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 30, 2020

~~March 31, 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~~.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 ~~April 24,~~October 16, 2020, there were ~~59,707,580~~59,834,702 shares of common stock, par value $2.00 per share, outstanding.

Table of Contents


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

Item 1.			~~SELECTIVE INSURANCE GROUP, INC.~~ Financial Statements
			~~Table of Contents~~
				~~Page No.~~
~~PART I. FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements~~

	Consolidated Balance Sheets as of ~~March 31,~~September 30, 2020 (Unaudited) and December 31, 2019	1

			Unaudited Consolidated Statements of Income for the Quarter and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019		2

			Unaudited Consolidated Statements of Comprehensive Income for the Quarter and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019		3

			Unaudited Consolidated Statements of Stockholders' Equity for the Quarter and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019		4

			Unaudited Consolidated Statements of Cash Flows for the ~~Quarter~~Nine Months Ended ~~March 31,~~September 30, 2020 and 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		28

			Introduction		28

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

			Critical Accounting Policies and Estimates		32

			Financial Highlights of Results for ~~First~~Third Quarter and Nine Months 2020 and 2019		34

			Results of Operations and Related Information by Segment		3839

			Federal Income Taxes		4448

			Financial Condition, Liquidity, and Capital Resources		4449

			Ratings		4752

			Off-Balance Sheet Arrangements		4752

			Contractual Obligations, Contingent Liabilities, and Commitments		4852

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		4853

Item 4.			Controls and Procedures		5055

PART II. OTHER INFORMATION

Item 1.			Legal Proceedings		5156

Item 1A.			Risk Factors		5156

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		5459

~~Item 6.~~	~~Exhibits~~	54

~~Signatures~~		55




Item 6.	Exhibits	59

Signatures		60

Table of Contents


PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS.


SELECTIVE INSURANCE GROUP, INC. CONSOLIDATED BALANCE SHEETS	Unaudited
($ in thousands, except share amounts)	September 30, 2020		December 31, 2019
ASSETS
Investments:
Fixed income securities, held-to-maturity – at carrying value (fair value: $20,213 – 2020; $21,975 – 2019)	$	19,111	20,800
Less: allowance for credit losses	(24)		0
Fixed income securities, held-to-maturity, net of allowance for credit losses	19,087		20,800



Fixed income securities, available-for-sale – at fair value (allowance for credit losses: $7,180 – 2020; amortized cost: $6,097,973 – 2020 and $5,879,986 – 2019)	6,437,537		6,095,620

Commercial mortgage loans – at carrying value (fair value: $30,595 – 2020)	29,691		0
Less: allowance for credit losses	(217)		0
Commercial mortgage loans, net of allowance for credit losses	29,474		0

Equity securities – at fair value (cost: $158,045 – 2020; $72,061 – 2019)	151,824		72,937
Short-term investments (at cost which approximates fair value)	380,890		282,490
Other investments	258,648		216,807
Total investments (Note 4 and 6)	7,277,460		6,688,654
Cash	785		300
Restricted cash	15,110		7,675
Interest and dividends due or accrued	46,392		44,846

Premiums receivable	872,082		830,301
Less: allowance for credit losses (Note 7)	(21,000)		(6,400)
Premiums receivable, net of allowance for credit losses	851,082		823,901

Reinsurance recoverable	613,287		577,635
Less: allowance for credit losses (Note 8)	(1,831)		(4,400)
Reinsurance recoverable, net of allowance for credit losses	611,456		573,235

Prepaid reinsurance premiums	179,415		166,705
Current federal income tax	6,563		0
Deferred federal income tax	0		6,776
Property and equipment – at cost, net of accumulated depreciation and amortization of: $240,057 – 2020; $227,566 – 2019	78,443		77,409
Deferred policy acquisition costs	292,709		271,186
Goodwill	7,849		7,849
Other assets	147,662		128,614
Total assets	$	9,514,926	8,797,150

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserve for loss and loss expense (Note 9)	$	4,293,276	4,067,163
Unearned premiums	1,650,549		1,523,167
Short-term debt (Note 5)	167,000		0
Long-term debt (Note 5)	550,566		550,597
Current federal income tax	0		2,987
Deferred federal income tax	20,400		0
Accrued salaries and benefits	93,076		126,753
Other liabilities	346,446		331,547
Total liabilities	$	7,121,313	6,602,214

Stockholders’ Equity:
Preferred stock of $0 par value per share:	$	0	0
Authorized shares 5,000,000; 0 shares issued or outstanding
Common stock of $2 par value per share:
Authorized shares 360,000,000
Issued: 103,961,596 – 2020; 103,484,159 – 2019	207,923		206,968
Additional paid-in capital	438,874		418,521
Retained earnings	2,159,597		2,080,529
Accumulated other comprehensive income (Note 12)	187,090		81,750
Treasury stock – at cost (shares: 44,126,894 – 2020; 44,023,006 – 2019)	(599,871)		(592,832)
Total stockholders’ equity	$	2,393,613	2,194,936
Commitments and contingencies
Total liabilities and stockholders’ equity	$	9,514,926	8,797,150

SELECTIVE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
($ in thousands, except share amounts) March 31,
2020 December 31,
2019
ASSETS

Investments:

Fixed income securities, held-to-maturity – at carrying value (fair value: $21,921 – 2020; $21,975 – 2019) $ 20,408
20,800
Less: allowance for credit losses (28 ) —
Fixed income securities, held-to-maturity, net of allowance for credit losses 20,380
20,800

Fixed income securities, available-for-sale – at fair value
(allowance for credit losses: $15,787 – 2020; amortized cost: $5,877,779 – 2020 and $5,879,986 – 2019)
5,945,360
6,095,620

Commercial mortgage loans - at carrying value (fair value: $13,856 – 2020) 14,096
—
Less: allowance for credit losses (240 ) —
Commercial mortgage loans, net of allowance for credit losses 13,856
—

Equity securities – at fair value (cost: $116,249 – 2020; $72,061 – 2019) 99,989
72,937
Short-term investments (at cost which approximates fair value) 517,558
282,490
Other investments 244,934
216,807
Total investments (Note 4 and 6) 6,842,077

6,688,654
Cash 9,429
300
Restricted cash 5,177
7,675
Interest and dividends due or accrued 43,893
44,846

Premiums receivable 815,271
830,301
Less: allowance for credit losses (Note 7) (18,000 ) (6,400 )
Premiums receivable, net of allowance for credit losses 797,271
823,901

Reinsurance recoverable 565,036
577,635
Less: allowance for credit losses (Note 8) (1,502 ) (4,400 )
Reinsurance recoverable, net of allowance for credit losses 563,534
573,235

Prepaid reinsurance premiums 162,491
166,705
Deferred federal income tax (Note 14) 43,099
6,776
Property and equipment – at cost, net of accumulated depreciation and amortization of:
$231,651 – 2020; $227,566 – 2019 80,061
77,409
Deferred policy acquisition costs 269,581
271,186
Goodwill 7,849
7,849
Other assets 150,588
128,614
Total assets $ 8,975,050
8,797,150

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Reserve for loss and loss expense (Note 9) $ 4,103,635
4,067,163
Unearned premiums 1,514,577
1,523,167
Short-term debt (Note 5) 302,000
—
Long-term debt (Note 5) 550,577
550,597
Current federal income tax 12,352
2,987
Accrued salaries and benefits 74,031
126,753
Other liabilities 321,422
331,547
Total liabilities $ 6,878,594
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: 103,832,370 – 2020; 103,484,159 – 2019 207,665
206,968
Additional paid-in capital 427,328
418,521
Retained earnings 2,083,340
2,080,529
Accumulated other comprehensive income (loss) (Note 12) (22,117 ) 81,750
Treasury stock – at cost (shares: 44,124,825 – 2020; 44,023,006 – 2019) (599,760 ) (592,832 )
Total stockholders’ equity $ 2,096,456
2,194,936
Commitments and contingencies

Total liabilities and stockholders’ equity $ 8,975,050
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 March 31,
($ in thousands, except per share amounts) 2020 2019
Revenues:

Net premiums earned $ 651,703
632,573
Net investment income earned 55,967
50,618
Net realized and unrealized (losses) gains:

Net realized investment gains on disposals 4,100
3,444
Unrealized (losses) gains on equity securities (17,137 ) 10,111
Other-than-temporary impairments (31,629 ) (104 )
Total net realized and unrealized (losses) gains (44,666 ) 13,451
Other income 1,825
2,320
Total revenues 664,829
698,962

Expenses:

Loss and loss expense incurred 400,324
386,579
Amortization of deferred policy acquisition costs 136,501
129,674
Other insurance expenses 95,346
85,079
Interest expense 7,601
11,526
Corporate expenses 9,060
12,410
Total expenses 648,832
625,268

Income before federal income tax 15,997
73,694

Federal income tax expense:

Current 9,886
12,581
Deferred (9,125 ) (235 )
Total federal income tax expense 761
12,346

Net income $ 15,236
61,348

Earnings per share:

Basic net income $ 0.26
1.04

Diluted net income $ 0.25
1.02

Table of Contents


SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands, except per share amounts)	2020		2019	2020	2019
Revenues:
Net premiums earned	$	694,541	653,620	1,976,915	1,928,812
Net investment income earned	68,185		55,826	158,596	164,949
Net realized and unrealized gains (losses):
Net realized investment gains on disposals	573		20,425	7,288	26,752

Unrealized gains (losses) on equity securities	4,338		(20,317)	(7,098)	(8,091)
Other-than-temporary impairment benefit (expense)	2,810		(2,291)	(24,486)	(3,366)
Total net realized and unrealized gains (losses)	7,721		(2,183)	(24,296)	15,295
Other income	6,119		3,162	12,627	8,535
Total revenues	776,566		710,425	2,123,842	2,117,591

Expenses:
Loss and loss expense incurred	447,802		398,675	1,252,075	1,166,238
Amortization of deferred policy acquisition costs	142,291		136,572	415,723	399,647
Other insurance expenses	89,530		90,234	269,477	261,975
Interest expense	7,781		7,397	23,310	26,289
Corporate expenses	3,905		6,369	19,310	28,345
Total expenses	691,309		639,247	1,979,895	1,882,494

Income before federal income tax	85,257		71,178	143,947	235,097

Federal income tax expense:
Current	17,412		13,805	25,948	44,344
Deferred	(2,030)		1,223	(1,295)	989
Total federal income tax expense	15,382		15,028	24,653	45,333

Net income	$	69,875	56,150	119,294	189,764

Earnings per share:
Basic net income	$	1.17	0.94	1.99	3.20

Diluted net income	$	1.16	0.93	1.98	3.16

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 March 31,
($ in thousands) 2020 2019
Net income $ 15,236
61,348

Other comprehensive (loss) income, net of tax:

Unrealized (losses) gains on investment securities:

Unrealized holding (losses) gains arising during period (74,245 ) 81,313
Non-credit portion of OTTI recognized in OCI (51,658 ) —
Amounts reclassified into net income:
Held-to-maturity securities 20
(7 )
Net realized losses (gains) on disposals and intent-to-sell OTTI on AFS securities 8,948
(851 )
Credit loss expense recognized in OTTI 12,472
—
Total unrealized (losses) gains on investment securities (104,463 ) 80,455

Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:
Net actuarial loss 596
525
Total defined benefit pension and post-retirement plans 596
525
Other comprehensive (loss) income (103,867 ) 80,980
Comprehensive (loss) income $ (88,631 ) 142,328

Table of Contents


SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020		2019	2020	2019
Net income	$	69,875	56,150	119,294	189,764

Other comprehensive income ("OCI"), net of tax:
Unrealized gains on investment securities:
Unrealized holding gains arising during period	29,889		27,168	104,771	174,483
Non-credit portion of other-than-temporary impairments ("OTTI") recognized in OCI	7,299		0	(14,751)	0

Amounts reclassified into net income:
Held-to-maturity securities	0		(2)	(5)	(26)
Net realized (gains) losses on disposals and intent-to-sell OTTI on available-for-sale ("AFS") securities	(406)		2,229	7,210	351
Credit loss (benefit) expense recognized in OTTI	(2,254)		0	6,328	0

Total unrealized gains on investment securities	34,528		29,395	103,553	174,808

Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss	596		525	1,787	1,574
Total defined benefit pension and post-retirement plans	596		525	1,787	1,574
Other comprehensive income	35,124		29,920	105,340	176,382
Comprehensive income	$	104,999��	86,070	224,634	366,146

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 March 31,
($ in thousands, except share and per share amounts) 2020 2019
Common stock:
Beginning of period $ 206,968
205,697
Dividend reinvestment plan 14
11
Stock purchase and compensation plans 683
743
End of period 207,665
206,451

Additional paid-in capital:
Beginning of period 418,521
390,315
Dividend reinvestment plan 408
365
Stock purchase and compensation plans 8,399
8,201
End of period 427,328
398,881

Retained earnings:
Beginning of period, as previously reported 2,080,529
1,858,414
Cumulative effect adjustment due to adoption of lease guidance, net of tax (Note 2) —
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 2,081,964
1,858,756
Net income 15,236
61,348
Dividends to stockholders (13,860 ) (11,985 )
End of period 2,083,340
1,908,119

Accumulated other comprehensive (loss) income:
Beginning of period 81,750
(77,956 )
Other comprehensive (loss) income (103,867 ) 80,980
End of period (22,117 ) 3,024

Treasury stock:
Beginning of period (592,832 ) (584,668 )
Acquisition of treasury stock (6,928 ) (6,585 )
End of period (599,760 ) (591,253 )
Total stockholders’ equity $ 2,096,456
1,925,222

Dividends declared per share to stockholders $ 0.23
0.20

Common stock, shares outstanding:
Beginning of period 59,461,153
58,948,554
Dividend reinvestment plan

6,975
5,694
Stock purchase and compensation plan 341,236
371,628
Acquisition of treasury stock (101,819 ) (102,971 )
End of period 59,707,545
59,222,905

Table of Contents


SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands, except share and per share amounts)	2020		2019	2020	2019
Common stock:
Beginning of period	$	207,875	206,665	206,968	205,697
Dividend reinvestment plan	14		9	44	31
Stock purchase and compensation plans	34		169	911	1,115
End of period	207,923		206,843	207,923	206,843

Additional paid-in capital:
Beginning of period	435,019		407,382	418,521	390,315
Dividend reinvestment plan	401		366	1,216	1,095
Stock purchase and compensation plans	3,454		4,599	19,137	20,937
End of period	438,874		412,347	438,874	412,347

Retained earnings:
Beginning of period, as previously reported	2,103,629		1,968,374	2,080,529	1,858,414


Cumulative effect adjustment due to adoption of lease guidance, net of tax (Note 2)	0		0	0	342
Cumulative effect adjustment due to adoption of guidance on allowance for credit losses, net of tax (Note 2)	0		0	1,435	0
Balance at beginning of period, as adjusted	2,103,629		1,968,374	2,081,964	1,858,756
Net income	69,875		56,150	119,294	189,764
Dividends to stockholders	(13,907)		(12,025)	(41,661)	(36,021)
End of period	2,159,597		2,012,499	2,159,597	2,012,499

Accumulated other comprehensive income (loss):
Beginning of period	151,966		68,506	81,750	(77,956)



Other comprehensive income	35,124		29,920	105,340	176,382
End of period	187,090		98,426	187,090	98,426

Treasury stock:
Beginning of period	(599,814)		(591,383)	(592,832)	(584,668)
Acquisition of treasury stock	(57)		(1,356)	(7,039)	(8,071)
End of period	(599,871)		(592,739)	(599,871)	(592,739)
Total stockholders’ equity	$	2,393,613	2,137,376	2,393,613	2,137,376

Dividends declared per share to stockholders	$	0.23	0.20	0.69	0.60

Common stock, shares outstanding:
Beginning of period	59,811,742		59,328,108	59,461,153	58,948,554
Dividend reinvestment plan	7,026		4,738	21,900	15,650
Stock purchase and compensation plan	16,936		83,979	455,537	557,257
Acquisition of treasury stock	(1,002)		(17,256)	(103,888)	(121,892)
End of period	59,834,702		59,399,569	59,834,702	59,399,569

Selective Insurance Group, Inc. also has authorized, ~~but not~~with 0 shares issued, 5,000,000 shares of preferred stock, ~~without~~with 0 par value, of which 300,000 shares have been

designated Series A junior preferred stock, ~~without~~with 0 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
Quarter Ended March 31,
($ in thousands) 2020 2019
Operating Activities

Net income $ 15,236
61,348

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 15,415
16,278
Stock-based compensation expense 7,038
6,677
Undistributed gains of equity method investments (5,602 ) (971 )
Distributions in excess of current year income of equity method investments 614
1,771
Net realized and unrealized losses (gains) 44,666
(13,451 )
Loss on disposal of fixed assets 14
—

Changes in assets and liabilities:

Increase in reserve for loss and loss expense, net of reinsurance recoverable 49,077
68,607
(Decrease) increase in unearned premiums, net of prepaid reinsurance (4,376 ) 40,374
Decrease in net federal income taxes 276
12,044
Decrease (increase) in premiums receivable 25,572
(44,396 )
Decrease (increase) in deferred policy acquisition costs 1,605
(8,142 )
Decrease (increase) in interest and dividends due or accrued 880
(491 )
Decrease in accrued salaries and benefits (52,722 ) (38,529 )
Decrease (increase) in other assets 4,583
(8,711 )
Decrease in other liabilities (62,959 ) (45,769 )
Net cash provided by operating activities 39,317
46,639

Investing Activities

Purchase of fixed income securities, available-for-sale (319,539 ) (474,962 )
Purchase of commercial mortgage loans (14,096 ) —
Purchase of equity securities (45,511 ) (6,702 )
Purchase of other investments (27,433 ) (12,178 )
Purchase of short-term investments (2,086,599 ) (2,416,285 )
Sale of fixed income securities, available-for-sale 101,671
218,411
Sale of short-term investments 1,851,532
2,449,725
Redemption and maturities of fixed income securities, held-to-maturity 405
579
Redemption and maturities of fixed income securities, available-for-sale 227,686
86,572
Sale of equity securities 1,320
3,721
Sale of other investments —
4,995
Distributions from other investments 3,152
11,350
Purchase of property and equipment (8,416 ) (7,955 )
Net cash used in investing activities (315,828 ) (142,729 )

Financing Activities

Dividends to stockholders (13,313 ) (11,462 )
Acquisition of treasury stock (6,928 ) (6,585 )
Net proceeds from stock purchase and compensation plans 1,525
1,760
Proceeds from borrowings 387,000
341,256
Repayments of borrowings (85,000 ) (235,000 )
Repayments of finance lease obligations (142 ) (284 )
Net cash provided by financing activities 283,142
89,685
Net increase (decrease) in cash and restricted cash 6,631
(6,405 )
Cash and restricted cash, beginning of year 7,975
16,919
Cash and restricted cash, end of period $ 14,606
10,514

Table of Contents


SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS	Nine Months ended September 30,
($ in thousands)	2020		2019
Operating Activities
Net income	$	119,294	189,764

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	44,435		42,346

Stock-based compensation expense	13,935		15,857
Undistributed gains of equity method investments	(5,146)		(8,832)
Distributions in excess of current year income of equity method investments	3,136		2,267
Net realized and unrealized losses (gains)	24,296		(15,295)
Loss (gain) on disposal of fixed assets	17		(21)

Changes in assets and liabilities:
Increase in reserve for loss and loss expense, net of reinsurance recoverable	190,796		134,951
Increase in unearned premiums, net of prepaid reinsurance	114,672		122,460
(Increase) decrease in net federal income taxes	(10,775)		2,408
Increase in premiums receivable	(28,239)		(89,962)
Increase in deferred policy acquisition costs	(21,523)		(26,627)
Increase in interest and dividends due or accrued	(1,507)		(1,460)
Decrease in accrued salaries and benefits	(33,677)		(16,261)
Increase in other assets	(23,388)		(35,810)
(Decrease) increase in other liabilities	(5,443)		414
Net cash provided by operating activities	380,883		316,199

Investing Activities

Purchase of fixed income securities, available-for-sale	(1,373,226)		(1,330,827)
Purchase of commercial mortgage loans	(29,800)		0
Purchase of equity securities	(87,307)		(40,233)
Purchase of other investments	(61,051)		(41,248)
Purchase of short-term investments	(4,475,128)		(4,108,414)
Sale of fixed income securities, available-for-sale	411,263		461,825
Proceeds from commercial mortgage loans	109		0
Sale of short-term investments	4,377,024		4,106,643
Redemption and maturities of fixed income securities, held-to-maturity	1,646		10,062
Redemption and maturities of fixed income securities, available-for-sale	738,238		413,220
Sale of equity securities	1,320		125,302
Sale of other investments	3,879		18,016
Distributions from other investments	12,890		19,054
Purchase of property and equipment	(17,858)		(24,424)
Fixed asset disposals	0		35
Net cash used in investing activities	(498,001)		(390,989)

Financing Activities
Dividends to stockholders	(39,972)		(34,440)
Acquisition of treasury stock	(7,039)		(8,071)
Net proceeds from stock purchase and compensation plans	5,478		5,599
Proceeds from borrowings	487,000		355,757
Repayments of borrowings	(320,000)		(250,000)

Repayments of finance lease obligations	(429)		(811)
Net cash provided by financing activities	125,038		68,034
Net increase (decrease) in cash and restricted cash	7,920		(6,756)
Cash and restricted cash, beginning of year	7,975		16,919
Cash and restricted cash, end of period	$	15,895	10,163

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

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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation and Accounting Policies

(a) Basis of Presentation

The words "Company,” “we,” “us,” or “our” refer to Selective Insurance Group, Inc. (the "Parent"), and its subsidiaries, except as expressly indicated or the context requires otherwise. We have prepared our interim unaudited consolidated financial statements (“Financial Statements”) 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. ~~In preparing the Financial Statements in conformity with GAAP, we are required~~These require us to make estimates and assumptions that affect the reported financial statement balances 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 ~~first~~third quarters ended ~~March 31,~~September 30, 2020 (“~~First~~Third Quarter ~~2020~~”2020”) and ~~March 31,~~September 30, 2019 (“~~First~~Third Quarter 2019”) and the nine-month periods ended September 30, 2020 ("Nine Months 2020") and September 30, 2019” ("Nine Months 2019"). ~~These~~Our Financial Statements do not include all ~~of the~~ information and disclosures required by GAAP and the SEC for audited annual financial statements. ~~Results~~Because results of operations for any interim period are not necessarily indicative of results for a full ~~year. Consequently,~~year, 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, 2019 (“2019 Annual Report”) filed with the SEC.

(b) Accounting Policies

~~There~~We have ~~been~~made no material changes ~~from~~in 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 (i) those associated with our ~~First Quarter 2020~~ adoption of ASU 2016-13, Financial Instruments - Credit Losses ("CECL") in the first quarter of 2020 and (ii) our recent investment allocation to commercial mortgage loans ("CMLs"). The ~~pertinent additions and~~ changes to our accounting policies are ~~centered around~~related to the following items: (i) ~~Investments,~~Investments; (ii) Allowance for Uncollectible Premiums ~~Receivable,~~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:~~determine (i) if we have the intent to sell the ~~security;~~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~~we evaluate expected credit losses primarily ~~focuses on~~by 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:~~through (i) collection of the contractual cash ~~flows;~~flows or (ii) sale of the security.

Fair value declines on our AFS securities not recorded through OTTI are recognized in ~~accumulated~~Accumulated other comprehensive income ("AOCI"), after tax.

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Our DCF analyses calculate the present value of future cash flows using various models ~~that are~~ specific to the major security types ~~within~~in 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~~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 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~~is recorded as a contra-asset reflected in the carrying value of the investment on the Consolidated Balance Sheet, and ~~are~~is charged to earnings as credit loss expense, which is a component of "Other-than-temporary ~~impairments"~~impairment benefit (expense)" within "Net realized and unrealized gains (losses) ~~gains"~~" 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~~Subsequent changes in the expected cash flows associated with a future period's updated DCF analysis, however, 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:~~when: (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~~or (iii) we ~~have~~ sold a security ~~that~~ 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 ~~March 31,~~September 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 (i) direct originations under a loan syndication arrangement or ~~purchase CMLs in the marketplace.~~(ii) a marketplace purchase. 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 DCF methodology described above for fixed income ~~securities using a DCF model.~~securities. The discount rate used in this DCF model is either (i) the effective interest rate implicit in the CML at the date of acquisition for fixed rate investments, or (ii) 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 ~~carry~~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.

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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,~~collateral. As part of our allowance calculation, we reduce the recoverable balance by the amount of the ~~collateral as part of our allowance calculation.~~collateral. 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~~to calculate 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 ~~carry~~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

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses, and subsequent additional implementation guidance (collectively referred to as “ASU 2016-13”) that changes the way entities recognize impairment of financial assets. The new guidance requires immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets through the establishment of a valuation allowance. The valuation allowance is a measurement of expected losses 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. Additionally, ASU 2016-03 requires the presentation of the impacted financial assets on the consolidated balance sheet net of the valuation allowance.

We adopted this guidance on January 1, 2020, ~~and~~ 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. ~~Also, as~~As prescribed in ASU 2016-13, we did not adjust the amortized cost basis of any securities for which we previously 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 to(ii) re-estimate valuation allowances on our premiums receivables and reinsurance recoverables under ASU 2016-13. See Note 1. ~~Basis~~"Basis of Presentation and Accounting ~~Policies~~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 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 by removing certain disclosures, and modifying and adding disclosure requirements. The additional disclosure requirements include (i) the change in unrealized gains and losses for the period included in other comprehensive income (“OCI”) for recurring Level 3 fair value measurements held at the end of the reporting period, and (ii) the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements. We adopted the provisions related to removed disclosures in the fourth quarter of 2019 and adopted the remaining disclosure requirements in the first quarter of ~~2020 as permitted under ASU 2018-13.~~2020. As ~~this literature~~it requires disclosure only, ASU 2018-13 has no impact on 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

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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~~simplifies 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 exception was removed by~~ ASU ~~2019-12. This guidance~~2019-12 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.~~rate, are recognized in the period of enactment.

For year-to-date losses in interim periods, an entity is required currently 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~~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~~limitation 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 fiscal years beginning after December 15, 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”)~~, which~~. 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:

Quarter Ended March 31,
($ in thousands) 2020 2019
Cash paid during the period for:

Interest $ 8,854
4,477
Federal income tax —
—

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases 2,130
1,983
Operating cash flows from financing leases

6
—
Financing cash flows from finance leases

142
284

Non-cash items:
Corporate actions related to fixed income securities, AFS¹
8,040
18,447
Tax-free exchange of fixed income securities, HTM 2,596
—
Assets acquired under finance lease arrangements

29
—
Assets acquired under operating lease arrangements

3,828
6,136
Non-cash purchase of property and equipment 5
162


	Nine Months ended September 30,
($ in thousands)	2020		2019
Cash paid during the period for:
Interest	$	24,449	19,261
Federal income tax	34,000		42,000

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	7,077		6,062
Operating cash flows from financing leases	13		12
Financing cash flows from finance leases	429		811

Non-cash items:


Corporate actions related to fixed income securities, AFS1	32,580		29,771
Corporate actions related to fixed income securities, HTM1	2,596		0
Corporate actions related to equity securities1	890		14,250
Assets acquired under finance lease arrangements	119		824
Assets acquired under operating lease arrangements	22,104		13,648

Non-cash purchase of property and equipment	9		108

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

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


($ in thousands)	September 30, 2020		December 31, 2019
Cash	$	785	300
Restricted cash	15,110		7,675
Total cash and restricted cash shown in the Statements of Cash Flows	$	15,895	7,975

($ in thousands) March 31, 2020 December 31, 2019
Cash $ 9,429
300
Restricted cash 5,177
7,675
Total cash and restricted cash shown in the Statements of Cash Flows $ 14,606
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 March 31, 2020, represented less than 1% of our total invested assets, largely unchanged from December 31, 2019. The carry value and net unrealized/unrecognized gains were $20.4 million and $1.6 million, respectively, at March 31, 2020, and $20.8 million and $1.2 million, respectively, at December 31, 2019.

