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Selective Insurance
SIGI
#3213
Rank
S$6.17 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
S$102.84
Share price
-1.03%
Change (1 day)
-10.47%
Change (1 year)
๐Ÿฆ Insurance
Categories
  1. Selective Insurance
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q3

Selective Insurance - 10-Q quarterly report FY2022 Q3


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 2022
or 

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

New 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)

973948-3000
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each 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 filer☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company☐
Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                                                                           
Yes ☐ No ☒
As of October 31, 2022, there were 60,275,170 shares of common stock, par value $2.00 per share, outstanding. 

    
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)September 30, 2022December 31,
2021
ASSETS  
Investments:  
Fixed income securities, held-to-maturity – at carrying value (fair value: $31,482 – 2022; $29,460 – 2021)
$33,008 28,850 
Less: allowance for credit losses— (65)
Fixed income securities, held-to-maturity, net of allowance for credit losses33,008 28,785 
Fixed income securities, available-for-sale – at fair value
(allowance for credit losses: $52,337 – 2022 and $9,724 – 2021; amortized cost: $7,107,011 – 2022 and $6,490,753 – 2021)
6,472,100 6,709,976 
Commercial mortgage loans – at carrying value (fair value: $136,652 – 2022 and $97,598 – 2021)
145,209 95,795 
Less: allowance for credit losses— — 
Commercial mortgage loans, net of allowance for credit losses145,209 95,795 
Equity securities – at fair value (cost:  $188,964 – 2022; $308,840 – 2021)
183,868 335,537 
Short-term investments269,302 447,863 
Other investments432,624 409,032 
Total investments (Note 4 and 5)$7,536,111 8,026,988 
Cash538 455 
Restricted cash8,495 44,608 
Accrued investment income54,024 48,247 
Premiums receivable1,128,673 958,787 
Less: allowance for credit losses (Note 6)(15,200)(13,600)
Premiums receivable, net of allowance for credit losses1,113,473 945,187 
Reinsurance recoverable714,731 601,668 
Less: allowance for credit losses (Note 7)(1,600)(1,600)
Reinsurance recoverable, net of allowance for credit losses713,131 600,068 
Prepaid reinsurance premiums178,708 183,007 
Current federal income tax24,565 772 
Deferred federal income tax164,557 — 
Property and equipment – at cost, net of accumulated depreciation and amortization of:
$271,563 – 2022; $253,427 – 2021
85,333 82,053 
Deferred policy acquisition costs370,925 326,915 
Goodwill7,849 7,849 
Other assets262,772 195,240 
Total assets$10,520,481 10,461,389 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Liabilities:  
Reserve for loss and loss expense (Note 8)$4,965,277 4,580,903 
Unearned premiums2,022,240 1,803,207 
Long-term debt505,151 506,050 
Deferred federal income tax— 13,413 
Accrued salaries and benefits112,227 121,057 
Other liabilities488,053 453,874 
Total liabilities$8,092,948 7,478,504 
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 - 2022 and 2021
Common stock of $2 par value per share:
Authorized shares 360,000,000
Issued: 104,778,828 – 2022; 104,450,916 – 2021
209,558 208,902 
Additional paid-in capital486,239 464,347 
Retained earnings2,683,763 2,603,472 
Accumulated other comprehensive (loss) income (Note 11)(525,011)115,099 
Treasury stock – at cost (shares:  44,505,337 – 2022; 44,266,534 – 2021)
(627,016)(608,935)
Total stockholders’ equity$2,427,533 2,982,885 
Commitments and contingencies
Total liabilities and stockholders’ equity$10,520,481 10,461,389 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
1
SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME		Quarter ended September 30,Nine Months ended September 30,
($ in thousands, except per share amounts)2022202120222021
Revenues:  
Net premiums earned$853,879 767,247 $2,500,601 2,232,725 
Net investment income earned63,889 93,032 206,713 246,479 
Net realized and unrealized investment (losses) gains(25,681)177 (108,913)15,353 
Other income2,933 4,588 7,499 14,912 
Total revenues895,020 865,044 2,605,900 2,509,469 
Expenses:  
Loss and loss expense incurred547,826 505,269 1,566,930 1,340,293 
Amortization of deferred policy acquisition costs179,048 160,868 522,186 464,276 
Other insurance expenses102,806 94,759 298,310 278,531 
Interest expense7,179 7,242 21,599 21,967 
Corporate expenses5,522 4,270 24,442 22,936 
Total expenses842,381 772,408 2,433,467 2,128,003 
Income before federal income tax52,639 92,636 172,433 381,466 
Federal income tax expense:  
Current14,813 18,878 41,682 79,319 
Deferred(4,699)53 (7,624)(2,711)
Total federal income tax expense10,114 18,931 34,058 76,608 
Net income$42,525 73,705 $138,375 304,858 
Preferred stock dividends2,300 2,300 6,900 7,053 
Net income available to common stockholders$40,225 71,405 $131,475 297,805 
Earnings per common share:  
Net income available to common stockholders - Basic$0.67 1.19 $2.18 4.95 
Net income available to common stockholders - Diluted$0.66 1.18 $2.16 4.92 
    
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.


2
SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		Quarter ended September 30,Nine Months ended September 30,
($ in thousands)2022202120222021
Net income $42,525 73,705 $138,375 304,858 
Other comprehensive (loss) income, net of tax:  
Unrealized (losses) gains on investment securities:  
Unrealized holding losses arising during period (149,803)(27,875)(532,744)(81,402)
Unrealized losses on securities with credit loss recognized in earnings(53,946)(1,851)(179,803)(2,906)
  Amounts reclassified into net income:
Held-to-maturity securities1 1 2 (3)
Net realized losses (gains) on disposals and intent-to-sell available-for-sale securities11,246 (1,024)38,233 (501)
Credit loss expense3,532 1,054 33,214 3,207 
Total unrealized losses on investment securities(188,970)(29,695)(641,098)(81,605)
Defined benefit pension and post-retirement plans:  
Amounts reclassified into net income:
Net actuarial loss329 548 988 1,643 
  Total defined benefit pension and post-retirement plans
329 548 988 1,643 
Other comprehensive loss(188,641)(29,147)(640,110)(79,962)
Comprehensive (loss) income$(146,116)44,558 $(501,735)224,896 
 
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.


