UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: ~~September~~June 30, ~~2019~~2020

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

For the transition period from_____________________________to_____________________________

Commission File Number: 001-33067

SELECTIVE INSURANCE GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)



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

40 Wantage Avenue

Branchville, New Jersey 07890

(Address of Principal Executive Offices) (Zip Code)



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

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

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 ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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



Large accelerated filer	☒	Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company	☐
		Emerging growth company	☐

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

☐

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

As of ~~October 18, 2019,~~July 17, 2020, there were ~~59,401,565~~59,812,099 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~~June 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	1

	Unaudited Consolidated Statements of Income for the Quarter and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	2

	Unaudited Consolidated Statements of Comprehensive Income for the Quarter and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	3

	Unaudited Consolidated Statements of Stockholders' Equity for the Quarter and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	4

	Unaudited Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	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	2328

	Introduction	2428

	Current Events: Coronavirus ("COVID-19") Pandemic	29

	Critical Accounting Policies and Estimates	2431

	Financial Highlights of Results for ~~Third~~Second Quarter and ~~Nine~~Six Months ~~2019~~2020 and ~~Third Quarter and Nine Months 2018~~2019	2534

	Results of Operations and Related Information by Segment	3039

	Federal Income Taxes	3846

	Financial Condition, Liquidity, and Capital Resources	3846

	Ratings	4149

	Off-Balance Sheet Arrangements	4149

	Contractual Obligations, Contingent Liabilities, and Commitments	4250

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4250

Item 4.	Controls and Procedures	4252

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4253

Item 1A.	Risk Factors	4353

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4356

Item 6.	Exhibits	4456

Signatures		4456



PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS.


SELECTIVE INSURANCE GROUP, INC. CONSOLIDATED BALANCE SHEETS	Unaudited					Unaudited
($ in thousands, except share amounts)	September 30, 2019			December 31, 2018		June 30, 2020			December 31, 2019
ASSETS
Investments:
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
Fixed income securities, held-to-maturity – at carrying value (fair value: $20,727 – 2020; $21,975 – 2019)						$	19,570		20,800
Less: allowance for credit losses						(28		)	—
Fixed income securities, held-to-maturity, net of allowance for credit losses						19,542			20,800

Fixed income securities, available-for-sale – at fair value (allowance for credit losses: $10,395 – 2020; amortized cost: $6,065,554 – 2020 and $5,879,986 – 2019)						6,358,156			6,095,620

Commercial mortgage loans - at carrying value (fair value: $17,949 – 2020)						17,880			—
Less: allowance for credit losses						(217		)	—
Commercial mortgage loans, net of allowance for credit losses						17,663			—

Equity securities – at fair value (cost: $144,617 – 2020; $72,061 – 2019)						134,058			72,937
Short-term investments (at cost which approximates fair value)	326,121			323,864		370,390			282,490
Other investments	189,243			178,938		230,520			216,807
Total investments (Note 4 and 6)	6,551,739			5,960,651		7,130,329			6,688,654
Cash	516			505		666			300
Restricted cash	9,647			16,414		4,971			7,675
Interest and dividends due or accrued	42,975			41,620		45,793			44,846
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

Premiums receivable						887,938			830,301
Less: allowance for credit losses (Note 7)						(21,000		)	(6,400	)
Premiums receivable, net of allowance for credit losses						866,938			823,901

Reinsurance recoverable						587,127			577,635
Less: allowance for credit losses (Note 8)						(2,396		)	(4,400	)
Reinsurance recoverable, net of allowance for credit losses						584,731			573,235

Prepaid reinsurance premiums	173,557			157,723		169,761			166,705
Deferred federal income tax	5,509			53,540		—			6,776
Property and equipment – at cost, net of accumulated depreciation and amortization of: $223,518 – 2019; $211,657 – 2018	76,423			65,248
Property and equipment – at cost, net of accumulated depreciation and amortization of: $237,021 – 2020; $227,566 – 2019						78,771			77,409
Deferred policy acquisition costs	279,239			252,612		285,455			271,186
Goodwill	7,849			7,849		7,849			7,849
Other assets	135,488			76,877		130,698			128,614
Total assets	$	8,719,406		7,952,729		$	9,305,962		8,797,150

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserve for loss and loss expense (Note 8)	$	4,055,631		3,893,868
Reserve for loss and loss expense (Note 9)						$	4,176,906		4,067,163
Unearned premiums	1,570,226			1,431,932		1,615,928			1,523,167
Long-term debt	550,669			439,540
Short-term debt (Note 5)						252,000			—
Long-term debt (Note 5)						550,588			550,597
Current federal income tax	2,656			1,302		10,550			2,987
Deferred federal income tax						13,065			—
Accrued salaries and benefits	100,445			116,706		82,671			126,753
Other liabilities	302,403			277,579		305,579			331,547
Total liabilities	$	6,582,030		6,160,927		$	7,007,287		6,602,214

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: 103,421,301 – 2019; 102,848,394 – 2018	206,843			205,697
Issued: 103,937,634 – 2020; 103,484,159 – 2019						207,875			206,968
Additional paid-in capital	412,347			390,315		435,019			418,521
Retained earnings	2,012,499			1,858,414		2,103,629			2,080,529
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	)
Accumulated other comprehensive income (Note 12)						151,966			81,750
Treasury stock – at cost (shares: 44,125,892 – 2020; 44,023,006 – 2019)						(599,814		)	(592,832	)
Total stockholders’ equity	$	2,137,376		1,791,802		$	2,298,675		2,194,936
Commitments and contingencies
Total liabilities and stockholders’ equity	$	8,719,406		7,952,729		$	9,305,962		8,797,150

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 June 30,					Six Months ended June 30,
($ in thousands, except per share amounts)	2019			2018		2019		2018		2020			2019		2020		2019
Revenues:
Net premiums earned	$	653,620		614,277		1,928,812		1,810,941		$	630,671		642,619		1,282,374		1,275,192
Net investment income earned	55,826			52,443		164,949		141,227		34,444			58,505		90,411		109,123
Net realized and unrealized (losses) gains:
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	(2,291		)	(1,426	)	(3,366	)	(5,459	)
Total net realized and unrealized (losses) gains	(2,183		)	(4,787	)	15,295		(16,988	)
Net realized and unrealized gains (losses):
Net realized investment gains on disposals										2,615			2,883		6,715		6,327
Unrealized gains (losses) on equity securities										5,701			2,115		(11,436	)	12,226
Other-than-temporary impairment benefit (expense)										4,333			(971	)	(27,296	)	(1,075	)
Total net realized and unrealized gains (losses)										12,649			4,027		(32,017	)	17,478
Other income	3,162			2,538		8,535		7,896		4,683			3,053		6,508		5,373
Total revenues	710,425			664,471		2,117,591		1,943,076		682,447			708,204		1,347,276		1,407,166

Expenses:
Loss and loss expense incurred	398,675			379,199		1,166,238		1,130,468		403,949			380,984		804,273		767,563
Amortization of deferred policy acquisition costs	136,572			124,511		399,647		368,265		136,931			133,401		273,432		263,075
Other insurance expenses	90,234			80,108		261,975		244,342		84,601			86,662		179,947		171,741
Interest expense	7,397			6,073		26,289		18,350		7,928			7,366		15,529		18,892
Corporate expenses	6,369			7,450		28,345		22,065		6,345			9,566		15,405		21,976
Total expenses	639,247			597,341		1,882,494		1,783,490		639,754			617,979		1,288,586		1,243,247

Income before federal income tax	71,178			67,130		235,097		159,586		42,693			90,225		58,690		163,919

Federal income tax expense:
Current	13,805			10,314		44,344		23,529		(1,350		)	17,958		8,536		30,539
Deferred	1,223			1,381		989		2,878		9,860			1		735		(234	)
Total federal income tax expense	15,028			11,695		45,333		26,407		8,510			17,959		9,271		30,305

Net income	$	56,150		55,435		189,764		133,179		$	34,183		72,266		49,419		133,614

Earnings per share:
Basic net income	$	0.94		0.94		3.20		2.26		$	0.57		1.22		0.83		2.25

Diluted net income	$	0.93		0.93		3.16		2.23		$	0.57		1.21		0.82		2.23

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 June 30,					Six Months ended June 30,
($ in thousands)	2019			2018		2019		2018		2020			2019		2020		2019
Net income	$	56,150		55,435		189,764		133,179		$	34,183		72,266		49,419		133,614

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	)
Other comprehensive income, net of tax:
Unrealized gains on investment securities:
Unrealized holding gains arising during period										149,127			66,002		74,882		147,315
Non-credit portion of OTTI recognized in OCI										29,608			—		(22,050	)	—
Amounts reclassified into net income:
Held-to-maturity securities	(2		)	(6	)	(26	)	(22	)	(25		)	(17	)	(5	)	(24	)
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	)
Net realized (gains) losses on disposals and intent-to-sell OTTI on AFS securities										(1,332		)	(1,027	)	7,616		(1,878	)
Credit loss (benefit) expense recognized in OTTI										(3,890		)	—		8,582		—
Total unrealized gains on investment securities										173,488			64,958		69,025		145,413

Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	525			420		1,574		1,260		595			524		1,191		1,049
Total defined benefit pension and post-retirement plans	525			420		1,574		1,260		595			524		1,191		1,049
Other comprehensive income (loss)	29,920			(8,059	)	176,382		(87,727	)
Other comprehensive income										174,083			65,482		70,216		146,462
Comprehensive income	$	86,070		47,376		366,146		45,452		$	208,266		137,748		119,635		280,076

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


SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands, except share and per share amounts)	2019			2018		2019		2018		2020			2019		2020		2019
Common stock:
Beginning of period	$	206,665		205,460		205,697		204,569		$	207,665		206,451		206,968		205,697
Dividend reinvestment plan	9			10		31		35		16			11		30		22
Stock purchase and compensation plans	169			103		1,115		969		194			203		877		946
End of period	206,843			205,573		206,843		205,573		207,875			206,665		207,875		206,665

Additional paid-in capital:
Beginning of period	407,382			381,641		390,315		367,717		427,328			398,881		418,521		390,315
Dividend reinvestment plan	366			327		1,095		1,013		407			364		815		729
Stock purchase and compensation plans	4,599			3,483		20,937		16,721		7,284			8,137		15,683		16,338
End of period	412,347			385,451		412,347		385,451		435,019			407,382		435,019		407,382

Retained earnings:
Beginning of period, as previously reported	1,968,374			1,779,928		1,858,414		1,698,613		2,083,340			1,908,119		2,080,529		1,858,414
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		—		—			—		—		342
Cumulative effect adjustment due to adoption of guidance on allowance for credit losses, net of tax (Note 2)										—			—		1,435		—
Balance at beginning of period, as adjusted	1,968,374			1,779,928		1,858,756		1,723,632		2,083,340			1,908,119		2,081,964		1,858,756
Net income	56,150			55,435		189,764		133,179		34,183			72,266		49,419		133,614
Dividends to stockholders	(12,025		)	(10,756	)	(36,021	)	(32,204	)	(13,894		)	(12,011	)	(27,754	)	(23,996	)
End of period	2,012,499			1,824,607		2,012,499		1,824,607		2,103,629			1,968,374		2,103,629		1,968,374

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	)
Beginning of period										(22,117		)	3,024		81,750		(77,956	)
Other comprehensive income (loss)	29,920			(8,059	)	176,382		(87,727	)	174,083			65,482		70,216		146,462
End of period	98,426			(92,576	)	98,426		(92,576	)	151,966			68,506		151,966		68,506

Treasury stock:
Beginning of period	(591,383		)	(584,357	)	(584,668	)	(578,112	)	(599,760		)	(591,253	)	(592,832	)	(584,668	)
Acquisition of treasury stock	(1,356		)	(178	)	(8,071	)	(6,423	)	(54		)	(130	)	(6,982	)	(6,715	)
End of period	(592,739		)	(584,535	)	(592,739	)	(584,535	)	(599,814		)	(591,383	)	(599,814	)	(591,383	)
Total stockholders’ equity	$	2,137,376		1,738,520		2,137,376		1,738,520		$	2,298,675		2,059,544		2,298,675		2,059,544

Dividends declared per share to stockholders	$	0.20		0.18		0.60		0.54		$	0.23		0.20		0.46		0.40

Common stock, shares outstanding:
Beginning of period	59,328,108			58,835,052		58,948,554		58,495,122		59,707,545			59,222,905		59,461,153		58,948,554
Dividend reinvestment plan	4,738			5,310		15,650		17,683		7,899			5,218		14,874		10,912
Stock purchase and compensation plan	83,979			51,482		557,257		484,491		97,365			101,650		438,601		473,278
Acquisition of treasury stock	(17,256		)	(2,859	)	(121,892	)	(108,311	)	(1,067		)	(1,665	)	(102,886	)	(104,636	)
End of period	59,399,569			58,888,985		59,399,569		58,888,985		59,811,742			59,328,108		59,811,742		59,328,108

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,					Six Months ended June 30,
($ in thousands)	2019			2018		2020			2019
Operating Activities
Net income	$	189,764		133,179		$	49,419		133,614

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	42,346			34,961		29,634			28,327
Stock-based compensation expense	15,857			12,150		11,198			11,654
Undistributed gains of equity method investments	(8,832		)	(4,243	)
Undistributed losses (gains) of equity method investments						7,319			(4,934	)
Distributions in excess of current year income of equity method investments	2,267			3,210		8,488			2,157
(Gain) loss on disposal of fixed assets	(21		)	62
Net realized and unrealized (gains) losses	(15,295		)	16,988
Net realized and unrealized losses (gains)						32,017			(17,478	)
Loss on disposal of fixed assets						17			—

Changes in assets and liabilities:
Increase in reserve for loss and loss expense, net of reinsurance recoverable	134,951			144,920		101,151			105,082
Increase in unearned premiums, net of prepaid reinsurance	122,460			120,535		89,705			99,152
Decrease in net federal income taxes	2,408			18,339		8,340			1,698
Increase in premiums receivable	(89,962		)	(79,894	)	(44,095		)	(107,190	)
Increase in deferred policy acquisition costs	(26,627		)	(22,978	)	(14,269		)	(20,516	)
(Increase) decrease in interest and dividends due or accrued	(1,460		)	72
Increase in interest and dividends due or accrued						(934		)	(1,399	)
Decrease in accrued salaries and benefits	(16,261		)	(36,498	)	(44,082		)	(29,124	)
Increase in other assets	(35,810		)	(13,881	)	(2,753		)	(22,320	)
Increase (decrease) in other liabilities	414			(34,437	)
Decrease in other liabilities						(33,770		)	(13,583	)
Net cash provided by operating activities	316,199			292,485		197,385			165,140

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	)	(961,803		)	(891,241	)
Purchase of commercial mortgage loans						(17,934		)	—
Purchase of equity securities	(40,233		)	(57,834	)	(73,879		)	(24,699	)
Purchase of other investments	(41,248		)	(47,238	)	(39,400		)	(25,822	)
Purchase of short-term investments	(4,108,414		)	(2,711,360	)	(3,368,828		)	(3,258,852	)
Sale of fixed income securities, available-for-sale	461,825			1,382,677		302,342			372,159
Proceeds from commercial mortgage loans						54			—
Sale of short-term investments	4,106,643			2,572,399		3,278,106			3,291,878
Redemption and maturities of fixed income securities, held-to-maturity	10,062			3,923		1,200			4,643
Redemption and maturities of fixed income securities, available-for-sale	413,220			456,037		461,527			236,705
Sale of equity securities	125,302			79,676		1,320			30,094
Sale of other investments	18,016			3,497		53			12,609
Distributions from other investments	19,054			23,420		7,349			14,489
Purchase of property and equipment	(24,424		)	(11,150	)	(12,634		)	(16,985	)
Fixed asset disposals	35			—
Net cash used in investing activities	(390,989		)	(287,356	)	(422,527		)	(255,022	)

Financing Activities
Dividends to stockholders	(34,440		)	(30,694	)	(26,631		)	(22,940	)
Acquisition of treasury stock	(8,071		)	(6,423	)	(6,982		)	(6,715	)
Net proceeds from stock purchase and compensation plans	5,599			5,001		4,731			5,100
Proceeds from borrowings	355,757			130,000		387,000			340,757
Repayments of borrowings	(250,000		)	(130,000	)	(135,000		)	(235,000	)
Repayments of finance lease obligations	(811		)	(4,891	)	(314		)	(596	)
Net cash provided by (used in) financing activities	68,034			(37,007	)
Net cash provided by financing activities						222,804			80,606
Net decrease in cash and restricted cash	(6,756		)	(31,878	)	(2,338		)	(9,276	)
Cash and restricted cash, beginning of year	16,919			44,710		7,975			16,919
Cash and restricted cash, end of period	$	10,163		12,832		$	5,637		7,643

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 and Accounting Policies

~~As used herein, the~~(a) Basis of Presentation

The words "Company,” “we,” “us,” or “our” ~~refers~~refer to Selective Insurance Group, Inc. (the "Parent"), and its subsidiaries except as expressly indicated or ~~unless~~ the context ~~otherwise requires. Our~~requires otherwise. We have prepared 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~~In preparing the Financial Statements in conformity with GAAP, ~~requires us~~we are required to make estimates and assumptions that affect the reported financial statement balances ~~as well as~~and 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.

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~~second quarters ended ~~September~~June 30, 2020 (“Second Quarter 2020”) and June 30, 2019 (“~~Third~~Second Quarter 2019”) and ~~September~~the six-month periods ended June 30, ~~2018~~ (“~~Third Quarter 2018~~”2020 ("Six Months 2020") and ~~the nine-month periods ended September~~June 30, 2019 ~~(“Nine~~("Six Months ~~2019”) and September 30, 2018 (“Nine Months 2018”~~2019"). These Financial Statements do not include all of the information and disclosures required by GAAP and the SEC for audited annual financial statements. ~~Additionally, results~~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, ~~2018~~2019 (“~~2018~~2019 Annual Report”) filed with the SEC.

(b) Accounting Policies

There have been no material changes from the accounting policies disclosed in Note 2. "Summary of Significant Accounting Policies" in Item 8. “Financial Statements and Supplementary Data.” of our 2019 Annual Report other than those associated with our adoption of ASU 2016-13, Financial Instruments - Credit Losses ("CECL") in the first quarter of 2020 and our recent investment allocation to commercial mortgage loans ("CMLs"). The pertinent additions and changes to our accounting policies are centered around the following items: (i) Investments; (ii) Allowance for Uncollectible Premiums Receivable; and (iii) Allowance for Uncollectible Reinsurance Recoverable.

Investments

Fixed Income Securities

We have updated our policy associated with our review of fixed income securities for other-than-temporary impairments ("OTTI"), and we follow a two-step process:

(i) We review our fixed income securities in an unrealized loss position to determine: (i) if we have the intent to sell the security; or (ii) if it is more likely than not we will be required to sell the security before its anticipated recovery. If we determine that we have the intent or likely requirement to sell the security, we write down its amortized cost to its fair value. In writing down amortized cost, any amount previously recorded as an allowance for credit losses is reversed and any incremental impairment is recorded directly to earnings as OTTI.

(ii) If we do not have either the intent or likely requirement to sell the security, our evaluation for expected credit losses primarily focuses on performing a discounted cash flow (“DCF”) analysis on each of our fixed income securities to determine if an allowance for credit loss is required. We incorporate the results of the DCF analysis on individual security holdings into our calculation of the allowance for credit losses as follows:

For our held-to-maturity ("HTM") portfolio, the allowance for credit losses is calculated as the shortfall between amortized cost at the reporting date and the present value of future cash flows calculated in the DCF analysis.

For our available-for-sale ("AFS") portfolio and fixed income securities included in our short-term investment portfolio, the allowance for credit losses is calculated in the same manner as for the HTM portfolio; but the allowance amount is limited to the difference between the security’s amortized cost and fair value, or the fair value floor. This treatment is appropriate as we have the ability to recover the amortized cost of an AFS security either through: (i) collection of the contractual cash flows; or (ii) sale of the security.

Fair value declines on our AFS securities not recorded through OTTI are recognized in accumulated other comprehensive income, after tax.

Our DCF analyses calculate the present value of future cash flows using various models that are specific to the major security types within our portfolio. These models use security-specific information as well as forecasted macroeconomic data to determine possible expected credit loss scenarios based on projected changes in the economy. The forecasted economic data incorporated into the models is based on the Federal Reserve Board’s annual supervisory stress test review on certain large banks and financial institutions. Additionally, we have the ability to incorporate internally-developed forecast information into the models as we deem appropriate. Model scenarios include a baseline assumption with projections for moderate economic expansion, an adverse assumption with projections for a weakening economy, and a severely adverse assumption with projections for a global recession. In developing our best estimate of the allowance for credit losses, we consider our outlook as to the probability of each of these scenarios occurring over the estimated contractual cash flows of our investment portfolio.

For additional information about the various assumptions we make, including the discount rates used in our DCF analyses, see Note 2. "Summary of Significant Accounting Policies" in Item 8. “Financial Statements and Supplementary Data.” of our 2019 Annual Report.

The allowance for credit losses are recorded as a contra-asset reflected in the carrying value of the investment on the Consolidated Balance Sheet, and are charged to earnings as credit loss expense, which is a component of "Other-than-temporary impairment benefit (expense)" within "Net realized and unrealized gains (losses)" on our Consolidated Statements of Income. The income statement treatment is consistent with how we accounted for credit losses prior to the adoption of CECL. However, subsequent changes in the expected cash flows associated with a future period's updated DCF analysis are recorded as an increase to (or reversal of) credit loss expense with the offset recorded to the allowance. We charge write-offs against the allowance when either: (i) we determine the recovery of amortized cost to be uncollectible based on our evaluation of the financial condition of the issuer; (ii) we have the intent, or requirement, to sell a security for which an allowance for credit losses was previously established; and (iii) we sold a security for which an allowance for credit losses was previously established.

Accrued interest on fixed income securities and CMLs is recorded as a component of “Interest and dividends due or accrued” on our Consolidated Balance Sheet. If accrued interest is due but not paid within 90 days, we reverse the delinquent amount against investment income, which is a component of “Net investment income earned” on our Consolidated Statements of Income. We do not record a valuation allowance on our accrued interest balance as we reverse delinquent amounts on a timely basis. We consider a debt security to be past due at the time any principal or interest payments become 90 days delinquent.

Commercial Mortgage Loans

Beginning in 2020, our investment portfolio contains an allocation to CMLs. As of June 30, 2020, CMLs accounted for less than 1% of our invested assets. CMLs are loans secured by commercial property, such as an office building, multi-family apartment complex, industrial warehouse, or shopping center. We may acquire investments in CMLs through direct originations under a loan syndication arrangement or purchase CMLs in the marketplace. We record our investment in CMLs on the settlement date of the loan. Our CMLs are classified as held-for-investment and reported at amortized cost, net of the applicable allowance for credit losses, on our Consolidated Balance Sheet.

We evaluate our CMLs for expected credit loss under the same methodology described above for fixed income securities using a DCF model. The discount rate used in this DCF model is either the effective interest rate implicit in the CML at the date of acquisition for fixed rate investments, or the effective interest rate in effect as of the reporting date for non-fixed-rate CMLs.

The allowance for credit losses on our CML investments is calculated as the shortfall between amortized cost at the reporting date and the present value of future cash flows calculated in the DCF analysis. The treatment of earnings and the related classification of the expected credit losses on the Consolidated Statements of Income and the Consolidated Balance Sheet are consistent with our fixed income securities as described above.

Allowance for Uncollectible Premiums Receivable

Expected credit losses on premiums receivable are charged to earnings as credit loss expense, which is a component of "Other insurance expenses" on our Consolidated Statements of Income with an offsetting allowance being recorded as a contra-asset reflected in the carrying value of the receivable. Subsequent changes in the allowance are recorded as an increase to (or

reversal of) credit loss expense. We charge write-offs against the allowance when we determine the account to be uncollectible after considering information obtained from our collection efforts.

Allowance for Uncollectible Reinsurance Recoverable

The "Reinsurance recoverable" balance on our Consolidated Balance Sheets represents our estimate of amounts that will be recovered from reinsurers under our various treaties. Generally, amounts recoverable from reinsurers are recognized as assets at the same time and in a manner consistent with the paid and unpaid losses associated with the reinsured policies. We would consider a recoverable balance from a reinsurer to be past due if payment is not received by the first day following the invoice due date. We require collateral to secure reinsurance recoverable balances primarily from our reinsurance carriers that are not authorized, otherwise approved, or certified to do business in one or more of our ten insurance subsidiaries' domiciliary states. Our ten insurance subsidiaries are collectively referred to as the "Insurance Subsidiaries." This collateral is typically in the form of a letter of credit or cash.

We estimate an allowance for expected credit losses on our outstanding reinsurance recoverable balance at each reporting date. Credit risk is mitigated to the extent we have obtained collateral as described above. We, therefore, reduce the recoverable balance by the amount of the collateral as part of our allowance calculation. We then pool the uncollateralized balances by similar risk characteristics, including the financial strength rating of the reinsurer, and use a probability-of-default methodology in calculating the allowance. Historical default rates are sourced from AM Best and are coupled with severity assumptions in developing a baseline scenario. We then stress this scenario by incorporating forecasts of industry catastrophe losses and economic factors sourced through third-party data providers. In developing our best estimate of the allowance for credit losses, we consider our outlook as to the probability of each of these scenarios occurring.

Expected credit losses on reinsurance recoverable balances are charged to earnings as credit loss expense, which is a component of “Loss and loss expense incurred” on our Consolidated Statements of Income with an offsetting allowance for the credit loss being recorded as a contra-asset reflected in the carrying value of the recoverable balance. Subsequent changes in the allowance are recorded as an increase to (or reversal of) credit loss expense. We charge write-offs against the allowance when we determine the recoverable balance to be uncollectible after considering information obtained from our efforts to collect amounts due or through a review of the financial condition of the reinsurer.

NOTE 2. Adoption of Accounting Pronouncements

~~The~~In June 2016, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) ~~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.

ASU 2016-02 allows for certain practical expedients, accounting policy elections, and a transition method election. We 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 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 adopted ASU 2016-02 effective January 1, 2019. See Note 12. "Leases" in this Form 10-Q for additional information regarding our leases and the impact of this guidance on our financial condition and 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 in the first quarter of 2019 and it did not 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~~, and subsequent additional implementation guidance ~~issued in 2018 and 2019~~ (collectively referred to as “ASU 2016-13”)~~. ASU 2016-13 will change~~ that changes the way entities recognize impairment of financial ~~assets by requiring~~assets. The new guidance requires 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~~through the establishment of 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~~Additionally, ASU 2016-03 requires the ~~current expected credit loss model. This ASU also made targeted changes to~~presentation of 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. impacted financial assets on the consolidated balance sheet net of the valuation allowance.

We ~~are currently evaluating the impact of~~adopted this guidance on January 1, 2020, applied a modified retrospective approach for the adoption, and recorded a net cumulative-effect adjustment to increase the opening balance of 2020 retained earnings by $1.4 million, after tax. As prescribed in ASU 2016-13, we did not adjust the amortized cost basis of any securities for which we had previously recorded OTTI. The cumulative-effect increase to retained earnings represents the net adjustment required to (i) establish valuation allowances on our held-to-maturity ("HTM") debt securities, and (ii) re-estimate valuation allowances on our premiums receivables and reinsurance recoverables under ASU 2016-13. See Note 1. "Basis of Presentation and Accounting Policies" of this Form 10-Q for accounting policy updates related to ASU 2016-13. Additionally, see Note 4. "Investments," Note 7. "Allowance for Uncollectible Premiums Receivable," and Note 8. "Reinsurance" of this Form 10-Q for additional information regarding credit losses related to the respective financial ~~condition and results of operations.~~assets.