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~~about our AFS securities as of ~~March 31,~~September 30, 2020, and December 31, 2019, ~~was~~is as follows:


September 30, 2020
($ in thousands)	Cost/ Amortized Cost		Allowance for Credit Losses	Unrealized Gains	Unrealized Losses	Fair Value
AFS fixed income securities:
U.S. government and government agencies	$	110,201	0	7,374	(46)	117,529
Foreign government	15,679		(7)	1,336	0	17,008
Obligations of states and political subdivisions	1,152,794		(15)	78,841	(164)	1,231,456
Corporate securities	2,154,302		(5,358)	157,689	(7,802)	2,298,831
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS")	942,627		(1,121)	18,274	(14,198)	945,582
Residential mortgage-backed securities ("RMBS")	1,122,678		(647)	61,259	(333)	1,182,957
Commercial mortgage-backed securities ("CMBS")	599,692		(32)	46,386	(1,872)	644,174
Total AFS fixed income securities	$	6,097,973	(7,180)	371,159	(24,415)	6,437,537


March 31, 2020
December 31, 2019									December 31, 2019
($ in thousands)	Cost/ Amortized Cost		Allowance for Credit Losses		Unrealized Gains	Unrealized Losses		Fair Value	($ in thousands)	Cost/ Amortized Cost		Unrealized Gains	Unrealized Losses	Fair Value
AFS fixed income securities:									AFS fixed income securities:
U.S. government and government agencies	$	134,569	—		7,668	—		142,237	U.S. government and government agencies	$	112,680	3,506	0	116,186
Foreign government	12,987		(21	)	172	(252	)	12,886	Foreign government	18,011		533	(2)	18,542
Obligations of states and political subdivisions	1,146,160		(29	)	52,516	(1,434	)	1,197,213	Obligations of states and political subdivisions	1,168,185		62,175	(270)	1,230,090
Corporate securities	1,911,377		(13,412	)	44,397	(32,858	)	1,909,504	Corporate securities	1,866,881		81,906	(1,310)	1,947,477
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS")	789,240		(1,565	)	2,084	(67,498	)	722,261
Commercial mortgage-backed securities ("CMBS")	516,702		(38	)	26,511	(12,142	)	531,033
Residential mortgage-backed securities ("RMBS")	1,366,744		(722	)	66,931	(2,727	)	1,430,226
CLO and other ABS									CLO and other ABS	790,517		7,929	(5,434)	793,012
RMBS									RMBS	1,409,003		43,421	(455)	1,451,969
CMBS									CMBS	514,709		23,902	(267)	538,344
Total AFS fixed income securities	$	5,877,779	(15,787	)	200,279	(116,911	)	5,945,360	Total AFS fixed income securities	$	5,879,986	223,372	(7,738)	6,095,620

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
CMBS 514,709
23,902
(267 ) 538,344
RMBS 1,409,003
43,421
(455 ) 1,451,969
Total AFS fixed income securities $ 5,879,986
223,372
(7,738 ) 6,095,620

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

The following ~~table provides~~tables provide a ~~rollforward~~roll forward of the allowance for credit losses on our AFS fixed income securities for ~~2020:~~the periods indicated:


Quarter ended September 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	0	(2)	(19)	0	7
Obligations of states and political subdivisions	17		9	(11)	0	0	15
Corporate securities	8,077		1,016	(3,455)	(265)	(15)	5,358
CLO and other ABS	1,389		0	(210)	(51)	(7)	1,121
RMBS	831		0	(157)	(27)	0	647
CMBS	53		0	(21)	0	0	32
Total AFS fixed income securities	$	10,395	1,025	(3,856)	(362)	(22)	7,180

March 31, 2020
($ in thousands) Beginning Balance Current Provision for Securities without Prior Allowance Increase or (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
—
—
—
21
Obligations of states and political subdivisions —
29
—
—
—
29
Corporate securities —
13,412
—
—
—
13,412
CLO and other ABS —
1,565
—
—
—
1,565
CMBS —
38
—
—
—
38
RMBS —
722
—
—
—
722
Total AFS fixed income securities $ —
15,787
—
—
—
15,787

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Nine Months ended September 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	$	0	26	0	(19)	0	7
Obligations of states and political subdivisions	0		15	0	0	0	15
Corporate securities	0		6,100	0	(659)	(83)	5,358
CLO and other ABS	0		1,237	0	(109)	(7)	1,121
RMBS	0		690	0	(43)	0	647
CMBS	0		32	0	0	0	32
Total AFS fixed income securities	$	0	8,100	0	(830)	(90)	7,180

During 2020, we ~~did not experience~~neither experienced any write-offs or recoveries of our AFS fixed income securities nor ~~did we purchase~~purchased any assets with credit deterioration, ~~therefore~~so these items are not included in the table above.

As disclosed in Note 1. "Basis of Presentation and Accounting Policies," we do not evaluate accrued interest on our AFS securities for credit impairment as we write-off these ~~balance~~balances in a timely manner. As of ~~March 31,~~September 30, 2020, accrued interest on AFS securities amounted to ~~$42.8~~$45.3 million and we did not record any write-offs of accrued interest during ~~First Quarter~~ 2020.

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

March 31, 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 4,376
(252 ) —
—
4,376
(252 )
Obligations of states and political subdivisions 70,830
(1,434 ) —
—
70,830
(1,434 )
Corporate securities 553,419
(31,677 ) 8,185
(1,181 ) 561,604
(32,858 )
CLO and other ABS 445,676
(49,404 ) 136,413
(18,094 ) 582,089
(67,498 )
CMBS 144,010
(11,119 ) 11,373
(1,023 ) 155,383
(12,142 )
RMBS 71,741
(2,561 ) 1,974
(166 ) 73,715
(2,727 )
Total AFS fixed income securities $ 1,290,052
(96,447 ) 157,945
(20,464 ) 1,447,997
(116,911 )


September 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:
U.S. government and government agencies	$	4,855	(46)	0	0	4,855	(46)

Obligations of states and political subdivisions	15,929		(164)	0	0	15,929	(164)
Corporate securities	100,989		(7,444)	2,695	(358)	103,684	(7,802)
CLO and other ABS	302,492		(7,804)	149,893	(6,394)	452,385	(14,198)
RMBS	55,128		(300)	2,316	(33)	57,444	(333)
CMBS	80,308		(1,320)	14,342	(552)	94,650	(1,872)
Total AFS fixed income securities	$	559,701	(17,078)	169,246	(7,337)	728,947	(24,415)


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)	0	0	1,416	(2)
Obligations of states and political subdivisions	35,838		(270)	0	0	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)

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 )
CMBS 62,893
(264 ) 828
(3 ) 63,721
(267 )
RMBS 126,089
(425 ) 5,375
(30 ) 131,464
(455 )
Total AFS fixed income securities $ 516,259
(3,379 ) 230,770
(4,359 ) 747,029
(7,738 )

We currently do not ~~currently~~ intend to sell any of the securities in the tables above, nor is it likely we will be required to sell any of ~~these securities. Considering~~them. After considering these factors and our review of these securities under our methodology for analyzing OTTI, we have concluded that they are temporarily impaired asbecause we ~~believe:~~believe (i) they will mature at par ~~value;~~value, (ii) they have not incurred a credit ~~impairment;~~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 ~~extreme~~ volatility in the financial markets. ~~Consequently, our~~While market conditions improved during Third Quarter 2020, gross unrealized losses on our AFS fixed income securities portfolio increased to ~~$116.9~~$24.4 million at September 30, 2020, from $7.7

million at December 31, 2019. ~~The~~This increase ~~in total unrealized losses~~ 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~~United States Treasury rates.

~~(d)~~Table of Contents

(c) Fixed income securities at ~~March 31,~~September 30, 2020,, are shown below by contractual 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			AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value	($ in thousands)	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	295,885	929	965	Due in one year or less	$	336,142	1,456	1,490
Due after one year through five years	3,471,503		13,943	15,115	Due after one year through five years	3,714,414		15,131	16,293
Due after five years through 10 years	1,925,970		5,508	5,841	Due after five years through 10 years	1,960,132		2,500	2,430
Due after 10 years	252,002		—	—	Due after 10 years	426,849		0	0
Total fixed income securities	$	5,945,360	20,380	21,921	Total fixed income securities	$	6,437,537	19,087	20,213

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

Other Investments March 31, 2020 December 31, 2019
($ in thousands) Carrying Value Remaining Commitment
Maximum Exposure to Loss¹
Carrying Value Remaining Commitment
Maximum Exposure to Loss¹
Alternative Investments

   Private equity $ 131,936
102,801
234,737
118,352
93,138
211,490
   Private credit 46,515
101,587
148,102
42,532
105,340
147,872
   Real assets 23,385
23,406
46,791
23,256
20,741
43,997
Total alternative investments 201,836
227,794
429,630
184,140
219,219
403,359
Other securities 43,098
—
43,098
32,667
—
32,667
Total other investments $ 244,934
227,794
472,728
216,807
219,219
436,026


Other Investments	September 30, 2020				December 31, 2019
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss1	Carrying Value	Remaining Commitment	Maximum Exposure to Loss1
Alternative Investments
Private equity	$	146,810	110,173	256,983	118,352	93,138	211,490
Private credit	49,254		96,131	145,385	42,532	105,340	147,872
Real assets	21,859		19,070	40,929	23,256	20,741	43,997
Total alternative investments	217,923		225,374	443,297	184,140	219,219	403,359
Other securities	40,725		0	40,725	32,667	0	32,667
Total other investments	$	258,648	225,374	484,022	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~~stated above; ~~however,~~but 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 2020 or 2019.

The following table shows gross summarized financial information for our other investments portfolio, including the portion we do not 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~~accounting and report results to us on a one-quarter ~~lag,~~lag. The following table provides (i) the gross summarized financial statement information for these investments for the three-month ~~period~~and nine-month periods ended ~~December 31 is~~June 30, and (ii) the portion of these results that are included in our ~~First~~Third Quarter ~~results. This information is as follows:~~results:


Income Statement Information	Quarter ended September 30,			Nine Months ended September 30,
($ in millions)	2020		2019	2020	2019
Net investment (loss) income	$	83.4	(14.0)	92.9	10.1
Realized (losses) gains	731.3		121.1	1,075.0	370.4
Net change in unrealized appreciation (depreciation)	2,230.4		1,739.4	571.6	4,517.4
Net income	$	3,045.1	1,846.5	1,739.5	4,897.9
Insurance Subsidiaries’ alternative investments income	$	18.7	5.2	8.9	13.0

Income Statement Information Quarter Ended March 31,
($ in millions) 2020 2019
Net investment (loss) income $ 12.7

(150.0 )
Realized (losses) gains 164.8

143.3
Net change in unrealized appreciation (depreciation) 1,204.0

554.3
Net income $ 1,381.5

547.6
Insurance Subsidiaries’ alternative investments income $ 6.3
0.6

As noted above, the ~~$6.3 million~~majority of ~~income associated with~~ our alternative ~~investment portfolio is largely recorded~~investments report their results to us on a one-quarter lag, so the ~~carry value~~$18.7 million of ~~$201.8 million at March 31, 2020, does not reflect~~gains in the ~~significant COVID-19-related~~table above reflects the improvement in the financial ~~market volatility. Refer to Note 16. "Subsequent Events" below for additional information regarding our estimate of the results of our alternative investments portfolio to be recorded in~~markets during the second quarter of 2020.

~~(f)~~

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(e) Certain Insurance Subsidiaries, ~~have pledged certain AFS fixed income securities as collateral~~ as members of the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY")~~. In addition, we~~, have pledged certain AFS fixed income securities as collateral. To comply with insurance laws, certain Insurance Subsidiaries also had certain securities deposited with various state and regulatory agencies at ~~March 31, 2020, to comply with insurance laws.~~September 30, 2020. We retain all rights regarding all securities pledged as collateral.

The following table summarizes the market value of these securities at ~~March 31,~~September 30, 2020:


($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	0	0	22.7	22.7
Obligations of states and political subdivisions	0		0	5.1	5.1



RMBS	133.0		205.2	0	338.2
CMBS	7.2		36.7	0	43.9


Total pledged as collateral	$	140.2	241.9	27.8	409.9

($ in millions) FHLBI Collateral FHLBNY Collateral State and Regulatory Deposits Total
U.S. government and government agencies $ —
—
23.4
23.4
Obligations of states and political subdivisions —
—
4.0
4.0
Corporate securities —
—
0.3
0.3
CMBS 7.1
28.1
—
35.2
RMBS 139.7
225.7
—
365.4
Total pledged as collateral $ 146.8
253.8
27.7

428.3

~~(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 ~~March 31,~~September 30, 2020, or December 31, 2019.

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


	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020		2019	2020	2019
Fixed income securities	$	51,285	50,749	152,617	150,689
CMLs	245		0	463	0
Equity securities	1,948		1,885	5,523	5,265
Short-term investments	244		1,410	1,830	5,213
Other investments	18,671		5,267	9,167	13,421
Investment expenses	(4,208)		(3,485)	(11,004)	(9,639)
Net investment income earned	$	68,185	55,826	158,596	164,949

Quarter Ended March 31,
($ in thousands) 2020 2019
Fixed income securities $ 50,253

49,033
CMLs 62
—
Equity securities 1,552

1,640
Short-term investments 1,166

2,044
Other investments 6,342

660
Investment expenses (3,408 )
(2,759 )
Net investment income earned $ 55,967
50,618

The increase in net investment income earned in Third Quarter 2020 compared to Third Quarter 2019 was driven by our alternative investments in our other investments portfolio, and reflect the improvement in the equity markets from the second quarter of 2020, as our results on these holdings are recorded on a one-quarter lag.

~~(i)~~

The decrease in net investment income earned Nine Months 2020 compared to Nine Months 2019 was driven by our alternative investments within our other investments portfolio, and reflects deterioration in the equity markets related to the financial market volatility that existed in the year due to COVID-19.

(h) The following table summarizes OTTI by asset type for the periods indicated:


	Quarter ended September 30,
	2020				2019
($ in thousands)	Credit Loss Benefit (Expense)		Other Impairment Expense	Recognized in Earnings	Recognized in Earnings
HTM fixed income securities:

Corporate securities	$	3	0	3	0
Total HTM fixed income securities	3		0	3	0
AFS fixed income securities:

Foreign government	3		0	3	0
Obligations of states and political subdivisions	2		0	2	0
Corporate securities	2,454		0	2,454	(1,681)
CLO and other ABS	217		(44)	173	0
RMBS	157		0	157	0
CMBS	21		0	21	0
Total AFS fixed income securities	2,854		(44)	2,810	(1,681)
CMLs	(2)		0	(2)	0
Short term investments	(1)		0	(1)	0
Other investments	0		0	0	(610)
Total OTTI benefit (expense)	$	2,854	(44)	2,810	(2,291)

Quarter Ended March 31,
2020 2019
($ in thousands) Credit Loss Expense Other Impairment Charges Recognized in Earnings Recognized in Earnings
AFS fixed income securities:
U.S. government and government agencies —
14
14
—
Foreign government 21
—
21
—
Obligations of states and political subdivisions 29
62
91
65
Corporate securities 13,412
11,603
25,015
—
CLO and other ABS 1,565
2,000
3,565
—
CMBS 38
1,852
1,890
—
RMBS 722
71
793
—
Total AFS fixed income securities 15,787
15,602
31,389
65
CMLs 240
—
240
—
Other Investments —
—
—
39
Total OTTI 16,027
15,602
31,629
104

Table of Contents


	Nine Months ended September 30,
	2020				2019
($ in thousands)	Credit Loss (Expense) Benefit		Other Impairment Expense	Recognized in Earnings	Recognized in Earnings
HTM fixed income securities:

Corporate securities	$	4	0	4	0
Total HTM fixed income securities	4		0	4	0
AFS fixed income securities:
U.S. government and government agencies	0		(14)	(14)	0
Foreign government	(25)		0	(25)	0
Obligations of states and political subdivisions	(15)		(62)	(77)	(65)
Corporate securities	(6,018)		(12,103)	(18,121)	(2,455)
CLO and other ABS	(1,230)		(2,137)	(3,367)	0
RMBS	(690)		(91)	(781)	0
CMBS	(32)		(1,852)	(1,884)	0
Total AFS fixed income securities	(8,010)		(16,259)	(24,269)	(2,520)
CMLs	(220)		0	(220)	0
Short-term investments	(1)		0	(1)	0
Other investments	0		0	0	(846)
Total OTTI expense	$	(8,227)	(16,259)	(24,486)	(3,366)

~~The $31.6~~OTTI amounted to $24.5 million in Nine Months 2020 and included $16.3 million of OTTI during First Quarter 2020 was a $31.5 million increase from First Quarter 2019. Included in the $31.6 million of First Quarter 2020 OTTI are $15.6 million of other impairment charges, which representimpairments on securities ~~that are in an unrealized loss position that~~ we ~~intend~~intended to ~~sell. This provided~~sell to provide our investment managers ~~significant~~ flexibility to trade and optimize our investment portfolio in the COVID-19-related ~~financial~~ market ~~volatility.~~volatility and uncertainty. The remaining $8.2 million of OTTI in Nine Months 2020 related to our allowance for credit losses and included an approximate $2.9 million reduction of this allowance in Third Quarter 2020 from improving market conditions during the quarter as compared to June 30, 2020.

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


	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020		2019	2020		2019
Net realized gains (losses) on the disposals of securities:
Fixed income securities	$	561	(1,141)	7,137		2,063
CMLs	1		0	2		0
Equity securities	0		21,602	(3)		24,733
Short-term investments	11		(36)	157		(21)
Other investments	0		0	(5)		(23)
Net realized gains (losses) on the disposal of securities	573		20,425	7,288		26,752
OTTI benefit (expense)	2,810		(2,291)	(24,486)		(3,366)
Net realized gains (losses)	3,383		18,134	(17,198)		23,386
Unrealized gains (losses) recognized in income on equity securities	4,338		(20,317)	(7,098)		(8,091)
Total net realized and unrealized investment gains (losses)	$	7,721	(2,183)	$	(24,296)	15,295

Quarter Ended March 31,
($ in thousands) 2020 2019
Net realized gains (losses) on the disposals of securities:
Fixed income securities $ 4,276
1,143
Equity securities (3 ) 2,280
Short-term investments (168 ) 14
Other investments (5 ) 7
Net realized gains (losses) on the disposal of securities 4,100
3,444
OTTI charges (31,629 ) (104 )
Net realized gains (losses) (27,529 ) 3,340
Unrealized (losses) gains recognized in income on equity securities (17,137 ) 10,111
Total net realized and unrealized investment (losses) gains $ (44,666 ) 13,451

~~The $58.1~~During Third Quarter 2020, the $9.9 million increase in net realized and unrealized investment ~~losses~~gains was primarily driven by the improvements in the allowance for credit losses on our AFS fixed income securities as discussed above. Excluding OTTI, realized and unrealized gains and losses were impacted in Third Quarter 2020 by improvements in market conditions that resulted in unrealized gains on our equity portfolio. In the comparable quarter last year, we sold a significant portion of our public equity securities, realizing net gains of $21.6 million. These realized gains were substantially offset 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.

For Nine Months 2020, net realized and unrealized investment losses were $24.3 million, compared to net gains of $15.3 million for Nine Months 2019. This fluctuation was driven by the increase in OTTI expense discussed above, coupled with ~~a $27.2 million increase~~the decrease in ~~unrealized losses~~realized gains on ~~our equity~~the disposal of securities, ~~in First Quarter 2020, related~~which were higher last year due to the ~~COVID-19-related financial market disruption.~~referenced public equity sales.

Table of Contents

Unrealized gains (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)	2020		2019	2020	2019
Unrealized gains (losses) recognized in income on equity securities:
On securities remaining in our portfolio at September 30, 2020	$	4,338	1,109	(7,101)	1,805
On securities sold in each respective period	0		(21,426)	3	(9,896)
Total unrealized gains (losses) recognized in income on equity securities	$	4,338	(20,317)	(7,098)	(8,091)

Quarter Ended March 31,
($ in thousands) 2020 2019
Unrealized (losses) gains recognized in income on equity securities:
On securities remaining in our portfolio at March 31, 2020 $ (17,140 ) 12,055
On securities sold in each respective period 3
(1,944 )
Total unrealized (losses) gains recognized in income on equity securities $ (17,137 ) 10,111

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


	Quarter Ended March 31,						Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020			2019		($ in thousands)	2020		2019	2020	2019
HTM fixed income securities						HTM fixed income securities
Gains	$	1		—		Gains	$	1	0	2	1
Losses	—			—		Losses	0		0	0	(15)
AFS fixed income securities						AFS fixed income securities
Gains						Gains	2,955		1,078	14,770	5,565
Losses						Losses	(2,395)		(2,219)	(7,635)	(3,488)
CMLs						CMLs
Gains	5,653			1,844		Gains	1		0	2	0
Losses	(1,378		)	(701	)	Losses	0		0	0	0
Equity securities						Equity securities
Gains	—			2,280		Gains	0		21,630	0	24,868
Losses	(3		)	—		Losses	0		(28)	(3)	(135)
Short-term investments						Short-term investments
Gains	22			14		Gains	18		2	355	18
Losses	(190		)	—		Losses	(7)		(38)	(198)	(39)
Other investments						Other investments
Gains	—			7		Gains	0		0	0	7
Losses	(5		)	—		Losses	0		0	(5)	(30)
Total net realized gains on disposals of securities	$	4,100		3,444		Total net realized gains on disposals of securities	$	573	20,425	7,288	26,752

Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold.

NOTE 5. Indebtedness

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


Outstanding Debt	Issuance Date	Maturity Date	Interest Rate		Original Amount	2020		Carry Value
($ in thousands)						Unamortized Issuance Costs	Debt Discount	September 30, 2020	December 31, 2019
Description
Short-term
Issuance:
FHLBNY	9/14/2020	11/16/2020	0.36	%	100,000	0	0	100,000	0

FHLBI	3/19/2020	12/14/2020	0.58	%	67,000	0	0	67,000	0

Total short-term debt						0	0	167,000	0








Other Outstanding:
FHLBI	12/16/2016	12/16/2026	3.03	%	60,000	0	0	60,000	60,000
FHLBNY	8/15/2016	8/16/2021	1.56	%	25,000	0	0	25,000	25,000
FHLBNY	7/21/2016	7/21/2021	1.61	%	25,000	0	0	25,000	25,000
Senior Notes	11/3/2005	11/1/2035	6.70	%	100,000	329	505	99,166	99,125
Senior Notes	11/16/2004	11/15/2034	7.25	%	50,000	170	87	49,743	49,725
Senior Notes	3/1/2019	3/1/2049	5.375	%	300,000	2,986	5,781	291,233	291,010

Finance lease obligations								424	737

Total long-term debt						3,485	6,373	550,566	550,597

Total debt						3,485	6,373	717,566	550,597

Outstanding Debt Issuance Date Maturity Date Interest Rate Original Amount 2020 Carry Value
($ in thousands) Unamortized Issuance Costs Debt Discount March 31, 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
—
Line of Credit 3/24/2020 9/24/2020 2.244 % 50,000
—
—
50,000
—
Total short-term debt —
—
302,000
—

   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
346
515
99,139
99,125
      Senior Notes 11/16/2004 11/15/2034 7.25 % 50,000
180
89
49,731
49,725
Senior Notes 3/1/2019 3/1/2049 5.375 % 300,000
3,092
5,823
291,085
291,010

Finance lease obligations 622
737
Total long-term debt
3,618
6,427
550,577
550,597

Total debt 3,618
6,427
852,577
550,597

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Our long-term debt balance ~~did not materially change from~~was level with December 31, 2019. ~~However, we~~We, however, increased our short-term debt by $302 million during the ~~First Quarter~~first quarter of 2020 as a contingency in light of the COVID-19-related volatility and uncertainty in the financial markets. We repaid the $50 million line of credit in May 2020, and the $85 million FHLBNY borrowing in September 2020. The remaining $167 million short-term borrowings are still outstanding as of September 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 in the next few quarters.~~flexibility.

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

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

•On March 12, 2020, SICA borrowed $100 million from the FHLBNY at an interest rate of 0.78%. This borrowing ~~matures~~was refinanced upon its maturity on September 14, 2020, at a lower interest rate of 0.36%. This borrowing matures on November 16, 2020.

•On March 19, 2020, Selective Insurance Company of South Carolina ("SISC") and Selective Insurance Company of the Southeast ("SISE") borrowed $39 million and $28 million, respectively, from the FHLBI at an interest rate of 0.58%. These borrowings mature on December 14, 2020.

•

~~On March 24, 2020, Selective Insurance Group ("SIGI") borrowed $50 million on its line of credit issued by the Bank of Montreal at an interest rate of~~ ~~2.244%~~. The borrowings can be repaid at anytime, without a prepayment penalty, through the December 20, 2022 maturity of the line of credit. The interest rate is based on a spread over 180 LIBOR and will reset on September 24, 2020 if the borrowings under the line of credit remain outstanding at that time.

•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.

The remaining $167 million in short-term borrowings are contractually due in the fourth quarter of 2020, and we expect to repay them by year-end. As of ~~March 31,~~September 30, 2020, we were compliant with our required financial debt covenants under the line of credit.

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

NOTE 6. Fair Value Measurements

We primarily measure the financial assets in our investment portfolio 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 ~~March 31,~~September 30, 2020, and December 31, 2019:


	September 30, 2020			December 31, 2019
($ in thousands)	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial Liabilities
Short-term debt:
0.36% Borrowings from FHLBNY	$	100,000	100,005	0	0

0.58% Borrowings from FHLBI	67,000		67,050	0	0

Total short-term debt	167,000		167,055	0	0

Long-term debt:
7.25% Senior Notes	49,913		67,350	49,910	66,365
6.70% Senior Notes	99,495		130,651	99,480	123,104

5.375% Senior Notes	294,219		365,756	294,157	357,025
1.61% borrowings from FHLBNY	25,000		25,255	25,000	24,901
1.56% borrowings from FHLBNY	25,000		25,269	25,000	24,875
3.03% borrowings from FHLBI	60,000		67,972	60,000	63,002
Subtotal long-term debt	553,627		682,253	553,547	659,272
Unamortized debt issuance costs	(3,485)			(3,687)
Finance lease obligations	424			737
Total long-term debt	$	550,566		550,597

March 31, 2020 December 31, 2019
($ in thousands) Carrying Amount Fair Value Carrying Amount Fair Value
Financial Liabilities
Short-term debt:
0.78% Borrowings from FHLBNY $ 100,000
100,096
—
—
0.68% Borrowings from FHLBNY 85,000
85,039
—
—
0.58% Borrowings from FHLBI 67,000
67,006
—
—
2.244% Line of Credit¹
50,000
—
—
—
Total short-term debt 302,000
252,141
—
—

Long-term debt:
7.25% Senior Notes 49,911
61,134
49,910
66,365
6.70% Senior Notes 99,485
118,561
99,480
123,104
5.375% Senior Notes 294,177
316,400
294,157
357,025
1.61% borrowings from FHLBNY 25,000
25,261
25,000
24,901
1.56% borrowings from FHLBNY 25,000
25,260
25,000
24,875
3.03% borrowings from FHLBI 60,000
65,404
60,000
63,002
Subtotal long-term debt 553,573
612,020
553,547
659,272
Unamortized debt issuance costs (3,618 ) (3,687 )
Finance lease obligations 622
737

Total long-term debt $ 550,577
550,597

¹Total short-term debt includes our $50 million line of credit borrowing. As there is no scheduled or definitive repayment plan for this borrowing as of March 31, 2020, the fair value cannot be calculated and the borrowing is not classified in the fair value hierarchy table below.

For more information about ~~these new~~our short-term borrowings, refer to Note 5. ~~"Indebtedness" above.~~"Indebtedness." 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 2019 Annual Report.

