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SELECTIVE INSURANCE GROUP INC - Quarter Report: 2023 June (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: June 30, 2023
or 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_____________________________to_____________________________
 
Commission File Number: 001-33067

Selective Insurance Logo.jpg

SELECTIVE INSURANCE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

New Jersey22-2168890
(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)

Registrant's telephone number, including area code: (973) 948-3000

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol (s)Name of each exchange on which registered
Common Stock, par value $2 per shareSIGIThe 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 valueSIGIPThe 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 filerAccelerated filerEmerging growth company
Non-accelerated filerSmaller reporting 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 31, 2023, there were 60,566,856 shares of common stock, par value $2.00 per share, outstanding. 


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SELECTIVE INSURANCE GROUP, INC.
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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, 2023December 31, 2022
ASSETS  
Investments:  
Fixed income securities, held-to-maturity – at carrying value (fair value: $22,356 – 2023; $29,837 – 2022)
$23,676 31,157 
Less: allowance for credit losses — 
Fixed income securities, held-to-maturity, net of allowance for credit losses23,676 31,157 
Fixed income securities, available-for-sale – at fair value
(allowance for credit losses: $31,425 – 2023 and $45,721 – 2022; amortized cost: $7,564,942 – 2023 and $7,185,754 – 2022)
7,032,348 6,612,107 
Commercial mortgage loans – at carrying value (fair value: $163,068 – 2023 and $139,243 – 2022)
175,538 149,305 
Less: allowance for credit losses(177)(116)
Commercial mortgage loans, net of allowance for credit losses175,361 149,189 
Equity securities – at fair value (cost:  $118,898 – 2023; $167,431 – 2022)
121,640 162,000 
Short-term investments319,456 440,456 
Alternative investments389,173 371,316 
Other investments71,545 71,244 
Total investments (Note 4 and 5)$8,133,199 7,837,469 
Cash354 26 
Restricted cash20,904 25,183 
Accrued investment income59,441 59,167 
Premiums receivable1,304,394 1,101,787 
Less: allowance for credit losses (Note 6)(17,900)(16,100)
Premiums receivable, net of allowance for credit losses1,286,494 1,085,687 
Reinsurance recoverable648,591 784,410 
Less: allowance for credit losses (Note 7)(1,800)(1,600)
Reinsurance recoverable, net of allowance for credit losses646,791 782,810 
Prepaid reinsurance premiums190,425 172,371 
Current federal income tax 3,545 
Deferred federal income tax171,915 172,733 
Property and equipment – at cost, net of accumulated depreciation and amortization of:
$262,013 – 2023; $251,209 – 2022
81,255 84,306 
Deferred policy acquisition costs413,813 368,624 
Goodwill7,849 7,849 
Other assets204,800 202,491 
Total assets$11,217,240 10,802,261 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Liabilities:  
Reserve for loss and loss expense (Note 8)$5,177,023 5,144,821 
Unearned premiums2,251,024 1,992,781 
Long-term debt503,622 504,676 
Current federal income tax2,555 — 
Accrued salaries and benefits91,993 115,185 
Other liabilities519,631 517,234 
Total liabilities$8,545,848 8,274,697 
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 – 2023 and 2022
Common stock of $2 par value per share:
Authorized shares 360,000,000
Issued: 105,148,165 – 2023; 104,847,111 – 2022
210,296 209,694 
Additional paid-in capital512,040 493,488 
Retained earnings2,859,569 2,749,703 
Accumulated other comprehensive income (loss) (Note 11)(475,722)(498,042)
Treasury stock – at cost (shares:  44,582,682 – 2023; 44,508,211 – 2022)
(634,791)(627,279)
Total stockholders’ equity$2,671,392 2,527,564 
Commitments and contingencies
Total liabilities and stockholders’ equity$11,217,240 10,802,261 
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
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SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Quarter ended June 30,Six Months ended June 30,
($ in thousands, except per share amounts)2023202220232022
Revenues:  
Net premiums earned$942,150 834,439 $1,844,486 1,646,722 
Net investment income earned97,696 70,222 189,202 142,824 
Net realized and unrealized investment gains (losses)(5,426)(42,880)(2,082)(83,232)
Other income6,104 3,037 8,738 4,566 
Total revenues1,040,524 864,818 2,040,344 1,710,880 
Expenses:  
Loss and loss expense incurred646,130 524,868 1,213,568 1,019,104 
Amortization of deferred policy acquisition costs194,793 173,381 384,554 343,138 
Other insurance expenses108,857 101,514 217,445 195,504 
Interest expense7,258 7,252 14,424 14,420 
Corporate expenses9,329 7,899 21,437 18,920 
Total expenses966,367 814,914 1,851,428 1,591,086 
Income before federal income tax74,157 49,904 188,916 119,794 
Federal income tax expense:  
Current17,366 9,692 42,871 26,870 
Deferred(1,817)692 (5,137)(2,926)
Total federal income tax expense15,549 10,384 37,734 23,944 
Net income$58,608 39,520 $151,182 95,850 
Preferred stock dividends2,300 2,300 4,600 4,600 
Net income available to common stockholders$56,308 37,220 $146,582 91,250 
Earnings per common share:  
Net income available to common stockholders - Basic$0.93 0.62 $2.42 1.51 
Net income available to common stockholders - Diluted$0.92 0.61 $2.41 1.50 
    
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)2023202220232022
Net income $58,608 39,520 $151,182 95,850 
Other comprehensive income (loss), net of tax:  
Unrealized gains (losses) on investment securities:  
Unrealized holding gains (losses) arising during period(47,937)(176,093)4,142 (382,941)
Unrealized gains (losses) on securities with credit loss recognized in earnings(4,764)(57,427)12,957 (125,857)
Amounts reclassified into net income:
Held-to-maturity securities —  
Net realized (gains) losses on disposals and losses on intent-to-sell available-for-sale securities7,413 14,354 12,235 26,987 
Credit loss (benefit) expense(683)12,261 (8,210)29,682 
Total unrealized gains (losses) on investment securities(45,971)(206,905)21,124 (452,128)
Defined benefit pension and post-retirement plans:  
Amounts reclassified into net income:
Net actuarial loss598 330 1,196 659 
Total defined benefit pension and post-retirement plans598 330 1,196 659 
Other comprehensive income (loss)(45,373)(206,575)22,320 (451,469)
Comprehensive income (loss)$13,235 (167,055)$173,502 (355,619)
 
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)2023202220232022
Preferred stock:
Beginning of period$200,000 200,000 $200,000 200,000 
Issuance of preferred stock —  — 
End of period200,000 200,000 200,000 200,000 
Common stock:  
Beginning of period210,149 209,336 209,694 208,902 
Dividend reinvestment plan10 12 19 23 
Stock purchase and compensation plans137 158 583 581 
End of period210,296 209,506 210,296 209,506 
Additional paid-in capital:  
Beginning of period502,713 472,790 493,488 464,347 
Dividend reinvestment plan449 444 908 887 
Stock purchase and compensation plans8,878 8,146 17,644 16,146 
End of period512,040 481,380 512,040 481,380 
Retained earnings:  
Beginning of period2,821,613 2,640,437 2,749,703 2,603,472 
Net income58,608 39,520 151,182 95,850 
Dividends to preferred stockholders(2,300)(2,300)(4,600)(4,600)
Dividends to common stockholders(18,352)(17,073)(36,716)(34,138)
End of period2,859,569 2,660,584 2,859,569 2,660,584 
Accumulated other comprehensive income (loss):  
Beginning of period(430,349)(129,795)(498,042)115,099 
Other comprehensive income (loss) (45,373)(206,575)22,320 (451,469)
End of period(475,722)(336,370)(475,722)(336,370)
Treasury stock:  
Beginning of period(634,722)(614,527)(627,279)(608,935)
Acquisition of treasury stock - share repurchase authorization (6,416) (6,492)
Acquisition of treasury stock - shares acquired related to employee share-based compensation plans(69)(67)(7,512)(5,583)
End of period(634,791)(621,010)(634,791)(621,010)
Total stockholders’ equity$2,671,392 2,594,090 $2,671,392 2,594,090 
Dividends declared per preferred share$287.50 287.50 $575.00 575.00 
Dividends declared per common share$0.30 0.28 $0.60 0.56 
Preferred stock, shares outstanding:
Beginning of period 8,000 8,000 8,000 8,000 
Issuance of preferred stock —  — 
End of period8,000 8,000 8,000 8,000 
Common stock, shares outstanding:
Beginning of period60,492,586 60,335,472 60,338,900 60,184,382 
Dividend reinvestment plan4,665 5,864 9,315 11,505 
Stock purchase and compensation plan68,923 72,245 291,739 290,687 
Acquisition of treasury stock - share repurchase authorization (85,059) (86,059)
Acquisition of treasury stock - shares acquired related to employee share-based compensation plans(691)(788)(74,471)(72,781)
End of period60,565,483 60,327,734 60,565,483 60,327,734 

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)20232022
Operating Activities  
Net income$151,182 95,850 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation and amortization17,179 21,998 
Stock-based compensation expense12,886 11,886 
Undistributed gains of equity method investments(13,478)(12,890)
Distributions in excess of current year income of equity method investments6,698 20,252 
Net realized and unrealized losses2,082 83,232 
Loss (gain) on disposal of fixed assets5 (1)
Changes in assets and liabilities:  
Increase in reserve for loss and loss expense, net of reinsurance recoverable168,221 169,114 
Increase in unearned premiums, net of prepaid reinsurance240,189 173,817 
Decrease (increase) in net federal income taxes1,006 (17,665)
Increase in premiums receivable(200,807)(172,231)
Increase in deferred policy acquisition costs(45,189)(32,464)
Increase in accrued investment income(264)(2,116)
Decrease in accrued salaries and benefits(23,192)(18,530)
Increase in other assets(4,667)(25,598)
Decrease in other liabilities(18,205)(51,171)
Net cash provided by (used in) operating activities293,646 243,483 
Investing Activities  
Purchases of fixed income securities, held-to-maturity (5,000)
Purchases of fixed income securities, available-for-sale(1,562,206)(1,478,298)
Purchases of commercial mortgage loans(27,201)(48,926)
Purchases of equity securities(8,373)(18,209)
Purchases of alternative investments and other investments(21,161)(32,179)
Purchases of short-term investments(2,422,123)(2,041,614)
Sales of fixed income securities, available-for-sale959,248 705,039 
Proceeds from commercial mortgage loans968 7,504 
Sales of short-term investments2,543,683 2,200,624 
Redemption and maturities of fixed income securities, held-to-maturity7,481 1,684 
Redemption and maturities of fixed income securities, available-for-sale227,884 392,648 
Sales of equity securities51,763 85,162 
Sales of other investments892 2,156 
Distributions from alternative investments and other investments5,130 9,013 
Purchases of property and equipment(9,549)(14,101)
Net cash provided by (used in) investing activities(253,564)(234,497)
Financing Activities  
Dividends to preferred stockholders(4,600)(4,600)
Dividends to common stockholders(35,385)(32,886)
Acquisition of treasury stock(7,512)(12,075)
Net proceeds from stock purchase and compensation plans4,695 4,280 
Proceeds from borrowings20,000 35,000 
Repayments of borrowings(20,000)(35,000)
Repayments of finance lease obligations(1,231)(1,202)
Net cash provided by (used in) financing activities(44,033)(46,483)
Net decrease in cash and restricted cash(3,951)(37,497)
Cash and restricted cash, beginning of period25,209 45,063 
Cash and restricted cash, end of period$21,258 7,566 

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 (i) United States ("U.S.") generally accepted accounting principles (“GAAP”), and (ii) the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. These require management 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 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, 2023 (“Second Quarter 2023”) and June 30, 2022 (“Second Quarter 2022”), and the six-month periods ended June 30, 2023 ("Six Months 2023") and June 30, 2022 ("Six Months 2022"). Our Financial Statements do not include all information and disclosures required by GAAP and the SEC for audited annual financial statements. Because interim period results of operations are not necessarily indicative of full-year results, our Financial Statements should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”) filed with the SEC.

NOTE 2. Adoption of Accounting Pronouncements 
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the 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, 2024, as permitted by the newly issued ASU 2022-06, Reference Rate Reform (Topic 848) — Deferral of the Sunset Date of Topic 848. We adopted this guidance in the first quarter of 2023. We are not required to measure the effect of adoption on our financial position, cash flows, or net income because the guidance provides relief from accounting for the effects of the change to a replacement rate.

Pronouncements to be effective in the future
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies that a contractual sales restriction on an equity security is not considered when determining the security's fair value. This ASU was issued to eliminate diversity in practice by clarifying that contractual arrangements restricting an entity's ability to sell the security for a certain period of time is a characteristic of the reporting entity and should not be contemplated when determining the security's fair value. ASU 2022-03 requires new disclosures that provide investors with information about the restriction, including the nature and remaining duration of the restriction. The ASU is effective for annual periods beginning after December 15, 2023, including interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the impact of this guidance.

In March 2023, the FASB issued ASU 2023-02, Investments — Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02"). This ASU allows companies to elect to account for qualifying tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Companies were previously permitted to apply the proportional amortization method only to qualifying tax equity investments in low-income-housing tax credit structures. ASU 2023-02 extends the application of the proportional amortization method to qualifying tax equity investments that generate tax credits through other programs. It also requires new disclosures that provide a better understanding of the nature of the tax equity investments and the effect the tax equity investments and related income tax credits and other income tax benefits have on a company's financial position and results of operations. The ASU is effective for annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted in any interim period. We are currently evaluating the impact of this guidance.
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NOTE 3. Statements of Cash Flows
Supplemental cash flow information was as follows:

 Six Months ended June 30,
($ in thousands)20232022
Cash paid (received) during the period for:  
Interest$14,164 14,240 
Federal income tax34,000 40,200 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases4,038 4,086 
Operating cash flows from financing leases20 20 
Financing cash flows from finance leases1,231 1,202 
Non-cash items:
Corporate actions related to fixed income securities, available-for-sale ("AFS")1
23,150 17,287 
Conversion of AFS fixed income securities to equity securities 1,463 
Assets acquired under finance lease arrangements 41 
Assets acquired under operating lease arrangements4,509 5,781 
Non-cash purchase of property and equipment 17 
1Examples of corporate actions include like-kind exchanges, non-cash acquisitions, and stock splits.

