Change in Ratio			Loss and Loss Expense Incurred		Impact on Loss and Loss Expense Ratio		Loss and Loss Expense Incurred		Impact on Loss and Loss Expense Ratio		Change in Ratio
Unfavorable prior year casualty reserve development	$	6.0	10.7	pts	$	10.0	18.4	pts	(7.7	)	pts	—		—	pts	6.0		10.7	pts	(10.7	)	pts
Non-catastrophe property losses	5.0		8.9		3.7		6.8		2.1
Non-catastrophe property loss and loss expenses												7.0		11.4		5.6		10.0		1.4
Catastrophe losses	0.6		1.0		7.3		13.5		(12.5	)		1.5		2.4		0.6		1.0		1.4
Total	11.6		20.6		21.0		38.7		(18.1	)		8.5		13.8		12.2		21.7		(7.9	)

												Nine Months 2019				Nine Months 2018
	Nine Months 2018				Nine 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			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	$	12.0	7.4	pts	$	10.0	6.3	pts	1.1		pts	$	—	—	pts	$	12.0	7.4	pts	(7.4	)	pts
Non-catastrophe property losses	20.4		12.6		14.1		8.9		3.7
Non-catastrophe property loss and loss expenses												17.1		9.6		22.2		13.7		(4.1	)
Catastrophe losses	2.7		1.7		11.7		7.4		(5.7	)		4.3		2.4		2.7		1.7		0.7
Total	35.1		21.7		35.8		22.6		(0.9	)		21.4		12.0		36.9		22.8		(10.8	)

The ~~unfavorable~~improvement in prior year casualty reserve development ~~outlined above~~of 10.7 points in Third Quarter 2019 compared to Third Quarter 2018 was partially offset by current year loss costs that were 8.6 points higher in Third Quarter 2019 compared to Third Quarter 2018. These variances were driven by adjustments made during 2018 as a result of the normal reserve review process, which indicated unfavorable development in older years, while showing improvements in the then current year-to-date period,

largely due to our pricing and underwriting actions.

The underwriting expense ratio increased 1.9 points in Third Quarter 2019 compared to Third Quarter 2018, primarily driven by ~~increased severities~~an increase in ~~accident year 2015. The Nine Months 2018 development was primarily driven by increased frequencies and severities in accident years 2015 and 2016.~~

There was a 2.1-point decrease in the underwriting expense ratio in Third Quarter 2018 and 1.6-point decrease in Nine Months 2018 compared to the same prior year periods, which was driven by the following: (i) profit-based compensation to our distribution ~~partners~~partners.

While the relatively small size of ~~0.9 points~~this segment can lead to some volatility in results from quarter to quarter, on a longer-term basis, improved underwriting, pricing, and claims outcomes have us on track to achieve our risk-adjusted profitability target for this segment by the ~~quarter and 0.8 points in the year-to-date period; and (ii) labor related expenses~~end of ~~1.0 points in the quarter and 1.6 points in the year-to-date period.~~2020.

Reinsurance

We have successfully completed ~~negotiations~~the renewals of our July 1, ~~2018~~2019 excess of loss treaties, which provide coverage for our Standard Commercial Lines, Standard Personal Lines, and E&S Lines. These treaties were renewed with principally the same structure as the expiring treaties, with an underwriting year ceded premium increase estimated at $10 million, or 14%, which reflects an increase in our estimated subject matter premium and a risk-adjusted price increase for our property treaty,driven by heavy loss activity from the 2018 underwriting year and the pricing environment in the property per-risk reinsurance marketplace.

Details of the treaties are as follows:

Property Excess of Loss

Our property excess of loss treaty ("Property Treaty") provides protection against large individual property losses with $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 $75.0 million.

The Property Treaty excludes nuclear, biological, chemical, and radiological ("NBCR") terrorism ~~losses.~~losses, and includes non-NBCR losses from terrorism.

Casualty Excess of Loss

Our casualty excess of loss treaty (“Casualty Treaty”) provides protection against large individual casualty losses with $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 after-tax net investment income and the overall total return of the portfolio, while maintaining a high credit quality core fixed income securities portfolio and managing our duration risk profile. The effective duration of the fixed income securities portfolio as of September 30, ~~2018~~2019 was ~~3.9~~3.4 years, compared to the Insurance Subsidiaries’ liability duration as of December 31, ~~2017~~2018 of approximately ~~3.8~~3.6 years. The effective duration of the fixed income securities portfolio is monitored and managed to maximize yield, while managing interest rate ~~risk and credit~~ risk at an acceptable level. We maintain a well-diversified portfolio across sectors, credit quality, and maturities that affords us ample liquidity. Purchases and sales are made with the intent of maximizing 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 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 active management of the portfolio.