Table of Contents

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


September 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)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies	$	117,529	43,287	74,242	0
Foreign government	17,008		0	17,008	0
Obligations of states and political subdivisions	1,231,456		0	1,228,602	2,854
Corporate securities	2,298,831		0	2,261,195	37,636
CLO and other ABS	945,582		0	900,862	44,720
RMBS	1,182,957		0	1,182,957	0
CMBS	644,174		0	644,174	0
Total AFS fixed income securities	6,437,537		43,287	6,309,040	85,210
Equity securities:
Common stock1	150,153		103,603	—	0
Preferred stock	1,671		1,671	0	0
Total equity securities	151,824		105,274	0	0
Short-term investments	380,890		379,317	1,573	0
Total assets measured at fair value	$	6,970,251	527,878	6,310,613	85,210

March 31, 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)
Description

Measured on a recurring basis:

��

AFS fixed income securities:
U.S. government and government agencies $ 142,237
44,093
98,144
—
Foreign government 12,886
—
12,886
—
Obligations of states and political subdivisions 1,197,213
—
1,194,323
2,890
Corporate securities 1,909,504
—
1,885,319
24,185
CLO and other ABS 722,261
—
685,889
36,372
RMBS 1,430,226
—
1,430,226
—
CMBS 531,033
—
531,033
—
Total AFS fixed income securities 5,945,360
44,093
5,837,820
63,447
Equity securities:
Common stock¹
98,410
59,175
—
—
Preferred stock 1,579
1,579
—
—
Total equity securities 99,989
60,754
—
—
Short-term investments 517,558
504,243
13,315
—
Total assets measured at fair value $ 6,562,907
609,090
5,851,135

63,447

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)
Description

Measured on a recurring basis:

AFS fixed income securities:
U.S. government and government agencies $ 116,186
41,083
75,103
—
Foreign government 18,542
—
18,542
—
Obligations of states and political subdivisions 1,230,090
—
1,230,090
—
Corporate securities 1,947,477
—
1,930,426
17,051
CLO and other ABS 793,012
3,635
772,343
17,034
RMBS 1,451,969
—
1,451,969
—
CMBS 538,344
—
538,344
—
Total AFS fixed income securities 6,095,620
44,718
6,016,817
34,085
Equity securities:
Common stock¹
69,900
32,145
—
—
Preferred stock 3,037
3,037
—
—
Total equity securities 72,937
35,182
—
—
Short-term investments 282,490
265,306
17,184
—
Total assets measured at fair value $ 6,451,047
345,206
6,034,001
34,085


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)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies	$	116,186	41,083	75,103	0
Foreign government	18,542		0	18,542	0
Obligations of states and political subdivisions	1,230,090		0	1,230,090	0
Corporate securities	1,947,477		0	1,930,426	17,051
CLO and other ABS	793,012		3,635	772,343	17,034
RMBS	1,451,969		0	1,451,969	0
CMBS	538,344		0	538,344	0
Total AFS fixed income securities	6,095,620		44,718	6,016,817	34,085
Equity securities:
Common stock1	69,900		32,145	0	0
Preferred stock	3,037		3,037	0	0
Total equity securities	72,937		35,182	0	0
Short-term investments	282,490		265,306	17,184	0
Total assets measured at fair value	$	6,451,047	345,206	6,034,001	34,085

¹Investments amounting to ~~$39.2~~$46.6 million at ~~March 31,~~September 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.~~period. 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.

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The following table provides a summary of Level 3 changes in ~~First Quarter~~Nine Months 2020 and ~~First Quarter~~Nine Months 2019:


September 30, 2020
($ in thousands)	Obligations of states and political subdivisions	Corporate Securities	CLO and Other ABS	Total
Fair value, December 31, 2019	0	17,051	17,034	34,085
Total net (losses) gains for the period included in:
OCI	(36)	(2,415)	732	(1,719)
Net realized and unrealized (losses) gains	0	(456)	(247)	(703)
Net investment income earned	0	0	3	3
Purchases	0	19,002	11,751	30,753
Sales	0	0	0	0
Issuances	0	0	0	0
Settlements	0	(138)	(1,030)	(1,168)
Transfers into Level 3	2,890	4,592	26,401	33,883
Transfers out of Level 3	0	0	(9,924)	(9,924)
Fair value, September 30, 2020	2,854	37,636	44,720	85,210

Change in unrealized (losses) gains for the period included in earnings for assets held at period end	0	(456)	(247)	(703)
Change in unrealized gains (losses) for the period included in OCI for assets held at period end	(36)	(2,415)	732	(1,719)

March 31, 2020
($ in thousands) Obligations of states and political subdivisions Corporate Securities CLO and Other ABS Total
Fair value, December 31, 2019 —
17,051
17,034
34,085
Total net (losses) gains for the period included in:
OCI —
1
(1,756 ) (1,755 )
Net realized and unrealized (losses) gains —
(61 ) (214 ) (275 )
Purchases —
3,002
4,831
7,833
Sales —
—
—
—
Issuances —
—
—
—
Settlements —
—
—
—
Transfers into Level 3 2,890
4,192
20,107
27,189
Transfers out of Level 3 —
—
(3,630 ) (3,630 )
Fair value, March 31, 2020 2,890
24,185
36,372
63,447

Change in unrealized (losses) gains for the period included in earnings for assets held at period end —
(61 ) (214 ) (275 )
Change in unrealized gains (losses) for the period included in other comprehensive income for assets held at period end —
1
(1,756 ) (1,755 )


September 30, 2019
($ in thousands)	Corporate Securities	CLO and Other ABS	Total
Fair value, December 31, 2018	0	7,409	7,409
Total net (losses) gains for the period included in:
OCI	(69)	(14)	(83)
Net investment income earned	0	244	244
Purchases	0	18,404	18,404
Sales	0	0	0
Issuances	0	0	0
Settlements	0	(105)	(105)
Transfers into Level 3	16,419	13,603	30,022
Transfers out of Level 3	0	(19,662)	(19,662)
Fair value, September 30, 2019	16,350	19,879	36,229

Change in unrealized gains (losses) for the period included in earnings for assets held at period end	0	0	0

March 31, 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 —
(225 ) (225 )
Net realized and unrealized (losses) gains —
—
—
Purchases —
12,434
12,434
Sales —
—
—
Issuances —
—
—
Settlements —
—
—
Transfers into Level 3 16,419
11,674
28,093
Transfers out of Level 3 —
—
—
Fair value, March 31, 2019 16,419
31,292
47,711

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

Table of Contents

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

2019:


March 31, 2020			Fair Value Measurements Using
September 30, 2020						September 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)	($ in thousands)	Assets/ Liabilities Disclosed at Fair Value		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial Assets						Financial Assets
HTM:						HTM:

Obligations of states and political subdivisions	$	4,871	—	4,871	—	Obligations of states and political subdivisions	$	4,849	0	4,849	0
Corporate securities	17,050		—	17,050	—	Corporate securities	15,364		0	15,364	0

Total HTM fixed income securities	$	21,921	—	21,921	—	Total HTM fixed income securities	$	20,213	0	20,213	0

CMLs	13,856		—	—	13,856	CMLs	$	30,595	0	2,540	28,055

Financial Liabilities						Financial Liabilities

Short-term debt:						Short-term debt:
0.78% Borrowings from FHLBNY	100,096		—	100,096	—
0.68% Borrowings from FHLBNY	85,039		—	85,039	—
0.36% Borrowings from FHLBNY						0.36% Borrowings from FHLBNY	$	100,005	0	100,005	0

0.58% Borrowings from FHLBI	67,006		—	67,006	—	0.58% Borrowings from FHLBI	67,050		0	67,050	0
Total short-term debt	252,141		—	252,141	—	Total short-term debt	$	167,055	0	167,055	0

Long-term debt:						Long-term debt:
7.25% Senior Notes	$	61,134	—	61,134	—	7.25% Senior Notes	$	67,350	0	67,350	0
6.70% Senior Notes	118,561		—	118,561	—	6.70% Senior Notes	130,651		0	130,651	0
5.375% Senior Notes	316,400		—	316,400	—	5.375% Senior Notes	365,756		0	365,756	0
1.61% borrowings from FHLBNY	25,261		—	25,261	—	1.61% borrowings from FHLBNY	25,255		0	25,255	0
1.56% borrowings from FHLBNY	25,260		—	25,260	—	1.56% borrowings from FHLBNY	25,269		0	25,269	0

3.03% borrowings from FHLBI	65,404		—	65,404	—	3.03% borrowings from FHLBI	67,972		0	67,972	0
Total long-term debt	$	612,020	—	612,020	—	Total long-term debt	$	682,253	0	682,253	0

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)
Financial Assets

HTM:

Obligations of states and political subdivisions $ 4,921
—
4,921
—
Corporate securities 17,054
—
17,054
—
Total HTM fixed income securities $ 21,975
—
21,975
—

Financial Liabilities

Long-term debt:
7.25% Senior Notes $ 66,365
—
66,365
—
6.70% Senior Notes 123,104
—
123,104
—
5.375% Senior Notes 357,025
—
357,025
—
1.61% borrowings from FHLBNY 24,901
—
24,901
—
1.56% borrowings from FHLBNY 24,875
—
24,875
—
3.03% borrowings from FHLBI 63,002
—
63,002
—
Total long-term debt $ 659,272
—
659,272
—


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)
Financial Assets
HTM:

Obligations of states and political subdivisions	$	4,921	0	4,921	0
Corporate securities	17,054		0	17,054	0


Total HTM fixed income securities	$	21,975	0	21,975	0

Financial Liabilities





Long-term debt:
7.25% Senior Notes	$	66,365	0	66,365	0
6.70% Senior Notes	123,104		0	123,104	0
5.375% Senior Notes	357,025		0	357,025	0
1.61% borrowings from FHLBNY	24,901		0	24,901	0
1.56% borrowings from FHLBNY	24,875		0	24,875	0
3.03% borrowings from FHLBI	63,002		0	63,002	0
Total long-term debt	$	659,272	0	659,272	0

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NOTE 7. Allowance for Uncollectible Premiums Receivable

The following table provides a ~~rollforward~~roll forward of the allowance for credit losses on our premiums receivable balance ~~during First Quarter 2020:~~for the periods indicated:

($ in thousands) March 31, 2020
Balance, December 31, 2019 $ 6,400
Cumulative effect adjustment¹
1,058
Balance, January 1, 2020 $ 7,458
Current period provision for expected credit losses 11,195
Write-offs charged against the allowance (653 )
Recoveries —
Allowance for credit losses, end of period $ 18,000


($ in thousands)	Quarter ended September 30, 2020		Nine Months ended September 30, 2020
Balance at beginning of period	$	21,000	$	6,400
Cumulative effect adjustment1	0		1,058
Balance at beginning of period, as adjusted	$	21,000	$	7,458
Current period provision for expected credit losses	802		16,369

Write-offs charged against the allowance for credit losses	(996)		(3,272)
Recoveries	194		445
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~~In Nine Months 2020, we recognized an additional allowance for credit losses of $13.5 million, net of write-offs and recoveries. We based this increase on an evaluation of the recoverability of our premiums receivable in light of (i) the billing accommodations we announced during ~~First Quarter~~the first quarter of 2020, and (ii) the impact of ~~recent~~certain state regulations that provided for ~~the~~ deferral of payments without cancellation for a period up to 90 ~~day in certain states, which will increase~~days and increased earned but uncollected ~~premiums, we recognized an additional allowance for credit losses of $10.5 million, net of write-offs.~~premiums. The billing accommodations ~~include~~included 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 ~~March 31,~~September 30, 2020:


	March 31, 2020									September 30, 2020
($ in thousands)	Current			Past Due		Total Reinsurance Recoverables			($ in thousands)	Current		Past Due		Total Reinsurance Recoverables
Financial strength rating of rated reinsurers¹									Financial strength rating of rated reinsurers1
A++	$	20,835		$	—	$	20,835		A++	$	23,497	$	230	$	23,727
A+	428,354			3,229		431,583			A+	251,341		3,102		254,443
A	25,915			—		25,915			A	103,560		1,569		105,129
A-	508			—		508			A-	115,196		0		115,196
B++	316			94		410			B++	95		288		383
B+	21			—		21			B+	10		0		10
Total rated reinsurers	$	475,949		$	3,323	$	479,272		Total rated reinsurers	$	493,699	$	5,189	$	498,888

Non-rated reinsurers									Non-rated reinsurers
Federal and state pools	80,245			60		80,305			Federal and state pools	$	111,399	$	0	$	111,399
Other than federal and state pools	5,459			—		5,459			Other than federal and state pools	2,919		81		3,000
Total non-rated reinsurers	$	85,704		$	60	$	85,764		Total non-rated reinsurers	$	114,318	$	81	$	114,399

Total reinsurance recoverable, gross	$	561,653		$	3,383	$	565,036		Total reinsurance recoverable, gross	$	608,017	$	5,270	$	613,287
Less: allowance for credit losses²	(1,502		)	—		(1,502		)	Less: allowance for credit losses2					(1,831)
Total reinsurance recoverable, net	$	560,151		$	3,383	$	563,534		Total reinsurance recoverable, net					$	611,456

¹Credit ratings as of ~~March 31, 2020~~.September 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.”~~Policies” above.

Table of Contents

The following table provides a rollforward of the allowance for credit losses on our reinsurance recoverable balance ~~at March 31, 2020:~~for the periods indicated:


($ in thousands)	March 31, 2020			($ in thousands)	Quarter ended September 30, 2020		Nine Months ended September 30, 2020
Balance, December 31, 2019	$	4,400
Balance at beginning of period				Balance at beginning of period	$	2,396	$	4,400
Cumulative effect adjustment¹	(2,903		)	Cumulative effect adjustment1	0		(2,903)
Balance, January 1, 2020	$	1,497
Balance at beginning of period, as adjusted				Balance at beginning of period, as adjusted	$	2,396	$	1,497
Current period provision for expected credit losses	5			Current period provision for expected credit losses	(565)		334
Write-offs charged against the allowance	—

Write-offs charged against the allowance for credit losses				Write-offs charged against the allowance for credit losses	0		0
Recoveries	—			Recoveries	0		0
Allowance for credit losses, end of period	$	1,502		Allowance for credit losses, end of period	$	1,831	$	1,831

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 2019 Annual Report.


	Quarter Ended March 31,						Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020			2019		($ in thousands)	2020		2019	2020		2019
Premiums written:						Premiums written:
Direct	$	746,431		766,394		Direct	$	839,275	785,680	$	2,420,350	2,359,441
Assumed	6,043			6,555		Assumed	5,450		6,882	17,902		18,770
Ceded	(105,147		)	(100,002	)	Ceded	(125,217)		(115,634)	(346,665)		(326,939)
Net	$	647,327		672,947		Net	$	719,508	676,928	$	2,091,587	2,051,272
Premiums earned:						Premiums earned:
Direct	$	754,892		728,037		Direct	$	803,957	752,872	$	2,292,495	2,221,257
Assumed	6,173			6,562		Assumed	6,147		6,356	18,375		18,660
Ceded	(109,362		)	(102,026	)	Ceded	(115,563)		(105,608)	(333,955)		(311,105)
Net	$	651,703		632,573		Net	$	694,541	653,620	$	1,976,915	1,928,812
Loss and loss expenses incurred:						Loss and loss expenses incurred:
Direct	$	425,795		424,657		Direct	$	530,192	437,617	$	1,407,000	1,297,975
Assumed	4,898			5,265		Assumed	4,232		4,362	13,430		13,975
Ceded	(30,369		)	(43,343	)	Ceded	(86,622)		(43,304)	(168,355)		(145,712)
Net	$	400,324		386,579		Net	$	447,802	398,675	$	1,252,075	1,166,238

Direct premiums written ~~decreased~~("DPW") increased in ~~First~~Third Quarter 2020 and Nine Months 2020 compared to ~~First~~Third Quarter 2019 ~~as a result of~~and Nine Months 2019, respectively. Nine Months 2020 was reduced by a $75 million ~~increase in our~~ return audit and mid-term endorsement premium accrual recorded during ~~First Quarter 2020, which~~the first quarter of 2020. This accrual reflects ~~lower exposure that determines the~~a premium ~~that we charge~~reduction due to lower payroll and sales exposures on the workers compensation and general liability lines of business resulting from the economic impacts of the COVID-19 ~~pandemic~~pandemic. In addition, DPW for Nine Months 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 ~~anticipated decline~~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.

The $19.7 million of personal and commercial auto premium actions impacted DPW and direct premiums earned. Because lower exposures drove the reduction in ~~sales~~premium, there was a reduction in direct loss and ~~payroll exposures on~~loss expenses incurred. The reduction in direct loss and loss expenses incurred for the ~~general liability~~premium credit was $13.3 million in casualty lines and ~~workers compensation lines~~$6.4 million in non-catastrophe property losses. Direct loss and loss expenses in Nine Months 2020 were impacted by $10.0 million in ultimate net losses estimated and recorded in the first quarter of ~~business.~~

2020 for losses related to a small portion of our policies that provide 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 September 30, 2020				Nine Months ended September 30, 2020
($ in thousands)	Premium Audit		Premium Credit	Total		Premium Audit		Property IBNR	Premium Credit	Total
DPW	$	0	0	0		$	(75,000)	0	(19,740)	(94,740)
Direct premiums earned	(16,303)		0	(16,303)		(64,636)		0	(19,740)	(84,376)
Direct loss and loss expenses incurred	(9,468)		0	(9,468)		(37,541)		10,000	(19,740)	(47,281)

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Direct and ceded loss and loss expenses incurred in Third Quarter and Nine Months 2020 also were impacted by increased catastrophe losses, due to the severity of the storms and individual claims that met the retention of our property excess of loss treaty. Catastrophe losses were $79.5 million in Third Quarter 2020, compared to $24.2 million in Third Quarter 2019, and $195.9 million in Nine Months 2020, compared to $74.5 million in Nine Months 2019.

Ceded premiums written, ceded premiums earned, and ~~losses~~ceded loss and loss expenses incurred related to our participation in the NFIP, ~~under~~to which we cede 100% of our flood premiums, losses, and loss expenses are ~~ceded to the NFIP, are~~ as follows:


Ceded to NFIP	Quarter Ended March 31,					Ceded to NFIP	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020			2019		($ in thousands)	2020		2019	2020		2019
Ceded premiums written	$	(62,087	)	(60,013	)	Ceded premiums written	$	(77,318)	(74,863)	$	(213,592)	(206,451)
Ceded premiums earned	(66,861		)	(62,263	)	Ceded premiums earned	(68,427)		(65,846)	(202,656)		(191,914)
Ceded loss and loss expenses incurred	(5,096		)	(13,686	)	Ceded loss and loss expenses incurred	(48,132)		(27,459)	(66,219)		(62,208)

NOTE 9. Reserve for Loss and Loss Expense

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


	Nine Months ended September 30,
($ in thousands)	2020		2019
Gross reserve for loss and loss expense, at beginning of year	$	4,067,163	3,893,868
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	3,520,097		3,356,480
Incurred loss and loss expense for claims occurring in the:
Current year	1,295,285		1,200,878
Prior years	(43,210)		(34,640)
Total incurred loss and loss expense	1,252,075		1,166,238
Paid loss and loss expense for claims occurring in the:
Current year	421,981		384,436
Prior years	646,974		631,589
Total paid loss and loss expense	1,068,955		1,016,025
Net reserve for loss and loss expense, at end of period	3,703,217		3,506,693
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period	590,059		548,938
Gross reserve for loss and loss expense at end of period	$	4,293,276	4,055,631

Quarter Ended March 31,
($ in thousands) 2020 2019
Gross reserve for loss and loss expense, at beginning of year $ 4,067,163
3,893,868
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 3,520,097
3,356,480
Incurred loss and loss expense for claims occurring in the:

Current year 407,276
397,253
Prior years (6,952 ) (10,674 )
Total incurred loss and loss expense 400,324
386,579
Paid loss and loss expense for claims occurring in the:

Current year 70,610
73,964
Prior years 281,736
246,168
Total paid loss and loss expense 352,346
320,132
Net reserve for loss and loss expense, at end of period 3,568,075
3,422,927
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period 535,560
543,582
Gross reserve for loss and loss expense at end of period $ 4,103,635
3,966,509

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 ~~$407.3~~$1,295.3 million were impacted by catastrophe losses that were $195.9 million in Nine Months 2020, compared to $74.5 million in Nine Months 2019. In addition, the current year incurred losses include ~~an estimate~~ultimate net losses of $10.0 million for COVID-19-related losses related to a small portion of our policies that ~~include~~provide 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 September 30, 2020, we have not incurred losses related to this exposure and the $10.0 million in ultimate net losses remains all IBNR. In most instances COVID-19 does not cause a direct physical loss to property,

~~and when combined with other policy wording requirements,~~ so we do not expect material business interruption losses from ~~COVID-19. We also~~COVID-19 given the terms, conditions, and exclusions of our policies. Our practice has been to include or attach ~~a regulatory approved virus exclusion~~ to all standard lines commercial ~~lines~~ property and businessowners ~~policies.~~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.

Prior year reserve development in ~~First Quarter~~Nine Months 2020 was ~~$7.0~~favorable by $43.2 million, ~~and~~which included ~~$10.0~~$50.0 million of casualty reserve development that was partially offset by $6.8 million of unfavorable property reserve development. The favorable casualty reserve development included $40.0 million of development in our workers compensation lines of business and $20.0 million in our general liability line of business, partially offset by $10.0 million of unfavorable reserve development in our commercial automobile line of business.

Prior year reserve development in Nine Months 2019 was favorable by $34.6 million, which was driven by casualty reserve development of $41.0 million that was partially offset by ~~$3.0~~$6.4 million of unfavorable property reserve development. ~~Prior year reserve development in First Quarter 2019 was $10.7 million, driven by~~The favorable casualty reserve development ~~of $8.0~~included $33.0 million in our workers compensation line of business and ~~$2.0~~$10.0 million in our general liability line of business that was partially offset by $2.0 million of unfavorable reserve development in our personal automobile line of business.

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NOTE 10. Segment Information

We evaluate the results of our 4 reportable segments as follows:

•Our Standard Commercial Lines, Standard Personal Lines, and E&S Lines are evaluated 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 on after-tax net investment income and its ROE contribution. After-tax net realized and unrealized gains and losses, which are not included in non-GAAP operating income, are also included in our Investment segment results.

In computing ~~the~~each segment's results, ~~of each segment,~~ we do not make adjustments for interest expense or corporate expenses. ~~We do not maintain~~No segment has a separate investment ~~portfolios for the segments and do not allocate assets to each segment.~~portfolio or allocated assets.

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


Revenue by Segment	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020		2019	2020	2019
Standard Commercial Lines:
Net premiums earned:
Commercial automobile	$	160,937	141,182	449,162	408,706
Workers compensation	75,595		75,478	204,207	232,657
General liability	181,459		169,084	509,312	495,402
Commercial property	97,997		89,215	287,279	262,418
Businessowners policies	27,605		26,371	82,157	78,624
Bonds	9,226		8,990	28,075	26,861
Other	5,266		4,841	15,477	14,326
Miscellaneous income	5,521		2,782	11,107	7,544
Total Standard Commercial Lines revenue	563,606		517,943	1,586,776	1,526,538
Standard Personal Lines:
Net premiums earned:
Personal automobile	42,458		43,226	123,134	129,777
Homeowners	31,395		31,529	94,537	95,672
Other	2,123		1,983	6,066	5,709
Miscellaneous income	598		380	1,520	991
Total Standard Personal Lines revenue	76,574		77,118	225,257	232,149
E&S Lines:
Net premiums earned:
Casualty lines	43,650		47,171	130,444	136,455
Property lines	16,830		14,550	47,065	42,205

Total E&S Lines revenue	60,480		61,721	177,509	178,660
Investments:
Net investment income	68,185		55,826	158,596	164,949
Net realized and unrealized investment gains (losses)	7,721		(2,183)	(24,296)	15,295
Total Investments revenue	75,906		53,643	134,300	180,244


Total revenues	$	776,566	710,425	2,123,842	2,117,591

Revenue by Segment Quarter Ended March 31,
($ in thousands) 2020 2019
Standard Commercial Lines:

Net premiums earned:

Commercial automobile $ 149,690
131,186
Workers compensation 66,706
78,715
General liability 164,580
161,525
Commercial property 93,869
86,067
Businessowners’ policies 27,036
26,081
Bonds 9,639
8,904
Other 5,060
4,706
Miscellaneous income 1,391
2,044
Total Standard Commercial Lines revenue 517,971
499,228
Standard Personal Lines:
Net premiums earned:
Personal automobile 42,487
43,163
Homeowners 31,490
32,130
Other 2,151
2,014
Miscellaneous income 434
276
Total Standard Personal Lines revenue 76,562
77,583
E&S Lines:
Net premiums earned:
Casualty lines 44,072
44,528
Property lines 14,923
13,554
Miscellaneous income —
—
Total E&S Lines revenue 58,995
58,082
Investments:

Net investment income 55,967
50,618
Net realized and unrealized investment (losses) gains (44,666 ) 13,451
Total Investments revenue 11,301
64,069
Total revenues $ 664,829
698,962

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Income Before and After Federal Income Tax	Quarter ended September 30,				Nine Months ended September 30,
($ in thousands)	2020			2019	2020	2019
Standard Commercial Lines:
Underwriting gain, before federal income tax	$	42,718		30,016	76,574	92,974
Underwriting gain, after federal income tax	33,746			23,713	60,493	73,450
Combined ratio	92.3		%	94.2	95.1	93.9
ROE contribution	5.7			4.5	3.5	5.0

Standard Personal Lines:
Underwriting (loss) gain, before federal income tax	$	(14,404)		(631)	(20,342)	7,074
Underwriting (loss) gain, after federal income tax	(11,379)			(499)	(16,070)	5,588
Combined ratio	119.0		%	100.8	109.1	96.9
ROE contribution	(1.9)			(0.1)	(0.9)	0.4

E&S Lines:
Underwriting (loss) gain, before federal income tax	$	(7,277)		1,916	(3,965)	9,439
Underwriting (loss) gain, after federal income tax	(5,748)			1,514	(3,132)	7,457
Combined ratio	112.0		%	96.9	102.2	94.7
ROE contribution	(1.0)			0.3	(0.2)	0.5

Investments:
Net investment income	$	68,185		55,826	158,596	164,949
Net realized and unrealized investment gains (losses)	7,721			(2,183)	(24,296)	15,295
Total investment segment income, before federal income tax	75,906			53,643	134,300	180,244
Tax on investment segment income	14,676			10,884	24,338	34,733
Total investment segment income, after federal income tax	$	61,230		42,759	109,962	145,511
ROE contribution of after-tax net investment income	9.4			8.6	7.5	9.1


Reconciliation of Segment Results to Income Before Federal Income Tax	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020		2019	2020	2019
Underwriting gain
Standard Commercial Lines	$	42,718	30,016	76,574	92,974
Standard Personal Lines	(14,404)		(631)	(20,342)	7,074
E&S Lines	(7,277)		1,916	(3,965)	9,439
Investment income	75,906		53,643	134,300	180,244
Total all segments	96,943		84,944	186,567	289,731
Interest expense	(7,781)		(7,397)	(23,310)	(26,289)
Corporate expenses	(3,905)		(6,369)	(19,310)	(28,345)
Income, before federal income tax	$	85,257	71,178	143,947	235,097

Income Before and After Federal Income Tax Quarter Ended March 31,
($ in thousands) 2020 2019
Standard Commercial Lines:

Underwriting gain, before federal income tax $ 17,126
25,815
Underwriting gain, after federal income tax 13,529
20,394
Combined ratio 96.7 % 94.8
ROE contribution 2.4
4.4

Standard Personal Lines:
Underwriting gain, before federal income tax $ 387
3,167
Underwriting gain, after federal income tax 306
2,502
Combined ratio 99.5 % 95.9
ROE contribution 0.1
0.5

E&S Lines:
Underwriting gain, before federal income tax $ 3,844
4,579
Underwriting gain, after federal income tax 3,037
3,617
Combined ratio 93.5 % 92.1
ROE contribution 0.6
0.8

Investments:

Net investment income $ 55,967
50,618
Net realized and unrealized investment (losses) gains (44,666 ) 13,451
Total investment segment income, before federal income tax 11,301
64,069
Tax on investment segment income 1,104
12,120
Total investment segment income, after federal income tax
$ 10,197

51,949
ROE contribution of after-tax net investment income 8.5
8.9

Reconciliation of Segment Results to Income Before Federal Income Tax Quarter Ended March 31,
($ in thousands) 2020 2019
Underwriting gain
Standard Commercial Lines $ 17,126
25,815
Standard Personal Lines 387
3,167
E&S Lines 3,844
4,579
Investment income 11,301
64,069
Total all segments 32,658
97,630
Interest expense (7,601 ) (11,526 )
Corporate expenses (9,060 ) (12,410 )
Income, before federal income tax $ 15,997
73,694

NOTE 11. Retirement Plans

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~~about SICA's retirement plans, ~~refer to~~see Note 14. “Retirement Plans” in Item 8. “Financial Statements and Supplementary Data.” of our 2019 Annual Report.