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

($ in thousands)June 30, 2023December 31, 2022
Cash$354 26 
Restricted cash20,904 25,183 
Total cash and restricted cash shown in the Consolidated Statements of Cash Flows$21,258 25,209 

Amounts in restricted cash represent cash received from the National Flood Insurance Program ("NFIP") that can only be used to pay flood claims under the Write Your Own program.

NOTE 4. Investments
(a) Information regarding our AFS securities as of June 30, 2023 and December 31, 2022, were as follows:

June 30, 2023Cost/
Amortized
Cost
Allowance for Credit LossesUnrealized
Gains
Unrealized
Losses
Fair
Value
($ in thousands)
AFS fixed income securities:
U.S. government and government agencies$313,965   (20,943)293,022 
Foreign government11,171 (34) (1,318)9,819 
Obligations of states and political subdivisions694,734 (769)1,607 (37,544)658,028 
Corporate securities2,585,819 (16,149)4,964 (189,664)2,384,970 
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS")1,739,788 (2,915)3,353 (105,957)1,634,269 
Residential mortgage-backed securities ("RMBS")
1,520,170 (11,550)1,024 (101,809)1,407,835 
Commercial mortgage-backed securities ("CMBS")699,295 (8)162 (55,044)644,405 
Total AFS fixed income securities$7,564,942 (31,425)11,110 (512,279)7,032,348 

December 31, 2022Cost/
Amortized
Cost
Allowance for Credit LossesUnrealized
Gains
Unrealized
Losses
Fair
Value
($ in thousands)
AFS fixed income securities:
U.S. government and government agencies$209,528 — 37 (20,326)189,239 
Foreign government11,199 (284)— (1,307)9,608 
Obligations of states and political subdivisions965,231 (1,024)1,812 (48,001)918,018 
Corporate securities2,558,655 (30,330)3,509 (196,809)2,335,025 
CLO and other ABS1,607,660 (2,375)2,408 (121,720)1,485,973 
RMBS1,169,546 (11,597)1,148 (99,265)1,059,832 
CMBS663,935 (111)348 (49,760)614,412 
Total AFS fixed income securities$7,185,754 (45,721)9,262 (537,188)6,612,107 
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The following tables provide a roll forward of the allowance for credit losses on our AFS fixed income securities for the indicated periods:

Quarter ended June 30, 2023Beginning BalanceCurrent Provision for Securities without Prior AllowanceInitial Allowance for Purchased Credit Deteriorated Assets with Credit DeteriorationIncrease (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell SecuritiesReductions for Securities SoldReductions for Securities Identified as Intent (or Requirement) to Sell during the PeriodEnding Balance
($ in thousands)
Foreign government$36   (2)  34 
Obligations of states and political subdivisions737 67  (35)  769 
Corporate securities16,756 1,438  (1,070)(939)(36)16,149 
CLO and other ABS3,895 622  (1,595)(7) 2,915 
RMBS11,740 1  (50)(141) 11,550 
CMBS390   (240)(142) 8 
Total AFS fixed income securities$33,554 2,128  (2,992)(1,229)(36)31,425 

Quarter ended June 30, 2022Beginning BalanceCurrent Provision for Securities without Prior AllowanceInitial Allowance for Purchased Credit Deteriorated Assets with Credit DeteriorationIncrease (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell SecuritiesReductions for Securities SoldReductions for Securities Identified as Intent (or Requirement) to Sell during the PeriodEnding Balance
($ in thousands)
Foreign government$150 117 — 12 (14)— 265 
Obligations of states and political subdivisions1,991 534 — (1,166)(153)— 1,206 
Corporate securities23,066 8,323 — 5,732 (1,944)(105)35,072 
CLO and other ABS2,283 530 — 819 (9)— 3,623 
RMBS10,029 173 — 507 (93)— 10,616 
CMBS80 — — (62)— — 18 
Total AFS fixed income securities$37,599 9,677 — 5,842 (2,213)(105)50,800 

Six Months ended June 30, 2023Beginning BalanceCurrent Provision for Securities without Prior AllowanceInitial Allowance for Purchased Credit Deteriorated Assets with Credit DeteriorationIncrease (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell SecuritiesReductions for Securities SoldReductions for Securities Identified as Intent (or Requirement) to Sell during the PeriodEnding Balance
($ in thousands)
Foreign government$284   (250)  34 
Obligations of states and political subdivisions1,024 67  (239)(83) 769 
Corporate securities30,330 4,141  (14,884)(3,387)(51)16,149 
CLO and other ABS2,375 677  (127)(10) 2,915 
RMBS11,597 8  174 (229) 11,550 
CMBS111 1  39 (143) 8 
Total AFS fixed income securities$45,721 4,894  (15,287)(3,852)(51)31,425 

Six Months ended June 30, 2022Beginning BalanceCurrent Provision for Securities without Prior AllowanceInitial Allowance for Purchased Credit Deteriorated Assets with Credit DeteriorationIncrease (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell SecuritiesReductions for Securities SoldReductions for Securities Identified as Intent (or Requirement) to Sell during the PeriodEnding Balance
($ in thousands)
Foreign government$46 236 — (3)(14)— 265 
Obligations of states and political subdivisions137 1,237 — (4)(164)— 1,206 
Corporate securities6,682 28,243 — 4,542 (3,191)(1,204)35,072 
CLO and other ABS939 2,058 — 637 (11)— 3,623 
RMBS1,909 174 8,318 443 (228)— 10,616 
CMBS11 17 — (10)— — 18 
Total AFS fixed income securities$9,724 31,965 8,318 5,605 (3,608)(1,204)50,800 

During Six Months 2023 and Six Months 2022, we had no write-offs or recoveries of our AFS fixed income securities.
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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 2022 Annual Report. Accrued interest on AFS securities was $58.1 million as of June 30, 2023, and $56.4 million as of December 31, 2022. We did not record any (i) write-offs of accrued interest during Six Months 2023, or (ii) material write-offs of accrued interest in Six Months 2022.

(b) Quantitative information about unrealized losses on our AFS portfolio follows:

June 30, 2023Less than 12 months12 months or longerTotal
($ in thousands)Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
AFS fixed income securities:    
U.S. government and government agencies$208,153 (2,831)84,869 (18,112)293,022 (20,943)
Foreign government4,380 (247)5,439 (1,071)9,819 (1,318)
Obligations of states and political subdivisions337,606 (5,554)229,922 (31,990)567,528 (37,544)
Corporate securities1,101,756 (40,711)895,497 (148,953)1,997,253 (189,664)
CLO and other ABS523,727 (17,268)924,490 (88,689)1,448,217 (105,957)
RMBS792,885 (26,269)538,073 (75,540)1,330,958 (101,809)
CMBS291,078 (12,882)344,647 (42,162)635,725 (55,044)
Total AFS fixed income securities$3,259,585 (105,762)3,022,937 (406,517)6,282,522 (512,279)

December 31, 2022Less than 12 months12 months or longerTotal
($ in thousands)Fair
Value
Unrealized
Losses
Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
AFS fixed income securities:    
U.S. government and government agencies$166,975 (13,658)16,011 (6,668)182,986 (20,326)
Foreign government5,573 (608)2,456 (699)8,029 (1,307)
Obligations of states and political subdivisions681,795 (43,767)16,618 (4,234)698,413 (48,001)
Corporate securities1,889,492 (164,197)133,223 (32,612)2,022,715 (196,809)
CLO and other ABS916,423 (69,155)411,283 (52,565)1,327,706 (121,720)
RMBS887,229 (76,432)108,041 (22,833)995,270 (99,265)
CMBS512,953 (37,815)77,181 (11,945)590,134 (49,760)
Total AFS fixed income securities$5,060,440 (405,632)764,813 (131,556)5,825,253 (537,188)

We currently do not intend to sell any of the securities summarized in the tables above, nor do we believe we will be required to sell any of them. The decrease in gross unrealized losses as of June 30, 2023, compared to December 31, 2022, was primarily driven by a tightening of credit spreads, partially offset by an increase in benchmark U.S. Treasury rates. 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 2022 Annual Report, we have concluded that no additional allowance for credit loss is required on these balances beyond the allowance for credit loss recorded as of June 30, 2023. This conclusion reflects our current judgment about the financial position and future prospects of the entities that issued the investment security and underlying collateral.

(c) AFS and held-to-maturity ("HTM") fixed income securities at June 30, 2023, by contractual maturity are shown below. The maturities of RMBS, CMBS, CLO and other ABS securities were calculated using each security's estimated average life. 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.
 
AFSHTM
($ in thousands)Fair ValueCarrying ValueFair Value
Due in one year or less$369,240 443 442 
Due after one year through five years3,056,529 13,942 13,233 
Due after five years through 10 years2,912,169 9,291 8,681 
Due after 10 years694,410   
Total fixed income securities$7,032,348 23,676 22,356 

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(d) The following table summarizes our alternative investment portfolio by strategy:

June 30, 2023December 31, 2022
($ in thousands)Carrying ValueRemaining CommitmentMaximum Exposure to LossCarrying ValueRemaining CommitmentMaximum Exposure to Loss
Alternative Investments  
   Private equity$298,219 124,213 422,432 280,980 134,676 415,656 
   Private credit52,379 138,691 191,070 54,866 89,481 144,347 
   Real assets38,575 19,553 58,128 35,470 21,945 57,415 
Total alternative investments$389,173 282,457 671,630 371,316 246,102 617,418 

We are contractually committed to make additional investments up to the remaining commitments stated above. We did not provide any non-contractual financial support during 2023 or 2022.

The following table shows gross summarized financial information for our alternative investments portfolio, including the portion we do not own. As the majority of these investments report results to us on a one quarter lag, the summarized financial statement information is for the 3- and 6-month periods ended March 31:

Income Statement InformationQuarter ended June 30,Six Months ended June 30,
($ in millions)2023202220232022
Net investment income (loss)$(70.6)270.9 $(141.3)406.5 
Realized gains922.0 6,233.5 2,644.3 8,981.5 
Net change in unrealized appreciation (depreciation)3,754.0 (3,962.4)5,197.8 1,215.9 
Net income$4,605.4 2,542.0 $7,700.8 10,603.9 
Alternative investment income included in "Net investment income earned" on our Consolidated Statements of Income$11.4 9.3 $19.2 28.4 

(e) We have pledged certain AFS fixed income securities as collateral related to our borrowing relationships with the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"). In addition, we had certain securities on deposit with various state and regulatory agencies at June 30, 2023 to comply with insurance laws. We retain all rights regarding all securities pledged as collateral.

The following table summarizes the market value of these securities at June 30, 2023:

($ in millions)FHLBI CollateralFHLBNY CollateralState and
Regulatory Deposits
Total
U.S. government and government agencies$  19.4 19.4 
Obligations of states and political subdivisions  3.5 3.5 
RMBS62.1 26.9  89.0 
CMBS2.9 8.7  11.6 
Total pledged as collateral$65.0 35.6 22.9 123.5 

(f) We did not have exposure to any credit concentration risk of a single issuer greater than 10% of our stockholders' equity, other than to certain U.S. government agencies, as of June 30, 2023, or December 31, 2022.

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

 Quarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Fixed income securities$83,916 62,144 $164,003 116,069 
Commercial mortgage loans ("CMLs")2,199 1,192 4,164 2,162 
Equity securities2,236 2,639 3,441 5,057 
Short-term investments2,892 407 7,542 508 
Alternative investments11,396 9,274 19,164 28,402 
Other investments188 (214)231 (37)
Investment expenses(5,131)(5,220)(9,343)(9,337)
Net investment income earned$97,696 70,222 $189,202 142,824 

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(h) The following table summarizes net realized and unrealized investment gains and losses for the periods indicated:

Quarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Gross gains on sales$1,156 14,552 $4,940 16,749 
Gross losses on sales(11,952)(19,345)(24,882)(32,905)
Net realized gains (losses) on disposals(10,796)(4,793)(19,942)(16,156)
Net unrealized gains (losses) on equity securities4,925 (21,860)8,173 (24,014)
Net credit loss benefit (expense) on fixed income securities, AFS864 (15,519)10,393 (37,571)
Net credit loss benefit (expense) on fixed income securities, HTM (6) 
Net credit loss (expense) on CMLs(78)— (61)— 
Losses on securities for which we have the intent to sell(341)(702)(645)(5,499)
Net realized and unrealized investment gains (losses)$(5,426)(42,880)$(2,082)(83,232)

Net realized and unrealized investment losses decreased $37.5 million in Second Quarter 2023 and $81.2 million in Six Months 2023 compared to the same prior-year periods, primarily due to (i) a credit loss benefit recorded on our AFS fixed income securities portfolio in both current-year periods compared to credit loss expense recorded in both prior-year periods, and (ii) an increase in valuations reflecting the current public equities market. The credit loss benefit in both current-year periods reflected the tightening of credit spreads, partially offset by rising benchmark U.S. Treasury rates.