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.~~measurements by removing certain disclosures, and modifying and adding disclosure requirements. The ~~modifications removed the following~~additional disclosure ~~requirements:~~requirements include (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~~change in unrealized gains and losses for the period included in other comprehensive income ~~("OCI"~~(“OCI”) for recurring Level 3 fair value measurements held at the end of the reporting ~~period;~~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~~We adopted the provisions related to removed disclosures in the fourth quarter of 2019 and ~~interim periods beginning after December 15, 2019, with early adoption permitted.~~adopted the remaining disclosure requirements in the first quarter of 2020 as permitted under ASU 2018-13. As ~~the requirements of~~ this literature ~~are~~requires disclosure only, ASU 2018-13 ~~will not~~has no 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 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 impacton 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 cloud computing hosting ~~arrangement that is a~~ service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this guidance prospectively on January 1, 2020, and it did not have a material impact on our financial condition or results of operations.

Pronouncements to be effective in the future

In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“ASU 2019-12”). Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This ~~update~~exception was removed by ASU 2019-12. This guidance provides that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate.

For year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. Current guidance provides an exception that, when an interim period loss exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU 2019-12 removes this exception and provides that, in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate.

ASU 2019-12 is effective for ~~annual and interim periods~~fiscal years beginning after December 15, ~~2019, with early~~2020, including interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the impact of this guidance on our financial condition and results of operations.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) -Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition away from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. Companies can elect to adopt ASU 2020-04 as of the beginning of the interim period that includes March 2020, or any date thereafter through December 31, 2022. We are currently evaluating the impact of this guidance on our financial condition and results of operations.

NOTE 3. Statements of Cash Flows

Supplemental cash flow information was as follows:


	Nine Months ended September 30,			Six Months ended June 30,
($ in thousands)	2019		2018	2020		2019
Cash paid during the period for:
Interest	$	19,261	15,449	$	14,920	10,512
Federal income tax	42,000		7,193	—		28,000

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases¹	6,062		—
Operating cash flows from operating leases				4,443		3,994
Operating cash flows from financing leases	12		—	10		7
Financing cash flows from finance leases	811		4,891	314		596

Non-cash items:
Corporate actions related to fixed income securities, AFS²	29,771		32,757
Corporate actions related to equity securities²	14,250		944
Corporate actions related to fixed income securities, AFS¹				18,224		25,104
Corporate actions related to fixed income securities, HTM¹				2,596		—
Corporate actions related to equity securities¹				890		—
Assets acquired under finance lease arrangements	824		4,114	119		814
Assets acquired under operating lease arrangements¹	13,648		—
Assets acquired under operating lease arrangements				4,358		12,881
Non-cash purchase of property and equipment	108		—	60		—

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	June 30, 2020		December 31, 2019
Cash	$	516	505	$	666	300
Restricted cash	9,647		16,414	4,971		7,675
Total cash and restricted cash shown in the Statements of Cash Flows	$	10,163	16,919	$	5,637	7,975

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

NOTE 4. Investments

(a) Our HTM fixed income securities as of September 30, 2019 represented less than 1% of our total invested assets, down slightly compared to December 31, 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.

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~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 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


December 31, 2018
June 30, 2020
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value	Cost/ Amortized Cost		Allowance for Credit Losses		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	120,092	1,810	(592	)	121,310	$	112,341	—		7,382	—		119,723
Foreign government	23,202		36	(107	)	23,131	16,936		(28	)	1,118	(104	)	17,922
Obligations of states and political subdivisions	1,121,615		19,485	(2,631	)	1,138,469	1,131,597		(17	)	72,034	(200	)	1,203,414
Corporate securities	1,639,852		5,521	(27,965	)	1,617,408	2,131,707		(8,077	)	142,677	(10,302	)	2,256,005
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
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS")							853,470		(1,389	)	11,946	(24,506	)	839,521
Residential mortgage-backed securities ("RMBS")							1,254,472		(831	)	65,745	(1,008	)	1,318,378
Commercial mortgage-backed securities ("CMBS")							565,031		(53	)	41,999	(3,784	)	603,193
Total AFS fixed income securities	$	5,270,798	47,369	(45,067	)	5,273,100	$	6,065,554	(10,395	)	342,901	(39,904	)	6,358,156



December 31, 2019
($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses		Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	112,680	3,506	—		116,186
Foreign government	18,011		533	(2	)	18,542
Obligations of states and political subdivisions	1,168,185		62,175	(270	)	1,230,090
Corporate securities	1,866,881		81,906	(1,310	)	1,947,477
CLO and other ABS	790,517		7,929	(5,434	)	793,012
RMBS	1,409,003		43,421	(455	)	1,451,969
CMBS	514,709		23,902	(267	)	538,344
Total AFS fixed income securities	$	5,879,986	223,372	(7,738	)	6,095,620

~~Unrealized gains~~The following tables provide a rollforward of the allowance for credit losses on our AFS fixed income securities for the periods indicated:



Quarter ended June 30, 2020
($ in thousands)	Beginning Balance		Current Provision for Securities without Prior Allowance	Increase (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell Securities		Reductions for Securities Sold		Reductions for Securities Identified as Intent (or Requirement) to Sell during the Period		Ending Balance
Foreign government	$	21	—	7		—		—		28
Obligations of states and political subdivisions	29		15	(27	)	—		—		17
Corporate securities	13,412		813	(5,686	)	(395	)	(67	)	8,077
CLO and other ABS	1,565		27	(145	)	(58	)	—		1,389
RMBS	722		—	124		(15	)	—		831
CMBS	38		8	7		—		—		53
Total AFS fixed income securities	$	15,787	863	(5,720	)	(468	)	(67	)	10,395



Six Months ended June 30, 2020
($ in thousands)	Beginning Balance		Current Provision for Securities without Prior Allowance	Increase (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell Securities	Reductions for Securities Sold		Reductions for Securities Identified as Intent (or Requirement) to Sell during the Period		Ending Balance
Foreign government	$	—	28	—	—		—		28
Obligations of states and political subdivisions	—		17	—	—		—		17
Corporate securities	—		8,539	—	(395	)	(67	)	8,077
CLO and other ABS	—		1,447	—	(58	)	—		1,389
RMBS	—		846	—	(15	)	—		831
CMBS	—		53	—	—		—		53
Total AFS fixed income securities	$	—	10,930	—	(468	)	(67	)	10,395

During 2020, we did not experience any write-offs or recoveries of our AFS fixed income securities, nor did we purchase any assets with credit deterioration, therefore these items are not included in the table above.

As disclosed in Note 1. "Basis of Presentation and ~~losses of~~Accounting Policies," we do not evaluate accrued interest on our AFS securities ~~represent fair value fluctuations from the later of: (i) the date~~for credit impairment as we write-off these balances in 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~~timely manner. As of ~~the balance sheet. These unrealized gains and losses are recorded in AOCI on the Consolidated Balance Sheets.~~

~~(c) The severity of impairment~~June 30, 2020, accrued interest on AFS securities ~~in an unrealized/unrecognized loss position averaged approximately 1%~~amounted to $44.7 million and we did not record any write-offs of ~~amortized cost at September 30, 2019 and approximately 2% at December 31, 2018.~~accrued interest during 2020.

(b) Quantitative information ~~regarding these~~about unrealized losses on our AFS portfolio is provided below.



June 30, 2020	Less than 12 months				12 months or longer			Total
($ in thousands)	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
AFS fixed income securities:
Foreign government	$	1,673	(104	)	—	—		1,673	(104	)
Obligations of states and political subdivisions	9,141		(200	)	—	—		9,141	(200	)
Corporate securities	175,595		(9,852	)	3,216	(450	)	178,811	(10,302	)
CLO and other ABS	373,896		(16,109	)	142,759	(8,397	)	516,655	(24,506	)
RMBS	39,176		(975	)	1,352	(33	)	40,528	(1,008	)
CMBS	86,573		(3,128	)	11,739	(656	)	98,312	(3,784	)
Total AFS fixed income securities	$	686,054	(30,368	)	159,066	(9,536	)	845,120	(39,904	)

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
AFS fixed income securities:

U.S. government and government agencies $ 5,014
(11 ) 498
(1 ) 5,512
(12 )
Obligations of states and political subdivisions 437
(4 ) —
—
437
(4 )
Corporate securities 89,919
(1,862 ) 15,867
(537 ) 105,786
(2,399 )
CLO and other ABS 176,999
(2,458 ) 180,898
(2,195 ) 357,897
(4,653 )
CMBS 59,857
(126 ) 7,665
(19 ) 67,522
(145 )
RMBS 84,408
(503 ) 9,513
(31 ) 93,921
(534 )
Total AFS fixed income securities $ 416,634
(4,964 ) 214,441
(2,783 ) 631,075
(7,747 )

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
AFS fixed income securities:

U.S. government and government agencies $ 6,693
(174 ) 23,163
(418 ) 29,856
(592 )
Foreign government 12,208
(93 ) 1,482
(14 ) 13,690
(107 )
Obligations of states and political subdivisions 196,798
(2,074 ) 42,821
(557 ) 239,619
(2,631 )
Corporate securities 1,041,952
(23,649 ) 78,953
(4,316 ) 1,120,905
(27,965 )
CLO and other ABS 516,106
(6,750 ) 16,800
(193 ) 532,906
(6,943 )
CMBS 229,338
(2,548 ) 66,294
(1,200 ) 295,632
(3,748 )
RMBS 139,338
(1,660 ) 45,661
(1,421 ) 184,999
(3,081 )
Total AFS fixed income securities $ 2,142,433
(36,948 ) 275,174
(8,119 ) 2,417,607
(45,067 )

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



December 31, 2019	Less than 12 months				12 months or longer			Total
($ in thousands)	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
AFS fixed income securities:
Foreign government	$	1,416	(2	)	—	—		1,416	(2	)
Obligations of states and political subdivisions	35,838		(270	)	—	—		35,838	(270	)
Corporate securities	84,832		(480	)	20,182	(830	)	105,014	(1,310	)
CLO and other ABS	205,191		(1,938	)	204,385	(3,496	)	409,576	(5,434	)
RMBS	126,089		(425	)	5,375	(30	)	131,464	(455	)
CMBS	62,893		(264	)	828	(3	)	63,721	(267	)
Total AFS fixed income securities	$	516,259	(3,379	)	230,770	(4,359	)	747,029	(7,738	)

The $37.3 million decrease in the unrealized loss position reflected: (i) lower interest rates, with an 87-basis point decrease in 2-year U.S. Treasury Note yields and a 102-basis point 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 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 is it likely we will we be required to sell any of ~~these securities.~~the securities in the table above. Considering these factors and ~~in accordance with~~ our review of these securities under our methodology for analyzing OTTI, ~~policy, as described in Note 2. “Summary of Significant Accounting Policies” within Item 8. “Financial Statements and Supplementary Data.” of our~~ ~~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.

The COVID-19-related governmental orders have caused uncertainty and volatility in the financial markets. While market conditions improved during Second Quarter 2020, gross unrealized losses on our AFS fixed income securities portfolio increased to $39.9 million at June 30, 2020, from $7.7 million at December 31, 2019. This increase was driven by widening credit spreads as a result of the uncertainty in the marketplace, and was partially offset by a significant decline in benchmark risk-free rates.

~~(d)~~(c) Fixed income securities at ~~September~~June 30, ~~2019~~2020, are shown below by contractual ~~maturity, are shown below.~~maturity. 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.



	AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	315,316	440	448
Due after one year through five years	3,639,491		16,591	17,843
Due after five years through 10 years	2,053,058		2,511	2,436
Due after 10 years	350,291		—	—
Total fixed income securities	$	6,358,156	19,542	20,727

~~Listed below are the contractual maturities of fixed income securities at~~ ~~September 30, 2019~~:

AFS HTM
($ in thousands) Fair Value Carrying Value Fair Value
Due in one year or less $ 310,387
4,754
4,773
Due after one year through five years 3,296,126
16,334
17,589
Due after five years through 10 years 2,191,633
5,837
5,994
Due after 10 years 132,091
—
—
Total fixed income securities $ 5,930,237
26,925
28,356

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


Other Investments	September 30, 2019				December 31, 2018			June 30, 2020				December 31, 2019
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value		Remaining Commitment	Maximum Exposure to Loss¹	Carrying Value	Remaining Commitment	Maximum Exposure to Loss¹
Alternative Investments
Private equity	$	105,922	97,552	203,474	84,352	93,688	178,040	$	126,780	111,284	238,064	118,352	93,138	211,490
Private credit	37,710		109,797	147,507	41,682	81,453	123,135	40,239		99,039	139,278	42,532	105,340	147,872
Real assets	21,828		22,534	44,362	27,862	27,129	54,991	21,178		19,384	40,562	23,256	20,741	43,997
Total alternative investments	165,460		229,883	395,343	153,896	202,270	356,166	188,197		229,707	417,904	184,140	219,219	403,359
Other securities	23,783		—	23,783	25,042	—	25,042	42,323		—	42,323	32,667	—	32,667
Total other investments	$	189,243	229,883	419,126	178,938	202,270	381,208	$	230,520	229,707	460,227	216,807	219,219	436,026

¹The maximum exposure to loss includes both the carry value of these investments and the related 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 these investments. We have not provided any non-contractual financial support at any time during ~~2019~~2020 or ~~2018.~~2019.

The following table ~~sets forth~~shows gross summarized financial information for our other investments portfolio, including the portion we do not ~~owned by us.~~own. 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~~one-quarter lag, the summarized financial statement information for the three-month period ended ~~June 30~~March 31 is included in our ~~Third~~Second Quarter results. This information is as follows:


Income Statement Information	Quarter ended September 30,				Nine Months ended September 30,			Quarter ended June 30,				Six Months ended June 30,
($ in millions)	2019			2018	2019	2018		2020			2019	2020		2019
Net investment (loss) income	$	(14.0	)	11.9	10.1	(29.9	)	$	(3.1	)	174.1	9.6		24.1
Realized gains	121.1			124.8	370.4	1,348.3
Realized (losses) gains								179.0			106.0	343.8		249.3
Net change in unrealized appreciation (depreciation)	1,739.4			1,434.3	4,517.4	695.8		(2,862.9		)	2,223.7	(1,658.9	)	2,778.0
Net income	$	1,846.5		1,571.0	4,897.9	2,014.2		$	(2,687.0	)	2,503.8	(1,305.5	)	3,051.4
Insurance subsidiaries’ alternative investments income	$	5.2		7.1	13.0	10.6
Insurance Subsidiaries’ alternative investments income								$	(16.0	)	7.3	(9.7	)	7.9

~~(f) We~~As noted above, the majority of our alternative investments report their results to us on a one-quarter lag, and therefore the $16.0 million of losses in the table above for Second Quarter 2020 reflects the significant COVID-19-related financial market volatility that existed during the first quarter of 2020.

(e) Certain Insurance Subsidiaries have pledged certain AFS fixed income securities as collateral ~~related to our relationships with~~as members of the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"). In addition, we had certain securities ~~were on deposit~~deposited with various state and regulatory agencies at ~~September~~June 30, ~~2019~~2020, 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~~June 30, ~~2019:~~2020:


($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	—	—	22.9	22.9	$	—	—	23.3	23.3
Obligations of states and political subdivisions	—		—	3.9	3.9	—		—	4.1	4.1
Corporate securities	—		—	0.3	0.3	—		—	0.3	0.3
RMBS						130.0		224.0	—	354.0
CMBS	7.3		19.6	—	26.9	7.2		28.2	—	35.4
RMBS	57.4		81.1	—	138.5
Total pledged as collateral	$	64.7	100.7	27.1	192.5	$	137.2	252.2	27.7	417.1

~~(g)~~(f) 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~~June 30, ~~2019~~2020, or December 31, ~~2018.~~2019.

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



	Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2020			2019		2020		2019
Fixed income securities	$	51,079		50,907		101,332		99,940
CMLs	156			—		218		—
Equity securities	2,023			1,740		3,575		3,380
Short-term investments	420			1,759		1,586		3,803
Other investments	(15,846		)	7,494		(9,504	)	8,154
Investment expenses	(3,388		)	(3,395	)	(6,796	)	(6,154	)
Net investment income earned	$	34,444		58,505		90,411		109,123

Quarter ended September 30, Nine Months ended September 30,
($ in thousands) 2019 2018 2019 2018
Fixed income securities $ 50,749

45,088
150,689
130,903
Equity securities 1,885

2,079
5,265
5,876
Short-term investments 1,410

867
5,213
2,001
Other investments 5,267

7,211
13,421
10,868
Investment expenses (3,485 )
(2,802 ) (9,639 ) (8,421 )
Net investment income earned $ 55,826
52,443
164,949
141,227

As previously noted, the significant financial market volatility that existed during the first quarter of 2020 due to COVID-19 resulted in losses on the alternative investments within our other investments portfolio during Second Quarter 2020.

~~(i)~~(h) The following table summarizes OTTI charges were $2.3 million and $1.4 million in Third Quarter 2019 and Third Quarter 2018, respectively, and $3.4 million and $5.5 million in Nine Months 2019 and Nine Months 2018, respectively. All of these charges were related to securitiesby asset type for ~~which we had~~ the ~~intent to 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~~ periods indicated:



	Quarter ended June 30,
	2020						2019
($ in thousands)	Credit Loss Expense (Benefit)			Other Impairment Expense	Recognized in Earnings		Recognized in Earnings
HTM fixed income securities:
Corporate securities	$	(1	)	—	(1	)	—
Total HTM fixed income securities	(1		)	—	(1	)	—
AFS fixed income securities:
Foreign government	7			—	7		—
Obligations of states and political subdivisions	(12		)	—	(12	)	—
Corporate securities	(4,940		)	500	(4,440	)	774
CLO and other ABS	(118		)	93	(25	)	—
RMBS	125			20	145		—
CMBS	15			—	15		—
Total AFS fixed income securities	(4,923		)	613	(4,310	)	774
CMLs	(22		)	—	(22	)	—
Other Investments	—			—	—		197
Total OTTI (benefit) expense	$	(4,946	)	613	(4,333	)	971



	Six Months ended June 30,
	2020						2019
($ in thousands)	Credit Loss Expense (Benefit)			Other Impairment Expense	Recognized in Earnings		Recognized in Earnings
HTM fixed income securities:
Corporate securities	$	(1	)	—	(1	)	—
Total HTM fixed income securities	(1		)	—	(1	)	—
AFS fixed income securities:
U.S. government and government agencies	—			14	14		—
Foreign government	28			—	28		—
Obligations of states and political subdivisions	17			62	79		65
Corporate securities	8,472			12,103	20,575		774
CLO and other ABS	1,447			2,093	3,540		—
RMBS	847			91	938		—
CMBS	53			1,852	1,905		—
Total AFS fixed income securities	10,864			16,215	27,079		839
CMLs	218			—	218		—
Other Investments	—			—	—		236
Total OTTI expense	$	11,081		16,215	27,296		1,075

~~2018~~ ~~Annual Report.~~

OTTI amounted to $27.3 million in Six Months 2020 and included $16.2 million of impairments on securities we intend to sell to provide our investment managers flexibility to trade and optimize our investment portfolio in the COVID-19-related market volatility and uncertainty. The remainder of the OTTI in Six Months 2020 of $11.1 million related to our allowance for credit losses, and included a reduction in this allowance of approximately $4.9 million in Second Quarter 2020 reflecting the improvement in market conditions during the quarter as compared to March 31, 2020.

~~(j)~~

(i) Net realized and unrealized gains and losses (excluding ~~OTTI charges)~~OTTI) for ~~Third~~Second Quarter ~~2019~~2020 and ~~2018~~2019 included the following:


	Quarter ended September 30,					Nine Months ended September 30,					Quarter ended June 30,				Six Months ended June 30,
($ in thousands)	2019			2018		2019			2018		2020		2019		2020			2019
Net realized gains (losses) on the disposals of securities:
Fixed income securities	$	(1,141	)	(9,413	)	2,063			(13,922	)	$	2,300	2,061		6,576			3,204
CMLs											1		—		1			—
Equity securities	21,602			8,665		24,733			17,960		—		851		(3		)	3,131
Short-term investments	(36		)	2		(21		)	1		314		1		146			15
Other investments	—			(5	)	(23		)	(5	)	—		(30	)	(5		)	(23	)
Net realized gains (losses) on the disposal of securities	20,425			(751	)	26,752			4,034		2,615		2,883		6,715			6,327
OTTI charges	(2,291		)	(1,426	)	(3,366		)	(5,459	)
OTTI benefit (expense)											4,333		(971	)	(27,296		)	(1,075	)
Net realized gains (losses)	18,134			(2,177	)	23,386			(1,425	)	6,948		1,912		(20,581		)	5,252
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	)
Unrealized gains (losses) recognized in income on equity securities											5,701		2,115		(11,436		)	12,226
Total net realized and unrealized investment gains (losses)											$	12,649	4,027		$	(32,017	)	17,478

During Second Quarter 2020, the $8.6 million increase in net realized and unrealized investment gains was primarily driven by the improvements in the allowance for credit losses on our AFS fixed income securities as discussed above.

For Six Months 2020, net realized and unrealized investment losses were $32.0 million, compared to net gains of $17.5 million for Six Months 2019. This fluctuation was driven by the increase in OTTI expense discussed above, coupled with the impact of unrealized losses on our equity securities portfolio in Six Months 2020 resulting from the COVID-19-related financial market disruption during the first six months of 2020.

Unrealized (losses) recognized in income on equity securities, as reflected in the 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 )



	Quarter ended June 30,				Six Months ended June 30,
($ in thousands)	2020		2019		2020		2019
Unrealized (losses) gains recognized in income on equity securities:
On securities remaining in our portfolio at June 30, 2020	$	5,701	2,394		(11,439	)	11,817
On securities sold in each respective period	—		(279	)	3		409
Total unrealized (losses) gains recognized in income on equity securities	$	5,701	2,115		(11,436	)	12,226

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,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2019			2018		2019		2018		2020			2019		2020		2019
HTM fixed income securities
Gains	$	—		—		1		2		$	—		1		1		1
Losses	—			—		(15	)	—		—			(15	)	—		(15	)
AFS fixed income securities
Gains										6,162			2,643		11,815		4,487
Losses										(3,862		)	(568	)	(5,240	)	(1,269	)
CMLs
Gains	1,078			462		5,565		5,056		1			—		1		—
Losses	(2,219		)	(9,875	)	(3,488	)	(18,980	)	—			—		—		—
Equity securities
Gains	21,630			10,584		24,868		20,209		—			958		—		3,238
Losses	(28		)	(1,919	)	(135	)	(2,249	)	—			(107	)	(3	)	(107	)
Short-term investments
Gains	2			3		18		6		315			2		337		16
Losses	(38		)	(1	)	(39	)	(5	)	(1		)	(1	)	(191	)	(1	)
Other investments
Gains	—			—		7		—		—			—		—		7
Losses	—			(5	)	(30	)	(5	)	—			(30	)	(5	)	(30	)
Total net realized gains on disposals of securities	$	20,425		(751	)	26,752		4,034		$	2,615		2,883		6,715		6,327

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 $89.7 million and $444.4 million in Third Quarter 2019 and Third Quarter 2018, respectively, and $461.8 million and $1,382.7 million in Nine Months 2019 and Nine Months 2018, respectively. Proceeds from the sales of equity securities were $95.2 million and $36.1 million in Third Quarter 2019 and Third Quarter 2018, respectively, and $125.3 million and $79.7 million in Nine Months 2019 and Nine Months 2018, respectively.

NOTE 5. Indebtedness

The table below provides a summary of our outstanding debt at ~~September~~June 30, ~~2019~~2020, and December 31, ~~2018:~~2019:



Outstanding Debt	Issuance Date	Maturity Date	Interest Rate		Original Amount	2020		Carry Value
($ in thousands)	Issuance Date	Maturity Date	Interest Rate		Original Amount	Unamortized Issuance Costs	Debt Discount	June 30, 2020	December 31, 2019
Description
Short-term
Issuance:
FHLBNY	3/12/2020	9/14/2020	0.78	%	100,000	—	—	100,000	—
FHLBNY	3/18/2020	9/18/2020	0.68	%	85,000	—	—	85,000	—
FHLBI	3/19/2020	12/14/2020	0.58	%	67,000	—	—	67,000	—
Total short-term debt						—	—	252,000	—

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	337	510	99,153	99,125
Senior Notes	11/16/2004	11/15/2034	7.25	%	50,000	175	88	49,737	49,725
Senior Notes	3/1/2019	3/1/2049	5.375	%	300,000	3,039	5,802	291,159	291,010

Finance lease obligations								539	737
Total long-term debt						3,551	6,400	550,588	550,597

Total debt						3,551	6,400	802,588	550,597

Outstanding Debt Issuance Date Maturity Date Interest Rate Original Amount 2019 Carry Value
($ in thousands) 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~~Our long-term debt balance did not materially change from December 31, 2019. However, we increased our short-term debt by $302 million during the first quarter of 2020 as a contingency in light of the COVID-19-related volatility and uncertainty in the financial markets. With the exception of our $50 million line of credit borrowing, all of the short-term borrowings we made in the first quarter of 2020 remained outstanding as of June 30, 2020. The proceeds from these short-term borrowings were invested in high-quality money market funds, and for the most part, were made to increase liquidity and operating flexibility.

~~Short-term debt activity included~~

Our short-term borrowings through Six Months 2020 consisted of the ~~following in Nine Months 2019:~~following:

On ~~March 7, 2019,~~February 18, 2020, Selective Insurance Company of America (“SICA”) borrowed short-term funds of ~~$50~~$85 million from the FHLBNY at an interest rate of ~~2.64%~~1.81%. This borrowing was ~~repaid~~refinanced upon its maturity on March ~~28, 2019.~~18, 2020, at a lower interest rate of 0.68%. This borrowing matures on September 18, 2020.

On ~~August 5, 2019,~~March 12, 2020, SICA borrowed ~~short-term funds of $15~~$100 million from the FHLBNY at an interest rate of ~~2.29%~~0.78%. This borrowing ~~was repaid~~matures on ~~August 12, 2019.~~September 14, 2020.

~~Long-Term Debt Activity~~

InOn March 19, 2020 Selective Insurance Company of South Carolina ("SISC") and Selective Insurance Company of the ~~first quarter of 2019, we issued $300~~Southeast ("SISE") borrowed $39 million ~~of 5.375% Senior Notes due 2049 at a discount of $5.9~~and $28 million, ~~which, when coupled with debt issuance costs of approximately $3.3 million, resulted in net proceeds~~respectively, from the ~~offering~~FHLBI at an interest rate of ~~$290.8 million. The 5.375% Senior Notes pay interest~~0.58%. These borrowings mature on ~~March 1 and September 1 of each year. The first interest payment was made on September 1, 2019. A~~December 14, 2020.


•	On March 24, 2020, the Parent borrowed $50 million on its line of credit issued by the Bank of Montreal at an interest rate of 2.244%. This borrowing was repaid on May 8, 2020.

We currently expect to extend all or a portion of the ~~proceeds from this~~remaining short-term borrowings until December 2020 and repay them by year end. As of June 30, 2020, we were compliant with our required financial debt ~~issuance was used to fully redeem~~covenants under the ~~$185 million aggregate principal amount~~line 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.credit.

For ~~detailed~~additional information on our indebtedness and debt covenants, see Note 10. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of our ~~2018~~2019 Annual Report.

