Results

Selective Insurance Group Inc.

07/29/2021 | Press release | Distributed by Public on 07/29/2021 15:16

Quarterly Report (SEC Filing - 10-Q)

Table of Contents
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: June 30, 2021
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________________________to_____________________________
Commission File Number: 001-33067
SELECTIVE INSURANCE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

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

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

973 948-3000
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol (s) Name of each exchange on which registered
Common Stock, par value $2 per share SIGI The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/1,000th interest in a share of 4.60% Non-Cumulative Preferred Stock, Series B, without par value SIGIP The Nasdaq Stock Market LLC

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. YesNo

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 July 16, 2021, there were 60,107,525 shares of common stock, par value $2.00 per share, outstanding.

Table of Contents
SELECTIVE INSURANCE GROUP, INC.
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020
1
Unaudited Consolidated Statements of Income for the Quarter and Six Months Ended June 30, 2021 and 2020
2
Unaudited Consolidated Statements of Comprehensive Income for the Quarter and Six Months Ended June 30, 2021 and 2020
3
Unaudited Consolidated Statements of Stockholders' Equity for the Quarter and Six Months Ended June 30, 2021 and 2020
4
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020
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
24
Introduction
24
Critical Accounting Policies and Estimates
25
Financial Highlights of Results for Second Quarter and Six Months 2021 and 2020
26
Results of Operations and Related Information by Segment
28
Federal Income Taxes
38
Financial Condition, Liquidity, and Capital Resources
39
Ratings
41
Off-Balance Sheet Arrangements
42
Contractual Obligations, Contingent Liabilities, and Commitments
42
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
42
Item 4.
Controls and Procedures
42
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
43
Item 1A.
Risk Factors
43
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
43
Item 6.
Exhibits
44
Signatures
44

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

SELECTIVE INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
($ in thousands, except share amounts) June 30, 2021 December 31,
2020
ASSETS
Investments:
Fixed income securities, held-to-maturity - at carrying value (fair value: $27,882 - 2021; $18,001 - 2020)
$ 27,035 16,846
Less: allowance for credit losses (79) (22)
Fixed income securities, held-to-maturity, net of allowance for credit losses 26,956 16,824
Fixed income securities, available-for-sale - at fair value
(allowance for credit losses: $6,011 - 2021 and $3,969 - 2020; amortized cost: $6,311,749 - 2021 and $6,073,517 - 2020)
6,626,400 6,455,928
Commercial mortgage loans - at carrying value (fair value: $73,559 - 2021 and $47,289 - 2020)
72,034 46,306
Less: allowance for credit losses - -
Commercial mortgage loans, net of allowance for credit losses 72,034 46,306
Equity securities - at fair value (cost: $320,586 - 2021; $301,551 - 2020)
348,342 310,367
Short-term investments 351,230 409,852
Other investments 330,479 266,322
Total investments (Note 4 and 5) 7,755,441 7,505,599
Cash 450 394
Restricted cash 8,803 14,837
Interest and dividends due or accrued 46,069 45,004
Premiums receivable 1,006,250 857,014
Less: allowance for credit losses (Note 6) (18,300) (21,000)
Premiums receivable, net of allowance for credit losses 987,950 836,014
Reinsurance recoverable 598,658 589,269
Less: allowance for credit losses (Note 7) (1,777) (1,777)
Reinsurance recoverable, net of allowance for credit losses 596,881 587,492
Prepaid reinsurance premiums 177,663 170,531
Property and equipment - at cost, net of accumulated depreciation and amortization of:
$251,533 - 2021; $240,150 - 2020
75,142 77,696
Deferred policy acquisition costs 323,155 288,578
Goodwill 7,849 7,849
Other assets 188,468 153,919
Total assets $ 10,167,871 9,687,913
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserve for loss and loss expense (Note 8) $ 4,437,253 4,260,355
Unearned premiums 1,791,308 1,618,271
Long-term debt 550,881 550,743
Current federal income tax 7,451 14,021
Deferred federal income tax 10,881 27,096
Accrued salaries and benefits 103,383 114,868
Other liabilities 375,347 363,670
Total liabilities $ 7,276,504 6,949,024
Stockholders' Equity:
Preferred stock of $0 par value per share:
$ 200,000 200,000
Authorized shares 5,000,000; Issued shares: 8,000 with $25,000 liquidation preference per share - 2021 and 2020
Common stock of $2 par value per share:
Authorized shares 360,000,000
Issued: 104,371,083 - 2021; 104,032,912 - 2020
208,742 208,066
Additional paid-in capital 454,459 438,985
Retained earnings 2,467,596 2,271,537
Accumulated other comprehensive income (Note 11) 169,371 220,186
Treasury stock - at cost (shares: 44,264,847 - 2021; 44,127,109 - 2020) (Note 12)
(608,801) (599,885)
Total stockholders' equity $ 2,891,367 2,738,889
Commitments and contingencies
Total liabilities and stockholders' equity $ 10,167,871 9,687,913

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
1
Table of Contents
SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Quarter ended June 30, Six Months ended June 30,
($ in thousands, except per share amounts) 2021 2020 2021 2020
Revenues:
Net premiums earned $ 740,518 630,671 $ 1,465,478 1,282,374
Net investment income earned 83,731 34,444 153,447 90,411
Net realized and unrealized investment gains (losses) 10,057 12,649 15,176 (32,017)
Other income 6,212 4,683 10,324 6,508
Total revenues 840,518 682,447 1,644,425 1,347,276
Expenses:
Loss and loss expense incurred 421,623 403,949 835,024 804,273
Amortization of deferred policy acquisition costs 154,357 136,931 303,408 273,432
Other insurance expenses 94,862 84,601 183,772 179,947
Interest expense 7,366 7,928 14,725 15,529
Corporate expenses 9,112 6,345 18,666 15,405
Total expenses 687,320 639,754 1,355,595 1,288,586
Income before federal income tax 153,198 42,693 288,830 58,690
Federal income tax expense:
Current 32,017 (1,350) 60,441 8,536
Deferred (702) 9,860 (2,764) 735
Total federal income tax expense 31,315 8,510 57,677 9,271
Net income $ 121,883 34,183 $ 231,153 49,419
Preferred stock dividends 2,300 - 4,753 -
Net income available to common stockholders $ 119,583 34,183 $ 226,400 49,419
Earnings per common share:
Net income available to common stockholders - Basic $ 1.99 0.57 $ 3.77 0.83
Net income available to common stockholders - Diluted $ 1.98 0.57 $ 3.74 0.82
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.


2
Table of Contents
SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Net income $ 121,883 34,183 $ 231,153 49,419
Other comprehensive income (loss) ('OCI'), net of tax:
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during period 28,086 149,127 (53,527) 74,882
Unrealized gains (losses) on securities with credit loss recognized in earnings 7,888 29,608 (1,055) (22,050)
Amounts reclassified into net income:
Held-to-maturity ('HTM') securities (2) (25) (4) (5)
Net realized losses (gains) on disposals and intent-to-sell available-for-sale ('AFS') securities 46 (1,332) 523 7,616
Credit loss (benefit) expense (1,795) (3,890) 2,153 8,582
Total unrealized gains (losses) on investment securities 34,223 173,488 (51,910) 69,025
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss 548 595 1,095 1,191
Total defined benefit pension and post-retirement plans
548 595 1,095 1,191
Other comprehensive income (loss) 34,771 174,083 (50,815) 70,216
Comprehensive income $ 156,654 208,266 $ 180,338 119,635
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.


3
Table of Contents
SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter ended June 30, Six Months ended June 30,
($ in thousands, except share and per share amounts) 2021 2020 2021 2020
Preferred stock:
Beginning of period $ 200,000 - $ 200,000 -
Issuance of preferred stock - - - -
End of period 200,000 - 200,000 -
Common stock:
Beginning of period 208,576 207,665 208,066 206,968
Dividend reinvestment plan 11 16 24 30
Stock purchase and compensation plans 155 194 652 877
End of period 208,742 207,875 208,742 207,875
Additional paid-in capital:
Beginning of period 446,410 427,328 438,985 418,521
Dividend reinvestment plan 416 407 845 815
Stock purchase and compensation plans 7,633 7,284 14,629 15,683
End of period 454,459 435,019 454,459 435,019
Retained earnings:
Beginning of period, as previously reported 2,363,189 2,083,340 2,271,537 2,080,529
Cumulative effect adjustment due to adoption of guidance on allowance for credit losses, net of tax - - - 1,435
Balance at beginning of period, as adjusted 2,363,189 2,083,340 2,271,537 2,081,964
Net income 121,883 34,183 231,153 49,419
Dividends to preferred stockholders (2,300) - (4,753) -
Dividends to common stockholders (15,176) (13,894) (30,341) (27,754)
End of period 2,467,596 2,103,629 2,467,596 2,103,629
Accumulated other comprehensive income (loss) ('AOCI'):
Beginning of period 134,600 (22,117) 220,186 81,750
Other comprehensive income (loss) 34,771 174,083 (50,815) 70,216
End of period 169,371 151,966 169,371 151,966
Treasury stock:
Beginning of period (608,730) (599,760) (599,885) (592,832)
Acquisition of treasury stock - share repurchase authorization - - (3,404) -
Acquisition of treasury stock - shares acquired related to employee-share based compensation plans (71) (54) (5,512) (6,982)
End of period (608,801) (599,814) (608,801) (599,814)
Total stockholders' equity $ 2,891,367 2,298,675 $ 2,891,367 2,298,675
Dividends declared per preferred share $ 287.50 - $ 594.17 -
Dividends declared per common share $ 0.25 0.23 $ 0.50 0.46
Preferred stock, shares outstanding:
Beginning of period 8,000 - 8,000 -
Issuance of preferred stock - - - -
End of period 8,000 - 8,000 -
Common stock, shares outstanding:
Beginning of period 60,023,883 59,707,545 59,905,803 59,461,153
Dividend reinvestment plan 5,636 7,899 12,056 14,874
Stock purchase and compensation plan 77,656 97,365 326,115 438,601
Acquisition of treasury stock - share repurchase authorization - - (52,781) -
Acquisition of treasury stock - shares acquired related to employee share-based compensation plans (939) (1,067) (84,957) (102,886)
End of period 60,106,236 59,811,742 60,106,236 59,811,742

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


4
Table of Contents
SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months ended June 30,
($ in thousands) 2021 2020
Operating Activities
Net income $ 231,153 49,419
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 27,451 29,634
Stock-based compensation expense 10,927 11,198
Undistributed (gains) losses of equity method investments (34,841) 7,319
Distributions in excess of current year income of equity method investments 1,817 8,488
Net realized and unrealized (gains) losses (15,176) 32,017
Loss on disposal of fixed assets 10 17
Changes in assets and liabilities:
Increase in reserve for loss and loss expense, net of reinsurance recoverable 167,509 101,151
Increase in unearned premiums, net of prepaid reinsurance 165,905 89,705
(Decrease) increase in net federal income taxes (9,278) 8,340
Increase in premiums receivable (151,936) (44,095)
Increase in deferred policy acquisition costs (34,577) (14,269)
Increase in interest and dividends due or accrued (1,124) (934)
Decrease in accrued salaries and benefits (11,485) (44,082)
Increase in other assets (21,991) (2,753)
Decrease in other liabilities (31,912) (33,770)
Net cash provided by operating activities 292,452 197,385
Investing Activities
Purchase of fixed income securities, held-to-maturity (11,250) -
Purchase of fixed income securities, available-for-sale (1,158,017) (961,803)
Purchase of commercial mortgage loans (25,945) (17,934)
Purchase of equity securities (76,793) (73,879)
Purchase of other investments (40,286) (39,400)
Purchase of short-term investments (2,596,863) (3,368,828)
Sale of fixed income securities, available-for-sale 307,057 302,342
Proceeds from commercial mortgage loans 217 54
Sale of short-term investments 2,655,450 3,278,106
Redemption and maturities of fixed income securities, held-to-maturity 1,032 1,200
Redemption and maturities of fixed income securities, available-for-sale 629,512 461,527
Sale of equity securities 57,316 1,320
Sale of other investments 3,128 53
Distributions from other investments 6,245 7,349
Purchase of property and equipment (9,491) (12,634)
Net cash used in investing activities (258,688) (422,527)
Financing Activities
Dividends to preferred stockholders (4,753) -
Dividends to common stockholders (29,155) (26,631)
Acquisition of treasury stock (8,916) (6,982)
Net proceeds from stock purchase and compensation plans 3,790 4,731
Preferred stock issued, net of issuance costs (479) -
Proceeds from borrowings - 387,000
Repayments of borrowings - (135,000)
Repayments of finance lease obligations (229) (314)
Net cash (used in) provided by financing activities (39,742) 222,804
Net decrease in cash and restricted cash (5,978) (2,338)
Cash and restricted cash, beginning of year 15,231 7,975
Cash and restricted cash, end of period $ 9,253 5,637

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
5
Table of Contents
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. 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. 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 second quarters ended June 30, 2021 ('Second Quarter 2021') and June 30, 2020 ('Second Quarter 2020') and the six-month periods ended June 30, 2021 ('Six Months 2021') and June 30, 2020 ('Six Months 2020'). Our Financial Statements do not include all information and disclosures required by GAAP and the SEC for audited annual financial statements. Because results of operations for any interim period are not necessarily indicative of results for a full 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, 2020 ('2020 Annual Report') filed with the SEC.

NOTE 2. Adoption of Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board ('FASB') issued Accounting Standards Update ('ASU') 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes('ASU 2019-12'). Among other items, ASU 2019-12 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. ASU 2019-12 provides that all effects of a tax law change, including adjustment of the estimated annual effective tax 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. 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 limitation and an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate.

We adopted this guidance on January 1, 2021, and it did not have a material impact to our financial condition, cash flows, or results of operations.