Net unrealized gains and losses recognized in income on equity securities, as reflected in the table above, included the following:

Quarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Unrealized gains (losses) recognized in income on equity securities:
On securities remaining in our portfolio at end of period$2,784 (13,031)$2,685 (14,843)
On securities sold in period2,141 (8,829)5,488 (9,171)
Total unrealized gains (losses) recognized in income on equity securities$4,925 (21,860)$8,173 (24,014)

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 fair values of our financial liabilities as of June 30, 2023, and December 31, 2022:

June 30, 2023December 31, 2022
($ in thousands)Carrying AmountFair ValueCarrying AmountFair Value
Financial Liabilities
Long-term debt:
7.25% Senior Notes$49,924 52,312 49,921 51,705 
6.70% Senior Notes99,553 102,386 99,542 99,264 
5.375% Senior Notes294,472 275,149 294,424 258,459 
3.03% borrowings from FHLBI60,000 57,011 60,000 57,175 
Subtotal long-term debt503,949 486,858 503,887 466,603 
Unamortized debt issuance costs(2,814)(2,929)
Finance lease obligations2,487 3,718 
Total long-term debt$503,622 504,676 

For discussion regarding the fair value techniques of our financial instruments, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2022 Annual Report.

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The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at June 30, 2023, and December 31, 2022:

June 30, 2023 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$293,022 145,044 147,978  
Foreign government9,819  9,819  
Obligations of states and political subdivisions658,028  651,312 6,716 
Corporate securities2,384,970  2,139,481 245,489 
CLO and other ABS1,634,269  1,432,343 201,926 
RMBS1,407,835  1,407,835  
CMBS644,405  644,028 377 
Total AFS fixed income securities7,032,348 145,044 6,432,796 454,508 
Equity securities:
Common stock1
119,867 21,304  662 
Preferred stock1,773 1,773   
Total equity securities121,640 23,077  662 
Short-term investments319,456 315,574 3,882  
Total assets measured at fair value$7,473,444 483,695 6,436,678 455,170 

December 31, 2022 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$189,239 109,240 79,999 — 
Foreign government9,608 — 9,608 — 
Obligations of states and political subdivisions918,018 — 911,357 6,661 
Corporate securities2,335,025 — 2,147,045 187,980 
CLO and other ABS1,485,973 — 1,332,631 153,342 
RMBS1,059,832 — 1,059,832 — 
CMBS614,412 — 614,037 375 
Total AFS fixed income securities6,612,107 109,240 6,154,509 348,358 
Equity securities:
Common stock1
160,355 55,846 — 897 
Preferred stock1,645 1,645 — — 
Total equity securities162,000 57,491 — 897 
Short-term investments440,456 418,199 22,257 — 
Total assets measured at fair value$7,214,563 584,930 6,176,766 349,255 
1Investments amounting to $97.9 million at June 30, 2023, and $103.6 million at December 31, 2022, were measured at fair value using the net asset value per share (or its practical expedient) and have not been 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 are intended to permit reconciliation of the fair value hierarchy to total assets measured at fair value.

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The following tables provide a summary of Level 3 changes in Six Months 2023 and Six Months 2022:

June 30, 2023
($ in thousands)Obligations of States and Political SubdivisionsCorporate SecuritiesCLO and Other ABSCMBSCommon StockTotal
Fair value, December 31, 2022
$6,661 187,980 153,342 375 897 349,255 
Total net gains (losses) for the period included in:
Other comprehensive income (loss) ("OCI")(7)1,857 (1,168)64  746 
   Net realized and unrealized gains (losses)62 251 17  (235)95 
Net investment income earned 112 (20)(263) (171)
Purchases 58,586 39,713   98,299 
Sales      
Issuances      
Settlements (5,535)(3,153)(21) (8,709)
Transfers into Level 3 2,238 14,148 2,848  19,234 
Transfers out of Level 3  (953)(2,626) (3,579)
Fair value, June 30, 2023
$6,716 245,489 201,926 377 662 455,170 
Change in unrealized gains (losses) for the period included in earnings for assets held at period end62 251 17  (235)95 
Change in unrealized gains (losses) for the period included in OCI for assets held at period end(7)1,846 (1,168)64  735 

June 30, 2022
($ in thousands)Obligation of state and Political SubdivisionsCorporate SecuritiesCLO and Other ABSRMBSCMBSTotal
Fair value, December 31, 2021
$7,745 114,127 124,909 245 4,256 251,282 
Total net gains (losses) for the period included in:
OCI(581)(16,422)(8,592)(17)(446)(26,058)
   Net realized and unrealized gains (losses)(156)(2,047)(777)— (7)(2,987)
Net investment income earned— 14 68 — 47 129 
Purchases— 55,343 39,133 — — 94,476 
Sales— — — — — — 
Issuances— — — — — — 
Settlements— (3,903)(6,479)(11)(12)(10,405)
Transfers into Level 3— 19,214 — — — 19,214 
Transfers out of Level 3— (7,037)(24,646)(217)(3,431)(35,331)
Fair value, June 30, 2022
$7,008 159,289 123,616 — 407 290,320 
Change in unrealized gains (losses) for the period included in earnings for assets held at period end(156)(2,047)(777)— (7)(2,987)
Change in unrealized gains (losses) for the period included in OCI for assets held at period end(581)(16,424)(8,551)(17)(446)(26,019)

The following tables present quantitative information about the significant unobservable inputs used in the fair value measurements of Level 3 assets at June 30, 2023, and December 31, 2022:

June 30, 2023
($ in thousands)Assets Measured at Fair ValueValuation TechniquesUnobservable InputsRange Weighted Average
Internal valuations:
Corporate securities$116,155 Discounted Cash FlowIlliquidity Spread
(4.4)% - 5.3%
2.2%
CLO and other ABS90,768 Discounted Cash FlowIlliquidity Spread
0.01% - 19.6%
2.6%
Total internal valuations206,923 
Other1
248,247 
Total Level 3 securities$455,170 

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December 31, 2022
($ in thousands)Assets Measured at Fair ValueValuation TechniquesUnobservable InputsRangeWeighted Average
Internal valuations:
Corporate securities$81,867 Discounted Cash FlowIlliquidity Spread
(4.4)% - 5.3%
1.3%
CLO and other ABS59,452 Discounted Cash FlowIlliquidity Spread
0.01% - 19.6%
2.5%
Total internal valuations141,319 
Other1
207,936 
Total Level 3 securities$349,255 
1Other is comprised of broker quotes or other third-party pricing for which there is a lack of transparency into the inputs used to develop the valuations. The quantitative details of these unobservable inputs are neither provided to us, nor reasonably available to us, and therefore are not included in the tables above.

For the securities in the tables above valued using a discounted cash flow analysis, we apply an illiquidity spread in our determination of fair value. An increase in this assumption would result in a lower fair value measurement.

The following tables provide quantitative information about our financial assets and liabilities that were not measured at fair value, but were disclosed as such at June 30, 2023, and December 31, 2022:

June 30, 2023 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:    
Corporate securities$22,356  22,356  
Total HTM fixed income securities22,356  22,356  
CMLs$163,068   163,068 
Financial Liabilities    
Long-term debt:
7.25% Senior Notes$52,312  52,312  
6.70% Senior Notes102,386  102,386  
5.375% Senior Notes275,149  275,149  
3.03% borrowings from FHLBI57,011  57,011  
Total long-term debt$486,858  486,858  

December 31, 2022 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$3,405 — 3,405 — 
Corporate securities26,432 — 26,432 — 
Total HTM fixed income securities$29,837 — 29,837 — 
CMLs$139,243   139,243 
Financial Liabilities    
Long-term debt:
7.25% Senior Notes$51,705 — 51,705 — 
6.70% Senior Notes99,264 — 99,264 — 
5.375% Senior Notes258,459 — 258,459 — 
3.03% borrowings from FHLBI57,175 — 57,175 — 
Total long-term debt$466,603 — 466,603 — 

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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 indicated periods:

Quarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Balance at beginning of period$17,100 $14,300 $16,100 $13,600 
Current period change for expected credit losses1,515 1,169 3,425 2,085 
Write-offs charged against the allowance for credit losses(1,047)(918)(2,211)(1,438)
Recoveries332 349 586 653 
Allowance for credit losses, end of period$17,900 $14,900 $17,900 $14,900 

For a discussion of the methodology used to evaluate our estimate of expected credit losses on premiums receivable, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2022 Annual Report.

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, 2023, and December 31, 2022:

June 30, 2023
($ in thousands)CurrentPast DueTotal Reinsurance Recoverables
Financial strength rating of rated reinsurers
A++$80,117 $888 $81,005 
A+347,802 5,367 353,169 
A117,592 5,316 122,908 
A-3,599 89 3,688 
Total rated reinsurers$549,110 $11,660 $560,770 
Non-rated reinsurers
Federal and state pools$80,629 $ $80,629 
Other than federal and state pools6,717 475 7,192 
Total non-rated reinsurers$87,346 $475 $87,821 
Total reinsurance recoverable, gross$636,456 $12,135 $648,591 
Less: allowance for credit losses(1,800)
Total reinsurance recoverable, net$646,791 

December 31, 2022
($ in thousands)CurrentPast DueTotal Reinsurance Recoverables
Financial strength rating of rated reinsurers
A++$46,282 $$46,283 
A+425,395 3,191 428,586 
A106,102 1,315 107,417 
A-7,148 89 7,237 
Total rated reinsurers$584,927 $4,596 $589,523 
Non-rated reinsurers
Federal and state pools$180,794 $— $180,794 
Other than federal and state pools13,678 415 14,093 
Total non-rated reinsurers$194,472 $415 $194,887 
Total reinsurance recoverable, gross$779,399 $5,011 $784,410 
Less: allowance for credit losses(1,600)
Total reinsurance recoverable, net$782,810 

The $100.2 million decrease in "Federal and state pools" as of June 30, 2023, compared to December 31, 2022, was primarily
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due to a decrease in the NFIP reserves recorded as of December 31, 2022, for flood losses in Florida and surrounding states as a result of Hurricane Ian, which are 100% ceded to the NFIP.

The following table provides a roll forward 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,
2023202220232022
Balance at beginning of period$2,300 1,600 $1,600 1,600 
Current period change for expected credit losses(500)— 200 — 
Write-offs charged against the allowance for credit losses —  — 
Recoveries —  — 
Allowance for credit losses, end of period$1,800 1,600 $1,800 1,600 

For a discussion of the methodology used to evaluate our estimate of expected credit losses on our reinsurance recoverable balance, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2022 Annual Report.

The following table lists direct, assumed, and ceded reinsurance amounts for premiums written, premiums earned, and loss and loss expense incurred for the indicated periods. For more information about reinsurance, refer to Note 9. “Reinsurance” in Item 8. “Financial Statements and Supplementary Data.” of our 2022 Annual Report.

Quarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Premiums written:    
Direct$1,232,496 1,050,506 $2,365,256 2,051,555 
Assumed5,577 8,552 10,971 13,866 
Ceded(153,166)(128,317)(291,552)(244,882)
Net$1,084,907 930,741 $2,084,675 1,820,539 
Premiums earned:    
Direct$1,073,498 955,651 $2,105,726 1,887,027 
Assumed5,968 7,481 12,258 13,009 
Ceded(137,316)(128,693)(273,498)(253,314)
Net$942,150 834,439 $1,844,486 1,646,722 
Loss and loss expenses incurred:    
Direct$698,994 559,913 $1,312,223 1,088,501 
Assumed5,678 5,125 10,933 9,403 
Ceded(58,542)(40,170)(109,588)(78,800)
Net$646,130 524,868 $1,213,568 1,019,104 

NOTE 8. Reserve for Loss and Loss Expense
The table below provides a roll forward of the reserve for loss and loss expense for beginning and ending reserve balances:

Six Months ended June 30,
($ in thousands)20232022
Gross reserve for loss and loss expense, at beginning of period$5,144,821 4,580,903 
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of period757,513 578,641 
Net reserve for loss and loss expense, at beginning of period4,387,308 4,002,262 
Incurred loss and loss expense for claims occurring in the:  
Current year1,221,635 1,041,778 
Prior years(8,067)(22,674)
Total incurred loss and loss expense1,213,568 1,019,104 
Paid loss and loss expense for claims occurring in the:  
Current year320,026 272,401 
Prior years720,314 570,868 
Total paid loss and loss expense1,040,340 843,269 
Net reserve for loss and loss expense, at end of period4,560,536 4,178,097 
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period616,487 544,082 
Gross reserve for loss and loss expense, at end of period$5,177,023 4,722,179 
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Prior year reserve development in Six Months 2023 was favorable by $8.1 million, consisting of $16.5 million of favorable casualty reserve development, partially offset by $8.4 million of unfavorable property reserve development. The favorable casualty reserve development included $17.5 million in our workers compensation line of business and $5.0 million in our Excess and Surplus ("E&S") casualty lines of business, partially offset by $6.0 million of unfavorable casualty reserve development in our personal automobile line of business.

Prior year reserve development in Six Months 2022 was favorable by $22.7 million, consisting of $32.0 million of favorable casualty reserve development, partially offset by $9.3 million of unfavorable property reserve development. The favorable casualty reserve development included $20.0 million in our workers compensation line of business, $7.0 million in our bonds line of business, and $5.0 million in our general liability 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 (i) before and after-tax underwriting results (net premiums earned, incurred loss and loss expense, policyholder dividends, policy acquisition costs, and other underwriting expenses), (ii) their return on equity ("ROE") contribution, and (iii) their 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 are also included in our Investments segment results.

In computing each segment's results, we do not make adjustments for interest expense or corporate expenses. No segment has a separate investment portfolio or allocated assets.