The following tables provide information about the Pension Plan:

Pension Plan
Quarter Ended March 31,
($ in thousands) 2020 2019
Net Periodic Pension Cost (Benefit):
Interest cost $ 2,828
3,377
Expected return on plan assets (5,477 ) (5,279 )
Amortization of unrecognized net actuarial loss 704
644
Total net periodic pension cost (benefit)¹
$ (1,945 ) (1,258 )


	Pension Plan			Pension Plan
	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020		2019	2020	2019


Net Periodic Pension Cost (Benefit):

Interest cost	$	2,828	3,376	8,484	10,129
Expected return on plan assets	(5,477)		(5,278)	(16,430)	(15,835)

Amortization of unrecognized net actuarial loss	704		644	2,112	1,931

Total net periodic pension cost (benefit)1	$	(1,945)	(1,258)	(5,834)	(3,775)

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.

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	Pension Plan
	Nine Months ended September 30,
	2020		2019
Weighted-Average Expense Assumptions:
Discount rate	3.33	%	4.46	%

Effective interest rate for calculation of interest cost	2.95		4.12
Expected return on plan assets	5.80		6.50

Pension Plan
Quarter Ended March 31,
2020 2019
Weighted-Average Expense Assumptions:
Discount rate 3.33 % 4.46 %
Effective interest rate for calculation of interest cost 2.95
4.12
Expected return on plan assets 5.80
6.50

NOTE 12. Comprehensive Income

The following are the components of comprehensive income, both gross and net of tax, for ~~First~~Third Quarter and Nine Months 2020 and 2019 ~~were as follows:~~:


Third Quarter 2020
($ in thousands)	Gross		Tax	Net
Net income	$	85,257	15,382	69,875
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period	37,836		7,947	29,889
Non-credit portion of OTTI recognized in OCI	9,239		1,940	7,299

Amounts reclassified into net income:
HTM securities	(1)		(1)	0
Realized gains on disposals and intent-to-sell OTTI on AFS securities	(515)		(109)	(406)
Credit loss benefit recognized in OTTI	(2,853)		(599)	(2,254)

Total unrealized gains on investment securities	43,706		9,178	34,528
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:
Net actuarial loss	754		158	596

Total defined benefit pension and post-retirement plans	754		158	596
Other comprehensive income	44,460		9,336	35,124
Comprehensive income	$	129,717	24,718	104,999


Third Quarter 2019
($ in thousands)	Gross		Tax	Net
Net income	$	71,178	15,028	56,150
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period	34,392		7,224	27,168

Amounts reclassified into net income:
HTM securities	(3)		(1)	(2)

Realized losses on disposals and OTTI of AFS securities	2,821		592	2,229
Total unrealized gains on investment securities	37,210		7,815	29,395
Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:
Net actuarial loss	665		140	525

Total defined benefit pension and post-retirement plans	665		140	525
Other comprehensive income	37,875		7,955	29,920
Comprehensive income	$	109,053	22,983	86,070

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First Quarter 2020
Nine Months 2020								Nine Months 2020
($ in thousands)	Gross			Tax		Net		($ in thousands)	Gross		Tax	Net
Net income	$	15,997		761		15,236		Net income	$	143,947	24,653	119,294
Components of other comprehensive loss:
Unrealized losses on investment securities:
Unrealized holding losses during the period	(93,981		)	(19,736	)	(74,245	)
Components of OCI:								Components of OCI:
Unrealized gains on investment securities:								Unrealized gains on investment securities:
Unrealized holding gains during the period								Unrealized holding gains during the period	132,623		27,852	104,771
Non-credit portion of OTTI recognized in OCI	(65,390		)	(13,732	)	(51,658	)	Non-credit portion of OTTI recognized in OCI	(18,672)		(3,921)	(14,751)

Amounts reclassified into net income:								Amounts reclassified into net income:
HTM securities	25			5		20		HTM securities	(7)		(2)	(5)
Realized losses on disposals and intent-to-sell OTTI on AFS securities	11,327			2,379		8,948		Realized losses on disposals and intent-to-sell OTTI on AFS securities	9,126		1,916	7,210
Credit loss expense recognized in OTTI	15,787			3,315		12,472		Credit loss expense recognized in OTTI	8,010		1,682	6,328
Total unrealized losses on investment securities	(132,232		)	(27,769	)	(104,463	)

Total unrealized gains on investment securities								Total unrealized gains on investment securities	131,080		27,527	103,553
Defined benefit pension and post-retirement plans:								Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:								Amounts reclassified into net income:
Net actuarial loss	754			158		596		Net actuarial loss	2,261		474	1,787

Total defined benefit pension and post-retirement plans	754			158		596		Total defined benefit pension and post-retirement plans	2,261		474	1,787
Other comprehensive loss	(131,478		)	(27,611	)	(103,867	)
Comprehensive loss	$	(115,481	)	(26,850	)	(88,631	)
Other comprehensive income								Other comprehensive income	133,341		28,001	105,340
Comprehensive income								Comprehensive income	$	277,288	52,654	224,634


First Quarter 2019
Nine Months 2019								Nine Months 2019
($ in thousands)	Gross			Tax		Net		($ in thousands)	Gross		Tax	Net
Net income	$	73,694		12,346		61,348		Net income	$	235,097	45,333	189,764
Components of OCI:								Components of OCI:
Unrealized gains on investment securities:
Unrealized gains on investment securities:								Unrealized gains on investment securities:
Unrealized holding gains during the period	102,926			21,613		81,313		Unrealized holding gains during the period	220,864		46,381	174,483

Amounts reclassified into net income:								Amounts reclassified into net income:
HTM securities	(9		)	(2	)	(7	)	HTM securities	(33)		(7)	(26)
Realized gains on disposals and OTTI of AFS securities	(1,077		)	(226	)	(851	)

Realized losses on disposals and OTTI of AFS securities								Realized losses on disposals and OTTI of AFS securities	444		93	351
Total unrealized gains on investment securities	101,840			21,385		80,455		Total unrealized gains on investment securities	221,275		46,467	174,808
Defined benefit pension and post-retirement plans:								Defined benefit pension and post-retirement plans:

Amounts reclassified into net income:								Amounts reclassified into net income:
Net actuarial loss	664			139		525		Net actuarial loss	1,993		419	1,574

Total defined benefit pension and post-retirement plans	664			139		525		Total defined benefit pension and post-retirement plans	1,993		419	1,574
Other comprehensive income	102,504			21,524		80,980		Other comprehensive income	223,268		46,886	176,382
Comprehensive income	$	176,198		33,870		142,328		Comprehensive income	$	458,365	92,219	366,146

The following are the balances and changes in each component of AOCI (net of taxes) as of ~~March 31, 2020, were as follows:~~September 30, 2020:

March 31, 2020
Defined Benefit
Pension and Post-Retirement Plans

Net Unrealized Gains (Losses) on Investment Securities Total AOCI
($ in thousands)
OTTI
Related¹

HTM
Related

All
Other

Investments
Subtotal

Balance, December 31, 2019 $ (71 ) 25
170,439
170,393
(88,643 ) 81,750
OCI before reclassifications (51,658 ) —
(74,245 ) (125,903 ) —
(125,903 )
Amounts reclassified from AOCI 12,472
20
8,948
21,440
596
22,036
Net current period OCI (39,186 ) 20
(65,297 ) (104,463 ) 596
(103,867 )
Balance, March 31, 2020 $ (39,257 ) 45
105,142
65,930
(88,047 ) (22,117 )


September 30, 2020						Defined Benefit Pension and Post-Retirement Plans
	Net Unrealized Gains (Losses) on Investment Securities						Total AOCI
($ in thousands)	OTTI Related1		HTM Related	All Other	Investments Subtotal
Balance, December 31, 2019	$	(71)	25	170,439	170,393	(88,643)	81,750


OCI before reclassifications	(14,751)		0	104,771	90,020	0	90,020
Amounts reclassified from AOCI	6,328		(5)	7,210	13,533	1,787	15,320
Net current period OCI	(8,423)		(5)	111,981	103,553	1,787	105,340
Balance, September 30, 2020	$	(8,494)	20	282,420	273,946	(86,856)	187,090

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

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The reclassifications out of AOCI were as follows:


								Quarter ended September 30,			Nine Months ended September 30,		Affected Line Item in the Unaudited Consolidated Statements of Income
($ in thousands)							($ in thousands)	2020		2019	2020	2019

	Quarter Ended March 31,					Affected Line Item in the Unaudited Consolidated Statements of Income
($ in thousands)	2020			2019
HTM related
Unrealized losses on HTM disposals	$	1		—		Net realized and unrealized (losses) gains
Amortization of net unrealized losses (gains) on HTM securities	24			(9	)	Net investment income earned
	25			(9	)	Income before federal income tax
	(5		)	2		Total federal income tax expense
	20			(7	)	Net income
Net realized losses (gains) on disposals and intent-to-sell OTTI
Net realized losses (gains) on disposals and intent-to-sell OTTI	11,327			(1,077	)	Net realized and unrealized (losses) gains
HTM related							HTM related
Unrealized losses (gains) on HTM disposals							Unrealized losses (gains) on HTM disposals	$	4	(3)	5	(12)	Net realized and unrealized gains (losses)
Amortization of net unrealized gains on HTM securities							Amortization of net unrealized gains on HTM securities	(5)		0	(12)	(21)	Net investment income earned
								(1)		(3)	(7)	(33)	Income before federal income tax
								1		1	2	7	Total federal income tax expense
								0		(2)	(5)	(26)	Net income
Net realized (gains) losses on disposals and intent-to-sell OTTI							Net realized (gains) losses on disposals and intent-to-sell OTTI
Net realized (gains) losses on disposals and intent-to-sell OTTI							Net realized (gains) losses on disposals and intent-to-sell OTTI	(515)		2,821	9,126	444	Net realized and unrealized gains (losses)
	11,327			(1,077	)	Income before federal income tax		(515)		2,821	9,126	444	Income before federal income tax
	(2,379		)	226		Total federal income tax expense		109		(592)	(1,916)	(93)	Total federal income tax expense
	8,948			(851	)	Net income		(406)		2,229	7,210	351	Net income
OTTI related							OTTI related
Credit loss expense recognized in OTTI	15,787			—		Net realized and unrealized (losses) gains
Credit loss (benefit) expense recognized in OTTI							Credit loss (benefit) expense recognized in OTTI	(2,853)		0	8,010	0	Net realized and unrealized gains (losses)
	15,787			—		Income before federal income tax		(2,853)		0	8,010	0	Income before federal income tax
	(3,315		)	—		Total federal income tax expense		599		0	(1,682)	0	Total federal income tax expense
	12,472			—		Net income		(2,254)		0	6,328	0	Net income

Defined benefit pension and post-retirement life plans							Defined benefit pension and post-retirement life plans
Net actuarial loss	162			145		Loss and loss expense incurred	Net actuarial loss	162		146	486	436	Loss and loss expense incurred
	592			519		Other insurance expenses		592		519	1,775	1,557	Other insurance expenses
Total defined benefit pension and post-retirement life	754			664		Income before federal income tax	Total defined benefit pension and post-retirement life	754		665	2,261	1,993	Income before federal income tax
	(158		)	(139	)	Total federal income tax expense
	596			525		Net income


								(158)		(140)	(474)	(419)	Total federal income tax expense
								596		525	1,787	1,574	Net income

Total reclassifications for the period	$	22,036		(333	)	Net income	Total reclassifications for the period	$	(2,064)	2,752	15,320	1,899	Net income

NOTE 13. ~~Leases~~

We have various operating leases for office space, equipment, and fleet vehicles. We also have various finance leases for computer hardware. These lease agreements expire at various dates through 2030 and are generally expected to be renewed or replaced by similar leases.

~~The components of lease expense for First Quarter 2020 and 2019 were as follows:~~

Quarter Ended March 31,
($ in thousands) 2020 2019
Operating lease cost, included in Other insurance expenses on the Consolidated Statements of Income $ 2,259
2,152
Finance lease cost:
Amortization of assets, included in Other insurance expenses on the Consolidated Statements of Income 142
284
Interest on lease liabilities, included in Interest expense on the Consolidated Statements of Income 6
—
Total finance lease cost 148
284

Variable lease cost, included in Other insurance expenses on the Consolidated Statements of Income 176
788

Short-term lease cost, included in Other insurance expenses on the Consolidated Statements of Income 476
739

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

March 31, 2020 December 31, 2019
Weighted-average remaining lease term
Operating leases 6 years 6 years
Finance leases 2 2
Weighted-average discount rate
Operating leases 3.2 % 3.4 %
Finance leases 2.2 2.1

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

($ in thousands) March 31, 2020 December 31, 2019
Operating leases
Other assets $ 28,270
$ 26,535
Other liabilities 29,364
27,506
Finance leases
Property and equipment - at cost, net of accumulated depreciation and amortization 615
731
Long-term debt 622
737

~~The maturities of our lease liabilities at March 31, 2020, and December 31, 2019, were as follows:~~

March 31, 2020
($ in thousands) Finance Leases Operating Leases Total
Year ended December 31,
2020 (excluding the three months ended March 31, 2020) $ 332
6,291
6,623
2021 248
6,372
6,620
2022 54
4,798
4,852
2023 —
3,434
3,434
2024 —
2,920
2,920
Thereafter —
8,638
8,638
Total lease payments 634
32,453
33,087
Less: imputed interest 12
3,089
3,101
Total lease liabilities $ 622
29,364
29,986

December 31, 2019
($ in thousands) Finance Leases Operating Leases Total
2020 $ 451
8,244
8,695
2021 248
6,168
6,416
2022 54
4,590
4,644
2023 —
3,329
3,329
2024 —
2,920
2,920
Thereafter —
8,638
8,638
Total lease payments 753
33,889
34,642
Less: imputed interest 16
2,995
3,011
Less: leases that have not yet commenced —
3,388
3,388
Total lease liabilities $ 737
27,506
28,243

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

~~NOTE 14. Federal Income Taxes~~

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

Quarter Ended March 31,
($ in thousands) 2020 2019
Tax at statutory rate (21% in 2020 and 2019) $ 3,359
15,476
Tax-advantaged interest (1,214 ) (1,253 )
Dividends received deduction (55 ) (83 )
Executive compensation 351
473
Stock-based compensation (1,881 ) (2,635 )
Other 201
368
Federal income tax expense $ 761
12,346

During First Quarter 2020, we recorded federal income taxes based on our actual effective tax rate during the quarter instead of an estimate of our full-year effective tax rate. This approach gives consideration to the anticipated volatility in certain

components of our net income. Estimating these components is challenging given the uncertainty around the future impact of the COVID-19-related governmental directives and their impact on the financial markets and potential volatility.

Our effective tax rate during First Quarter 2020 was 4.8%, down from 16.8% a year ago. This decrease was driven by net realized and unrealized losses of $44.7 million, pre-tax, which significantly offset the other components of pre-tax net income and reduced the effective tax rate. After considering all positive and negative evidence about our federal net operating and capital loss carryback capacity, expected levels of pre-tax financial statement income, and federal taxable income, we believe it is more likely than not the existing deductible temporary differences will reverse during periods in which we generate net federal taxable income or have adequate federal carryback capacity. As a result, we had no valuation allowance recognized for federal tax assets at March 31, 2020 ($43.1 million net deferred tax asset) or December 31, 2019 ($6.8 million net deferred tax asset).

~~NOTE 15.~~ Litigation

As of ~~March 31,~~September 30, 2020, 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.

In the ordinary course of conducting business, we 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;~~customers, (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~~loss ("Virus Exclusion"). 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 the subject of much public debate and first-party coverage litigation against some insurers, including us. The Virus Exclusion also ~~may be~~is the subject of first-party coverage litigation against some ~~insurers.~~insurers, including us. We cannot predict the outcome of ~~that~~ litigation ~~which may interpret language~~over these two coverage issues, including interpretation of provisions similar or identical to ~~what is~~those 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

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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.

~~NOTE 16. Subsequent Events~~

Governmental (international, federal, state, and local) directives 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 public access, and “sheltering-in-place” of everyone other than essential service workers. These actions have disrupted regular commerce, supply chains, and travel.

Most of these governmental directives were issued in First Quarter 2020, and to date, these directives have significantly limited the operations of those businesses that are considered non-essential, and their employees, along with the general public who are "sheltering-in-place." As a result, we are expecting that claims frequency for our personal and commercial automobile lines of business will decline because of the reduced miles being driven consistent with the governmental directives. As the number of vehicles we insure has not significantly declined and we expect that frequencies will return to normal after the governmental directives expire or are lifted, we do not believe that changes in our filed rating plans are appropriate. Unlike our workers

compensation and general liability lines of business policies, in which we anticipate a decline in sales and payroll exposures, our commercial and personal automobile policies do not provide for an audit that would reduce annual premium. Because of the unprecedented nature of the COVID-19-related governmental directives and the associated expected short-term favorable claims frequency impact, we felt it was appropriate to seek regulatory approval during April to provide a premium-based credit to our personal and commercial automobile customers. The premium-based credit would provide for an amount to be returned to customers with in-force policies equivalent to 15% of their April and May premiums. This approval process has been completed and this premium-based credit will be recorded as other insurance expense in the second quarter of 2020 of approximately $20 million. We believe the impact to our other insurance expenses will be largely offset by a reduction in our loss and loss expenses as a result of expected reduced insured automobile accident claims frequency in those respective months.

The COVID-19-related governmental directives also have induced significant uncertainty and volatility in the financial markets and decreased equity market valuations. To date, this has been reflected in the market values of our invested assets and the corresponding OTTI charges discussed in Note 4. "Investments." However, as our other investment portfolio largely consists of alternative investments that are recorded on a one quarter lag, the impact of the First Quarter 2020 financial market volatility on those alternative investments will not be reflected in our Financial Statements until second quarter of 2020. While it is extremely difficult to accurately estimate the potential losses associated with this portion of our investment portfolio, we performed a sensitivity analysis that indicates a potential pre-tax loss of between $15 million and $20 million. However, while these are our current estimates, our second quarter net investment income will reflect the actual decrease reported by these alternative investments as of March 31, 2020.

We cannot predict the extent and duration of the current COVID-19-related governmental directives, which also may change based on future COVID-19 infection rates, nor can we predict COVID-19-related impacts on the economy or financial markets or changes in legislation. A change in any of these factors, however, could impact our estimates and assumptions in future periods. Changes in these assumptions and estimates in future periods may be material to the results of our operations and could materially reduce our net income, cash flow, and stockholders' equity.

We also expect to incur estimated pre-tax net losses of approximately $35 million due to several severe storms in April, which impacted parts of the mid-west and east coast regions of the United States with damaging wind and tornadoes.

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

Forward-Looking Statements

The terms "Company," "we," "us," and "our" refer to Selective Insurance Group, Inc. (the "Parent"), and its subsidiaries, except as expressly indicated or the context otherwise requires. In this Quarterly Report on Form 10-Q, we discuss and make statements about our intentions, beliefs, current expectations, and projections for our future operations and performance. Such statements are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements often are identified by words such as “anticipates,” “believes,” “expects,” “will,” “should,” and “intends” and their negatives. We caution prospective investors that 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 in forward-looking statements include, without limitation, those discussed in Item 1A. “Risk ~~Factors” and~~Factors.” in Part II. “Other 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, 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 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 ~~them due to changes in underlying factors, new information, future developments,~~ or ~~otherwise.~~revise any forward-looking statements for any reason.

Introduction

We classify our business into four reportable segments:

•Standard Commercial Lines;

•Standard Personal Lines;

•E&S Lines; and

~~Investments.~~

•Investments.

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

We write our Standard Commercial and Standard Personal Lines products and services through nine insurance subsidiaries, some of which write flood business through the federal government's National Flood Insurance Program's ("NFIP") Write Your Own Program ("WYO"). We write our E&S products and services through another subsidiary, Mesa Underwriters Specialty Insurance Company, which provides us with a nationally-authorized non-admitted platform for customers who 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”) 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. 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 2019 Annual Report filed with the U.S. Securities and Exchange Commission.

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;

•

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•Financial Highlights of Results for the third quarters ended September 30, 2020 (“Third Quarter 2020”) and September 30, 2019 (“Third Quarter 2019”) and the nine-month periods ended September 30, 2020 ("Nine Months 2020") and September 30, 2019 ("Nine Months 2019") ;

•~~First~~ ~~Quarters ended~~ ~~March 31, 2020~~ (“~~First Quarter 2020”) and~~ ~~March 31, 2019~~ (“~~First Quarter 2019”);~~

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 ~~ended 2019 and~~ entered 2020 with a record ~~levels~~level 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~~across the ~~rest of Asia, Europe, the United States ("U.S."), and the rest of the globe.~~world. During Nine Months 2020, ~~Governmental~~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. We smoothly transitioned almost all of our ~~non-essential office-based~~ employees to a remote, ~~home-based status, and~~temporary work-from-home environment in which the majority of our 2,400 employees currently remain. Under most governmental directives, insurance is an essential business. While these governmental directives have begun to expire slowly in some of our operating states, we have continued to service our customers, agents, and other stakeholders ~~and~~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. Currently, approximately 2,250 of our 2,300 employees are working remotely. Under most governmental directives, insurance is an essential business. That has permitted a limited number of employees to access our offices for critical on-site activities, such as information technology ("IT") operations and security, check printing, facilities maintenance, physical security, and special cleaning.management services.

Because most ~~of our~~ employees ~~are now~~have been working remotely since March, 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. ~~Our~~Throughout 2020, our Chief Executive Officer ~~hosts bi-weekly~~has hosted a number of company-wide virtual town hall meetings to provide an organizational ~~update~~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~~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~~“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, prospects, agents, and vendors generally have remained the same since the COVID-19 crisis, although the frequency of communication has increased. ~~Additionally, our~~Our field model and safety management functions ~~which~~have replaced their former typically ~~rely on~~ in-person meetings ~~have been replaced~~ with ~~greater telecommunications, and~~ virtual or ~~remote interactions. One of our strategic initiatives for~~video-enabled interactions, although some limited site visits still occur. For several years, ~~has been to provide our customers with~~providing a superior omni-channel customer ~~experience.~~experience has been one of our strategic initiatives. 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~~media. We have communicated with our customers regarding COVID-19 through phone, email, and ~~we have been able to send and receive COVID-19-related notifications through all of these channels.~~social media.

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

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;~~declines, and (iii) lower-for-longer interest ~~rates.~~rates, which would increase the need for additional underwriting income or would lower overall operating returns.

On April 10, 2020, Fitch reaffirmed our "A+" rating with a "stable" outlook. In taking this rating 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~~Fitch also 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~~

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Additionally, in a report published by Standard & Poor's Global Ratings ("S&P") on October 19, 2020, S&P reaffirmed our "A" rating with a "stable" outlook, citing our strong financial and ~~safety management models have proven to be advantageous in the COVID-19 crisis, as~~business risk profiles, driven by strong capital adequacy and operating performance.

Because of our ~~existing IT~~longstanding Information Technology ("IT") infrastructure and security support, we were able to smoothly accommodate the COVID-19-mandated move of nearly all of our office-based employees ~~to remote home-based employees and maintain~~into a work-from-home environment while maintaining expected customer orand agent service levels. ~~Our strong relationships with, and our continued support for,~~Most of our approximately ~~1,350~~1,400 local independent distribution partners ~~most of whom~~ also have transitioned to a remote work environment, ~~have~~and our strong relationships with — and continued support for — them also has enabled ~~customer servicing at expected~~us to continue providing our customers with the same levels of service ~~levels.~~they experienced before COVID-19.

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.~~processes in any significant way. 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”). The ERC met daily ~~throughout the second half of~~in March, ~~and three~~multiple times a week through April, transitioned to weekly meetings in ~~April.~~May, June, and July, and since has met monthly. 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, ~~information technology~~IT including third-party IT 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") ~~has~~ also met ~~at least~~ weekly ~~since~~in the early days of the COVID-19-related financial market ~~disruption.~~disruption, transitioned to meeting every two weeks, and now meets monthly. The MIC has carefully reviewed detailed portfolio metrics and market projections and, during the crisis, has ~~interacted directly~~communicated and met regularly with our portfolio managers, ~~during this crisis,~~ allowing ~~them~~it to make proactive investment decisions on an informed basis. Our Board of Directors ~~also has held~~met weekly ~~meetings~~ with senior executives ~~over the same period~~through April, transitioned to bi-weekly meetings in May, June, and July, and since has met monthly 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~~having the majority of our employees ~~are~~ working ~~remotely due to the COVID-19 pandemic.~~remotely. We are continually monitoring and assessing the COVID-19 current events to minimize the impact ~~these events~~they may have on our internal controls and their design and operating effectiveness.

Given the remote environment ~~the~~initially mandated by certain governmental directives, ~~require,~~ remote access to critical systems is required. ~~Our~~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 that is supplemented by a virtual desktop infrastructure, where necessary or appropriate, to create a highly-available and centrally-managed end-user environment. As a result, our cybersecurity program ~~however,~~ was ~~well–positioned~~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 also has always included an information security education and awareness program that combines training with testing ~~and reinforces~~aligned to key security exposures, including phishing and social ~~engineering.~~engineering, which is an ongoing challenge for our employees and vendors. 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 ~~malicious traffic volumes (denial of service)~~an increase in attempts to disrupt our information systems and deployed safeguards to prevent interruption to key customer and agent-facing technologies.

Financial Overview

~~Our First~~Through Third Quarter and Nine Months 2020, underwriting results ~~include~~included the following COVID-19-related items:

•A $75 million ~~increase in our~~ 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.~~slowdown and the anticipated decline in payroll and sales exposures in the workers compensation and general liability lines of business. Net of reduced losses and commissions, ~~we expect~~ the earned impact of the return audit and mid-term endorsement premium accrual ~~to reduce~~lowered pre-tax underwriting results ~~for~~by $3.3 million, pre-tax, in Third Quarter 2020 and $13.8 million, pre-tax, in Nine Months 2020. During the ~~full year by $15~~second and third quarters of 2020, we recorded $34 million of ~~which $4~~mid-term endorsement and negative audit premium adjustments against this $75 million ~~was~~accrual. As of September 30, 2020, we had a remaining accrual of $41 million.

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•A $19.7 million reduction in NPW recorded in ~~First~~the second quarter of 2020 to reflect a then voluntary credit to our personal and commercial automobile customers with in-force policies equivalent to 15% of their April and May premiums due to the unprecedented nature of the COVID-19-related governmental directives and the associated favorable claims frequency impact. During the second quarter of 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 governmental directive-induced reduced miles driven. 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. Despite the impact of these credits on Nine Months 2020, the Third Quarter ~~2020;~~2020 results were not impacted by these premium credits.

•A ~~$10~~$10.0 million, pre-tax, ~~incurred but not reported ("IBNR") reserve~~ultimate net loss estimate recorded in the first quarter of 2020 for losses related to a small portion of our property policies that ~~include~~provide a $25,000 sub-limited coverage for specified extra expenses to clean or disinfect a property when ordered by a Board of ~~Health;~~Health. Through September 30, 2020, we have not incurred losses related to this exposure and the $10.0 million ultimate loss estimate still remains all incurred but not reported ("IBNR"), thus having no impact on Third Quarter 2020.

•An additional allowance for uncollectible premiums receivable of $13.5 million, pre-tax, in Nine Months 2020. We recorded $10.5 million ~~pre-tax,~~of this allowance after evaluating (i) the recoverability of our premiums receivable in light of the COVID-19-related billing accommodations we announced in ~~First Quarter~~the first quarter of 2020, and (ii) the impact of ~~recent state~~ regulations in certain states that provided for the deferral of payments without cancellation for a period up to 90 days, ~~in certain states,~~ which ~~will increase~~increased earned but uncollected premiums. The additional $3.0 million increase in this allowance was recorded in the second quarter of 2020, with no additional changes in Third Quarter 2020, based on our updated evaluation of the recoverability of our premiums receivable and impact of state regulations further discussed above. These state regulations expired 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 ~~three~~four items (i) reduced ~~after-tax~~pre-tax underwriting results by ~~$19~~$3.3 million, or ~~$0.32~~$0.04 per diluted share, in Third Quarter 2020 and $37.4 million, or $0.49 per diluted share, in Nine Months 2020, (ii) increased the combined ratio by ~~3.5~~0.4 points in Third Quarter 2020 and 1.7 points in Nine Months 2020, and (iii) decreased our ~~First~~Third Quarter 2020 annualized return on equity ("ROE") by ~~3.6~~0.4 points and our Nine Months 2020 annualized ROE by 1.7 percentage points.