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

6
Table of Contents
NOTE 3. Statements of Cash Flows
Supplemental cash flow information was as follows:
Six Months ended June 30,
($ in thousands) 2021 2020
Cash paid during the period for:
Interest $ 14,547 14,920
Federal income tax 66,000 -
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases 4,348 4,443
Operating cash flows from financing leases 4 10
Financing cash flows from finance leases 229 314
Non-cash items:
Corporate actions related to fixed income securities, AFS1
45,392 18,224
Corporate actions related to fixed income securities, HTM1
- 2,596
Corporate actions related to equity securities1
527 890
Assets acquired under finance lease arrangements 183 119
Assets acquired under operating lease arrangements 16 4,358
Non-cash purchase of property and equipment 35 60
1Examples of corporate actions include exchanges, non-cash acquisitions, and stock splits.

The following table reconciles cash and restricted cash reported in the Consolidated Balance Sheets with what is reported in the Consolidated Statements of Cash Flows:
($ in thousands) June 30, 2021 December 31, 2020
Cash $ 450 394
Restricted cash 8,803 14,837
Total cash and restricted cash shown in the Statements of Cash Flows $ 9,253 15,231

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) Information about our AFS securities as of June 30, 2021, and December 31, 2020, is as follows:
June 30, 2021
($ 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 $ 132,506 - 4,319 (631) 136,194
Foreign government 14,578 (49) 819 (73) 15,275
Obligations of states and political subdivisions 1,119,039 (38) 81,003 (103) 1,199,901
Corporate securities 2,325,858 (3,477) 146,061 (1,555) 2,466,887
Collateralized loan obligations ('CLO') and other asset-backed securities ('ABS') 1,266,236 (1,399) 20,110 (2,724) 1,282,223
Residential mortgage-backed securities ('RMBS')
820,650 (1,034) 35,655 (774) 854,497
Commercial mortgage-backed securities ('CMBS') 632,882 (14) 39,420 (865) 671,423
Total AFS fixed income securities $ 6,311,749 (6,011) 327,387 (6,725) 6,626,400
7
Table of Contents
December 31, 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 $ 110,038 - 6,239 (137) 116,140
Foreign government 16,801 (1) 1,569 (3) 18,366
Obligations of states and political subdivisions 1,159,588 (4) 87,564 (11) 1,247,137
Corporate securities 2,152,203 (2,782) 180,971 (2,340) 2,328,052
CLO and other ABS 1,014,820 (592) 20,166 (7,843) 1,026,551
RMBS 999,485 (561) 53,065 (201) 1,051,788
CMBS 620,582 (29) 48,348 (1,007) 667,894
Total AFS fixed income securities
$ 6,073,517 (3,969) 397,922 (11,542) 6,455,928

The following tables provide a roll forward of the allowance for credit losses on our AFS fixed income securities for the periods indicated:
Quarter ended June 30, 2021
($ 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 $ 56 - (7) - - 49
Obligations of states and political subdivisions 201 - (163) - - 38
Corporate securities 6,166 148 (2,403) (373) (61) 3,477
CLO and other ABS 1,470 - (70) (1) - 1,399
RMBS 864 3 230 (63) - 1,034
CMBS 24 4 (14) - - 14
Total AFS fixed income securities $ 8,781 155 (2,427) (437) (61) 6,011

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

Six Months ended June 30, 2021
($ 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 $ 1 49 (1) - - 49
Obligations of states and political subdivisions 4 25 9 - - 38
Corporate securities 2,782 2,185 (909) (520) (61) 3,477
CLO and other ABS 592 941 (116) (18) - 1,399
RMBS 561 618 (68) (77) - 1,034
CMBS 29 2 (17) - - 14
Total AFS fixed income securities $ 3,969 3,820 (1,102) (615) (61) 6,011





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

For information on our methodology and significant inputs used to measure expected credit losses, our accounting policy for recognizing write-offs of uncollectible amounts, and our treatment of accrued interest, refer to Note 2. 'Summary of Significant Accounting Policies' in Item 8. 'Financial Statements and Supplementary Data.' of our 2020 Annual Report. Accrued interest on AFS securities was $44.9 million as of June 30, 2021, and $43.8 million as of December 31, 2020. We did not record any write-offs during 2021 or 2020.

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

June 30, 2021 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 $ 17,582 (631) - - 17,582 (631)
Foreign government 3,122 (73) - - 3,122 (73)
Obligations of states and political subdivisions 7,222 (103) - - 7,222 (103)
Corporate securities 84,676 (880) 6,163 (675) 90,839 (1,555)
CLO and other ABS 415,284 (1,699) 71,126 (1,025) 486,410 (2,724)
RMBS 84,141 (774) - - 84,141 (774)
CMBS 54,258 (704) 14,511 (161) 68,769 (865)
Total AFS fixed income securities $ 666,285 (4,864) 91,800 (1,861) 758,085 (6,725)

December 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:
U.S. government and government agencies $ 11,519 (137) - - 11,519 (137)
Foreign government 1,122 (3) - - 1,122 (3)
Obligations of states and political subdivisions 2,223 (11) - - 2,223 (11)
Corporate securities 65,187 (2,152) 2,400 (188) 67,587 (2,340)
CLO and other ABS 261,746 (2,995) 165,661 (4,848) 427,407 (7,843)
RMBS 18,227 (194) 1,181 (7) 19,408 (201)
CMBS 55,482 (616) 16,093 (391) 71,575 (1,007)
Total AFS fixed income securities $ 415,506 (6,108) 185,335 (5,434) 600,841 (11,542)

We do not currently intend to sell any of the securities in the tables above, nor will we be required to sell any of these securities. The decrease in gross unrealized losses during Six Months 2021 was driven by an increase in longer-dated benchmark United States Treasury rates, partially offset by the tightening of credit spreads. Considering these factors and our review of these securities under our credit loss policy as described in Note 2. 'Summary of Significant Accounting Policies' in Item 8. 'Financial Statements and Supplementary Data.' of our 2020 Annual Report, we have concluded that no allowance for credit loss is required on these balances. 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.

9
Table of Contents
(c) Fixed income securities at June 30, 2021 are summarized 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
($ in thousands) Fair Value Carrying Value Fair Value
Due in one year or less $ 537,130 1,032 1,033
Due after one year through five years 3,365,039 14,971 15,808
Due after five years through 10 years 2,109,060 10,953 11,041
Due after 10 years 615,171 - -
Total fixed income securities $ 6,626,400 26,956 27,882

(d) The following table summarizes our other investment portfolio by strategy:
Other Investments June 30, 2021 December 31, 2020
($ in thousands) Carrying Value Remaining Commitment
Maximum Exposure to Loss1
Carrying Value Remaining Commitment
Maximum Exposure to Loss1
Alternative Investments
Private equity $ 218,385 110,998 329,383 157,276 100,905 258,181
Private credit 58,674 96,132 154,806 54,017 98,330 152,347
Real assets 19,970 15,773 35,743 19,659 16,493 36,152
Total alternative investments 297,029 222,903 519,932 230,952 215,728 446,680
Other securities 33,450 - 33,450 35,370 - 35,370
Total other investments $ 330,479 222,903 553,382 266,322 215,728 482,050
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 stated above, but we do not have a material 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 2021 or 2020.

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 and report results to us on a one-quarter lag. The following table provides (i) the gross summarized financial statement information for these investments for the three and six-months ended March 31, and (ii) the portion of these results that are included in our Second Quarter and Six Months results:
Income Statement Information Quarter ended June 30, Six Months ended June 30,
($ in millions) 2021 2020 2021 2020
Net investment income $ 8.4 (3.1) $ 490.0 9.6
Realized gains 1,392.5 179.0 2,168.6 343.8
Net change in unrealized appreciation 4,948.9 (2,862.9) 9,579.7 (1,658.9)
Net income $ 6,349.8 (2,687.0) $ 12,238.3 (1,305.5)
Insurance Subsidiaries' alternative investments income $ 29.9 (16.0) $ 50.1 (9.7)

(e) Certain Insurance Subsidiaries, as members of the Federal Home Loan Bank of Indianapolis ('FHLBI') and the Federal Home Loan Bank of New York ('FHLBNY'), have pledged certain AFS fixed income securities as collateral. Additionally, to comply with insurance laws, certain Insurance Subsidiaries have deposited certain securities with various state and regulatory agencies at June 30, 2021. We retain all rights regarding all securities pledged as collateral. The following table summarizes the market value of these securities at June 30, 2021:
($ in millions) FHLBI Collateral FHLBNY Collateral State and
Regulatory Deposits
Total
U.S. government and government agencies $ - - 21.6 21.6
Obligations of states and political subdivisions - - 5.0 5.0
RMBS 78.5 48.9 - 127.4
CMBS 6.7 15.6 - 22.3
Total pledged as collateral $ 85.2 64.5 26.6 176.3

(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 June 30, 2021, or December 31, 2020.
10
Table of Contents
(g) The components of pre-tax net investment income earned were as follows:
Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Fixed income securities $ 52,608 51,079 $ 105,431 101,332
Commercial mortgage loans ('CMLs') 695 156 1,209 218
Equity securities 2,982 2,023 5,470 3,575
Short-term investments 55 420 140 1,586
Other investments 32,860 (15,846) 50,293 (9,504)
Investment expenses (5,469) (3,388) (9,096) (6,796)
Net investment income earned $ 83,731 34,444 $ 153,447 90,411
The increase in net investment income earned in Second Quarter 2021 and Six Months 2021 compared to the prior year periods were driven by the alternative investments in our other investments portfolio. The results reflect the improvement in the equity markets in the three and six-month periods ending March 31, 2021, as our results on these holdings are recorded on a one-quarter lag.

(h) The following table summarizes net realized and unrealized gains and losses for the periods indicated:
Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Gross gains on sales $ 2,079 6,478 $ 5,755 12,151
Gross losses on sales (1,811) (3,863) (6,282) (5,436)
Net realized gains (losses) on disposals 268 2,615 (527) 6,715
Net unrealized gains (losses) on equity securities 7,661 5,701 18,941 (11,436)
Net credit loss benefit (expense) on fixed income securities, AFS 2,272 4,923 (2,725) (10,864)
Net credit loss (expense) benefit on fixed income securities, HTM (53) 1 (60) 1
Net credit loss benefit (expense) on CMLs - 22 - (218)
Losses on securities for which we have the intent to sell (91) (613) (453) (16,215)
Net realized and unrealized gains (losses) $ 10,057 12,649 $ 15,176 (32,017)

Unrealized gains (losses) recognized in income on equity securities, as reflected in the table above, include the following:
Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Unrealized gains (losses) recognized in income on equity securities:
On securities remaining in our portfolio at period end $ 7,458 5,701 $ 16,942 (11,439)
On securities sold during period 203 - 1,999 3
Total unrealized gains (losses) recognized in income on equity securities $ 7,661 5,701 $ 18,941 (11,436)

The improvement in net realized and unrealized gains in Six Months 2021 as compared to Six Months 2020 was primarily driven by (i) unrealized gains on our equity securities compared to unrealized losses last year, which were driven by COVID-19-related market disruption, and (ii) lower intent-to-sell losses as we provided our investment managers significant trading flexibility last year given market conditions.

11
Table of Contents
NOTE 5. Fair Value Measurements
The financial assets in our investment portfolio are primarily measured at fair value as disclosed on the Consolidated Balance Sheets. The following table presents the carrying amounts and estimated fair values of our financial liabilities as of June 30, 2021 and December 31, 2020:
June 30, 2021 December 31, 2020
($ in thousands) Carrying Amount Fair Value Carrying Amount Fair Value
Financial Liabilities
Long-term debt:
7.25% Senior Notes $ 49,915 64,485 49,914 66,148
6.70% Senior Notes 99,509 124,997 99,499 127,886
5.375% Senior Notes 294,285 372,432 294,241 383,669
1.61% borrowings from FHLBNY 25,000 25,026 25,000 25,182
1.56% borrowings from FHLBNY 25,000 25,050 25,000 25,198
3.03% borrowings from FHLBI 60,000 65,549 60,000 67,513
Subtotal long-term debt 553,709 677,539 553,654 695,596
Unamortized debt issuance costs (3,291) (3,419)
Finance lease obligations 463 508
Total long-term debt $ 550,881 550,743

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 2020 Annual Report.

The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at June 30, 2021, and December 31, 2020:
June 30, 2021 Fair Value Measurements Using
($ in thousands) Assets
Measured 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)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies $ 136,194 59,569 76,625 -
Foreign government 15,275 - 15,275 -
Obligations of states and political subdivisions 1,199,901 - 1,191,919 7,982
Corporate securities 2,466,887 - 2,376,482 90,405
CLO and other ABS 1,282,223 - 1,211,486 70,737
RMBS 854,497 - 854,497 -
CMBS 671,423 - 671,423 -
Total AFS fixed income securities 6,626,400 59,569 6,397,707 169,124
Equity securities:
Common stock1
346,232 260,971 - -
Preferred stock 2,110 2,110 - -
Total equity securities 348,342 263,081 - -
Short-term investments 351,230 351,133 97 -
Total assets measured at fair value $ 7,325,972 673,783 6,397,804 169,124

12
Table of Contents
December 31, 2020 Fair Value Measurements Using
($ in thousands) Assets
Measured 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)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies $ 116,140 40,960 75,180 -
Foreign government 18,366 - 18,366 -
Obligations of states and political subdivisions 1,247,137 - 1,244,243 2,894
Corporate securities 2,328,052 - 2,257,352 70,700
CLO and other ABS 1,026,551 - 970,176 56,375
RMBS 1,051,788 - 1,051,788 -
CMBS 667,894 - 667,894 -
Total AFS fixed income securities 6,455,928 40,960 6,284,999 129,969
Equity securities:
Common stock1
308,632 261,846 - -
Preferred stock 1,735 1,735 - -
Total equity securities 310,367 263,581 - -
Short-term investments 409,852 405,400 4,452 -
Total assets measured at fair value $ 7,176,147 709,941 6,289,451 129,969
1Investments amounting to $85.3 million at June 30, 2021, and $46.8 million at December 31, 2020, 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. The fair value amounts in this table enables reconciliation of the fair value hierarchy to total assets measured at fair value.