Total Invested Assets
($ in thousands)	September 30, 2018			December 31, 2017	Change % or Points			September 30, 2019		December 31, 2018	Change
Total invested assets	$	5,861,107		5,685,179	3		%	$	6,551,739	5,960,651	10		%
Invested assets per dollar of stockholders' equity	3.37			3.32	2			3.07		3.33	(8	)
Unrealized (loss) gain – before tax¹	(3,528		)	124,679	(103	)
Unrealized (loss) gain – after tax¹	(2,787		)	80,575	(103	)
Unrealized gain – before tax¹								225,100		11,916	1,789
Unrealized gain – after tax¹								177,829		9,414	1,789

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

The increase in invested assets at September 30, ~~2018~~2019, compared to December 31, ~~2017~~2018, was driven byby: (i) operating cash flow generated in Nine Months ~~2018~~2019 of ~~$292~~$316 million; (ii) pre-tax net unrealized gains in our fixed income and equity securities portfolios of $213 million, ~~partially offset by pre-tax unrealized losses on~~due to a reduction in interest rates and tightening corporate credit spreads; and (iii) net proceeds of $106 million from the issuance of our 5.375% Senior Notes. For additional information regarding these debt transactions, see Note 5. "Indebtedness" in Item 1. "Financial Statements" of this Form 10-Q.

At September 30, 2019, our fixed income securities ~~portfolio of $113 million. These unrealized losses reflect the unfavorable impact of rising interest rates in 2018.~~

~~At September 30, 2018, our fixed income securities portfolio~~and short-term investment portfolios represented ~~89%~~96% of our ~~total~~ invested assets, ~~largely unchanged~~ compared to 95% at December 31, ~~2017. Our fixed income securities portfolio~~2018. These portfolios had a weighted average credit rating of “ AA- ,” as of both September 30, 2019 and December 31, 2018, with 97% and 98% of the securities in the portfolio being investment grade quality, at both September 30, 2018 and December 31, 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 September 30, 2018 and December 31, 2017.respectively. The sector composition and credit quality of our major asset categories within our fixed income securities portfolio did not significantly change from December 31, ~~2017.~~2018.

For details regarding the credit quality of our portfolio, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” of our ~~2017~~2018 Annual Report.

Net Investment Income

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


	Quarter ended September 30,					Change % or Points				Nine Months ended September 30,					Change % or Points				Quarter ended September 30,						Change % or Points				Nine Months ended September 30,					Change % or Points
($ in thousands)	2018			2017					2018			2017			Change % or Points			2019				2018			Change % or Points			2019			2018			Change % or Points
Fixed income securities	$	45,088		38,865		Change % or Points	16	%			130,903			113,424		15	%			$	50,749			45,088		13	%			150,689			130,903		15	%
Equity securities	2,079			1,605		30				5,876			4,492		31				1,885				2,079		(9	)			5,265			5,876		(10	)
Short-term investments	867			396		119				2,001			1,023		96				1,410				867		63				5,213			2,001		161
Other investments	7,211			2,659		171				10,868			9,493		14				5,267				7,211		(27	)			13,421			10,868		23
Investment expenses	(2,802		)	(3,079	)	(9	)			(8,421	)		(9,137	)	(8	)			(3,485		)		(2,802	)	(24	)			(9,639	)		(8,421	)	(14	)
Net investment income earned – before tax	52,443			40,446		30				141,227			119,295		18				55,826				52,443		6				164,949			141,227		17
Net investment income tax expense	(9,568		)	(10,856	)	(12	)			(24,973	)		(31,951	)	(22	)			(10,452		)		(9,568	)	(9	)			(30,630	)		(24,973	)	(23	)
Net investment income earned – after tax	$	42,875		29,590		45				116,254			87,344		33				$	45,374			42,875		6				134,319			116,254		16
Effective tax rate	18.2		%	26.8		(8.6	)	pts		17.7			26.8		(9.1	)	pts		18.7		%		18.2		0.5		pts		18.6			17.7		0.9		pts
Annualized after-tax yield on fixed income securities	2.8			2.2		0.6				2.8			2.2		0.6				2.8				2.8		—				2.9			2.8		0.1
Annualized after-tax yield on investment portfolio	3.0			2.1		0.9				2.7			2.1		0.6				2.8				3.0		(0.2	)			2.9			2.7		0.2