NOTE 6. Fair Value Measurements

~~The~~We primarily measure 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~~June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


	September 30, 2019			December 31, 2018			June 30, 2020				December 31, 2019
($ in thousands)	Carrying Amount		Fair Value	Carrying Amount		Fair Value	Carrying Amount			Fair Value	Carrying Amount		Fair Value
Financial Liabilities
Short-term debt:
0.78% Borrowings from FHLBNY							$	100,000		100,085	—		—
0.68% Borrowings from FHLBNY							85,000			85,051	—		—
0.58% Borrowings from FHLBI							67,000			67,074	—		—
Total short-term debt							252,000			252,210	—		—

Long-term debt:
7.25% Senior Notes	49,909		65,770	49,907		57,032	49,912			65,004	49,910		66,365
6.70% Senior Notes	99,476		125,954	99,462		107,075	99,490			126,630	99,480		123,104
5.875% Senior Notes	—		—	185,000		177,230
5.375% Senior Notes	294,136		352,156	—		—	294,198			345,700	294,157		357,025
1.61% borrowings from FHLBNY	25,000		24,838	25,000		24,218	25,000			25,306	25,000		24,901
1.56% borrowings from FHLBNY	25,000		24,808	25,000		24,162	25,000			25,314	25,000		24,875
3.03% borrowings from FHLBI	60,000		63,741	60,000		58,905	60,000			67,820	60,000		63,002
Subtotal long-term debt	553,521		657,267	444,369		448,622	553,600			655,774	553,547		659,272
Unamortized debt issuance costs	(3,756	)		(4,829	)		(3,551		)		(3,687	)
Finance lease obligations	904			—			539				737
Total long-term debt	550,669			439,540			$	550,588			550,597

For ~~a discussion of~~more information about our ~~long-term debt activity in 2019, see~~short-term borrowings, refer to Note 5. "Indebtedness" ~~in this Form 10-Q, and for~~above. For a discussion of the fair value hierarchy 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 ~~2018~~2019 Annual Report.

The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at ~~September~~June 30, ~~2019~~2020, and December 31, ~~2018:~~

2019:


September 30, 2019			Fair Value Measurements Using
June 30, 2020								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)	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	—	$	119,723	43,955	75,768	—
Foreign government	21,520		—	21,520	—	17,922		—	17,922	—
Obligations of states and political subdivisions	1,190,615		—	1,190,615	—	1,203,414		—	1,200,635	2,779
Corporate securities	1,838,927		—	1,822,577	16,350	2,256,005		—	2,233,652	22,353
CLO and other ABS	768,383		—	748,504	19,879	839,521		—	804,361	35,160
RMBS						1,318,378		—	1,318,378	—
CMBS	555,731		—	555,731	—	603,193		—	603,193	—
RMBS	1,434,161		—	1,434,161	—
Total AFS fixed income securities	5,930,237		41,619	5,852,389	36,229	6,358,156		43,955	6,253,909	60,292
Equity securities:
Common stock²	76,179		42,988	—	—
Common stock¹						132,441		92,090	—	—
Preferred stock	3,034		3,034	—	—	1,617		1,617	—	—
Total equity securities	79,213		46,022	—	—	134,058		93,707	—	—
Short-term investments	326,121		319,599	6,522	—	370,390		369,158	1,232	—
Total assets measured at fair value	$	6,335,571	407,240	5,858,911	36,229	$	6,862,604	506,820	6,255,141	60,292


December 31, 2018			Fair Value Measurements Using
December 31, 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)	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	—	$	116,186	41,083	75,103	—
Foreign government	23,131		—	23,131	—	18,542		—	18,542	—
Obligations of states and political subdivisions	1,138,469		—	1,138,469	—	1,230,090		—	1,230,090	—
Corporate securities	1,617,408		—	1,617,408	—	1,947,477		—	1,930,426	17,051
CLO and other ABS	717,362		—	709,953	7,409	793,012		3,635	772,343	17,034
RMBS						1,451,969		—	1,451,969	—
CMBS	527,078		—	527,078	—	538,344		—	538,344	—
RMBS	1,128,342		—	1,128,342	—
Total AFS fixed income securities	5,273,100		78,381	5,187,310	7,409	6,095,620		44,718	6,016,817	34,085
Equity securities:
Common stock²	144,727		107,397	—	—
Common stock¹						69,900		32,145	—	—
Preferred stock	2,912		2,912	—	—	3,037		3,037	—	—
Total equity securities	147,639		110,309	—	—	72,937		35,182	—	—
Short-term investments	323,864		321,370	2,494	—	282,490		265,306	17,184	—
Total assets measured at fair value	$	5,744,603	510,060	5,189,804	7,409	$	6,451,047	345,206	6,034,001	34,085

¹Investments amounting to $40.4 million at June 30, 2020, and $37.8 million at December 31, 2019, were measured at fair value using net asset value per share (or its practical expedient) and are not classified in the fair value hierarchy. These investments are not redeemable and the timing of liquidations of the underlying assets is unknown at each reporting period disclosed above. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to total assets measured at fair value.

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

Investments amounting to $33.2 million at September 30, 2019, and $37.3 million at December 31, 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~~Six Months 2020 and Six Months 2019:


September 30, 2019
June 30, 2020
($ in thousands)	Corporate Securities		CLO and Other ABS		Total		Obligations of states and political subdivisions		Corporate Securities		CLO and Other ABS		Total
Fair value, December 31, 2018	—		7,409		7,409
Fair value, December 31, 2019							—		17,051		17,034		34,085
Total net (losses) gains for the period included in:
OCI	(69	)	(14	)	(83	)	(111	)	(1,770	)	(367	)	(2,248	)
Net income	—		244		244
Net realized and unrealized (losses) gains							—		(384	)	(349	)	(733	)
Net investment income earned							—		—		1		1
Purchases	—		18,404		18,404		—		3,002		9,690		12,692
Sales	—		—		—		—		—		—		—
Issuances	—		—		—		—		—		—		—
Settlements	—		(105	)	(105	)	—		(138	)	(1,032	)	(1,170	)
Transfers into Level 3	16,419		13,603		30,022		2,890		4,592		20,107		27,589
Transfers out of Level 3	—		(19,662	)	(19,662	)	—		—		(9,924	)	(9,924	)
Fair value, September 30, 2019	16,350		19,879		36,229
Fair value, June 30, 2020							2,779		22,353		35,160		60,292

Change in unrealized (losses) gains for the period included in earnings for assets held at period end							—		(384	)	(349	)	(733	)
Change in unrealized gains (losses) for the period included in other comprehensive income for assets held at period end							(111	)	(1,770	)	(367	)	(2,248	)

~~There were no material changes in the fair value of securities measured using Level 3 prices in Nine Months 2018.~~



June 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	(19	)	(118	)	(137	)
Net investment income earned	—		244		244
Purchases	—		15,984		15,984
Sales	—		—		—
Issuances	—		—		—
Settlements	—		(40	)	(40	)
Transfers into Level 3	16,419		13,603		30,022
Transfers out of Level 3	—		(19,662	)	(19,662	)
Fair value, June 30, 2019	16,400		17,420		33,820

Change in unrealized gains (losses) for the period included in earnings for assets held at period end	—		—		—

The following tables provide quantitative information regarding our financial assets and liabilities that were disclosed at fair value at ~~September~~June 30, ~~2019~~2020, and December 31, ~~2018~~2019:


September 30, 2019			Fair Value Measurements Using
June 30, 2020								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	$	9,426	—	9,426	—	$	4,892	—	4,892	—
Corporate securities	18,930		—	18,930	—	15,835		—	15,835	—
Total HTM fixed income securities	$	28,356	—	28,356	—	$	20,727	—	20,727	—

CMLs						$	17,949	—	3,792	14,157

Financial Liabilities
Short-term debt:
0.78% Borrowings from FHLBNY						$	100,085	—	100,085	—
0.68% Borrowings from FHLBNY						85,051		—	85,051	—
0.58% Borrowings from FHLBI						67,074		—	67,074	—
Total short-term debt						$	252,210	—	252,210	—

Long-term debt:
7.25% Senior Notes	$	65,770	—	65,770	—	$	65,004	—	65,004	—
6.70% Senior Notes	125,954		—	125,954	—	126,630		—	126,630	—
5.375% Senior Notes	352,156		—	352,156	—	345,700		—	345,700	—
1.61% borrowings from FHLBNY	24,838		—	24,838	—	25,306		—	25,306	—
1.56% borrowings from FHLBNY	24,808		—	24,808	—	25,314		—	25,314	—
3.03% borrowings from FHLBI	63,741		—	63,741	—	67,820		—	67,820	—
Total long-term debt	$	657,267	—	657,267	—	$	655,774	—	655,774	—


December 31, 2018			Fair Value Measurements Using
December 31, 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	$	17,969	—	17,969	—	$	4,921	—	4,921	—
Corporate securities	20,348		—	20,348	—	17,054		—	17,054	—
Total HTM fixed income securities	$	38,317	—	38,317	—	$	21,975	—	21,975	—

Financial Liabilities
Long-term debt:
7.25% Senior Notes	$	57,032	—	57,032	—	$	66,365	—	66,365	—
6.70% Senior Notes	107,075		—	107,075	—	123,104		—	123,104	—
5.875% Senior Notes	177,230		177,230	—	—
5.375% Senior Notes						357,025		—	357,025	—
1.61% borrowings from FHLBNY	24,218		—	24,218	—	24,901		—	24,901	—
1.56% borrowings from FHLBNY	24,162		—	24,162	—	24,875		—	24,875	—
3.03% borrowings from FHLBI	58,905		—	58,905	—	63,002		—	63,002	—
Total long-term debt	$	448,622	177,230	271,392	—	$	659,272	—	659,272	—

NOTE 7. Allowance for Uncollectible Premiums Receivable

The following table provides a rollforward of the allowance for credit losses on our premiums receivable balance for the periods indicated:



($ in thousands)	Quarter ended June 30, 2020			Six Months ended June 30, 2020
Balance at beginning of period	$	18,000		$	6,400
Cumulative effect adjustment¹	—			1,058
Balance at beginning of period, as adjusted	$	18,000		$	7,458
Current period provision for expected credit losses	4,597			15,792
Write-offs charged against the allowance for credit losses	(1,597		)	(2,250		)
Recoveries	—			—
Allowance for credit losses, end of period	$	21,000		$	21,000

¹See Note 2. "Adoption of Accounting Pronouncements" above for additional information regarding our adoption of ASU 2016-13.

Based on an evaluation of the recoverability of our premiums receivable, in light of the billing accommodations we announced during the first quarter of 2020 and the impact of recent state regulations that provided for the deferral of payments without cancellation for a period up to 90 days in certain states, which will increase earned but uncollected premiums, we recognized an additional allowance for credit losses of $13.5 million in Six Months 2020, net of write-offs. The billing accommodations include individualized payment flexibility and suspending the effect of policy cancellations, late payment notices, and late or reinstatement fees.

NOTE 8. Reinsurance

We evaluate and monitor the financial condition of our reinsurers under voluntary reinsurance arrangements to minimize our exposure to significant losses from reinsurer insolvencies. The following table provides (i) a disaggregation of our reinsurance recoverable balance by financial strength rating, and (ii) an aging analysis of our past due reinsurance recoverable balances as of June 30, 2020:



	June 30, 2020
($ in thousands)	Current			Past Due		Total Reinsurance Recoverables
Financial strength rating of rated reinsurers¹
A++	$	21,644		$	71	$	21,715
A+	361,511			2,926		364,437
A	103,553			670		104,223
A-	2,045			—		2,045
B++	500			275		775
B+	10			—		10
Total rated reinsurers	$	489,263		$	3,942	$	493,205

Non-rated reinsurers
Federal and state pools	88,531			—		88,531
Other than federal and state pools	5,359			32		5,391
Total non-rated reinsurers	$	93,890		$	32	$	93,922

Total reinsurance recoverable, gross	$	583,153		$	3,974	$	587,127
Less: allowance for credit losses²	(2,396		)	—		(2,396		)
Total reinsurance recoverable, net	$	580,757		$	3,974	$	584,731

¹Credit ratings as of June 30, 2020.

²Represents our current expectation of credit losses on total current and past due reinsurance recoverables, and is not identifiable by reinsurer.

We evaluate our estimate of expected credit losses through the methodology outlined in Note 1. “Basis of Presentation and Accounting Policies” above.

The following table provides a rollforward of the allowance for credit losses on our reinsurance recoverable balance for the periods indicated:



($ in thousands)	Quarter ended June 30, 2020		Six Months ended June 30, 2020
Balance at beginning of period	$	1,502	$	4,400
Cumulative effect adjustment¹	—		(2,903		)
Balance at beginning of period, as adjusted	$	1,502	$	1,497
Current period provision for expected credit losses	894		899
Write-offs charged against the allowance for credit losses	—		—
Recoveries	—		—
Allowance for credit losses, end of period	$	2,396	$	2,396

¹See Note 2. "Adoption of Accounting Pronouncements" for additional information regarding our adoption of ASU 2016-13.

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 ~~2018~~2019 Annual Report.


	Quarter ended September 30,					Nine Months ended September 30,					Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2019			2018		2019			2018		2020			2019		2020			2019
Premiums written:
Direct	$	785,680		752,834		$	2,359,441		2,220,431		$	834,643		807,367		$	1,581,074		1,573,761
Assumed	6,882			7,084		18,770			19,891		6,410			5,333		12,453			11,888
Ceded	(115,634		)	(108,250	)	(326,939		)	(308,846	)	(116,301		)	(111,303	)	(221,448		)	(211,305	)
Net	$	676,928		651,668		$	2,051,272		1,931,476		$	724,752		701,397		$	1,372,079		1,374,344
Premiums earned:
Direct	$	752,872		706,497		$	2,221,257		2,086,953		$	733,647		740,348		$	1,488,538		1,468,385
Assumed	6,356			6,484		18,660			19,220		6,055			5,742		12,228			12,304
Ceded	(105,608		)	(98,704	)	(311,105		)	(295,232	)	(109,031		)	(103,471	)	(218,392		)	(205,497	)
Net	$	653,620		614,277		$	1,928,812		1,810,941		$	630,671		642,619		$	1,282,374		1,275,192
Loss and loss expenses incurred:
Direct	$	437,618		477,427		$	1,297,975		1,289,357		$	451,013		435,700		$	876,808		860,357
Assumed	4,362			6,529		13,975			16,897		4,300			4,348		9,198			9,613
Ceded	(43,305		)	(104,757	)	(145,712		)	(175,786	)	(51,364		)	(59,064	)	(81,733		)	(102,407	)
Net	$	398,675		379,199		$	1,166,238		1,130,468		$	403,949		380,984		$	804,273		767,563

While direct premiums written increased in Second Quarter 2020 and Six Months 2020 compared to Second Quarter 2019 and Six Months 2019, respectively, Second Quarter 2020 was reduced by a $19.7 million premium credit to our personal and commercial automobile policyholders. Because of the unprecedented nature of the COVID-19-related governmental directives and the associated expected short-term favorable claims frequency impact, we obtained regulatory approval during April to provide this premium credit to our personal and commercial automobile customers. The premium credit to customers with in-force policies was equivalent to 15% of their April and May premiums.

Additionally, direct premiums written in Six Months 2020 was reduced by a $75 million return audit and mid-term endorsement premium accrual recorded during the first quarter of 2020. This accrual reflects a premium reduction due to lower sales and payroll exposures on the general liability and workers compensation lines of business resulting from the economic impacts of the COVID-19 pandemic.

The premium actions described above impacted direct premiums written and direct premiums earned. In addition, due to the lower exposures that drove the reduction in premium, there was a reduction in direct loss and loss expenses incurred. The reduction in direct loss and loss expenses incurred for the premium credit included a $13.3 million reduction in casualty lines and a $6.4 million reduction in non-catastrophe property losses. Direct loss and loss expenses were also impacted in Six Months 2020 by a $10.0 million incurred but not reported ("IBNR") reserve estimate recorded in the first quarter of 2020 for losses related to a small portion of our policies that include a $25,000 sub-limited coverage for specified extra expenses to clean or disinfect a property when ordered by a Board of Health.



COVID-19 Impact	Quarter ended June 30, 2020							Six Months ended June 30, 2020
($ in thousands)	Premium Audit			Premium Credit		Total		Premium Audit			Property IBNR	Premium Credit		Total
Direct premiums written	$	—		(19,740	)	(19,740	)	$	(75,000	)	—	(19,740	)	(94,740	)
Direct premiums earned	(31,824		)	(19,740	)	(51,564	)	(48,333		)	—	(19,740	)	(68,073	)
Direct loss and loss expenses incurred	(18,198		)	(19,740	)	(37,938	)	(28,073		)	10,000	(19,740	)	(37,813	)

Ceded premiums written, ceded premiums earned, and ~~losses~~ceded loss and loss expenses incurred 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,					Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2019			2018		2019			2018		2020			2019		2020			2019
Ceded premiums written	$	(74,864	)	(70,100	)	$	(206,451	)	(193,110	)	$	(74,187	)	(71,574	)	$	(136,274	)	(131,587	)
Ceded premiums earned	(65,847		)	(61,448	)	(191,914		)	(180,582	)	(67,369		)	(63,804	)	(134,230		)	(126,067	)
Ceded loss and loss expenses incurred	(27,459		)	(89,396	)	(62,208		)	(115,376	)	(12,991		)	(21,063	)	(18,087		)	(34,749	)

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 8.9. Reserve for Loss and Loss Expense

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


	Nine Months ended September 30,					Six Months ended June 30,
($ in thousands)	2019			2018		2020			2019
Gross reserve for loss and loss expense, at beginning of year	$	3,893,868		3,771,240		$	4,067,163		3,893,868
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year	537,388			585,855
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year¹						547,066			537,388
Net reserve for loss and loss expense, at beginning of year	3,356,480			3,185,385		3,520,097			3,356,480
Incurred loss and loss expense for claims occurring in the:
Current year	1,200,878			1,148,032		825,201			783,938
Prior years	(34,640		)	(17,564	)	(20,928		)	(16,375	)
Total incurred loss and loss expense	1,166,238			1,130,468		804,273			767,563
Paid loss and loss expense for claims occurring in the:
Current year	384,436			369,036		221,422			210,374
Prior years	631,589			610,734		479,736			442,820
Total paid loss and loss expense	1,016,025			979,770		701,158			653,194
Net reserve for loss and loss expense, at end of period	3,506,693			3,336,083		3,623,212			3,470,849
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period	548,938			589,072		553,694			556,203
Gross reserve for loss and loss expense at end of period	$	4,055,631		3,925,155		$	4,176,906		4,027,052

¹Includes an adjustment of $2.9 million related to our adoption of ASU 2016-13. Refer to Note 2. "Adoption of Accounting Pronouncements" for additional information.

Our current year incurred losses of $825.2 million were impacted by catastrophe losses that were $116.4 million in Six Months 2020, compared to $50.3 million in Six Months 2019. In addition, the current year incurred losses include an estimate of $10.0 million for COVID-19-related losses related to a small portion of our policies that include a $25,000 sub-limited coverage for specified extra expenses to clean or disinfect a property when ordered by a Board of Health. As of June 30, 2020, the $10.0 million remained as an IBNR reserve estimate. In most instances, COVID-19 does not cause a direct physical loss to property, and when combined with other policy wording requirements, we do not expect material business interruption losses from COVID-19. It also is our practice to include in, or attach to, all standard lines commercial property and businessowners policies an exclusion that states that all loss or property damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease is not a covered cause of loss. We also attach a regulatory approved virus exclusion to all standard commercial lines property policies. This exclusion is also included within all of our standard businessowners policies.

Prior year reserve development in ~~Nine~~Six Months ~~2019 of $34.6~~2020 was favorable by $20.9 million, which included ~~$41.0~~$25.0 million of ~~favorable~~ casualty reserve development, partially offset by ~~$6.4~~$4.1 million of unfavorable property reserve development. The favorable casualty reserve development included ~~$33.0~~$25.0 million of development in our workers compensation ~~line~~lines of business and $10.0 million in our general liability line

of business, partially offset by ~~$2.0~~$10.0 million of unfavorable ~~casualty~~ reserve development in our ~~personal~~commercial automobile line of business.

Prior year reserve development in ~~Nine~~Six Months ~~2018 of $17.6~~2019 was favorable by $16.4 million, ~~included $24.0 million of favorable~~which was driven by casualty reserve development ~~partially offset by $6.4~~of $20.0 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~~$7.0 million in our general liability line of ~~business,~~business. This was partially offset by ~~$25.0~~$10.6 million of unfavorable ~~casualty~~property reserve ~~development in our commercial automobile line of business and $12.0 million in our excess and surplus ("E&S") casualty lines.~~development.

NOTE 9.10. Segment Information

~~The~~We evaluate the results of our 4 reportable segments ~~are evaluated~~ as follows:

Our Standard Commercial Lines, Standard Personal Lines, and Excess & Surplus ("E&S&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~~After-tax net realized and unrealized gains and losses, which are not included in non-GAAP operating ~~income.~~income, are also included in our Investment segment results.

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.~~each segment.

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


Revenue by Segment	Quarter ended September 30,					Nine Months ended September 30,			Quarter ended June 30,			Six Months ended June 30,
($ in thousands)	2019			2018		2019	2018		2020		2019	2020		2019
Standard Commercial Lines:
Net premiums earned:
Commercial automobile	$	141,182		124,862		408,706	365,197		$	138,535	136,338	288,225		267,524
Workers compensation	75,478			78,784		232,657	237,628		61,906		78,464	128,612		157,179
General liability	169,084			154,974		495,402	457,805		163,273		164,793	327,853		326,318
Commercial property	89,215			83,056		262,418	245,544		95,413		87,136	189,282		173,203
Businessowners’ policies	26,371			25,994		78,624	77,414
Businessowners policies									27,516		26,172	54,552		52,253
Bonds	8,990			8,778		26,861	25,247		9,210		8,967	18,849		17,871
Other	4,841			4,608		14,326	13,597		5,151		4,779	10,211		9,485
Miscellaneous income	2,782			2,228		7,544	6,936		4,195		2,718	5,586		4,762
Total Standard Commercial Lines revenue	517,943			483,284		1,526,538	1,429,368		505,199		509,367	1,023,170		1,008,595
Standard Personal Lines:
Net premiums earned:
Personal automobile	43,226			42,772		129,777	125,024		38,189		43,388	80,676		86,551
Homeowners	31,529			32,293		95,672	96,717		31,652		32,013	63,142		64,143
Other	1,983			2,092		5,709	5,349		1,792		1,712	3,943		3,726
Miscellaneous income	380			310		991	959		488		335	922		611
Total Standard Personal Lines revenue	77,118			77,467		232,149	228,049		72,121		77,448	148,683		155,031
E&S Lines:
Net premiums earned:
Casualty lines	47,171			42,179		136,455	120,098		42,722		44,756	86,794		89,284
Property lines	14,550			13,885		42,205	41,321		15,312		14,101	30,235		27,655
Miscellaneous income	—			—		—	1		—		—	—		—
Total E&S Lines revenue	61,721			56,064		178,660	161,420		58,034		58,857	117,029		116,939
Investments:
Net investment income	55,826			52,443		164,949	141,227		34,444		58,505	90,411		109,123
Net realized and unrealized investment (losses) gains	(2,183		)	(4,787	)	15,295	(16,988	)
Net realized and unrealized investment gains (losses)									12,649		4,027	(32,017	)	17,478
Total Investments revenue	53,643			47,656		180,244	124,239		47,093		62,532	58,394		126,601
Total revenues	$	710,425		664,471		2,117,591	1,943,076		$	682,447	708,204	1,347,276		1,407,166


Income Before and After Federal Income Tax	Quarter ended September 30,					Nine Months ended September 30,			Quarter ended June 30,				Six Months ended June 30,
($ in thousands)	2019			2018		2019	2018		2020			2019	2020		2019
Standard Commercial Lines:
Underwriting gain, before federal income tax	$	30,016		26,333		92,974	74,153		$	16,730		37,143	33,856		62,958
Underwriting gain, after federal income tax	23,713			20,803		73,450	58,581		13,217			29,343	26,747		49,737
Combined ratio	94.2		%	94.5		93.9	94.8		96.7		%	92.7	96.7		93.7
ROE contribution	4.5			4.9		5.0	4.5		2.4			5.9	2.4		5.2

Standard Personal Lines:
Underwriting (loss) gain, before federal income tax	$	(631	)	3,158		7,074	6,457		$	(6,325	)	4,538	(5,938	)	7,705
Underwriting (loss) gain, after federal income tax	(499		)	2,495		5,588	5,101		(4,997		)	3,585	(4,691	)	6,087
Combined ratio	100.8		%	95.9		96.9	97.2		108.8		%	94.1	104.0		95.0
ROE contribution	(0.1		)	0.6		0.4	0.4		(0.9		)	0.7	(0.4	)	0.6

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	)
Underwriting (loss) gain, before federal income tax									$	(532	)	2,944	3,312		7,523
Underwriting (loss) gain, after federal income tax									(420		)	2,326	2,616		5,943
Combined ratio	96.9		%	93.7		94.7	103.0		100.9		%	95.0	97.2		93.6
ROE contribution	0.3			0.6		0.5	(0.3	)	(0.1		)	0.5	0.2		0.6

Investments:
Net investment income	$	55,826		52,443		164,949	141,227		$	34,444		58,505	90,411		109,123
Net realized and unrealized investment (losses) gains	(2,183		)	(4,787	)	15,295	(16,988	)
Net realized and unrealized investment gains (losses)									12,649			4,027	(32,017	)	17,478
Total investment segment income, before federal income tax	53,643			47,656		180,244	124,239		47,093			62,532	58,394		126,601
Tax on investment segment income	10,884			8,562		34,733	21,405		8,558			11,729	9,662		23,849
Total investment segment income, after federal income tax	$	42,759		39,094		145,511	102,834		$	38,535		50,803	48,732		102,752
ROE contribution of after-tax net investment income	8.6			10.0		9.1	9.0		5.2			9.6	6.6		9.2


Reconciliation of Segment Results to Income Before Federal Income Tax	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2019			2018		2019		2018		2020			2019		2020		2019
Underwriting gain (loss)
Underwriting gain
Standard Commercial Lines	$	30,016		26,333		92,974		74,153		$	16,730		37,143		33,856		62,958
Standard Personal Lines	(631		)	3,158		7,074		6,457		(6,325		)	4,538		(5,938	)	7,705
E&S Lines	1,916			3,506		9,439		(4,848	)	(532		)	2,944		3,312		7,523
Investment income	53,643			47,656		180,244		124,239		47,093			62,532		58,394		126,601
Total all segments	84,944			80,653		289,731		200,001		56,966			107,157		89,624		204,787
Interest expense	(7,397		)	(6,073	)	(26,289	)	(18,350	)	(7,928		)	(7,366	)	(15,529	)	(18,892	)
Corporate expenses	(6,369		)	(7,450	)	(28,345	)	(22,065	)	(6,345		)	(9,566	)	(15,405	)	(21,976	)
Income, before federal income tax	$	71,178		67,130		235,097		159,586		$	42,693		90,225		58,690		163,919

NOTE ~~10.~~11. Retirement Plans

~~SICA's~~The primary pension plan for our employees 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 ~~2018~~2019 Annual Report.