The following table provides a summary of Level 3 changes in Six Months 2021 and Six Months 2020:
June 30, 2021
($ in thousands) Obligations of States and Political Subdivisions Corporate Securities CLO and Other ABS Total
Fair value, December 31, 2020 $ 2,894 70,700 56,375 129,969
Total net (losses) gains for the period included in:
OCI (13) 1,899 396 2,282
Net realized and unrealized (losses) gains - 11 (82) (71)
Net investment income earned - 13 6 19
Purchases - 25,403 17,639 43,042
Sales - - - -
Issuances - - - -
Settlements - (167) (1,429) (1,596)
Transfers into Level 3 5,101 - 3,226 8,327
Transfers out of Level 3 - (7,454) (5,394) (12,848)
Fair value, June 30, 2021 $ 7,982 90,405 70,737 169,124
Change in unrealized (losses) gains for the period included in earnings for assets held at period end - 11 (82) (71)
Change in unrealized gains (losses) for the period included in OCI for assets held at period end (13) 1,899 396 2,282

13
Table of Contents
June 30, 2020
($ in thousands) Obligation of state 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 (111) (1,770) (367) (2,248)
Net realized and unrealized (losses) gains - (384) (349) (733)
Net investment income earned - - 1 1
Purchases - 3,002 9,690 12,692
Sales - - - -
Issuances - - - -
Settlements - (138) (1,032) (1,170)
Transfers into Level 3 2,890 4,592 20,107 27,589
Transfers out of Level 3 - - (9,924) (9,924)
Fair value, June 30, 2020 $ 2,779 22,353 35,160 60,292
Change in unrealized gains (losses) for the period included in earnings for assets held at period end - (384) (349) (733)
Change in unrealized gains (losses) for the period included in OCI for assets held at period end (111) (1,770) (367) (2,248)

The following tables provide quantitative information regarding our financial assets and liabilities that were disclosed at fair value at June 30, 2021, and December 31, 2020:
June 30, 2021 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 $ 4,665 - 4,665 -
Corporate securities 23,217 - 23,217 -
Total HTM fixed income securities $ 27,882 - 27,882 -
CMLs $ 73,559 - - 73,559
Financial Liabilities
Long-term debt:
7.25% Senior Notes $ 64,485 - 64,485 -
6.70% Senior Notes 124,997 - 124,997 -
5.375% Senior Notes 372,432 - 372,432 -
1.61% borrowings from FHLBNY 25,026 - 25,026 -
1.56% borrowings from FHLBNY 25,050 - 25,050 -
3.03% borrowings from FHLBI 65,549 - 65,549 -
Total long-term debt $ 677,539 - 677,539 -
14
Table of Contents
December 31, 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)
Financial Assets
HTM:
Obligations of states and political subdivisions $ 4,795 - 4,795 -
Corporate securities 13,206 - 13,206 -
Total HTM fixed income securities $ 18,001 - 18,001 -
CMLs $ 47,289 - - 47,289
Financial Liabilities
Long-term debt:
7.25% Senior Notes $ 66,148 - 66,148 -
6.70% Senior Notes 127,886 - 127,886 -
5.375% Senior Notes 383,669 - 383,669 -
1.61% borrowings from FHLBNY 25,182 - 25,182 -
1.56% borrowings from FHLBNY 25,198 - 25,198 -
3.03% borrowings from FHLBI 67,513 - 67,513 -
Total long-term debt $ 695,596 - 695,596 -

NOTE 6. Allowance for Credit Losses on Premiums Receivable
The following table provides a roll forward of the allowance for credit losses on our premiums receivable balance for the periods indicated:
Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Balance at beginning of period $ 21,000 $ 18,000 $ 21,000 $ 6,400
Cumulative effect adjustment1
- - - 1,058
Balance at beginning of period, as adjusted $ 21,000 $ 18,000 $ 21,000 $ 7,458
Current period provision for expected credit losses 733 4,597 1,541 15,792
Write-offs charged against the allowance for credit losses (3,526) (1,597) (4,400) (2,250)
Recoveries 93 - 159 -
Allowance for credit losses, end of period $ 18,300 $ 21,000 $ 18,300 $ 21,000
1Represents the impact of our adoption of ASU 2016-13, Financial Instruments - Credit Losses.

In Six 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 the first quarter of 2020 and (ii) the impact of certain state regulations that provided for deferral of payments without cancellation for a period up to 90 days and increased earned but uncollected premiums. The billing accommodations included individualized payment flexibility and suspending the effect of policy cancellations, late payment notices, and late or reinstatement fees. The heightened credit risk experienced in 2020 led us to increase the allowance for credit losses to $21.0 million in Second Quarter 2020. During Second Quarter 2021, we realized a portion of the anticipated write-offs, which reduced our allowance. The reduction was partially offset by the additional provision established on current-year premiums, which resulted in the ending allowance of $18.3 million.

15
Table of Contents
NOTE 7. 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 tables provide (i) a disaggregation of our reinsurance recoverable balance by financial strength rating and (ii) an aging analysis of our past due reinsurance recoverable balances as of June 30, 2021, and December 31, 2020:
June 30, 2021
($ in thousands) Current Past Due Total Reinsurance Recoverables
Financial strength rating of rated reinsurers
A++ $ 40,382 $ 14 $ 40,396
A+ 357,328 2,554 359,882
A 105,600 87 105,687
A- 2,054 - 2,054
B++ 135 244 379
B+ - - -
Total rated reinsurers $ 505,499 $ 2,899 $ 508,398
Non-rated reinsurers
Federal and state pools $ 86,512 $ - $ 86,512
Other than federal and state pools 3,474 274 3,748
Total non-rated reinsurers $ 89,986 $ 274 $ 90,260
Total reinsurance recoverable, gross $ 595,485 $ 3,173 $ 598,658
Less: allowance for credit losses1
(1,777)
Total reinsurance recoverable, net $ 596,881

December 31, 2020
($ in thousands) Current Past Due Total Reinsurance Recoverables
Financial strength rating of rated reinsurers
A++ $ 37,464 $ 102 $ 37,566
A+ 354,846 2,452 357,298
A 105,652 415 106,067
A- 2,139 - 2,139
B++ 56 324 380
B+ - - -
Total rated reinsurers $ 500,157 $ 3,293 $ 503,450
Non-rated reinsurers
Federal and state pools $ 82,575 $ - $ 82,575
Other than federal and state pools 2,676 568 3,244
Total non-rated reinsurers $ 85,251 $ 568 $ 85,819
Total reinsurance recoverable, gross $ 585,408 $ 3,861 $ 589,269
Less: allowance for credit losses1
(1,777)
Total reinsurance recoverable, net $ 587,492
1Represents our current expectation of credit losses on total current and past due reinsurance recoverables, and is not identifiable by reinsurer.

For a discussion of the methodology used to evaluate our estimate of expected credit losses, refer to Note 2. 'Summary of Significant Accounting Policies' in Item 8. 'Financial Statements and Supplementary Data.' of our 2020 Annual Report.

16
Table of Contents
The following table provides a rollforward of the allowance for credit losses on our reinsurance recoverable balance for the periods indicated:
($ in thousands) Quarter ended June 30, Six Months ended June 30,
2021 2020 2021 2020
Balance at beginning of period $ 1,840 1,502 $ 1,777 4,400
Cumulative effect adjustment1
- - - (2,903)
Balance at beginning of period, as adjusted $ 1,840 1,502 $ 1,777 1,497
Current period provision for expected credit losses (63) 894 - 899
Write-offs charged against the allowance for credit losses - - - -
Recoveries - - - -
Allowance for credit losses, end of period $ 1,777 2,396 $ 1,777 2,396
1Represents the impact of our adoption of ASU 2016-13, Financial Instruments - Credit Losses.

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 about reinsurance, refer to Note 9. 'Reinsurance' in Item 8. 'Financial Statements and Supplementary Data.' of our 2020 Annual Report.
Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Premiums written:
Direct $ 954,770 834,643 $ 1,863,544 1,581,074
Assumed 4,872 6,410 10,405 12,453
Ceded (126,437) (116,301) (242,566) (221,448)
Net $ 833,205 724,752 $ 1,631,383 1,372,079
Premiums earned:
Direct $ 853,456 733,647 $ 1,690,825 1,488,538
Assumed 4,411 6,055 10,087 12,228
Ceded (117,349) (109,031) (235,434) (218,392)
Net $ 740,518 630,671 $ 1,465,478 1,282,374
Loss and loss expenses incurred:
Direct $ 460,073 451,013 $ 901,580 876,808
Assumed 3,217 4,300 6,664 9,198
Ceded (41,667) (51,364) (73,220) (81,733)
Net $ 421,623 403,949 $ 835,024 804,273

Direct premiums written ('DPW') increased $120.1 million, or 14%, in Second Quarter 2021 compared to Second Quarter 2020. The increase included three percentage points from the COVID-19-related $19.7 million premium credit to our personal and commercial automobile policyholders in Second Quarter 2020. This premium credit to customers with in-force polices was equivalent to 15% of their April and May 2020 premiums.

Additionally, DPW increased $282.5 million, or 18%, in Six Months 2021 compared to Six Months 2020 resulted from (i) overall renewal pure price increases, (ii) new business growth, and (iii) strong retention. This increase also included seven percentage points from the $75.0 million return audit and endorsement premium accrual that was recorded in the first quarter of 2020 and the premium credit mentioned above. This accrual reflected lower exposure levels, which determine the premium we charge, attributable to the economic impacts of the COVID-19 pandemic and the anticipated decline in sales and payroll exposures on the general liability and workers compensation lines of business.

Ceded premiums written, ceded premiums earned, and ceded loss and loss expenses incurred related to our participation in the NFIP, to which we cede 100% of our flood premiums, losses, and loss expenses, were as follows:
Ceded to NFIP Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Ceded premiums written $ (75,081) (74,187) $ (140,823) (136,274)
Ceded premiums earned (66,833) (67,369) (134,352) (134,230)
Ceded loss and loss expenses incurred (18,941) (12,991) (21,148) (18,087)

17
Table of Contents
NOTE 8. Reserve for Loss and Loss Expense
The table below provides a roll forward of reserve for loss and loss expense balances:
Six Months ended June 30,
($ in thousands) 2021 2020
Gross reserve for loss and loss expense, at beginning of year $ 4,260,355 4,067,163
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year1
554,269 547,066
Net reserve for loss and loss expense, at beginning of year 3,706,086 3,520,097
Incurred loss and loss expense for claims occurring in the:
Current year 886,801 825,201
Prior years (51,777) (20,928)
Total incurred loss and loss expense 835,024 804,273
Paid loss and loss expense for claims occurring in the:
Current year 227,505 221,422
Prior years 455,919 479,736
Total paid loss and loss expense 683,424 701,158
Net reserve for loss and loss expense, at end of period 3,857,686 3,623,212
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period 579,567 553,694
Gross reserve for loss and loss expense at end of period $ 4,437,253 4,176,906
1Six Months 2020 includes an adjustment of $2.9 million related to our adoption of ASU 2016-13, Financial Instruments - Credit Losses.

Prior year reserve development in Six Months 2021 was favorable by $51.8 million, which included $52.0 million of casualty reserve development. The favorable casualty reserve development included $25.0 million in our general liability line of business, $20.0 million in our workers compensation line of business, and $7.0 million in our Excess and Surplus ('E&S') casualty lines of business.

Prior year reserve development in Six Months 2020 was favorable by $20.9 million, which included $25.0 million of casualty reserve development, partially offset by $4.1 million of unfavorable property reserve development. The favorable casualty reserve development included $25 million in our workers compensation line of business and $10 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.

NOTE 9. Segment Information
We evaluate the results of our four 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 each segment's results, we do not make adjustments for interest expense or corporate expenses, nor do we allocate assets.