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

Revenue by SegmentQuarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Standard Commercial Lines:  
Net premiums earned:  
General liability$254,510 226,285 $497,859 442,610 
Commercial automobile225,067 198,381 442,438 392,211 
Commercial property141,348 123,562 276,640 243,624 
Workers compensation88,746 83,502 172,930 168,182 
Businessowners' policies34,385 31,508 67,556 61,552 
Bonds11,619 10,682 23,016 21,042 
Other7,034 6,317 13,885 12,485 
Miscellaneous income5,568 2,596 7,749 3,697 
Total Standard Commercial Lines revenue768,277 682,833 1,502,073 1,345,403 
Standard Personal Lines:
Net premiums earned:
Personal automobile48,230 39,952 93,144 79,668 
Homeowners36,902 31,630 71,915 62,817 
Other2,038 1,756 3,981 3,495 
Miscellaneous income536 441 989 869 
Total Standard Personal Lines revenue87,706 73,779 170,029 146,849 
E&S Lines:
Net premiums earned:
Casualty lines62,151 56,041 122,968 110,665 
Property lines30,120 24,823 58,154 48,371 
Total E&S Lines revenue92,271 80,864 181,122 159,036 
Investments:    
Net investment income earned97,696 70,222 189,202 142,824 
Net realized and unrealized investment gains (losses)(5,426)(42,880)(2,082)(83,232)
Total Investments revenue92,270 27,342 187,120 59,592 
Total revenues $1,040,524 864,818 $2,040,344 1,710,880 

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Income Before and After Federal Income TaxQuarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Standard Commercial Lines:  
Underwriting income (loss), before federal income tax$22,146 46,708 $61,067 89,092 
Underwriting income (loss), after federal income tax17,495 36,899 48,243 70,383 
Combined ratio97.1 %93.1 95.9 93.4 
ROE contribution2.8 6.0 4.1 5.5 
Standard Personal Lines:
Underwriting income (loss), before federal income tax$(23,060)(12,367)$(36,133)(5,847)
Underwriting income (loss), after federal income tax(18,217)(9,770)(28,545)(4,619)
Combined ratio126.5 %116.9 121.4 104.0 
ROE contribution(2.9)(1.6)(2.4)(0.4)
E&S Lines:
Underwriting income (loss), before federal income tax$(612)3,372 $12,723 10,297 
Underwriting income (loss), after federal income tax(483)2,664 10,051 8,135 
Combined ratio100.7 %95.8 93.0 93.5 
ROE contribution(0.1)0.4 0.8 0.6 
Investments:  
Net investment income earned$97,696 70,222 $189,202 142,824 
Net realized and unrealized investment gains (losses)(5,426)(42,880)(2,082)(83,232)
Total investments segment income, before federal income tax92,270 27,342 187,120 59,592 
Tax on investments segment income18,745 4,559 37,901 10,172 
Total investments segment income, after federal income tax$73,525 22,783 $149,219 49,420 
ROE contribution of after-tax net investment income earned12.6 9.1 12.5 8.9 

Reconciliation of Segment Results to Income Before Federal Income TaxQuarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Underwriting income
Standard Commercial Lines$22,146 46,708 $61,067 89,092 
Standard Personal Lines(23,060)(12,367)(36,133)(5,847)
E&S Lines(612)3,372 12,723 10,297 
Investment income92,270 27,342 187,120 59,592 
Total all segments90,744 65,055 224,777 153,134 
Interest expense(7,258)(7,252)(14,424)(14,420)
Corporate expenses(9,329)(7,899)(21,437)(18,920)
Income, before federal income tax$74,157 49,904 $188,916 119,794 
Preferred stock dividends(2,300)(2,300)(4,600)(4,600)
Income available to common stockholders, before federal income tax$71,857 47,604 $184,316 115,194 

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”). The plan is closed to new entrants, and benefits ceased accruing under the Pension Plan after March 31, 2016. For more information about Selective Insurance Company of America's ("SICA") retirement plans, see Note 15. “Retirement Plans” in Item 8. “Financial Statements and Supplementary Data.” of our 2022 Annual Report.

The following tables provide information about the Pension Plan:

Pension Plan
Quarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Net Periodic Pension Cost (Benefit):
Interest cost$3,866 2,486 $7,732 4,972 
Expected return on plan assets(5,772)(5,537)(11,545)(11,074)
Amortization of unrecognized net actuarial loss750 367 1,501 733 
Total net periodic pension cost (benefit)1
$(1,156)(2,684)$(2,312)(5,369)
1The components of net periodic pension cost (benefit) are included within "Loss and loss expense incurred" and "Other insurance expenses" on the Consolidated Statements of Income.

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Pension Plan
Six Months ended June 30,
20232022
Weighted-Average Expense Assumptions:
Discount rate5.21 %2.98 %
Effective interest rate for calculation of interest cost5.09 2.48 
Expected return on plan assets6.90 5.00 

NOTE 11. Comprehensive Income
The components of comprehensive income, both gross and net of tax, for Second Quarter 2023 and Six Months 2023 and Second Quarter 2022 and Six Months 2022 were as follows:

Second Quarter 2023   
($ in thousands)GrossTaxNet
Net income$74,157 15,549 58,608 
Components of OCI:   
Unrealized gains (losses) on investment securities:
   
Unrealized holding gains (losses) during the period(60,681)(12,744)(47,937)
Unrealized gains (losses) on securities with credit loss recognized in earnings(6,030)(1,266)(4,764)
Amounts reclassified into net income:
Net realized (gains) losses on disposals and intent-to-sell AFS securities9,383 1,970 7,413 
Credit loss (benefit) expense(864)(181)(683)
    Total unrealized gains (losses) on investment securities(58,192)(12,221)(45,971)
Defined benefit pension and post-retirement plans:   
Amounts reclassified into net income:   
Net actuarial (gain) loss757 159 598 
    Total defined benefit pension and post-retirement plans757 159 598 
Other comprehensive income (loss)(57,435)(12,062)(45,373)
Comprehensive income (loss)$16,722 3,487 13,235 
Second Quarter 2022   
($ in thousands)GrossTaxNet
Net income$49,904 10,384 39,520 
Components of OCI:   
Unrealized gains (losses) on investment securities:   
Unrealized holding gains (losses) during the period(222,903)(46,810)(176,093)
Unrealized gains (losses) on securities with credit loss recognized in earnings(72,691)(15,264)(57,427)
Amounts reclassified into net income:
Net realized (gains) losses on disposals and intent-to-sell AFS securities18,170 3,816 14,354 
Credit loss (benefit) expense15,519 3,258 12,261 
    Total unrealized gains (losses) on investment securities(261,905)(55,000)(206,905)
Defined benefit pension and post-retirement plans:   
Amounts reclassified into net income:   
Net actuarial (gain) loss417 87 330 
    Total defined benefit pension and post-retirement plans417 87 330 
Other comprehensive income (loss)(261,488)(54,913)(206,575)
Comprehensive income (loss)$(211,584)(44,529)(167,055)
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Six Months 2023
($ in thousands)GrossTaxNet
Net income$188,916 37,734 151,182 
Components of OCI:
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) during the period5,244 1,102 4,142 
Unrealized gains (losses) on securities with credit loss recognized in earnings16,401 3,444 12,957 
Amounts reclassified into net income:
Net realized (gains) losses on disposals and intent-to-sell AFS securities15,487 3,252 12,235 
Credit loss (benefit) expense(10,393)(2,183)(8,210)
Total unrealized gains (losses) on investment securities26,739 5,615 21,124 
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial (gain) loss1,514 318 1,196 
Total defined benefit pension and post-retirement plans1,514 318 1,196 
Other comprehensive income (loss)28,253 5,933 22,320 
Comprehensive income (loss)$217,169 43,667 173,502 
Six Months 2022
($ in thousands)GrossTaxNet
Net income$119,794 23,944 95,850 
Components of OCI:
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) during the period(484,735)(101,794)(382,941)
Unrealized gains (losses) on securities with credit loss recognized in earnings(159,312)(33,455)(125,857)
Amounts reclassified into net income:
HTM securities— 
Net realized (gains) losses on disposals and intent-to-sell AFS securities34,161 7,174 26,987 
Credit loss (benefit) expense37,571 7,889 29,682 
Total unrealized gains (losses) on investment securities(572,314)(120,186)(452,128)
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income:
Net actuarial (gain) loss834 175 659 
Total defined benefit pension and post-retirement plans834 175 659 
Other comprehensive income (loss)(571,480)(120,011)(451,469)
Comprehensive income (loss)$(451,686)(96,067)(355,619)

The balances of, and changes in, each component of accumulated other comprehensive income ("AOCI") (net of taxes) as of June 30, 2023, were as follows:

June 30, 2023Net Unrealized Gains (Losses) on Investment SecuritiesDefined Benefit Pension and Post-Retirement PlansTotal AOCI
($ in thousands)
Credit Loss Related1
All
Other
Investments
Subtotal
Balance, December 31, 2022
$(121,838)(295,197)(417,035)(81,007)(498,042)
OCI before reclassifications12,957 4,142 17,099 — 17,099 
Amounts reclassified from AOCI(8,210)12,235 4,025 1,196 5,221 
Net current period OCI4,747 16,377 21,124 1,196 22,320 
Balance, June 30, 2023
$(117,091)(278,820)(395,911)(79,811)(475,722)
1Represents change in unrealized gains (losses) 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)2023202220232022
HTM related
Unrealized (gains) losses on HTM disposals$ — $ — Net realized and unrealized investment gains (losses)
Amortization of net unrealized losses (gains) on HTM securities —  Net investment income earned
 —  Income before federal income tax
 —  — Total federal income tax expense
 —  Net income
Net realized (gains) losses on disposals and intent-to-sell AFS securities
Net realized (gains) losses on disposals and intent-to-sell AFS securities9,383 18,170 15,487 34,161 Net realized and unrealized investment gains (losses)
9,383 18,170 15,487 34,161 Income before federal income tax
(1,970)(3,816)(3,252)(7,174)Total federal income tax expense
7,413 14,354 12,235 26,987 Net income
Credit loss related
Credit loss (benefit) expense(864)15,519 (10,393)37,571 Net realized and unrealized investment gains (losses)
(864)15,519 (10,393)37,571 Income before federal income tax
181 (3,258)2,183 (7,889)Total federal income tax expense
(683)12,261 (8,210)29,682 Net income
Defined benefit pension and post-retirement life plans
Net actuarial loss 173 84 348 180 Loss and loss expense incurred
584 333 1,166 654 Other insurance expenses
Total defined benefit pension and post-retirement life757 417 1,514 834 Income before federal income tax
(159)(87)(318)(175)Total federal income tax expense
598 330 1,196 659 Net income
Total reclassifications for the period$7,328 26,945 $5,221 57,329 Net income

NOTE 12. Earnings per Common Share
The following table presents the calculations of earnings per common share ("EPS") on a basic and diluted basis:

Quarter ended June 30,Six Months ended June 30,
(in thousands, except per share amounts)2023202220232022
Net income available to common stockholders:$56,308 37,220 146,582 91,250 
Weighted average common shares outstanding:
Weighted average common shares outstanding - basic60,61460,44060,57560,412
Effect of dilutive securities - stock compensation plans323407343416
Weighted average common shares outstanding - diluted60,93760,84760,91860,828
EPS:
Basic$0.93 0.62 2.42 1.51 
Diluted0.92 0.61 2.41 1.50 

NOTE 13. Litigation
As of June 30, 2023, 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 ten insurance subsidiaries (collectively referred to as "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 by establishing unpaid loss and loss expense reserves. Considering potential losses and defense costs reserves, we expect that any potential ultimate liability for ordinary course claims litigation will not be material to our consolidated financial
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condition, results of operations, or cash flows.

All our commercial property and businessowners' policies require direct physical loss of or damage to property by a covered cause of loss. All our standard lines commercial property and businessowners' policies also include or attach an exclusion that states 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 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 is also the subject of first-party coverage litigation against some insurers, including us. To date, insurers (including us) have prevailed in the majority of these suits, with most decisions holding that COVID-19 does not cause physical loss of or damage to property and the Virus Exclusion is valid. Nonetheless, these two matters continue to be litigated in trial courts, are subject to review by state and federal appellate courts, and their ultimate outcome cannot be assured.

From time to time, our Insurance Subsidiaries also are named as defendants in other legal actions, some asserting claims for substantial amounts. Plaintiffs may style these actions as class actions and seek judicial certification of a state or national class for allegations involving our business practices, such as improper medical provider reimbursement under workers compensation and personal and commercial automobile insurance policies or improper reimbursement for automobile parts. Similarly, our Insurance Subsidiaries can be named defendants in individual actions seeking extra-contractual damages, punitive damages, or penalties, often alleging bad faith in handling insurance claims. We believe that we have valid defenses to these allegations, and we account for such activity by establishing unpaid loss and loss expense reserves. Considering estimated losses and defense costs reserves, we expect that any potential ultimate liability for these other legal actions will not be material to our consolidated financial condition. As litigation outcomes are inherently unpredictable and the amounts sought in certain actions are large or indeterminate, adverse outcomes could potentially have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

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. Certain statements in this Quarterly Report on Form 10-Q, including information incorporated by reference, are “forward-looking statements” defined in the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a forward-looking statement safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements discuss our intentions, beliefs, projections, estimations, or forecasts of future events and financial performance. They involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, activity levels, or performance to materially differ from those in or implied by the forward-looking statements. In some cases, forward-looking statements include the words “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “target,” “project,” “intend,” “believe,” “estimate,” “predict,” “potential,” “pro forma,” “seek,” “likely,” “continue,” or comparable terms. Our forward-looking statements are only predictions, and we cannot guarantee or assure that such expectations will prove correct. We undertake no obligation to publicly update or revise any forward-looking statements for any reason, except as may be required by law.

Factors that could cause our actual results to differ materially from what we project, forecast, or estimate in forward-looking statements are discussed in further detail in Item 1A. “Risk Factors.” in Part II. “Other Information” of this Form 10-Q. These risk factors may not be exhaustive. We operate in a constantly changing business environment, and new risk factors may emerge at anytime. We can neither predict these new risk factors nor assess their impact, if any, on our businesses or the extent any factor or combination of factors may cause actual results to differ materially from any forward-looking statements. Given these risks, uncertainties, and assumptions, the forward-looking events we discuss in this report might not occur.

Introduction
We classify our business into four reportable segments:

Standard Commercial Lines;
Standard Personal Lines;
Excess and Surplus Lines ("E&S Lines"); and
Investments.