The following tables provide information ~~regarding~~about the Pension Plan:


	Pension Plan					Pension Plan				Pension Plan					Pension Plan
	Quarter ended September 30,					Nine Months ended September 30,				Quarter ended June 30,					Six Months ended June 30,
($ in thousands)	2019			2018		2019		2018		2020			2019		2020		2019
Net Periodic Pension Cost (Benefit):
Interest cost	$	3,376		3,095		10,129		9,285		$	2,828		3,376		5,656		6,753
Expected return on plan assets	(5,278		)	(5,681	)	(15,835	)	(17,044	)	(5,476		)	(5,278	)	(10,953	)	(10,557	)
Amortization of unrecognized net actuarial loss	644			494		1,931		1,481		704			643		1,408		1,287
Total net periodic pension cost (benefit)¹	$	(1,258	)	(2,092	)	(3,775	)	(6,278	)	$	(1,944	)	(1,259	)	(3,889	)	(2,517	)

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


	Pension Plan				Pension Plan
	Nine Months ended September 30,				Six Months ended June 30,
	2019		2018		2020		2019
Weighted-Average Expense Assumptions:
Discount rate	4.46	%	3.78	%	3.33	%	4.46	%
Effective interest rate for calculation of interest cost	4.12		3.46		2.95		4.12
Expected return on plan assets	6.50		6.36		5.80		6.50

NOTE ~~11.~~12. Comprehensive Income

The components of comprehensive income, both gross and net of tax, for ~~Third~~Second Quarter and ~~Nine~~Six Months ~~2019~~2020 and ~~Third Quarter and Nine Months 2018~~2019 were as follows:


Third Quarter 2019
Second Quarter 2020
($ in thousands)	Gross			Tax		Net		Gross			Tax		Net
Net income	$	71,178		15,028		56,150		$	42,693		8,510		34,183
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period	34,392			7,224		27,168		188,768			39,641		149,127
Non-credit portion of OTTI recognized in OCI								37,479			7,871		29,608
Amounts reclassified into net income:
HTM securities	(3		)	(1	)	(2	)	(31		)	(6	)	(25	)
Realized losses on disposals and OTTI of AFS securities	2,821			592		2,229
Realized gains on disposals and intent-to-sell OTTI on AFS securities								(1,686		)	(354	)	(1,332	)
Credit loss benefit recognized in OTTI								(4,924		)	(1,034	)	(3,890	)
Total unrealized gains on investment securities	37,210			7,815		29,395		219,606			46,118		173,488
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	665			140		525		753			158		595
Total defined benefit pension and post-retirement plans	665			140		525		753			158		595
Other comprehensive income	37,875			7,955		29,920		220,359			46,276		174,083
Comprehensive income	$	109,053		22,983		86,070		$	263,052		54,786		208,266


Third Quarter 2018
Second Quarter 2019
($ in thousands)	Gross			Tax		Net		Gross			Tax		Net
Net income	$	67,130		11,695		55,435		$	90,225		17,959		72,266
Components of other comprehensive loss:
Unrealized losses on investment securities:
Unrealized holding losses during the period	(21,565		)	(4,529	)	(17,036	)
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period								83,546			17,544		66,002
Amounts reclassified into net income:
HTM securities	(8		)	(2	)	(6	)	(21		)	(4	)	(17	)
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	)
Realized gains on disposals and OTTI of AFS securities								(1,300		)	(273	)	(1,027	)
Total unrealized gains on investment securities								82,225			17,267		64,958
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	532			112		420		664			140		524
Total defined benefit pension and post-retirement plans	532			112		420		664			140		524
Other comprehensive loss	(10,202		)	(2,143	)	(8,059	)
Other comprehensive income								82,889			17,407		65,482
Comprehensive income	$	56,928		9,552		47,376		$	173,114		35,366		137,748

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



Six Months 2020
($ in thousands)	Gross			Tax		Net
Net income	$	58,690		9,271		49,419
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period	94,787			19,905		74,882
Non-credit portion of OTTI recognized in OCI	(27,911		)	(5,861	)	(22,050	)
Amounts reclassified into net income:
HTM securities	(6		)	(1	)	(5	)
Realized losses on disposals and intent-to-sell OTTI on AFS securities	9,641			2,025		7,616
Credit loss expense recognized in OTTI	10,863			2,281		8,582
Total unrealized gains on investment securities	87,374			18,349		69,025
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	1,507			316		1,191
Total defined benefit pension and post-retirement plans	1,507			316		1,191
Other comprehensive income	88,881			18,665		70,216
Comprehensive income	$	147,571		27,936		119,635


Six Months 2019
($ in thousands)	Gross			Tax		Net
Net income	$	163,919		30,305		133,614
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period	186,472			39,157		147,315
Amounts reclassified into net income:
HTM securities	(30		)	(6	)	(24	)
Realized gains on disposals and OTTI of AFS securities	(2,377		)	(499	)	(1,878	)
Total unrealized gains on investment securities	184,065			38,652		145,413
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	1,328			279		1,049
Total defined benefit pension and post-retirement plans	1,328			279		1,049
Other comprehensive income	185,393			38,931		146,462
Comprehensive income	$	349,312		69,236		280,076

The balances ~~of,~~ and changes in each component of ~~AOCI~~Accumulated other comprehensive income ("AOCI") (net of taxes) as of ~~September~~June 30, ~~2019~~2020, were as follows:


September 30, 2019								Defined Benefit Pension and Post-Retirement Plans
June 30, 2020																								Defined Benefit Pension and Post-Retirement Plans
	Net Unrealized Gains (Losses) on Investment Securities									Total AOCI			Net Unrealized Gains (Losses) on Investment Securities														Total AOCI
($ in thousands)	OTTI Related			HTM Related		All Other	Investments Subtotal			Total AOCI		Defined Benefit Pension and Post-Retirement Plans				OTTI Related¹				HTM Related		All Other				Investments Subtotal
Balance, December 31, 2018	$	(71	)	71		1,888	1,888		(77,956	)
Balance, December 31, 2019														$	(71	)		25			170,439		170,393		(88,643	)	Total AOCI		81,750
OCI before reclassifications	—			—		174,483	174,483		—					174,483			(22,050		)		—		74,882		52,832			—		52,832
Amounts reclassified from AOCI	—			(26	)	351	325	1,574			1,899			8,582				(5	)		7,616		16,193		1,191			17,384
Net current period OCI	—			(26	)	174,834	174,808	1,574			176,382			(13,468		)		(5	)		82,498		69,025		1,191			70,216
Balance, September 30, 2019	$	(71	)	45		176,722	176,696	(78,270	)		98,426
Balance, June 30, 2020														$	(13,539	)		20			252,937		239,418		(87,452	)		151,966

¹Represents unrealized gains and losses on AFS securities with credit-related OTTI recognized in earnings.

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	Quarter ended June 30,					Six Months ended June 30,				Affected Line Item in the Unaudited Consolidated Statements of Income
($ in thousands)	2019			2018		2019		2018			2020			2019		2020		2019
HTM related
Unrealized (gains) losses on HTM disposals	$	(3	)	11		(12	)	5		Net realized and unrealized (losses) gains	$	—		(9	)	1		(9	)	Net realized and unrealized gains (losses)
Amortization of net unrealized gains on HTM securities	—			(19	)	(21	)	(33	)	Net investment income earned	(31		)	(12	)	(7	)	(21	)	Net investment income earned
	(3		)	(8	)	(33	)	(28	)	Income before federal income tax	(31		)	(21	)	(6	)	(30	)	Income before federal income tax
	1			2		7		6		Total federal income tax expense	6			4		1		6		Total federal income tax expense
	(2		)	(6	)	(26	)	(22	)	Net income	(25		)	(17	)	(5	)	(24	)	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
Net realized (gains) losses on disposals and intent-to-sell OTTI
Net realized (gains) losses on disposals and intent-to-sell OTTI											(1,686		)	(1,300	)	9,641		(2,377	)	Net realized and unrealized gains (losses)
											(1,686		)	(1,300	)	9,641		(2,377	)	Income before federal income tax
											354			273		(2,025	)	499		Total federal income tax expense
											(1,332		)	(1,027	)	7,616		(1,878	)	Net income
OTTI related
Credit loss (benefit) expense recognized in OTTI											(4,924		)	—		10,863		—		Net realized and unrealized gains (losses)
											(4,924		)	—		10,863		—		Income before federal income tax
	2,821			10,839		444		18,258		Income before federal income tax	1,034			—		(2,281	)	—		Total federal income tax expense
	(592		)	(2,276	)	(93	)	(3,834	)	Total federal income tax expense	(3,890		)	—		8,582		—		Net income
	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	162			145		324		290		Loss and loss expense incurred
	519			420		1,557		1,258		Other insurance expenses	591			519		1,183		1,038		Other insurance expenses
Total defined benefit pension and post-retirement life	665			532		1,993		1,595		Income before federal income tax	753			664		1,507		1,328		Income before federal income tax
	(140		)	(112	)	(419	)	(335	)	Total federal income tax expense	(158		)	(140	)	(316	)	(279	)	Total federal income tax expense
	525			420		1,574		1,260		Net income	595			524		1,191		1,049		Net income

Total reclassifications for the period	$	2,752		8,977		1,899		15,662		Net income	$	(4,652	)	(520	)	17,384		(853	)	Net income

NOTE ~~12. Leases~~13. Litigation

WeAs of June 30, 2020, we do not believe we are involved in any legal action that could 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 reneweda material adverse effect on our consolidated financial condition, results of operations, or ~~replaced by similar leases.~~cash flows.

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 recognized, on an after-tax basis, as a cumulative-effect adjustment to 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.

~~The components of lease expense in Third Quarter and 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.~~



	~~September 30, 2019~~
~~Weighted-average remaining lease term~~
~~Operating leases~~	6	~~years~~
~~Finance leases~~	2
~~Weighted-average discount rate~~
~~Operating leases~~	~~3.4~~	%
~~Finance leases~~¹	~~2.0~~

¹~~Prior 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 ~~can be named as defendants~~are parties in various legal actions. Most 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.~~them; or (iii) liability insurers seeking declaratory judgment on our insurance coverage obligations. We account for such activity through the establishment of unpaid loss and loss expense reserves. In ordinary course claims litigation, we expect that any potential ultimate liability, 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.

All of our commercial property and businessowners policies require direct physical loss of or damage to property by a covered cause of loss. Whether COVID-19-related contamination, the existence of the COVID-19 pandemic, and the resulting COVID-19-related government shutdown orders cause physical loss of or damage to property is already the subject of much public debate and first-party coverage litigation against some insurers. We cannot predict the outcome of that litigation, which may interpret language similar or identical to what is in our insurance policies. It also is our practice to include in, or attach to, all standard lines commercial property and businessowners policies an exclusion that states that all loss or property damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease is not a covered cause of loss. That exclusion also may be the subject of first-party coverage litigation against some insurers. We cannot predict the outcome of that litigation, which may interpret language similar or identical to what is in our insurance policies.

From time to time, our Insurance Subsidiaries also are named as defendants in other legal actions, some of which assert claims for substantial amounts. Plaintiffs may style these actions as putative class actions and seek judicial certification of a state or national class for allegations involving our business practices, such as improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance policies or improper reimbursement for automobile

parts. Similarly, our Insurance Subsidiaries can be named in individual actions seeking extra-contractual damages, punitive damages, or penalties, often alleging bad faith in the handling of insurance claims. We believe that we have valid defenses to these 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, after consideration of provisions made for estimated losses, will not be material to our consolidated financial condition. Nonetheless, litigation outcomes are inherently unpredictable and, because the amounts sought in certain of these actions are large or indeterminate, it is possible that any adverse outcomes could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

As of September 30, 2019, we do not believe 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.

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

Forward-Looking Statements

~~As used herein, the~~The terms "Company," "we," "us," orand "our" ~~refers~~refer 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~~about our intentions, beliefs, current expectations, and projections ~~regarding~~for our ~~company’s~~ future operations and performance. Such statements are “forward-looking statements” ~~within the meaning of~~under the Private Securities Litigation Reform Act of 1995. These forward-looking statements often 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~~in forward-looking statements include, ~~but are not limited to,~~without limitation, those discussed ~~under~~in Item 1A. “Risk Factors” ~~below~~ in Part II. “Other ~~Information.” These~~Information” of this Form 10-Q. Our stated 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 may have 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.~~statement. 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, other than as may be required under the federal securities laws, to publicly update ~~these~~or revise any forward-looking statements ~~due to changes in underlying factors, new information, future developments, or otherwise.~~for any reason.

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:~~segments:

Standard Commercial Lines;

Standard Personal Lines;

E&S Lines; and

Investments.

For further details ~~regarding~~about these segments, refer to Note 9.10. "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, ~~2018~~2019 ("~~2018~~2019 Annual Report").

~~Our~~We write our Standard Commercial and Standard Personal Lines products and services ~~are written~~ through nine ~~of our Insurance Subsidiaries,~~insurance subsidiaries, some of which write flood business through the federal government's National Flood Insurance Program's ("NFIP") Write Your Own Program ("WYO") ~~program of the National Flood Insurance Program ("NFIP")~~. ~~Our~~We write our E&S products and services ~~are written~~ through ~~one~~another subsidiary, Mesa Underwriters Specialty Insurance ~~Company. This subsidiary~~Company, which provides us with a nationally-authorized non-admitted platform ~~to offer insurance products and services to~~for customers who ~~have not obtained~~generally cannot obtain coverage in the standard marketplace. Collectively, we refer to our ten insurance subsidiaries as the "Insurance Subsidiaries."

The following is Management’s Discussion and Analysis (“MD~~&A”~~&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~~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 ~~2018~~2019 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:

Current Events and economic impacts from the COVID-19-related government directives;

Critical Accounting Policies and Estimates;

•

Financial Highlights of Results for the ~~third~~second quarters ended ~~September~~June 30, 2020 (“Second Quarter 2020”) and June 30, 2019 (“~~Third~~Second Quarter 2019”) and ~~September~~the six-month periods ended June 30, ~~2018~~ (“~~Third Quarter 2018~~”2020 ("Six Months 2020") and ~~the nine-month periods ended September~~June 30, 2019 ~~(“Nine~~("Six Months ~~2019”~~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.

Current Events: Coronavirus ("COVID-19") Pandemic

Business Overview

Selective entered 2020 with record levels of GAAP equity, holding company cash and invested assets, statutory surplus and strong financial results. We believe our strong financial position reflects our disciplined capital management and underwriting and investment execution. Early in 2020, the COVID-19 pandemic quickly moved from China to the rest of the globe. During Six Months 2020, governmental (international, federal, state, and local) actions to contain or delay the spread of the COVID-19 pandemic resulted in directives requiring social distancing, operational alteration or temporary closure of most non-essential businesses to limit public access, and the “sheltering-in-place” of everyone other than essential workers in many instances. We smoothly transitioned substantially all of our employees to remote, home-based status. Currently, approximately 2,250 of our 2,300 employees are working remotely. Under most governmental directives, insurance is an essential business. While these governmental directives have begun to slowly expire in some of our operating states, we have continued to service our customers, agents, and other stakeholders from a remote work environment. Despite this transition in our work environment, we have successfully been able to maintain our expected service-level standards for claims handling, underwriting, premium audit processes and safety management services.

Because most of our employees are now working remotely, we have changed some of the methods of regular communication and increased the use of video and phone conferencing on robust and secure applications. Our officers, managers, and supervisors have enhanced their connection with their teams. Throughout Second Quarter 2020, our Chief Executive Officer has hosted a number of company-wide virtual town hall meetings to provide organizational updates and address areas of general employee concern. To keep our employees fully informed about COVID-19-related developments, we (i) disseminate regular health, safety, and other communications (ii) established an on-line coronavirus center with information, links to valuable resources, and helpful videos, and (iii) continued our pre-COVID-19 online “pulse surveys” to gauge employees’ views on various issues. Our employees have rated our communications around COVID-19 positively.

Our methods to communicate with customers, agents, and vendors generally have remained the same since the COVID-19 crisis, although the frequency of communication has increased. Additionally, our field model and safety management functions, which typically rely on in-person meetings, have been substantially replaced with greater telecommunications, and virtual or remote interactions, with some limited site visits still occurring. One of our strategic initiatives for several years has been to provide our customers with a superior omni-channel customer experience. Accordingly, we have developed the ability to respond to our customers in their preferred method of communication - whether by phone, email, text, or social media. We have communicated with our customers regarding COVID-19 through phone, email, and social media.

Our internal operations have also been functioning well and continue to work effectively despite the changes in the environment. We continue to process claims, underwrite the renewal inventory of our policies, and operate our corporate functions during this time of working remotely.

AM Best lowered its outlook on the U.S. commercial lines sector to "Negative" from "Stable" after Fitch Ratings ("Fitch") took a similar action. Both cited COVID-19 as the reason for the negative industry outlook and expectations for (i) lower premium volume, (ii) reduced surplus/equity from investment declines, and (iii) lower-for-longer interest rates, which would put pressure on the need for additional underwriting income.

On April 10, 2020, 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 and return metrics that have remained favorable compared to our peers. The review considered Fitch's current assessment of the impact of COVID-19, including (i) its economic impact, under a set of ratings assumptions related to interest rate levels, (ii) declines in the market values of stocks, bonds, derivatives, and other capital market instruments typically owned or traded by insurance companies, (iii) market liquidity, and (iv) the magnitude of claim/benefit exposures related to the COVID-19 pandemic.

Our field-based agency management specialist, claims management specialist, and safety management models have proven to be advantageous in the COVID-19 crisis, as our existing IT infrastructure and security were able to accommodate the move of nearly all of our office-based employees to remote, home-based employees and maintain expected customer and agent service levels. Our strong relationships with, and our continued support for, our approximately 1,400 local independent distribution partners, most of whom also have transitioned to a remote work environment, have also enabled us to continue providing our customers with the same levels of service they have come to expect from us.

Control Environment

Since the beginning of the COVID-19 pandemic, we have not had to modify in any significant way our existing internal controls or processes. To monitor and manage COVID-19-related developments, we convened our existing Executive Risk Committee (comprised of our Executive Chairman, Chief Executive Officer, Chief Financial Officer, and other key financial executives, including our Chief Accounting Officer, Chief Investment Officer, Chief Risk Officer, Chief Audit Executive, General Counsel, Chief Claims Officer, Chief Actuary, Chief Information Officer, Chief Human Resources Officer, and Business Unit leaders) (“ERC”), who met daily in March, multiple times a week through April, and transitioned to weekly meetings in May, June, and July. The ERC actively reviews and addresses all significant operational, compliance, and financial risk matters. This oversight includes matters such as employee health and safety, facilities matters, operational business continuity, IT including third-party vendors, regulatory developments, premium collections, past due accounts, investments, liquidity, capital, cash flow, claims activity, and other key business metrics. Our Management Investment Committee ("MIC") also met weekly in the early days of the COVID-19-related financial market disruption, but more recently has transitioned to meeting every two weeks. The MIC has carefully reviewed detailed portfolio metrics and market projections, and has interacted directly with our portfolio managers during this crisis, allowing it to make proactive investment decisions on an informed basis. Our Board of Directors transitioned from weekly meetings with senior executives through April to bi-weekly meetings in May, June, and July to ensure appropriate corporate governance and oversight.

We have not experienced any material impact to our internal control environment over financial reporting despite the fact that the majority of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 current events to minimize the impact these events may have on our internal controls and their design and operating effectiveness.

Given the remote environment, which was initially required by certain governmental directives, remote access to critical systems is required. Our cybersecurity program was well–positioned to support increased remote working arrangements and respond to an increase in attempted attacks to exploit the COVID-19 outbreak without rolling back controls to enable remote working. For several years, our IT security strategy has emphasized endpoint controls for cloud computing and employee mobility. This strategy leveraged a virtual private network with multi-factor authentication, which is supplemented by a virtual desktop infrastructure where necessary or appropriate, to create a highly available and centrally-managed end-user environment. Our cybersecurity strategy has always included an information security education and awareness program that combines training with testing aligned to key security exposures, including phishing and social engineering. We also recently bolstered our phishing risk management by deploying multiple technology-driven controls that include malicious content checks, malicious link blocking, and reputation-based rules. The cybersecurity program also anticipated an increase in attempts to disrupt our information systems and deployed safeguards to prevent interruption to key customer and agent-facing technologies.

Financial Overview

Through Second Quarter and Six Months 2020, underwriting results include the following COVID-19-related items:

A $75 million return audit and mid-term endorsement premium accrual recorded in the first quarter of 2020 to reflect the anticipated decline in sales and payroll exposures on the workers compensation and general liability lines of business based on our estimate of reduced exposures due to the significant economic slowdown. Net of reduced losses and commissions, the earned impact of the return audit and mid-term endorsement premium accrual lowered pre-tax underwriting results by $6.6 million, pre-tax, in Second Quarter 2020 and $10.5 million, pre-tax, in Six Months 2020. During Second Quarter 2020, we endorsed polices that reduced our accrual by approximately $14 million, resulting in a $61 million accrual as of June 30, 2020.

A $19.7 million reduction in NPW recorded in Second Quarter 2020 reflecting a premium credit to our personal and commercial automobile customers with in-force policies equivalent to 15% of their April and May premiums, resulting from the unprecedented nature of the COVID-19-related governmental directives and the associated favorable claims frequency impact. During Second Quarter 2020, the premium credits were offset by an equal reduction in loss and loss expenses, as claims frequency on our personal and commercial automobile lines of business declined due to reduced miles being driven resulting from governmental directives. As the number of vehicles we insure has not

significantly declined, frequencies are returning closer to normal levels as the COVID-19-related governmental directives terminate, and there is uncertainty about potential impacts to severities, we do not believe that changes in our filed rating plans are appropriate at this time.

A $10.0 million, pre-tax, incurred but not reported ("IBNR") reserve estimate recorded in the first quarter of 2020 for losses related to a small portion of our policies that include a $25,000 sub-limited coverage for specified extra expenses to clean or disinfect a property when ordered by a Board of Health. Through June 30, 2020, the $10.0 million remained as an IBNR reserve estimate.

An additional allowance for uncollectible premiums receivable of $3.0 million, pre-tax, in Second Quarter 2020 and $13.5 million, pre-tax, in Six Months 2020. We recorded this allowance after evaluating the recoverability of our premiums receivable in light of the COVID-19-related billing accommodations we announced in the first quarter of 2020, and the impact of recent state regulations that provided for the deferral of payments without cancellation for a period up to 90 days in certain states, which will increase earned but uncollected premiums. These state regulations are in the process of expiring, with the last of the regulations currently anticipated to end in early August 2020. We have offered customers, sometimes in collaboration with or at the direction of our regulators, individualized payment flexibility and suspended the effect of policy cancellations, late payment notices, and late or reinstatement fees.

Overall, these four items (i) reduced pre-tax underwriting results by $9.6 million, or $0.13 per diluted share, in Second Quarter 2020 and $34.0 million, or $0.45 per diluted share, in Six Months 2020, (ii) increased the combined ratio by 1.3 points in Second Quarter 2020 and 2.4 points in Six Months 2020, and (iii) decreased our Second Quarter 2020 annualized return on equity ("ROE") by 1.4 points and our Six Months 2020 annualized ROE by 2.4 percentage points.

During Second Quarter and Six Months 2020, investment results included the following items that reflected the significant economic conditions created by COVID-19:

We recorded a benefit for pre-tax other-than-temporary impairments ("OTTI") of $4.3 million in Second Quarter 2020 and OTTI expense of $27.3 million in Six Months 2020. The year-to-date expense reflected the significant widening of credit spreads and reduced future economic activity over the near term due to COVID-19, as well as our desire to provide our investment managers flexibility to trade the portfolio. The benefit in Second Quarter 2020 reflected higher security valuations as a result of improved market conditions during the course of the quarter. For more details about these and other items related to our financial results, see the section below entitled, "Financial Highlights of Results for Second Quarter and Six Months 2020 and Second Quarter and Six Months 2019."

We recorded pre-tax losses of $16.0 million in Second Quarter 2020 and $9.7 million in Six Months 2020 on our alternative investment portfolio, which are recorded on a one-quarter lag. These losses reflect the significant market decline in the first quarter of 2020. As these investments are largely recorded on a one-quarter lag, these results do not reflect the improvement in market conditions during Second Quarter 2020.

Due to the unprecedented financial market volatility and resulting significant decline in fixed income and equity market valuations in March 2020, combined with the COVID-19-related governmental orders, and out of abundance of caution, we increased our short-term debt by $302 million in March 2020 through borrowings from the Federal Home Loan Bank of New York ("FHLBNY") and the Federal Home Loan Bank of Indianapolis (“FHLBI”) and under our credit agreement ("Line of Credit"). Our primary objective was to increase liquidity and operating flexibility of the Parent and the Insurance Subsidiaries. The proceeds from these borrowings were invested in highly-liquid money market funds. We repaid our $50 million borrowing under the Line of Credit in May 2020 and we expect to repay the remaining $252 million of short-term borrowings by the end of 2020. For further details, see Note 5. "Indebtedness" in Item 1. "Financial Statements." of this Form 10-Q.

Critical Accounting Policies and Estimates

Our unaudited interim consolidated financial statements include amounts ~~based on our~~for which we have made informed estimates and judgments for ~~those~~ transactions ~~that are~~ not yet ~~complete.~~completed. Such estimates and judgments affect the reported amounts in the consolidated financial statements. ~~Those~~As outlined in our 2019 Annual Report, 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");~~OTTI; and (iv) reinsurance. ~~These~~There have been no material changes from the critical accounting policies and estimates disclosed on pages 31 through 40 of our 2019 Annual Report; however, in light of the COVID-19 pandemic, we have made additional changes to critical accounting estimates that are described below.

Further economic instability related to existing and future COVID-19-related governmental directives or changes in legislation could ultimately impact our estimates and ~~judgments~~assumptions, and consequently, changes in the below estimates may be material to our results of operations in future periods.

Reserves for Loss and Loss Expenses

There has been considerable discussion and focus on the potential for insurance industry losses arising from COVID-19, particularly as it relates to claims from business interruption losses. Our Standard Commercial Lines property and businessowners policies require direct physical loss of or damage to property by a covered cause of loss, for our property policies to respond to a claim. While each potential claim is adjusted on its unique facts and based on the ~~use~~terms and conditions of ~~assumptions~~the specific policy, COVID-19-related contamination, the existence of a pandemic, and/or the resulting preventative government shutdown orders generally are not insured under Standard Commercial property and businessowners policies.

Our Standard Commercial property and businessowners policies also specifically exclude all loss or damage caused by or resulting from a virus or bacteria. We believe this exclusion applies to preclude coverage for losses related to the COVID-19 virus. Approximately 6% of our policyholders purchase a sub-limited extra expense coverage that provides up to $25,000 in limit for the additional cost associated with cleaning the property when ordered by a Board of Health after an outbreak of communicable disease at the premises. Our current year incurred losses include an estimate of $10 million of IBNR for these sub-limited coverages in response to the COVID-19 pandemic. For our E&S segment, our property forms contain the same language as our standard commercial lines segment that requires “direct physical loss of or damage to”, but most of these forms do not contain a specific virus or bacteria exclusion. Property accounts for approximately 30% of our E&S segment premium, and, of that amount, only about ~~matters~~a quarter of our customers within our E&S segment purchase policies with business interruption coverage. In total, within our standard commercial lines and E&S segments, 95% of our property policies include the specific virus or bacteria exclusion.

Through June 30, 2020, actual workers compensation claims activity due to COVID-19-related exposures was minimal. When considered in conjunction with the overall decrease in claim reporting levels, we believe the COVID-19-related exposures are sufficiently captured within our current workers compensation loss estimates. It is possible that ~~are~~we might incur increased loss and loss expenses if more covered employees contract COVID-19 in the course of their employment. There also may be general liability exposure arising out of business re-openings. This would be a slower emerging exposure that remains highly uncertain at this time.

If the COVID-19 pandemic results in significant property or liability related losses, we have substantial reinsurance protection, that we believe would provide us with recoveries. Our main property catastrophe excess of loss treaty program has a $40 million retention and ~~therefore, are~~then provides coverage up to $775 million in ground up losses, subject to ~~change~~some co-participation and reinstatement premium. For losses outside of our original 22 state footprint, including our five new expansion states and some of our largest E&S states, the retention drops to $5 million. With property losses and potential business interruption claims, including any COVID-19-related losses, our reinsurers “follow the fortunes” of our underlying polices. That means, if any clause in the underlying policy is invalidated - whether by a court or a legislature - our reinsurance coverage would continue to apply. Our property catastrophe excess of loss program contains aggregating language that allows us, in our sole discretion, to accumulate all property losses commencing within a 168 hour period to a single occurrence or multiple occurrences. We also have the sole discretion to decide when the 168 hours begins, and all losses that occurred during and continuing after that period, such as the case with business interruption losses, would be included in the reinsured loss calculation. Our casualty excess of loss contract, which would cover workers compensation and general liability claims and does not include any exclusions for communicable disease or pandemic, has a $2 million retention and provides coverage limits above that to $90 million. Similar to our property catastrophe reinsurance program, our casualty excess of loss program allows us to aggregate multiple losses, including losses under different liability coverages, as a single occurrence. Our casualty reinsurers also follow our fortunes in the policy interpretation. Except for the $10 million of property IBNR we recorded for the sub-limited property coverages, we do not expect material COVID-19-related losses. If the facts and circumstances ~~develop. If~~change, we have a robust reinsurance program that provides significant protection.