18
Table of Contents
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 June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Standard Commercial Lines:
Net premiums earned:
Commercial property $ 106,113 95,413 $ 208,923 189,282
Workers compensation 74,337 61,906 152,527 128,612
General liability 197,293 163,273 390,813 327,853
Commercial automobile 178,028 138,535 349,909 288,225
Businessowners' policies 29,311 27,516 57,938 54,552
Bonds 8,993 9,210 17,586 18,849
Other 5,679 5,151 11,199 10,211
Miscellaneous income 5,795 4,195 9,502 5,586
Total Standard Commercial Lines revenue 605,549 505,199 1,198,397 1,023,170
Standard Personal Lines:
Net premiums earned:
Personal automobile 41,009 38,189 82,402 80,676
Homeowners 30,570 31,652 61,168 63,142
Other 1,714 1,792 3,544 3,943
Miscellaneous income 417 488 822 922
Total Standard Personal Lines revenue 73,710 72,121 147,936 148,683
E&S Lines:
Net premiums earned:
Casualty lines 47,642 42,722 91,475 86,794
Property lines 19,829 15,312 37,994 30,235
Total E&S Lines revenue 67,471 58,034 129,469 117,029
Investments:
Net investment income 83,731 34,444 153,447 90,411
Net realized and unrealized investment gains (losses) 10,057 12,649 15,176 (32,017)
Total Investments revenue 93,788 47,093 168,623 58,394
Total revenues $ 840,518 682,447 $ 1,644,425 1,347,276

Income Before and After Federal Income Tax Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Standard Commercial Lines:
Underwriting gain, before federal income tax $ 67,938 16,730 $ 137,437 33,856
Underwriting gain, after federal income tax 53,671 13,217 108,575 26,747
Combined ratio 88.7 % 96.7 88.4 96.7
ROE contribution 8.2 2.4 8.3 2.4
Standard Personal Lines:
Underwriting gain (loss), before federal income tax $ 5,644 (6,325) $ 13,339 (5,938)
Underwriting gain (loss), after federal income tax 4,459 (4,997) 10,538 (4,691)
Combined ratio 92.3 % 108.8 90.9 104.0
ROE contribution 0.7 (0.9) 0.8 (0.4)
E&S Lines:
Underwriting gain (loss), before federal income tax $ 2,306 (532) $ 2,822 3,312
Underwriting gain (loss), after federal income tax 1,822 (420) 2,229 2,616
Combined ratio 96.6 % 100.9 97.8 97.2
ROE contribution 0.3 (0.1) 0.2 0.2
Investments:
Net investment income $ 83,731 34,444 $ 153,447 90,411
Net realized and unrealized investment gains (losses) 10,057 12,649 15,176 (32,017)
Total investment segment income, before federal income tax 93,788 47,093 168,623 58,394
Tax on investment segment income 18,402 8,558 32,850 9,662
Total investment segment income, after federal income tax $ 75,386 38,535 $ 135,773 48,732
ROE contribution of after-tax net investment income 10.3 5.2 9.5 6.6

19
Table of Contents
Reconciliation of Segment Results to Income Before Federal Income Tax Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Underwriting gain
Standard Commercial Lines $ 67,938 16,730 $ 137,437 33,856
Standard Personal Lines 5,644 (6,325) 13,339 (5,938)
E&S Lines 2,306 (532) 2,822 3,312
Investment income 93,788 47,093 168,623 58,394
Total all segments 169,676 56,966 322,221 89,624
Interest expense (7,366) (7,928) (14,725) (15,529)
Corporate expenses (9,112) (6,345) (18,666) (15,405)
Income, before federal income tax $ 153,198 42,693 $ 288,830 58,690
Preferred stock dividends (2,300) - (4,753) -
Income available to common stockholders, before federal income tax $ 150,898 42,693 $ 284,077 58,690

NOTE 10. Retirement Plans
The primary pension plan for our employees is the Retirement Income Plan for Selective Insurance Company of America (the 'Pension Plan'). Selective Insurance Company of America ('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 about SICA's retirement plans, see Note 15. 'Retirement Plans' in Item 8. 'Financial Statements and Supplementary Data.' of our 2020 Annual Report.

The following tables provide information about the Pension Plan:
Pension Plan Pension Plan
Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Net Periodic Pension Cost (Benefit):
Interest cost $ 2,149 2,828 $ 4,297 5,656
Expected return on plan assets (5,744) (5,476) (11,488) (10,953)
Amortization of unrecognized net actuarial loss 625 704 1,250 1,408
Total net periodic pension cost (benefit)1
$ (2,970) (1,944) $ (5,941) (3,889)
1The components of net periodic pension cost (benefit) are included within 'Loss and loss expense incurred' and 'Other insurance expenses' on the Consolidated Statements of Income.

Pension Plan
Six Months ended June 30,
2021 2020
Weighted-Average Expense Assumptions:
Discount rate 2.68 % 3.33 %
Effective interest rate for calculation of interest cost 2.06 2.95
Expected return on plan assets 5.40 5.80
20
Table of Contents

NOTE 11. Comprehensive Income
The following are the components of comprehensive income, both gross and net of tax, for Second Quarter and Six Months 2021 and 2020:
Second Quarter 2021
($ in thousands) Gross Tax Net
Net income $ 153,198 31,315 121,883
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period 35,553 7,467 28,086
Unrealized gains on securities with credit loss recognized in earnings 9,985 2,097 7,888
Amounts reclassified into net income:
HTM securities (3) (1) (2)
Net realized losses on disposals and losses on intent-to-sell AFS securities 58 12 46
Credit loss benefit (2,272) (477) (1,795)
Total unrealized gains on investment securities 43,321 9,098 34,223
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss 693 145 548
Total defined benefit pension and post-retirement plans 693 145 548
Other comprehensive income 44,014 9,243 34,771
Comprehensive income $ 197,212 40,558 156,654
Second Quarter 2020
($ in thousands) Gross Tax Net
Net income $ 42,693 8,510 34,183
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period 188,768 39,641 149,127
Unrealized gains on securities with credit loss recognized in earnings 37,479 7,871 29,608
Amounts reclassified into net income:
HTM securities (31) (6) (25)
Net realized gains on disposals and losses on intent-to-sell AFS securities (1,686) (354) (1,332)
Credit loss benefit (4,924) (1,034) (3,890)
Total unrealized gains on investment securities 219,606 46,118 173,488
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss 753 158 595
Total defined benefit pension and post-retirement plans 753 158 595
Other comprehensive income 220,359 46,276 174,083
Comprehensive income $ 263,052 54,786 208,266

21
Table of Contents
Six Months 2021
($ in thousands) Gross Tax Net
Net income $ 288,830 57,677 231,153
Components of OCI:
Unrealized losses on investment securities:
Unrealized holding losses during the period (67,755) (14,228) (53,527)
Unrealized losses on securities with credit loss recognized in earnings (1,335) (280) (1,055)
Amounts reclassified into net income:
HTM securities (5) (1) (4)
Net realized losses on disposals and losses on intent-to-sell AFS securities 662 139 523
Credit loss expense 2,725 572 2,153
Total unrealized losses on investment securities (65,708) (13,798) (51,910)
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss 1,386 291 1,095
Total defined benefit pension and post-retirement plans 1,386 291 1,095
Other comprehensive loss (64,322) (13,507) (50,815)
Comprehensive income $ 224,508 44,170 180,338
Six Months 2020
($ in thousands) Gross Tax Net
Net income $ 58,690 9,271 49,419
Components of OCI:
Unrealized gains on investment securities:
Unrealized holding gains during the period 94,787 19,905 74,882
Unrealized losses on securities with credit loss recognized in earnings (27,911) (5,861) (22,050)
Amounts reclassified into net income:
HTM securities (6) (1) (5)
Net realized losses on disposals and losses on intent-to-sell AFS securities 9,641 2,025 7,616
Credit loss expense 10,863 2,281 8,582
Total unrealized gains on investment securities 87,374 18,349 69,025
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial loss 1,507 316 1,191
Total defined benefit pension and post-retirement plans 1,507 316 1,191
Other comprehensive income 88,881 18,665 70,216
Comprehensive income $ 147,571 27,936 119,635

The following are the balances and changes in each component of AOCI (net of taxes) as of June 30, 2021:
June 30, 2021 Defined Benefit
Pension and Post-Retirement Plans
Net Unrealized (Losses) Gains on Investment Securities Total AOCI
($ in thousands)
Credit Loss Related1
HTM
Related
All
Other
Investments
Subtotal
Balance, December 31, 2020 $ (2,546) 6 307,790 305,250 (85,064) 220,186
OCI before reclassifications (1,055) - (53,527) (54,582) - (54,582)
Amounts reclassified from AOCI 2,153 (4) 523 2,672 1,095 3,767
Net current period OCI 1,098 (4) (53,004) (51,910) 1,095 (50,815)
Balance, June 30, 2021 $ (1,448) 2 254,786 253,340 (83,969) 169,371
1Represents change in unrealized loss on securities with credit loss recognized in earnings.




22
Table of Contents
The reclassifications out of AOCI were as follows:
Quarter ended June 30, Six Months ended June 30, Affected Line Item in the Unaudited Consolidated Statements of Income
($ in thousands) 2021 2020 2021 2020
HTM related
Unrealized losses on HTM disposals $ - - $ - 1 Net realized and unrealized investment gains (losses)
Amortization of net unrealized gains on HTM securities (3) (31) (5) (7) Net investment income earned
(3) (31) (5) (6) Income before federal income tax
1 6 1 1 Total federal income tax expense
(2) (25) (4) (5) Net income
Net realized losses (gains) on disposals and intent-to-sell AFS securities
Net realized losses (gains) on disposals and intent-to-sell AFS securities 58 (1,686) 662 9,641 Net realized and unrealized investment gains (losses)
58 (1,686) 662 9,641 Income before federal income tax
(12) 354 (139) (2,025) Total federal income tax expense
46 (1,332) 523 7,616 Net income
Credit loss related
Credit loss (benefit) expense (2,272) (4,924) 2,725 10,863 Net realized and unrealized investment gains (losses)
(2,272) (4,924) 2,725 10,863 Income before federal income tax
477 1,034 (572) (2,281) Total federal income tax expense
(1,795) (3,890) 2,153 8,582 Net income
Defined benefit pension and post-retirement life plans
Net actuarial loss 160 162 319 324 Loss and loss expense incurred
533 591 1,067 1,183 Other insurance expenses
Total defined benefit pension and post-retirement life 693 753 1,386 1,507 Income before federal income tax
(145) (158) (291) (316) Total federal income tax expense
548 595 1,095 1,191 Net income
Total reclassifications for the period $ (1,203) (4,652) $ 3,767 17,384 Net income

NOTE 12. Equity
On December 2, 2020, we announced that our Board of Directors authorized a $100 million share repurchase program, which has no set expiration or termination date. Our repurchase program does not obligate us to acquire any particular amount of our common stock, and the repurchase program may be suspended or discounted at any time at our discretion. The timing and amount of any share repurchases under the authorization will be determined by management at its discretion based on market conditions and other considerations. As of June 30, 2021, 52,781 shares were repurchased under the share repurchase program at a total cost of $3.4 million. These repurchases were all completed in the first quarter of 2021, and we did not repurchase any shares under our share repurchase program in Second Quarter 2021. We have $96.6 million of remaining capacity under our share repurchase program.

NOTE 13. Litigation
As of June 30, 2021, 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 (i) liability insurers defending or providing indemnity for third-party claims brought against our customers, (ii) insurers defending first-party coverage claims brought against 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. 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 ('Virus Exclusion'). Whether COVID-19-related contamination, the existence of the COVID-19 pandemic, and the resulting
23
Table of Contents
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 is the subject of first-party coverage litigation against some insurers, including us. We cannot predict the outcome of litigation over these two coverage issues, including interpretation of provisions similar or identical to 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 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 14. Subsequent Events
On July 21, 2021, we repaid our $25 million 1.61% borrowing from the FHLBNY.

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.' 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 or 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.

For more details about these segments, refer to Note 9. 'Segment Information' in Item 1. 'Financial Statements.' of this Form 10-Q and Note 12. 'Segment Information' in Item 8. 'Financial Statements and Supplementary Data.' of our Annual Report on Form 10-K for the year ended December 31, 2020 ('2020 Annual Report').

We write our Standard Commercial and Standard Personal Lines products and services through nine of our insurance subsidiaries, some of which participate in the federal government's National Flood Insurance Program's ('NFIP') Write Your Own Program ('WYO'). We write our E&S products 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.'
24
Table of Contents
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 2020 Annual Report filed with the U.S. Securities and Exchange Commission.
In the MD&A, we will discuss and analyze the following:

Critical Accounting Policies and Estimates;
Financial Highlights of Results for the second quarters ended June 30, 2021 ('Second Quarter 2021') and June 30, 2020 ('Second Quarter 2020') and the six-month periods ended June 30, 2021 ('Six Months 2021') and June 30, 2020 ('Six Months 2020');
Results of Operations and Related Information by Segment;
Federal Income Taxes;
Financial Condition, Liquidity, and Capital Resources;
Ratings;
Off-Balance Sheet Arrangements; and
Contractual Obligations, Contingent Liabilities, and Commitments.

Critical Accounting Policies and Estimates
Our unaudited interim consolidated financial statements include amounts 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 2020 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) investment valuation and the allowance for credit losses on available-for-sale ('AFS') fixed income securities; (iii) reinsurance; (iv) allowance for credit losses on premiums receivable, and (v) the accrual for auditable premium. These estimates and judgments require the use of assumptions about matters that are highly uncertain, and therefore are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.

We have made no material changes in the critical accounting policies disclosed on pages 37 through 46 of our 2020 Annual Report. There were no material changes to the following estimates in Second Quarter 2021: (i) reinsurance; and (ii) the allowance for credit losses on premiums receivable.

The following estimates materially changed in Second Quarter 2021:
Investment valuation and the allowance for credit losses on AFS fixed income securities - See Note 4. 'Investments' and Note 5. 'Fair Value Measurements' in Item 1. 'Financial Statements.' of this Form 10-Q;
Reserve for loss and loss expense - See Note 8. 'Reserve for Loss and Loss Expense' in Item 1. 'Financial Statements.' of this Form 10-Q; and
Accrual for auditable premium - In the first quarter of 2020, we recorded a $75 million return audit and mid-term endorsement premium accrual in response to the COVID-19 pandemic and the anticipated decline in payroll and sales exposures on the workers compensation and general liability lines of business. The remaining accrual was $24.8 million as of December 31, 2020. During Six Months 2021, we applied premium adjustments for audits, fully exhausting this accrual as of June 30, 2021. Since April 2020, through active engagement among our underwriters, insureds, and distribution partners, we have established exposure levels to reflect our best estimate of how the current environment may impact our policies. As a result, we do not have material accruals for additional or return premium as of June 30, 2021.