3
SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY		Quarter ended September 30,Nine Months ended September 30,
($ in thousands, except share and per share amounts)2022202120222021
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 period209,506 208,742 208,902 208,066 
Dividend reinvestment plan11 10 34 34 
Stock purchase and compensation plans41 26 622 678 
End of period209,558 208,778 209,558 208,778 
Additional paid-in capital:  
Beginning of period481,380 454,459 464,347 438,985 
Dividend reinvestment plan438 416 1,325 1,261 
Stock purchase and compensation plans4,421 3,268 20,567 17,897 
End of period486,239 458,143 486,239 458,143 
Retained earnings:  
Beginning of period2,660,584 2,467,596 2,603,472 2,271,537 
Net income42,525 73,705 138,375 304,858 
Dividends to preferred stockholders(2,300)(2,300)(6,900)(7,053)
Dividends to common stockholders(17,046)(15,191)(51,184)(45,532)
End of period2,683,763 2,523,810 2,683,763 2,523,810 
Accumulated other comprehensive (loss) income:  
Beginning of period(336,370)169,371 115,099 220,186 
Other comprehensive loss (188,641)(29,147)(640,110)(79,962)
End of period(525,011)140,224 (525,011)140,224 
Treasury stock:  
Beginning of period(621,010)(608,801)(608,935)(599,885)
Acquisition of treasury stock - share repurchase authorization(5,931)— (12,423)(3,404)
Acquisition of treasury stock - shares acquired related to employee share-based compensation plans(75)(58)(5,658)(5,570)
End of period(627,016)(608,859)(627,016)(608,859)
Total stockholders’ equity$2,427,533 2,922,096 $2,427,533 2,922,096 
Dividends declared per preferred share$287.50 287.50 $862.50 881.67 
Dividends declared per common share$0.28 0.25 $0.84 0.75 
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 period60,327,734 60,106,236 60,184,382 59,905,803 
Dividend reinvestment plan5,647 5,096 17,152 17,152 
Stock purchase and compensation plan20,073 12,946 310,760 339,061 
Acquisition of treasury stock - share repurchase authorization(79,100)— (165,159)(52,781)
Acquisition of treasury stock - shares acquired related to employee share-based compensation plans(863)(743)(73,644)(85,700)
End of period60,273,491 60,123,535 60,273,491 60,123,535 

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

4
SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS		Nine Months ended September 30,
($ in thousands)20222021
Operating Activities  
Net income$138,375 304,858 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation and amortization34,350 40,706 
Stock-based compensation expense15,123 13,431 
Undistributed gains of equity method investments(12,971)(65,215)
Distributions in excess of current year income of equity method investments33,365 2,750 
Net realized and unrealized losses (gains) 108,913 (15,353)
Loss on disposal of fixed assets— 50 
Changes in assets and liabilities:  
Increase in reserve for loss and loss expense, net of reinsurance recoverable271,311 251,260 
Increase in unearned premiums, net of prepaid reinsurance223,332 211,564 
Increase in net federal income taxes(31,607)(17,866)
Increase in premiums receivable(168,286)(148,817)
Increase in deferred policy acquisition costs(44,010)(45,417)
Increase in accrued investment income(5,936)(1,249)
Decrease in accrued salaries and benefits(8,830)(1,160)
Increase in other assets(31,241)(22,045)
(Decrease) increase in other liabilities(36,444)35,806 
Net cash provided by operating activities485,444 543,303 
Investing Activities  
Purchases of fixed income securities, held-to-maturity(6,692)(11,250)
Purchases of fixed income securities, available-for-sale(2,183,013)(1,660,798)
Purchases of commercial mortgage loans(57,289)(38,129)
Purchases of equity securities(21,044)(82,223)
Purchases of other investments(45,495)(63,661)
Purchases of short-term investments(3,123,086)(3,443,597)
Sales of fixed income securities, available-for-sale986,367 384,586 
Proceeds from commercial mortgage loans7,875 442 
Sales of short-term investments3,302,140 3,497,243 
Redemption and maturities of fixed income securities, held-to-maturity2,508 2,735 
Redemption and maturities of fixed income securities, available-for-sale539,680 910,741 
Sales of equity securities155,670 85,373 
Sales of other investments2,156 5,377 
Distributions from other investments11,114 10,524 
Purchases of property and equipment(21,758)(15,123)
Net cash used in investing activities(450,867)(417,760)
Financing Activities  
Dividends to preferred stockholders(6,900)(7,053)
Dividends to common stockholders(49,307)(43,756)
Acquisition of treasury stock(18,081)(8,974)
Net proceeds from stock purchase and compensation plans5,500 4,575 
Preferred stock issued, net of issuance costs— (479)
Proceeds from borrowings35,000 — 
Repayments of borrowings(35,000)(50,000)
Repayments of finance lease obligations(1,819)(298)
Net cash used in financing activities(70,607)(105,985)
Net (decrease) increase in cash and restricted cash(36,030)19,558 
Cash and restricted cash, beginning of period45,063 15,231 
Cash and restricted cash, end of period$9,033 34,789 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
5
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 third quarters ended September 30, 2022 (“Third Quarter 2022”) and September 30, 2021 (“Third Quarter 2021”), and the nine-month periods ended September 30, 2022 ("Nine Months 2022") and September 30, 2021 ("Nine Months 2021"). 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, 2021 (“2021 Annual Report”) filed with the SEC.

NOTE 2. Adoption of Accounting Pronouncements 
There was no adoption of accounting pronouncements in Third Quarter and Nine Months 2022.

Pronouncements to be effective in the future
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 expected market transition away from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. Companies can elect to adopt ASU 2020-04 as of the beginning of the interim period that includes March 2020, or any date thereafter through December 31, 2022. We are currently evaluating the impact of this guidance, but we do not anticipate its adoption to have a material impact on our financial condition and results of operations.

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.