OTTI

The various COVID-19-related governmental directives impacted the financial markets, which became volatile. This volatility increased gross unrealized losses on our available-for-sale ("AFS") fixed income securities portfolio from $7.7 million at December 31, 2019, to $116.9 million at March 31, 2020, and back down to $39.9 million at June 30, 2020. We analyzed these unrealized losses for OTTI in accordance with our existing accounting policy, which includes performing discounted cash flow ("DCF") analyses on each security at the lot level and analyzing these DCFs using three different ~~estimates~~economic scenarios.

In performing these DCF analyses, we calculate the present value of future cash flows using various models specific to the major security types in our portfolio. These models use security-specific information and ~~judgments had been applied, materially different amounts might have been reported~~forecasted macroeconomic data to

determine possible expected credit loss scenarios based on projected changes in the economy. The forecasted economic data incorporated in the models is based on the Federal Reserve Board’s annual supervisory stress test review on certain large banks and financial ~~statements.~~institutions. We also have the ability to incorporate internally-developed forecast information into the models as we deem appropriate. Model scenarios include a baseline assumption with moderate economic expansion, an adverse assumption with a weakening economy, and a severely adverse assumption with a global recession. In developing our best estimate of the allowance for credit losses, we consider our outlook as to the probability of each of these scenarios occurring.

Based on these analyses, we recorded OTTI expense for expected credit losses of $11.1 million during Six Months 2020. After giving consideration to these credit loss allowances, the remaining unrealized losses on our AFS fixed income securities was $39.9 million. We believe that the volatility and increased unrealized loss balance was driven by fluctuating and widening credit spreads tied to financial market uncertainty about the various COVID-19-related governmental directives. If the assumptions used in our DCF analyses or our outlook as to the occurrence probability of our DCF model scenarios were to change, the resulting impairment could be material to our results of operations. For additional information ~~regarding~~about the unrealized losses in our ~~critical accounting~~AFS fixed income portfolio, see Note 4. "Investments" in Item 1. "Financial Statements." of this Form 10-Q.

Premium Audit

We estimate the amount of premium anticipated to be either billed or returned on policies ~~refer~~subsequent to ~~pages 37~~expiration based on exposure levels (i.e., payroll or sales). This estimate of earned but unbilled premium is based on historical trends adjusted for the uncertainty of current and future economic conditions. In the first quarter of 2020, we recorded a $75 million return audit and mid-term endorsement premium accrual, which was in response to the COVID-19 pandemic and the anticipated decline in sales and payroll exposures on the general liability and workers compensation lines of business. During Second Quarter 2020, we endorsed polices that reduced our accrual by approximately $14 million, resulting in a $61 million accrual as of June 30, 2020. We currently anticipate the balance of the endorsements or return audit premiums to occur through 46the end of 2021. Further economic instability or extended COVID-19-related governmental directives could ultimately impact our ~~2018~~ ~~Annual Report.~~estimates and assumptions, and consequently, changes in this liability estimate may be material to the results of operations in future periods. For additional details about this estimate, see Note 8. "Reinsurance" in Item 1. "Financial Statements." of this Form 10-Q.

Allowance for Uncollectible Premiums Receivable

We estimate an allowance for expected credit losses on our outstanding premiums receivable balance at each reporting date. In determining this allowance, we use a method that considers the aging of the receivable, based on the effective year of the related policy, along with our historical credit loss experience. We also contemplate expected macroeconomic conditions over the expected receivables collection period that, because the majority of the balances are collected within a year of policy issuance, is short-term in nature. We increased our allowance for uncollectible accounts by $3.0 million in Second Quarter 2020 and $13.5 million in Six Months 2020, net of write-offs, to reflect (i) the higher risk of non-payment due to the significant COVID-19-related decline in economic activity, (ii) the individualized payment flexibility that we are currently offering our customers, and (iii) our suspension of the effect of policy cancellations, late payment notices, and late or reinstatement fees. These suspensions are in the process of expiring, with the last of the suspensions currently anticipated to end in early August 2020. Due to the impact of recent state regulations that provided for the deferral of payments without cancellation for a period up to 90 days in certain states, which will increase earned but uncollected premiums, we expect an increase in our allowance for uncollectible premiums receivable in the third quarter of 2020 as well.

Similar to our estimate of premium audit, future COVID-19-related economic instability or governmental directives could ultimately impact our estimates and assumptions. Consequently, a change in our allowance estimate may be material to our results of operations in future periods. For additional details about this estimate, see Note 7. "Allowance for Uncollectible Premiums Receivable" in Item 1. "Financial Statements." of this Form 10-Q.

Financial Highlights of Results for ~~Third~~Second Quarter and ~~Nine~~Six Months ~~2019~~2020 and ~~Third~~Second Quarter and ~~Nine~~Six Months ~~2018~~2019¹


($ 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 June 30,						Change % or Points				Six Months ended June 30,						Change % or Points
($ and shares in thousands, except per share amounts)	2019			2018	Change % or Points			2019			2018				2020				2019			Change % or Points			2020				2019			Change % or Points
Financial Data:
Revenues	$	710,425		664,471	7		%	$	2,117,591		1,943,076	Change % or Points	9		%		$	682,447			708,204		(4	)	%		$	1,347,276			1,407,166		(4	)	%
After-tax net investment income	45,374			42,875	6			134,319			116,254	16				28,542				47,622		(40	)			74,025				88,945		(17	)
After-tax underwriting income	24,728			26,068	(5	)		86,495			59,852	45				7,800				35,254		(78	)			24,672				61,767		(60	)
Net income before federal income tax	71,178			67,130	6			235,097			159,586	47				42,693				90,225		(53	)			58,690				163,919		(64	)
Net income	56,150			55,435	1			189,764			133,179	42				34,183				72,266		(53	)			49,419				133,614		(63	)
Diluted net income per share	0.93			0.93	—			3.16			2.23	42
Diluted weighted-average outstanding shares	60,057			59,711	1			59,960			59,626	1

Key Metrics:
Combined ratio	95.2		%	94.6	0.6		pts	94.3		%	95.8	(1.5	)	pts		98.4		%		93.1		5.3		pts		97.6		%		93.9		3.7		pts
Invested assets per dollar of stockholders' equity	$	3.07		3.37	(9	)	%	$	3.07		3.37	(9	)	%		$	3.10			3.12		(1	)	%		$	3.10			3.12		(1	)	%
After-tax yield on investments	2.8		%	3.0	(0.2	)	pts	2.9		%	2.7	0.2		pts
ROE																6.2				14.5		(8.3	)	pts		4.4				13.9		(9.5	)	pts
Statutory premiums to surplus ratio																1.4			x	1.4		—				1.4			x	1.4		—

Per Share Amounts:
Diluted net income per share																0.57				1.21		(53	)	%		0.82				2.23		(63	)	%
Book value per share	$	35.98		29.52	22		%	$	35.98		29.52	22		%		$	38.43			34.71		11				$	38.43			34.71		11
Dividends declared per share to stockholders	0.20			0.18	11			0.60			0.54	11				0.23				0.20		15				0.46				0.40		15
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	$	58,765		59,216	(1	)	%	$	181,870		146,599	24		%
Non-GAAP Information:
Non-GAAP operating income²																$	24,190			69,085		(65	)	%		$	74,712			123,105		(39	)	%
Diluted non-GAAP operating income per share²	0.97			0.99	(2	)		3.02			2.46	23				0.40				1.16		(66	)			1.24				2.06		(40	)
Annualized non-GAAP operating ROE²	11.2		%	13.8	(2.6	)	pts	12.3		%	11.3	1.0		pts		4.4		%		13.9		(9.5	)	pts		6.7		%		12.8		(6.1	)	pts


¹	Refer to the Glossary of Terms attached to our ~~2018~~2019 Annual Report as Exhibit 99.1 for definitions of terms used inof this Form 10-Q.

Non-GAAP operating income is ~~used as~~ an important financial measure ~~by us,~~that we, analysts, and investors use because the timing of the realization of net investment gains and losses on sales of securities in any given period is largely ~~discretionary as to timing.~~discretionary. In addition, ~~these~~ net realized investment gains and losses, OTTI ~~that are charged~~recorded to earnings, 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 June 30,					Six Months ended June 30,
($ in thousands)	2019		2018		2019		2018		2020			2019		2020		2019
Net income	$	56,150	55,435		189,764		133,179		$	34,183		72,266		49,419		133,614
Net realized and unrealized losses (gains), before tax	2,183		4,787		(15,295	)	16,988
Net realized and unrealized (gains) losses, before tax									(12,649		)	(4,027	)	32,017		(17,478	)
Debt retirement costs, before tax	—		—		4,175		—		—			—		—		4,175
Tax on reconciling items	432		(1,006	)	3,226		(3,568	)	2,656			846		(6,724	)	2,794
Non-GAAP operating income	$	58,765	59,216		181,870		146,599		$	24,190		69,085		74,712		123,105


Reconciliation of net income per diluted share to non-GAAP operating income per diluted share	Quarter ended September 30,				Nine Months ended September 30,				Quarter ended June 30,					Six Months ended June 30,
	2019		2018		2019		2018		2020			2019		2020		2019
Net income per diluted share	$	0.93	0.93		3.16		2.23		$	0.57		1.21		0.82		2.23
Net realized and unrealized losses (gains), before tax	0.04		0.08		(0.26	)	0.28
Net realized and unrealized (gains) losses, before tax									(0.21		)	(0.06	)	0.53		(0.29	)
Debt retirement costs, before tax	—		—		0.07		—		—			—		—		0.07
Tax on reconciling items	—		(0.02	)	0.05		(0.05	)	0.04			0.01		(0.11	)	0.05
Non-GAAP operating income per diluted share	$	0.97	0.99		3.02		2.46		$	0.40		1.16		1.24		2.06


Reconciliation of annualized ROE to annualized non-GAAP operating ROE	Quarter ended September 30,				Nine Months ended September 30,				Quarter ended June 30,				Six Months ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Annualized ROE	10.7	%	12.9		12.9		10.3		6.2	%	14.5		4.4		13.9
Net realized and unrealized losses (gains), before tax	0.4		1.1		(1.0	)	1.3
Net realized and unrealized (gains) losses, before tax									(2.3	)	(0.8	)	2.9		(1.8	)
Debt retirement costs, before tax	—		—		0.3		—		—		—		—		0.4
Tax on reconciling items	0.1		(0.2	)	0.1		(0.3	)	0.5		0.2		(0.6	)	0.3
Annualized non-GAAP operating ROE	11.2	%	13.8		12.3		11.3		4.4	%	13.9		6.7		12.8

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 June 30,					Change Points			Six Months ended June 30,					Change Points
	2019		2018				2019			2018			Change Points		2020			2019			Change Points		2020			2019			Change Points
Standard Commercial Lines Segment	4.5	%	4.9		Change Points	(0.4	)		5.0			4.5		0.5			2.4	%		5.9		(3.5	)		2.4			5.2		(2.8	)
Standard Personal Lines Segment	(0.1	)	0.6		(0.7	)		0.4			0.4		—			(0.9	)		0.7		(1.6	)		(0.4	)		0.6		(1.0	)
E&S Lines Segment	0.3		0.6		(0.3	)		0.5			(0.3	)	0.8			(0.1	)		0.5		(0.6	)		0.2			0.6		(0.4	)
Total insurance operations	4.7		6.1		(1.4	)		5.9			4.6		1.3			1.4			7.1		(5.7	)		2.2			6.4		(4.2	)

Investment income	8.6		10.0		(1.4	)		9.1			9.0		0.1			5.2			9.6		(4.4	)		6.6			9.2		(2.6	)
Net realized and unrealized (losses) gains	(0.5	)	(0.9	)	0.4			0.8			(1.0	)	1.8
Net realized and unrealized gains (losses)																1.8			0.6		1.2			(2.3	)		1.4		(3.7	)
Total investments segment	8.1		9.1		(1.0	)		9.9			8.0		1.9			7.0			10.2		(3.2	)		4.3			10.6		(6.3	)

Other	(2.1	)	(2.3	)	0.2			(2.9	)		(2.3	)	(0.6	)		(2.2	)		(2.8	)	0.6			(2.1	)		(3.1	)	1.0

Annualized ROE	10.7	%	12.9		(2.2	)		12.9			10.3		2.6			6.2	%		14.5		(8.3	)		4.4			13.9		(9.5	)

~~In Third~~We experienced a significant level of catastrophe losses in Second Quarter ~~2019, we generated~~2020, driven by industry-wide U.S. catastrophe loss activity that significantly exceeded the 10-year historical median. Second Quarter 2020 pre-tax net catastrophe losses totaled$83.2 million, and were related to losses from numerous catastrophe events designated by the Insurance Services Office's Property Claims Services unit, including two April storms ($43 million) and claims related to civil unrest ($20 million). These losses along with a tornado and subsequent hail event that impacted Tennessee in early March 2020, drove catastrophe losses in Six Months 2020 to $116.4 million. Compared to the same prior year periods, these losses reduced net income ~~per diluted share of $0.93,~~by $42.5 million, after-tax, in ~~line with the same quarter a year ago. Non-GAAP operating income per diluted share was $0.97, compared~~Second Quarter 2020 and $52.2 million, after-tax, in Six Months 2020. In addition to ~~$0.99 a year ago. The Third Quarter 2019~~catastrophe losses, our results were impacted ~~by:~~by the COVID-19-related charges discussed in "Current Events" above, partially offset by (i) ~~higher than expected levels of~~lower non-catastrophe property loss and loss expenses, ~~of $5 million, after-tax, or $0.09 per diluted share;~~ and (ii) ~~$3 million~~ongoing expense management initiatives. Some of ~~after-tax employee severance-related~~these initiatives can be seen as temporary as a result of the COVID-19 shelter-in-place government directives, and relate to lower travel and entertainment expenses, ~~split between underwriting~~ and ~~corporate expenses on~~some short-term project and new hire deferrals.

Also contributing to 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~~decline 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~~after-tax net investment income was down 40% in ~~the value of our fixed income securities portfolio, which experienced net unrealized after-tax gains of approximately $29~~Second Quarter 2020 to $28.5 million ~~during Third~~compared to Second Quarter 2019, and ~~$175~~down 17% in Six Months 2020 to $74.0 million ~~during Nine~~compared to Six Months 2019. ~~This growth was partially offset~~These decreases were primarily driven by ~~dividends paid~~alternative investment losses of $16.0 million pre-tax, or $12.6 million after-tax, in Second Quarter 2020, and $9.7 million pre-tax, or $7.7 million after-tax, in Six Months 2020. These results are reported on a one-quarter lag, and reflect the market decline during the first quarter of 2020. These losses compare to ~~shareholders.~~pre-tax income on the alternative investment portfolio of $7.3 million, or $5.8 million after-tax, in Second Quarter 2019, and $7.9 million pre-tax in Six Months 2019, or $6.2 million after-tax.

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 overall insurance ~~segments~~operations delivered profitable results in ~~Third Quarter and Nine Months 2019,~~both periods, contributing 1.4 points to ~~a combined~~an annualized ROE in ~~the quarter of 4.7%~~Second Quarter 2020 and 2.2 points in ~~the year-to-date period of 5.9%.~~Six Months 2020. The ~~Third Quarter 2019~~ annualized ROE decreased ~~1.4~~5.7 points in Second Quarter 2020 and 4.2 points in Six Months 2020, compared to ~~Third Quarter 2018, reflecting~~the same prior year periods. These decreases reflected an increase in our combined ratio of ~~0.6 points. The increase~~5.3 points in Second Quarter 2020 and 3.7 points in Six Months 2020, which was ~~principally~~largely 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 our distribution partners and employees.catastrophe losses.

The annualized ROE in Nine Months 2019 increased 1.3 points compared to Nine Months 2018, because of the improvement in the combined ratio of 1.5 points. The combined ratio improvement was principally driven by: (i) lower levels of non-catastrophe property loss and 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 June 30,				Change % or Points				Six Months ended June 30,				Change % or Points
($ in thousands)		2019			2018	Change % or Points			2019			2018				2020			2019		Change % or Points			2020			2019		Change % or Points
Insurance Operations Results:	Insurance Operations Results:												Change % or Points				Insurance Operations Results:
Net premiums written ("NPW")		$	676,928		651,668	4		%	$	2,051,272		1,931,476	6		%		$	724,752		701,397	3		%		$	1,372,079		1,374,344	—		%
Net premiums earned (“NPE”)		653,620			614,277	6			1,928,812			1,810,941	7				630,671			642,619	(2	)			1,282,374			1,275,192	1
Less:
Loss and loss expense incurred		398,675			379,199	5			1,166,238			1,130,468	3				403,949			380,984	6				804,273			767,563	5
Net underwriting expenses incurred		222,599			199,791	11			648,693			598,437	8				216,191			215,441	—				445,428			426,094	5
Dividends to policyholders		1,045			2,290	(54	)		4,394			6,274	(30	)			658			1,569	(58	)			1,443			3,349	(57	)
Underwriting income		$	31,301		32,997	(5	)	%	$	109,487		75,762	45		%		$	9,873		44,625	(78	)	%		$	31,230		78,186	(60	)	%
Combined Ratios:
Loss and loss expense ratio		60.9		%	61.7	(0.8	)	pts	60.5		%	62.5	(2.0	)	pts		64.0		%	59.4	4.6		pts		62.8		%	60.2	2.6		pts
Underwriting expense ratio		34.1			32.5	1.6			33.6			33.0	0.6				34.3			33.5	0.8				34.7			33.4	1.3
Dividends to policyholders ratio		0.2			0.4	(0.2	)		0.2			0.3	(0.1	)			0.1			0.2	(0.1	)			0.1			0.3	(0.2	)
Combined ratio		95.2			94.6	0.6			94.3			95.8	(1.5	)			98.4			93.1	5.3				97.6			93.9	3.7

~~Our Third~~In Second Quarter ~~and Nine Months~~2020, our NPW increased 3% compared to Second Quarter 2019, ~~results continue to reflect~~reflecting our efforts to: (i) achieve overall renewal pure price increases at levels that are in line with expected loss trend; (ii) generate new business; and (iii) ~~improve~~increase retention. This increase was partially offset by a $19.7 million premium credit to our personal ($4.3 million) and commercial ($15.4 million) automobile customers, which were accounted for as a reduction in NPW and reduced the ~~underlying profitability of our business through various underwriting and claims initiatives. We continue to execute on our strategy for disciplined~~overall NPW growth ~~with 4% growth~~by 3 percentage points. NPW in ~~Third Quarter 2019~~Six Months 2020 was further impacted by a $75 million accrual for estimated return audit and ~~6% growth~~mid-term endorsement premiums, which resulted in ~~Nine~~relatively flat NPW in Six Months 2020 compared to Six Months 2019. The premium credit and accrual for estimated return audit and mid-term endorsement premiums are related to the COVID-19 pandemic discussed in "Current Events" above. Although NPW remained flat in Six Months 2020 compared to Six Months 2019, our new business grew to $302.9 million in Six Months 2020 compared to ~~the same prior year periods. This growth was primarily due~~$291.3 million in Six Months 2019. Contributing to ~~renewal pure price increases and~~our new business growth ~~in our Standard Commercial Lines. Our growth~~ was ~~aided by~~ the net appointment of 5748 retail agents, excluding agency consolidations.

Loss and Loss Expenses

The ~~decreases~~increase in the loss and loss expense ratio during ~~both periods presented above were driven~~Second Quarter and Six Months 2020 compared to Second Quarter and Six Months 2019 was impacted by the following:


	Third Quarter 2019						Third Quarter 2018									Second Quarter 2020						Second Quarter 2019
($ 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	$	24.2		3.7		pts	$	28.1		4.6		pts	(0.9	)	pts	$	83.2		13.2		pts	$	29.5		4.6		pts	8.6		pts
(Favorable) prior year casualty reserve development	(14.0		)	(2.1	)		(12.0		)	(2.0	)		(0.1	)		(15.0		)	(2.4	)		(17.0		)	(2.6	)		0.2
Non-catastrophe property loss and loss expenses	108.8			16.7			100.8			16.4			0.3			81.8			13.0			92.8			14.4			(1.4	)
Total	119.0			18.3			116.9			19.0			(0.7	)		150.0			23.8			105.3			16.4			7.4

																Six Months 2020						Six Months 2019
	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			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	$	116.4		9.1		pts	$	50.3		3.9		pts	5.2		pts
(Favorable) prior year casualty reserve development	(41.0		)	(2.1	)		(24.0		)	(1.3	)		(0.8	)		(25.0		)	(1.9	)		(27.0		)	(2.1	)		0.2
Non-catastrophe property loss and loss expenses	309.6			16.1			310.9			17.2			(1.1	)
Non-catastrophe property loss and loss expenses¹																189.9			14.8			200.8			15.7			(0.9	)
Total	343.1			17.9			359.8			19.9			(2.0	)		281.3			22.0			224.1			17.5			4.5

¹Non-catastrophe property loss and loss expenses include an estimate of $10 million in response to the COVID-19 pandemic, which is discussed in "Current Events" above.

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 June 30,						Six Months ended June 30,
($ in millions)	2019				2018		2019		2018		2020				2019		2020		2019
General liability	$	(3.0	)		(8.0	)	(10.0	)	(8.0	)	$	(10.0	)		(5.0	)	(10.0	)	(7.0	)
Commercial automobile	—				10.0		—		25.0		10.0				—		10.0		—
Workers compensation	(13.0		)		(20.0	)	(33.0	)	(53.0	)	(15.0		)		(12.0	)	(25.0	)	(20.0	)
Total Standard Commercial Lines	(16.0		)		(18.0	)	(43.0	)	(36.0	)	(15.0		)		(17.0	)	(25.0	)	(27.0	)

Homeowners	—				—		—		—
Personal automobile	2.0				—		2.0		—
Total Standard Personal Lines	2.0				—		2.0		—

E&S	—				6.0		—		12.0

Total (favorable) prior year casualty reserve development	$	(14.0	)		(12.0	)	(41.0	)	(24.0	)	$	(15.0	)		(17.0	)	(25.0	)	(27.0	)

(Favorable) impact on loss ratio	(2.1		)	pts	(2.0	)	(2.1	)	(1.3	)	(2.4		)	pts	(2.6	)	(1.9	)	(2.1	)

In addition to the above, the Second Quarter and Six Months 2020 results included a reduction to NPW for the $19.7 million mentioned above, of which there was an offsetting reduction in our casualty loss costs of $13.3 million in both periods. The reduction in our casualty loss costs decreased our loss ratio by 2.4 points in Second Quarter 2020 and 1.1 points in Six Months 2020. These favorable current year loss costs impacted our commercial and personal automobile lines of business, reflecting anticipated decreases in frequencies as a result governmental shelter-in-place directives.

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

Underwriting Expenses

The underwriting expense ratio increased 0.8 points in Second Quarter 2020 and 1.3 points in Six Months 2020, compared to the same prior year periods. The COVID-19 items mentioned above, including the impact of the lower premiums earned, increased the expense ratio by 2.2 points in Second Quarter 2020 and 2.1 points in Six Months 2020. This also included a $3.0 million increase in Second Quarter 2020 and a $13.5 million increase in Six Months 2020 in our allowance for uncollectible accounts on our premiums receivable, which is discussed in "Current Events" above. Partially offsetting the COVID-19-related expense increases were expense management initiatives we instituted in March 2020 to help reduce our other insurance expenses, which are included in net underwriting expenses in the table above, as a result of the shelter-in-place government directives. This included reducing our travel and entertainment expenses, canceling or deferring various agency management meetings and events, deferring some projects until later in 2020, and deferring the expected hiring date of open new hire positions until fourth quarter of 2020. While we view these initiatives as temporary, they provided a modest benefit to the expense ratio in the Second Quarter and Six Months 2020.

Investments Segment

~~Net~~Decreased annualized ROE in our Investments segment were driven by after-tax net investment income ~~after tax, grew 6%~~that decreased 40% in ~~Third~~Second Quarter ~~2019~~2020 and ~~16%~~17% in ~~Nine~~Six Months ~~2019,~~2020, compared to the same prior year periods, ~~principally driven by: (i) cash flows from operations that were 22%~~mainly due to alternative investment portfolio losses of ~~NPW~~$16.0 million in Second Quarter 2020 and $9.7 million in Six Months 2020. These losses are recorded on a one-quarter lag, and reflect the market decline in the first 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 2018.2020.

Net realized and unrealized gains and losses increased Second Quarter 2020 annualized ROE and reduced Six Months 2020 annualized ROE ~~by 0.5 points in Third Quarter 2019,~~ compared to ~~a reduction~~the same prior year periods. During Six Months 2020, net realized and unrealized investment losses were $32.0 million, compared to gains of ~~0.9 points~~$17.5 million in ~~Third Quarter 2018.~~ the prior year period. These current year losses were significantly impacted by the COVID-19-related market volatility in the first quarter of 2020, which resulted in higher OTTI expense and unrealized losses on our equity securities portfolio. For additional information about the drivers behind the OTTI expense, see "Critical Accounting Policies and Estimates" above.

Net realized and unrealized investment gains in Second Quarter 2020 were $12.6 million, up $8.6 million from net realized and ~~losses increased ROE~~unrealized investment gains of $4.0 million in Second Quarter 2019. The increase was driven by ~~0.8 points in Nine Months 2019, compared to a reduction of 1.0 point in Nine Months 2018. The~~an improvement in both ~~periods was primarily driven by a reduction~~unrealized losses in ~~realized losses~~our equity portfolio and the reversal of previously-recognized credit loss allowance amounts on our fixed income securities portfolio, ~~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~~both reflecting improvements in the ~~sale, which was principally offset by a $21.4 million reversal of previously-recorded unrealized gains on these securities.~~market during the quarter.

Other

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

level, reduced ROE by 2.2 points in Second Quarter 2020 and 2.1 points ~~and 2.9~~in Six Months 2020, compared to 2.8 points in ~~Third~~Second Quarter 2019 and ~~Nine Months 2019, respectively, compared to 2.3~~3.1 points in ~~both Third Quarter and Nine~~Six Months ~~2018.~~2019. The quarter-to-date ~~variance was~~and year-to-date variances were driven primarily by a 0.4-point and 0.6-point decrease, respectively, in stock compensation expense related to ~~our liability-based~~employee long-term incentive compensation awards, as the stock price decreased 19% through Six Months 2020 compared to a 23% increase in ~~Third Quarter~~Six Months 2019. In the first quarter of 2019, ~~was less than the 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 $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 also incurred ~~after-tax~~ debt retirement costs of $3.3 million ~~which~~related to our 5.375% Senior Notes issuance that reduced ~~our~~that quarter's ROE by ~~0.2 points in Nine Months 2019. These costs have been excluded from non-GAAP operating income.~~0.7 points.

Outlook

We ended ~~2018~~2019 with ~~record levels~~a well-capitalized balance sheet, a high level of ~~capital~~embedded profitability within our underwriting and ~~liquidity~~investment portfolios, and ~~our~~ strong ~~Nine Months 2019 results have continued~~financial strength ratings, which placed us in an excellent position to ~~improve our financial position. In~~withstand the ~~first quarter~~COVID-19-related period of ~~2019, we executed our first institutional public debt offering with the issuance of $300 million aggregate principal amount of 5.375% Senior Notes.~~economic downturn, market volatility, and heightened uncertainty.

~~For 2019, we have established a~~However, the impact of COVID-19, an elevated period of catastrophe loss activity in the U.S., and losses within our alternative investments portfolio negatively impacted our results through Six Months 2020. We generated an annualized non-GAAP operating ROE of 6.7% in Six Months 2020, which was 4.3 points below our 2020 target of 11%, and 6.1 points below Six Months 2019. Our 2020 non-GAAP operating ROE target of ~~12%, which~~11% 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~~conditions.