25
Table of Contents
Financial Highlights of Results for Second Quarter and Six Months 2021 and Second Quarter and Six Months 20201
($ and shares in thousands, except per share amounts) Quarter ended June 30, Change
% or Points
Six Months ended June 30, Change
% or Points
2021 2020 2021 2020
Financial Data:
Revenues $ 840,518 682,447 23 % $ 1,644,425 1,347,276 22 %
After-tax net investment income 67,441 28,542 136 123,784 74,025 67
After-tax underwriting income 59,952 7,800 669 121,342 24,672 392
Net income before federal income tax 153,198 42,693 259 288,830 58,690 392
Net income 121,883 34,183 257 231,153 49,419 368
Net income available to common stockholders 119,583 34,183 250 226,400 49,419 358
Key Metrics:
Combined ratio 89.8 % 98.4 (8.6) pts 89.5 % 97.6 (8.1) pts
Invested assets per dollar of common stockholders' equity $ 2.88 3.10 (7) % $ 2.88 3.10 (7) %
Annualized return on common equity ('ROE') 18.3 6.2 12.1 pts 17.3 4.4 12.9 pts
Statutory premiums to surplus ratio 1.33 x 1.39 (0.06) 1.33 x 1.39 (0.06)
Per Common Share Amounts:
Diluted net income per share $ 1.98 0.57 247 % $ 3.74 0.82 356 %
Book value per share 44.78 38.43 17 44.78 38.43 17
Dividends declared per share to common stockholders 0.25 0.23 9 0.50 0.46 9
Non-GAAP Information:
Non-GAAP operating income2
$ 111,638 24,190 362 % $ 214,411 74,712 187 %
Diluted non-GAAP operating income per common share2
1.85 0.40 363 3.54 1.24 185
Annualized non-GAAP operating ROE2
17.1 % 4.4 12.7 pts 16.4 % 6.7 9.7 pts
1Refer to the Glossary of Terms attached to our 2020 Annual Report as Exhibit 99.1 for definitions of terms used of this Form 10-Q.
2 Non-GAAP operating income is a measure comparable to net income available to common stockholders but excludes after-tax net realized and unrealized gains and losses on investments. Non-GAAP operating income is used as an important financial measure by us, analysts, and investors because the timing of realized investment gains and losses on sales of securities in any given period is largely discretionary. In addition, net realized and unrealized investment gains and losses on investments that are charged to earnings could distort the analysis of trends.

Reconciliations of net income available to common stockholders, net income available to common stockholders per diluted common share, and annualized ROE to non-GAAP operating income, non-GAAP operating income per diluted common share, and annualized non-GAAP operating ROE, respectively, are provided in the tables below:
Reconciliation of net income available to common stockholders to non-GAAP operating income Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Net income available to common stockholders $ 119,583 34,183 $ 226,400 49,419
Net realized and unrealized (gains) losses, before tax (10,057) (12,649) (15,176) 32,017
Tax on reconciling items 2,112 2,656 3,187 (6,724)
Non-GAAP operating income $ 111,638 24,190 $ 214,411 74,712

Reconciliation of net income available to common stockholders per diluted common share to non-GAAP operating income per diluted common share Quarter ended June 30, Six Months ended June 30,
2021 2020 2021 2020
Net income available to common stockholders per diluted common share $ 1.98 0.57 $ 3.74 0.82
Net realized and unrealized (gains) losses, before tax (0.17) (0.21) (0.25) 0.53
Tax on reconciling items 0.04 0.04 0.05 (0.11)
Non-GAAP operating income per diluted common share $ 1.85 0.40 $ 3.54 1.24

Reconciliation of annualized ROE to annualized non-GAAP operating ROE Quarter ended June 30, Six Months ended June 30,
2021 2020 2021 2020
Annualized ROE 18.3 % 6.2 17.3 % 4.4
Net realized and unrealized (gains) losses, before tax (1.5) (2.3) (1.1) 2.9
Tax on reconciling items 0.3 0.5 0.2 (0.6)
Annualized non-GAAP operating ROE 17.1 % 4.4 16.4 % 6.7

26
Table of Contents
The components of our annualized ROE are as follows:
Annualized ROE Components Quarter ended June 30, Change Points Six Months ended June 30, Change Points
2021 2020 2021 2020
Standard Commercial Lines Segment 8.2 % 2.4 5.8 8.3 % 2.4 5.9
Standard Personal Lines Segment 0.7 (0.9) 1.6 0.8 (0.4) 1.2
E&S Lines Segment 0.3 (0.1) 0.4 0.2 0.2 -
Total insurance operations 9.2 1.4 7.8 9.3 2.2 7.1
Investment income 10.3 5.2 5.1 9.5 6.6 2.9
Net realized and unrealized investment gains (losses) 1.2 1.8 (0.6) 0.9 (2.3) 3.2
Total investments segment 11.5 7.0 4.5 10.4 4.3 6.1
Other (2.4) (2.2) (0.2) (2.4) (2.1) (0.3)
Annualized ROE 18.3 % 6.2 12.1 17.3 % 4.4 12.9

Our Six Months 2021 annualized non-GAAP operating ROE of 16.4% is above our full-year 2021 target of 11%, and our Six Months 2020 annualized non-GAAP operating ROE of 6.7%. Non-GAAP operating income per diluted common share increased (i) $1.45 in Second Quarter 2021 compared to Second Quarter 2020, and (ii) $2.30 in Six Months 2021 compared to Six Months 2020.

The increase in non-GAAP operating income per diluted common share in Second Quarter and Six Months 2021 compared to Second Quarter and Six Months 2020 was primarily driven by:
Catastrophe losses (lower by $0.98 in Second Quarter 2021 and $1.05 in Six Months 2021) driven by industry-wide U.S. catastrophe loss activity in 2020 that significantly exceeded the 10-year historical median;
Investment income (higher by $0.64 in Second Quarter 2021 and $0.82 in Six Months 2021) driven by our other investments portfolio, which principally includes alternative investments; and
Favorable prior year casualty reserve development (higher by $0.31 in Six Months 2021) attributable to accident years 2018 and prior.

Outlook
We entered 2021 in the strongest financial position in our Company's long history, well positioned to continue generating disciplined and profitable growth. During 2021, we continued to focus on several areas to position us for ongoing success:

Delivering on our strategy for continued disciplined growth by (i) continuing to expand our Standard Commercial Lines market share by increasing our share of wallet with existing agents and strategically appointing new agents, (ii) investing in geographic expansion, with a plan to add Vermont, Alabama, and Idaho, subject to regulatory approval, in the near-term, and other states over time, (iii) increasing customer retention by delivering a superior omnichannel experience and offering value-added technologies and services, and (iv) shifting our focus towards the mass affluent market within our Standard Personal Lines segment, which is a customer base that derives greater value from coverage and service.
Continuing to achieve written renewal pure price increases that meet or exceed expected loss trend, while delivering on our strategy for continued disciplined growth. We achieved overall renewal pure price increases of 5.1% in Second Quarter 2021 and 5.2% in Six Months 2021, which we believe is above our expected loss trend.
Continuing to build on a culture centered on the values of diversity, equity, and inclusion that fosters innovation and idea generation and developing a group of specially trained leaders who can guide us successfully into the future.

For more details about our major areas of strategic focus, refer to the 'Outlook' section in 'Financial Highlights of Results for Years Ended December 31, 2020, 2019, and 2018' within Item 7. 'Management's Discussion and Analysis of Financial Condition and Results of Operations.' of our 2020 Annual Report.

For 2021, we revised our full-year guidance as follows:

A GAAP combined ratio, excluding catastrophe losses, of 89% (prior guidance 90%) that assumes no additional prior-year casualty reserve development;
Catastrophe losses of 4.0 points on the combined ratio;
After-tax net investment income of $220 million (prior guidance $195 million) that includes $55 million (prior guidance $31 million) in after-tax net investment income from our alternative investments;
27
Table of Contents
An overall effective tax rate of approximately 20.5%, that includes an effective tax rate of 19.0% for net investment income and 21% for all other items; and
Weighted average shares of 60.5 million on a diluted basis.

Results of Operations and Related Information by Segment

Insurance Operations
The following table provides quantitative information for analyzing the combined ratio:
All Lines Quarter ended June 30, Change % or Points Six Months ended June 30, Change % or Points
($ in thousands) 2021 2020 2021 2020
Insurance Operations Results:
Net premiums written ('NPW') $ 833,205 724,752 15 % $ 1,631,383 1,372,079 19 %
Net premiums earned ('NPE') 740,518 630,671 17 1,465,478 1,282,374 14
Less:
Loss and loss expense incurred 421,623 403,949 4 835,024 804,273 4
Net underwriting expenses incurred 241,825 216,191 12 474,451 445,428 7
Dividends to policyholders 1,182 658 80 2,405 1,443 67
Underwriting income $ 75,888 9,873 669 % $ 153,598 31,230 392 %
Combined Ratios:
Loss and loss expense ratio 56.9 % 64.0 (7.1) pts 56.9 % 62.8 (5.9) pts
Underwriting expense ratio 32.7 34.3 (1.6) 32.4 34.7 (2.3)
Dividends to policyholders ratio 0.2 0.1 0.1 0.2 0.1 0.1
Combined ratio 89.8 98.4 (8.6) 89.5 97.6 (8.1)

The NPW growth in Second Quarter and Six Months 2021 compared to the prior year periods reflects our strong relationships with best-in-class distribution partners, sophisticated underwriting and pricing tools, and excellent customer servicing capabilities. This solid growth included (i) overall renewal pure price increases, and (ii) new business growth, as shown in the following table:

Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in millions) 2021 2020 2021 2020
Direct new business $ 173.3 150.1 16 % $ 329.0 302.9 9 %
Renewal pure price increases 5.1 3.9 1.2 5.2 4.0 1.2

In Second Quarter 2021, NPW growth was impacted by three points from the COVID-19-related premium credits to our personal and commercial automobile customers, which reduced NPW by $19.7 million in the prior-year period. The NPW growth in Six Months 2021 was further impacted by the COVID-19-related $75 million estimate of return audit and mid-term endorsement premium that reduced Six Months 2020 NPW, resulting in a total impact from COVID-19-related adjustments to NPW of approximately eight points in Six Months 2021.
28
Table of Contents
Loss and Loss Expenses
The decrease in the loss and loss expense ratio of 7.1% in Second Quarter and 5.9% in Six Months 2021 compared to Second Quarter and Six Months 2020, respectively, was primarily the result of the following:
Second Quarter 2021 Second Quarter 2020
($ 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 $ 22.6 3.1 pts $ 83.2 13.2 pts (10.1) pts
(Favorable) prior year casualty reserve development (17.0) (2.3) (15.0) (2.4) 0.1
Non-catastrophe property loss and loss expenses 107.3 14.5 81.8 13.0 1.5
Total $ 112.9 15.3 $ 150.0 23.8 (8.5)
Six Months 2021 Six Months 2020
($ in millions) Loss and Loss Expense Incurred Impact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses $ 52.6 3.6 pts $ 116.4 9.1 pts (5.5) pts
(Favorable) prior year casualty reserve development (52.0) (3.5) (25.0) (1.9) (1.6)
Non-catastrophe property loss and loss expenses 222.9 15.2 189.9 14.8 0.4
Total $ 223.5 15.3 $ 281.3 22.0 (6.7)

Details of the prior year casualty reserve development were as follows:
(Favorable)/Unfavorable Prior Year Casualty Reserve Development Quarter ended June 30, Six Months ended June 30,
($ in millions) 2021 2020 2021 2020
General liability $ (10.0) (10.0) $ (25.0) (10.0)
Commercial automobile - 10.0 - 10.0
Workers compensation (5.0) (15.0) (20.0) (25.0)
Total Standard Commercial Lines (15.0) (15.0) (45.0) (25.0)
E&S (2.0) - (7.0) -
Total (favorable) prior year casualty reserve development $ (17.0) (15.0) $ (52.0) (25.0)
(Favorable) impact on loss ratio (2.3) pts (2.4) (3.5) (1.9)

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 1.6 points in Second Quarter 2021 compared to Second Quarter 2020 and 2.3 points in Six Months 2021 compared to Six Months 2020. The underwriting expense ratios in Second Quarter and Six Months 2020 were elevated by 2.2 points and 2.1 points, respectively, for COVID-19-related items. The decrease in the underwriting expense ratios in Second Quarter and Six Months 2021 reflect the absence of these COVID-19-related impacts, partially offset by an increase in profit-based compensation to our distribution partners and employees, which was 0.5 points higher in Second Quarter 2021 compared to Second Quarter 2020 and 0.3 points higher in Six Months 2021 compared to Six Months 2020.

The COVID-19-related items included in 2020 results were as follows: (i) lower net earned premiums from the estimate of return audit and mid-term endorsement premium recorded in the first quarter and premium credits given to our personal and commercial automobile customer during the second quarter; and (ii) increases of $3.0 million in the second quarter and $13.5 million in the first six months of last year to our allowance for credit losses on premiums receivable.

29
Table of Contents
Standard Commercial Lines Segment
Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in thousands) 2021 2020 2021 2020
Insurance Segments Results:
NPW $ 677,128 583,342 16 % $ 1,342,694 1,101,774 22 %
NPE 599,754 501,004 20 1,188,895 1,017,584 17
Less:
Loss and loss expense incurred 329,817 307,037 7 654,667 619,195 6
Net underwriting expenses incurred 200,817 176,579 14 394,386 363,090 9
Dividends to policyholders 1,182 658 80 2,405 1,443 67
Underwriting income $ 67,938 16,730 306 % $ 137,437 33,856 306 %
Combined Ratios:
Loss and loss expense ratio 55.0 % 61.4 (6.4) pts 55.0 % 60.9 (5.9) pts
Underwriting expense ratio 33.5 35.2 (1.7) 33.2 35.7 (2.5)
Dividends to policyholders ratio 0.2 0.1 0.1 0.2 0.1 0.1
Combined ratio 88.7 96.7 (8.0) 88.4 96.7 (8.3)

NPW growth was up 16% in Second Quarter 2021 and 22% in Six Months 2021 compared to the same prior-year periods, reflecting (i) direct new business increases, (ii) renewal pure price increases, and (iii) strong retention, as shown in the following table:
Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in millions) 2021 2020 2021 2020
Direct new business $ 128.7 109.9 17 % $ 243.2 225.3 8 %
Retention 85 % 86 (1) pts 85 % 85 - pts
Renewal pure price increases 5.5 3.9 1.6 5.5 4.0 1.5

Additionally, Second Quarter 2021 NPW growth was impacted by three points from the COVID-19-related premium credits to our commercial automobile customers, which reduced NPW by $15.4 million in the prior-year period. The NPW growth in Six Months 2021 was further impacted by the COVID-19-related $75 million estimate of return audit and mid-term endorsement premium that reduced Six Months 2020 NPW, resulting in a total impact from COVID-19-related adjustments to NPW of approximately nine points in Six Months 2021.