6
NOTE 3. Statements of Cash Flows
Supplemental cash flow information was as follows:

 Nine Months ended September 30,
($ in thousands)20222021
Cash paid (received) during the period for:  
Interest$22,699 23,278 
Federal income tax61,000 93,000 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases6,096 6,480 
Operating cash flows from financing leases33 5 
Financing cash flows from finance leases1,819 298 
Non-cash items:
Corporate actions related to fixed income securities, available-for-sale ("AFS")1
32,546 50,501 
Corporate actions related to equity securities1
— 527 
Conversion of AFS fixed income securities to equity securities1,463 — 
Assets acquired under finance lease arrangements650 183 
Assets acquired under operating lease arrangements15,514 273 
Non-cash purchase of property and equipment— — 
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)September 30, 2022December 31, 2021
Cash$538 455 
Restricted cash8,495 44,608 
Cash and restricted cash shown in the Consolidated Statements of Cash Flows$9,033 45,063 

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. Restricted cash was elevated at December 31, 2021, primarily to pay Hurricane Ida flood claims.

NOTE 4. Investments
(a) Information regarding our AFS securities as of September 30, 2022 and December 31, 2021, were as follows:

September 30, 2022
($ in thousands)Cost/
Amortized
Cost		Allowance for Credit LossesUnrealized
Gains		Unrealized
Losses		Fair
Value
AFS fixed income securities:
U.S. government and government agencies$168,340 — 6 (20,115)148,231 
Foreign government16,060 (320)— (1,960)13,780 
Obligations of states and political subdivisions1,031,937 (1,311)141 (63,137)967,630 
Corporate securities2,535,367 (36,970)1,222 (234,983)2,264,636 
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS")1,581,097 (3,114)1,732 (112,292)1,467,423 
Residential mortgage-backed securities ("RMBS")
1,130,752 (10,603)764 (104,856)1,016,057 
Commercial mortgage-backed securities ("CMBS")643,458 (19)102 (49,198)594,343 
Total AFS fixed income securities$7,107,011 (52,337)3,967 (586,541)6,472,100 
 
7
December 31, 2021
($ in thousands)Cost/
Amortized
Cost		Allowance for Credit LossesUnrealized
Gains		Unrealized
Losses		Fair
Value
AFS fixed income securities:
U.S. government and government agencies$127,974 — 3,629 (1,145)130,458 
Foreign government15,420 (46)609 (123)15,860 
Obligations of states and political subdivisions1,121,422 (137)68,258 (235)1,189,308 
Corporate securities2,478,348 (6,682)106,890 (4,953)2,573,603 
CLO and other ABS1,343,687 (939)14,350 (6,284)1,350,814 
RMBS756,280 (1,909)24,813 (2,932)776,252 
CMBS647,622 (11)27,752 (1,682)673,681 
Total AFS fixed income securities
$6,490,753 (9,724)246,301 (17,354)6,709,976 

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 September 30, 2022
($ in thousands)Beginning 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
Foreign government$265 40 — 15 — — 320 
Obligations of states and political subdivisions1,206 313 — (181)(27)— 1,311 
Corporate securities35,072 4,061 — 633 (2,733)(63)36,970 
CLO and other ABS3,623 35 — (527)(17)— 3,114 
RMBS10,616 35 — 46 (94)— 10,603 
CMBS18 — — 1 — — 19 
Total AFS fixed income securities$50,800 4,484 — (13)(2,871)(63)52,337 

Quarter ended September 30, 2021
($ in thousands)Beginning BalanceCurrent Provision for Securities without Prior AllowanceIncrease (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
Foreign government$49 — (2)— — 47 
Obligations of states and political subdivisions38 61 — — — 99 
Corporate securities3,477 1,307 64 (49)(80)4,719 
CLO and other ABS1,399 46 (517)(2)— 926 
RMBS1,034 248 125 (44)— 1,363 
CMBS14 4 (3)— — 15 
Total AFS fixed income securities$6,011 1,666 (333)(95)(80)7,169 

Nine Months ended September 30, 2022
($ in thousands)Beginning 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
Foreign government$46 292 — (4)(14)— 320 
Obligations of states and political subdivisions137 1,371 — (6)(191)— 1,311 
Corporate securities6,682 33,096 — 4,384 (5,925)(1,267)36,970 
CLO and other ABS939 1,580 — 623 (28)— 3,114 
RMBS1,909 225 8,318 473 (322)— 10,603 
CMBS11 18 — (10)— — 19 
Total AFS fixed income securities$9,724 36,582 8,318 5,460 (6,480)(1,267)52,337 
8
Nine Months ended September 30, 2021
($ in thousands)Beginning BalanceCurrent Provision for Securities without Prior AllowanceIncrease (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
Foreign government$1 47 (1)— — 47 
Obligations of states and political subdivisions4 84 11 — — 99 
Corporate securities2,782 3,413 (765)(570)(141)4,719 
CLO and other ABS592 573 (219)(20)— 926 
RMBS561 1,018 (95)(121)— 1,363 
CMBS29 4 (18)— — 15 
Total AFS fixed income securities$3,969 5,139 (1,087)(711)(141)7,169 

During Third Quarter and Nine Months 2022 and 2021, we had no write-offs or recoveries of our AFS fixed income securities.

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 2021 Annual Report. Accrued interest on AFS securities was $52.8 million as of September 30, 2022, and $46.3 million as of December 31, 2021. We did not record any material write-offs of accrued interest during 2022 and 2021.