During these unprecedented times, we remain focused on our ~~target with 12.3% annualized non-GAAP operating ROE through Nine Months 2019.~~

Askey strategic initiatives. In 2020, we ~~head into the closing months of 2019, our~~will continue to focus ~~will be~~ on the following ~~areas:~~areas to maintain our financial position:

~~Achieving~~Actively managing the investment portfolio to minimize the impact of lower interest rates on after-tax yields while managing credit, duration, and liquidity risk. The sharp decline in the reinvestment rate environment for high-quality fixed income securities will put downward pressure on industry-wide investment portfolio returns and income, forcing the industry to improve its underwriting results to generate adequate returns. We are well positioned with

sophisticated underwriting and pricing tools, and an appropriately priced in-force book of business to continue to generate profitable underwriting results.

Continuing to achieve written renewal pure price increases that meet or exceed expected loss trend and delivering on our strategy for continued disciplined growth. Our Six Month 2020 overall renewal pure pricing was 4.0%. While we continue to navigate a challenging economic environment, we are comfortable with the overall price adequacy of our book of business, obtaining renewal pure price increases that have been in 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,~~growth. We have consistently maintained a disciplined underwriting appetite over the past decade. In the current economic environment, we continue to work with our agents to provide our policyholders the support they need. Our field-based model, which provides high-touch service to our policyholders and agents for safety management, claims handling, and underwriting, is a clear advantage in the current environment. We will ~~be driven by the addition of new agents,~~

~~greater "share of wallet" in~~continue working to achieve our ~~existing agents’ offices, and 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~~partners representing approximately 25% of their markets and seeking an average ~~"share~~share of ~~wallet"~~wallet of 12% ~~across the relationships.~~with these partners. 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.about $3 billion.

~~Actively managing the investment portfolio~~Identifying opportunities to enhance ~~after-tax yields while managing credit, duration,~~operational efficiencies, and ~~liquidity~~evaluating process improvements by better leveraging technologies, automation, and robotics, to lower our expense ratio over time. While we recognize it is essential to continue investing in initiatives related to our technology platforms, sophisticated underwriting tools, and customer experience, we are committed to balancing these goals with an efficient operating structure. As previously discussed, our expense ratio was elevated in Second Quarter and Six Months 2020 due to COVID-19 impacts, and in the short-term, we have taken actions to reduce our expenses. Over the longer term, we will focus on right-sizing our expense structure to meet the business opportunity set, and we will seek meaningful opportunities to generate efficiencies through process re-design and technological improvements.

~~risk. There was a significant decline in interest rates in Nine Months 2019, which demonstrates the need~~

In addition to ~~maintain~~our focus on maintaining a strong financial position in 2020 and beyond, we continue to enhance our customer experience strategy by offering value-added technologies and services. We have made major strides in recent years to enhance the customer experience, including various self-service and digital service offerings. In the current challenging environment, we provide our policyholders the option of engaging with us in the channel that works best for them. Our marketing tagline, "Be Uniquely Insured," was rolled out in 2019, and speaks to our differentiated value proposition for our customers and distribution partners. Investing in and building out technologies that improve the customer experience journey remains a core focus ~~on underwriting discipline to generate adequate returns on invested capital.~~for us.

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 industry average combined ratio that averaged 99.6% during the 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 for continued success in this low interest rate environment. As we look to the remainder of ~~2019,~~2020, we ~~remain pleased with~~will not let the COVID-19 pandemic, market volatility, or challenging economic conditions deter us from pursuing our ~~financial~~objective of being an industry leader. We have a team in place that is focused on identifying opportunities and ~~strategic position. Our steadfast focus on underwriting discipline, combined with the investments~~ways in which we ~~are making today in~~can enhance our ~~franchise distribution model, sophisticated underwriting tools~~product, service capabilities, and ~~technology, and overall customer experience in an omni-channel environment, will~~operating structure

to position us well for ~~continued long-term success.~~the post-COVID environment. We will continue to strive to offer best-in-class customer service and product offerings, while also generating superior returns for our shareholders over time.

For ~~2019, Conning, Inc.'s ("Conning") third quarter 2019 "Property-Casualty Forecast & Analysis" forecasts a property and casualty insurance industry statutory combined ratio~~2020, our revised full year guidance, which reflects the current estimated full-year impact of 96.7%, with a 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 feel positive about the overall environment, and believe our major initiatives highlighted above set the stage for continued financial outperformance.

~~After three quarters of results, our full-year expectations are~~COVID-19, is as follows:

A GAAP combined ratio, excluding catastrophe losses, of ~~91.0%~~between 90% and 91%. This represents an improvement from our first quarter of 2020 guidance, which was between 92% and 93%. Our combined ratio estimate assumes no ~~fourth quarter~~additional prior-year casualty reserve ~~development;~~

development in the second half of the year;

Catastrophe losses of ~~3.5 points;~~

6.0 points on the combined ratio, reflecting higher than expected losses through the first half of the year. As COVID-19 has not been designated a catastrophe event by the Insurance Services Office's Property Claims Services unit, such losses are not included in this ratio;

After-tax net investment income of ~~$180~~approximately $170 million, ~~which includes $14~~a $10 million improvement from our first quarter of 2020 guidance of $160 million. We now expect up to $5 million in after-tax net investment income from our alternative investments;

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

Weighted average shares of 6060.5 million on a diluted basis.

Our 2020 guidance reflects the estimated full-year impact of COVID-19 on our underwriting results. Our guidance this year has a higher degree of uncertainty than prior years due to the dynamic and fluid nature of the impact of the COVID-19 pandemic on the United States economy, our business and our operations.

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 June 30,				Change % or Points				Six Months ended June 30,				Change % or Points
($ in thousands)	2019			2018	Change % or Points			2019			2018				2020			2019		Change % or Points			2020			2019		Change % or Points
Insurance Segments Results:												Change % or Points
NPW	$	532,921		502,312	6		%	$	1,636,983		1,526,318	7		%		$	583,342		557,379	5		%		$	1,101,774		1,104,062	—		%
NPE	515,161			481,056	7			1,518,994			1,422,432	7				501,004			506,649	(1	)			1,017,584			1,003,833	1
Less:
Loss and loss expense incurred	304,038			291,110	4			895,999			858,550	4				307,037			293,152	5				619,195			591,961	5
Net underwriting expenses incurred	180,062			161,323	12			525,627			483,455	9				176,579			174,785	1				363,090			345,565	5
Dividends to policyholders	1,045			2,290	(54	)		4,394			6,274	(30	)			658			1,569	(58	)			1,443			3,349	(57	)
Underwriting income	$	30,016		26,333	14		%	$	92,974		74,153	25		%		$	16,730		37,143	(55	)	%		$	33,856		62,958	(46	)	%
Combined Ratios:
Loss and loss expense ratio	59.0		%	60.5	(1.5	)	pts	59.0		%	60.4	(1.4	)	pts		61.4		%	57.9	3.5		pts		60.9		%	59.0	1.9		pts
Underwriting expense ratio	35.0			33.5	1.5			34.6			34.0	0.6				35.2			34.5	0.7				35.7			34.4	1.3
Dividends to policyholders ratio	0.2			0.5	(0.3	)		0.3			0.4	(0.1	)			0.1			0.3	(0.2	)			0.1			0.3	(0.2	)
Combined ratio	94.2			94.5	(0.3	)		93.9			94.8	(0.9	)			96.7			92.7	4.0				96.7			93.7	3.0

The ~~increases~~increase in NPW for the quarter-to-date period was driven by: (i) renewal pure price increases; and (ii) retention, as shown in the ~~quarter~~table below. In the year-to-date period, the higher retention and renewal pure price increases shown in the table below were offset by a $75 million return audit and mid-term endorsement premium accrual related to the COVID-19 pandemic discussed in "Current Events" above, of which $46 million was recorded in our general liability line of business and $29 million was recorded in our workers compensation line of business. The quarter-to-date and year-to-date periods ~~reflected~~also include a $15.4 million premium credit to our commercial automobile customers as a result of the COVID-19 pandemic. These premium items reduced the NPW growth rate by 2 percentage points in Second Quarter 2020 and 8 percentage points in Six Months 2020 compared to the ~~table above were driven by: (i) direct new business;~~prior year periods. These items also impacted NPE as the premium audit accrual reduced NPE by $30.4 million in Second Quarter 2020 and ~~(ii) renewal pure price increases.~~$46.9 million in Six Months 2020, and the $15.4 million premium credit to our commercial automobile customers was fully earned in Second Quarter and Six Months 2020.


	Quarter ended September 30,				Change % or Points			Nine Months ended September 30,					Change % or Points			Quarter ended June 30,					Change % or Points				Six Months ended June 30,					Change % or Points
($ in millions)	2019			2018			2019		2018			2020				2019				2020	Change % or Points			2019						Change % or Points
Direct new business	$	96.5		90.4	Change % or Points		7	%		316.2			Change % or Points		289.5	9	%		$	109.9		110.7			(1	)	%		225.3			219.7	3	%
Retention																86		%	83		3		pts		85	%		83		2	pts
Renewal pure price increases	3.5			3.7	(0.2	)		3.3			3.5		(0.2	)		3.9			3.1		0.8				4.0			3.2		0.8
Retention	84		%	84	—		pts	83	%		83		—		pts

The loss and loss expense ratio ~~decreased 1.5~~increased 3.5 points in ~~Third~~Second Quarter ~~2019~~2020 and 1.9 points in Six Months 2020 compared to ~~Third Quarter 2018, and decreased 1.4 points~~the respective prior year periods, driven, in ~~Nine Months 2019 compared to Nine Months 2018, and were driven~~part, by the following:

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
Catastrophe losses $ 14.8
2.9
pts $ 22.1
4.6
pts (1.7 ) pts
Non-catastrophe property loss and loss expenses 76.7
14.9
67.1
13.9
1.0

(Favorable) prior year casualty reserve development (16.0 ) (3.1 ) (18.0 ) (3.7 ) 0.6

Total 75.5
14.7
71.2
14.8
(0.1 )

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 $ 52.1
3.4
pts $ 52.0
3.7
pts (0.3 ) pts
Non-catastrophe property loss and loss expenses 213.8
14.1
208.3
14.6
(0.5 )
(Favorable) prior year casualty reserve development (43.0 ) (2.8 ) (36.0 ) (2.5 ) (0.3 )
Total 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.



	Second Quarter 2020						Second Quarter 2019
($ 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	$	50.7		10.1		pts	$	21.3		4.2		pts	5.9		pts
Non-catastrophe property loss and loss expenses	60.9			12.2			62.8			12.4			(0.2	)
(Favorable) prior year casualty reserve development	(15.0		)	(3.0	)		(17.0		)	(3.4	)		0.4
Total	96.6			19.3			67.1			13.2			6.1

	Six Months 2020						Six Months 2019
($ 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	$	71.4		7.0		pts	$	37.3		3.7		pts	3.3		pts
Non-catastrophe property loss and loss expenses	140.5			13.8			137.1			13.7			0.1
(Favorable) prior year casualty reserve development	(25.0		)	(2.5	)		(27.0		)	(2.7	)		0.2
Total	186.9			18.3			147.4			14.7			3.6

For additional information regarding ~~favorable prior year casualty reserve development by line of business,~~the amounts in the table above, see ~~the~~ "Financial Highlights of Results for ~~Third~~Second Quarter and ~~Nine~~Six Months ~~2019~~2020 and ~~Third~~Second Quarter and ~~Nine~~Six Months ~~2018" section~~2019" above and the line of business discussions below.

~~There~~

In addition to the above, the Second Quarter and Six Months 2020 results included a reduction to NPW for the $15.4 million premium credit to our commercial automobile customers mentioned above, of which there was an offsetting reduction in our casualty loss costs of $10.8 million in both periods. This reduction in our casualty loss costs decreased our loss ratio by 2.5 points in Second Quarter 2020 and 1.1 points in Six Months 2020. As discussed in the "Current Events" section above, the automobile premium credit was income neutral with the remaining offset reflected in lower non-catastrophe property losses, as shown in the table above. These favorable current year loss costs impacted our commercial automobile line of business, reflecting anticipated decreases in frequencies as a ~~1.5-point~~result of governmental shelter-in-place directives.

The 0.7-point and 1.3-point increase in the underwriting expense ratio in ~~Third~~Second Quarter 2020 and Six Months 2020 compared to Second Quarter 2019 ~~compared to Third~~and Six Months 2019 was primarily driven by a 0.8-point increase in Second Quarter ~~2018,~~2020 and a ~~0.6-point~~1.1-point increase in ~~the underwriting expense ratio in Nine~~Six Months ~~2019 compared to Nine Months 2018. The primary driver was increased profit-based expenses to our distribution partners and employees of 0.6 points~~2020 in the ~~quarter and 0.4 points~~allowance for uncollectible premium receivable mentioned in ~~the year-to-date period.~~"Current Events" above.

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 June 30,						Change % or Points			Six Months ended June 30,							Change % or Points
($ in thousands)		2019			2018			2019			2018					Change % or Points		2020				2019				Change % or Points		2020			2019					Change % or Points
NPW		$	172,471		160,105	Change % or Points		8	%		$	536,448			494,984			8		%		$	200,917		185,278			8	%		$	351,711			363,977			(3	)	%
Direct new business		27,788			26,768	4			92,288				86,210			7				31,468				32,314		(3	)		67,354				64,499			4
Retention		85		%	85	—		pts	83			%	84			(1	)	pts		87			%	84		3		pts	86			%	83			3		pts
Renewal pure price increases		3.3			2.9	0.4			2.7				2.7			—				3.8				2.3		1.5			3.8				2.4			1.4
NPE		$	169,084		154,974	9		%	$	495,402			457,805			8		%		$	163,273			164,793		(1	)	%	$	327,853			326,318			—		%
Underwriting income		22,399			24,374	(8	)		62,232				54,074			15				25,108				20,784		21			38,182				39,833			(4	)
Combined ratio		86.8		%	84.3	2.5		pts	87.4			%	88.2	%		(0.8	)	pts		84.6			%	87.4		(2.8	)	pts	88.4			%	87.8	%		0.6		pts
% of total Standard Commercial Lines NPW		32			32				33				32							34				33					32				33

Six Months 2020 NPW was reduced by a $46 million estimated return audit and mid-term endorsement premium accrual due to the COVID-19 pandemic discussed in "Current Events" above and reduced the NPW growth rate by 12 percentage points in Six Months 2020 compared to Six Months 2019. This accrual also reduced NPE by $19 million in Second Quarter 2020 and $29 million in Six Months 2020.

The fluctuations in the combined ratios illustrated in the table above included the following:


	Third Quarter 2019						Third Quarter 2018									Second Quarter 2020						Second Quarter 2019
($ 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	$	(3.0	)	(1.8	)	pts	$	(8.0	)	(5.2	)	pts	3.4		pts	$	(10.0	)	(6.1	)	pts	$	(5.0	)	(3.0	)	pts	(3.1	)	pts

	Nine Months 2019						Nine Months 2018
																Six Months 2020						Six Months 2019
($ 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	$	(10.0	)	(2.0	)	pts	$	(8.0	)	(1.7	)	pts	(0.3	)	pts	$	(10.0	)	(3.1	)	pts	$	(7.0	)	(2.1	)	pts	(1.0	)	pts

The ~~Third~~Second Quarter and ~~Nine~~Six Months 2020 reserve development was primarily attributable to favorable reserve development on loss severities in accident years 2016 and prior. The Second Quarter and Six Months 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.~~2016.

In addition, the combined ratio increased in Six Months 2020 compared to Six Months 2019 due to an increase in the underwriting expense ratio from a 1.2-point increase in the allowance for uncollectible premiums receivable, which more than offset the favorable prior year casualty development discussed above.


Commercial Automobile	Commercial Automobile																				Commercial Automobile
		Quarter ended September 30,						Change % or Points			Nine Months ended September 30,							Change % or Points				Quarter ended June 30,							Change % or Points			Six Months ended June 30,							Change % or Points
($ in thousands)		2019				2018				2019			2018					Change % or Points		2020				2019					Change % or Points		2020			2019					Change % or Points
NPW		$	150,765			135,579		Change % or Points		11	%		$	453,201			399,506			13		%		$	160,697			155,191			4	%		$	329,007			302,436			9	%
Direct new business		24,096				23,363		3			80,840				70,668			14				32,143				28,554			13			61,000				56,744			8
Retention		85			%	82		3		pts	82			%	83			(1	)	pts		86			%	82			4		pts	86			%	81			5		pts
Renewal pure price increases		7.5				7.5		—			7.4				7.4			—				7.6				7.4			0.2			7.6				7.3			0.3
NPE		$	141,182			124,862		13		%	$	408,706			365,197			12		%		$	138,535			136,338			2		%	$	288,225			267,524			8		%
Underwriting loss		(11,398		)		(22,785	)	50			(28,919		)		(46,922	)		38				(7,706		)		(8,800	)		12			(8,480		)		(17,521	)		52
Combined ratio		108.1			%	118.2		(10.1	)	pts	107.1			%	112.8			(5.7	)	pts		105.6			%	106.5			(0.9	)	pts	102.9			%	106.5			(3.6	)	pts
% of total Standard Commercial Lines NPW		28				27					28				26							28				28						30				27

The increases in NPW shown in the table above reflect renewal pure price increases, ~~on this line, coupled with~~higher retention, and an increase in new ~~business as we continue to write commercial automobile policies as part of our overall customer accounts.~~business. The growth in NPW also reflects (i) 6% growth of ~~13% in Nine Months 2019~~in-force vehicle counts as of June 30, 2020 compared to ~~Nine Months 2018 reflects an 8% growth in vehicle counts~~June 30, 2019, and ~~a 7.4%~~(ii)7.6% renewal pure price ~~increase, reflecting~~increases for both Second Quarter and Six Months 2020, due to our efforts to improve profitability on this line ~~by actively implementing price increases~~ in recent years. These increases were partially offset by a $15.4 million premium credit to our commercial automobile customers as a result of the COVID-19 pandemic, which reduced the NPW growth rate by 10 percentage points in Second Quarter 2020 and 5 percentage points in Six Months 2020 compared to the same prior year periods. This premium credit was fully earned in Second Quarter and Six Months 2020.

The combined ratio improvements outlined above were driven by the following:


	Third Quarter 2019				Third Quarter 2018							Second Quarter 2020				Second Quarter 2019
($ 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
Catastrophe losses												$	1.1	0.8	pts	$	0.9	0.7	pts	0.1		pts
Non-catastrophe property loss and loss expenses	$	26.5	18.8	pts	$	21.9	17.6	pts	1.2		pts	17.1		12.3		23.9		17.5		(5.2	)
Unfavorable prior year casualty reserve development	—		—		10.0		8.0		(8.0	)		10.0		7.2		—		—		7.2
Catastrophe losses	1.2		0.9		0.4		0.3		0.6
Total	27.7		19.7		32.3		25.9		(6.2	)		28.2		20.3		24.8		18.2		2.1


	Nine Months 2019				Nine Months 2018							Six Months 2020				Six Months 2019
($ 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
Catastrophe losses												$	1.4	0.5	pts	$	1.1	0.4	pts	0.1		pts
Non-catastrophe property loss and loss expenses	$	75.5	18.5	pts	$	65.6	18.0	pts	0.5		pts	40.1		13.9		48.9		18.3		(4.4	)
Unfavorable prior year casualty reserve development	—		—		25.0		6.8		(6.8	)		10.0		3.5		—		—		3.5
Catastrophe losses	2.3		0.6		1.9		0.5		0.1
Total	77.8		19.1		92.5		25.3		(6.2	)		51.5		17.9		50.0		18.7		(0.8	)

~~Our~~The Second Quarter and Six Months 2020 results included a reduction to NPW for the $15.4 million premium credit to our commercial automobile customers mentioned above, of which there was an offsetting reduction in our casualty loss costs of $10.8 million in both periods This reduction in our casualty loss costs decreased our loss ratio by 7.8 points in Second Quarter 2020 and 3.7 points in Six Months 2020. As discussed in the "Current Events" section above, the automobile premium credit was income neutral with the remaining offset reflected in lower non-catastrophe property losses, as reflected in the table above. These favorable current year loss costs impacted our commercial automobile line of business, ~~has not experienced~~reflecting anticipated decreases in frequencies as a result of governmental shelter-in-place directives.

The Second Quarter and Six Months 2020 prior year casualty reserve development ~~in 2019. The unfavorable development in Third Quarter 2018 and Nine Months 2018~~ was primarily ~~due~~attributable to ~~higher claim frequencies, and to some extent~~unfavorable reserve development on loss severities in accident years ~~2015~~2016 through ~~2017.~~2019, and higher than expected frequencies in accident year 2019.

In addition to the items above, the combined ratios were impacted by a 0.7-point increase in Second Quarter 2020 and a 1.2-point increase in Six Months 2020, compared to the same prior year periods, in the allowance for uncollectible premium receivable due to the COVID-19 pandemic discussed in "Current Events" above.

This line of business remains an area of focus for both us and the industry, as profitability challenges continue to generate combined ratios that are higher than ~~target levels.~~our risk-adjusted targeted combined ratio. To address profitability in this line, we have been ~~actively~~ implementing price increases ~~which averaged 7.4% for Nine Months 2019. In addition~~in recent years while working to ~~price increases, we~~enhance our underwriting tools to improve the accuracy of our rating information to prevent premium leakage. 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 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 potential to reduce their loss experience.~~


Workers Compensation	Workers Compensation																			Workers Compensation
		Quarter ended September 30,					Change % or Points				Nine Months ended September 30,						Change % or Points				Quarter ended June 30,							Change % or Points				Six Months ended June 30,							Change % or Points
($ in thousands)		2019				2018			2019				2018				Change % or Points		2020				2019					Change % or Points		2020				2019					Change % or Points
NPW		$	71,534			77,827	Change % or Points		(8	)	%		$	238,037		248,728			(4	)	%		$	74,984			81,438			(8	)	%		$	126,180			166,503			(24	)	%
Direct new business		12,025				12,582	(4	)			46,765				46,000		2				12,612				17,791			(29	)			27,969				34,739			(19	)
Retention		84			%	84	—		pts		83			%	84		(1	)	pts		85			%	83			2		pts		84			%	83			1		pts
Renewal pure price (decreases) increases		(2.7		)		—	(2.7	)			(2.8		)		0.1		(2.9	)
Renewal pure price decreases																					(2.9		)		(3.9	)		1.0				(2.7		)		(2.8	)		0.1
NPE		$	75,478			78,784	(4	)	%		$	232,657			237,628		(2	)	%		$	61,906			78,464			(21	)	%		$	128,612			157,179			(18	)	%
Underwriting income		17,333				23,380	(26	)			42,566				61,601		(31	)			15,720				14,514			8				26,755				25,233			6
Combined ratio		77.0			%	70.3	6.7		pts		81.7			%	74.1		7.6		pts		74.6			%	81.5			(6.9	)	pts		79.2			%	83.9			(4.7	)	pts
% of total Standard Commercial Lines NPW		13				16					15				16						13				15							11				15

In addition to the drivers in the table above, Six Months 2020 NPW was reduced by a $29 million estimated return audit and mid-term endorsement premium accrual due to the COVID-19 pandemic discussed in "Current Events" above and contributed 17 percentage points to the decline in NPW in Six Months 2020 compared to Six Months 2019. This accrual also reduced NPE by $12 million in Second Quarter 2020 and $18 million in Six Months 2020.

The ~~increases~~decrease in the combined ratio in ~~Third~~Second Quarter and ~~Nine~~Six Months ~~2019~~2020 compared to the same prior year periods ~~were~~was primarily driven by ~~less~~ favorable prior year casualty reserve development, as follows:


	Third Quarter 2019						Third Quarter 2018								Second Quarter 2020						Second Quarter 2019
($ 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	$	(13.0	)	(17.2	)	pts	$	(20.0	)	(25.4	)	pts	8.2	pts	$	(15.0	)	(24.2	)	pts	$	(12.0	)	(15.3	)	pts	(8.9	)	pts

	Nine Months 2019						Nine Months 2018
															Six Months 2020						Six Months 2019
($ 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	$	(33.0	)	(14.2	)	pts	$	(53.0	)	(22.3	)	pts	8.1	pts	$	(25.0	)	(19.4	)	pts	$	(20.0	)	(12.7	)	pts	(6.7	)	pts

The development in ~~both Third~~Second Quarter and ~~Nine~~Six Months 2020 was primarily due to lower severities in accident years 2017 and prior. The development in Second Quarter and Six Months 2019 was primarily due to lower severities in accident years 2017 and ~~prior, and the development in both Third Quarter and Nine Months 2018 was primarily due to lower severities in accident years 2016 and~~ prior.

~~While reported profitability on this line remains strong~~In addition to the items in the tables above, the combined ratios were impacted by a 0.8-point increase in Second Quarter 2020 and 0.9-point increase in Six Months 2020, compared to the same prior year periods, in the allowance for uncollectible premium receivable due to ~~favorable emergence on prior 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~~COVID-19 pandemic discussed in ~~the trend of favorable frequencies and severities has the potential to significantly increase this line's combined ratio, which we are monitoring closely.~~

"Current Events" above.


Commercial Property
	Quarter ended September 30,						Change % or Points			Nine Months ended September 30,							Change % or Points			Quarter ended June 30,						Change % or Points			Six Months ended June 30,						Change % or Points
($ in thousands)	2019				2018				2019			2018					Change % or Points		2020			2019				Change % or Points		2020			2019				Change % or Points
NPW	$	97,393			89,737		Change % or Points		9	%		$	284,861			263,318			8	%		$	104,060		94,439			10	%		$	207,186		187,468			11	%
Direct new business	22,527				18,073		25			64,960				57,485			13			23,858				21,391		12			48,444				42,433		14
Retention	83			%	83		—		pts	82			%	82			—		pts	84			%	83		1		pts	84			%	82		2		pts
Renewal pure price increases	2.8				3.3		(0.5	)		3.3				3.1			0.2			3.9				3.6		0.3			4.0				3.6		0.4
NPE	$	89,215			83,056		7		%	$	262,418			245,544			7		%	$	95,413			87,136		9		%	$	189,282			173,203		9		%
Underwriting (loss) income	(409		)		(6,768	)	(94	)		2,866				(9,266	)		131			(14,339		)		1,372		(1,145	)		(22,891		)		3,275		(799	)
Combined ratio	100.5			%	108.1		(7.6	)	pts	98.9			%	103.8			(4.9	)	pts	115.0			%	98.4		16.6		pts	112.1			%	98.1		14.0		pts
% of total Standard Commercial Lines NPW	18				18					17				17						18				17					19				17

The ~~decrease~~increase in the combined ratio in ~~Third~~Second Quarter ~~2019~~and Six Months 2020 compared to ~~Third~~Second Quarter ~~2018,~~ and ~~the decrease in the combined ratio in Nine~~Six Months 2019 ~~compared to Nine Months 2018, were~~was driven by the following:


	Third Quarter 2019				Third Quarter 2018							Second Quarter 2020				Second Quarter 2019
($ 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	$	12.4	13.9	pts	$	20.1	24.2	pts	(10.3	)	pts	$	35.3	37.0	pts	$	18.7	21.5	pts	15.5	pts
Non-catastrophe property loss and loss expenses	41.5		46.5		38.1		45.9		0.6			38.3		40.1		34.0		39.0		1.1
Total	53.9		60.4		58.2		70.1		(9.7	)		73.6		77.1		52.7		60.5		16.6

	Nine Months 2019				Nine Months 2018
												Six Months 2020				Six Months 2019
($ 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	$	43.6	16.6	pts	$	42.6	17.4	pts	(0.8	)	pts	$	55.0	29.0	pts	$	31.2	18.0	pts	11.0	pts
Non-catastrophe property loss and loss expenses	114.6		43.7		118.7		48.3		(4.6	)
Non-catastrophe property loss and loss expenses¹												83.9		44.3		73.1		42.2		2.1
Total	158.2		60.3		161.3		65.7		(5.4	)		138.9		73.3		104.3		60.2		13.1

~~Lower catastrophe losses in Third Quarter 2019 compared to Third Quarter 2018 was driven by the impact of Hurricane Florence in September 2018. On a year-to-date basis, non-catastrophe~~¹Non-catastrophe property loss and loss expenses ~~were lower~~for Six Months 2020 included an estimate of $10 million in ~~Nine Month 2019~~response to the COVID-19 pandemic, which is discussed in "Current Events" above.