~~Our First~~During Third Quarter and Nine 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 $2.8 million in Third Quarter 2020 and OTTI expense of $24.5 million in Nine Months 2020. The year-to-date expense reflected a 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 Third 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 Third Quarter and Nine Months 2020 and Third Quarter and Nine Months 2019."

•We recorded pre-tax income of $18.7 million in Third Quarter 2020 and $9.2 million in Nine Months 2020 on our other investments portfolio, which is primarily made up of our alternative investments. As results on these alternative investments are recorded on a one-quarter lag, this income reflected the improvement in market conditions that occurred during the second quarter of 2020. While we have experienced increased quarter-to-quarter volatility following COVID-19, the $9.2 million in pre-tax income in Nine Months 2020 are $4.2 million, or 32%, lower than the $13.4 million of pre-tax income in Nine Months 2019.

•

We recognized $31.6 million in pre-tax net other-than-temporary impairments ("OTTI"), $15.6 million of which represents impairments on securities we intend to sell to provide our investment managers with flexibility to trade and optimize our investment portfolio given the uncertainty of the financial markets and their continued volatility. The remaining $16.0 million in OTTI losses were credit-related impairment losses under the new ASU 2016-13, ~~Financial Instruments - Credit Losses~~ ("CECL") accounting standard. The CECL impairments reflect the significant widening of credit spreads and reduced future economic activity over the near-term due to COVID-19. For more details about these and other items related to our financial results, see the "Financial Highlights of Results for First Quarter 2020 and First Quarter 2019" section below.

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~~2020. We borrowed from the Federal Home Loan Bank of New York ("FHLBNY") ~~and the~~, the Federal Home Loan Bank of Indianapolis (“FHLBI”), and under our ~~Credit Agreement~~credit agreement ("Line of Credit"). Our primary objective was to increase liquidity and operating flexibility atof 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. In September 2020, we (i) repaid

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our $85 million borrowing from FHLBNY, and (ii) refinanced our $100 million borrowing from FHLBNY upon its maturity on September 14, 2020, at a lower interest rate of 0.36%, from 0.78%. The remaining $167 million of short-term borrowings are contractually due in the fourth quarter of 2020 and we expect to repay ~~these short-term borrowings, which were invested in highly liquid money market funds, in the short- to medium-term.~~them by year-end. For further details, see Note 5. "Indebtedness" in Item 1. "Financial Statements." of this Form 10-Q.

~~In the second quarter of 2020, we expect the following items to be impacted by the economic conditions created by COVID-19:~~

As our other investment portfolio largely consists of alternative investments that are recorded on a one quarter lag, the impact of the First Quarter 2020 financial market volatility on those alternative investments will not be reflected in our consolidated financial statements until the second quarter of 2020. While it is extremely difficult to accurately estimate the potential losses associated with this portion of our investment portfolio, we performed a sensitivity analysis that indicates a potential pre-tax loss of between $15 million and $20 million. However, while these are our current estimates, our second quarter net investment income will reflect the actual decrease reported by these alternative investments as of March 31, 2020.

In addition, we are expecting that claims frequency for our personal and commercial automobile lines of business will decline because of the reduced miles being driven resulting from governmental directives. As the number of vehicles we insure have not significantly declined and we expect that frequencies will return to normal after the governmental directives expire or are lifted, we do not believe that changes in our filed rating plans are appropriate. Because of the unprecedented nature of the

COVID-19-related governmental directives and the associated expected favorable claims frequency impact, we felt it was appropriate to seek regulatory approval during April to provide a premium-based credit to our personal and commercial automobile customers with in-force policies equivalent to 15% of their April and May premiums. This approval process has been completed and will result in other insurance expense in the second quarter of 2020 of approximately $20 million. We believe the impact to our other insurance expenses will be largely offset by a reduction in our loss and loss expenses as a result of expected reduced insured automobile accident claims frequency in those respective months. However, the ultimate extent of the frequency reduction cannot be known at this time.

Critical Accounting Policies and Estimates

Our unaudited interim consolidated financial statements include amounts for which we have made informed estimates and judgments for transactions not yet completed. Such estimates and judgments affect the reported amounts in the consolidated financial statements. As outlined in our 2019 Annual Report, those estimates and judgments 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 OTTI; and (iv) reinsurance. ~~There~~We have ~~been~~made no material changes ~~from~~in 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 assumptions, and ~~consequently,~~any resulting changes in the below estimates ~~may~~could be material to our results of operations in future periods.

Reserves for Loss and Loss Expenses

There has been considerable ~~discussion and focus on~~speculation about the potential for insurance industry COVID-19-related losses, ~~arising from COVID-19,~~ particularly ~~as it relates~~related to ~~claims from~~ business interruption claims and 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.~~loss. While each potential claim ~~will be~~is adjusted on its unique facts and ~~based on~~circumstances in light of the terms, conditions, and ~~conditions~~exclusions of the specific policy, COVID-19-related claims for contamination, the existence of a pandemic, and/or the ~~resulting~~ preventative government shutdown orders generally are not ~~insured~~covered under our 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~~This exclusion ~~will apply to preclude~~precludes 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~~pursuant to a Board of Health order after an outbreak of communicable disease at the premises. Our current year incurred losses include an ultimate net loss estimate of $10 million ~~of IBNR~~for these sub-limited coverages in response to the COVID-19 pandemic. As of September 30, 2020, we have not incurred losses related to this exposure and the $10 million in ultimate net losses remains all IBNR. 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”, property, but most of these ~~forms~~policies issued prior to the COVID-19 outbreak 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 a quarter of ~~our customers within our E&S segment purchase~~the associated policies ~~with~~provide business interruption coverage. In total, ~~within~~95% of our property policies in our standard commercial lines and E&S segments ~~95% of our property policies~~ include the specific virus or bacteria exclusion. ~~In addition,~~

Through September 30, 2020, actual workers compensation claims activity due to COVID-19-related exposures remains limited. When considered in conjunction with the overall decrease in claim reporting levels, we ~~may experience some workers’~~believe the COVID-19-related exposures are sufficiently captured within our current workers compensation loss estimates. It is possible that we might incur increased loss and loss expenses if more covered employees contract COVID-19 in the course of their employment. Certain states have enacted rebuttable presumptions that an "essential employee" contracted COVID-19 in the course of their employment during a declared state public health emergency. As businesses reopen, general liability ~~losses associated with COVID-19. At this time,~~exposure might increase. This exposure, however, would develop slowly and currently remains highly uncertain, as we dohave not ~~expect these losses to be significant and exposure to these losses are covered within our existing reserving methodologies and reserves.~~yet seen reopening-associated claims activity.

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 then provides coverage up to $775 million in ground up losses, subject to 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~~This means that, if a court or legislature invalidated 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~~168-hour period ~~to a~~as single ~~occurrence~~ or multiple occurrences. We also have the sole discretion to decide when the ~~168 hours begins, and all~~168-hour period commences. All losses ~~that occurred~~occurring during and continuing after ~~that~~the 168-hour period, ~~such~~ as

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generally is the case with business interruption losses, would be included in the reinsured loss calculation. Our casualty excess of loss contract, which ~~would cover workers’~~covers workers compensation and general liability claims without 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~~those under different liability coverages, as a single

occurrence. Our casualty reinsurers also follow our ~~fortunes in the policy interpretation.~~fortunes. Except for ~~the~~our recorded $10 million of property IBNR ~~we recorded~~ for the sub-limited property coverages, we do not expect material COVID-19-related losses. If, ~~the~~however, facts and circumstances change, ~~we have a~~our robust reinsurance program ~~that~~ provides significant protection. For a discussion of the risks associated with future changes in our reinsurance treaties, see Item 1A. "Risk Factors." of this Form 10-Q.

OTTI

The various COVID-19-related governmental directives impacted the financial markets, which became ~~volatile. The~~volatile earlier in the year. 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. Since the end of ~~First Quarter~~the first quarter, the financial markets have improved and gross unrealized losses were reduced to $24.4 million at September 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 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 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 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 ~~charges~~expense for expected credit losses of ~~$16.0~~$8.2 million during ~~First Quarter~~Nine Months 2020. After ~~giving consideration to~~considering these credit loss allowances, the remaining unrealized losses on ~~these~~our AFS fixed income securities were ~~$49.7~~$24.4 million. ~~Based on our analyses, we also determined that securities with an aggregate unrealized loss balance of $67.2 million were not other-than-temporarily impaired as of March 31, 2020.~~ We believe that the ~~total~~volatility and increased unrealized loss balance ~~of $116.9 million~~ 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 about the unrealized losses in our 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~~we anticipate to be ~~either~~ billed or returned on policies subsequent to expiration based on exposure levels (i.e., payroll or sales). ~~This~~We base this estimate of earned but unbilled premium ~~is based~~ on historical trends adjusted for the uncertainty of current and future economic conditions. In ~~First Quarter~~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~~payroll and ~~payroll~~sales exposures on the workers compensation and general liability ~~and workers compensation~~ lines of business. During the second and third quarters of 2020, we endorsed and audited polices that were applied against our accrual, resulting in a remaining $41 million accrual as of September 30, 2020. We currently anticipate the balance of the endorsements or return audit premiums to occur through the end of 2021. Since April 2020, through active engagement between our underwriters, distribution partners, and insureds, we have set exposure levels to reflect the current environment. As a result, we have not accrued for additional or return premium on any policies since that time. Further economic instability or extended COVID-19-related governmental directives ultimately could ~~ultimately~~ impact our 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~~and our historical credit loss experience. We also contemplate expected macroeconomic conditions over the expected receivables collection period, ~~that,~~which is short-term in nature because the majority of the balances are collected within a year of policy ~~issuance, is short-term in nature. In First Quarter 2020, we~~issuance. We increased our allowance for uncollectible accounts ~~by $10.5~~to $21.0 million during the first six months of 2020 from $6.4 million at December 31, 2019, to reflect (i) the higher risk of non-payment due to the significant COVID-19-related decline in economic activity, ~~coupled with~~(ii) the ~~individual~~individualized payment flexibility that we ~~are currently offering~~have offered our customers, and (iii) our suspension of the effect of policy cancellations, late payment notices, and late or reinstatement fees. ~~Due~~The last of these suspensions expired in early August 2020. Based on the expiration of these suspensions and our assistance to customers in

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becoming current, we have seen modest improvement in the ~~impact~~volume of ~~recent state regulations that provided for the deferral of payments without cancellation for~~past due accounts. As a ~~period up~~result, we maintained our reserve position at $21.0 million during Third Quarter 2020. It could take over a year to ~~90 days in certain states, which will increase earned but uncollected premiums,~~realize this collections process, and we expect ~~an increase in our allowance for uncollectible premiums receivable in~~ the ~~second and third quarters~~actual reserve write-offs to materialize over the course of ~~2020.~~2021.

Similar to our estimate of premium audit, future COVID-19-related economic instability or governmental directives could ultimately impact our estimates and ~~assumptions.~~assumptions for uncollectible premiums receivable. 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 ~~First~~Third Quarter and Nine Months 2020 and ~~First~~Third Quarter ~~2019~~¹and Nine Months 20191


($ and shares in thousands, except per share amounts)	Quarter ended September 30,					Change % or Points		Nine Months ended September 30,					Change % or Points
	2020				2019			2020				2019
Financial Data:
Revenues	$	776,566			710,425	9	%	$	2,123,842			2,117,591	—	%
After-tax net investment income	55,131				45,374	22		129,156				134,319	(4)
After-tax underwriting income	16,619				24,728	(33)		41,291				86,495	(52)
Net income before federal income tax	85,257				71,178	20		143,947				235,097	(39)
Net income	69,875				56,150	24		119,294				189,764	(37)

Key Metrics:
Combined ratio	97.0		%		95.2	1.8	pts	97.4		%		94.3	3.1	pts
Invested assets per dollar of stockholders' equity	$	3.04			3.07	(1)	%	$	3.04			3.07	(1)	%
ROE	11.9				10.7	1.2	pts	6.9				12.9	(6.0)	pts
Statutory premiums to surplus ratio	1.4			x	1.4	—		1.4			x	1.4	—

Per Share Amounts:
Diluted net income per share	1.16				0.93	25	%	1.98				3.16	(37)	%
Book value per share	$	40.00			35.98	11		$	40.00			35.98	11
Dividends declared per share to stockholders	0.23				0.20	15		0.69				0.60	15

Non-GAAP Information:
Non-GAAP operating income2	$	63,776			58,765	9	%	$	138,488			181,870	(24)	%
Diluted non-GAAP operating income per share2	1.06				0.97	9		2.30				3.02	(24)
Annualized non-GAAP operating ROE2	10.9		%		11.2	(0.3)	pts	8.0		%		12.3	(4.3)	pts

($ and shares in thousands, except per share amounts) Quarter Ended March 31,
Change
% or Points

2020 2019
Financial Data:
Revenues $ 664,829
698,962
(5 ) %
After-tax net investment income 45,483
41,323
10

After-tax underwriting income 16,872
26,513
(36 )
Net income before federal income tax 15,997
73,694
(78 )
Net income 15,236
61,348
(75 )

Key Metrics:
Combined ratio 96.7 % 94.7
2.0
pts
Invested assets per dollar of stockholders' equity $ 3.26
3.24
1
%
ROE 2.8
13.2
(10.4 ) pts
Statutory premiums to surplus ratio 1.4x
1.4x
—

Per Share Amounts:
Diluted net income per share 0.25
1.02
(75 ) %
Book value per share $ 35.11
32.51
8

Dividends declared per share to stockholders 0.23
0.20
15

Non-GAAP Information:
Non-GAAP operating income²
$ 50,522
54,020
(6 ) %
Diluted non-GAAP operating income per share²
0.84
0.90
(7 )
Annualized non-GAAP operating ROE²
9.4 % 11.6
(2.2 ) pts
1Refer to the Glossary of Terms attached to our 2019 Annual Report as Exhibit 99.1 for definitions of terms used of this Form 10-Q.

2 Non-GAAP operating income is an important financial measure 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. In addition, net realized investment gains and losses, OTTI recorded to earnings, unrealized gains and losses on equity securities, and debt retirement costs could distort the analysis of trends.

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

Non-GAAP operating income is an important financial measure 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. In addition, net realized investment gains and losses, OTTI charged to earnings, unrealized gains and losses on equity securities, and 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,
($ in thousands)	2020		2019	2020	2019
Net income	$	69,875	56,150	119,294	189,764


Net realized and unrealized (gains) losses, before tax	(7,721)		2,183	24,296	(15,295)
Debt retirement costs, before tax	—		—	—	4,175
Tax on reconciling items	1,622		432	(5,102)	3,226
Non-GAAP operating income	$	63,776	58,765	138,488	181,870


Reconciliation of net income per diluted share to non-GAAP operating income per diluted share	Quarter ended September 30,			Nine Months ended September 30,
	2020		2019	2020	2019
Net income per diluted share	$	1.16	0.93	1.98	3.16


Net realized and unrealized (gains) losses, before tax	(0.13)		0.04	0.40	(0.26)
Debt retirement costs, before tax	—		—	—	0.07
Tax on reconciling items	0.03		—	(0.08)	0.05
Non-GAAP operating income per diluted share	$	1.06	0.97	2.30	3.02

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Reconciliation of net income to non-GAAP operating income Quarter Ended March 31,
($ in thousands) 2020 2019
Net income $ 15,236
61,348
Net realized and unrealized losses (gains), before tax 44,666
(13,451 )
Debt retirement costs, before tax —
4,175
Tax on reconciling items (9,380 ) 1,948
Non-GAAP operating income $ 50,522
54,020


Reconciliation of annualized ROE to annualized non-GAAP operating ROE	Quarter ended September 30,			Nine Months ended September 30,
	2020		2019	2020	2019
Annualized ROE	11.9	%	10.7	6.9	12.9


Net realized and unrealized (gains) losses, before tax	(1.3)		0.4	1.4	(1.0)
Debt retirement costs, before tax	—		—	—	0.3
Tax on reconciling items	0.3		0.1	(0.3)	0.1
Annualized non-GAAP operating ROE	10.9	%	11.2	8.0	12.3

Reconciliation of net income per diluted share to non-GAAP operating income per diluted share Quarter Ended March 31,
2020 2019
Net income per diluted share

$ 0.25
1.02
Net realized and unrealized losses (gains), before tax 0.74
(0.22 )
Debt retirement costs, before tax

—
0.07
Tax on reconciling items

(0.15 ) 0.03
Non-GAAP operating income per diluted share

$ 0.84
0.90

Reconciliation of annualized ROE to annualized non-GAAP operating ROE Quarter Ended March 31,
2020 2019
Annualized ROE 2.8 % 13.2
Net realized and unrealized losses (gains), before tax 8.3
(2.9 )
Debt retirement costs, before tax
—
0.9
Tax on reconciling items (1.7 ) 0.4
Annualized non-GAAP operating ROE 9.4 % 11.6

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
	2020		2019		2020	2019
Standard Commercial Lines Segment	5.7	%	4.5	1.2	3.5	5.0	(1.5)
Standard Personal Lines Segment	(1.9)		(0.1)	(1.8)	(0.9)	0.4	(1.3)
E&S Lines Segment	(1.0)		0.3	(1.3)	(0.2)	0.5	(0.7)
Total insurance operations	2.8		4.7	(1.9)	2.4	5.9	(3.5)

Investment income	9.4		8.6	0.8	7.5	9.1	(1.6)
Net realized and unrealized gains (losses)	1.0		(0.5)	1.5	(1.1)	0.8	(1.9)
Total investments segment	10.4		8.1	2.3	6.4	9.9	(3.5)

Other	(1.3)		(2.1)	0.8	(1.9)	(2.9)	1.0

Annualized ROE	11.9	%	10.7	1.2	6.9	12.9	(6.0)

Annualized ROE Components Quarter Ended March 31, Change Points
2020 2019
Standard Commercial Lines Segment 2.4 % 4.4
(2.0 )
Standard Personal Lines Segment 0.1
0.5
(0.4 )
E&S Lines Segment 0.6
0.8
(0.2 )
Total insurance operations 3.1
5.7
(2.6 )

Investment income 8.5
8.9
(0.4 )
Net realized and unrealized (losses) gains (6.6 ) 2.3
(8.9 )
Total investments segment 1.9
11.2
(9.3 )

Other (2.2 ) (3.7 ) 1.5

Annualized ROE 2.8 % 13.2
(10.4 )

~~In First~~We experienced a significant level of catastrophe losses in both the second and third quarters of 2020, driven by industry-wide U.S. catastrophe loss activity that significantly exceeded the 10-year historical mean. Third Quarter 2020 ~~we generated~~pre-tax net catastrophe losses totaled $79.5 million, and were related to losses from numerous catastrophe events designated by the Insurance Services Office's Property Claims Services ("PCS") unit, including the derecho in the midwestern states of our footprint ($28.1 million), Hurricane Isaias ($22.4 million), and Hurricane Laura ($5.2 million). These losses, along with a tornado and subsequent hail event that impacted Tennessee in early March 2020 ($20 million), two April storms ($46 million), and claims related to civil unrest ($20 million) in June, drove catastrophe losses in Nine Months 2020 to $195.9 million. Through Nine Months 2020, there was 46 individual PCS events that resulted in catastrophe losses, compared to 57 in all of 2019. The severity of catastrophe losses in 2020, particularly in the second and third quarters, were well above historical averages. These losses reduced net income ~~per diluted share of $0.25,~~by $43.7 million, after-tax, in Third Quarter 2020, and $95.9 million, after-tax, in Nine Months 2020, compared to ~~$1.02 in First Quarter 2019. Non-GAAP operating income per diluted share was $0.84, compared~~the same prior periods. In addition to ~~$0.90 a year ago. The First Quarter 2020 non-GAAP operating income was primarily~~catastrophe losses, our results were impacted by ~~$19 million, or $0.32 per diluted share, of~~the COVID-19-related ~~underwriting items, which are further~~charges discussed in "Current Events" ~~above. The COVID-19 related underwriting items were~~above, partially offset by (i) ~~growth~~an increase in favorable prior year casualty reserve development, (ii) lower non-catastrophe property loss and loss expenses, and (iii) ongoing expense management initiatives. Some of these initiatives are temporary due to the COVID-19-related government directives and have reduced travel and entertainment expenses and led us to defer some short-term project spending and new hiring.

Partially offsetting the lower level of underwriting results in Third Quarter 2020 compared to Third Quarter 2019, was an increase in after-tax net investment income of 22% to $55.1 million, compared to $45.4 million in Third Quarter 2019. The increase was driven by our ~~Investment segment~~other investments portfolio, which is primarily made up of ~~$0.07,~~our alternative investments. Our other investments income was $18.7 million pre-tax, or $14.8 million after-tax, compared to $5.3 million pre-tax, or $4.2 million after-tax, in Third Quarter 2019. As alternative investment results are reported on a one-quarter lag, the increase reflects the improvement in the financial markets during the second quarter of 2020.

After-tax net investment income was $129.2 million in Nine Months 2020, down 4% compared to $134.3 million in Nine Months 2019. The decrease was primarily driven by ~~our alternative investments, and (ii)~~ a decrease in ~~corporate expenses~~our other investments portfolio, which is primarily made up of ~~approximately $0.04, related~~our alternative investments. Our other investments income of $9.2 million, pre-tax, or $7.2 million after-tax, in Nine Months 2020, compared to ~~employee long-term incentive compensation awards that fluctuate with the stock price of the company.~~$13.4 million pre-tax, or $10.6 million, after-tax, in Nine Months 2019.

Insurance Operations

Our book value per share declined by 5% in First Quarter 2020. The decrease was caused by a reduction in the value of our fixed income securities portfolio, which experienced net unrealized after-tax losses of approximately $105 million during First Quarter 2020.

~~Insurance Operations~~

~~Our~~overall insurance ~~segments delivered~~operations generated profitable results in ~~First~~both periods, contributing to our annualized ROE with 2.8 points in Third Quarter 2020 ~~contributing 3.1~~and 2.4 points ~~to a combined annualized ROE of 2.8%.~~in Nine Months 2020. The ~~First Quarter 2020~~ annualized ROE decreased ~~2.6~~1.9 points in Third Quarter 2020 and 3.5 points in Nine Months 2020, compared to ~~First Quarter 2019, reflecting~~the same prior year periods. These decreases reflected an increase in our combined ratio of ~~2.0 points. The increase was principally~~1.8 points in Third Quarter 2020 and 3.1 points in Nine Months 2020, both largely driven by ~~a higher expense ratio~~catastrophe losses.

Table of ~~1.9 points, primarily reflecting the 1.6-point increase in our allowance for uncollectible accounts on our premiums receivable, which is discussed in "Current Events" above.~~Contents

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
($ in thousands)	2020			2019			2020			2019
Insurance Operations Results:
Net premiums written ("NPW")	$	719,508		676,928	6	%	$	2,091,587		2,051,272	2	%
Net premiums earned (“NPE”)	694,541			653,620	6		1,976,915			1,928,812	2
Less:
Loss and loss expense incurred	447,802			398,675	12		1,252,075			1,166,238	7
Net underwriting expenses incurred	225,103			222,599	1		670,531			648,693	3
Dividends to policyholders	599			1,045	(43)		2,042			4,394	(54)
Underwriting income	$	21,037		31,301	(33)	%	$	52,267		109,487	(52)	%
Combined Ratios:
Loss and loss expense ratio	64.5		%	60.9	3.6	pts	63.4		%	60.5	2.9	pts
Underwriting expense ratio	32.4			34.1	(1.7)		33.9			33.6	0.3
Dividends to policyholders ratio	0.1			0.2	(0.1)		0.1			0.2	(0.1)
Combined ratio	97.0			95.2	1.8		97.4			94.3	3.1

All Lines Quarter Ended March 31, Change % or Points
($ in thousands) 2020 2019
Insurance Operations Results:
Net premiums written ("NPW") $ 647,327
672,947
(4 ) %
Net premiums earned (“NPE”) 651,703
632,573
3

Less:

Loss and loss expense incurred 400,324
386,579
4

Net underwriting expenses incurred 229,237
210,653
9

Dividends to policyholders 785
1,780
(56 )
Underwriting income $ 21,357
33,561
(36 ) %
Combined Ratios:

Loss and loss expense ratio 61.4
% 61.1
0.3
pts
Underwriting expense ratio 35.2
33.3
1.9

Dividends to policyholders ratio 0.1
0.3
(0.2 )
Combined ratio 96.7
94.7
2.0

Our ~~First~~NPW increased 6% in Third Quarter 2020 ~~decrease in NPW~~ compared to ~~a year ago reflected a $75 million accrual for estimated return audit~~Third Quarter 2019, and ~~mid-term endorsement premiums related~~increased 2% in Nine Months 2020 compared to ~~the COVID-19 pandemic discussed in "Current Events" above. Excluding that estimate, the results continue to reflect~~Nine Months 2019, reflecting our efforts to (i) achieve overall renewal pure price increases at levels that are ~~in line with~~either at, or above, expected loss trend, (ii) generate new business, and (iii) ~~improve the underlying profitability of our business through various underwriting initiatives. Although there was a reduction in our overall NPW, our~~increase retention. Our new business grew to (i) $140.8 million in ~~First~~Third Quarter 2020, ~~grew to $152.8 million~~ compared to ~~$145.0~~$129.8 million in ~~First~~Third Quarter 2019 and (ii) $443.6 million in Nine Months 2020, compared to $421.0 million in Nine Months 2019. ~~Contributing~~The net appointment of 45 retail agents, excluding agency consolidation, also contributed to our new business growth. This solid growth in a challenging economic environment reflects the strong relationships we have with our best-in-class distribution partners, our sophisticated underwriting and pricing tools, and excellent customer servicing capabilities.

NPW growth in Nine Months 2020 was partially offset by the ~~net appointment of 27 retail agents, excluding agency consolidations.~~first quarter's $75 million accrual for estimated return audit and mid-term endorsement premiums and the second quarter's $19.7 million premium credit to our personal ($4.3 million) and commercial ($15.4 million) automobile customers. These items related to the COVID-19 pandemic discussed in "Current Events" above, and reduced our Nine Months 2020 NPW growth rate by approximately 5 percentage points.

Loss and Loss Expenses

The ~~slight~~ increase in the loss and loss expense ratio during ~~First~~Third Quarter and Nine Months 2020 compared to Third Quarter and Nine Months 2019 was ~~impacted by~~primarily the result of the following:


																	Third Quarter 2020				Third Quarter 2019
($ in millions)																($ 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																Catastrophe losses	$	79.5	11.4	pts	$	24.2	3.7	pts	7.7	pts
(Favorable) prior year casualty reserve development																(Favorable) prior year casualty reserve development	(25.0)		(3.6)		(14.0)		(2.1)		(1.5)
Non-catastrophe property loss and loss expenses																Non-catastrophe property loss and loss expenses	105.6		15.2		108.8		16.7		(1.5)
Total																Total	160.1		23.0		119.0		18.3		4.7

	First Quarter 2020						First Quarter 2019										Nine Months 2020				Nine 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			($ 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	$	33.2		5.1		pts	$	20.9		3.3		pts	1.8		pts	Catastrophe losses	$	195.9	9.9	pts	$	74.5	3.9	pts	6.0	pts
(Favorable) prior year casualty reserve development	(10.0		)	(1.5	)		(10.0		)	(1.6	)		0.1			(Favorable) prior year casualty reserve development	(50.0)		(2.5)		(41.0)		(2.1)		(0.4)
Non-catastrophe property loss and loss expenses¹	108.1			16.6			108.0			17.1			(0.5	)		Non-catastrophe property loss and loss expenses1	295.5		14.9		309.6		16.1		(1.2)
Total	131.3			20.2			118.9			18.8			1.4			Total	441.4		22.3		343.1		17.9		4.4

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.