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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, 2022 ("2022 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. We write our E&S products through another subsidiary, Mesa Underwriters Specialty Insurance Company, a nationally-authorized non-admitted platform for customers who generally cannot obtain coverage in the standard marketplace. Collectively, we refer to our ten insurance subsidiaries as the "Insurance Subsidiaries."

The following is Management’s Discussion and Analysis (“MD&A”) of our financial condition and consolidated results of operations, including an evaluation of the amounts and certainty of cash flows from operations and outside sources, 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 2022 Annual Report filed with the United States ("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, 2023 (“Second Quarter 2023”) and June 30, 2022 (“Second Quarter 2022”); and the six-month periods ended June 30, 2023 ("Six Months 2023") and June 30, 2022 ("Six Months 2022");
Results of Operations and Related Information by Segment;
Federal Income Taxes;
Liquidity and Capital Resources; and
Ratings.

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 2022 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; and (iii) reinsurance. These estimates and judgments require the use of assumptions about highly uncertain matters, making them subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements. For additional information regarding our critical accounting policies and estimates, refer to pages 37 through 45 of our 2022 Annual Report.

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Financial Highlights of Results for Second Quarter and Six Months 2023 and Second Quarter and Six Months 20221

($ and shares in thousands, except per share amounts)Quarter ended June 30,Change
% or Points
Six Months ended June 30,Change
% or Points
20232022 20232022
Financial Data:
Revenues$1,040,524 864,818 20 %$2,040,344 1,710,880 19 %
After-tax net investment income77,812 56,658 37  150,864 115,173 31  
After-tax underwriting income(1,206)29,793 (104)29,749 73,898 (60)
Net income before federal income tax74,157 49,904 49 188,916 119,794 58 
Net income58,608 39,520 48 151,182 95,850 58 
Net income available to common stockholders56,308 37,220 51 146,582 91,250 61 
Key Metrics:
Combined ratio100.2 %95.5 4.7 pts98.0 %94.3 3.7 pts
Invested assets per dollar of common stockholders' equity$3.29 3.17 4 %$3.29 3.17 4 %
Annualized after-tax yield on investment portfolio3.9 %3.0 0.9 pts3.8 3.0 0.8 pts
Return on common equity ("ROE")9.1 6.0 3.1 12.1 7.1 5.0 pts
Net premiums written ("NPW") to statutory surplus ratio1.52 x1.41 0.11 1.52 x1.41 0.11 
Per Common Share Amounts:
Diluted net income per share$0.92 0.61 51 %$2.41 1.50 61 %
Book value per share40.81 39.68 3 40.81 39.68 3 
Dividends declared per share to common stockholders0.30 0.28 7 0.60 0.56 7 
Non-GAAP Information:
Non-GAAP operating income2
$60,595 71,095 (15)%$148,227 157,003 (6)%
Non-GAAP operating income per diluted common share2
0.99 1.17 (15)2.44 2.58 (5)
Non-GAAP operating ROE2
9.8 %11.4 (1.6)pts12.2 %12.1 0.1 pts
Adjusted book value per common share2
$47.34 44.18 7 %$47.34 44.18 7 %
1Refer to the Glossary of Terms attached to our 2022 Annual Report as Exhibit 99.1 for definitions of terms used of this Form 10-Q.
2Non-GAAP operating income, non-GAAP operating income per diluted common share, and non-GAAP operating ROE are measures comparable to net income available to common stockholders, net income available to common stockholders per diluted common share, and ROE, respectively, but exclude after-tax net realized and unrealized gains and losses on investments included in net income. Adjusted book value per common share is a measure comparable to book value per common share, but excludes total after-tax unrealized gains and losses on investments included in accumulated other comprehensive (loss) income. These non-GAAP measures are important financial measures used by us, analysts, and investors because the timing of realized and unrealized investment gains and losses on securities in any given period is largely discretionary. In addition, net realized and unrealized investment gains and losses on investments could distort the analysis of trends.

Reconciliations of our GAAP to non-GAAP measures are provided in the tables below:

Reconciliation of net income available to common stockholders to non-GAAP operating incomeQuarter ended June 30,Six Months ended June 30,
($ in thousands)2023202220232022
Net income available to common stockholders$56,308 37,220 $146,582 91,250 
Net realized and unrealized investment (gains) losses included in net income, before tax5,426 42,880 2,082 83,232 
Tax on reconciling items(1,139)(9,005)(437)(17,479)
Non-GAAP operating income$60,595 71,095 $148,227 157,003 

Reconciliation of net income available to common stockholders per diluted common share to non-GAAP operating income per diluted common shareQuarter ended June 30,Six Months ended June 30,
2023202220232022
Net income available to common stockholders per diluted common share$0.92 0.61 $2.41 1.50 
Net realized and unrealized investment (gains) losses included in net income, before tax0.09 0.70 0.04 1.37 
Tax on reconciling items(0.02)(0.14)(0.01)(0.29)
Non-GAAP operating income per diluted common share$0.99 1.17 $2.44 2.58 

Reconciliation of ROE to non-GAAP operating ROEQuarter ended June 30,Six Months ended June 30,
2023202220232022
ROE9.1 %6.0 12.1 %7.1 
Net realized and unrealized investment (gains) losses included in net income, before tax0.9 6.9 0.1 6.4 
Tax on reconciling items(0.2)(1.5) (1.4)
Non-GAAP operating ROE9.8 %11.4 12.2 %12.1 

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Reconciliation of book value per common share to adjusted book value per common shareQuarter ended June 30,Six Months ended June 30,
2023202220232022
Book value per common share$40.81 39.68 $40.81 39.68 
Total unrealized investment (gains) losses included in accumulated other comprehensive income (loss), before tax8.27 5.69 8.27 5.69 
Tax on reconciling items(1.74)(1.19)(1.74)(1.19)
Adjusted book value per common share$47.34 44.18 $47.34 44.18 

The components of our ROE and non-GAAP operating ROE are as follows:

ROE and non-GAAP operating ROE ComponentsQuarter ended June 30,Change PointsSix Months ended June 30,Change Points
2023202220232022
Standard Commercial Lines Segment2.8 %6.0 (3.2)4.1 %5.5 (1.4)
Standard Personal Lines Segment(2.9)(1.6)(1.3)(2.4)(0.4)(2.0)
E&S Lines Segment(0.1)0.4 (0.5)0.8 0.6 0.2 
Total insurance operations(0.2)4.8 (5.0)2.5 5.7 (3.2)
Investment income12.6 9.1 3.5 12.5 8.9 %3.6 
Net realized and unrealized investment gains (losses)(0.7)(5.4)4.7 (0.1)(5.0)4.9 
Total investments segment11.9 3.7 8.2 12.4 3.9 8.5 
Other(2.6)(2.5)(0.1)(2.8)(2.5)(0.3)
ROE9.1 6.0 3.1 12.1 7.1 5.0 
Net realized and unrealized investment (gains) losses, after tax0.7 5.4 (4.7)0.1 5.0 (4.9)
Non-GAAP operating ROE9.8 11.4 (1.6)12.2 12.1 0.1 

Although our underwriting segments had a modest loss in Second Quarter 2023, driven by elevated net catastrophe losses, our investments segment generated strong net investment income, resulting in a non-GAAP operating ROE of 9.8%, which was 1.6 points below our Second Quarter 2022 non-GAAP operating ROE of 11.4%. During Six Months 2023, elevated net catastrophe loss activity was offset by significant growth in after-tax net investment income, resulting in a non-GAAP operating ROE of 12.2% that was in line with our full-year 2023 target non-GAAP operating ROE of 12% and our Six Months 2022 non-GAAP operating ROE of 12.1%.

The decrease in our insurance operations ROE of 5.0 points in Second Quarter 2023 and 3.2 points in Six Months 2023, compared to the same prior-year periods, was due to a decrease in after-tax underwriting income of $31.0 million in Second Quarter 2023 and $44.1 million in Six Months 2023 compared to the same prior-year periods. These decreases were largely driven by an increase in net catastrophe losses and lower favorable prior year casualty reserve development. Pre-tax net catastrophe losses in Second Quarter 2023 were $100.0 million, or 10.6 points on the combined ratio, compared to $45.6 million of pre-tax net catastrophe losses in Second Quarter 2022, or 5.5 points on the combined ratio. Each underwriting segment was impacted in Second Quarter 2023, with $62.6 million of pre-tax net catastrophe losses in Standard Commercial Lines, $21.2 million in Standard Personal Lines, and $16.3 million in Excess and Surplus Lines. We were impacted by nineteen events designated as catastrophes by Property Claims Services ("PCS named events") in Second Quarter 2023, and 33 PCS named events in Six Months 2023, mostly in our Midwest and East Coast footprint states. None of these events were large enough to attach to our catastrophe reinsurance treaty.

The increase in our investments segment ROE of 3.5 points in Second Quarter 2023 and 3.6 points in Six Months 2023, compared to the same prior-year periods, was due to an increase in after-tax net investment income of $21.2 million in Second Quarter 2023 and $35.7 million in Six Months 2023 compared to the same prior-year periods. These increases were largely driven by greater income earned on our fixed income securities portfolio due to higher book yields received from the investment of operating and investing cash flows over the past year in the higher interest rate environment.

In addition, a decrease in net realized and unrealized investment losses in Second Quarter 2023 and Six Months 2023 compared to the same prior-year periods drove the increase in our ROE of 4.7 points in Second Quarter 2023 and 4.9 points in Six Months 2023 compared to the same prior-year periods. The decrease in net realized and unrealized investment losses was primarily due to (i) a credit loss benefit recorded on our AFS fixed income securities portfolio in both current-year periods compared to credit loss expense recorded in both prior-year periods, and (ii) an increase in valuations reflecting the current public equities market. The credit loss benefit in both current-year periods reflected the tightening of credit spreads, partially offset by rising benchmark U.S. Treasury rates.

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Outlook
We entered 2023 well positioned to navigate the on-going challenges of elevated inflation, increased interest rates, and financial market volatility. Our overall Six Months 2023 financial results were strong with 15% growth in NPW and a 12.2% non-GAAP operating ROE, which was in line with our full-year target of 12%.

We continue to focus on several foundational areas to position us for ongoing success:

Delivering on our strategy for continued disciplined and profitable growth by:
Executing our distribution model that emphasizes franchise value, meaning we focus on appointing and having meaningful, close business relationships with high-quality, independent distribution partners who value our relationships and provide us the opportunity to grow profitably with them;
Achieving renewal pure price increases that reflect our current profitability and forward loss trend expectations;
Continuing to expand our Standard Commercial Lines market share by (i) increasing our share towards our 12% target of our agents' premiums, (ii) strategically appointing new agents, and (iii) maximizing new business growth in the small business market through utilization of our enhanced small business platform;
Expanding our geographic footprint. In 2022, we began writing Standard Commercial Lines business in Vermont, Alabama, and Idaho. We plan to expand our Standard Commercial Lines footprint into other states over time, including introducing five new states over the next two to three years. We expect to write new business in West Virginia and Maine in early 2024 and then expand into targeted states in the western half of the country;
Increasing customer retention by delivering a superior omnichannel experience and offering value-added technologies and services;
Shifting our Standard Personal Lines products and services towards customers in the mass affluent market, where we believe we can be more competitive with the strong coverage and servicing capabilities that we offer; and
Deploying our new underwriting platform in our E&S segment and improving agents' ease of interactions with us.

Continuing to further develop our culture centered on the values of diversity, equity, and inclusion that fosters innovation, idea generation, and the development of a group of specially trained leaders who can guide us successfully into the future.

For 2023, we increased our expectation for net catastrophe losses while maintaining other full-year expectations as follows:

A GAAP combined ratio of 96.5%, including net catastrophe losses of 6.0 points, up from prior guidance of 4.5 points. Our combined ratio estimate assumes no additional prior year casualty reserve development;
After-tax net investment income of $300 million that includes $30 million of after-tax net investment income from our alternative investments;
An overall effective tax rate of approximately 21.0%, which assumes an effective tax rate of 20.0% for net investment income and 21.0% for all other items; and
Weighted average shares of 61 million on a fully diluted basis, which assumes no additional share repurchases we may make under our authorization.
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Results of Operations and Related Information by Segment

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

All LinesQuarter ended June 30,Change % or PointsSix Months ended June 30,Change % or Points
($ in thousands)20232022 20232022
Insurance Operations Results:   
Net premiums written ("NPW")$1,084,907 930,741 17 %$2,084,675 1,820,539 15 %
Net premiums earned (“NPE”)942,150 834,439 13  1,844,486 1,646,722 12  
Less:    
Loss and loss expense incurred646,130 524,868 23  1,213,568 1,019,104 19  
Net underwriting expenses incurred295,697 270,828 9 589,640 531,467 11 
Dividends to policyholders1,849 1,030 80  3,621 2,609 39  
Underwriting income$(1,526)37,713 (104)%$37,657 93,542 (60)%
Combined Ratios:    
Loss and loss expense ratio68.6 %62.9 5.7 pts 65.8 %61.8 4.0 pts 
Underwriting expense ratio31.4 32.5 (1.1)32.0 32.3 (0.3)
Dividends to policyholders ratio0.2 0.1 0.1  0.2 0.2   
Combined ratio100.2 95.5 4.7  98.0 94.3 3.7  

The NPW growth of 17% in Second Quarter 2023 and 15% in Six Months 2023 compared to the same prior-year periods reflected (i) overall renewal pure price increases, and (ii) higher direct new business, as shown in the following table:

Quarter ended June 30,Six Months ended June 30,
($ in millions)2023202220232022
Direct new business premiums$241.6 182.0 $458.5 359.2 
Renewal pure price increases6.4 %5.0 6.6 %4.8 

Our NPW growth in Second Quarter 2023 and Six Months 2023 also benefited from strong retention and exposure growth.