The increase in pre-tax net investment income in Third Quarter and Nine Months ~~2018~~2019, compared to ~~Third Quarter~~the same periods last year, was primarily driven by: (i) cash flow from operations that was 22% of NPW in the quarter and 15% of NPW in the year-to-date period; and (ii) $106 million of net proceeds from our 5.375% Senior Notes issuance earlier in 2019, which were invested in fixed income securities. Additionally, Nine Months ~~2017 was driven primarily by our fixed income securities portfolio, which benefited from improved new money reinvestment yields and repositioning of~~2019 included alternative investment grade securities as a result of active investment management and security selection, principally in our core fixed income portfolio. In addition, with approximately 17% of our fixed income portfolio invested in floating rate securitiesreturns that ~~reset based principally on~~were $2.4 million higher than the 90-day LIBOR, we have benefited from the 70-point rise in LIBOR in Nine Months 2018. Strong returns on our alternative investments within our other investments portfolio also contributed to the higher pre-tax net investment income in Third Quarter 2018. On an after-tax basis, we benefited from a decrease in the 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.comparable prior year period.

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 and losses for the indicated periods were as follows:


	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended September 30,					Nine Months ended September 30,
($ in thousands)	2018			2017		2018		2017		2019			2018		2019		2018
Net realized (losses) gains on disposals, excluding OTTI	$	(751	)	6,871		4,034		12,252
Net realized gains (losses) on disposals, excluding OTTI										$	20,425		(751	)	26,752		4,034
Unrealized (losses) recognized in income on equity securities										(20,317		)	(2,610	)	(8,091	)	(15,563	)
OTTI charges	(1,426		)	(73	)	(5,459	)	(4,765	)	(2,291		)	(1,426	)	(3,366	)	(5,459	)
Unrealized losses recognized in income on equity securities	(2,610		)	—		(15,563	)	—
Total net realized and unrealized (losses) gains	$	(4,787	)	6,798		(16,988	)	7,487		$	(2,183	)	(4,787	)	15,295		(16,988	)

The ~~decrease~~$2.6 million improvement in net realized and unrealized losses in Third Quarter 2019 compared to Third Quarter 2018 was primarily driven by an $8.3 million reduction in realized losses on our fixed income securities portfolio reflecting less opportunistic sales, partially offset by a decrease of $4.8 million in unrealized gains due to market value increases on our equity securities that were less in Third Quarter 2019 compared to Third Quarter 2018.

The significant drivers of the $32.3 million improvement in net realized and unrealized gains in Nine Months 2019 compared to net realized and unrealized losses in Nine Months 2018 ~~compared to the same periods last year were primarily~~were: (i) a $16.0 million reduction in realized losses on our fixed income securities portfolio driven by less opportunistic sales; and (ii) an increase of $14.2 million in unrealized gains due to more significant market value ~~fluctuations~~increases on our equity securities portfolio ~~which are recorded through income due~~in Nine Months 2019 compared to anNine Months 2018.

~~accounting change~~In addition to the activity above, during Third Quarter 2019, we sold a significant portion of our public equity securities, realizing net gains of $21.6 million on the securities sold. These realized gains were substantially offset in the ~~first~~ quarter by the reversal of ~~2018. For information on this accounting change, see Note 2. "Adoption~~previously-recorded unrealized gains related to the securities sold, which accounted for $21.4 million of ~~Accounting Pronouncements"~~the $20.3 million reduction in ~~Item 1. "Financial Statements." of this Form 10-Q.~~the table above.

Federal Income Taxes

The following table provides information regarding federal income taxes:


	Quarter ended September 30,				Nine Months ended September 30,		Quarter ended September 30,				Nine Months ended September 30,
($ in millions)	2018			2017	2018	2017	2019			2018	2019	2018
Federal income tax expense	$	11.7		20.6	26.4	55.2	$	15.0		11.7	45.3	26.4
Effective tax rate	17.4		%	30.6	16.5	28.5	21.1		%	17.4	19.3	16.5

~~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 ~~for~~differs from the statutory rate of 21% principally due to: (i) the benefit of tax-advantaged interest and dividend income; and (ii) the impact of excess tax benefits on our stock-based compensation awards, partially offset by the disallowance of certain executive compensation. The increase in the effective tax rate in Third Quarter and Nine Months ~~2018~~2019, compared to Third Quarter and Nine Months ~~2017 reflects: (i)~~2018, reflects a greater pre-tax income contribution from our insurance operations compared to the ~~lower statutory rate; and (ii) the~~relative contribution of tax-advantaged ~~interest and dividend income in relation to overall pre-tax~~ income this year compared to last.