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


(Favorable)/Unfavorable Prior Year Casualty Reserve Development	Quarter Ended March 31,						(Favorable)/Unfavorable Prior Year Casualty Reserve Development	Quarter ended September 30,				Nine Months ended September 30,
($ in millions)	2020				2019		($ in millions)	2020			2019	2020	2019
General liability	$	—			(2.0	)	General liability	$	(10.0)		(3.0)	(20.0)	(10.0)
Commercial automobile							Commercial automobile	—			—	10.0	—
Workers compensation	(10.0		)		(8.0	)	Workers compensation	(15.0)			(13.0)	(40.0)	(33.0)

Total Standard Commercial Lines	(10.0		)		(10.0	)	Total Standard Commercial Lines	(25.0)			(16.0)	(50.0)	(43.0)

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


Total (favorable) prior year casualty reserve development	$	(10.0	)		(10.0	)	Total (favorable) prior year casualty reserve development	$	(25.0)		(14.0)	(50.0)	(41.0)

(Favorable) impact on loss ratio	(1.5		)	pts	(1.6	)	(Favorable) impact on loss ratio	(3.6)		pts	(2.1)	(2.5)	(2.1)

In addition to the ~~items described above,~~prior year casualty reserve development, Nine Months 2020 results included the NPW reduction for the $19.7 million premium credit, for which there was ~~a 0.8-point benefit~~an offsetting $13.3 million reduction in ~~First Quarter 2020 from the mix~~our casualty loss costs. The reduction in our casualty loss costs decreased our loss ratio by 0.7 points in Nine Months 2020. These favorable current year loss costs impacted our commercial and personal automobile lines of business, reflecting decreases in frequencies due to the ~~aforementioned estimated total return audit and mid-term endorsement premium accrual.~~COVID-19-related governmental directives.

For additional qualitative 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 decreased 1.7 points in Third Quarter 2020 and increased 0.3 points in Nine Months 2020, compared to the same prior year periods. The COVID-19 items mentioned above, including the impact of the lower net premiums earned, increased the expense ratio by 0.3 points in Third Quarter 2020 and 1.5 points in Nine Months 2020. The year-to-date COVID-19 expense ratio impact included a $13.5 million increase in our allowance for uncollectible accounts on our premiums receivable recognized in the first quarter of 2020 ($10.5 million) and in the second quarter of 2020 ($3.0 million), which is discussed in "Current Events" above. Partially offsetting the COVID-19-related expense increases were additional expense management initiatives we temporarily 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 COVID-19-related governmental directives. These temporary initiatives included (i) reducing our travel and entertainment expenses, (ii) canceling or deferring various agency management meetings and events, and (iii) deferring some discretionary projects until 2021. While we view these initiatives as temporary, they provided a modest benefit to the expense ratio in Third Quarter and Nine Months 2020.

Investments Segment

~~Net investment income, after tax, grew 10%~~The increased annualized ROE in ~~First~~our Investments segment in Third Quarter 2020, compared to ~~last~~Third Quarter 2019, was driven by a 22% increase in after-tax net investment income, compared to the same prior year period. This increase was mainly due ~~to: (i) higher alternative investment~~to our other investments portfolio, ~~income of $5.7 million,~~ which is ~~recorded~~primarily made up of our alternative investments. After-tax income on our other investments portfolio was $18.7 million in Third Quarter 2020, which was $13.4 million greater than the $5.3 million in Third Quarter 2019. The results on our alternative investments are reported on a one-quarter ~~lag; (ii) cash flows from operations that were 6% of NPW in First Quarter 2020;~~lag and ~~(iii) $302 million in proceeds from our short-term borrowings that were invested in high-quality money market funds in First Quarter 2020 due to~~reflect the ~~COVID-19-related volatility and uncertainty~~improvement in the financial ~~markets. Net investment~~markets during the second quarter of 2020. Income from our fixed income ~~after tax, contributed 8.5~~securities portfolio in Third Quarter 2020 was flat compared to Third Quarter 2019, as strong operating cash flows that were 26% of NPW were offset by lower yields on this portfolio. The after-tax yield on this portfolio was down 20 basis points compared to last year’s third quarter.

Decreased annualized ROE in ~~First Quarter~~our Investments segment in Nine Months 2020, compared to ~~8.9~~Nine Months 2019, was driven by a 4% decrease in after-tax net investment income, compared to the same prior year period, mainly due to our other investments portfolio, which is primarily made up of our alternative investments. After-tax income in our other investments portfolio was $9.2 million in Nine Months 2020, compared to $13.4 million in Nine Months 2019. Partially offsetting this reduction was a slight increase in after-tax income on our fixed income securities in Nine Months 2020 compared to Nine Months 2019, as operating cash flows that were 18% of NPW outpaced the reduction in year-over-year yields. The after-tax yield on our fixed income securities decreased 30 basis points in ~~First Quarter~~Nine Months 2020, compared to Nine Months 2019.

Net realized and unrealized gains and losses ~~reduced First~~increased Third Quarter 2020 annualized ROE ~~by 6.6 points,~~and reduced Nine Months 2020 annualized ROE compared to ~~First Quarter 2019 when it increased ROE by 2.3 points.~~the same prior year periods. Net realized and unrealized investment ~~losses~~gains in ~~First~~Third Quarter 2020

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were ~~$44.7~~$7.7 million, ~~down~~up $9.9 million from ~~$13.5~~net realized and unrealized investment losses of $2.2 million in ~~First~~Third Quarter 2019. ~~First Quarter 2020 results included $31.6 million~~The increase was driven by an improvement in both unrealized gains in our equity portfolio and the reversal of ~~OTTI, which was a $31.5 million increase from First Quarter 2019. Approximately $15.6 million of~~previously-recognized credit loss allowance amounts on our ~~OTTI~~fixed income securities portfolio, both reflecting improvements in ~~First Quarter 2020 represented impairments on securities we intend to sell, to provide our investment managers with flexibility to trade and optimize our investment portfolio~~the market during the quarter.

During Nine Months 2020, net realized and unrealized investment losses were $24.3 million, compared to gains of $15.3 million in the same prior year period. These current year losses were significantly impacted by the COVID-19-related ~~financial~~ market ~~volatility. The remaining~~volatility in the first quarter of 2020, which resulted in higher OTTI ~~losses of $16.0 million were credit-related impairment losses under the new CECL accounting standard. The CECL impairments reflect the significant widening of credit spreads~~expense and ~~reduced future economic activity over the near term due to COVID-19-related governmental directives. In addition,~~ unrealized losses on our equity securities ~~portfolio increased $27.2 million compared to First Quarter 2019, which was primarily related to COVID-19-related financial market impacts.~~portfolio. For additional information about the drivers behind the OTTI expense, see "Critical Accounting Policies and Estimates" above.

Other

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

level, reduced ROE by ~~2.2~~1.3 points in ~~First~~Third Quarter 2020 and 1.9 points in Nine Months 2020, compared to ~~3.7~~2.1 points in ~~First~~Third Quarter 2019 and 2.9 points in Nine Months 2019. The ~~variance was~~quarter-to-date and year-to-date variances were driven primarily by a 0.4-point and 0.5-point decrease, respectively, in stock compensation expense related to employee long-term incentive compensation awards, as the stock price decreased ~~24% in First Quarter~~21% through Nine Months 2020 compared to a 4%23% increase in ~~First Quarter~~Nine Months 2019. In ~~First~~addition, we incurred (i) stock compensation expense associated with employee severance-related expenses that reduced ROE by 0.3 points in Third Quarter 2019, ~~we also incurred~~and (ii) debt retirement costs of $3.3 million related to our 5.375% Senior Notes issuance that reduced ~~that quarter's~~ ROE by 0.7 ~~points.~~points in the first quarter of 2019.

Outlook

We ended 2019 with a ~~solid~~well-capitalized balance sheet, a high level of embedded profitability within our underwriting and investment portfolios, and strong financial strength ratings, all of which ~~places~~we believe placed us in aan excellent position to withstand ~~this~~the unexpected COVID-19-related ~~period of~~ economic downturn, market volatility, and heightened uncertainty.

The impact of COVID-19, an elevated period of catastrophe loss activity in the U.S., and net realized and unrealized losses within our investments portfolio, however, negatively impacted our results for Nine Months 2020. We generated an annualized non-GAAP operating ROE of ~~9.4%~~8.0% in ~~First Quarter~~Nine Months 2020, which was ~~1.6~~3.0 points below our 2020 target of 11%., and 4.3 points below Nine Months 2019. Our 2020 non-GAAP operating ROE target of 11% is based on our current estimated weighted average cost of capital, the current interest rate environment, and property and casualty insurance market conditions.

During ~~these unprecedented times,~~2020, we remain focused on our key strategic ~~initiatives. In 2020, we will continue to focus on the following areas~~initiatives to maintain our financial position:

•Actively managing the investment portfolio to ~~minimize~~lessen the impact of lower interest rates on after-tax yields while managing credit, duration, and liquidity risk. Given the steepness of the credit risk ~~through~~curve, combined with a significant reduction in our ~~international external~~ investment ~~managers with great depth~~leverage over the last few years, we may choose to modestly increase our exposure to credit risk within our investment portfolio. This action would likely result in the average credit rating of ~~expertise.~~the portfolio decreasing modestly from "AA-" to "A+". The sharp decline in ~~equity markets and expected values of alternative investments during~~ the ~~First Quarter 2020, and a prolonged low interest~~reinvestment rate environment ~~partially offset by widening credit spreads,~~for high-quality fixed income securities will continue to put downward pressure on industry-wide investment portfolio ~~returns. Lower investment~~ returns ~~will force~~and income, likely 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~~while delivering on our strategy for continued disciplined growth. Our ~~first quarter~~Nine Month 2020 overall renewal pure pricing was ~~4.0%~~4.1%. While we continue to navigate a challenging economic environment, we are comfortable with the overall price adequacy of our book of business, ~~obtaining~~and we have obtained renewal pure price increases ~~that have been~~ in line with expected loss trend. ~~As we look forward, we will continue to maintain adequate profitability by providing relief to our customers and balancing the need for pricing.~~

•Delivering on our strategy for continued disciplined 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~~an advantage in the current environment. We ~~will~~ continue ~~working~~to work to achieve our longer-term Standard Commercial Lines ~~target to attain a~~ 3% market share target in the states in which we operate, ~~by appointing~~which represents an additional $3 billion premium opportunity. Our strategy is to appoint distribution partners representing approximately 25% ~~of their markets~~market share and seeking an average 12% share of wallet, or percentage of ~~12% with~~ these ~~partners. This goal represents an additional premium opportunity~~partners' books of ~~about $3 billion.~~business.

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•Identifying opportunities to enhance operational efficiencies and evaluating process improvements to lower our expense ratio over time by better leveraging technologies, automation, and ~~robotics, to lower our expense ratio over time.~~robotics. While we recognize it is essential to continue investing in initiatives ~~related to~~improving 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~~Our expense ratio was slightly elevated ~~this quarter~~in Nine 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.

In addition to our focus on maintaining ~~our~~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~~and we have provided various ~~self-service~~self- and digital service offerings. ~~In the current challenging environment, we~~We provide our policyholders the option of engaging with us in the channel ~~that works best for them.~~they chose. Our ~~new~~ marketing tagline, "Be Uniquely Insured," ~~was rolled out~~initiated 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 for us.

As we look to the remainder of 2020, we will not let the COVID-19 pandemic, market volatility, or challenging economic conditions deter us from pursuing our objective of being an industry leader. We have a team in place that is focused on identifying opportunities and ways in which we can enhance our product, service capabilities and operating structure,

to position us well for 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 2020, weour revised ~~our~~ full year guidance, to ~~the following:~~reflect our current estimated full-year impact of COVID-19, is as follows:

•A GAAP combined ratio, excluding catastrophe losses, of between ~~92%~~88% and ~~93%~~89%. ~~This represents an increase from our prior guidance of 91.5% and is primarily due to pressure on the expense~~Our combined ratio ~~from the estimated full-year impact of COVID-19. This also~~estimate assumes no additional ~~prior year development;~~prior-year casualty reserve development during the fourth quarter;

•Catastrophe losses of ~~4.5~~8.0 points on the combined ~~ratio, reflecting higher than expected catastrophe losses through April, combined with lower earned premium. Because~~ratio. 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;~~as catastrophes;

•After-tax net investment income of ~~approximately $160~~$175 million, ~~down from our prior guidance of $185 million, principally due to an expected change in our full-year after-tax net investment income from alternative investments. We now expect a range of~~that includes between $10 million ~~and~~to $15 million in after-tax net investment ~~losses~~income from our alternative ~~investments, compared to our prior estimate of a $14 million gain;~~investments;

•An overall effective tax rate of approximately 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 60.5 million on a diluted basis.

Our 2020 guidance reflects the current estimated full-year impact of COVID-19 on our industry, and insurance and investment operations. Given the significant uncertainty surrounding the ultimate duration and severity of the COVID-19 pandemic, and the depth and duration of the economic recession and market volatility, as well as the impact that federal, state and local actions can have on our business, including regulatory insurance directives, there remains significant uncertainty around our full-year guidance. We will update our full-year guidance, as appropriate, upon the release of our second quarter of 2020 financial results.

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
($ in thousands)	2020			2019			2020			2019
Insurance Segments Results:
NPW	$	577,754		532,921	8	%	$	1,679,526		1,636,983	3	%
NPE	558,085			515,161	8		1,575,669			1,518,994	4
Less:
Loss and loss expense incurred	331,045			304,038	9		950,240			895,999	6
Net underwriting expenses incurred	183,723			180,062	2		546,813			525,627	4
Dividends to policyholders	599			1,045	(43)		2,042			4,394	(54)
Underwriting income	$	42,718		30,016	42	%	$	76,574		92,974	(18)	%
Combined Ratios:
Loss and loss expense ratio	59.3		%	59.0	0.3	pts	60.3		%	59.0	1.3	pts
Underwriting expense ratio	32.9			35.0	(2.1)		34.7			34.6	0.1
Dividends to policyholders ratio	0.1			0.2	(0.1)		0.1			0.3	(0.2)
Combined ratio	92.3			94.2	(1.9)		95.1			93.9	1.2

Quarter Ended March 31,
Change
% or
Points

($ in thousands) 2020 2019
Insurance Segments Results:

NPW $ 518,432
546,683
(5 ) %
NPE 516,580
497,184
4

Less:

Loss and loss expense incurred 312,158
298,809
4

Net underwriting expenses incurred 186,511
170,780
9

Dividends to policyholders 785
1,780
(56 )
Underwriting income $ 17,126
25,815
(34 ) %
Combined Ratios:

Loss and loss expense ratio 60.4
% 60.1
0.3
pts
Underwriting expense ratio 36.1
34.3
1.8

Dividends to policyholders ratio 0.2
0.4
(0.2 )
Combined ratio 96.7
94.8
1.9

The ~~decrease in~~ NPW ~~was mainly due to a $75 million~~ increase in ~~our~~both periods was driven by (i) renewal pure price increases, (ii) retention, and (iii) new business increases, as shown in the following table:


	Quarter ended September 30,				Change % or Points		Nine Months ended September 30,			Change % or Points
($ in millions)	2020			2019			2020		2019
Direct new business	$	99.0		96.5	3	%	324.3		316.2	3	%
Retention	86		%	84	2	pts	85	%	83	2	pts
Renewal pure price increases	4.6			3.5	1.1		4.2		3.3	0.9

Table of Contents

In the year-to-date period, the higher retention and renewal pure price increases shown in the table above were partially offset by a 5-percentage point reduction that was associated with the following:

•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. This~~business; and

•A $15.4 million premium credit to our commercial automobile customers as a result of the COVID-19 pandemic.

The return audit and mid-term endorsement premium accrual noted above also reduced NPE by $15.8 million in Third Quarter 2020, and $62.8 million in Nine Months 2020. In addition, NPE was ~~partially offset~~impacted by ~~(i) direct new business, and (ii) renewal pure price increases.~~

Quarter Ended March 31, Change
% or
Points
($ in millions) 2020 2019
Direct new business $ 115.4
109.0
6 %
Renewal pure price increases 4.0
3.4
0.6
Retention 85
% 84
1 pts

the $15.4 million premium credit to our commercial automobile customers, which was fully earned in Nine Months 2020.

The loss and loss expense ratio increased ~~slightly~~0.3 points in ~~First~~Third Quarter 2020 and 1.3 points in Nine Months 2020 compared to ~~First Quarter 2019,~~the respective prior year periods, driven, in part, by the following:

First Quarter 2020 First 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 $ 20.7
4.0
pts $ 16.0
3.2
pts 0.8 pts
Non-catastrophe property loss and loss expenses¹
79.6
15.4
74.4
15.0
0.4
(Favorable) prior year casualty reserve development (10.0 ) (1.9 ) (10.0 ) (2.0 ) 0.1
Total 90.3
17.5
80.4
16.2
1.3

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


	Third Quarter 2020				Third 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	$	39.3	7.0	pts	$	14.8	2.9	pts	4.1	pts
Non-catastrophe property loss and loss expenses	75.3		13.5		76.7		14.9		(1.4)
(Favorable) prior year casualty reserve development	(25.0)		(4.5)		(16.0)		(3.1)		(1.4)

Total	89.6		16.0		75.5		14.7		1.3

	Nine Months 2020				Nine 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	$	110.7	7.0	pts	$	52.1	3.4	pts	3.6	pts
Non-catastrophe property loss and loss expenses	215.7		13.7		213.8		14.1		(0.4)
(Favorable) prior year casualty reserve development	(50.0)		(3.2)		(43.0)		(2.8)		(0.4)

Total	276.4		17.5		222.9		14.7		2.8

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 ~~First~~Third Quarter and Nine Months 2020 and ~~First~~Third Quarter and Nine Months 2019" ~~section~~ above and the line of business discussions below.

In addition to the above, the Nine 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 $10.8 million reduction in our casualty loss costs. This reduction in our casualty loss costs decreased our loss ratio by 0.7 points in Nine 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 result of governmental shelter-in-place directives.

The ~~1.8-point~~2.1-point decrease in the underwriting expense ratio in Third Quarter 2020 compared to Third Quarter 2019 was primarily driven by the expense management initiatives instituted in March 2020 to help reduce our other insurance expenses, as discussed in "Financial Highlights of Results for Third Quarter and Nine Months 2020 and Third Quarter and Nine Months 2019" above. The 0.1-point increase in the underwriting expense ratio in ~~First Quarter~~Nine Months 2020 compared to ~~First Quarter~~Nine Months 2019 was ~~primarily~~ driven by a ~~1.4-point~~0.6-point increase in ~~the~~our allowance for uncollectible ~~premium~~accounts on our premiums receivable, ~~mentioned~~which is discussed in "Current Events" above, and was partially offset by the expense management initiatives discussed above.

Table of Contents

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


General Liability	General Liability								General Liability
		Quarter Ended March 31,				Change % or Points					Quarter ended September 30,					Change % or Points				Nine Months ended September 30,								Change % or Points
($ in thousands)		2020			2019			($ in thousands)		2020				2019				2020				2019
NPW¹		$	150,794		178,699		(16	)	%
NPW									NPW		$	186,929			172,471		8		%				$	538,640			536,448		—	%
Direct new business		35,886			32,185	11			Direct new business		28,010				27,788	1				95,364					92,288			3
Retention		86		%	85	1		pts	Retention		86		%		85	1	pts			86			%		83			3	pts
Renewal pure price increases		3.8			2.4	1.4			Renewal pure price increases		4.1				3.3	0.8				3.9					2.7			1.2
NPE		$	164,580		161,525	2		%	NPE		$	181,459			169,084	7	%			$	509,312				495,402			3	%
Underwriting income		13,074			19,049	(31	)		Underwriting income		32,182				22,399	44				70,364					62,232			13
Combined ratio		92.1		%	88.2	3.9		pts	Combined ratio		82.3		%		86.8	(4.5)	pts			86.2			%		87.4	%		(1.2)	pts
% of total Standard Commercial Lines NPW		29			33				% of total Standard Commercial Lines NPW		32				32					32					33

NPW benefited from increased retention and renewal pure price increases in Third Quarter and Nine Months 2020 compared to Third Quarter and Nine Months 2019. Despite these increases, the Nine Months 2020 NPW was ~~reduced by a~~flat compared to Nine Months 2019 due to an 8 percentage point reduction related to the $46 million estimated return audit and mid-term endorsement premium ~~accrual.~~accrual due to the COVID-19 pandemic discussed in "Current Events" above. This accrual also reduced NPE by $10 million in Third Quarter 2020 and $38 million in Nine Months 2020.

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

Third Quarter 2020

Third 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

(Favorable) prior year casualty reserve development

(10.0)

(5.5)

pts

(3.0)

(1.8)

pts

(3.7)

pts

Nine Months 2020

Nine 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

(Favorable) prior year casualty reserve development

(20.0)

(3.9)

pts

(10.0)

(2.0)

pts

(1.9)

pts

First Quarter 2020 First Quarter 2019

($ in millions) Loss and Loss Expense Incurred Impact on
Combined Ratio
Loss and Loss Expense Incurred Impact on
Combined Ratio
Change
Points

(Favorable) prior year casualty reserve development $ —
— pts $ (2.0 ) (1.2 ) pts 1.2 pts

The ~~First~~Third Quarter and Nine Months 2020 reserve development was primarily attributable to favorable reserve development on loss severities in accident years 2017 and prior. The Third Quarter and Nine Months 2019 reserve development was primarily attributable to favorable reserve development on loss severities in accident years 2015 and ~~2016.~~2017.

In addition, the combined ratio increased due to the following: (i) an increase in the underwriting expense ratio in First Quarter 2020 compared to First Quarter 2019 due to a 1.4-point increase in the allowance for uncollectible premiums receivable discussed above; and (ii) a 0.8-point increase due to the lower earned premium resulting from our return audit and mid-term endorsement premium accrual in response to the COVID-19 pandemic discussed above.


Commercial Automobile
	Quarter ended September 30,				Change % or Points		Nine Months ended September 30,				Change % or Points
($ in thousands)	2020			2019			2020			2019
NPW	$	169,885		150,765	13	%	$	498,892		453,201	10	%
Direct new business	26,808			24,096	11		87,808			80,840	9
Retention	87		%	85	2	pts	86		%	82	4	pts
Renewal pure price increases	8.4			7.5	0.9		7.8			7.4	0.4
NPE	$	160,937		141,182	14	%	$	449,162		408,706	10	%
Underwriting income (loss)	2,603			(11,398)	123		(5,877)			(28,919)	80
Combined ratio	98.4		%	108.1	(9.7)	pts	101.3		%	107.1	(5.8)	pts
% of total Standard Commercial Lines NPW	29			28			30			28

Commercial Automobile
Quarter Ended March 31,
Change
% or
Points

($ in thousands) 2020 2019
NPW $ 168,310
147,245
14
%
  Direct new business 28,857
28,190
2

  Retention 85
% 82
3
pts
  Renewal pure price increases 7.6
7.3
0.3

NPE $ 149,690
131,186
14
%
Underwriting loss (774 ) (8,721 ) 91

Combined ratio 100.5
% 106.6
(6.1 ) pts
% of total Standard Commercial Lines NPW 32
27

The increases in NPW shown in the table above reflect renewal pure price increases, higher retention, and an increase in new business. ~~The~~This growth ~~in NPW~~includes (i) 6% growth of ~~14% in First Quarter~~in-force vehicle counts as of September 30, 2020 compared to ~~First Quarter~~September 30, 2019, ~~reflects a 7% growth in vehicle counts~~ and ~~a 7.6%~~(ii) 8.4% of renewal pure price ~~increase,~~increases for Third Quarter 2020 and 7.8% for Nine Months 2020, due to our efforts to improve profitability on this line in recent years.

As The increase in Nine Months 2020 was partially offset by a $15.4 million premium credit to our commercial automobile customers as a result of the COVID-19 pandemic, ~~and~~which reduced the ~~associated expected favorable claims frequency impact, this line~~NPW growth rate by 3 percentage points in Nine Months 2020 compared to the same prior year period. This premium credit was fully earned in Nine Months 2020.

Table of business will be impacted by a premium-based credit to our commercial automobile customers, which will be recorded as other insurance expenses in the second quarter of 2020. For further details, see Note 16. "Subsequent Events" in Item 1. "Financial Statements." of this Form 10-Q and "Current Events" above.Contents

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


	Third Quarter 2020				Third 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
Catastrophe losses	$	1.6	1.0	pts	$	1.2	0.9	pts	0.1	pts
Non-catastrophe property loss and loss expenses	23.7		14.7		26.5		18.8		(4.1)


Total	25.3		15.7		27.7		19.7		(4.0)

First Quarter 2020 First 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
Non-catastrophe property loss and loss expenses $ 23.0
15.4
pts $ 25.1
19.1
pts (3.7 ) pts
Catastrophe losses 0.3
0.2
0.2
0.1
0.1

Total 23.3
15.6
25.3
19.2
(3.6 )


	Nine Months 2020				Nine 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
Catastrophe losses	$	3.0	0.7	pts	$	2.3	0.6	pts	0.1	pts
Non-catastrophe property loss and loss expenses	63.8		14.2		75.5		18.5		(4.3)
Unfavorable prior year casualty reserve development	10.0		2.2		—		—		2.2

Total	76.8		17.1		77.8		19.1		(2.0)

~~Partially~~

In addition to the above, Third Quarter 2020 was impacted by the following:

•A 3.1-point reduction in casualty loss costs compared to Third Quarter 2019 primarily due to the significant rate increases taken on this line in the last few years; and

•A 2.1-point decrease in the underwriting expense ratio compared to Third Quarter 2019, driven by the expense management initiatives instituted in March 2020 to help reduce our other insurance expenses, as discussed in "Financial Highlights of Results for Third Quarter and Nine Months 2020 and Third Quarter and Nine Months 2019" above.

Further impacting Nine Months 2020 was:

•A 3.4-point reduction in casualty loss costs compared to Nine Months 2019 primarily due to the significant rate increases taken on this line in the last few years;

•An additional 2.4-point reduction, or $10.8 million, in our casualty loss costs, which was an offsetting ~~these~~reduction to the $15.4 million premium credit to our commercial automobile customers mentioned above. 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, reflecting anticipated decreases ~~was~~in frequencies as a ~~1.6-point~~result of governmental shelter-in-place directives; and

•A 0.4-point increase in the underwriting expense ratio compared to Nine Months 2019, driven by a 0.7-point increase in our allowance for uncollectible ~~premium~~accounts on our premiums receivable, ~~due to the COVID-19 pandemic~~which is discussed in "Current Events" above, and was partially offset by expense management initiatives discussed above.

The Nine Months 2020 prior year casualty reserve development was primarily attributable to unfavorable reserve development on loss severities in accident years 2016 through 2019, and higher than expected frequencies in accident year 2019.

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 our risk-adjusted targeted combined ratio. To address profitability in this line, we have

been implementing ~~significant~~ price increases in recent years, while working to 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.

Table of Contents


Workers Compensation	Workers Compensation										Workers Compensation
		Quarter Ended March 31,						Change % or Points					Quarter ended September 30,					Change % or Points				Nine Months ended September 30,							Change % or Points
($ in thousands)		2020				2019				($ in thousands)		2020				2019				2020				2019
NPW¹		$	51,196			85,065			(40	)	%
NPW											NPW		$	73,009			71,534		2		%				$	199,189		238,037		(16)	%
Direct new business		15,357				16,948		(9	)		Direct new business		11,477				12,025	(5)				39,446					46,765		(16)
Retention		84			%	84		—		pts	Retention		85		%		84	1	pts			84			%		83		1	pts
Renewal pure price decreases		(2.6		)		(1.6	)	(1.0	)		Renewal pure price decreases		(2.0)				(2.7)	0.7				(2.5)					(2.8)		0.3
NPE		$	66,706			78,715		(15	)	%	NPE		$	75,595			75,478	—	%			$	204,207				232,657		(12)	%
Underwriting income		11,035				10,719		3			Underwriting income		21,567				17,333	24				48,322					42,566		14
Combined ratio		83.5			%	86.4		(2.9	)	pts	Combined ratio		71.5		%		77.0	(5.5)	pts			76.3			%		81.7		(5.4)	pts
% of total Standard Commercial Lines NPW		10				16					% of total Standard Commercial Lines NPW		13				13					12					15

In addition to the drivers in the table above, Nine Months 2020 NPW was reduced by a $29 million estimated return audit and mid-term endorsement premium ~~accrual.~~accrual due to the COVID-19 pandemic discussed in "Current Events" above that contributed 12 percentage points to the decline in NPW in Nine Months 2020 compared to Nine Months 2019. This accrual also reduced NPE by $6 million in Third Quarter 2020 and $24 million in Nine Months 2020.