The increase in NPE in Second Quarter 2023 and Six Months 2023 compared to the same prior-year periods resulted from the same impacts to NPW described above.

Loss and Loss Expenses
The loss and loss expense ratio increased 5.7 points in Second Quarter 2023 and 4.0 points in Six Months 2023 compared to the same prior-year periods, primarily due to the following:

Second Quarter 2023Second Quarter 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses$100.0 10.6 pts$45.6 5.5 pts5.1 pts
(Favorable) prior year casualty reserve development(3.5)(0.4)(12.0)(1.4)1.0 
Non-catastrophe property loss and loss expenses157.2 16.7 138.6 16.6 0.1 
Total$253.7 26.9 $172.2 20.7 6.2 

Six Months 2023Six Months 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses$155.3 8.4 pts$66.2 4.0 pts4.4 pts
(Favorable) prior year casualty reserve development(16.5)(0.9)(32.0)(1.9)1.0 
Non-catastrophe property loss and loss expenses305.4 16.6 288.9 17.5 (0.9)
Total$444.2 24.1 $323.1 19.6 4.5 

We had higher net catastrophe losses in Second Quarter 2023 and Six Months 2023 compared to the same prior-year periods. In Second Quarter 2023, 19 wind and thunderstorm PCS named events impacted our footprint, with no single storm large enough to attach to our catastrophe reinsurance treaty. In Second Quarter 2022, 18 PCS named events occurred in our
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footprint, but had a lesser impact on our results. Six Months 2023 included 33 PCS named events compared to Six Months 2022, which included 28 PCS named events. In Second Quarter 2023 and Six Months 2023, net catastrophe losses primarily impacted our commercial property line of business, homeowners lines of business, and E&S Lines. In Second Quarter 2022 and Six Months 2022, net catastrophe losses primarily impacted our commercial property and homeowners lines of business.

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

(Favorable)/Unfavorable Prior Year Casualty Reserve DevelopmentQuarter ended June 30,Six Months ended June 30,
($ in millions)2023202220232022
General liability$ — $ (5.0)
Workers compensation(7.5)(10.0)(17.5)(20.0)
Bonds (2.0) (7.0)
   Total Standard Commercial Lines(7.5)(12.0)(17.5)(32.0)
Homeowners —  — 
Personal automobile4.0 — 6.0 — 
   Total Standard Personal Lines4.0 — 6.0 — 
E&S — (5.0)— 
Total (favorable) prior year casualty reserve development$(3.5)(12.0)$(16.5)(32.0)
(Favorable) impact on loss ratio(0.4)pts(1.4)(0.9)pts(1.9)

For additional qualitative discussion on prior year casualty reserve development and non-catastrophe property loss and loss expenses, refer to the insurance segment sections below.

Underwriting Expenses
The underwriting expense ratio decreased 1.1 points in Second Quarter 2023 and 0.3 points in Six Months 2023 compared to the same prior-year periods, primarily due to premium growth outpacing the growth in underwriting expenses in both current-year periods compared to the same prior-year periods.

Standard Commercial Lines Segment
 Quarter ended June 30,Change
% or
Points
 Six Months ended June 30,Change
% or
Points
($ in thousands)20232022 20232022
Insurance Segments Results:    
NPW$870,145 760,293 14 %$1,683,461 1,497,932 12 %
NPE762,709 680,237 12  1,494,324 1,341,706 11  
Less:       
Loss and loss expense incurred495,507 406,901 22  942,833 806,375 17  
Net underwriting expenses incurred243,207 225,598 8  486,803 443,630 10  
Dividends to policyholders1,849 1,030 80  3,621 2,609 39  
Underwriting income22,146 46,708 (53)$61,067 89,092 (31)
Combined Ratios:      
Loss and loss expense ratio65.0 %59.7 5.3 pts63.1 %60.1 3.0 pts
Underwriting expense ratio31.9 33.2 (1.3) 32.6 33.1 (0.5) 
Dividends to policyholders ratio0.2 0.2   0.2 0.2   
Combined ratio97.1 93.1 4.0  95.9 93.4 2.5  

NPW growth of 14% in Second Quarter 2023 and 12% in Six Months 2023 compared to the same prior-year periods reflected (i) renewal pure price increases, (ii) higher direct new business, and (iii) strong retention as shown in the table below. In addition, NPW growth in both current-year periods benefited from strong exposure growth.

Quarter ended June 30,Six Months ended June 30,
($ in millions)2023202220232022
Direct new business premiums$159.1 129.0 $306.8 257.4 
Retention85 86 84 86 
Renewal pure price increases6.7 5.3 6.9 5.1 

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The increase in NPE in Second Quarter 2023 and Six Months 2023 compared to the same prior-year periods resulted from the same impacts to NPW described above.

The loss and loss expense ratio increased 5.3 points in Second Quarter 2023 and 3.0 points in Six Months 2023 compared to the same prior-year periods, primarily driven by the following:

Second Quarter 2023Second Quarter 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses$62.6 8.2 pts$22.3 3.3 4.9 pts
Non-catastrophe property loss and loss expenses111.4 14.6 99.2 14.6  
(Favorable) prior year casualty reserve development(7.5)(1.0)(12.0)(1.8)0.8 
Total166.5 21.8 109.5 16.1 5.7 

Six Months 2023Six Months 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses$97.7 6.5 pts$37.3 2.8 3.7 pts
Non-catastrophe property loss and loss expenses216.8 14.5 214.9 16.0 (1.5)
(Favorable) prior year casualty reserve development(17.5)(1.2)(32.0)(2.4)1.2 
Total297.0 19.8 220.2 16.4 3.4 

Second Quarter 2023 and Six Months 2023 experienced elevated net catastrophe losses compared to the same prior-year periods as discussed in the "Insurance Operations" section above. For qualitative discussion on non-catastrophe property loss and loss expenses, refer to the commercial property line of business section below.

The favorable prior year casualty reserve development of $7.5 million in Second Quarter 2023 and $17.5 million in Six Months 2023 was primarily due to improved loss severities in accident years 2020 and prior in our workers compensation line of business. Favorable prior year casualty reserve development in Second Quarter 2022 included (i) $10.0 million in our workers compensation line of business, primarily due to improved loss severities in accident years 2019 and prior, and (ii) $2.0 million in our bonds line of business. Favorable prior year casualty reserve development in Six Months 2022 included (i) $20.0 million in our workers compensation line of business, primarily due to improved loss severities in accident years 2019 and prior, (ii) $7.0 million in our bonds line of business, and (iii) $5.0 million in our general liability line of business, primarily attributable to improved loss severities in accident years 2019 and prior.

The underwriting expense ratio decreased 1.3 points in Second Quarter 2023 and 0.5 points in Six Months 2023 compared to the same prior-year periods, primarily due to premium growth outpacing the growth in underwriting expenses in both current-year periods compared to the same prior-year periods.

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

General Liability
 Quarter ended June 30,
Change
 % or
Points1
Six Months ended June 30,
Change
 % or
Points1
($ in thousands)2023202220232022
NPW$292,846 257,468 14 %$564,972 501,586 13 %
  Direct new business48,409 36,280 n/a93,140 74,163 n/a
  Retention86 %86 n/a85 %86 n/a
  Renewal pure price increases5.2 4.3 n/a5.3 4.2 n/a
NPE$254,510 226,285 12 %$497,859 442,610 12 %
Underwriting income32,626 25,005 30 59,752 53,822 11 
Combined ratio87.2 %88.9 (1.7)pts88.0 %87.8 0.2 pts
% of total Standard Commercial Lines NPW34 34  34 33 
1n/a: not applicable.

NPW growth of 14% in Second Quarter 2023 and 13% in Six Months 2023 compared to the same prior-year periods benefited from exposure growth, strong retention, renewal pure price increases, and higher direct new business.

The combined ratio was impacted by a decrease in the underwriting expense ratio of 1.7 points in Second Quarter 2023 and 1.0
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point in Six Months 2023 compared to the same prior-year periods, as discussed in the "Standard Commercial Lines Segment" section above.

In addition, Six Months 2023 was impacted by less favorable prior year casualty reserve development as follows:
Six Months 2023Six Months 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio
Loss and Loss Expense IncurredImpact on
Combined Ratio
Change in Ratio
(Favorable) prior year casualty reserve development$  pts$(5.0)(1.1)1.1 pts

The favorable prior year casualty reserve development in Six Months 2022 was primarily attributable to improved loss severities in accident years 2019 and prior.

Commercial Automobile
 Quarter ended June 30,
Change
 % or
Points1
Six Months ended June 30,
Change
 % or
Points1
($ in thousands)2023202220232022
NPW$257,266 222,847 15 %$497,449 435,442 14 %
  Direct new business39,905 29,878 n/a76,881 61,291 n/a
  Retention86 %87 n/a85 %87 n/a
  Renewal pure price increases9.5 8.0 n/a9.8 7.7 n/a
NPE$225,067 198,381 13 %$442,438 392,211 13 %
Underwriting (loss) income(4,182)(4,260)(2)(15,923)(15,178)(5)
Combined ratio101.9 %102.1 (0.2)pts103.6 %103.9 (0.3)pts
% of total Standard Commercial Lines NPW30 29  30 29  
1n/a: not applicable.

NPW growth of 15% in Second Quarter 2023 and 14% in Six Months 2023 compared to the same prior-year periods benefited from renewal pure price increases, higher direct new business, and strong retention. NPW also benefited from 4% growth of in-force vehicle counts as of June 30, 2023, compared to June 30, 2022.

The combined ratio decreased 0.2 points in Second Quarter 2023 and 0.3 points in Six Months 2023 compared to the same prior-year periods, primarily driven by a decrease in the underwriting expense ratio of 1.7 points in Second Quarter 2023 and 0.7 points in Six Months 2023 compared to the same prior-year periods, as discussed in the "Standard Commercial Lines Segment" section above.

Offsetting the decrease in the underwriting expense ratio was the following:

Second Quarter 2023Second Quarter 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio
Loss and Loss Expense IncurredImpact on
Combined Ratio
Change in Ratio
Net catastrophe losses$1.9 0.8 pts$0.6 0.3 0.5 pts
Non-catastrophe property loss and loss expenses42.5 18.9 34.8 17.6 1.3 
Total$44.4 19.7 $35.4 17.9 1.8 

Six Months 2023 Six Months 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio
Loss and Loss Expense IncurredImpact on
Combined Ratio
Change in Ratio
Net catastrophe losses$2.1 0.5 pts$0.9 0.2 0.3 pts
Non-catastrophe property loss and loss expenses89.1 20.1 77.8 19.8 0.3 
Total$91.2 20.6 $78.7 20.0 0.6 

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Commercial Property1
 Quarter ended June 30,
Change
 % or
Points2
Six Months ended June 30,
Change
 % or
Points2
($ in thousands)2023202220232022
NPW$167,665 140,148 20 %$319,269 271,053 18 %
  Direct new business37,317 31,318 n/a72,073 59,135 n/a
  Retention84 %85 n/a84 %85 n/a
Renewal pure price increases9.3 6.0 n/a9.4 6.1 n/a
NPE$141,348 123,562 14 %$276,640 243,624 14 %
Underwriting income(24,410)2,817 (967)(14,332)2,993 (579)
Combined ratio117.3 %97.7 19.6 pts105.2 %98.8 6.4 pts
% of total Standard Commercial Lines NPW19 18  19 18 
1includes Inland Marine.
2n/a: not applicable.

NPW growth of 20% in Second Quarter 2023 and 18% in Six Months 2023 compared to the same prior-year periods benefited from renewal pure price increases, strong retention, exposure growth, and higher direct new business.

The combined ratio increased 19.6 points in Second Quarter 2023 and 6.4 points in Six Months 2023 compared to the same prior-year periods, primarily driven by the following:

Second Quarter 2023Second Quarter 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio
Loss and Loss Expense IncurredImpact on
Combined Ratio
Change in Ratio
Net catastrophe losses$56.1 39.7 pts19.1 15.5 24.2 pts
Non-catastrophe property loss and loss expenses57.6 40.7 55.6 45.0 (4.3)
Total$113.7 80.4 74.7 60.5 19.9 

Six Months 2023Six Months 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio
Loss and Loss Expense IncurredImpact on
Combined Ratio
Change in Ratio
Net catastrophe losses$83.8 30.3 pts32.1 13.2 17.1 pts
Non-catastrophe property loss and loss expenses104.1 37.6 118.6 48.7 (11.1)
Total$187.9 67.9 150.7 61.9 6.0 

Second Quarter 2023 and Six Months 2023 experienced elevated net catastrophe losses as discussed in the "Insurance Operations" section above. We had lower non-catastrophe property loss and loss expense ratios in Second Quarter 2023 and Six Months 2023 compared to the same prior-year periods. While this change continues to reflect the variability from period to period that is normally associated with the commercial property line of business, we manage our long-term profitability through (i) price increases, and (ii) targeted underwriting actions, including an ongoing focus on achieving accurate insurance to value ratios.

Workers Compensation
 Quarter ended June 30,
Change
 % or
Points1
Six Months ended June 30,
Change
 % or
Points1
($ in thousands)2023202220232022
NPW$95,602 88,400 8 %$189,034 185,859 2 %
Direct new business17,320 17,009 n/a34,939 33,955 n/a
Retention84 %85 n/a84 %86 n/a
Renewal pure price increases (decreases)(1.1)(0.1)n/a(1.1)(0.6)n/a
NPE$88,746 83,502 6 %$172,930 168,182 3 %
Underwriting income12,586 15,631 (19)27,172 31,536 (14)
Combined ratio85.8 %81.3 4.5 pts84.3 %81.2 3.1 pts
% of total Standard Commercial Lines NPW11 12  11 12 
1n/a: not applicable.