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

September 30, 2022Less 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$138,136 (16,003)9,819 (4,112)147,955 (20,115)
Foreign government12,069 (1,501)1,711 (459)13,780 (1,960)
Obligations of states and political subdivisions921,980 (62,494)3,886 (643)925,866 (63,137)
Corporate securities2,037,738 (217,328)61,315 (17,655)2,099,053 (234,983)
CLO and other ABS1,107,292 (82,751)269,902 (29,541)1,377,194 (112,292)
RMBS937,823 (93,871)45,296 (10,985)983,119 (104,856)
CMBS538,907 (40,359)52,313 (8,839)591,220 (49,198)
Total AFS fixed income securities$5,693,945 (514,307)444,242 (72,234)6,138,187 (586,541)

December 31, 2021Less 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$34,857 (746)7,827 (399)42,684 (1,145)
Foreign government2,000 (84)1,061 (39)3,061 (123)
Obligations of states and political subdivisions25,837 (235)— — 25,837 (235)
Corporate securities300,549 (4,903)2,520 (50)303,069 (4,953)
CLO and other ABS663,976 (4,934)53,368 (1,350)717,344 (6,284)
RMBS236,010 (2,931)20 (1)236,030 (2,932)
CMBS112,899 (1,016)20,326 (666)133,225 (1,682)
Total AFS fixed income securities$1,376,128 (14,849)85,122 (2,505)1,461,250 (17,354)

We currently do not intend to sell any of the securities summarized in the tables above, nor will we be required to sell any of them. The increase in gross unrealized losses as of September 30, 2022, compared to December 31, 2021, was driven by an increase in benchmark U.S. Treasury rates and a widening of credit spreads, with the increase in interest rates having the most significant impact. 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 2021 Annual Report, we have concluded that no allowance for credit loss is required on these balances beyond the allowance for credit loss recorded as of September 30, 2022. This conclusion reflects our current judgment about the financial position and future prospects of the entities that issued the investment security and underlying collateral.

9
(c) AFS and held-to-maturity ("HTM") fixed income securities at September 30, 2022, by contractual maturity are shown below. The maturities of mortgage-backed 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$322,189 6,577 6,595 
Due after one year through five years2,826,402 4,955 4,907 
Due after five years through 10 years2,410,981 21,476 19,980 
Due after 10 years912,528 — — 
Total fixed income securities$6,472,100 33,008 31,482 

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

Other InvestmentsSeptember 30, 2022December 31, 2021
($ in thousands)Carrying ValueRemaining Commitment
Maximum Exposure to Loss1
Carrying ValueRemaining Commitment
Maximum Exposure to Loss1
Alternative Investments  
   Private equity$284,538 126,446 410,984 273,070 99,734 372,804 
   Private credit55,398 91,196 146,594 63,138 92,674 155,812 
   Real assets27,885 29,103 56,988 23,524 22,579 46,103 
Total alternative investments367,821 246,745 614,566 359,732 214,987 574,719 
Other securities64,803 — 64,803 49,300 — 49,300 
Total other investments$432,624 246,745 679,369 409,032 214,987 624,019 
1In addition to the amounts in this table, previously recognized tax credits are subject to the risk of recapture. We do not consider the risk of recapture to be significant and therefore do not reflect this risk in the Maximum Exposure to Loss column in this table.

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 2022 or 2021.

The following table shows gross summarized financial information for our other investments portfolio, including the portion we do not own. The majority of these investments are carried under the equity method of accounting and report results to us on a one-quarter lag. The following table provides (i) the total net income reported by these investments to all of their investors for the three and nine months ended June 30, 2022 and June 30, 2021, and (ii) the portion of these results that are included in our Third Quarter and Nine Months 2022 and 2021 results:

Income Statement InformationQuarter ended September 30,Nine Months ended September 30,
($ in millions)2022202120222021
Net investment income$205.6 60.4 $612.0 550.3 
Realized gains1,983.5 1,857.6 10,964.9 4,026.2 
Net change in unrealized appreciation(3,188.9)11,188.2 (1,973.0)20,767.9 
Net income$(999.8)13,106.2 $9,603.9 25,344.4 
Alternative investment income included in "Net investment income earned" on our Consolidated Statements of Income $(5.6)42.8 $22.8 92.9 

(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 September 30, 2022 to comply with insurance laws. We retain all rights regarding all securities pledged as collateral.

10
The following table summarizes the market value of these securities at September 30, 2022:

($ in millions)FHLBI CollateralFHLBNY CollateralState and
Regulatory Deposits		Total
U.S. government and government agencies$— — 18.9 18.9 
Obligations of states and political subdivisions— — 3.6 3.6 
RMBS60.5 29.7 — 90.2 
CMBS4.8 10.0 — 14.8 
Total pledged as collateral$65.3 39.7 22.5 127.5 

(f) We did not have exposure to any credit concentration risk of a single issuer greater than 10% of our stockholders' equity, other than certain U.S. government agencies, as of September 30, 2022, or December 31, 2021.

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

 Quarter ended September 30,Nine Months ended September 30,
($ in thousands)2022202120222021
Fixed income securities$68,236 51,683 $184,305 157,114 
Commercial mortgage loans ("CMLs")1,600 683 3,762 1,892 
Equity securities2,604 2,955 7,661 8,425 
Short-term investments1,152 64 1,660 204 
Other investments(5,469)42,865 22,896 93,158 
Investment expenses(4,234)(5,218)(13,571)(14,314)
Net investment income earned$63,889 93,032 $206,713 246,479 

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

Quarter ended September 30,Nine Months ended September 30,
($ in thousands)20222021 2022  2021
Gross gains on sales$7,094 7,151 $23,843 12,906 
Gross losses on sales(19,668)(2,505)(52,573)(8,787)
Net realized (losses) gains on disposals(12,574)4,646 (28,730)4,119 
Net unrealized (losses) gains on equity securities(7,777)(3,111)(31,791)15,830 
Net credit loss expense on fixed income securities, AFS(4,471)(1,334)(42,042)(4,059)
Net credit loss benefit (expense) on fixed income securities, HTM54 6 62 (54)
Losses on securities for which we have the intent to sell(913)(30)(6,412)(483)
Net realized and unrealized (losses) gains$(25,681)177 $(108,913)15,353 

Net realized and unrealized investment gains decreased $25.9 million in Third Quarter 2022 and $124.3 million in Nine Months 2022 compared to the same prior-year periods, primarily driven by (i) a decrease in valuations reflecting the current public equities market, (ii) active trading of our fixed income securities in an effort to opportunistically increase yield given the rising interest rate environment, and (iii) higher credit loss expense on our AFS fixed income securities portfolio.