The decrease in the combined ratio in ~~First~~Third Quarter and Nine Months 2020 compared to the same prior year ~~period~~periods was primarily driven by favorable prior year casualty reserve development, as follows:

Third Quarter 2020

Third 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

(Favorable) prior year casualty reserve development

(15.0)

(19.8)

pts

(13.0)

(17.2)

pts

(2.6)

pts

Nine Months 2020

Nine 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

(Favorable) prior year casualty reserve development

(40.0)

(19.6)

pts

(33.0)

(14.2)

pts

(5.4)

pts

First Quarter 2020 First Quarter 2019
($ in millions) Loss and Loss Expense Incurred Impact on
Combined Ratio Loss and Loss Expense Incurred Impact on
Combined Ratio
Change
Points

(Favorable) prior year casualty reserve development $ (10.0 ) (15.0 ) pts $ (8.0 ) (10.2 ) pts (4.8 ) pts

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

~~The favorable development~~In addition to the items in the tables above, the Third Quarter 2020 combined ratio was ~~partially offset~~impacted by a 1.7-point decrease in the underwriting expense ratio compared to Third Quarter 2019, driven by the ~~following impacts due~~expense management initiatives instituted in March 2020 to help reduce our other insurance expenses, as discussed in "Financial Highlights of Results for Third Quarter and Nine Months 2020 and Third Quarter and Nine Months 2019" above. The Nine Months 2020 combined ratio included a 0.5-point increase in the ~~COVID-19 pandemic~~underwriting expense ratio compared to Nine Months 2019, driven by a 0.4-point increase in our allowance for uncollectible premiums receivable, which is discussed in "Current Events" ~~above: (i) a 1.1-point increase~~above.

~~in the allowance for uncollectible premium receivable; and (ii) a 0.9-point increase due to the lower earned premium resulting from our return audit and mid-term endorsement premium accrual~~.


Commercial Property
	Quarter ended September 30,				Change % or Points		Nine Months ended September 30,				Change % or Points
($ in thousands)	2020			2019			2020			2019
NPW	$	106,221		97,393	9	%	$	313,405		284,861	10	%
Direct new business	22,515			22,527	—		70,958			64,960	9
Retention	84		%	83	1	pts	84		%	82	2	pts
Renewal pure price increases	4.4			2.8	1.6		4.2			3.3	0.9
NPE	$	97,997		89,215	10	%	$	287,279		262,418	9	%
Underwriting (loss) income	(11,903)			(409)	(2,810)		(34,794)			2,866	(1,314)
Combined ratio	112.1		%	100.5	11.6	pts	112.1		%	98.9	13.2	pts
% of total Standard Commercial Lines NPW	18			18			19			17

Table of Contents

Commercial Property
Quarter Ended March 31,
Change
% or
Points

($ in thousands) 2020 2019
NPW $ 103,126
93,029
11
%
Direct new business 24,586
21,042
17

Retention 84
% 83
1
pts
Renewal pure price increases 4.2
3.5
0.7

NPE $ 93,869
86,067
9
%
Underwriting (loss) income (8,552 ) 1,903
(549 )
Combined ratio 109.1
% 97.8
11.3
pts
% of total Standard Commercial Lines NPW 20
17

The increase in the combined ratio in ~~First~~Third Quarter and Nine Months 2020 compared to ~~First~~Third Quarter and Nine Months 2019 was driven by the following:


												Third Quarter 2020				Third Quarter 2019
($ in millions)											($ in millions)	Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		Impact on Combined Ratio		Change in Ratio
Catastrophe losses											Catastrophe losses	$	28.5	29.1	pts	$	12.4	13.9	pts	15.2	pts
Non-catastrophe property loss and loss expenses											Non-catastrophe property loss and loss expenses	44.0		44.9		41.5		46.5		(1.6)
Total											Total	72.5		74.0		53.9		60.4		13.6

	First Quarter 2020				First Quarter 2019							Nine Months 2020				Nine 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		($ in millions)	Loss and Loss Expense Incurred		Impact on Combined Ratio		Loss and Loss Expense Incurred		Impact on Combined Ratio		Change in Ratio
Catastrophe losses	$	19.7	20.9	pts	$	12.5	14.6	pts	6.3	pts	Catastrophe losses	$	83.4	29.0	pts	$	43.6	16.6	pts	12.4	pts
Non-catastrophe property loss and loss expenses¹	45.6		48.6		39.1		45.5		3.1		Non-catastrophe property loss and loss expenses1	127.9		44.5		114.6		43.7		0.8
Total	65.3		69.5		51.6		60.1		9.4		Total	211.3		73.5		158.2		60.3		13.2

¹Non-catastrophe property loss and loss expenses for Nine Months 2020 included an estimate of $10 million in response to the COVID-19 pandemic, which is discussed in "Current Events" above.

Higher catastrophe losses in ~~First~~Third Quarter and Nine Months 2020 compared to ~~First~~Third Quarter and Nine Months 2019 were driven by ~~a tornado~~the events mentioned in "Financial Highlights of Results for Third Quarter and ~~subsequent hail that impacted Tennessee in early-March 2020.~~

~~In addition, the underwriting expense ratio increased in First~~Nine Months 2020 and Third Quarter ~~2020 compared to First Quarter 2019 due to a 1.4-point increase in the allowance for uncollectible premium receivable discussed in "Current Events"~~and Nine Months 2019" discussion above.

Standard Personal Lines Segment


	Quarter ended September 30,				Change % or Points		Nine Months ended September 30,				Change % or Points
($ in thousands)	2020			2019			2020			2019
Insurance Segments Results:
NPW	$	79,697		81,639	(2)	%	$	225,511		233,717	(4)	%
NPE	75,976			76,738	(1)		223,737			231,158	(3)
Less:
Loss and loss expense incurred	69,667			54,843	27		182,150			158,467	15
Net underwriting expenses incurred	20,713			22,526	(8)		61,929			65,617	(6)
Underwriting (loss) income	$	(14,404)		(631)	(2,183)	%	$	(20,342)		7,074	(388)	%
Combined Ratios:
Loss and loss expense ratio	91.7		%	71.4	20.3	pts	81.4		%	68.5	12.9	pts
Underwriting expense ratio	27.3			29.4	(2.1)		27.7			28.4	(0.7)
Combined ratio	119.0			100.8	18.2		109.1			96.9	12.2

Quarter Ended March 31,
Change
% or
Points

($ in thousands) 2020 2019
Insurance Segments Results:

NPW $ 67,640
69,369
(2 ) %
NPE 76,128
77,307
(2 )
Less:

Loss and loss expense incurred 54,332
53,070
2

Net underwriting expenses incurred 21,409
21,070
2

Underwriting (loss) income $ 387
3,167
(88 ) %
Combined Ratios:

Loss and loss expense ratio 71.4
% 68.6
2.8
pts
Underwriting expense ratio 28.1
27.3
0.8

Combined ratio 99.5
95.9
3.6

NPW ~~was lower~~decreased in ~~First~~both Third Quarter and Nine Months 2020 compared to the same prior year ~~period, reflecting the impact of a decrease in direct~~periods, driven by new business ~~primarily~~that was not sufficient to compensate for the attrition reflected in our 83% retention ratio. Additionally, Nine Months 2020 included a $4.3 million premium credit to our Standard Personal Lines customers as a result of the ~~highly competitive personal automobile market. Retention decreased~~COVID-19 pandemic. This premium item contributed 2 percentage points to the decline in ~~First~~NPW in Nine Months 2020 compared to the same prior year period. This premium credit was fully earned in Nine Months 2020.


	Quarter ended September 30,				Change % or Points		Nine Months ended September 30,				Change % or Points
($ in millions)	2020			2019			2020			2019
Direct new business	$	12.1		10.2	19	%	$	33.8		31.1	9	%
Retention	83		%	83	—	pts	83		%	83	—	pts
Renewal pure price increases	1.8			5.0	(3.2)		2.9			5.3	(2.4)

Table of Contents

The increase in the combined ratio of 18.2 points in Third Quarter 2020 compared to ~~last~~Third Quarter 2019 and 12.2 points in Nine Months 2020 compared to Nine Months 2019 was driven by the following:


	Third Quarter 2020				Third 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	$	28.4	37.4	pts	$	7.9	10.3	pts	27.1	pts
Non-catastrophe property loss and loss expenses	22.4		29.5		25.2		32.8		(3.3)
Unfavorable prior year casualty reserve development	—		—		2.0		2.6		(2.6)


Total	50.8		66.9		35.1		45.7		21.2


	Nine Months 2020				Nine 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	$	66.4	29.7	pts	$	18.1	7.8	pts	21.9	pts
Non-catastrophe property loss and loss expenses	60.5		27.1		78.7		34.1		(7.0)
Unfavorable prior year casualty reserve development	—		—		2.0		0.9		(0.9)


Total	126.9		56.8		98.8		42.8		14.0

For additional information regarding the amounts in the table above, see "Financial Highlights of Results for Third Quarter and Nine Months 2020 and Third Quarter and Nine Months 2019" above.

The Nine 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. This reduction in our casualty loss costs decreased our loss ratio by 1.1 points in Nine 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 personal automobile line of business, reflecting anticipated decreases in frequencies as ~~we continue to achieve~~a result of governmental shelter-in-place directives.

E&S Lines Segment


	Quarter ended September 30,				Change % or Points		Nine Months ended September 30,				Change % or Points
($ in thousands)	2020			2019			2020			2019
Insurance Segments Results:
NPW	$	62,057		62,368	—	%	$	186,550		180,572	3	%
NPE	60,480			61,721	(2)		177,509			178,660	(1)
Less:
Loss and loss expense incurred	47,090			39,794	18		119,685			111,772	7
Net underwriting expenses incurred	20,667			20,011	3		61,789			57,449	8
Underwriting (loss) income	$	(7,277)		1,916	(480)	%	$	(3,965)		9,439	(142)	%
Combined Ratios:
Loss and loss expense ratio	77.8		%	64.5	13.3	pts	67.4		%	62.5	4.9	pts
Underwriting expense ratio	34.2			32.4	1.8		34.8			32.2	2.6
Combined ratio	112.0			96.9	15.1		102.2			94.7	7.5

NPW was flat in Third Quarter 2020, as strong new business growth and renewal pure price increases were offset by a reduction in line with expected loss trends. The deteriorating competitive position of our automobile business also has led to lower new homeowners business because most personal lines policies are written on an account basisnet renewal and ~~include both automobile and homeowners policies.~~

Quarter Ended March 31, Change
% or
Points
($ in millions) 2020 2019
Direct new business $ 9.9
10.3
(4 ) %
Retention 83
% 84
(1 ) pts
Renewal pure price increases 3.7
5.2
(1.5 )

~~The loss and loss expense ratio~~endorsement activity. NPW in Nine Months 2020 increased ~~2.8 points in First Quarter 2020~~3% compared to ~~First Quarter 2019. The drivers of these fluctuations are as follows:~~

First Quarter 2020 First 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 12.0
15.7
4.1
5.3
10.4
pts
Non-catastrophe property loss and loss expenses $ 22.8
30.0
pts $ 29.1
37.6
pts (7.6 )
Total 34.8
45.7
33.2
42.9
2.8

~~Higher catastrophe losses~~Nine Months 2019 due to increases in ~~First Quarter 2020 compared to First Quarter 2019 were driven by a tornado that impacted Tennessee in March 2020.~~

The underwriting expense ratio increased 0.8 points in First Quarter 2020 compared to First Quarter 2019, driven primarily by a 2.1-point increase in the allowance for uncollectible premiums receivable discussed in "Current Events" above.

~~As a result of the COVID-19 pandemic~~direct new business and the associated expected favorable claims frequency impact, this line of business will be impacted by a premium-based credit to our personal lines customers, which will be recorded as other insurance expenses in the second quarter of 2020. For further details, see Note 16. "Subsequent Events" in Item 1. "Financial Statements." of this Form 10-Q and "Current Events" above.

~~E&S Lines Segment~~

Quarter Ended March 31,
Change
% or
Points

($ in thousands) 2020 2019
Insurance Segments Results:

NPW $ 61,255
56,895
8
%
NPE 58,995
58,082
2

Less:

Loss and loss expense incurred 33,834
34,700
(2 )
Net underwriting expenses incurred 21,317
18,803
13

Underwriting income $ 3,844
4,579
(16 ) %
Combined Ratios:

Loss and loss expense ratio 57.4
% 59.7
(2.3 ) pts
Underwriting expense ratio 36.1
32.4
3.7

Combined ratio 93.5
92.1
1.4

~~NPW increased 8% in First Quarter 2020 compared to last year.~~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 ~~long-term stability.~~ underwriting profitability.

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Quantitative information on the premium in this segment is as follows:


	Quarter Ended March 31,				Change % or Points				Quarter ended September 30,				Change % or Points		Nine Months ended September 30,				Change % or Points
($ in millions)	2020			2019				($ in millions)	2020			2019			2020			2019
Direct new business	$	27.5		25.7	7		%	Direct new business	$	29.7		23.1	29	%	$	85.5		73.8	16	%
Renewal pure price increases	3.9		%	4.2	(0.3	)	pts	Renewal pure price increases	7.0		%	5.8	1.2	pts	5.8		%	5.0	0.8	pts

The ~~loss and loss expense~~combined ratio ~~decreased 2.3~~increased 15.1 points in ~~First~~Third Quarter 2020 and 7.5 points in Nine Months 2020 compared to ~~First Quarter 2019~~the same prior year periods, primarily ~~due to a decrease in the current year loss costs. This was partially offset~~driven by the items outlined in the tables below:


	Third Quarter 2020				Third 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	$	11.8	19.5	pts	$	1.5	2.4	pts	17.1	pts
Non-catastrophe property loss and loss expenses	8.0		13.2		7.0		11.4		1.8
Total	19.8		32.7		8.5		13.8		18.9

	Nine Months 2020				Nine 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	$	18.8	10.6	pts	$	4.3	2.4	pts	8.2	pts
Non-catastrophe property loss and loss expenses	19.3		10.9		17.1		9.6		1.3
Total	38.1		21.5		21.4		12.0		9.5

First Quarter 2020 First 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 0.5
0.8 0.8
1.4 (0.6 ) pts
Non-catastrophe property loss and loss expenses 5.7
9.7 4.5
7.8 1.9

Total 6.2
10.5 5.3
9.2 1.3

The ~~underwriting expense ratio increased 3.7 points~~increase in ~~First~~catastrophe losses in Third Quarter 2020 was due primarily to Hurricane Laura. The increase in Nine Months 2020 also included losses related to the civil unrest that occurred throughout the country in June. These increases were partially offset by a 3.1-point decrease in current year loss costs in Third Quarter and Nine Months 2020 compared to ~~First Quarter 2019, primarily~~the same prior year periods.

Reinsurance

We successfully completed the renewals of our July 1, 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 the same structure as the expiring treaties, with only reinsurers that are rated "A" or higher by AM Best. The treaty year ceded deposit premium increase of $14.3 million, or 17%, reflects rate increases for both the Property Excess of Loss ("Property Treaty") and Casualty Excess of Loss (“Casualty Treaty”) programs driven by historical loss 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 provides protection against large individual property losses with $58.0 million of coverage in excess of a ~~2.3-point increase~~$2.0 million 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 ~~allowance~~$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 $80.0 million.

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

Casualty Excess of Loss

Our Casualty Excess of Loss Treaty provides protection against large individual casualty losses with $88.0 million of coverage in excess of a $2.0 million per occurrence:

•The first through sixth layers provide coverage for ~~uncollectible premium receivable due~~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 ~~COVID-19 pandemic discussed~~prior treaty.

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

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For a discussion of the risks associated with future changes in ~~"Current Events" above.~~our reinsurance treaties, see Item 1A. "Risk Factors." of this Form 10-Q.

Investments

We entered the COVID-19 crisis with our investment portfolio well-positioned from a risk and liquidity perspective. Our fixed income securities and short-term investment portfolios represented ~~95%~~94% of our invested assets at ~~March 31,~~September 30, 2020, and 96% of our invested assets at December 31, 2019. These portfolios had a weighted average credit rating of “ AA-,” ,” as of both ~~March 31,~~September 30, 2020 and December 31, 2019, with 96% and 97% of the securities in these portfolios being investment grade quality as of such ~~dates.~~dates, respectively. The sector composition and credit quality of our major asset categories within our fixed income securities portfolio did not significantly change from December 31, 2019. ~~Our investment managers~~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. ~~They~~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 ~~since December 31, 2019,~~earlier in the year, we ~~expect to~~ modestly ~~increase~~increased our allocation to ~~risk~~risk-seeking assets and will continue to evaluate further changes to our allocation during the course of 2020, subject to economic and market conditions. Given the steepness of the credit risk curve, combined with a significant reduction in our investment leverage over the last few years, we may choose to modestly increase our exposure to credit risk within our investment portfolio, which would likely result in the average credit rating of the portfolio decreasing modestly from "AA-" to "A+".


Total Invested Assets							Total Invested Assets
($ in thousands)	March 31, 2020		December 31, 2019	Change			($ in thousands)	September 30, 2020		December 31, 2019	Change
Total invested assets	$	6,842,077	6,688,654	2		%	Total invested assets	$	7,277,460	6,688,654	9	%
Invested assets per dollar of stockholders' equity	3.26		3.05	7			Invested assets per dollar of stockholders' equity	3.04		3.05	—
Unrealized gain – before tax¹	67,195		216,564	(69	)		Unrealized gain – before tax1	340,546		216,564	57
Unrealized gain – after tax¹	53,084		171,085	(69	)		Unrealized gain – after tax1	269,031		171,085	57

¹Includes unrealized gains on fixed income and equity securities.

The increase in invested assets at ~~March 31,~~September 30, 2020 compared to December 31, 2019, was driven by operating cash flow generated in ~~First Quarter~~Nine Months 2020 of ~~$39~~$380.9 million and net proceeds of ~~$302~~$167.0 million from short-term borrowings. ~~This increase was partially offset by net unrealized losses on fixed income securities of approximately $132 million.~~ 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 $131.1 million in Nine Months 2020, which increased our book value per share by $1.73. The increase was driven principally by a significant decline in benchmark United States Treasury rates.

For details regarding the credit quality of our portfolio, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.” of 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
($ in thousands)	2020			2019				2020			2019
Fixed income securities	$	51,285		50,749	1	%		$	152,617		150,689	1	%
Commercial mortgage loans ("CMLs")	245			—	NM			463			—	NM
Equity securities	1,948			1,885	3			5,523			5,265	5
Short-term investments	244			1,410	(83)			1,830			5,213	(65)
Other investments	18,671			5,267	254			9,167			13,421	(32)
Investment expenses	(4,208)			(3,485)	21			(11,004)			(9,639)	14
Net investment income earned – before tax	68,185			55,826	22			158,596			164,949	(4)
Net investment income tax expense	(13,054)			(10,452)	25			(29,440)			(30,630)	(4)
Net investment income earned – after tax	$	55,131		45,374	22			$	129,156		134,319	(4)
Effective tax rate	19.1		%	18.7	0.4		pts	18.6		%	18.6	—		pts
Annualized after-tax yield on fixed income securities	2.6			2.8	(0.2)			2.6			2.9	(0.3)
Annualized after-tax yield on investment portfolio	3.1			2.8	0.3			2.5			2.9	(0.4)

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Quarter Ended March 31, Change
% or Points
($ in thousands) 2020 2019
Fixed income securities $ 50,253
49,033
2 %
Commercial mortgage loans ("CMLs") 62
—
NM

Equity securities 1,552
1,640
(5 )
Short-term investments 1,166
2,044
(43 )
Other investments 6,342
660
861

Investment expenses (3,408 ) (2,759 ) (24 )
Net investment income earned – before tax 55,967
50,618
11

Net investment income tax expense (10,484 ) (9,295 ) (13 )
Net investment income earned – after tax $ 45,483
41,323
10

Effective tax rate 18.7 % 18.4
0.3
pts
Annualized after-tax yield on fixed income securities 2.7
3.0
(0.3 )
Annualized after-tax yield on investment portfolio 2.7
2.8
(0.1 )

~~The~~Income from the alternative investments in our other investment portfolio drove the increase in ~~pre-tax~~ net investment income earned in ~~First~~Third Quarter 2020 compared to the same period last year, was primarily driven by an increase in pre-tax income from our other investments portfolio, primarily driven by a $3.3 million increase in private equity strategy investment income in this portfolio compared to the prior year period. Our other investment portfolio largely consists of alternative investments thatThird Quarter 2019. As results on these holdings are recorded on a ~~one~~one-quarter lag, the increase over last year's quarter ~~lag. The impact of the First Quarter 2020 financial~~was driven by improvements in market ~~volatility on those alternative investments related to COVID-19 will not be reflected in our consolidated financial statements until~~conditions during the second quarter of 2020, following the significant COVID-19-related market volatility experienced in the first quarter of 2020. ~~For additional details~~Income from our fixed income securities portfolio in Third Quarter 2020 was flat compared to Third Quarter 2019, as strong operating cash flows that were 26% of NPW were offset by lower yields on this portfolio as reflected in the ~~impact~~table above.

On a year-to-date basis, our other investment portfolio generated income of $9.2 million, which was lower than the ~~COVID-19 pandemic~~return of $13.4 million earned in Nine Months 2019, driving the year-over-year decrease in net investment income earned. Partially offsetting this decrease was a slight increase in income on our ~~investment portfolio, see "Current Events"~~fixed income securities in Nine Months 2020 compared to Nine Months 2019, as operating cash flows that were 18% of NPW outpaced the reduction in year-over-year yields as reflected in the table above.

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 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 March 31, Change %
($ in thousands) 2020 2019
Net realized gains on disposals, excluding OTTI $ 4,100
3,444
19 %
Unrealized (losses) gains recognized in income on equity securities (17,137 ) 10,111
(269 )%
OTTI charges¹
(31,629 ) (104 ) NM
Total net realized and unrealized (losses) gains $ (44,666 ) 13,451
(432 )%


	Quarter ended September 30,			Change %		Nine Months ended September 30,		Change %
($ in thousands)	2020		2019			2020	2019
Net realized gains on disposals, excluding OTTI	$	573	20,425	(97)	%	7,288	26,752	(73)
Unrealized gains (losses) recognized in income on equity securities	4,338		(20,317)	(121)		(7,098)	(8,091)	(12)
OTTI benefit (expense)1	2,810		(2,291)	(223)		(24,486)	(3,366)	627
Total net realized and unrealized gains (losses)	$	7,721	(2,183)	(454)		(24,296)	15,295	(259)

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

~~Net realized~~Losses in Nine Months 2020 were significantly impacted by COVID-19-related market volatility in the first quarter of 2020, which resulted in higher OTTI expense and unrealized ~~investment~~ losses ~~in First Quarter 2020 were $44.7 million, which included $31.6 million of OTTI. Approximately half~~on our equity securities portfolio. A portion of our OTTI ~~represented~~expense in Nine Months 2020 was related to impairments on securities for which we ~~intend~~had the intention to sell to provide our investment managers flexibility to trade and optimize our investment portfolio, ~~in response~~which amounted to ~~the COVID-19 pandemic. The remaining OTTI losses were~~$16.3 million. We also incurred credit-related impairment losses under the new ~~credit loss accounting standard. The credit impairments were~~Accounting Standards Update 2016-13, Financial Instruments - Credit Losses, which amounted to $8.2 million in Nine Months 2020.

During Third Quarter 2020, the ~~result~~increase in net realized and unrealized gains compared to Third Quarter 2019 was driven by an improvement in both unrealized losses in our equity portfolio and the reversal of ~~increased default risk reflected in the significant widening of~~previously-recognized expected credit ~~spreads, partially offset by a significant decline in benchmark risk-free rates. In addition, unrealized~~ losses on our fixed income securities portfolio, both reflecting improvements in the market.

Additionally, during Third Quarter 2019, we sold a significant portion of our public equity securities, ~~portfolio increased $27.2~~realizing net gains of $21.6 million ~~compared to First~~on the securities sold. These realized gains were substantially offset in Third Quarter 2019 ~~due~~by the reversal of previously-recorded unrealized gains related to the ~~financial disruption caused by~~securities sold, which accounted for $21.4 million of the ~~COVID-19 pandemic.~~$20.3 million reduction in the table above.

Federal Income Taxes

The following table provides information regarding federal income taxes:


	Quarter ended September 30,				Nine Months ended September 30,
($ in millions)	2020			2019	2020	2019
Federal income tax expense	$	15.4		15.0	24.7	45.3
Effective tax rate	18.0		%	21.1	17.1	19.3

Quarter Ended March 31,
($ in millions) 2020 2019
Federal income tax expense $ 0.8
12.3
Effective tax rate 4.8 % 16.8

~~During First Quarter 2020, we recorded federal income taxes based on our actual~~The effective tax rate ~~during~~in the ~~quarter instead~~table above differs from the statutory rate of ~~an estimate~~21% principally due to: (i) the benefit of ~~our full-year effective tax rate. This approach gives consideration to~~tax-advantaged interest and dividend income; and (ii) the ~~anticipated volatility in certain components of our net income. Estimating these components is challenging given the uncertainty around the future~~ impact of ~~the COVID-19-related governmental directives and their impact~~excess tax benefits on ~~the financial markets and potential volatility.~~

~~Our effective tax rate during First Quarter 2020 was 4.8%, down from 16.8%~~our stock-based compensation awards, partially offset by certain disallowances of executive compensation. The decrease in the comparable prior year period. This decrease was driven by net realized and unrealized losses of $44.7 million, pre-tax, which provided a significant offset to the other components of pre-tax net income and reduced the effective tax rate. For further discussion on the effective tax rate ~~see Note 14. "Federal Income Taxes"~~ in ~~Item 1. "Financial Statements."~~Nine Months 2020 compared to Nine Months 2019 reflects less pre-tax income from our insurance and investments segments compared to tax-advantaged income and excess tax benefits on our stock-based compensation awards and adjustments to our executive compensation disallowance.

Table of ~~this Form 10-Q.~~Contents

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. ~~Overall, our primary focus has been increasing~~During the first quarter of 2020, we increased the liquidity atof both the Insurance Subsidiaries and the Parent. Through the COVID-19-related financial market disruption, we adopted a more defensive posture. We initially stopped reinvesting principal and interest from the fixed income portfolio to increase our liquidity and marginally reduce risk. Given our decision to initially suspend reinvestment activities, coupled with additional short-term borrowings in First Quarter 2020 of $302 million, our short-term investments and cash totaled $527 million at March 31, 2020, compared to $283 million as of December 31, 2019.

~~We increased our liquidity~~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. ~~The cost~~As of September 30, 2020, we had $167 million of outstanding short-term borrowings. Our short-term investments and cash totaled $382 million at September 30, 2020, compared to $283 million as of December 31, 2019.

During Third Quarter 2020, we repaid $85 million of our short-term borrowings; however, we continue to maintain a greater level of short-term borrowings in light of the ~~excess liquidity is about $0.1~~ongoing pandemic and elevated catastrophe losses we incurred during Nine Months 2020. The remaining $167 million ~~per month, and represents the additional interest expense on our~~in short-term borrowings ~~net~~are contractually due in the fourth quarter of ~~the interest income~~2020, and we ~~generate on the government and prime money market funds in which we have invested the proceeds.~~expect to repay them by year-end.

~~In First Quarter~~Through Nine Months 2020, we did not experience ~~a meaningful decrease~~any material changes in our daily cash collections. Given our ~~geographic footprint and~~ focus on small-to-medium size business and geographic footprint, however, we expect ~~many of our~~some customers to have significant cash flow disruptions due to ~~their~~

~~businesses. This will result in potential premium collection issues as a result of recent~~the COVID-19-related governmental orders and economic slowdown. Certain state insurance regulations ~~that~~also provided for the deferral of payments without cancellation for a period up to 90 ~~days~~days. Both conditions could impact our premium collection. The ultimate viability of some commercial customers' businesses will depend, in ~~certain states. The ultimate~~part, on the depth and duration of the economic slowdown, ~~combined with~~their participation in the ~~impact of the~~first and any subsequent federal fiscal stimulus packages, and whether ~~or not a~~their business is considered essential or ~~non-essential, will in part determine whether our customers' businesses are temporarily or permanently impaired.~~non-essential. We ~~continue to~~ monitor our cash positions daily ~~to ensure we remain well positioned from a~~as part of our liquidity ~~perspective.~~management process.