NPW increased 8% in Second Quarter 2023 and 2% in Six Months 2023 compared to the same prior-year periods, primarily due to strong retention and exposure growth.
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The combined ratio increased 4.5 points in Second Quarter 2023 and 3.1 points in Six Months 2023 compared to the same prior-year periods, primarily driven by less favorable prior year casualty reserve development as follows:

Second Quarter 2023Second Quarter 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio
Loss and Loss Expense IncurredImpact on
Combined Ratio
Change in Ratio
(Favorable) prior year casualty reserve development$(7.5)(8.5)pts$(10.0)(12.0)3.5 pts

Six Months 2023Six Months 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio
Loss and Loss Expense IncurredImpact on
Combined Ratio
Change in Ratio
(Favorable) prior year casualty reserve development$(17.5)(10.1)pts$(20.0)(11.9)1.8 pts

The favorable prior year casualty reserve development in Second Quarter 2023 and Six Months 2023 was primarily due to improved loss severities in accident years 2020 and prior. The favorable prior year casualty reserve development in Second Quarter 2022 and Six Months 2022 was primarily due to improved loss severities in accident years 2019 and prior.

In addition, the combined ratio was impacted by an increase in current year casualty loss costs of 0.9 points in Second Quarter 2023 and 0.4 points in Six Months 2023 compared to the same prior-year periods, driven by our view of loss trends versus rate changes.

Standard Personal Lines Segment
Quarter ended June 30,Change
% or
Points
 Six Months ended June 30,Change
% or
Points
($ in thousands)20232022 20232022
Insurance Segments Results:    
NPW$109,103 82,564 32 %$194,381 147,621 32 %
NPE87,170 73,338 19  169,040 145,980 16  
Less:    
Loss and loss expense incurred87,982 66,586 32  161,150 115,133 40  
Net underwriting expenses incurred22,248 19,119 16 44,023 36,694 20 
Underwriting income (loss)$(23,060)(12,367)(86)$(36,133)(5,847)(518)%
Combined Ratios:    
Loss and loss expense ratio101.0 %90.8 10.2 pts95.4 %78.9 16.5 pts
Underwriting expense ratio25.5 26.1 (0.6)26.0 25.1 0.9 
Combined ratio126.5 116.9 9.6  121.4 104.0 17.4  

NPW increased 32% in both Second Quarter 2023 and Six Months 2023 compared to the same prior-year periods, due to (i) higher direct new business, (ii) stronger retention, (iii) renewal pure price increases, (iv) higher homeowner coverage amounts due to inflation, and (v) higher average policy sizes from our mass affluent market strategy. In the third quarter of 2021, we transitioned our personal lines strategy to target customers in the mass affluent market where we believe our strong coverage and servicing capabilities will be more competitive.

Quarter ended June 30,Six Months ended June 30,
($ in millions)2023202220232022
Direct new business premiums1
$32.5 13.5 $58.8 23.1 
Retention88 %85 87 %84 
Renewal pure price increases3.4 0.6 2.7 0.6 
1Excludes our Flood direct premiums written, which is 100% ceded to the NFIP and therefore, has no impact on our NPW.

The increase in NPE in Second Quarter 2023 and Six Months 2023 compared to the same prior-year periods resulted from the same impacts to NPW described above.

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The loss and loss expense ratio increased 10.2 points in Second Quarter 2023 and 16.5 points in Six Months 2023 compared to the same prior-year periods, driven by the following:

Second Quarter 2023Second Quarter 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses$21.2 24.3 pts21.1 28.7 (4.4)pts
Non-catastrophe property loss and loss expenses37.8 43.3 26.9 36.7 6.6 
Unfavorable prior year casualty reserve development4.0 4.6 — — 4.6 
Total$63.0 72.2 48.0 65.4 6.8 

Six Months 2023Six Months 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses$35.8 21.2 pts25.4 17.4 3.8 pts
Non-catastrophe property loss and loss expenses71.6 42.4 52.5 36.0 6.4 
Unfavorable prior year casualty reserve development6.0 3.5 — — 3.5 
Total$113.4 67.1 77.9 53.4 13.7 

Net catastrophe losses in both Second Quarter 2023 and Second Quarter 2022 exceeded our 10-year historical average. Six Months 2023 also exceeded our 10-year historical average, and experienced elevated net catastrophe losses compared to Six Months 2022, as discussed in the "Insurance Operations" section above.

We experienced elevated non-catastrophe property loss and loss expenses in Second Quarter 2023 and Six Months 2023, driven by higher personal automobile physical damage and homeowners property losses. The higher automobile damage losses resulted from increasing claim frequencies, as well as greater severities from inflationary and supply chain impacts that have increased labor and repair costs, and claim duration, which affects vehicle rental days. Higher homeowners property losses were attributable to elevated severities due to higher construction costs and increasing home values, both impacted by economic inflation. The likely continuation of elevated non-catastrophe property loss and loss expenses, coupled with renewal pure price increases below loss trend, will put pressure on this segment's profitability in the near-term. We have and continue to file rate increases on a state-by-state basis to mitigate these inflationary impacts. These filed rate increases began to take effect on a written basis during the first quarter of 2023. We expect the number of rate filings and their approved filed rate impacts to continue to increase through 2023.

The unfavorable prior year casualty reserve development in Second Quarter and Six Months 2023 was primarily due to increased loss severities in accident year 2022. There was no prior year casualty reserve development in Second Quarter 2022 or Six Months 2022.

In addition, the loss and loss expense ratio was impacted by an increase in current-year casualty loss costs of 3.4 points in Second Quarter 2023 and 2.7 points in Six Months 2023 compared to the same prior-year periods, in response to elevated prior year severities and increasing claim frequencies.

The underwriting expense ratio decreased 0.6 points in Second Quarter 2023 compared to Second Quarter 2022, primarily due to premium growth outpacing the growth in underwriting expenses. During Six Months 2023 compared to Six Months 2022, the impact of premium growth on the underwriting expense ratio was more than offset by a 1.4-point increase in the ratio related to the commission benefit that we receive from our participation in the NFIP.

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E&S Lines Segment
 Quarter ended June 30,Change
% or
Points
Six Months ended June 30,Change
% or
Points
($ in thousands)2023202220232022
Insurance Segments Results:   
NPW$105,659 87,884 20 %$206,833 174,986 18 %
NPE92,271 80,864 14  181,122 159,036 14  
Less:        
Loss and loss expense incurred62,641 51,381 22  109,585 97,596 12  
Net underwriting expenses incurred30,242 26,111 16  58,814 51,143 15  
Underwriting income (loss)(612)3,372 (118)$12,723 10,297 24 
Combined Ratios:        
Loss and loss expense ratio67.9 %63.5 4.4 pts60.5 %61.3 (0.8)pts
Underwriting expense ratio32.8 32.3 0.5 32.5 32.2 0.3 
Combined ratio100.7 95.8 4.9  93.0 93.5 (0.5) 

NPW growth of 20% in Second Quarter 2023 and 18% in Six Months 2023 compared to the same prior-year periods reflected renewal pure price increases and higher direct new business as shown in the table below. In addition, NPW growth in Second Quarter 2023 and Six Months 2023 benefited from exposure growth in both our casualty and property policy coverages driven by higher rates and increased construction costs resulting from economic inflation.

Quarter ended June 30,Six Months ended June 30,
($ in millions)2023202220232022
Direct new business premiums$50.0 39.5 $92.9 78.7 
Renewal pure price increases7.5 %6.9 7.4 %7.3 

The increase in NPE in Second Quarter 2023 and Six Months 2023 compared to the same prior-year periods resulted from the same impacts to NPW described above.

The loss and loss expense ratio increased 4.4 points in Second Quarter 2023 and decreased 0.8 points in Six Months 2023 compared to the same prior-year periods, primarily driven by the following:

Second Quarter 2023Second Quarter 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses$16.3 17.6 pts$2.2 2.8 14.8 pts
Non-catastrophe property loss and loss expenses8.1 8.8 12.5 15.4 (6.6)
Total$24.4 26.4 $14.7 18.2 8.2 

Six Months 2023Six Months 2022
($ in millions)Loss and Loss Expense IncurredImpact on
Loss and Loss Expense Ratio
Loss and Loss
Expense
Incurred
Impact on
Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses$21.9 12.1 pts$3.5 2.2 9.9 pts
Non-catastrophe property loss and loss expenses17.0 9.4 21.6 13.6 (4.2)
(Favorable) prior year casualty reserve development(5.0)(2.8)— — (2.8)
Total$33.9 18.7 $25.1 15.8 2.9 

We experienced elevated net catastrophe losses in Second Quarter 2023 and Six Months 2023 compared to the same prior-year periods as discussed in the "Insurance Operations" section above.

The favorable prior year casualty reserve development in Six Months 2023 was primarily due to lower severities in accident years 2021 and prior. There was no prior year casualty reserve development in Second Quarter 2022 and Six Months 2022.

In addition, the loss and loss expense ratio was favorably impacted by a decrease in current year casualty loss costs of 3.9 points in Second Quarter 2023 and 3.8 points in Six Months 2023, compared to the same prior-year periods. Our E&S casualty lines results have improved over recent years from several underwriting and claims initiatives and strong rate increases. The decrease in current year casualty loss costs reflected the impacts of these actions.

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Reinsurance
We successfully completed negotiations of our July 1, 2023 excess of loss treaties, which cover our Standard Commercial Lines, Standard Personal Lines, and E&S Lines.

We renewed the Casualty Excess of Loss Treaty ("Casualty Treaty") with substantially the same structure as the expiring treaty. The treaty year 2023 deposit premium increased $28.3 million, or 33%, reflecting (i) higher projected subject earned premium due to growth in our book of business, including pure renewal rate increases; (ii) a modest reinsurance rate increase; and (iii) additional reinstatement coverage in the first three layers.

We renewed the Property Excess of Loss Treaty (“Property Treaty”) and elected to increase the first layer retention from $3.0 million to $5.0 million. We elected to increase our retention in recognition of the growing overall size of our book of business and to manage our overall reinsurance cost while maintaining an appropriate level of capital and earnings protection. In addition, the first layer reinstatement provision was revised to 15 free reinstatements, from the expiring treaty's unlimited free reinstatements. The attachment points and limits for the subsequent layers remained the same. The treaty year deposit premium decreased $5.6 million, or 11%, reflecting the premium reduction associated with the aforementioned first layer retention increase, partially offset by a risk-adjusted rate increase and an increase in exposure.

The following table summarizes the Property Treaty and Casualty Treaty arrangements covering our Insurance Subsidiaries:

Treaty NameReinsurance CoverageTerrorism Coverage
Property Excess of Loss (covers all insurance operations)
There are three layers covering 100% of $65 million in excess of $5 million. Losses other than Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA") certified losses are subject to the following reinstatements and annual aggregate limits:

- $5 million in excess of $5 million layer provides 15
        reinstatements, $80 million in aggregate limits;
- $20 million in excess of $10 million layer provides three
        reinstatements, $80 million in aggregate limits; and
- $40 million in excess of $30 million layer provides two
        reinstatements, $120 million in aggregate limits.
All nuclear, biological, chemical, and radioactive ("NBCR") losses are excluded regardless of whether or not they are certified under the 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 $15 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 48
      reinstatements, $147 million annual aggregate limit;
- $7 million in excess of $5 million layer provides eight
      reinstatements, $63 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
Our investment portfolio's objectives are to maximize after-tax net investment income and generate long-term growth in book value per share by maximizing the overall total return of the portfolio by investing the premiums we receive from our insurance operations and the amounts generated through our capital management strategies, which may include debt and equity security issuances. We balance those objectives against prevailing market conditions, capital preservation considerations, and our enterprise risk-taking appetite. We maintain (i) a well-diversified portfolio across issuers, sectors, and asset classes; and (ii) a high credit quality fixed income securities portfolio with a duration and maturity profile at an acceptable risk level that provides ample liquidity.

The effective duration of the fixed income securities portfolio, including short-term investments, was 4.0 years as of June 30, 2023. The effective duration is monitored and managed to maximize yield while managing interest rate risk at an acceptable level. Purchases and sales are made with the intent of maximizing investment returns in the current market environment while balancing capital preservation.

Our fixed income and short-term investments represented 93% of our invested assets at June 30, 2023, and 92% at December
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31, 2022. Our fixed income and short-term investments portfolio had a weighted average credit rating of "AA-" as of June 30, 2023 and December 31, 2022, with investment grade holdings representing 96% of the total portfolio at both periods.

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 2022 Annual Report.

Total Invested Assets
($ in thousands)June 30, 2023December 31, 2022Change
Total invested assets$8,133,199 7,837,469 4 %
Invested assets per dollar of common stockholders' equity3.29 3.37 (2)
Components of unrealized gains (losses) – before tax:
Fixed income securities(501,153)(527,892)(5)%
Equity securities2,742 (5,431)(150)%
Net unrealized gains (losses) – before tax(498,411)(533,323)(7)%
Components of unrealized gains (losses) – after tax:
Fixed income securities(395,910)(417,035)(5)%
Equity securities2,166 (4,290)(150)%
Net unrealized gains (losses) – after tax(393,744)(421,325)(7)%

Invested assets increased $295.7 million at June 30, 2023, compared to December 31, 2022, reflecting our active investment of operating and investing cash flows in 2023 and a $34.9 million decrease in pre-tax unrealized losses during Six Months 2023. Operating cash flows during Six Months 2023 were 14% of NPW. The decrease in pre-tax unrealized losses was primarily driven by a tightening of credit spreads, partially offset by an increase in benchmark U.S. Treasury rates.