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

Quarter ended September 30,Nine Months ended September 30,
($ in thousands)20222021 2022  2021
Unrealized (losses) gains recognized in income on equity securities:
On securities remaining in our portfolio at end of period$(5,832)269 $(16,334)14,767 
On securities sold in period(1,945)(3,380)(15,457)1,063 
Total unrealized (losses) gains recognized in income on equity securities$(7,777)(3,111)$(31,791)15,830 

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NOTE 5. Fair Value Measurements
The financial assets in our investment portfolio are primarily measured at fair value as disclosed on the Consolidated Balance Sheets. The following table presents the carrying amounts and fair values of our financial liabilities as of September 30, 2022, and December 31, 2021:

September 30, 2022December 31, 2021
($ in thousands)Carrying AmountFair ValueCarrying AmountFair Value
Financial Liabilities
Long-term debt:
7.25% Senior Notes$49,920 50,225 49,917 63,719 
6.70% Senior Notes99,536 97,098 99,520 127,574 
5.375% Senior Notes294,400 255,216 294,330 395,652 
3.03% borrowings from FHLBI60,000 57,025 60,000 64,126 
Subtotal long-term debt503,856 459,564 503,767 651,071 
Unamortized debt issuance costs(2,986)(3,167)
Finance lease obligations4,281 5,450 
Total long-term debt$505,151 506,050 

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 2021 Annual Report.

The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at September 30, 2022, and December 31, 2021:

September 30, 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$148,231 75,858 72,373 — 
Foreign government13,780 — 13,780 — 
Obligations of states and political subdivisions967,630 — 960,919 6,711 
Corporate securities2,264,636 — 2,098,812 165,824 
CLO and other ABS1,467,423 — 1,341,751 125,672 
RMBS1,016,057 — 1,016,057 — 
CMBS594,343 — 593,970 373 
Total AFS fixed income securities6,472,100 75,858 6,097,662 298,580 
Equity securities:
Common stock1
182,138 81,029 — — 
Preferred stock1,730 1,730 — — 
Total equity securities183,868 82,759 — — 
Short-term investments269,302 268,982 320 — 
Total assets measured at fair value$6,925,270 427,599 6,097,982 298,580 

12
December 31, 2021 Fair Value Measurements Using
($ in thousands)Assets
 Measured at
 Fair Value		Quoted Prices in
 Active Markets for
Identical Assets/Liabilities
(Level 1)		Significant
Other Observable Inputs
(Level 2)		Significant Unobservable
Inputs
 (Level 3)
Description    
Measured on a recurring basis:    
AFS fixed income securities:
U.S. government and government agencies$130,458 60,615 69,843 — 
Foreign government15,860 — 15,860 — 
Obligations of states and political subdivisions1,189,308 — 1,181,563 7,745 
Corporate securities2,573,603 — 2,459,476 114,127 
CLO and other ABS1,350,814 — 1,225,905 124,909 
RMBS776,252 — 776,007 245 
CMBS673,681 — 669,425 4,256 
Total AFS fixed income securities6,709,976 60,615 6,398,079 251,282 
Equity securities:
Common stock1
333,449 249,846 — — 
Preferred stock2,088 2,088 — — 
Total equity securities335,537 251,934 — — 
Short-term investments447,863 442,723 5,140 — 
Total assets measured at fair value$7,493,376 755,272 6,403,219 251,282 
1Investments amounting to $101.1 million at September 30, 2022, and $83.6 million at December 31, 2021, 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.

The following tables provide a summary of Level 3 changes in Nine Months 2022 and Nine Months 2021:

September 30, 2022
($ in thousands)Obligations of States 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 (losses) gains for the period included in:
Other comprehensive income ("OCI")(879)(23,847)(11,436)(17)(477)(36,656)
   Net realized and unrealized (losses) gains(155)(2,345)(771)— (7)(3,278)
Net investment income earned— 49 127 — 46 222 
Purchases— 74,327 44,167 — — 118,494 
Sales— — — — — — 
Issuances— — — — — — 
Settlements— (8,663)(6,678)(11)(15)(15,367)
Transfers into Level 3— 19,214 — — — 19,214 
Transfers out of Level 3— (7,038)(24,646)(217)(3,430)(35,331)
Fair value, September 30, 2022
$6,711 165,824 125,672 — 373 298,580 
Change in unrealized losses for the period included in earnings for assets held at period end(155)(2,330)(771)— (7)(3,263)
Change in unrealized losses for the period included in OCI for assets held at period end(879)(23,852)(11,395)(17)(477)(36,620)
13
September 30, 2021
($ in thousands)Obligation of state and Political SubdivisionsCorporate SecuritiesCLO and Other ABSTotal
Fair value, December 31, 2020
$2,894 70,700 56,375 129,969 
Total net (losses) gains for the period included in:
OCI9 2,607 206 2,822 
Net realized and unrealized (losses) gains— (185)(35)(220)
Net investment income earned— 14 9 23 
Purchases— 43,833 19,041 62,874 
Sales— — — — 
Issuances— — — — 
Settlements— (210)(1,750)(1,960)
Transfers into Level 35,101 981 3,226 9,308 
Transfers out of Level 3— (7,454)(14,643)(22,097)
Fair value, September 30, 2021
$8,004 110,286 62,429 180,719 
Change in unrealized (losses) gains for the period included in earnings for assets held at period end— (185)(35)(220)
Change in unrealized gains (losses) for the period included in OCI for assets held at period end9 2,607 206 2,822 

The following tables present quantitative information about the significant unobservable inputs used in the fair value measurements of Level 3 assets at September 30, 2022, and December 31, 2021:

September 30, 2022
($ in thousands)Assets Measured at Fair ValueValuation TechniquesUnobservable InputsRange Weighted Average
Internal valuations:
Corporate securities$77,424 Discounted Cash FlowIlliquidity Spread
(4.4)% - 19.6%
1.8%
CLO and other ABS40,883 Discounted Cash FlowIlliquidity Spread
0.01% - 8.0%
1.9%
Total internal valuations118,307 
Other1
180,273 
Total Level 3 securities$298,580 

December 31, 2021
($ in thousands)Assets Measured at Fair ValueValuation TechniquesUnobservable InputsRangeWeighted Average
Internal valuations:
Corporate securities$54,135 Discounted Cash FlowIlliquidity Spread
0.3% - 3.0%
1.2%
CLO and other ABS34,903 Discounted Cash FlowIlliquidity Spread
0.7% - 8.0%
2.1%
Total internal valuations89,038 
Other1
162,244 
Total Level 3 securities$251,282 
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 is 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.