In addition, we continue to closely 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 ~~have~~ continued to improve ~~during the start of the second quarter of~~through Third Quarter 2020. There have been a record level of new fixed income security issuances, and because of that activity and our strong liquidity position, starting in late-March we permitted our core fixed income security portfolio managers to begin reinvesting the interest and proceeds of maturities of fixed income securities into highly liquid and high credit quality securities.

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. Cash flows from operations were 26% of NPW in Third Quarter 2020, compared to 22% of NPW in Third Quarter 2019, and 18% of NPW in Nine Months 2020, compared to 15% of NPW in Nine Months 2019. We maintain liquidity at the parent primarily through (i) short-term investments that are generally

maintained in “AAA” rated money market funds approved by the National Association of Insurance Commissioners,

(ii) high-quality, highly-liquid government and corporate fixed income securities; and (iii) a cash balance. In the aggregate,

cash and investments at the Parent amounted to ~~$337~~$343 million at ~~March 31,~~September 30, 2020 and $278 million at December 31, ~~2019, with the increase principally due to $50 million in proceeds from a short-term borrowing under our Line of Credit.~~2019.

The level of liquidity at the Parent may fluctuate based on various factors, including the amount and availability of dividends

from our Insurance Subsidiaries, investment income, expenses, other liquidity needs of the Parent, Parent borrowings, and asset allocation investment decisions. Our target is to maintain liquidity at the Parent of 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 $140~~paid $105 million in total dividends to the Parent ~~in 2020, a $30 million increase from $110 million paid in 2019, of which $35 million was paid~~ during ~~First Quarter~~Nine Months 2020. As of December 31, 2019, our allowable ordinary maximum dividend was $267 million for 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

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information regarding dividend restrictions, refer to Note 20. “Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds” in Item 8. “Financial Statements and Supplementary Data.” of our 2019 Annual Report.

In addition to regulatory restrictions on the availability of dividends that our Insurance ~~subsidiaries~~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 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 flow for claims payments in the ordinary course of business.

As protection for the capital resources at 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

On December 20, 2019, the Parent entered into a Line of Credit among the Parent, the lenders named therein (the “Lenders”), and the Bank of Montreal, Chicago Branch, as Administrative Agent. Under the Line of Credit, the Lenders have agreed to provide the Parent with a $50 million revolving credit facility, which can be increased to $125 million with the consent of the Lenders. The Line of Credit will mature on December 20, 2022 and has an interest rate, which varies and is based on, among other factors, the Parent’s debt ratings. On March 24, 2020, to bolster liquidity, the Parent borrowed $50 million under the Line of Credit for a ~~six month~~six-month term at 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 2019 Annual Report. We met all covenants under our Line of Credit agreement as of ~~March 31,~~September 30, 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
FHLBI			Selective Insurance Company of South Carolina ("SICSC")¹ Selective Insurance Company of the Southeast ("SICSE")¹
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 ~~$62.1~~$148 million for Federal Home Loan Bank borrowings, with a ~~$2.8~~$6.7 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

We significantly increased our short-term ~~debt~~borrowings during ~~First Quarter~~the first quarter of 2020 amid the COVID-19 pandemic, which ~~has been~~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 ~~from~~under the Line of Credit that was repaid on May 8, 2020, were invested in high-quality money market funds. We repaid the $85 million FHLBNY borrowing in September 2020 and the $50 million borrowing under the Line of Credit in May 2020, and the remainder of these short-term borrowings were outstanding as of September 30, 2020. The remaining $167 million in short-term borrowings are contractually due in the fourth quarter of 2020, and we expect to repay them by year-end. For further information regarding these borrowings, see Note 5. "Indebtedness" in Item 1. "Financial Statements." of this Form 10-Q.

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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 $40.0 million as of both ~~March 31,~~September 30, 2020 and December 31, 2019. The remaining capacity under these intercompany loan agreements was $89.4 million as of both ~~March 31,~~September 30, 2020 and December 31, 2019.

Capital Market Activities

The Parent had no private or public issuances of stock during ~~First~~Third Quarter or Nine Months 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 ~~May 5,~~October 28, 2020, our Board of Directors declared, for stockholders of record as of ~~May 18,~~November 13, 2020, a ~~$0.23~~$0.25 per share dividend to be paid on ~~June~~December 1, 2020. This is a 9% increase compared to the dividend declared on July 29, 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. Excluding the short-term borrowings described above, our next two principal repayments each in the amount of $25 million, are due in the third quarter of 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 ~~March 31,~~September 30, 2020, we had GAAP stockholders' equity of ~~$2.1~~$2.4 billion and statutory surplus of ~~$1.9~~$2.0 billion. With total debt of ~~$852.6~~$717.6 million, ~~and~~including long-term debt of $550.6 million at ~~March 31,~~September 30, 2020, our debt-to-capital ratio was ~~28.9%~~23.1% and our long-term debt-to-capital ratio was ~~20.8%~~18.7%.

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. We have an attractive book of business and solid capital base, positioning us well to take advantage of market opportunities that may arise.

Book value per share ~~decreased~~increased to ~~$35.11~~$40.00 as of ~~March 31,~~September 30, 2020, from $36.91 as of December 31, 2019, driven by ~~$1.75~~$1.73 in unrealized ~~losses~~gains on our fixed income securities portfolio and ~~$0.23~~$1.98 in net income per share, partially offset by $0.69 in dividends to our ~~shareholders, partially offset by $0.25 in net income per share.~~shareholders.

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Ratings

Our ratings remain the same as reported in our "Overview" section of Item 1. "Business." of our 2019 Annual Report and are as follows:

NRSRO

Financial Strength Rating

Outlook

AM Best

Positive

Moody's Investor Services ~~("Moody's")~~

Stable

Fitch

A+

Stable

~~Standard & Poor's Global Ratings ("~~S~~&P")~~&P

Stable

On April 10, 2020, Fitch reaffirmed our "A+" rating with a "stable" outlook. In taking this rating action, Fitch cited our strong capitalization, ~~and~~ financial performance, ~~and our~~ stable underwriting results, and return metrics that have remained favorable compared to our peers. ~~Fitch's review included its current assessment~~Fitch also considered the impact of ~~COVID-19-related issues,~~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 ~~potential~~claim/benefit exposures related ~~claim/benefit exposures.~~to the COVID-19 pandemic.

In a report published by S&P on October 19, 2020, S&P reaffirmed our "A" rating with a "stable" outlook, citing our strong financial and business risk profiles, driven by strong capital adequacy and operating performance.

Off-Balance Sheet Arrangements

At ~~March 31,~~September 30, 2020,, and December 31, 2019,, we had no material relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Consequently, we are not exposed to any material financing, liquidity, market, or credit risk related to off-balance sheet arrangements.

Contractual Obligations, Contingent Liabilities, and Commitments

Our future cash payments associated with (i) loss and loss expense reserves and (ii) contractual obligations pursuant to operating and financing leases for office space and equipment have not materially changed since December 31, 2019. The following table provides future cash payments on our notes payable as of ~~March 31,~~September 30, 2020, including ~~$302~~$167 million of short-term borrowings ~~in First Quarter~~from the first quarter of 2020, which are discussed in Note 5. "Indebtedness" in Item 1. "Financial Statements." of this Form 10-Q:


Contractual Obligations	Payment Due by Period
			Less than 1 year	1-3 years	3-5 years	More than 5 years
($ in millions)	Total
Notes payable	$	727.0	217.0	—	—	510.0
Interest on debt obligations	628.4		29.2	56.6	56.6	486.0




Total	$	1,355.4	246.2	56.6	56.6	996.0

Contractual Obligations Payment Due by Period

Less than
1 year

1-3
years

3-5
years

More than
5 years
($ in millions) Total
Notes payable $ 862.0
302.0
50.0
—
510.0
Interest on debt obligations 644.4
30.7
56.9
56.6
500.2
Total $ 1,506.4
332.7
106.9
56.6
1,010.2

At ~~March 31,~~September 30, 2020, we also had certain contractual obligations that may require us to invest additional amounts in our investment portfolio as follows:



($ in millions)	Amount of Obligation		Year of Expiration of Obligation
Alternative and other investments	$	225.4	2036
Non-publicly traded collateralized loan obligations in our fixed income securities portfolio	28.0		2030
Non-publicly traded common stock within our equity portfolio	2.0		2021
CMLs	8.3		Less than a year
Privately-placed corporate securities	24.0		Less than a year
Total	$	287.7

($ in millions) Amount of Obligation Year of Expiration of Obligation
Alternative and other investments $ 227.8
2036
Non-publicly traded collateralized loan obligations in our fixed income securities portfolio 31.6
2030
Non-publicly traded common stock within our equity portfolio 2.4
2021
CMLs 2.9
Less than a year
Privately-placed corporate securities $ 2.0
Less than a year
Total $ 266.7

There is no certainty that any such additional investment will be required. 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." of our 2019 Annual Report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

While the information 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 ~~March 31,~~September 30, 2020.

Credit Risk

We entered the COVID-19 crisis with our investment portfolio well-positioned from a risk and liquidity perspective. ~~With 8.4% of portfolio allocated~~At September 30, 2020 our allocation to risk assets ~~at March 31, 2020, we are underweight~~was 9.8% of our ~~longer-term risk asset allocation target of 12%. Our fixed income securities and short-term investment portfolios have an average credit quality of "AA-."~~portfolio. Given the reduction in the valuation of U.S. public equities and the significant widening of high yield credit spreads ~~since December 31, 2019,~~earlier in the year, we ~~expect to~~ modestly ~~increase~~increased our allocation to ~~risk~~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 September 30, 2020. Given the steepness of the credit risk curve, combined with a significant reduction in our investment leverage over the last few years, we may choose to modestly increase our exposure to credit risk within our investment portfolio, which would likely result in the average credit rating of the portfolio decreasing modestly from "AA-" to "A+".

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


March 31, 2020											Credit Rating
September 30, 2020																													September 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			($ 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	$	518	$	518	7.6	%	1.0	%	0.0	0.0	$	494		$	23		$	—		$	—		$	1		$	—		Short-term investments	$	381	$	381	5.2	%	0.2	%	0.00		$	377		$	2		$	—		$	1		$	1		$	—

Fixed income securities:																													Fixed income securities:
U.S. government obligations	134		142		2.1		1.1		3.9	4.4	142			—			—			—			—			—			U.S. government obligations	110		118		1.6		0.4		4.2	5.6	117			—			—			—			—			—
Foreign government obligations	13		13		0.2		4.0		3.6	4.2	—			1			4			8			—			—			Foreign government obligations	16		17		0.2		1.7		5.1	6.0	—			2			8			7			—			—
State and municipal obligations	1,151		1,202		17.6		1.8		5.3	5.4	216			622			306			58			—			—			State and municipal obligations	1,157		1,236		17.0		1.1		5.5	5.1	220			619			342			55			—			—
Corporate securities	1,927		1,927		28.2		4.1		4.0	5.5	14			89			803			837			184			—			Corporate securities	2,169		2,314		31.8		2.2		4.7	6.4	14			128			893			1,049			231			—
Mortgage-backed securities:																													Mortgage-backed securities:
Residential mortgage-backed securities ("RMBS"):																													Residential mortgage-backed securities ("RMBS"):
Agency RMBS	1,287		1,353		19.8		1.3		2.0	3.3	1,353			—			—			—			—			—			Agency RMBS	1,032		1,090		15.0		1.0		2.2	3.1	1,090			—			—			—			—			—
Non-agency RMBS	80		77		1.1		5.6		1.4	3.6	32			7			33			—			5			—			Non-agency RMBS	91		93		1.3		2.5		1.3	3.2	44			6			34			—			10			—
Total RMBS	1,367		1,430		20.9		1.6		2.0	3.3	1,385			7			33			—			5			—			Total RMBS	1,123		1,183		16.3		1.1		2.1	3.1	1,134			6			34			—			10			—
Commercial mortgage-backed securities ("CMBS")	517		531		7.8		3.2		5.0	6.5	478			22			23			8			—			—			Commercial mortgage-backed securities ("CMBS")	600		644		8.8		1.8		4.8	6.0	570			32			32			10			—			—
Total mortgage-backed securities	1,884		1,961		28.7		2.0		2.8	4.2	1,863			29			56			8			5			—			Total mortgage-backed securities	1,722		1,827		25.1		1.3		3.0	4.2	1,704			37			66			10			10			—
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS"):																													Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS"):
Auto	45		45		0.7		3.8		2.5	2.4	36			5			4			—			—			—			Auto	45		47		0.6		0.7		2.2	2.1	37			6			3			—			1			—
Aircraft	57		42		0.6		13.3		3.3	4.2	—			2			40			—			—			—			Aircraft	54		50		0.7		7.2		3.3	3.8	—			1			26			19			3			—
CLOs	512		469		6.8		5.5		1.1	4.7	287			111			26			35			9			1			CLOs	610		607		8.3		3.1		1.1	4.7	330			182			31			44			19			1
Credit cards	19		19		0.3		1.7		1.9	2.2	19			—			—			—			—			—			Credit cards	17		17		0.2		0.3		1.6	1.7	17			—			—			—			—			—
Other ABS	156		147		2.2		5.8		2.4	5.2	23			2			90			25			7			—			Other ABS	217		225		3.1		2.7		3.3	5.4	51			3			132			28			9			1
Total CLOs and Other ABS	789		722		10.5		5.8		1.6	4.5	365			120			160			60			16			1			Total CLOs and Other ABS	943		946		13.0		3.1		1.8	4.6	435			192			193			92			32			1
Total securitized assets	2,673		2,683		39.2		3.0		2.5	4.3	2,228			149			216			68			21			1			Total securitized assets	2,665		2,773		38.1		1.9		2.6	4.3	2,140			229			259			102			42			1
Total fixed income securities and short-term investments	6,416		6,485		94.8		2.9		3.3	4.5	3,094			884			1,329			971			206			1			Total fixed income securities and short-term investments	6,498		6,839		93.9		1.7		3.7	5.0	2,868			980			1,502			1,213			274			1
Total fixed income securities and short-term investments by credit rating percentage											47.7		%	13.6		%	20.5		%	15.0		%	3.2		%	—		%	Total fixed income securities and short-term investments by credit rating percentage											41.9		%	14.3		%	22.0		%	17.7		%	4.0		%	—		%
Commercial mortgage loans	14		14		0.2		3.7		7.5	4.7	—			—			12			2			—			—			Commercial mortgage loans	30		31		0.4		3.5		2.5	5.7	—			—			21			9			—			—
Equity securities:																													Equity securities:
Common stock¹	114		98		1.4		0.8		—	—	—			—			—			—			—			98			Common stock1	156		150		2.1		0.3		—	—	—			—			—			—			—			150
Preferred stock	2		2		—		5.4		—	—	—			—			—			—			2			—			Preferred stock	2		2		—		3.1		—	—	—			—			—			—			2			—
Total equity securities	116		100		1.4		0.9		—	—	—			—			—			—			2			98			Total equity securities	158		152		2.1		0.4		—	—	—			—			—			—			2			150
Other investments:																													Other investments:
Alternative investments:																													Alternative investments:
Private equity	132		132		1.9		—		—	—	—			—			—			—			—			132			Private equity	147		147		2.0		—		—	—	—			—			—			—			—			147
Private credit	47		47		0.7		—		—	—	—			—			—			—			—			47			Private credit	49		49		0.7		—		—	—	—			—			—			—			—			49
Real assets	23		23		0.3		—		—	—	—			—			—			—			—			23			Real assets	22		22		0.3		—		—	—	—			—			—			—			—			22
Total alternative investments	202		202		2.9		—		—	—	—			—			—			—			—			202			Total alternative investments	218		218		3.0		—		—	—	—			—			—			—			—			218
Other investments	43		43		0.7		—		—	—	—			—			—			—			—			43			Other investments	41		41		0.6		—		—	—	—			—			—			—			—			41
Total other investments	245		245		3.6		—		—	—	—			—			—			—			—			245			Total other investments	259		259		3.6		—		—	—	—			—			—			—			—			259
Total invested assets	$	6,791	$	6,844	100		—		—	—	$	3,094		$	884		$	1,341		$	973		$	208		$	344		Total invested assets	$	6,944	$	7,280	100		—		—	—	$	2,868		$	980		$	1,523		$	1,223		$	275		$	410

⁽¹⁾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 4% of total invested assets as of ~~March 31,~~September 30, 2020, and primarily includes alternative investments in limited partnerships. We account for these investments under the equity method, and they

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typically report income on a one-quarter lag. InDuring Third Quarter 2020, we recorded after-tax income on these alternative investments of approximately $14.7 million, reflecting the market recovery in the second quarter of ~~2020, we expect to record after-tax net investment losses~~

of between $15 million and $20 million from our private equity, private credit, and real asset limited partnership investments in our alternative investments portfolio due to an expected reduction in the underlying investment valuations resulting from the COVID-19-related financial disruption in First Quarter 2020. However, while these are our current estimates, our second quarter net investment income will reflect the actual decrease reported by these alternative investments as of March 31, 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

Overall, our primary focus during the COVID-19 crisis has been on increasing liquidity at the holding company and operating subsidiary levels. We had initially stopped reinvesting interest and proceeds from maturities from our fixed income securities portfolio to bolster liquidity and reduce risk organically at the margin. However, credit markets stabilized in late March in response to targeted actions taken by the Federal Reserve Board, and there was a record level of new issuances in the marketplace. Given that activity and our strong liquidity position, which was aided by the short-term borrowings discussed in the "Indebtedness" section below, we have permitted our core fixed income securities managers to reinvest the interest and proceeds from maturities from fixed income securities into highly liquid and high credit quality securities.

We ended the quarter with strong liquidity with short-term investments and cash of ~~$527.0~~$381.7 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:


	March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Asset Category	Percentage of Invested Assets		Percentage of Invested Assets		Asset Category	Percentage of Invested Assets		Percentage of Invested Assets
Highly-liquid assets	74	%	74	%	Highly-liquid assets	70	%	74	%
Generally liquid assets, may become less liquid with market stress¹	22		22		Generally liquid assets, may become less liquid with market stress1	25		22
Generally illiquid assets²	4		4		Generally illiquid assets2	5		4
Total	100	%	100	%	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, ~~as mentioned above,~~ we ~~significantly~~ increased our short-term debt by $302 million during the ~~First Quarter~~first quarter of 2020 as a contingency in ~~response to~~light of the ~~COVID-19 pandemic, with the primary objective of increasing liquidity~~COVID-19-related volatility and ~~operating flexibility~~uncertainty in the ~~short-~~financial markets. We repaid our $50 million line of credit borrowing and our $85 million FHLBNY borrowing in Nine Months 2020. The remaining $167 million of short-term borrowings are contractually due in the fourth quarter of 2020, and we expect to ~~medium-term.~~repay them by year-end. The proceeds from the short-term borrowings ~~detailed in the table below, which were outstanding as of March 31, 2020,~~ were invested in high-quality money market ~~funds.~~funds, and for the most part, were made to increase liquidity and operating flexibility.

March 31, 2020

September 30, 2020

($ in thousands)

Date of

Maturity

Carrying

Amount

Fair

Value

($ in thousands)

Date of
Maturity

Carrying
Amount

Fair
Value

Financial liabilities

Short-term debt

0.78% Borrowings from FHLBNY

9/14/2020

100,000

100,096

0.68% Borrowings from FHLBNY

9/18/2020

85,000

85,039

0.36% Borrowings from FHLBNY

11/16/2020

100,000

100,005

0.58% Borrowings from FHLBI

12/14/2020

67,000

67,006

0.58% Borrowings from FHLBI

12/14/2020

67,000

67,050

2.244% Borrowings from Bank of Montreal "Line of Credit"¹

9/24/2020

50,000

—

Total short-term debt

302,000

252,141

Total short-term debt

167,000

167,055

¹
Total short-term debt includes our $50 million Line of Credit borrowing. As there is no scheduled or definitive repayment plan for this borrowing as of March 31, 2020, the fair value cannot be calculated.

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 ~~are:~~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;~~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, to allow timely decisions about required disclosure.

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 ~~First Quarter~~Nine Months 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.

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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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

As of ~~March 31,~~September 30, 2020, we have no material pending legal proceedings that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Incidental to our insurance operations, we are engaged in ordinary routine legal proceedings that, because litigation outcomes are inherently unpredictable, could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods. For additional information regarding our legal risks, refer to Note ~~14.~~13. "Litigation" in Item 1. "Financial Statements." of this Form 10-Q and Item 1A. “Risk ~~Factors”~~Factors.” below in Part II. “Other Information.”

ITEM 1A. RISK FACTORS.

~~There are certain~~Certain risk factors ~~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 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, 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. Our risk factors disclosed in Item 1A. “Risk Factors.” in our 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 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;~~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;

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•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 commerce, supply chains, and travel to varying degrees; •	~~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 certain types 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. Included in our results is the estimated impact of a $75 million return audit and mid-term endorsement premium accrual recorded in the first quarter of 2020 to reflect our estimate of reduced exposures due to the significant economic slowdown and the anticipated decline in payroll and sales exposures in the workers compensation and general liability lines of business. As of September 30, 2020, we had a remaining accrual of $41 million.

~~To help~~•In the second quarter of 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 ~~maintain insurance coverages, we are offering - sometimes in collaboration with or at~~to 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 untilextent supported by further analysis. Based on the ~~later of May 31, 2020 or the end of the grace period established by the customers’ home~~continued COVID-19-related economic impact, it is possible that state insurance ~~commissioner.~~commissioners may take other regulatory actions requiring further premium credits in commercial and personal automobile and other lines, 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.

•

In the second quarter of 2020, we are offering 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-based credit was based on a limited amount of claim's reporting data about the impact of the COVID-19-related governmental directives on miles driven, which has reduced claims frequencies. W~~e 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. S~~hould the various governmental directives be extended beyond May 31, 2020, it is possible that we will give further premium credit to our customers to the extent supported by further data. Based on the continued COVID-19-related economic impact, it is possible that state insurance commissioners may take other regulatory actions requiring premium-based 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~~continues to be 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~~•We purchase a significant amount of reinsurance, including a property catastrophe reinsurance program and property and casualty excess of loss reinsurance treaties. 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 lesser extent, in casualty treaties. Reinsurers also are seeking to exclude cybersecurity breach losses from reinsurance agreements. To the extent we are exposed to losses on our primary policies from risks, such as communicable disease or cybersecurity breaches, that may now be excluded from coverage under our existing reinsurance treaties or in future renewal periods,

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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 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 policies we sell, it will negatively impact our underwriting profitability and have a material adverse effect on our financial condition and results of operations.

•In response to the COVID-19 pandemic, there currently are various public policy debates, legislative, and ~~legislative~~regulatory proposals at both the federal and state ~~levels~~levels:

◦Certain states have proposed legislation 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.~~condition and results of operations.

◦We are aware of four future pandemic insurance proposals being discussed in Washington, D.C., only one of which has been introduced as proposed legislation. Three of the proposals provide for insurer participation and put insurer capital at risk to various degrees. If any of the proposals involving insurer at risk capital were enacted, it would have a material impact on our profitability, liquidity, and overall financial condition and results of operations.

◦Certain state insurance departments have indicated that they currently (i) will not approve the filing of rate increases related – or unrelated – to COVID-19, and (ii) are suspending, limiting, or restricting the approval or attachment of new virus-related exclusions. To the extent any of these regulatory actions do not permit us to modify our rate filings, they could have a material impact on our profitability, liquidity, and overall financial condition and results of operations.

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

•We may have increased ~~workers’~~workers compensation loss and loss expenses if ~~policyholder~~policyholders' employees in high-risk roles ~~with~~of essential businesses contracted COVID-19 in the workplace. We may experience higher frequency ~~in workers’~~of workers compensation claims, particularly ~~if any of the various~~as state legislative or executive order proposals are enacted tothat create presumptions that the contraction of COVID-19 by an essential ~~industry~~business employee who interacted with the public is work-related. We also may ~~also~~ see an extension of ~~workers'~~workers compensation benefits if employees do not have jobs to which they can return.

•We may ~~also~~ experience elevated loss frequency and severity inrelated to our liability coverages from efforts by the ~~plaintiff’s~~plaintiffs’ bar to generate COVID-19-related claim activity that impacts our policyholders.

~~Frequency~~•Loss frequency and severity could ~~also~~ increase ~~with respect~~related to our auto and property coverages due to, among other things, disruptions in supply chains and changes in business practices and individual behaviors resulting from the ~~stay-at-home~~shelter-in-place and social distancing measures, such as arson and fraud.

•Due to the COVID-19-related governmental orders, we may 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 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.

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.

Impact on our Investment Operations

•The significant equity and debt financial market volatility from the COVID-19 pandemic and the related governmental

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orders may impact our net investment income due to the following:

◦Financial market volatility is reflected in our alternative investment portfolio performance;

~~Increased~~◦A change in spreads on fixed income securities may create mark-to-market investment valuation losses and ~~reduce~~volatility in unrealized capital gains, which 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 spread widening in fixed income securities, particularly in asset classes more significantly impacted by COVID-19-related governmental directives and to which the Federal Reserve Board is providing liquidity and structural support; and

~~Inflation~~◦Economic inflation related to COVID-19 issues could be higher or lower than our expectations and impact our investment returns.

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

The following table provides information ~~regarding~~about our purchases of our common stock in ~~First~~Third Quarter ~~2020~~: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
January 1 – 31, 2020 16
$ 66.25
—
—
February 1 - 29, 2020 101,544
68.07
—
—
March 1 - 31, 2020 259
55.78
—
—
Total 101,819
$ 68.04
—
—


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, 2020	211	$	53.29	—	—
August 1 - 31, 2020	—	—		—	—
September 1 - 30, 2020	791	57.52		—	—
Total	1,002	$	56.63	—	—

¹We purchased these shares from employees to satisfy tax withholding obligations associated with the vesting of their restricted stock units.

ITEM 6. EXHIBITS.



Exhibit No.
*~~4.1~~3.1		~~Description of the Company's Securities Registered Under Section 12 of the Securities Exchange Act of 1934.~~
*10.1+	~~Amendment No. 2 to Selective Insurance Supplemental Pension Plan, As~~ Amended and Restated ~~Effective~~Certificate of Incorporation of Selective Insurance Group, Inc., filed May 4, 2020, as amended by Certificate of Correction thereto, dated August 17, 2020 and effective May 4, 2020.
*10.1+		Amended and Restated Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies (2010), Amended and Restated as of ~~January~~November 1, ~~2005.~~2020.
~~10.2+~~*11		Employment Agreement between Selective Insurance Company of America and Michael H. Lanza, dated as of March 2, 2020 (incorporated by reference herein to Exhibit 10.1 of the Company's Current Report on Form 8-K filed March 2, 2020, File No. 001-33067).
*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 ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2020, formatted in iXBRL.

* Filed herewith.

** Furnished and not filed herewith.

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SIGNATURES

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

SELECTIVE INSURANCE GROUP, INC.

Registrant


Date:		October 29, 2020	By: /s/ John J. Marchioni
			John J. Marchioni
			President and Chief Executive Officer
			(principal executive officer)

Date:		~~May 6,~~October 29, 2020	~~By: /s/ John J. Marchioni~~
		~~John J. Marchioni~~
		~~President and Chief Executive Officer~~
		~~(principal executive officer)~~

~~Date:~~	~~May 6, 2020~~	By: /s/ Mark A. Wilcox
			Mark A. Wilcox
			Executive Vice President and Chief Financial Officer
			(principal financial officer)



March 31, 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	—	(225	)	(225	)
Net realized and unrealized (losses) gains	—	—		—
Purchases	—	12,434		12,434
Sales	—	—		—
Issuances	—	—		—
Settlements	—	—		—
Transfers into Level 3	16,419	11,674		28,093
Transfers out of Level 3	—	—		—
Fair value, March 31, 2019	16,419	31,292		47,711

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



	March 31, 2020		December 31, 2019
Weighted-average remaining lease term
Operating leases	6	years	6	years
Finance leases	2		2
Weighted-average discount rate
Operating leases	3.2	%	3.4	%
Finance leases	2.2		2.1



Period	Total Number of Shares Purchased¹	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum Number of Shares that May Yet Be Purchased Under the Announced Programs
January 1 – 31, 2020	16	$	66.25	—	—
February 1 - 29, 2020	101,544	68.07		—	—
March 1 - 31, 2020	259	55.78		—	—
Total	101,819	$	68.04	—	—