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)2023202220232022
Fixed income securities$83,916 62,144 35 %$164,003 116,069 41 %
Commercial mortgage loans ("CMLs")2,199 1,192 84 4,164 2,162 93 
Equity securities2,236 2,639 (15)3,441 5,057 (32)
Short-term investments2,892 407 611 7,542 508 1,385 
Alternative investments11,396 9,274 23 19,164 28,402 (33)
Other investments188 (214)(188)231 (37)(724)
Investment expenses(5,131)(5,220)(2)(9,343)(9,337) 
Net investment income earned – before tax97,696 70,222 39 189,202 142,824 32 
Net investment income tax expense(19,884)(13,564)47 (38,338)(27,651)39 
Net investment income earned – after tax$77,812 56,658 37 $150,864 115,173 31 
Effective tax rate20.4 %19.3 1.1 pts20.3 %19.4 0.9 pts
Annualized after-tax yield on fixed income investments3.9 3.1 0.8 3.8 2.8 1.0 
Annualized after-tax yield on investment portfolio3.9 3.0 0.9 3.8 3.0 0.8 

After-tax net investment income earned increased 37% in Second Quarter 2023 and 31% in Six Months 2023 compared to the same prior-year periods, primarily driven by an increase in income earned on our fixed income securities portfolio due to higher book yields received from the investment of operating and investing cash flows over the past year in the higher interest rate environment.

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Realized and Unrealized Gains and Losses
When evaluating securities for sale, our general philosophy is to reduce our exposure to securities and sectors based on economic evaluations of whether (i) the fundamentals for that security or sector have deteriorated or (ii) the timing is appropriate to opportunistically trade for other securities 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)2023202220232022
Net realized gains (losses) on disposals$(10,796)(4,793)125 %$(19,942)(16,156)23 %
Net unrealized gains (losses) on equity securities4,925 (21,860)(123)8,173 (24,014)(134)
Net credit loss benefit (expense) on fixed income securities, AFS864 (15,519)(106)10,393 (37,571)(128)
Net credit loss benefit (expense) on fixed income securities, held-to-maturity (6)(100) (100)
Net credit loss benefit (expense) on CMLs(78)—  (61)—  
Losses on securities for which we have the intent to sell(341)(702)(51)(645)(5,499)(88)
Total net realized and unrealized investment gains (losses)$(5,426)(42,880)(87)$(2,082)(83,232)(97)

Net realized and unrealized investment losses decreased 87% in Second Quarter 2023 and 97% in Six Months 2023 compared to the same prior-year periods, primarily due to (i) a credit loss benefit recorded on our AFS fixed income securities portfolio in both current-year periods compared to credit loss expense recorded in both prior-year periods, and (ii) an increase in valuations reflecting the current public equities market. The credit loss benefit in both current-year periods reflected the tightening of credit spreads, partially offset by rising benchmark U.S. Treasury rates.

Federal Income Taxes
The following table provides information regarding 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)2023202220232022
Tax at statutory rate$15,573 10,480 $39,672 25,157 
Tax-advantaged interest(538)(1,042)(1,258)(2,116)
Dividends received deduction(68)(155)(137)(260)
Executive compensation528 484 1,269 742 
Stock-based compensation(111)(56)(1,724)(787)
Other165 673 (88)1,208 
Federal income tax expense15,549 10,384 37,734 23,944 
Income before federal income tax, less preferred stock dividends71,857 47,604 184,316 115,194 
Effective tax rate21.6 %21.8 20.5 %20.8 

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 our operating and growth needs.

Liquidity
We manage liquidity by generating sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. We adjust our liquidity requirements based on economic conditions, market conditions, and future cash flow commitments, as discussed further below.

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

The Parent's investment portfolio includes (i) short-term investments that have historically been maintained in “AAA” rated money market funds, (ii) high-quality, highly liquid government and corporate fixed income securities, (iii) equity securities, (iv) alternative investments, and (v) a cash balance. In the aggregate, Parent cash and total investments amounted to $480 million at June 30, 2023, and $484 million at December 31, 2022.

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The amount and composition of the Parent's investment portfolio may change over time 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 stockholders, asset allocation investment decisions, inorganic growth opportunities, debt retirement, and share repurchases. Our target is for the Parent to maintain highly liquid investments of at least twice its expected annual net cash outflow needs, or $180 million.

Insurance Subsidiary Dividends
The Insurance Subsidiaries generate liquidity through insurance float, which is created by collecting premiums and earning investment income before paying claims. The period of float can extend over many years. Our investment portfolio consists of securities with maturity dates that continually provide a source of cash flow for claims payments in the ordinary course of business. To protect our Insurance Subsidiaries' capital, we purchase reinsurance coverage for significantly large claims or catastrophes that may occur.

The Insurance Subsidiaries paid $80 million in total dividends to the Parent in Six Months 2023. The Insurance Subsidiaries' Boards of Directors did not declare a dividend payable to the Parent during the third quarter of 2023. As of December 31, 2022, our allowable ordinary maximum dividend is $283 million for 2023. 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 statutory surplus reported in its 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 stockholders if either (i) the Parent would be unable to pay its debts as they become 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 stockholders is also impacted by (i) covenants in its credit agreement 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 from being 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. "Equity," 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 2022 Annual Report.

Line of Credit
On November 7, 2022, the Parent entered into a Credit Agreement with the lenders named therein (the “Lenders”) and Wells Fargo Bank, National Association, 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' consent. No borrowings were made under the Line of Credit in Six Months 2023. The Line of Credit will mature on November 7, 2025, and has a variable interest rate based on the Parent’s debt ratings. We expect to continue to maintain a credit facility for liquidity purposes. 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 2022 Annual Report. We met all covenants under our Line of Credit as of June 30, 2023.

Four of the Insurance Subsidiaries are members of Federal Home Loan Bank ("FHLB") branches, as shown in the following table. Membership requires the ownership of branch stock and includes the right to access liquidity. All Federal Home Loan Bank of Indianapolis ("FHLBI") and Federal Home Loan Bank of New York ("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.

BranchInsurance Subsidiary Member
FHLBI
Selective Insurance Company of South Carolina ("SICSC")1
Selective Insurance Company of the Southeast ("SICSE")1
FHLBNYSelective Insurance Company of America ("SICA")
Selective Insurance Company of New York ("SICNY")
1These subsidiaries are jointly referred to as the "Indiana Subsidiaries" because 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. 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, 2023, we had remaining capacity of $469.7 million for FHLB
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borrowings, with a $18.6 million additional stock purchase requirement to allow the member companies to borrow their remaining capacity amounts.

Short-term Borrowings
On April 6, 2023, SICA borrowed $20 million from the FHLBNY at an interest rate of 5.00% that was repaid on May 8, 2023. These funds were used for general corporate purposes.

Intercompany Loan Agreements
The Parent has lending agreements with the Indiana Subsidiaries, approved by the Indiana Department of Insurance, that provide the Parent with additional intercompany 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, 2023, and December 31, 2022. The remaining capacity under these intercompany loan agreements was $121.5 million as of both June 30, 2023, and December 31, 2022. Additionally, we have other insurance regulator-approved intercompany agreements in place that facilitate liquidity management between the Parent and the Insurance Subsidiaries to enhance flexibility.

Capital Market Activities
The Parent had no private or public stock issuances during Six Months 2023. In addition, we had no common stock share repurchases during Six Months 2023 under our existing share repurchase program. We had $84.2 million of remaining capacity under our share repurchase program as of June 30, 2023. For additional information on the share repurchase program, refer to Note 17. “Equity” in Item 8. "Financial Statements and Supplementary Data." of our 2022 Annual Report.

Uses of Liquidity
The Parent's liquidity generated from the sources discussed above is used, among other things, to pay dividends to our stockholders. Dividends on shares of the Parent's common and preferred stock are declared and paid at the discretion of the Board based on our operating results, financial condition, capital requirements, contractual restrictions, and other relevant factors. On August 2, 2023, our Board declared:

A quarterly cash dividend on common stock of $0.30 per common share that is payable September 1, 2023, to holders of record on August 15, 2023; 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) payable on September 15, 2023, to holders of record as of August 31, 2023.

Our ability to meet our interest and principal repayment obligations on our debt and 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 dividends, if necessary, and/or (iii) the availability of other sources of liquidity to the Parent. Our next borrowing principal repayment is $60 million to FHLBI due 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.

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, 2023, we had GAAP stockholders' equity of $2.7 billion and statutory surplus of $2.5 billion. With total debt of $503.6 million at June 30, 2023, our debt-to-capital ratio was 15.9%. 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 2022 Annual Report.

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The following table summarizes certain contractual obligations we had at June 30, 2023, that may require us to invest additional amounts into our investment portfolio, which we would fund primarily with operating cash flows.

($ in millions)Amount of Obligation
Alternative and other investments$282.5 
Non-publicly traded collateralized loan obligations in our fixed income securities portfolio103.2 
Non-publicly traded common stock within our equity portfolio29.0 
CMLs1.8 
Privately-placed corporate securities12.1 
Total$428.6 

There is no certainty (i) that any such additional investments will be required, and (ii) of the actual timing of the funding. We expect to have the capacity to fund these commitments through our normal operating and investing activities as they come due.

Our current and long-term material cash requirements associated with (i) loss and loss expense reserves, (ii) contractual obligations under operating and financing leases for office space and equipment, and (iii) notes payable, funded primarily with operating cash flows, have not materially changed since December 31, 2022. The Insurance Subsidiaries' net loss and loss expense reserves duration was 3.1 years at December 31, 2022.

Our other cash requirements include, without limitation, dividends to stockholders, capital expenditures, and other operating expenses, including commissions to our distribution partners, labor costs, premium taxes, general and administrative expenses, and income taxes.

As of June 30, 2023, and December 31, 2022, we had no (i) material guarantees on behalf of others and trading activities involving non-exchange traded contracts accounted for at fair value, (ii) material transactions with related parties other than those disclosed in Note 18. “Related Party Transactions” in Item 8. “Financial Statements and Supplementary Data.” of our 2022 Annual Report, and (iii) 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.

We continually monitor our cash requirements and the 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 a profitable book of business and solid capital base, positioning us well to take advantage of potential market opportunities.

Book value per common share increased 6% to $40.81 as of June 30, 2023, from $38.57 as of December 31, 2022, driven by $2.41 in net income available to common stockholders per diluted common share and a $0.35 reduction in unrealized losses on our fixed income securities portfolio, partially offset by $0.60 in dividends to our common stockholders. The decrease in net unrealized losses on our fixed income securities was primarily driven by a tightening of credit spreads, partially offset by an increase in benchmark U.S. Treasury rates. Our adjusted book value per share, which is book value per share excluding total after-tax unrealized gains or losses on investments included in accumulated other comprehensive income (loss), increased to $47.34 as of June 30, 2023, from $45.49 as of December 31, 2022.

Cash Flows
Net cash provided by operating activities increased to $293.6 million in Six Months 2023, compared to $243.5 million in Six Months 2022, primarily driven by higher levels of cash received for premiums.

Net cash used in investing activities increased to $253.6 million in Six Months 2023, compared to $234.5 million in Six Months 2022, as a result of investing more cash from operating activities. Operating cash flows during Six Months 2023 were 14% of NPW, compared to 13% of NPW at Six Months 2022.

Net cash used in financing activities remained relatively flat at $44.0 million in Six Months 2023, compared to $46.5 million in
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Six Months 2022.

Ratings
Our ratings are as follows:

Nationally Recognized Statistical Rating Organizations
Financial Strength RatingOutlook
AM Best CompanyA+Stable
Moody's Investors Services ("Moody's")A2Positive
Fitch Ratings ("Fitch")A+Stable
Standard & Poor's Global Ratings ("S&P")AStable

On May 25, 2023, Fitch reaffirmed our "A+" rating with a "stable" outlook. In taking this rating action, Fitch cited our (i) business profile as a regional commercial lines writer with strong independent agency relationships, (ii) strong capitalization, and (iii) strong financial performance with stable underwriting results and return metrics that have remained favorable compared to peers.

On July 18, 2023, Moody's reaffirmed our "A2" rating and changed our rating outlook to "positive" from "stable." In taking this rating action, Moody's cited our (i) long record of consistent underwriting profitability and measured geographic expansion while maintaining a sound balance sheet, (ii) strong regional market presence with strong independent agency relationships, and (iii) conservative investment portfolio.

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 2022 Annual Report.

ITEM 4. CONTROLS AND PROCEDURES.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. In performing this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework ("COSO Framework") in 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that 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 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Incidental to our insurance operations, we are routinely engaged in legal proceedings with inherently unpredictable outcomes that 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, 2023, 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 our actions in 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 common stockholders' dividends. We operate in a continually changing business environment, and new risk factors that we cannot
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predict or assess may emerge at anytime. Consequently, we can neither predict such new risk factors nor assess the potential future impact on our business. There have been no material changes from the risk factors disclosed in Item 1A. “Risk Factors.” in our 2022 Annual Report.

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

The following table provides information regarding our purchases of our common stock in Second Quarter 2023:

Period
Total Number of
Shares Purchased1
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Programs2
Approximate Dollar Value of
Shares that May Yet
Be Purchased Under the Announced Programs
(in millions)2
April 1 – 30, 202399 $96.68 — $84.2 
May 1 – 31, 2023407 102.21 — 84.2 
June 1 – 30, 2023185 98.33 — 84.2 
Total691 $100.38 — $84.2 
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 our Board of Directors authorized a $100 million share repurchase program with no set expiration or termination date. Our repurchase program does not obligate us to acquire any particular amount of our common stock. Management will determine the timing and amount of any share repurchases under the authorization at its discretion based on market conditions and other considerations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S K.

ITEM 6. EXHIBITS.

Exhibit No. 
Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
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, 2023, 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, 2023, formatted in iXBRL.
* Filed herewith.
** Furnished and not filed herewith.



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SIGNATURES

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

SELECTIVE INSURANCE GROUP, INC.
Registrant 
Date:August 3, 2023By: /s/ John J. Marchioni
 John J. Marchioni
 Chairman of the Board, President and Chief Executive Officer
(principal executive officer)
Date:August 3, 2023By: /s/ Mark A. Wilcox
Mark A. Wilcox
Executive Vice President and Chief Financial Officer
(principal financial officer)

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