In general, our effective tax rate differs from the statutory rate principally due to the benefit of tax-advantaged interest and dividend income, which are taxed at lower rates. For a reconciliation of tax expense at the statutory rate to tax expense on our Consolidated Statements of Income, refer to Note 12. "Federal Income Taxes" in Item 1. "Financial Statements." of this Form 10-Q.

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 Nine Months 2018, as we expect a greater income contribution from our insurance operations for the remainder of the year compared to the relative contribution during Nine Months 2018.

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 ~~$305~~$327 million at September 30, ~~2018~~2019 was comprised of ~~$28~~$34 million at the Parent and ~~$277~~$293 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 ~~$113~~$224 million at September 30, ~~2018~~2019 and ~~$90~~$110 million at December 31, ~~2017.~~2018. The Parent had a total of ~~$141~~$267 million of cash and liquid investments at September 30, ~~2018,~~2019, compared to ~~$114~~$146 million at December 31, ~~2017. We expect fluctuations in these balances over time~~2018, with the increase driven by our capital market activities discussed below. The level of cash and invested assets may fluctuate 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~~

maintain the cash and ~~other liquid assets~~liquidity at the Parent ~~sufficient~~ to ~~meet or exceed~~ two ~~years of~~times its expected annual ~~needs.~~needs, which is currently estimated at $160 million.

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~~may pay ~~$100~~$110 million in total dividends to the Parent in ~~2018,~~2019, a ~~$20~~$10 million increase from ~~$80~~$100 million paid in ~~2017,~~2018, of which ~~$75~~$83 million was paid during Nine Months ~~2018.~~2019. As of December 31, ~~2017,~~2018, our allowable ordinary maximum dividend was ~~$211~~$210 million for ~~2018.~~2019.

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 ~~2017~~2018 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 was ~~3.9~~3.4 years as of September 30, ~~2018,~~2019, while the liabilities of the Insurance Subsidiaries had a duration as of December 31, ~~2017~~2018 of ~~3.8~~3.6 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 that varies and is based on, among other factors, the Parent's debt ratings. There were no balances outstanding under the Line of Credit at September 30, ~~2018~~2019 or at any time during ~~2018.~~2019.

~~The~~For additional information regarding the Line of Credit agreement ~~contains~~and corresponding representations, warranties, and covenants, ~~that are customary for credit facilities~~refer to Note 10. "Indebtedness" in Item 8. "Financial Statements." of ~~this type, including, without limitation, financial~~our 2018 Annual Report. We continue to meet all 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:~~Credit agreement as of September 30, 2019.



	~~Required as of September 30, 2018~~	~~Actual as of September 30, 2018~~
~~Consolidated net worth~~	~~Not less than $1.2 billion~~	~~$1.7 billion~~
~~Statutory surplus~~	~~Not less than $750 million~~	~~$1.7 billion~~
~~Debt-to-capitalization ratio~~¹	~~Not to exceed 35%~~	~~20.2%~~
~~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. We have a remaining capacity of $289.4 million for Federal Home Loan Bank borrowings, with a $12.9 million additional stock purchase requirement to allow the member companies to borrow their full remaining capacity amounts.

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 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

SICSC $ 648.0
$ 64.8
32.0
32.8
1.4
SICSE 507.5
50.8
28.0
22.8
1.0
SICA 2,434.9
243.5
50.0
193.5
8.7
SICNY 454.5
22.7
—
22.7
1.0
Total $ 381.8
110.0
271.8
12.1

Short-term Borrowings

InDuring Nine Months ~~2018,~~2019, SICA ~~borrowed: (i) $75~~borrowed the following from FHLBNY:

$50 million ~~from~~in the ~~FHLBNY,~~first quarter of 2019, which was repaid on March ~~20, 2018; and (ii) $55~~28, 2019.

$15 million ~~from the FHLBNY,~~in Third Quarter 2019, which was repaid on ~~April 18, 2018.~~ August 12, 2019.