Higher catastrophe losses in Second Quarter and Six Months 2020 compared to ~~Nine~~Second Quarter and Six Months ~~2018, as non-catastrophe property loss and loss expenses~~2019 were driven by the events mentioned in ~~the first quarter of 2018 were elevated by a January deep freeze in our footprint states and an increase in the number of severe fire losses.~~Standard Commercial Lines discussion above.

Standard Personal Lines Segment


	Quarter ended September 30,					Change % or Points				Nine Months ended September 30,				Change % or Points				Quarter ended June 30,					Change % or Points				Six Months ended June 30,					Change % or Points
($ in thousands)	2019				2018				2019			2018		Change % or Points			2020				2019		Change % or Points			2020				2019		Change % or Points
Insurance Segments Results:						Change % or Points
NPW	$	81,639			84,735	(4	)	%		$	233,717		236,530	(1	)	%		$	78,173			82,709	(5	)	%		$	145,813			152,078	(4	)	%
NPE	76,738				77,157	(1	)			231,158			227,090	2				71,633				77,113	(7	)			147,761				154,420	(4	)
Less:
Loss and loss expense incurred	54,843				52,631	4				158,467			157,330	1				58,151				50,554	15				112,483				103,624	9
Net underwriting expenses incurred	22,526				21,368	5				65,617			63,303	4				19,807				22,021	(10	)			41,216				43,091	(4	)
Underwriting (loss) income	$	(631	)		3,158	(120	)	%		$	7,074		6,457	10		%		$	(6,325	)		4,538	(239	)	%		$	(5,938	)		7,705	(177	)	%
Combined Ratios:
Loss and loss expense ratio	71.4			%	68.2	3.2		pts		68.5		%	69.3	(0.8	)	pts		81.1			%	65.5	15.6		pts		76.1			%	67.1	9.0		pts
Underwriting expense ratio	29.4				27.7	1.7				28.4			27.9	0.5				27.7				28.6	(0.9	)			27.9				27.9	—
Combined ratio	100.8				95.9	4.9				96.9			97.2	(0.3	)			108.8				94.1	14.7				104.0				95.0	9.0

NPW ~~was down~~decreased in ~~both Third~~Second Quarter and ~~Nine~~Six Months ~~2019~~2020 compared to the same prior year periods, reflecting ~~the impact of~~ a ~~decrease in direct new business~~$4.3 million premium credit to our Standard Personal Lines customers as a result of ~~a competitive marketplace. Retention has decreased~~the COVID-19 pandemic. This premium item contributed 5 percentage points to the decline in ~~both Third~~NPW in Second Quarter 2020 and ~~Nine~~3 percentage points in Six Months ~~2019~~2020 compared to the same prior year periods. This premium credit was fully earned in Second Quarter and Six Months 2020.



	Quarter ended June 30,				Change % or Points			Six Months ended June 30,				Change % or Points
($ in millions)	2020			2019	Change % or Points			2020			2019	Change % or Points
Direct new business	$	11.8		10.5	13		%	$	21.8		20.9	4		%
Retention	84		%	84	—		pts	83		%	83	—		pts
Renewal pure price increases	3.1			5.6	(2.5	)		3.4			5.4	(2.0	)

The increase in the combined ratio of 14.7 points in Second Quarter 2020 compared to Second Quarter 2019 and 9.0 points in Six Months 2020 compared to Six Months 2019 was driven by the following:



	Second Quarter 2020				Second Quarter 2019
($ 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	$	26.0	36.2	pts	$	6.1	7.9	pts	28.3		pts
Non-catastrophe property loss and loss expenses	15.3		21.4		24.5		31.7		(10.3	)
Total	41.3		57.6		30.6		39.6		18.0


	Six Months 2020				Six Months 2019
($ 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	$	37.9	25.7	pts	$	10.2	6.6	pts	19.1		pts
Non-catastrophe property loss and loss expenses	38.1		25.8		53.6		34.7		(8.9	)
Total	76.0		51.5		63.8		41.3		10.2

Higher catastrophe losses in Second Quarter and Six Months 2020 compared to the same prior year periods ~~last~~were driven by two severe storms in April, which impacted parts of the Mid-West and East Coast regions of the United States with damaging wind and tornadoes. Additionally, Six Months 2020 was impacted by a tornado that affected Tennessee in March.

The Second Quarter and Six Months 2020 results included a reduction to NPW for the $4.3 million premium credit to our personal automobile customers mentioned above, of which there was an offsetting reduction in our casualty loss costs of $2.5 million in both periods. This reduction in our casualty loss costs decreased our loss ratio by 3.5 points in Second Quarter 2020 and 1.7 points in Six Months 2020. As discussed in the "Current Events" section above, the automobile premium credit was income neutral with the remaining offset reflected in lower non-catastrophe property losses, as reflected in the table above. These favorable current year ~~as we continue to achieve renewal pure price increases on~~loss costs impacted our personal automobile line of business, reflecting anticipated decreases in ~~excess~~frequencies as a result 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.governmental shelter-in-place directives.

Quarter ended September 30, Change
% or
Points Nine Months ended September 30, Change
% or
Points
($ in millions) 2019 2018 2019 2018
Direct new business $ 10.2
13.1
(22 ) % $ 31.1
40.8
(24 ) %
Retention 83
% 85
(2 ) pts 83
% 85
(2 ) pts
Renewal pure price increases 5.0
3.8
1.2
5.3
3.6
1.7

The loss and loss expense ratio increased 3.2 points in Third Quarter 2019 compared to Third Quarter 2018, and decreased 0.8 points in Nine Months 2019 compared to Nine Months 2018. The drivers of these fluctuations are as follows:

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
Non-catastrophe property loss and loss expenses $ 25.2
32.8
pts $ 28.2
36.5
pts (3.7 ) pts
Catastrophe losses 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 34.0
44.3
31.5
40.9
3.4

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
Non-catastrophe property loss and loss expenses $ 78.7
34.1
pts $ 80.4
35.4
pts (1.3 ) pts
Catastrophe losses 18.1
7.8
18.1
8.0
(0.2 )
Unfavorable prior year casualty reserve development 2.0
0.9
—
—
0.9

Flood claims handling fees (2.7 ) (1.2 ) (3.6 ) (1.6 ) 0.4

Total 96.1
41.6
94.9
41.8
(0.2 )

The underwriting expense ratio increased 1.7 points in the Third Quarter 2019 compared to Third Quarter 2018, and 0.5 points in Nine Months 2019 compared to Nine Months 2018. The primary drivers of these changes were increased profit-based expenses to our distribution partners and employees.

E&S Lines Segment


	Quarter ended September 30,				Change % or Points			Nine Months ended September 30,						Change % or Points			Quarter ended June 30,					Change % or Points			Six Months ended June 30,					Change % or Points
($ in thousands)	2019			2018			2019			2018				Change % or Points		2020			2019			Change % or Points		2020			2019			Change % or Points
Insurance Segments Results:					Change % or Points
NPW	$	62,368		64,621	(3	)	%	$	180,572			168,628		7		%	$	63,237			61,309	3		%	$	124,492			118,204	5		%
NPE	61,721			56,064	10			178,660				161,419		11			58,034				58,857	(1	)		117,029				116,939	—
Less:
Loss and loss expense incurred	39,794			35,458	12			111,772				114,588		(2	)		38,761				37,278	4			72,595				71,978	1
Net underwriting expenses incurred	20,011			17,100	17			57,449				51,679		11			19,805				18,635	6			41,122				37,438	10
Underwriting income (loss)	$	1,916		3,506	(45	)	%	$	9,439			(4,848	)	295		%
Underwriting (loss) income																	$	(532	)		2,944	(118	)	%	$	3,312			7,523	(56	)	%
Combined Ratios:
Loss and loss expense ratio	64.5		%	63.2	1.3		pts	62.5			%	71.0		(8.5	)	pts	66.8			%	63.3	3.5		pts	62.1			%	61.6	0.5		pts
Underwriting expense ratio	32.4			30.5	1.9			32.2				32.0		0.2			34.1				31.7	2.4			35.1				32.0	3.1
Combined ratio	96.9			93.7	3.2			94.7				103.0		(8.3	)		100.9				95.0	5.9			97.2				93.6	3.6

NPW ~~decreased~~increased 3% in ~~Third~~Second Quarter ~~2019~~2020 and ~~increased 7%~~5% in ~~Nine~~Six Months 2019 compared to the respective prior year periods. Over the past two-year period, we have taken steps to exit certain underperforming classes of E&S business, while entering into new distribution relationships. The premium growth on a year-to-date basis continues to reflect the impact of one particularly large relationship that we 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 quarter2020 compared to the same ~~period last year.~~prior year periods due to increases in direct new business and strong renewal pure price increases. After two consecutive years in which we exited underperforming business segments, our focus has shifted to profitably growing segments of our E&S book that have demonstrated underwriting profitability.

Quantitative information 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 June 30,				Change % or Points		Six Months ended June 30,				Change % or Points
($ in millions)	2019			2018	Change % or Points			2019			2018	Change % or Points			2020			2019	Change % or Points		2020			2019	Change % or Points
Direct new business	$	23.1		32.2	(28	)	%	$	73.8		70.8	4		%	$	28.3		25.1	13	%	$	55.8		50.7	10	%
Renewal pure price increases¹	3.7		%	4.9	(1.2	)	pts	4.4		%	5.3	(0.9	)	pts
Renewal pure price increases															5.5		%	4.8	0.7	pts	4.8		%	4.6	0.2	pts

¹~~E&S casualty renewal price increases were 3.0% for Third~~

The loss and loss expense ratio increased 3.5 points in Second Quarter ~~2019,~~2020 and 0.5 points in Six Months 2020 compared to ~~5.2% for Third Quarter 2018, and 4.0% for Nine Months 2019, compared to 6.2% for Nine Months 2018.~~

~~The combined ratio increased 3.2 points in Third Quarter 2019 compared to Third Quarter 2018, and improved 8.3 points in Nine Months 2019 compared to Nine Months 2018,~~the same prior year periods, primarily ~~due to~~driven by the items outlined in the tables ~~and commentary~~ below:


	Third Quarter 2019				Third Quarter 2018							Second Quarter 2020				Second Quarter 2019
($ 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	—		—	pts	6.0		10.7	pts	(10.7	)	pts
Catastrophe losses												$	6.5	11.3	pts	$	2.0	3.4	pts	7.9	pts
Non-catastrophe property loss and loss expenses	7.0		11.4		5.6		10.0		1.4			5.6		9.6		5.5		9.4		0.2
Catastrophe losses	1.5		2.4		0.6		1.0		1.4
Total	8.5		13.8		12.2		21.7		(7.9	)		12.1		20.9		7.5		12.8		8.1

	Nine Months 2019				Nine Months 2018							Six Months 2020				Six Months 2019
($ 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	$	—	—	pts	$	12.0	7.4	pts	(7.4	)	pts
Catastrophe losses												$	7.0	6.0	pts	$	2.8	2.4	pts	3.6	pts
Non-catastrophe property loss and loss expenses	17.1		9.6		22.2		13.7		(4.1	)		11.3		9.7		10.0		8.6		1.1
Catastrophe losses	4.3		2.4		2.7		1.7		0.7
Total	21.4		12.0		36.9		22.8		(10.8	)		18.3		15.7		12.8		11.0		4.7

The ~~improvement~~increase in ~~prior year casualty reserve development of 10.7 points~~catastrophe losses in ~~Third~~Second Quarter ~~2019 compared~~and Six Months 2020 was due primarily to ~~Third Quarter 2018 was~~the civil unrest that occurred throughout the country, partially offset by a 3.2-point decrease in current year loss costs ~~that were 8.6 points higher~~ in ~~Third~~Second Quarter ~~2019~~and Six Months 2020 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.~~same prior year periods.

The underwriting expense ratio increased ~~1.9~~2.4 points in ~~Third~~Second Quarter ~~2019~~2020 and 3.1 points in Six Months 2020 compared to ~~Third Quarter 2018,~~the same prior year periods primarily driven by ~~an increase~~increases in: (i) the allowance for uncollectible premium receivable mentioned in ~~profit-based compensation~~"Current Events" above of 1.1 points in Second Quarter 2020 and 1.8 points in Six Months 2020; and (ii) labor costs to ~~our distribution partners.~~

~~While the relatively small size of~~improve infrastructure efficiency to profitably grow this segment ~~can lead to some volatility~~of 1.8 points in ~~results from quarter to quarter, on a longer-term basis, improved underwriting, pricing,~~Second Quarter 2020 and ~~claims outcomes have us on track to achieve our risk-adjusted profitability target for this segment by the end of~~1.4 points in Six Months 2020.

Reinsurance

We ~~have~~ successfully completed the renewals of our July 1, ~~2019~~2020 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~~only reinsurers that are rated "A" or higher by AM Best. The treaty year ceded deposit premium increase ~~estimated at $10~~of $14.3 million, or ~~14%~~17%, ~~which~~ reflects ~~an increase in our estimated subject matter premium~~rate increases for both the Property Excess of Loss ("Property Treaty") and ~~a risk-adjusted price increase for our property treaty,~~Casualty Excess of Loss (“Casualty Treaty”) programs driven by ~~heavy~~historical loss ~~activity from the 2018 underwriting year and the pricing environment in the property per-risk reinsurance marketplace.~~experience coupled with various dynamics introduced by COVID-19.

Details of the treaties are as follows:

Property Excess of Loss

Our ~~property excess of loss treaty ("~~Property ~~Treaty")~~Treaty provides protection against large individual property losses with $58.0 million of coverage in excess of a $2.0 million ~~retention:~~per risk:

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~~$80.0 million.

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

Casualty Excess of Loss

Our ~~casualty excess of loss treaty (“~~Casualty ~~Treaty”)~~Treaty provides protection against large individual casualty losses with $88.0 million of coverage in excess of a $2.0 million ~~retention:~~per occurrence:

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~~We entered the COVID-19 crisis with our investment portfolio ~~is to maximize after-tax net investment income~~well-positioned from a risk 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, 2019 was 3.4 years, compared to the Insurance Subsidiaries’ liability duration as of December 31, 2018 of approximately 3.6 years. The effective duration of the fixed income securities portfolio is monitored and managed to maximize yield, while managing interest rate 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.

liquidity perspective. 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, 2019 December 31, 2018 Change
Total invested assets $ 6,551,739
5,960,651
10
%
Invested assets per dollar of stockholders' equity 3.07
3.33
(8 )
Unrealized gain – before tax¹
225,100
11,916
1,789

Unrealized gain – after tax¹
177,829
9,414
1,789

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

The increase in invested assets at September 30, 2019, compared to December 31, 2018, was driven by: (i) operating cash flow generated in Nine Months 2019 of $316 million; (ii) pre-tax net unrealized gains in our fixed income and equity securities portfolios of $213 million, 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 and short-term investment portfolios represented 95% of our invested assets at June 30, 2020, and 96% of our invested assets ~~compared to 95%~~ at December 31, ~~2018.~~2019. These portfolios had a weighted average credit rating of “ AA- ,” as of both ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, with ~~97% and 98%~~96% of the securities in ~~the portfolio~~these portfolios being investment grade quality ~~respectively.~~as of such dates. The sector composition and credit quality of our major asset categories within our fixed income securities portfolio did not significantly change from December 31, ~~2018.~~2019. We have been actively engaged in monitoring and managing the exposure to credit risk in our portfolio associated with the impact of the COVID-19 pandemic and related economic conditions. We have also been managing the portfolio's exposure to floating rate securities, which reset principally to 90-day LIBOR. Given the reduction in the valuation of U.S. public equities and the significant widening of high yield credit spreads earlier in the year, we modestly increased our allocation to risk-seeking assets and will continue to evaluate further changes to our allocation during the course of 2020, subject to economic and market conditions.



Total Invested Assets
($ in thousands)	June 30, 2020		December 31, 2019	Change
Total invested assets	$	7,130,329	6,688,654	7	%
Invested assets per dollar of stockholders' equity	3.10		3.05	2
Unrealized gain – before tax¹	292,502		216,564	35
Unrealized gain – after tax¹	231,077		171,085	35

¹Includes unrealized gains on fixed income and equity securities.

The increase in invested assets at June 30, 2020 compared to December 31, 2019, was driven by operating cash flow generated in Six Months 2020 of $197 million and net proceeds of $252 million from short-term borrowings. For additional information regarding these short-term borrowings, see Note 5. "Indebtedness" in Item 1. "Financial Statements." of this Form 10-Q.

In addition, invested assets included an increase in unrealized gains on our fixed income securities portfolio of $87.4 million in Six Months 2020, which increased our book value per share by $1.15. The increase was driven principally by narrowing credit spreads.

For details regarding the credit quality of our portfolio, see Item ~~7A.~~3. “Quantitative and Qualitative Disclosures About Market Risk.” of ~~our 2018 Annual Report.~~this Form 10-Q.

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 June 30,						Change % or Points				Six Months ended June 30,						Change % or Points
($ in thousands)	2019			2018					2019			2018			Change % or Points			2020				2019			Change % or Points			2020				2019			Change % or Points
Fixed income securities	$	50,749		45,088		Change % or Points	13	%			150,689			130,903		15	%			$	51,079			50,907		—	%			$	101,332			99,940		1	%
Commercial mortgage loans ("CMLs")																			156				—		NM				218				—		NM
Equity securities	1,885			2,079		(9	)			5,265			5,876		(10	)			2,023				1,740		16				3,575				3,380		6
Short-term investments	1,410			867		63				5,213			2,001		161				420				1,759		(76	)			1,586				3,803		(58	)
Other investments	5,267			7,211		(27	)			13,421			10,868		23				(15,846		)		7,494		(311	)			(9,504		)		8,154		(217	)
Investment expenses	(3,485		)	(2,802	)	(24	)			(9,639	)		(8,421	)	(14	)			(3,388		)		(3,395	)	—				(6,796		)		(6,154	)	10
Net investment income earned – before tax	55,826			52,443		6				164,949			141,227		17				34,444				58,505		(41	)			90,411				109,123		(17	)
Net investment income tax expense	(10,452		)	(9,568	)	(9	)			(30,630	)		(24,973	)	(23	)			(5,902		)		(10,883	)	(46	)			(16,386		)		(20,178	)	(19	)
Net investment income earned – after tax	$	45,374		42,875		6				134,319			116,254		16				$	28,542			47,622		(40	)			$	74,025			88,945		(17	)
Effective tax rate	18.7		%	18.2		0.5		pts		18.6			17.7		0.9		pts		17.1		%		18.6		(1.5	)	pts		18.1		%		18.5		(0.4	)	pts
Annualized after-tax yield on fixed income securities	2.8			2.8		—				2.9			2.8		0.1				2.7				2.9		(0.2	)			2.6				2.9		(0.3	)
Annualized after-tax yield on investment portfolio	2.8			3.0		(0.2	)			2.9			2.7		0.2				1.6				3.0		(1.4	)			2.1				2.9		(0.8	)

The ~~increase~~decrease in pre-tax net investment income in ~~Third~~Second Quarter and ~~Nine~~Six Months ~~2019,~~2020 compared to the same prior year periods ~~last year,~~ was primarily driven ~~by: (i) cash flow~~by losses from ~~operations that was 22%~~our other investments portfolio. This portfolio largely consists of ~~NPW~~alternative investments, the results of which are recorded on a one quarter lag. These losses reflected the significant market decline in the first quarter ~~and 15%~~ of ~~NPW~~2020. As these investments are largely recorded on a one-quarter lag, these results do not yet reflect the improvement 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 2019 included alternative investment returns that were $2.4 million higher than the comparable prior year period.market conditions during Second Quarter 2020.

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,
($ in thousands) 2019 2018 2019 2018
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 (2,291 ) (1,426 ) (3,366 ) (5,459 )
Total net realized and unrealized (losses) gains $ (2,183 ) (4,787 ) 15,295
(16,988 )



	Quarter ended June 30,				Change %		Six Months ended June 30,				Change %
($ in thousands)	2020		2019		Change %		2020		2019		Change %
Net realized gains on disposals, excluding OTTI	$	2,615	2,883		(9	)%	6,715		6,327		6	%
Unrealized gains (losses) recognized in income on equity securities	5,701		2,115		170	%	(11,436	)	12,226		(194	)%
OTTI benefit (expense)¹	4,333		(971	)	(546	)%	(27,296	)	(1,075	)	2,439	%
Total net realized and unrealized gains (losses)	$	12,649	4,027		214	%	(32,017	)	17,478		(283	)%

¹See Note 2. "Adoption of Accounting Pronouncements" in Item 1. "Financial Statements." of this Form 10-Q for additional information regarding our adoption of ASU 2016-13, Financial Instruments - Credit Losses.

The ~~$2.6 million improvement~~current year losses were significantly impacted by COVID-19-related market volatility in ~~net realized~~the first quarter of 2020, which resulted in higher OTTI expense 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~~portfolio. A portion of our OTTI expense in ~~Third Quarter 2019 compared~~Six Months 2020 was related to ~~Third Quarter 2018.~~impairments on securities we intend to sell to provide our investment managers flexibility to trade and optimize our investment portfolio, which amounted to $16.2 million. We also incurred credit-related impairment losses under the new CECL accounting standard, which amounted to $11.1 million in Six Months 2020.

~~The significant drivers of~~During Second Quarter 2020, the ~~$32.3 million improvement~~increase in net realized and unrealized gains ~~in Nine Months 2019~~ compared to ~~net realized and~~Second Quarter 2019 was driven by an improvement in both unrealized losses in ~~Nine Months 2018 were: (i) a $16.0 million reduction in realized~~our equity portfolio and the reversal of previously-recognized CECL credit 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 increases on our equity securities portfolio in Nine Months 2019 compared to Nine Months 2018.

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 offsetboth reflecting improvements in the ~~quarter by the reversal of previously-recorded unrealized gains related to the securities sold, which accounted for $21.4 million of the $20.3 million reduction in the table above.~~market.

Federal Income Taxes

The following table provides information regarding federal income taxes:


	Quarter ended September 30,				Nine Months ended September 30,		Quarter ended June 30,				Six Months ended June 30,
($ in millions)	2019			2018	2019	2018	2020			2019	2020	2019
Federal income tax expense	$	15.0		11.7	45.3	26.4	$	8.5		18.0	9.3	30.3
Effective tax rate	21.1		%	17.4	19.3	16.5	19.9		%	19.9	15.8	18.5

The effective tax rate in the table above 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~~decrease in the effective tax rate in ~~Third Quarter and Nine~~Six Months 2020 compared to Six Months 2019 ~~compared to Third Quarter and Nine Months 2018,~~ reflects ~~a greater~~less pre-tax income ~~contribution~~ from our insurance ~~operations~~and investments segments compared to ~~the relative contribution of~~ tax-advantaged income ~~this year compared to last.~~and excess tax benefits on our stock-based compensation awards.

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.

We entered the COVID-19 crisis with our investment portfolio well-positioned from a risk and liquidity perspective. During the first quarter of 2020, we increased the liquidity of both the Insurance Subsidiaries and the Parent to reduce the likelihood of becoming a forced seller of invested assets to fund operations if there is a significant slowdown in premium payments as a result of the COVID-19 pandemic. As of June 30, 2020, we had $252 million of outstanding short-term borrowings. Our short-term investments and cash totaled $371 million at June 30, 2020, compared to $283 million as of December 31, 2019.

As capital markets stabilized during Second Quarter 2020, we repaid $50 million of short-term borrowings under our line of credit. We, however, continued to maintain a greater level of short-term borrowings through Second Quarter 2020 in light of the ongoing pandemic and elevated catastrophe losses we incurred during Six Months 2020. The cost of the excess liquidity currently is about $0.1 million per month, and represents the additional interest expense on our short-term borrowings, net of the interest income we generate on the high-quality money market funds in which we have invested the proceeds. We currently expect to extend all or a portion of these remaining short-term borrowings until December 2020 and repay them by year end.

Through Six Months 2020, we did not experience a meaningful change in daily cash collections. Given our geographic footprint and focus on small-to-medium size business, we expect many of our customers to have significant disruptions to their businesses. This could result in potential premium collection issues as a result of recent insurance regulations that provided for the deferral of payments without cancellation for a period up to 90 days in certain states. The ultimate depth and duration of

the economic slowdown, combined with the impact of the federal fiscal stimulus packages, and whether or not a business is considered essential or non-essential, will in part determine whether our customers' businesses are temporarily or permanently impaired. We continue to monitor our cash positions daily to ensure we remain well positioned from a liquidity perspective.

In addition, we continue to monitor closely market activity and the impact on our investment portfolio. Credit markets stabilized in late-March in response to the Federal Reserve Board’s actions, and conditions continued to improve through Second Quarter 2020. There has been a record level of new issuance in investment grade fixed income markets, and given our strong liquidity position, starting in late-March we began reinvesting the interest and proceeds of maturities back into the investment portfolio, which remains highly liquid and has a high credit quality. We also marginally increased our allocation to risk assets both within public credit, or high-yield bonds, and public equities through funds diversified across large cap value issuers.

The following discussion provides further details about the Company's financial condition, liquidity, and capital resources.

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 $327 million at September 30, 2019 was comprised of $34 million~~We maintain liquidity at the ~~Parent and $293 million at the Insurance Subsidiaries. Short-term~~parent primarily through (i) short-term investments that are generally maintained in ~~"AAA"~~“AAA” rated money market funds approved by the National Association of Insurance ~~Commissioners. The Parent maintains a fixed income security investment portfolio containing~~Commissioners, (ii) high-quality, highly-liquid government and corporate fixed income ~~securities. This portfolio~~securities; and (iii) a cash balance. In the aggregate, cash and investments at the Parent amounted to ~~$224~~$324 million at ~~September~~June 30, ~~2019~~2020 and ~~$110~~$278 million at December 31, 2018. The Parent had a total of $267 million of cash and liquid investments at September 30, 2019, compared to $146 million at December 31, 2018, with the increase driven by our capital market activities discussed below. 2019.

The level of ~~cash and invested assets~~liquidity at the Parent 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.~~Parent, Parent borrowings, and asset allocation investment decisions. Our target is to

maintain ~~the cash and~~ liquidity at the Parent toof at least two times its expected annual needs, which is currently estimated at approximately $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~~The Insurance Subsidiaries ~~may pay $110~~paid $70 million in total dividends to the Parent ~~in 2019, a $10 million increase from $100 million paid in 2018, of which $83 million was paid~~ during ~~Nine~~Six Months ~~2019.~~2020. As of December 31, ~~2018,~~2019, our allowable ordinary maximum dividend was ~~$210~~$267 million for ~~2019.~~2020.

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.~~20. “Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds” in Item 8. “Financial Statements and Supplementary Data.” of our ~~2018~~2019 Annual Report.

In addition to regulatory restrictions on the availability of dividends that our Insurance Subsidiaries can pay to the Parent, the maximum amount of dividends the Parent can pay our shareholders is limited by certain New Jersey corporate law provisions that limit dividends if either: (i) the Parent would be unable to pay its debts as they became due in the usual course of business; or (ii) the Parent's total assets would be less than its total liabilities. The Parent's ability to pay dividends to shareholders also are impacted by covenants in the Line of Credit that obligate it to, among other things, maintain a minimum consolidated net worth and maximum ratio of consolidated debt to total capitalization.

The Insurance Subsidiaries generate liquidity through insurance float, which is created by collecting premiums and earning investment income before ~~losses~~claims 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~~flow for claims payments in the ordinary course of business. The effective duration of the fixed income securities portfolio was 3.4 years as of September 30, 2019, while the liabilities of the Insurance Subsidiaries had a duration as of December 31, 2018 of 3.6 years. As protection for the capital resources ofat the Insurance Subsidiaries, we purchase reinsurance coverage for any significantly large claims or catastrophes that may occur during the ~~year.~~year and we can make cash calls on those receivables, if needed.