The loss and loss expense ratio decreased 6.4 points in Second Quarter 2021 and 5.9 points in Six Months 2021 compared to the same prior-year periods, driven by the following:
Second Quarter 2021 Second Quarter 2020
($ 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 $ 11.3 1.9 pts $ 50.7 10.1 pts (8.2) pts
Non-catastrophe property loss and loss expenses 74.6 12.4 60.9 12.2 0.2
(Favorable) prior year casualty reserve development (15.0) (2.5) (15.0) (3.0) 0.5
Total 70.9 11.8 96.6 19.3 (7.5)
Six Months 2021 Six Months 2020
($ 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 $ 27.3 2.3 pts $ 71.4 7.0 pts (4.7) pts
Non-catastrophe property loss and loss expenses 158.3 13.3 140.5 13.8 (0.5)
(Favorable) prior year casualty reserve development (45.0) (3.8) (25.0) (2.5) (1.3)
Total 140.6 11.8 186.9 18.3 (6.5)

Catastrophe losses in Second Quarter and Six Months 2021 were lower than our 10-year Standard Commercial Lines average of 2.9 points, whereas Second Quarter and Six Months 2020 were significantly higher than this average, in part due to numerous events designated by the Insurance Services Office's Property Claims Services unit that impacted us, including two April 2020 storms ($43 million) and claims related to civil unrest ($20 million).

In addition, the current year loss and loss expense ratio was higher by 1.2 points in Second Quarter 2021 and 0.8 points in Six Months 2021 compared to the same prior-year periods, primarily driven by increases in frequencies in 2021, as last year experienced lower frequencies reflecting reductions in miles driven due to the COVID-19-related governmental directives
30
Table of Contents
impacting our commercial automobile lines of business in 2020. This, in conjunction with lower non-catastrophe property losses in the prior year period, provided an offset to the $15.4 million premium credit to customers in 2020.

For quantitative information on the favorable prior year casualty reserve development by line of business, see the 'Insurance Operations' section above, and for qualitative information about the significant drivers of this development, see the line of business discussions below.

The underwriting expense ratio decreased 1.7 points in Second Quarter 2021 compared to Second Quarter 2020 and 2.5 points in Six Months 2021 compared to Six Months 2020. The underwriting expense ratios in Second Quarter and Six Months 2020 were elevated by 2.5 points and 2.3 points, respectively, for COVID-19-related items, as further discussed in 'Insurance Operations' above. The decrease in the underwriting expense ratios in Second Quarter and Six Months 2021 reflect the absence of these COVID-19-related impacts, partially offset by an increase in profit-based compensation to our distribution partners and employees, which was 0.5 points higher in both Second Quarter 2021 and Six Months 2021.

The following is a discussion of our most significant Standard Commercial Lines of business:
General Liability
Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in thousands) 2021 2020 2021 2020
NPW $ 225,503 200,917 12 % $ 447,565 351,711 27 %
Direct new business 37,174 31,468 18 71,428 67,354 6
Retention 85 % 87 (2) pts 85 % 86 (1) pts
Renewal pure price increases 4.6 3.8 0.8 4.6 3.8 0.8
NPE $ 197,293 163,273 21 % $ 390,813 327,853 19 %
Underwriting income 31,045 25,108 24 67,618 38,182 77
Combined ratio 84.3 % 84.6 (0.3) pts 82.7 % 88.4 % (5.7) pts
% of total Standard Commercial Lines NPW 33 34 33 32

NPW grew 12% in Second Quarter 2021 and 27% in Six Months 2021 compared to the same prior year periods due to new business growth, renewal pure price increases, and strong retention. NPW in Six Months 2021 was also impacted by 15 points from the COVID-19-related $46 million estimate of return audit and mid-term endorsement premium recorded on this line in the first quarter of 2020.

The fluctuations in the combined ratios illustrated in the table above included the following:
Second Quarter 2021 Second Quarter 2020
($ 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) (5.1) pts $ (10.0) (6.1) pts 1.0 pts
Six Months 2021 Six Months 2020
($ 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 $ (25.0) (6.4) pts $ (10.0) (3.1) pts (3.3) pts

The favorable prior year casualty reserve development in Second Quarter and Six Months 2021 was primarily attributable to lower loss severities in accident years 2018 and prior. The Second Quarter and Six Months 2020 reserve development was primarily attributable to favorable reserve development on loss severities in accident years 2016 and prior.

In addition to the items above, the combined ratios were impacted by a decrease in the underwriting expense ratio of 1.4 points in Second Quarter 2021 compared to Second Quarter 2020 and 2.3 points in Six Months 2021 compared to Six Months 2020, the drivers of which are consistent with the items discussed in the Standard Commercial Lines Segment above.

31
Table of Contents
Commercial Automobile
Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in thousands) 2021 2020 2021 2020
NPW $ 205,906 160,697 28 % $ 396,552 329,007 21 %
Direct new business 33,406 32,143 4 62,152 61,000 2
Retention 86 % 86 - pts 86 % 86 - pts
Renewal pure price increases 9.0 7.6 1.4 9.0 7.6 1.4
NPE $ 178,028 138,535 29 % $ 349,909 288,225 21 %
Underwriting income (loss) 4,241 (7,706) 155 7,033 (8,480) 183
Combined ratio 97.6 % 105.6 (8.0) pts 98.0 % 102.9 (4.9) pts
% of total Standard Commercial Lines NPW 30 28 30 30

NPW growth benefited from renewal pure price increases and growth in direct new business, as shown in the table above. This growth also includes an in-force vehicle count increase of 7% as of June 30, 2021 compared to June 30, 2020. Additionally, NPW growth includes 11 points in Second Quarter 2021 and 5 points in Six Months 2021 due to the $15.4 million premium credit given to our commercial automobile customers as a result of the COVID-19 pandemic in Second Quarter 2020, as discussed in the Standard Commercial Lines discussion above.

The combined ratio improvements outlined above were driven by the following:
Second Quarter 2021 Second Quarter 2020
($ 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 $ 0.5 0.3 pts $ 1.1 0.8 pts (0.5) pts
Non-catastrophe property loss and loss expenses 26.2 14.7 17.1 12.3 2.4
Unfavorable prior year casualty reserve development - - 10.0 7.2 (7.2)
Total $ 26.7 15.0 $ 28.2 20.3 (5.3)

Six Months 2021 Six Months 2020
($ 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 $ 0.7 0.2 pts $ 1.4 0.5 pts (0.3) pts
Non-catastrophe property loss and loss expenses 55.6 15.9 40.1 13.9 2.0
Unfavorable prior year casualty reserve development - - 10.0 3.5 (3.5)
Total $ 56.3 16.1 $ 51.5 17.9 (1.8)

In addition, the current year loss and loss expense ratio was higher by 1.6 points in Second Quarter 2021 and 0.6 points in Six Months 2021 compared to the same prior-year periods, primarily driven by increases in frequencies in 2021, as last year experienced lower frequencies reflecting reductions in miles driven due to the COVID-19-related governmental directives impacting this line of business in 2020. This, in conjunction with lower non-catastrophe property losses in the prior year period, provided an offset to the $15.4 million premium credit to customers in 2020.

The Second Quarter and Six 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.

In addition to the items above, the combined ratios were impacted by a decrease in the underwriting expense ratio of 4.3 points in Second Quarter 2021 compared to Second Quarter 2020 and 3.9 points in Six Months 2021 compared to Six Months 2020, the drivers of which are consistent with the items further discussed in the Standard Commercial Lines Segment above.

32
Table of Contents
Workers Compensation
Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in thousands) 2021 2020 2021 2020
NPW $ 80,491 74,984 7 % $ 172,782 126,180 37 %
Direct new business 16,002 12,612 27 31,947 27,969 14
Retention 86 % 85 1 pts 86 % 84 2 pts
Renewal pure price (decreases) increases (0.1) (2.9) 2.8 0.1 (2.7) 2.8
NPE $ 74,337 61,906 20 % $ 152,527 128,612 19 %
Underwriting income 8,686 15,720 (45) 29,104 26,755 9
Combined ratio 88.3 % 74.6 13.7 pts 80.9 % 79.2 1.7 pts
% of total Standard Commercial Lines NPW 12 13 13 11

NPW increased 7% in Second Quarter 2021 and 37% in Six Months 2021 compared to the respective prior year periods due to increased direct new business and higher retention. Additionally, NPW growth in Six Months 2021 was impacted by 25 points due to the COVID-19-related $29 million estimate of return audit and mid-term endorsement premium recorded on this line in the first quarter of 2020.

The increase in the combined ratio in Second Quarter 2021 and Six Months 2021 compared to the same prior-year periods was driven by favorable prior year casualty reserve development, as follows:
Second Quarter 2021 Second Quarter 2020
($ 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 $ (5.0) (6.7) pts $ (15.0) (24.2) pts 17.5 pts
Six Months 2021 Six Months 2020
($ 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) (13.1) pts $ (25.0) (19.4) pts 6.3 pts
The favorable prior year casualty reserve development in Second Quarter and Six Months 2021 was primarily due to lower severities in accident years 2018 and prior, and the development in Second Quarter and Six Months 2020 was primarily due to lower severities in accident years 2017 and prior.

In addition, the combined ratios were impacted by a decrease in the underwriting expense ratio of 2.5 points in Second Quarter 2021 compared to Second Quarter 2020 and 3.1 points in Six Months 2021 compared to Six Months 2020, the drivers of which are consistent with the items further discussed in the Standard Commercial Lines Segment above.

Commercial Property
Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in thousands) 2021 2020 2021 2020
NPW $ 119,140 104,060 14 % $ 232,524 207,186 12 %
Direct new business 29,943 23,858 26 54,212 48,444 12
Retention 84 % 84 - pts 84 % 84 - pts
Renewal pure price increases
5.6 3.9 1.7 5.8 4.0 1.8
NPE $ 106,113 95,413 11 % $ 208,923 189,282 10 %
Underwriting income (loss) 16,820 (14,339) 217 23,586 (22,891) 203
Combined ratio 84.1 % 115.0 (30.9) pts 88.7 % 112.1 (23.4) pts
% of total Standard Commercial Lines NPW 18 18 17 19
33
Table of Contents
The decrease in the combined ratio in Second Quarter 2021 and Six Months 2021 compared to the same prior-year periods was driven by the following:
Second Quarter 2021 Second Quarter 2020
($ 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 $ 9.2 8.6 pts 35.3 37.0 pts (28.4) pts
Non-catastrophe property loss and loss expenses 40.3 38.0 38.3 40.1 (2.1)
Total $ 49.5 46.6 73.6 77.1 (30.5)
Six Months 2021 Six Months 2020
($ 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 $ 22.9 10.9 pts 55.0 29.0 pts (18.1) pts
Non-catastrophe property loss and loss expenses 84.9 40.6 83.9 44.3 (3.7)
Total $ 107.8 51.5 138.9 73.3 (21.8)

Lower catastrophe losses in Second Quarter and Six Months 2021 compared to Second Quarter and Six Months 2020 were driven by the events mentioned in the 'Standard Commercial Lines' discussion above.

Standard Personal Lines Segment
Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in thousands) 2021 2020 2021 2020
Insurance Segments Results:
NPW $ 78,559 78,173 - % $ 143,636 145,813 (1) %
NPE 73,293 71,633 2 147,114 147,761 -
Less:
Loss and loss expense incurred 47,984 58,151 (17) 95,150 112,483 (15)
Net underwriting expenses incurred 19,665 19,807 (1) 38,625 41,216 (6)
Underwriting income (loss) $ 5,644 (6,325) 189 % $ 13,339 (5,938) 325 %
Combined Ratios:
Loss and loss expense ratio 65.5 % 81.1 (15.6) pts 64.6 % 76.1 (11.5) pts
Underwriting expense ratio 26.8 27.7 (0.9) 26.3 27.9 (1.6)
Combined ratio 92.3 108.8 (16.5) 90.9 104.0 (13.1)

NPW was flat in Second Quarter 2021 compared to Second Quarter 2020 and decreased 1% in Six Months 2021 compared to Six Months 2020, primarily driven by new business that was not sufficient to compensate for the policies lost at renewal due to the challenging competitive environment in the personal auto line of business. Offsetting this decrease was the impact of the COVID-19-related premium credits to our personal automobile customers, which reduced NPW by $4.3 million in the prior-year period, and added five points of growth in Second Quarter 2021 compared to Second Quarter 2020 and three points of growth in Six Months 2021 compared to Six Months 2020.

Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in millions) 2021 2020 2021 2020
Direct new business $ 10.9 11.8 (8) % $ 20.8 21.8 (5) %
Retention 84 % 84 - pts 83 % 83 - pts
Renewal pure price increases 1.1 3.1 (2.0) 0.9 3.4 (2.5)
34
Table of Contents
The loss and loss expense ratio decreased 15.6 points in Second Quarter 2021 compared to Second Quarter 2020 and 11.5 points in Six Months 2021 compared to Six Months 2020 driven by the following:
Second Quarter 2021 Second Quarter 2020
($ 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 $ 5.0 6.8 pts 26.0 36.2 pts (29.4) pts
Non-catastrophe property loss and loss expenses 24.9 34.0 15.3 21.4 12.6
Total $ 29.9 40.8 41.3 57.6 (16.8)
Six Months 2021 Six Months 2020
($ in millions) Loss and Loss Expense Incurred Impact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses $ 10.6 7.2 pts 37.9 25.7 pts (18.5) pts
Non-catastrophe property loss and loss expenses 48.0 32.6 38.1 25.8 6.8
Total $ 58.6 39.8 76.0 51.5 (11.7)

Ten events were designated as catastrophes that impacted Second Quarter 2021, with a severe thunderstorm, including wind and hail, in late June 2021 in our footprint states having the most significant impact on results. Six Months 2021 results were also impacted by a severe thunderstorm, accompanied by wind and hail, in March 2021, which affected our footprint states. Thirteen events impacted Second Quarter 2020, which included two severe storms occurring in April 2020, that impacted parts of the Mid-West and East Coast regions of the United States with damaging winds and tornadoes. Additionally, Six Months 2020 was affected by a tornado that impacted Tennessee in March 2020.

In addition, the current year loss and loss expense ratio was higher by 1.2 points in Second Quarter 2021 and 0.3 points in Six Months 2021 compared to the same prior-year periods, primarily driven by increases in frequencies in 2021, as last year experienced lower frequencies reflecting reductions in miles driven due to the COVID-19-related governmental directives impacting our personal automobile line of business in 2020. This, in conjunction with lower non-catastrophe property losses in the prior year period, provided an offset to the $4.3 million premium credit to customers in 2020.

The underwriting expense ratio decreased 0.9 points in Second Quarter 2021 compared to Second Quarter 2020 and 1.6 points in Six Months 2021 compared to Six Months 2020. The underwriting expense ratios in Second Quarter and Six Months 2020 were elevated by 2.1 points and 2.2 points, respectively, for COVID-19-related items, as further discussed in 'Insurance Operations' above. The decrease in the underwriting expense ratios in Second Quarter and Six Months 2021 reflect the absence of these COVID-19-related impacts, partially offset by an increase in profit-based compensation to our employees, which was 0.8 points in Second Quarter 2021 and 0.6 points in Six Months 2021.

E&S Lines Segment
Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in thousands) 2021 2020 2021 2020
Insurance Segments Results:
NPW $ 77,518 63,237 23 % $ 145,053 124,492 17 %
NPE 67,471 58,034 16 129,469 117,029 11
Less:
Loss and loss expense incurred 43,822 38,761 13 85,207 72,595 17
Net underwriting expenses incurred 21,343 19,805 8 41,440 41,122 1
Underwriting income (loss) $ 2,306 (532) 533 % $ 2,822 3,312 (15) %
Combined Ratios:
Loss and loss expense ratio 65.0 % 66.8 (1.8) pts 65.8 % 62.1 3.7 pts
Underwriting expense ratio 31.6 34.1 (2.5) 32.0 35.1 (3.1)
Combined ratio 96.6 100.9 (4.3) 97.8 97.2 0.6

35
Table of Contents
NPW grew 23% in Second Quarter 2021 and 17% in Six Months 2021 compared to the same prior-year periods due to strong new business growth and renewal pure price increases. Quantitative information on the premium in this segment is as follows:

Quarter ended June 30, Change
% or
Points
Six Months ended June 30, Change
% or
Points
($ in millions) 2021 2020 2021 2020
Direct new business $ 33.7 28.3 19 % $ 65.0 55.8 16 %
Renewal pure price increases 6.9 5.5 1.4 7.1 4.8 2.3

The loss and loss expense ratio decreased 1.8 points in Second Quarter 2021 while increasing 3.7 points in Six Months 2021 compared to the same prior year periods, primarily driven by the items outlined in the table below:
Second Quarter 2021 Second Quarter 2020
($ 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 $ 6.4 9.5 pts $ 6.5 11.3 pts (1.8) pts
Non-catastrophe property loss and loss expenses 7.8 11.5 5.6 9.6 1.9
(Favorable) prior year casualty reserve development (2.0) (3.0) - - (3.0)
Total $ 12.2 18.0 $ 12.1 20.9 (2.9)
Six Months 2021 Six Months 2020
($ in millions) Loss and Loss Expense Incurred Impact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Catastrophe losses $ 14.7 11.3 pts $ 7.0 6.0 pts 5.3 pts
Non-catastrophe property loss and loss expenses 16.6 12.9 11.3 9.7 3.2
(Favorable) prior year casualty reserve development (7.0) (5.4) - - (5.4)
Total $ 24.3 18.8 $ 18.3 15.7 3.1

The increase in catastrophe losses in Six Months 2021 compared to Six Months 2020 was primarily due to a series of large storms that significantly impacted Texas and other southern and central states. Non-catastrophe property loss and loss expenses were also elevated in both periods due to an increase in severity of a few commercial property losses from fires.

The favorable prior year casualty reserve development in Second Quarter and Six Months 2021 was primarily attributable to lower loss severities in accident years 2016 through 2018. There was no prior year casualty reserve development in Second Quarter and Six Months 2020.

The underwriting expense ratio decreased 2.5 points in Second Quarter 2021 and 3.1 points in Six Months 2021 compared to the respective prior year periods, primarily due to a decrease in labor and travel expenses of 1.6 points in Second Quarter 2021 and 1.7 points in Six Months 2021 compared to the same prior-year periods. In addition, the underwriting expense ratios in Second Quarter and Six Months 2020 were elevated by 0.4 points and 1.0 point, respectively, for COVID-19-related increases in our allowance for credit losses on premiums receivable as further discussed in 'Insurance Operations' above.

Reinsurance
We successfully completed negotiations of our July 1, 2021 excess of loss treaties, which provide coverage for our Standard Commercial Lines, Standard Personal Lines, and E&S Lines. The Casualty Excess of Loss ('Casualty Treaty') was renewed with the same structure as the expiring treaty. The treaty year ceded deposit premium increased $9.5 million, or 16%, reflecting a slight rate increase coupled with an increase in projected subject earned premium.

The Property Excess of Loss ('Property Treaty') was renewed with an increase in the retention on the first layer from $2.0 million to $3.0 million, thereby decreasing the coverage in excess of retention to $7.0 million from $8.0 million. The subsequent layers remained the same. The treaty year deposit premium increased $0.5 million, or 1%, reflecting a risk-adjusted rate increase along with an increase in projected subject premium offset with the premium reduction benefit of the aforementioned first layer retention increase.

36
Table of Contents
The following table summarizes the details of the Property Treaty and the Casualty Treaty arrangements covering our Insurance Subsidiaries:
Treaty Name Reinsurance Coverage Terrorism Coverage
Property Excess of Loss (covers all insurance operations)
$57 million above $3 million retention covering 100% in three layers. Losses other than TRIPRA certified losses are subject to the following reinstatements and annual aggregate limits:

- $7 million in excess of $3 million layer provides unlimited
reinstatements;
- $30 million in excess of $10 million layer provides three
reinstatements, $120 million in aggregate limits; and
- $20 million in excess of $40 million layer provides three
reinstatements, $80 million in aggregate limits.
All NBCR losses are excluded regardless of whether or not they are certified under TRIPRA. For non-NBCR losses, the treaty distinguishes between acts committed on behalf of foreign persons or foreign interests ('Foreign Terrorism') and those that are not. The treaty provides annual aggregate limits for Foreign Terrorism (other than NBCR) acts of $21 million for the first layer, $60 million for the second layer, and $40 million for the third layer. Non-foreign terrorism losses (other than NBCR) are covered to the same extent as non-terrorism losses.
Casualty Excess of Loss (covers all insurance operations)
There are six layers covering 100% of $88 million in excess of $2 million. Losses other than terrorism losses are subject to the following:

- $3 million in excess of $2 million layer provides 33
reinstatements, $102 million annual aggregate limit;
- $7 million in excess of $5 million layer provides six
reinstatements, $49 million annual aggregate limit;
- $9 million in excess of $12 million layer provides three
reinstatements, $36 million annual aggregate limit;
- $9 million in excess of $21 million layer provides one
reinstatement, $18 million annual aggregate limit;
- $20 million in excess of $30 million layer provides one
reinstatement, $40 million annual aggregate limit; and
- $40 million in excess of $50 million layer provides one
reinstatement, $80 million annual aggregate limit.
All NBCR losses are excluded. All other losses stemming from the acts of terrorism are subject to the following:

- $3 million in excess of $2 million layer with $15 million net
annual terrorism aggregate limit;
- $7 million in excess of $5 million layer with $28 million net
annual terrorism aggregate limit;
- $9 million in excess of $12 million layer with $27 million net
annual terrorism aggregate limit;
- $9 million in excess of $21 million layer with $18 million net
annual terrorism aggregate limit;
- $20 million in excess of $30 million layer with $40 million
net annual terrorism aggregate limit; and
- $40 million in excess of $50 million layer with $80 million
net annual terrorism aggregate limit.

Investments
The primary objective of the investment portfolio is to maximize after-tax net investment income and its overall total return while maintaining a high credit quality core fixed income securities portfolio and managing our duration risk profile. The effective duration of our fixed income and short-term investments was 3.9 years as of June 30, 2021, compared to the Insurance Subsidiaries' liability duration of 3.7 years at December 31, 2020. The effective duration is monitored and managed to maximize yield while managing interest rate risk at an acceptable level. We maintain a well-diversified portfolio across sectors, with credit quality and maturities that provide ample liquidity. Purchases and sales are intended to maximize investment returns in the current market environment while balancing capital preservation.

Our fixed income and short-term investments represented 91% of our invested assets at June 30, 2021, and 92% at December 31, 2020. At June 30, 2021, these investments had a weighted average credit rating of 'A+' compared to 'AA-' as of December 31, 2020, with a 96% allocation to investment grade holdings at both periods. The decline in the weighted average credit rating reflects a meaningful reduction in our sector allocation to agency residential mortgage-backed securities over the past year as lower interest rates accelerated prepayments as we had expected. Given the very low reinvestment rates for this asset class, we have reallocated these non-sale disposal cash flows into other high-quality fixed income sectors, including corporate securities and other asset-backed security classes that do not carry a 'AAA' rating, but in our view currently offer a better risk and reward trade-off.

Total Invested Assets
($ in thousands) June 30, 2021 December 31, 2020 Change
Total invested assets $ 7,755,441 7,505,599 3 %
Invested assets per dollar of common stockholders' equity 2.88 2.96 (3)
Unrealized gain - before tax1
348,440 395,207 (12)
Unrealized gain - after tax1
275,268 312,214 (12)
1Includes unrealized gains on fixed income and equity securities.

Invested assets increased as of June 30, 2021, compared to December 31, 2020, reflecting operating cash flows during Six Months 2021 of $292.5 million, that were 18% of NPW, partially offset by a decrease in pre-tax unrealized gains of $46.8 million. The decrease in gross unrealized gains during Six Months 2021 was driven by an increase in longer-dated benchmark United States Treasury rates, partially offset by tightening credit spreads.

For further details on the composition, credit quality, and various risks to which our portfolio is subject, see Item 7A. 'Quantitative and Qualitative Disclosures About Market Risk.' of our 2020 Annual Report.

37
Table of Contents
Net Investment Income
The components of net investment income earned were as follows:
Quarter ended June 30, Change
% or Points
Six Months ended June 30, Change
% or Points
($ in thousands) 2021 2020 2021 2020
Fixed income securities $ 52,608 51,079 3 % $ 105,431 101,332 4 %
Commercial mortgage loans ('CMLs') 695 156 346 1,209 218 455
Equity securities 2,982 2,023 47 5,470 3,575 53
Short-term investments 55 420 (87) 140 1,586 (91)
Other investments 32,860 (15,846) (307) 50,293 (9,504) (629)
Investment expenses (5,469) (3,388) 61 (9,096) (6,796) 34
Net investment income earned - before tax 83,731 34,444 143 153,447 90,411 70
Net investment income tax expense (16,290) (5,902) 176 (29,663) (16,386) 81
Net investment income earned - after tax $ 67,441 28,542 136 $ 123,784 74,025 67
Effective tax rate 19.5 % 17.1 2.4 pts 19.3 % 18.1 1.2 pts
Annualized after-tax yield on fixed income investments 2.6 2.7 (0.1) 2.6 2.6 -
Annualized after-tax yield on investment portfolio 3.5 1.6 1.9 3.2 2.1 1.1

The increase in after-tax net investment income in Second Quarter and Six Months 2021 compared to Second Quarter and Six Months 2020 was driven by higher returns on alternative investments in our other investment portfolio of $29.9 million in Second Quarter 2021 and $50.1 million in Six Months 2021, compared to losses of $16.0 million and $9.7 million in the same prior-year periods, respectively. These returns are recorded on a one-quarter lag, and reflect the strong capital market performance in the three and six-month periods ending March 31, 2021.

Realized and Unrealized Gains and Losses
Our general investment philosophy for sales of securities is to (i) reduce our exposure to securities and sectors that we have evaluated and determined have deteriorated economic fundamentals, or (ii) determine appropriate timing for an opportunistic trade for other securities or sectors with better economic-return characteristics. Net realized and unrealized gains and losses for the indicated periods were as follows:
Quarter ended June 30, Change % Six Months ended June 30, Change %
($ in thousands) 2021 2020 2021 2020
Net realized gains (losses) on disposals $ 268 2,615 (90) % $ (527) 6,715 (108) %
Net unrealized gains (losses) equity securities 7,661 5,701 34 18,941 (11,436) (266)
Net credit loss benefit (expense) on fixed income securities, AFS 2,272 4,923 (54) (2,725) (10,864) (75)
Net credit loss (expense) benefit on fixed income securities, HTM (53) 1 N/M (60) 1 N/M
Net credit loss benefit (expense) on CMLs - 22 (100) - (218) (100)
Losses on securities for which we have the intent to sell (91) (613) (85) (453) (16,215) (97)
Total net realized and unrealized gains (losses) $ 10,057 12,649 (20) $ 15,176 (32,017) (147)

The improvement in net realized and unrealized gains in Six Months 2021 compared to Six Months 2020 was primarily driven by (i) unrealized gains on our equity securities this year compared to unrealized losses last year, which were driven by COVID-19-related market disruption last year, and (ii) lower intent-to-sell losses this year as we provided our investment managers significant trading flexibility last year given market conditions.