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~~outstanding balance on these intercompany loans was $41.3 million as of September 30, 2019, compared to $45.0 million as of December 31, 2018. The remaining capacity under these intercompany loan agreements was $80.0 million as of September 30, 2019, compared to $76.2 million as of December 31, 2018. Despite not being contractually obligated to do so, the ~~Parent’s borrowings and~~Parent currently plans to repay the remaining ~~borrowing capacity from the Indiana Subsidiaries:~~outstanding balance over time.

($ in millions)
Admitted Assets
as of December 31, 2017
Borrowing Limitation Amount Borrowed Remaining Capacity
As of June 30, 2018
SICSC $ 648.0
$ 64.8
27.0
37.8
SICSE 507.5
50.8
18.0
32.8
Total $ 115.6
45.0
70.6

Capital Market Activities

In the first quarter of 2019, the Parent issued $300 million of 5.375% Senior Notes at a discount of $5.9 million which, when coupled with debt issuance costs of approximately $3.3 million, resulted in net proceeds from the offering of $290.8 million. The Parent used a portion of the proceeds to fully redeem the then outstanding $185 million aggregate principal amount of its 5.875% Senior Notes, with the remaining $106 million being used for general corporate purposes. For additional information on these transactions, refer to Note 5. "Indebtedness" in Item 1. "Financial Statements." of this Form 10-Q. The Parent had no private or public issuances of stock ~~or debt instruments~~ during Nine Months ~~2018.~~2019.

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.

On October ~~25, 2018,~~30, 2019, our Board of Directors declared, for stockholders of record as of November 15, ~~2018,~~2019, a ~~$0.20~~$0.23 per share dividend to be paid on December ~~3, 2018.~~2, 2019. This is ~~an 11%~~a 15% increase compared to the dividend declared on ~~August 1, 2018.~~July 31, 2019.

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

repayments, each in the amount of $25 million, are due in 2021, ~~with~~and the next ~~following~~ principal payment is 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 $4.3 million at September 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 September 30, ~~2018,~~2019, we had GAAP stockholders' equity of $2.1 billion and statutory surplus of ~~$1.7~~$1.9 billion. With total debt of ~~$439.4~~$550.7 million, our debt-to-capital ratio was ~~approximately 20.2%~~20.5% at September 30, ~~2018.~~2019.

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~~repurchasing 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 to ~~$29.52~~$35.98 as of September 30, ~~2018,~~2019, from ~~$29.28~~$30.40 as of December 31, ~~2017, due to $2.23~~2018, driven by $3.16 in net income per share and $2.94 in unrealized gains on our fixed income securities portfolio, partially offset by ~~$1.51 in unrealized losses on our investment portfolio and $0.54~~$0.60 in dividends to our shareholders.

Ratings

We are rated by major rating agencies that issue opinions on our financial strength, operating performance, strategic position, and ability to meet policyholder obligations. We believe that our ability to write insurance business is most influenced by our rating from A.M. ~~Best.~~Best Company ("A.M. Best"). We have been rated “A” or higher by A.M. Best for the past 8889 years. A downgrade from A.M. Best to a rating below “A-” is an event of default under our Line of Credit and could affect our ability to write new business with customers and/or 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.

On October 31, 2019, A.M. Best reaffirmed our "A" rating and upgraded our outlook to "positive" from "stable." In taking this action, A.M. Best cited our strong balance sheet strength, favorable business profile, and appropriate enterprise risk management. In addition, the positive outlook reflects A.M. Best's view of our improved profitability over the past five years on an absolute basis and relative to our peers.

Our other 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 ~~2017~~2018 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 the second quarter of ~~2018,~~2019, Fitch reaffirmed our "A+" rating with a "stable" outlook. In taking this action, Fitch cited our strong capitalization and financial performance, with stable underwriting results ~~solid capitalization with growth in stockholders' equity, strong business profile,~~ and ~~stable interest coverage metrics.~~return metrics that have remained favorable compared to our peers.

~~On October 1, 2018,~~In Third Quarter 2019, S&P reaffirmed our "A" rating with a "stable" outlook. In taking this action, S&P cited our ~~improved~~strong capital adequacy and strong operating performance, ~~in standard lines supported~~driven by ~~sophisticated~~sound underwriting ~~tools, a strong network of independent agents,~~ and ~~strong capital adequacy.~~steady pure renewal price increases.