Line of Credit

~~The Parent's line~~On December 20, 2019, the Parent entered into a Line of ~~credit with Wells Fargo~~Credit among the Parent, the lenders named therein (the “Lenders”), and the Bank ~~National Association,~~of Montreal, Chicago Branch, as ~~administrative agent, and Branch Banking and Trust Company (BB&T) (referred~~Administrative Agent. Under the Line of Credit, the Lenders have agreed to ~~as our "Line of Credit"), was renewed effective December 1, 2015~~provide the Parent with a ~~borrowing capacity of $30~~$50 million revolving credit facility, which can be increased to ~~$50~~$125 million with the ~~approval~~consent of ~~both lending partners. This~~the Lenders. The Line of Credit ~~expires~~will mature on December ~~1, 2020~~20, 2022 and has an interest rate, ~~that~~which varies and is based on, among other factors, the ~~Parent's~~Parent’s debt ratings. ~~There were no balances outstanding~~On March 24, 2020, to bolster liquidity, the Parent borrowed $50 million under the Line of Credit for a six-month term at ~~September 30, 2019 or at any time during 2019.~~an interest rate of approximately 2.25%. The Parent repaid the borrowing on May 8, 2020.

For additional information regarding the Line of Credit agreement and corresponding representations, warranties, and covenants, refer to Note 10. "Indebtedness" in Item 8. "Financial Statements." of our ~~2018~~2019 Annual Report. We ~~continue to meet~~met all covenants under our Line of Credit agreement as of ~~September~~June 30, ~~2019.~~2020.

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")~~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")~~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~~$62.2 million for Federal Home Loan Bank borrowings, with a ~~$12.9~~$2.8 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.

Short-term Borrowings

~~During Nine Months 2019, SICA borrowed the following from FHLBNY:~~

~~$50 million in~~We significantly increased our short-term borrowings during the first quarter of ~~2019,~~2020 amid the COVID-19 pandemic, which was followed by a period of extreme volatility and uncertainty in the financial markets. As was noted above, the $302 million of proceeds from these borrowings, including the $50 million borrowing under the Line of Credit that was repaid on ~~March 28, 2019.~~

~~$15~~May 8, 2020, were invested in high-quality money market funds. With the exception of the $50 million ~~in Third Quarter 2019, which was repaid on August 12, 2019.~~

borrowing under the Line of Credit, the remainder of these short-term borrowings were outstanding as of June 30, 2020. We currently expect to extend all or a portion of these remaining short-term borrowings until December 2020 and repay them by year end. For further information regarding ~~this borrowing,~~these borrowings, 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 outstanding balance on these intercompany loans was ~~$41.3~~$40.0 million as of ~~September~~both June 30, ~~2019, compared to $45.0 million as of~~2020 and December 31, ~~2018.~~2019. The remaining capacity under these intercompany loan agreements was ~~$80.0~~$89.4 million as of ~~September~~both June 30, ~~2019, compared to $76.2 million as of~~2020 and December 31, ~~2018. Despite not being contractually obligated to do so, the Parent currently plans to repay the remaining outstanding balance over time.~~2019.

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 during ~~Nine~~Second Quarter or Six Months ~~2019.~~2020.

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 30, 2019,~~July 29, 2020, our Board of Directors declared, for stockholders of record as of ~~November 15, 2019,~~August 14, 2020, a $0.23 per share dividend

to be paid on ~~December 2, 2019. This is a 15% increase compared to the dividend declared on July 31, 2019.~~September 1, 2020.

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~~Excluding the short-term borrowings described above, our next two principal

repayments each in the amount of $25 million, are due in 2021, and the next principal payment is due in 2026.

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~~June 30, ~~2019,~~2020, we had GAAP stockholders' equity of ~~$2.1~~$2.3 billion and statutory surplus of $1.9 billion. With total debt of ~~$550.7~~$802.6 million and long-term debt of $550.6 million at June 30, 2020, our debt-to-capital ratio was ~~20.5% at September 30, 2019.~~25.9% and our long-term debt-to-capital ratio was 19.3%.

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, 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 ~~$35.98~~$38.43 as of ~~September~~June 30, ~~2019,~~2020, from ~~$30.40~~$36.91 as of December 31, ~~2018,~~2019, driven by ~~$3.16 in net income per share and $2.94~~$1.15 in unrealized gains on our fixed income securities portfolio and $0.82 in net income per share, partially offset by ~~$0.60~~$0.46 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 Company ("A.M. Best"). We have been rated “A” or higher by A.M. Best forOur ratings remain the ~~past 89 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~~same as reported in our ~~"Ratings"~~"Overview" section of Item ~~7. "Management's Discussion and Analysis~~1. "Business." of ~~Financial Condition and Results of Operations." in~~ our ~~2018~~2019 Annual Report and ~~continue to be~~are as follows:



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

~~In the second quarter of 2019,~~On April 10, 2020, Fitch reaffirmed our "A+" rating with a "stable" outlook. In taking this action, Fitch cited our strong capitalization and financial performance ~~with~~and our stable underwriting results and return metrics that have remained favorable compared to our peers.

~~In Third Quarter 2019, S&P reaffirmed our "A" rating with~~ Fitch's review included its current assessment of COVID-19-related issues, including (i) economic impact under a ~~"stable" outlook. In taking this action, S&P cited our strong capital adequacy and strong operating performance, driven by sound underwriting and steady pure renewal price increases.~~

~~Our S&P, Moody's, and Fitch financial strength and associated credit~~set of ratings ~~affect our ability~~assumptions related 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 occurlevels, (ii) declines in the ~~future.~~market values of stocks, bonds, derivatives and other capital market instruments typically owned or traded by insurance companies, (iii) market liquidity, and (iv) the magnitude of potential related claim/benefit exposures.

Off-Balance Sheet Arrangements

At ~~September~~June 30, ~~2019~~2020, and December 31, ~~2018~~2019, we ~~did not have any~~had no 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~~to facilitate off-balance sheet arrangements or ~~for~~ other contractually narrow or limited purposes. ~~As such,~~Consequently, we are not exposed to any material financing, liquidity, market, or credit risk ~~that could arise if we had engaged in such relationships.~~related to off-balance sheet arrangements.

Contractual Obligations, Contingent Liabilities, and Commitments

Our future cash payments associated ~~with:~~with (i) loss and loss expense ~~reserves;~~reserves and (ii) contractual obligations pursuant to operating and financing leases for office space and equipment have not materially changed since December 31, ~~2018.~~2019. The following table provides future cash payments on our notes payable as of ~~September~~June 30, ~~2019, giving consideration to the $300~~2020, including $252 million ~~5.375% Senior Notes issuance and the redemption~~ of ~~our $185 million 5.875% Senior Notes in~~short-term borrowings from the first quarter of ~~2019, the details of~~2020, which are ~~contained~~discussed in Note 5. "Indebtedness" in Item 1. "Financial Statements." inof this Form 10-Q:


Contractual Obligations	Payment Due by Period									Payment Due by Period
			Less than 1 year		1-3 years		3-5 years		More than 5 years			Less than 1 year		1-3 years		3-5 years		More than 5 years
($ in millions)	Total				1-3 years		3-5 years	Total				Less than 1 year		1-3 years		3-5 years		More than 5 years
Notes payable	$	560.0	Less than 1 year	—		50.0		—	More than 5 years		510.0	$	812.0		252.0		50.0		—	510.0
Interest on debt obligations	657.3		29.1		57.3		56.6		514.3	637.9		30.0		56.7		56.6		494.6
Total	$	1,217.3	29.1		107.3		56.6		1,024.3	$	1,449.9	282.0		106.7		56.6		1,004.6

~~As of September~~At June 30, ~~2019,~~2020, we also had certain contractual obligations ~~that expire at various dates through 2036~~ that may require us to invest ~~up to $229.9 million~~additional amounts in ~~alternative investments.~~ our investment portfolio as follows:



($ in millions)	Amount of Obligation		Year of Expiration of Obligation
Alternative and other investments	$	229.7	2036
Non-publicly traded collateralized loan obligations in our fixed income securities portfolio	29.6		2030
Non-publicly traded common stock within our equity portfolio	2.4		2021
CMLs	10.7		Less than a year
Privately-placed corporate securities	$	6.0	Less than a year
Total	$	278.4

There is no certainty that any such additional investment will be required. Additionally, as of September 30, 2019, we had the following contractual obligations: (i) $6.7 million to further invest in non-publicly traded common stock within our equity portfolio that expire through 2023; and (ii) $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." inof our ~~2018~~2019 Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

~~There have been no material changes in~~

While the information ~~about market risk~~provided in Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" as set forth in our 2019 Annual Report remains applicable, please refer to the following additional information regarding credit, liquidity, and equity price risk as of June 30, 2020.

Credit Risk

We entered the COVID-19 crisis with our investment portfolio well-positioned from a risk and liquidity perspective. At June 30, 2020 our allocation to risk assets was 9.3% of our portfolio. Given the reduction in the valuation of U.S. public equities and the significant widening of high yield credit spreads earlier in the year, we modestly increased our allocation to risk-seeking assets and will continue to evaluate further changes to our allocation during the course of 2020, subject to economic and market conditions. Our fixed income securities and short-term investment portfolios had an average credit quality of "AA-" as of June 30, 2020.

Details on the credit quality of our invested assets are provided below:



June 30, 2020											Credit Rating
($ in millions)	Amortized Cost		Fair Value		% of Invested Assets		Yield to Worst		Effective Duration in Years	Average Life in Years	AAA			AA			A			BBB			Non-Investment Grade			Not Rated
Short-term investments	$	370	$	370	5.2	%	0.2	%	0.0	0.0	$	349		$	20		$	—		$	—		$	1		$	—

Fixed income securities:
U.S. government obligations	112		120		1.7		0.9		4.1	4.6	120			—			—			—			—			—
Foreign government obligations	17		18		0.3		2.5		5.0	5.7	—			2			8			8			—			—
State and municipal obligations	1,136		1,208		16.9		1.3		5.5	5.2	219			628			307			55			—			—
Corporate securities	2,147		2,272		31.9		2.4		4.5	6.2	14			112			889			1,017			239			—
Mortgage-backed securities:
Residential mortgage-backed securities ("RMBS"):
Agency RMBS	1,157		1,220		17.1		1.1		2.0	3.1	1,220			—			—			—			—			—
Non-agency RMBS	98		98		1.4		3.1		1.3	3.3	48			6			35			—			9			—
Total RMBS	1,254		1,318		18.5		1.2		2.0	3.1	1,268			6			35			—			9			—
Commercial mortgage-backed securities ("CMBS")	565		603		8.5		2.2		5.0	6.4	536			30			28			10			—			—
Total mortgage-backed securities	1,820		1,922		26.9		1.5		2.9	4.1	1,804			36			62			10			9			—
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS"):
Auto	43		44		0.6		1.9		2.4	2.4	34			5			3			1			1			—
Aircraft	56		49		0.7		8.4		3.5	4.1	—			1			43			2			3			—
CLOs	558		546		7.7		3.5		1.2	4.8	305			151			30			45			15			1
Credit cards	17		18		0.2		0.4		1.9	1.9	18			—			—			—			—			—
Other ABS	180		183		2.6		3.8		2.6	5.1	43			—			107			24			8			1
Total CLOs and Other ABS	853		840		11.8		3.7		1.7	4.6	399			158			184			71			27			1
Total securitized assets	2,673		2,761		38.7		2.2		2.5	4.3	2,203			194			246			81			36			1
Total fixed income securities and short-term investments	6,455		6,749		94.6		2.0		3.6	4.9	2,904			956			1,449			1,162			276			1
Total fixed income securities and short-term investments by credit rating percentage											43.0		%	14.2		%	21.5		%	17.2		%	4.1		%	—		%
Commercial mortgage loans	18		18		0.3		3.8		4.6	9.4	—			—			16			2			—			—
Equity securities:
Common stock¹	143		132		1.9		0.5		—	—	—			—			—			—			—			132
Preferred stock	2		2		—		3.7		—	—	—			—			—			—			2			—
Total equity securities	145		134		1.9		0.6		—	—	—			—			—			—			2			132
Other investments:
Alternative investments:
Private equity	127		127		1.8		—		—	—	—			—			—			—			—			127
Private credit	40		40		0.6		—		—	—	—			—			—			—			—			40
Real assets	21		21		0.3		—		—	—	—			—			—			—			—			21
Total alternative investments	188		188		2.6		—		—	—	—			—			—			—			—			188
Other investments	42		42		0.6		—		—	—	—			—			—			—			—			42
Total other investments	231		231		3.2		—		—	—	—			—			—			—			—			231
Total invested assets	$	6,848	$	7,132	100		—		—	—	$	2,904		$	956		$	1,465		$	1,163		$	278		$	364

⁽¹⁾~~2018~~Includes investments in exchange traded funds, mutual funds, business development corporations, and real estate investment trusts.

Equity Price Risk

Our other investment portfolio represented approximately 3% of total invested assets as of June 30, 2020, and primarily includes alternative investments in limited partnerships. We account for these investments under the equity method, and they typically report income on a one-quarter lag. During Second Quarter 2020, we recorded after-tax losses on these alternative

investments of approximately $13 million, reflecting the market decline in the first quarter of 2020. For additional information regarding these alternative investment strategies, see Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of our 2019 Annual Report.

Liquidity Risk

We ended the quarter with strong liquidity with short-term investments and cash of $371.1 million, which provides us significant financial flexibility should we see a slowdown in premium collections, or an acceleration of payments, including commissions and loss payments. Additionally, our investment portfolio remains highly-liquid as illustrated in the table below:



	June 30, 2020		December 31, 2019
Asset Category	Percentage of Invested Assets		Percentage of Invested Assets
Highly-liquid assets	72	%	74	%
Generally liquid assets, may become less liquid with market stress¹	24		22
Generally illiquid assets²	4		4
Total	100	%	100	%

¹These exposures are concentrated within CMBS, CLO and other ABS.

²These exposures include our alternative investments and other non-traded securities.

Indebtedness

Our long-term debt balance did not materially change from December 31, 2019. However, we significantly increased our short-term debt by $302 million during the first quarter of 2020 in light of the COVID-19-related volatility and uncertainty in the financial markets to increase liquidity and operating flexibility. We repaid the $50 million borrowing on our line of credit during Second Quarter 2020, and while we may refinance all or a portion of the borrowings below that are due in September 2020 until December 2020, we expect to repay all short-term borrowings before the end of 2020. The proceeds from the borrowings detailed in the table below, which were outstanding as of June 30, 2020, were invested in high-quality money market funds.



		June 30, 2020
($ in thousands)	Date of Maturity	Carrying Amount		Fair Value
Financial liabilities
Short-term debt
0.78% Borrowings from FHLBNY	9/14/2020	$	100,000	100,085
0.68% Borrowings from FHLBNY	9/18/2020	85,000		85,051
0.58% Borrowings from FHLBI	12/14/2020	67,000		67,074
Total short-term debt		252,000		252,210

Refer to Note 10. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of our 2019 Annual Report for additional information on our long-term borrowings and Note 5. "Indebtedness" in Part 1. "Financial Information" of this Form 10-Q for additional information regarding our short-term borrowing activity.

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 our disclosure controls and procedures 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 appropriately accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, ~~as appropriate,~~ to allow timely decisions ~~regarding~~about required disclosure. No

Except for internal controls over financial reporting related to the implementation of ASU 2016-13, Financial Instruments - Credit Losses, 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~~Six Months ~~2019~~2020 that materially affected, or are reasonably

likely to materially affect, our internal control over financial reporting. Management tested the design and operating effectiveness of internal controls over financial reporting related to the new processes regarding our allowances for credit losses and concluded they were effective.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

~~In the ordinary course~~

As of ~~conducting business,~~June 30, 2020, we ~~can be named as defendants in various~~have no material pending legal actions. Most 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 loss and loss expense reserves. In ordinary course claims litigation, we expectproceedings that ~~any potential ultimate liability, after consideration of provisions made for potential losses and costs of defense, will not be~~could have a material toadverse effect on our consolidated financial condition, results of operations, or cash 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. Plaintiffs may style these actions as putative class actions and seek judicial certification of a state or national class for allegations such as improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance policies or improper reimbursement for automobile parts. Similarly, our Insurance Subsidiaries can be named in individual actions seeking extra-contractual damages, punitive damages, or penalties,

often alleging bad faith in the handling of insurance claims. We believe that we have valid defenses to these 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, after consideration of provisions made for estimated losses, will not be material Incidental to our ~~consolidated financial condition. Nonetheless,~~insurance operations, we are engaged in ordinary routine legal proceedings that, because litigation outcomes are inherently unpredictable, ~~and, because the amounts sought in certain of these actions are large or indeterminate, it is possible that any adverse outcomes~~ could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

As For additional information regarding our legal risks, refer to Note 13. "Litigation" in Item 1. "Financial Statements." of ~~September 30, 2019, we do not believe we are involved~~this Form 10-Q and Item 1A. “Risk Factors” below in ~~any legal action that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.~~Part II. “Other Information.”

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,~~without limitation, contributing capital to any or all of the Insurance Subsidiaries, issuing additional debt and/or equity securities, repurchasing our existing debt and/or equity securities, ~~repurchasing our 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~~Our risk factors disclosed in Item 1A. “Risk Factors.” in our ~~2018~~2019 Annual Report remain accurate with the following addition:

Governmental actions to contain or delay the spread of the COVID-19 pandemic since early March 2020 have disrupted ordinary business commerce and impacted financial markets. These governmental actions, for which we cannot predict the extent, duration, and possible alteration based on future COVID-19-related developments, could materially and adversely affect our results of operations, financial position, and liquidity.

Governmental (international, federal, state, and local) actions to contain or delay the spread of the COVID-19 pandemic have resulted in directives requiring social distancing, operational alteration, or temporary closure of most non-essential businesses to limit public access, and the “sheltering-in-place” of everyone other than essential workers in many instances. These actions have generally:

Negatively impacted the global and United States domestic economies, with some sectors such as ~~discussed below.~~travel and leisure, retail, energy, and real estate more significantly affected than others;

Increased unemployment;

Increased international, federal, state, and local governmental budget deficits, which has led to adverse rating actions against certain governmental units and increased the general risk of governmental debt default that could impact the value of related fixed income securities;

Induced significant volatility in financial markets;

Decreased valuations in markets for equity, fixed income, and alternative investments in certain sectors;

Impacted individual income and business revenue, and increased the number of individuals and businesses experiencing financial distress with the potential for insolvency;

Decreased premium collections, late payment fees, and reinstatement fees;

Generated other state and federal legislative or executive branch proposals to (i) require insurance policies to retroactively cover COVID-19-related losses that were expressly excluded under the terms of some property insurance policies, and (ii) presume that COVID-19 is a work-related illness for certain employees under workers compensation

policies;

Generated state insurance department bulletins or orders requesting or mandating premium credits and rebates on certain insurance policies that may exceed actual COVID-19-related frequency experience decreases;

Disrupted regular commerce, supply chains, and travel;

Increased expense management focus by individuals and all-sized businesses;

Increased the demand for and/or limited the availability of medical resources; and

Increased e-commerce, video, phone, and other methods of remote trade and business transaction.

The economic impacts of the COVID-19-related governmental actions may impact our revenue, loss and loss expense, liquidity, or regulatory capital and surplus, and operations, particularly as these relate, without limitation, to the following:

Impact on Our Insurance Operations

Because our general liability and workers compensation policies provide for premium audit, we must estimate the amount of return premium that we may owe policyholders for revenues and payrolls lowered due to the extent and duration of the COVID-19-related governmental directives and any related economic contraction. Such return premiums could be significant and will impact our underwriting results.

To help our customers maintain insurance coverages, we are offering - sometimes in collaboration with or at the direction of our regulators - individualized payment flexibility and suspension of policy cancellations, late payment notices, and late or reinstatement fees. Customers afforded this treatment have until the later of 30 days or the end of the grace period established by the customers’ home state insurance commissioner.

•

In Second Quarter 2020, we offered a credit equal to 15% of insureds’ premiums for commercial automobile and personal automobile lines of insurance for April and May. This two-month premium credit was based on a limited amount of claims reporting data reflecting the impact of the COVID-19-related governmental directives on miles driven, which has reduced claims frequencies. We do not have traditional actuarial analysis to support these credits. The actual impact of the COVID-19-related governmental actions will not be fully known until some point in the future. Should the various governmental directives be extended or reinstated due to increased infection rates, it is possible that we will give further premium credit to our customers to the extent supported by further analysis. Based on the continued COVID-19-related economic impact, it is possible that state insurance commissioners may take other regulatory actions requiring premium credit in lines other than commercial and personal automobile, and we face the risk that we may be required to return more premium than is warranted by our filed rating plans and actual loss experience.

All of our commercial property and businessowners policies require direct physical loss of or damage to insured property by a covered cause of loss. Whether COVID-19-related contamination, the existence of a pandemic, and/or the resulting government shutdown orders cause physical loss of or damage to property is already the subject of much debate and litigation. We cannot predict the outcome of that litigation. It also is our practice to include in, or attach to, all standard lines commercial property and businessowners policies an exclusion that states that all loss or property damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease is not a covered cause of loss. We offer some limited coverages that could apply in COVID-19-related claims and circumstances, primarily tied to clean-up and food-contamination that are subject to sub-limits. Approximately 95% of our commercial property and businessowners policies include the very specific and regulatory approved virus exclusion.

There currently are various public policy debates and legislative proposals at both the federal and state levels that would impose liability (including retroactively) for COVID-19-related business interruption losses on policies that do not provide such coverage terms. We cannot predict the outcome of such proposals, which may be influenced by media attention on and lobbying efforts by property and casualty insurance policyholders whose policies do not provide coverage for business interruption losses connected with the COVID-19-related governmental directives. We are aware of meritorious arguments that such proposals, if enacted, would be unconstitutional and impair future commercial activity. Nonetheless, if such proposals were enacted and upheld as constitutional, they would have a material impact on our profitability, liquidity, and overall financial condition.

Limited availability of medical resources could result in medical inflation and complicate, delay and/or extend medical treatment that could impact exposure on workers compensation, general liability, and personal and commercial automobile claims.

We ~~face risks regarding our flood business because~~may have increased workers compensation loss and loss expenses if policyholders' employees in high-risk roles of ~~uncertainties regarding the NFIP.~~

~~We are the fifth largest insurance group~~essential businesses contracted COVID-19 in the ~~WYO arrangement~~workplace. We may experience higher frequency of workers compensation claims, particularly if state legislative or executive order proposals are enacted that create presumptions that the ~~NFIP,~~contraction of COVID-19 by an essential business employee who interacted with the public is work-related. We also may see an extension of workers compensation benefits if employees do not have jobs to which is managed by the Mitigation Division of the Federal Emergency Management Agency ("FEMA") in the U.S. Department of Homeland Security. Under the arrangement, we receive an expense allowance for policies written and a servicing fee for claims administered, and all losses are 100% reinsured by the Federal Government. Effective October 1, 2019, the underwriting expense allowance increased to 30.1%, from 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.they can return.

~~As a WYO carrier, we are required~~We may experience elevated loss frequency and severity related to ~~follow certain NFIP procedures~~our liability coverages from efforts by the plaintiffs’ bar to generate COVID-19-related claim activity that impacts our policyholders.

Loss frequency and severity could increase related to our auto and property coverages due to, among other things, disruptions in ~~the administration of flood policies~~supply chains and ~~claims. Some of these requirements may differ from our normal~~changes in business practices and individual behaviors resulting from the shelter-in-place and social distancing measures, such as arson and fraud.

Due to the COVID-19-related governmental orders, we may ~~present~~experience delayed reporting of losses, settlement negotiations, and trial of disputed claims that may disrupt our normal claims resolution processes and trends.

•

Service levels could deteriorate if significant numbers of our remote employees or key business partners are unable to work effectively while sheltering-in-place. Examples of potential work impacts include local internet disruption that prevents access to our virtual private network, widespread employee contraction of the COVID-19 illness, other governmental directives, or similar unavoidable events. Because our employees are working remotely, it also is possible that we will be subject to increased cybersecurity attacks from bad actors.

In response to the COVID-19 pandemic and recent increased catastrophic loss activity, the reinsurance industry is seeking to tighten contractual terms and conditions, reduce reinsurance capacity, and increase its pricing for insurance company purchases of reinsurance protection. Tightened terms and conditions include the introduction of new coverage exclusions, such as excluding losses related to communicable diseases, particularly for business interruption losses in property treaties and, to a ~~reputational~~lesser extent, in casualty treaties. We purchase a significant amount of reinsurance, including a property catastrophe reinsurance program and property and casualty excess of loss reinsurance treaties. To the extent we are exposed to losses on our primary policies that may now be excluded from coverage under our existing reinsurance treaties or in future renewal periods, we will face increased underwriting risk. The increased underwriting risk could increase our net loss and loss expenses and increase the volatility in our underwriting results. Decreased reinsurance capacity also would increase our underwriting risk if we are unable to fully place our ~~brand. While~~existing reinsurance treaties upon renewal. If risk-adjusted reinsurance price increases are at rates higher than we are able to generate on the underlying insurance ~~companies are regulated by~~policies we sell, it will negatively impact our underwriting profitability and have a material adverse effect on our financial condition and results of operations.

Impact on our Investment Operations

The significant equity and debt financial market volatility from the ~~states~~COVID-19 pandemic and the ~~NFIP requires WYO carriers~~related governmental orders may impact our net investment income due to ~~be licensed~~the following:

Financial market volatility is reflected in ~~the states~~our alternative investment portfolio performance;

A change in spreads on fixed income securities may create mark-to-market investment valuation losses and volatility in unrealized capital gains, which ~~they operate, the NFIP is a federal program and WYO carriers are fiscal agents~~will impact GAAP equity;

OTTI losses may increase due to securities we intend to sell, as we give our third-party investment managers flexibility to take advantage of the ~~U.S. Government~~spread widening in fixed income securities, particularly in asset classes more significantly impacted by COVID-19-related governmental directives and ~~must follow~~to which the ~~NFIP's directives. Consequently, we have the risk that directives from the NFIP~~Federal Reserve Board is providing liquidity and ~~a state regulator on the same issue may conflict.~~structural support; and

~~During Third Quarter 2019, the NFIP's authorization was extended until November 21, 2019, as a short-term solution while Congress continues~~Economic inflation related 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. Legislation introduced in Congress, if enacted, could greatly reduce the compensation WYO carriers receive under the NFIP. FEMA can act on its own to revise the arrangement, and did so in October 2019 by increasing the WYO’s underwriting expense allowance by 0.1 points, to 30.1%, from 30.0% .

~~Our flood business~~COVID-19 issues 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;~~higher or ~~(iv) private writers becoming more prevalent in the marketplace. The uncertainty created by the public policy debate~~lower than our expectations and ~~politics of flood insurance reform makes it difficult for us to predict the future of the NFIP and~~impact our ~~continued participation in the program.~~investment returns.

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~~Second Quarter ~~2019~~2020:

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
—
—



Period	Total Number of Shares Purchased¹	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum Number of Shares that May Yet Be Purchased Under the Announced Programs
April 1 – 30, 2020	14	$	46.97	—	—
May 1 - 31, 2020	13	48.15		—	—
June 1 - 30, 2020	1,040	51.39		—	—
Total	1,067	$	51.29	—	—

¹~~These~~We purchased these shares ~~were purchased~~ from employees ~~in connection with the vesting of restricted stock units. These repurchases were made~~ to satisfy tax withholding obligations associated with ~~respect to those employees.~~the vesting of their restricted stock units.

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		The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, 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.
*104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, 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 31, 2019~~July 30, 2020	By: /s/ ~~Gregory E. Murphy~~John J. Marchioni
		~~Gregory E. Murphy~~John J. Marchioni
		~~Chairman of the Board~~President and Chief Executive Officer
		(principal executive officer)

Date:	~~October 31, 2019~~July 30, 2020	By: /s/ Mark A. Wilcox
		Mark A. Wilcox
		Executive Vice President and Chief Financial Officer
		(principal financial officer)

4456



($ 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



($ 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



($ 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