Federal Income Taxes
The following table provides information about federal income taxes and reconciles federal income tax at the corporate rate to the effective tax rate:
Quarter ended June 30, Six Months ended June 30,
($ in thousands) 2021 2020 2021 2020
Tax at statutory rate $ 32,172 8,965 $ 60,655 12,325
Tax-advantaged interest (1,139) (1,171) (2,317) (2,385)
Dividends received deduction (167) (165) (276) (220)
Executive compensation 763 365 970 716
Stock-based compensation (160) 51 (623) (1,830)
Other (154) 465 (732) 665
Federal income tax expense $ 31,315 8,510 $ 57,677 9,271
Income before federal income tax, less preferred stock dividends $ 150,898 42,693 $ 284,077 58,690
Effective tax rate 20.8 % 19.9 20.3 15.8

38
Table of Contents
We had increased levels of income before federal income tax in Six Months 2021 subject to the statutory tax rate of 21% that increased our effective tax rate in Six Months 2021 compared to Six Months 2020 by 450 basis points.

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

Liquidity
We manage liquidity by focusing on generating sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.

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

The Parent's investment portfolio provides liquidity 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; (iii) equity securities, and (iv) a cash balance. In the aggregate, Parent cash and total investments amounted to $505 million at June 30, 2021 and $490 million at December 31, 2020.

The Parent's liquidity may fluctuate based on various factors, including the amount and availability of dividends from our Insurance Subsidiaries, investment income, expenses, other Parent cash needs, such as dividends payable to shareholders, asset allocation investment decisions, and share repurchases. Our target for the Parent is to maintain liquidity matching at least twice its expected annual needs, which is currently estimated at $180 million.

Insurance Subsidiary Dividends
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 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.

The Insurance Subsidiaries paid $70 million in total dividends to the Parent during Six Months 2021. As of December 31, 2020, our allowable ordinary maximum dividend was $241 million for 2021. All Insurance Subsidiary dividends to the Parent are (i) subject to the approval and/or review of its domiciliary state insurance regulator, and (ii) generally payable only from earned surplus reported in its statutory annual statements as of the preceding December 31. Although domiciliary state insurance regulators historically have approved dividends, there is no assurance they will approve future Insurance Subsidiary dividends.

New Jersey corporate law also limits the maximum amount of dividends the Parent can pay our shareholders 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 is also impacted by (i) covenants in its credit agreement (discussed below under 'Line of Credit') that obligate it, among other things, to maintain a minimum consolidated net worth and a maximum ratio of consolidated debt to total capitalization, and (ii) the terms of our preferred stock that prohibit dividends to be declared or paid on our common stock if dividends are not declared and paid, or made payable, on all outstanding preferred stock for the latest completed dividend period.

For additional information regarding dividend restrictions and financial covenants, where applicable, see Note 11. 'Indebtedness', Note 17. 'Preferred Stock', and Note 22. 'Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds' in Item 8. 'Financial Statements and Supplementary Data.' of our 2020 Annual Report.

Line of Credit
On December 20, 2019, the Parent entered into a Credit Agreement with the lenders named therein (the 'Lenders') and the Bank of Montreal, Chicago Branch, as Administrative Agent ('Line of Credit'). Under the Line of Credit, the Lenders have agreed to provide the Parent with a $50 million revolving credit facility that can be increased to $125 million with the Lenders'
39
Table of Contents
consent. The Line of Credit will mature on December 20, 2022, and has a variable interest rate based on, among other factors, the Parent's debt ratings.

For additional information regarding the Line of Credit and corresponding representations, warranties, and covenants, refer to Note 11. 'Indebtedness' in Item 8. 'Financial Statements and Supplementary Data.' of our 2020 Annual Report. We met all covenants under our Line of Credit as of June 30, 2021.

Several Insurance Subsidiaries are members of Federal Home Loan Bank branches, as shown in the following table. Membership requires the ownership of branch stock and includes the right to borrow and gain access to liquidity. All FHLBI and FHLBNY borrowings 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:
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. Additionally, as SICNY is domiciled in New York, its FHLBNY borrowings are limited by New York insurance regulations 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. As of June 30, 2021, we had remaining capacity of $339 million for Federal Home Loan Bank borrowings, with a $12.2 million additional stock purchase requirement to allow the member companies to borrow their full remaining capacity amounts.

Short-term Borrowings
We did not make any short-term borrowings during Six Months 2021.

Intercompany Loan Agreements
The Parent has lending agreements with the Indiana Subsidiaries approved by the Indiana Department of Insurance, that provide it additional liquidity. Similar to the Line of Credit, these lending agreements limit the Parent's borrowings 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 June 30, 2021 and December 31, 2020. The remaining capacity under these intercompany loan agreements was $97.1 million as of both June 30, 2021, and December 31, 2020.

Capital Market Activities
The Parent had no private or public issuances of stock during Six Months 2021. In the fourth quarter of 2020, we enhanced our capital structure flexibility at the Parent by issuing $200 million of 4.60% non-cumulative perpetual preferred stock. Net proceeds after issuance costs were approximately $195 million. The Parent is using these proceeds for general corporate purposes, which may include the repurchase of common stock under a $100 million share repurchase program authorized by our Board in conjunction with the preferred stock offering. During Six Months 2021, we repurchased 52,781 shares of our common stock under this authorization at a cost of approximately $3.4 million, with a $64.49 average price per share, with all share repurchases made in the first quarter of 2021. We have $96.6 million of remaining capacity under our share repurchase program.

Uses of Liquidity
The Parent's 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 and preferred 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 July 28, 2021, our Board of Directors declared:

A cash dividend of $0.25 per common share that is payable September 1, 2021 to holders of record as of August 13, 2021; and
A cash dividend of $287.50 per share on our 4.60% Non-Cumulative Preferred Stock, Series B (equivalent to $0.28750 per depository share) that is payable on September 15, 2021 to holders of record as of August 31, 2021.

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 (i) liquidity at the Parent, (ii) the ability of the Insurance Subsidiaries to pay
40
Table of Contents
dividends, if necessary, and/or (iii) the availability of other sources of liquidity to the Parent. On July 21, 2021, we repaid one of our $25 million borrowings from the FHLBNY. This repayment increased our remaining capacity to $364 million, from $339 million, for Federal Home Loan Bank borrowings, as well as the related additional stock purchase requirement to $13.3 million, from $12.2 million, for the member companies to borrow their full remaining capacity amounts. The following summarizes our upcoming principal payments due:

$25 million to FHLBNY on August 16, 2021; and
$60 million to FHLBI on December 16, 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 and preferred stock. We currently expect to repay the $25 million FHLBNY borrowing in full on August 16, 2021 from available Insurance Subsidiaries liquid assets.

Capital Resources
Capital resources ensure we can pay policyholder claims, furnish the financial strength to support the business of underwriting insurance risks, and facilitate continued business growth. At June 30, 2021, we had GAAP stockholders' equity of $2.9 billion and statutory surplus of $2.3 billion. With total debt of $550.9 million at June 30, 2021, our debt-to-capital ratio was 16%. For additional information on our statutory surplus, see Note 22. 'Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds' in Item 8. 'Financial Statements and Supplementary Data.' of our 2020 Annual Report.

Our cash requirements include, without limitation, principal and interest payments on various notes payable, dividends to stockholders, payment of claims, payment of commitments under limited partnership agreements, capital expenditures, and other operating expenses, including 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 we maintain at the holding company and operating subsidiary levels. As part of our long-term capital strategy, we strive to maintain capital metrics that support our targeted financial strength relative to the macroeconomic environment. Based on our analysis and market conditions, we may take a variety of actions, including, without limitation, contributing capital to the Insurance Subsidiaries, issuing additional debt and/or equity securities, repurchasing existing debt, repurchasing shares of the Parent's common stock, and increasing common 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 common share increased to $44.78 as of June 30, 2021, from $42.38 as of December 31, 2020, driven by $3.74 in net income per share, and partially offset by $0.86 of lower unrealized gains on our fixed income securities portfolio and $0.50 in dividends to our common shareholders.

Ratings
Our ratings remain the same as reported in our 'Overview' section of Item 1. 'Business.' of our 2020 Annual Report and are as follows:
NRSRO Financial Strength Rating Outlook
AM Best Company A Positive
Moody's Investors Services ('Moody's') A2 Stable
Fitch Ratings ('Fitch') A+ Stable
Standard & Poor's Global Ratings A Stable

On April 2, 2021, Fitch reaffirmed our 'A+' rating with a 'stable' outlook. In taking this rating action, Fitch cited our strong capitalization, financial performance, stable underwriting results, and return metrics that have remained favorable compared to peers.

On May 6, 2021, Moody's reaffirmed our 'A2' rating with a 'stable' outlook. In taking this action, Moody's cited our (i) strong underwriting profitability, financial leverage and coverage metrics, (ii) conservative investment portfolio, and (iii) strong regional franchise presence and established independent agency support.

41
Table of Contents
Off-Balance Sheet Arrangements
At June 30, 2021, and December 31, 2020, 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, (ii) contractual obligations pursuant to operating and financing leases for office space and equipment, and (iii) notes payable have not materially changed since December 31, 2020. At June 30, 2021, we 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 $ 222.9 2036
Non-publicly traded collateralized loan obligations in our fixed income securities portfolio 39.9 2030
Non-publicly traded common stock within our equity portfolio 9.4 2027
CMLs 5.4 2023
Privately-placed corporate securities 16.0 Less than a year
Total $ 293.6

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 18. 'Related Party Transactions' in Item 8. 'Financial Statements and Supplementary Data.' of our 2020 Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in the information about market risk set forth in our 2020 Annual Report. While not reflective of a material shift in the overall risk/return characteristics of our fixed income and short-term investments, the aggregate weighted average credit rating of these portfolios decreased to 'A+' as of June 30, 2021, from 'AA-' as of December 31, 2020. The decline in the weighted average credit rating reflects a meaningful reduction in our sector allocation to agency residential mortgage-backed securities over the past year as lower interest rates accelerated prepayments, as we had expected. Given the very low reinvestment rates for this asset class, we have reallocated these non-sale disposal cash flows into other high-quality fixed income sectors, including corporate securities and other asset-backed security classes that do not carry a 'AAA' rating, but in our view currently offer a better risk and reward trade-off.

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 (i) effective in recording, processing, summarizing, and reporting information on a timely basis that we are required to disclose in the reports that we file or submit under the Exchange Act, and (ii) effective in ensuring that information that we are required to disclose in the reports that we file or submit under the Exchange Act is appropriately accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions about required disclosure. No changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during Second Quarter 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
42
Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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 13. 'Litigation' in Item 1. 'Financial Statements.' of this Form 10-Q and Item 1A. 'Risk Factors.' below in Part II. 'Other Information.' As of June 30, 2021, 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.

ITEM 1A. RISK FACTORS.

Certain risk factors can significantly impact our business, liquidity, capital resources, results of operations, financial condition, and debt ratings. These risk factors might affect, alter, or change actions we might take executing our long-term capital strategy. Examples include, 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. Except as discussed below,there have been no material changes from the risk factors disclosed in Item 1A. 'Risk Factors.' in our 2020 Annual Report.

During Second Quarter 2021, the risk of broad economic inflation has emerged as a heightened risk relative to the risk factor discussed in our 2020 Annual Report. Inflation levels accelerated in Second Quarter 2021 with the overall consumer price index ('CPI'), the Core CPI, and the Producer Price Index all showing elevated levels compared to last year. As discussed in more detail in our 2020 Annual Report, inflation has significant potential impacts to our claims severity across multiple lines of business and could also cause higher levels of reserve development. Additionally, if heightened levels of economic inflation are tied to higher interest rate yields on fixed income securities, it could increase unrealized losses on our fixed income securities and lower total returns from our other invested assets.

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

The following table provides information about our purchases of our common stock in Second Quarter 2021:
Period
Total Number of
Shares Purchased1
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Programs
Approximate Dollar Value of
Shares that May Yet
Be Purchased Under the Announced Programs
(in millions)2
April 1 - 30, 2021 166 $ 73.33 - $ 96.6
May 1 - 31, 2021 398 77.43 - 96.6
June 1 - 30, 2021 375 76.26 - 96.6
Total 939 $ 76.24 - $ 96.6
1We purchased these shares from employees to satisfy tax withholding obligations associated with the vesting of their restricted stock units.
2On December 2, 2020, we announced that our Board of Directors authorized a $100 million share repurchase program, which has no set expiration or termination date. Our repurchase program does not obligate us to acquire any particular amount of our common stock, and the repurchase program may be suspended or discontinued at any time at our discretion. The timing and amount of any share repurchases under the authorization will be determined by management at its discretion and based on market conditions and other considerations.

43
Table of Contents
ITEM 6. EXHIBITS.
Exhibit No.
*11
Statement Re: Computation of Per Share Earnings.
*31.1
Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2
Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
**32.1
Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
**32.2
Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
*101
The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, 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 June 30, 2021, formatted in iXBRL.
* Filed herewith.
** Furnished and not filed herewith.
+ Management compensation plan or arrangement.





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: July 29, 2021 By: /s/ John J. Marchioni
John J. Marchioni
President and Chief Executive Officer
(principal executive officer)
Date: July 29, 2021 By: /s/ Mark A. Wilcox
Mark A. Wilcox
Executive Vice President and Chief Financial Officer
(principal financial officer)

44