On October 3, 2018, A.M. Best reaffirmed our "A" rating with a "stable" outlook. In taking this action, A.M. Best cited our strong balance sheet, sustained profitability, favorable business profile, and appropriate enterprise risk management.

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

Off-Balance Sheet Arrangements

At September 30, ~~2018~~2019 and December 31, ~~2017~~2018, 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; and (ii) contractual obligations pursuant to operating and financing leases for office space and ~~equipment; and (iii) debt~~equipment have not materially changed since December 31, ~~2017.~~ 2018. The following table provides future cash payments on our notes payable as of September 30, 2019, giving consideration to the $300 million 5.375% Senior Notes issuance and the redemption of our $185 million 5.875% Senior Notes in the first quarter of 2019, the details of which are contained in Note 5. "Indebtedness" in Item 1. "Financial Statements." in this Form 10-Q:



Contractual Obligations	Payment Due by Period
			Less than 1 year	1-3 years	3-5 years	More than 5 years
($ in millions)	Total		Less than 1 year	1-3 years	3-5 years	More than 5 years
Notes payable	$	560.0	—	50.0	—	510.0
Interest on debt obligations	657.3		29.1	57.3	56.6	514.3
Total	$	1,217.3	29.1	107.3	56.6	1,024.3

As of September 30, ~~2018,~~2019, we had contractual obligations that expire at various dates through 2036 that may require us to invest up to ~~$218.2~~$229.9 million in alternative investments. There is no certainty that any such additional investment will be required. Additionally, as of September 30, ~~2018,~~2019, we had the following contractual obligations: (i) ~~$25.8~~$6.7 million to further invest in non-publicly traded common stock within our equity portfolio that expire through 2023; and (ii) ~~$45.9~~$31.9 million to further invest in non-publicly traded collateralized loan obligations in our fixed income securities portfolio that expire through 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 16. "Related Party Transactions" in Item 8. "Financial Statements and Supplementary Data." in our ~~2017~~2018 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 ~~2017~~2018 Annual Report.

ITEM 4. CONTROLS AND PROCEDURES.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (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.

~~Except for internal controls over financial reporting related to the implementation of a new investment accounting platform, no~~ 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 Nine Months ~~2018~~2019 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~~can be named as defendants in various legal ~~proceedings.~~actions. 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~~loss and loss expense reserves. WeIn ordinary course claims litigation, we expect that any potential ultimate liability, ~~in such ordinary course claims litigation~~after consideration of provisions made for potential losses and costs of defense, will not be material to our consolidated financial condition, results of operations, or cash ~~flows after consideration of provisions made for potential losses and costs of defense.~~flows.

From time to time, our ~~insurance subsidiaries~~Insurance Subsidiaries also are named as defendants in other legal actions, some of which assert claims for substantial amounts. ~~These~~Plaintiffs may style these actions ~~include, among others,~~as putative class actions ~~seeking~~and seek judicial certification of a state or national ~~class. Such putative~~ class ~~actions have alleged,~~ for ~~example,~~allegations such as improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance ~~policies.~~policies or improper reimbursement for automobile parts. Similarly, our Insurance Subsidiaries ~~are also~~can be named ~~from time-to-time~~ in individual actions seeking extra-contractual damages, punitive damages, or penalties, ~~some of which allege~~

