SELECTIVE INSURANCE GROUP INC - Quarter Report: 2021 June (Form 10-Q)

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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

☐ 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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


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

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

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

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

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	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

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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

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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.

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(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.

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(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.

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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

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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

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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	—

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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.

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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.

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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)

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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

1 Six 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.

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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

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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)

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


	Pension Plan
	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

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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

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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.

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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

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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."

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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.

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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

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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;

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•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.

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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.

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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

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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.

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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.

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

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)

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

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.

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.

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

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'

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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

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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

Positive

Moody's Investors Services ("Moody's")

Stable

Fitch Ratings ("Fitch")

A+

Stable

Standard & Poor's Global Ratings

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.

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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.

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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.

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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)