14
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 September 30, 2022, and December 31, 2021:

September 30, 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$3,424 — 3,424 — 
Corporate securities28,058 — 28,058 — 
Total HTM fixed income securities$31,482 — 31,482 — 
CMLs$136,652 — — 136,652 
Financial Liabilities    
Long-term debt:
7.25% Senior Notes$50,225 — 50,225 — 
6.70% Senior Notes97,098 — 97,098 — 
5.375% Senior Notes255,216 — 255,216 — 
3.03% borrowings from FHLBI57,025 — 57,025 — 
Total long-term debt$459,564 — 459,564 — 

December 31, 2021 Fair Value Measurements Using
($ in thousands)Assets/
Liabilities
Disclosed at
Fair Value		Quoted Prices in
 Active Markets for
 Identical Assets/
Liabilities
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Financial Assets    
HTM:    
Obligations of states and political subdivisions$3,576 — 3,576 — 
Corporate securities25,884 — 25,884 — 
Total HTM fixed income securities$29,460 — 29,460 — 
CMLs$97,598 — — 97,598 
Financial Liabilities    
Long-term debt:
7.25% Senior Notes$63,719 — 63,719 — 
6.70% Senior Notes127,574 — 127,574 — 
5.375% Senior Notes395,652 — 395,652 — 
3.03% borrowings from FHLBI64,126 — 64,126 — 
Total long-term debt$651,071 — 651,071 — 

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 September 30,Nine Months ended September 30,
($ in thousands)20222021 2022  2021
Balance at beginning of period$14,900 $18,300 $13,600 $21,000 
Current period change for expected credit losses2,250 180 4,335 1,721 
Write-offs charged against the allowance for credit losses(2,349)(2,154)(3,787)(6,554)
Recoveries399 174 1,052 333 
Allowance for credit losses, end of period$15,200 $16,500 $15,200 $16,500 

In Third Quarter 2022, we recognized an additional allowance for credit losses on premiums receivable of $2.6 million, excluding the impact of write-offs. The additional allowance consisted of a reserve of $2.7 million on 2022 premiums based on our historical write-off percentages and assumptions, partially offset by a $0.1 million allowance reduction on 2021 and older policies.
15
In Nine Months 2022, we recognized an additional allowance for credit losses on premiums receivable of $5.4 million, excluding the impact of write-offs. The additional allowance consisted of a reserve of $7.0 million on 2022 premiums based on our historical write-off percentages and assumptions, partially offset by a $1.6 million allowance reduction on 2021 and older policies, primarily impacted by the COVID-19 pandemic, for which the credit loss did not fully materialize.

In Third Quarter 2021, we recognized expected credit losses, excluding the impact of write-offs, of $1.2 million on 2021 policies based on our historical write-off percentages and assumptions, partially offset by a $0.8 million allowance reduction on older policies. In Nine Months 2021, we recognized expected credit losses, excluding the impact of write-offs, of $6.3 million on 2021 policies based on our historical write-off percentages and assumptions, partially offset by a $4.2 million allowance reduction on older policies.

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 2021 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 September 30, 2022, and December 31, 2021:

September 30, 2022
($ in thousands)CurrentPast DueTotal Reinsurance Recoverables
Financial strength rating of rated reinsurers
A++$45,356 $— $45,356 
A+360,085 920 361,005 
A98,860 176 99,036 
A-2,301 90 2,391 
B++— — — 
B+— — — 
Total rated reinsurers$506,602 $1,186 $507,788 
Non-rated reinsurers
Federal and state pools$202,989 $— $202,989 
Other than federal and state pools3,676 278 3,954 
Total non-rated reinsurers$206,665 $278 $206,943 
Total reinsurance recoverable, gross$713,267 $1,464 $714,731 
Less: allowance for credit losses(1,600)
Total reinsurance recoverable, net$713,131 


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December 31, 2021
($ in thousands)CurrentPast DueTotal Reinsurance Recoverables
Financial strength rating of rated reinsurers
A++$38,601 $9 $38,610 
A+339,857 1,520 341,377 
A95,675 1,227 96,902 
A-3,209 145 3,354 
B++— — — 
B+— — — 
Total rated reinsurers$477,342 $2,901 $480,243 
Non-rated reinsurers
Federal and state pools$116,378 $— $116,378 
Other than federal and state pools4,597 450 5,047 
Total non-rated reinsurers$120,975 $450 $121,425 
Total reinsurance recoverable, gross$598,317 $3,351 $601,668 
Less: allowance for credit losses(1,600)
Total reinsurance recoverable, net$600,068 

The $86.6 million increase in "Federal and state pools" as of September 30, 2022, compared to December 31, 2021, was primarily due to NFIP reserves recorded in Third Quarter 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 September 30,Nine Months ended September 30,
20222021 2022  2021
Balance at beginning of period$1,600 1,777 $1,600 1,777 
Current period change for expected credit losses— (182)— (182)
Write-offs charged against the allowance for credit losses— — — — 
Recoveries— — — — 
Allowance for credit losses, end of period$1,600 1,595 $1,600 1,595 

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 2021 Annual Report.

17
The following table lists direct, assumed, and ceded reinsurance amounts for premiums written, premiums earned, and loss and loss expenses 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 2021 Annual Report.