often alleging bad faith in the handling of insurance claims. We believe that we have valid defenses to these ~~cases. We~~allegations and we account for such activity through the establishment of unpaid loss and loss expense reserves. In these other legal actions, we expect that any potential ultimate liability, ~~in any such lawsuit~~after consideration of provisions made for estimated losses, will not be material to our consolidated financial ~~condition, after consideration of provisions made for estimated losses.~~condition. Nonetheless, ~~given~~litigation outcomes are inherently unpredictable and, because the ~~inherent unpredictability of litigation and the large or indeterminate~~ amounts sought in certain of these actions anare large or indeterminate, it is possible that any adverse ~~outcome in certain matters~~outcomes 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~~repurchasing our ~~fixed income securities,~~existing debt, 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 ~~2017~~2018 Annual 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”~~("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. Effective October 1, ~~2018,~~2019, the underwriting expense allowance ~~was reduced~~increased to ~~30.0%~~30.1%, from ~~30.9%~~30.0%, of direct premium written. The claim servicing fee remains 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~~During Third Quarter 2019, the NFIP's authorization was ~~authorized~~extended until November ~~30, 2018~~21, 2019, as a short-term solution while Congress continues to debate a more comprehensive proposal. There continues to be significant public policy and political debate in Congress about an extension of the NFIP, appropriate compensation for the WYO carriers, 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~~Legislation introduced in Congress, if enacted, could greatly reduce the compensation WYO ~~expense allowance over a three-year period to 27.9%. The bill also proposes changes in certain operational processes and provides incentives for~~carriers receive under the ~~private flood insurance market. The U.S. Senate has yet to consider this bill.~~NFIP. FEMA can act on its own ~~initiative however, revised~~to revise the arrangement, ~~by: (i) reducing~~and did so in October 2019 by increasing the WYO’s underwriting expense allowance by ~~0.9~~0.1 points, to 30.1%, from ~~30.9% to~~ 30.0% ~~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) further changes to WYO carrier compensation; (iii) any mandate for primary insurance carriers to provide flood insurance; or ~~(iii)~~(iv) private writers becoming more prevalent in the marketplace. The uncertainty created by the public policy debate and politics of flood insurance reform ~~make~~makes 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 Third Quarter ~~2018~~2019:

Period
Total Number of
Shares Purchased¹

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Programs
Maximum Number of
Shares that May Yet
Be Purchased Under the Announced Programs
July 1 – 31, 2018 129
$ 56.50
—
—
August 1 - 31, 2018 2,717
62.38
—
—
September 1 - 30, 2018 13
65.60
—
—
Total 2,859
$ 62.13
—
—



Period	Total Number of Shares Purchased¹	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum Number of Shares that May Yet Be Purchased Under the Announced Programs
July 1 – 31, 2019	179	$	77.50	—	—
August 1 - 31, 2019	540	80.59		—	—
September 1 - 30, 2019	16,537	78.52		—	—
Total	17,256	$	78.57	—	—

¹~~During~~ ~~Third Quarter 2018~~, ~~142~~These shares were purchased from employees in connection with the vesting of restricted stock ~~units and 2,717 shares were purchased from employees in connection with option exercises.~~units. These repurchases were made to satisfy tax withholding obligations ~~and/or option costs~~ with respect to those 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. 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.employees.

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~~101		~~XBRL Instance Document.~~The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.
* ~~101.SCH~~104		~~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.~~The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in iXBRL.

* 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:	October ~~26, 2018~~31, 2019	By: /s/ Gregory E. Murphy
		Gregory E. Murphy
		Chairman of the Board and Chief Executive Officer
		(principal executive officer)

Date:	October ~~26, 2018~~31, 2019	By: /s/ Mark A. Wilcox
		Mark A. Wilcox
		Executive Vice President and Chief Financial Officer
		(principal financial officer)

4544



	September 30, 2017
($ in thousands)	Prior to Adoption			After Adoption
Undistributed gains of equity method investments	$	(5,157	)	(4,247	)
Distributions in excess of current year income of equity method investments	—			552
Decrease (increase) in other assets	12,678			(6,304	)
Net cash provided by operating activities	307,838			290,318

Distributions from other investments	18,503			17,041
Net cash used in investing activities	(276,159		)	(277,621	)



September 30, 2018
($ in thousands)	Amortized Cost		Net Unrealized Gains (Losses)		Carrying Value	Unrecognized Holding Gains	Unrecognized Holding Losses	Fair Value
Obligations of states and political subdivisions	$	21,834	36		21,870	526	—	22,396
Corporate securities	22,798		(86	)	22,712	1,132	—	23,844
Total HTM fixed income securities	$	44,632	(50	)	44,582	1,658	—	46,240



($ in millions)	Admitted Assets		Borrowing Limitation		Amount Borrowed	Remaining Capacity	Additional Stock Requirements
	Admitted Assets		Borrowing Limitation		Amount Borrowed	Remaining Capacity	Additional Stock Requirements
SICSC	$	648.0	$	64.8	32.0	32.8	1.4
SICSE	507.5		50.8		28.0	22.8	1.0
SICA	2,434.9		243.5		50.0	193.5	8.7
SICNY	454.5		22.7		—	22.7	1.0
Total			$	381.8	110.0	271.8	12.1



($ in millions)	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	$	648.0	$	64.8	27.0	37.8
SICSE	507.5		50.8		18.0	32.8
Total			$	115.6	45.0	70.6