Quarter ended September 30,Nine Months ended September 30,
($ in thousands)2022202120222021
Premiums written:    
Direct$1,037,612 932,752 $3,089,166 2,796,296 
Assumed9,531 7,136 23,398 17,541 
Ceded(143,749)(126,982)(388,631)(369,548)
Net$903,394 812,906 $2,723,933 2,444,289 
Premiums earned:    
Direct$984,981 877,620 $2,872,008 2,568,445 
Assumed8,514 6,304 21,523 16,391 
Ceded(139,616)(116,677)(392,930)(352,111)
Net$853,879 767,247 $2,500,601 2,232,725 
Loss and loss expenses incurred:    
Direct$732,568 655,483 $1,821,069 1,557,063 
Assumed6,443 4,143 15,846 10,807 
Ceded(191,185)(154,357)(269,985)(227,577)
Net$547,826 505,269 $1,566,930 1,340,293 

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

Nine Months ended September 30,
($ in thousands)20222021
Gross reserve for loss and loss expense, at beginning of period$4,580,903 4,260,355 
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of period578,641 554,269 
Net reserve for loss and loss expense, at beginning of period4,002,262 3,706,086 
Incurred loss and loss expense for claims occurring in the:  
Current year1,610,940 1,408,240 
Prior years(44,010)(67,947)
Total incurred loss and loss expense1,566,930 1,340,293 
Paid loss and loss expense for claims occurring in the:  
Current year513,118 430,288 
Prior years779,438 675,782 
Total paid loss and loss expense1,292,556 1,106,070 
Net reserve for loss and loss expense, at end of period4,276,636 3,940,309 
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period688,641 670,031 
Gross reserve for loss and loss expense at end of period$4,965,277 4,610,340 

Prior year reserve development in Nine Months 2022 was favorable by $44.0 million, consisting of $48.0 million of favorable casualty reserve development, partially offset by $4.0 million of unfavorable property reserve development. The favorable casualty reserve development included $40.0 million in our workers compensation line of business, $10.0 million in our bonds line of business, $8.0 million in our businessowners' policies line of business, and $5.0 million in our general liability line of business, partially offset by $15.0 million of unfavorable casualty reserve development in our commercial automobile line of business.

Prior year reserve development in Nine Months 2021 was favorable by $67.9 million, primarily consisting of $66.0 million of casualty reserve development. The favorable casualty reserve development included $29.0 million in our general liability line of business, $28.0 million in our workers compensation line of business, $7.0 million in our Excess and Surplus (E&S") casualty lines of business, and $2.0 million in our businessowners' policies 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 based on before and after-tax underwriting results (net premiums earned, incurred loss and loss expense, policyholder dividends, policy acquisition costs, and other underwriting expenses), return on equity ("ROE") contribution, and combined ratios.
18
•Our Investments segment is primarily evaluated on after-tax net investment income and its ROE contribution. After-tax net realized and unrealized gains and losses, which are not included in non-GAAP operating income, are also included in our 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 September 30,Nine Months ended September 30,
($ in thousands)2022202120222021
Standard Commercial Lines:  
Net premiums earned:  
General liability$225,302 205,904 $667,912 596,717 
Commercial automobile207,129 185,610 599,340 535,519 
Commercial property128,268 111,981 371,892 320,904 
Workers compensation81,996 78,318 250,178 230,845 
Businessowners' policies32,130 23,025 93,682 80,963 
Bonds11,094 8,850 32,136 26,436 
Other6,518 5,883 19,003 17,082 
Miscellaneous income2,444 4,168 6,141 13,670 
Total Standard Commercial Lines revenue694,881 623,739 2,040,284 1,822,136 
Standard Personal Lines:
Net premiums earned:
Personal automobile40,746 40,575 120,414 122,977 
Homeowners32,619 30,633 95,436 91,801 
Other2,273 2,154 5,768 5,698 
Miscellaneous income489 420 1,358 1,242 
Total Standard Personal Lines revenue76,127 73,782 222,976 221,718 
E&S Lines:
Net premiums earned:
Casualty lines59,640 52,983 170,305 144,458 
Property lines26,164 21,331 74,535 59,325 
Total E&S Lines revenue85,804 74,314 244,840 203,783 
Investments:    
Net investment income 63,889 93,032 206,713 246,479 
Net realized and unrealized investment (losses) gains(25,681)177 (108,913)15,353 
Total Investments revenue38,208 93,209 97,800 261,832 
Total revenues $895,020 865,044 $2,605,900 2,509,469 

19
Income Before and After Federal Income TaxQuarter ended September 30,Nine Months ended September 30,
($ in thousands)2022202120222021
Standard Commercial Lines:  
Underwriting income, before federal income tax$22,501 17,413 $111,593 154,850 
Underwriting income, after federal income tax17,776 13,756 88,158 122,332 
Combined ratio96.8 %97.2 94.5 91.4 
ROE contribution3.1 2.1 4.7 6.2 
Standard Personal Lines:
Underwriting (loss) income, before federal income tax$(1,385)(11,146)$(7,232)2,193 
Underwriting (loss) income, after federal income tax(1,094)(8,805)(5,713)1,732 
Combined ratio101.8 %115.2 103.3 99.0 
ROE contribution(0.2)(1.3)(0.3)0.1 
E&S Lines:
Underwriting income, before federal income tax$6,016 4,672 $16,313 7,494 
Underwriting income, after federal income tax4,753 3,691 12,887 5,920 
Combined ratio93.0 %93.7 93.3 96.3 
ROE contribution0.8 0.5 0.7 0.3 
Investments:  
Net investment income earned$63,889 93,032 $206,713 246,479 
Net realized and unrealized investment (losses) gains(25,681)177 (108,913)15,353 
Total investments segment income, before federal income tax38,208 93,209 97,800 261,832 
Tax on investments segment income6,964 18,379 17,136 51,229 
Total investments segment income, after federal income tax$31,244 74,830 $80,664 210,603 
ROE contribution of after-tax net investment income earned8.9 11.0 8.9 10.1 

Reconciliation of Segment Results to Income Before Federal Income TaxQuarter ended September 30,Nine Months ended September 30,
($ in thousands)2022202120222021
Underwriting income (loss)
Standard Commercial Lines$22,501 17,413 $111,593 154,850 
Standard Personal Lines(1,385)(11,146)(7,232)2,193 
E&S Lines6,016 4,672 16,313 7,494 
Investment income38,208 93,209 97,800 261,832 
Total all segments65,340 104,148 218,474 426,369 
Interest expense(7,179)(7,242)(21,599)(21,967)
Corporate expenses(5,522)(4,270)(24,442)(22,936)
Income, before federal income tax$52,639 92,636 $172,433 381,466 
Preferred stock dividends(2,300)(2,300)(6,900)(7,053)
Income available to common stockholders, before federal income tax$50,339 90,336 $165,533 374,413 

NOTE 10. Retirement Plans
The primary pension plan for our employees is the Retirement Income Plan for Selective Insurance Company of America (the “Pension Plan”). Selective Insurance Company of America (“SICA”) also sponsors the Supplemental Excess Retirement Plan (the “Excess Plan”) and a life insurance benefit plan. All plans are closed to new entrants, and benefits ceased accruing under the Pension Plan and the Excess Plan after March 31, 2016. For more information about SICA's retirement plans, see Note 15. “Retirement Plans” in Item 8. “Financial Statements and Supplementary Data.” of our 2021 Annual Report.

The following tables provide information about the Pension Plan:

Pension Plan
Quarter ended September 30,Nine Months ended September 30,
($ in thousands)20222021 2022 2021
Net Periodic Pension Cost (Benefit):
Interest cost$2,486 2,148 $7,458 6,445 
Expected return on plan assets(5,537)(5,744)(16,611)(17,232)
Amortization of unrecognized net actuarial loss366 626 1,099 1,876 
Total net periodic pension cost (benefit)1
$(2,685)(2,970)$(8,054)(8,911)
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.
20
Pension Plan
Nine Months ended September 30,
20222021
Weighted-Average Expense Assumptions:
Discount rate2.98 %2.68 %
Effective interest rate for calculation of interest cost2.48 2.06 
Expected return on plan assets5.00 5.40 

NOTE 11. Comprehensive Income
The components of comprehensive income, both gross and net of tax, for Third Quarter and Nine Months 2022 and 2021 are as follows:

Third Quarter 2022   
($ in thousands)GrossTaxNet
Net income$52,639 10,114 42,525 
Components of OCI:   
Unrealized losses on investment securities:
   
Unrealized holding losses during the period(189,622)(39,819)(149,803)
Unrealized losses on securities with credit loss recognized in earnings(68,287)(14,341)(53,946)
Amounts reclassified into net income:
HTM securities1 — 1 
Net realized losses on disposals and intent-to-sell AFS securities14,235 2,989 11,246 
Credit loss expense4,471 939 3,532 
    Total unrealized losses on investment securities(239,202)(50,232)(188,970)
Defined benefit pension and post-retirement plans:   
Amounts reclassified into net income:   
Net actuarial loss417 88 329 
    Total defined benefit pension and post-retirement plans417 88 329 
Other comprehensive loss(238,785)(50,144)(188,641)
Comprehensive loss$(186,146)(40,030)(146,116)
Third Quarter 2021   
($ in thousands)GrossTaxNet
Net income$92,636 18,931 73,705 
Components of OCI:   
Unrealized losses on investment securities:
   
Unrealized holding losses during the period(35,285)(7,410)(27,875)
Unrealized losses on securities with credit loss recognized in earnings(2,343)(492)(1,851)
Amounts reclassified into net income:
HTM securities1 — 1 
Net realized gains on disposals and intent-to-sell AFS securities(1,296)(272)(1,024)
Credit loss expense1,334 280 1,054 
    Total unrealized losses on investment securities(37,589)(7,894)(29,695)
Defined benefit pension and post-retirement plans:   
Amounts reclassified into net income:   
Net actuarial loss693 145 548 
    Total defined benefit pension and post-retirement plans693 145 548 
Other comprehensive loss(36,896)(7,749)(29,147)
Comprehensive income$55,740 11,182 44,558 
21
Nine Months 2022   
($ in thousands)GrossTaxNet
Net income$172,433 34,058 138,375 
Components of OCI:  
Unrealized losses on investment securities:
  
Unrealized holding losses during the period(674,357)(141,613)(532,744)
Unrealized losses on securities with credit loss recognized in earnings(227,599)(47,796)(179,803)
Amounts reclassified into net income:
HTM securities2 — 2 
Net realized losses on disposals and intent-to-sell AFS securities48,396 10,163 38,233 
Credit loss expense42,042 8,828 33,214 
    Total unrealized losses on investment securities(811,516)(170,418)(641,098)
Defined benefit pension and post-retirement plans:   
Amounts reclassified into net income:   
Net actuarial loss1,251 263 988 
    Total defined benefit pension and post-retirement plans1,251 263 988 
Other comprehensive loss(810,265)(170,155)(640,110)
Comprehensive loss$(637,832)(136,097)(501,735)
Nine Months 2021   
($ in thousands)GrossTaxNet
Net income$381,466 76,608 304,858 
Components of OCI:   
Unrealized losses on investment securities:
   
Unrealized holding losses during the period(103,040)(21,638)(81,402)
Unrealized losses on securities with credit loss recognized in earnings(3,678)(772)(2,906)
Amounts reclassified into net income:
HTM securities(4)(1)(3)
Net realized gains on disposals and intent-to-sell AFS securities(634)(133)(501)
Credit loss expense4,059 852 3,207 
    Total unrealized losses on investment securities(103,297)(21,692)(81,605)
Defined benefit pension and post-retirement plans:   
Amounts reclassified into net income:   
Net actuarial loss2,079 436 1,643 
    Total defined benefit pension and post-retirement plans2,079 436 1,643 
Other comprehensive loss(101,218)(21,256)(79,962)
Comprehensive income$280,248 55,352 224,896 

The balances of, and changes in, each component of accumulated other comprehensive income ("AOCI") (net of taxes) as of September 30, 2022, were as follows:

September 30, 2022Net Unrealized (Losses) Gains on Investment SecuritiesDefined Benefit
Pension and Post-Retirement Plans		Total AOCI
($ in thousands)
Credit Loss Related1
HTM
Related		All
Other		Investments
Subtotal
Balance, December 31, 2021
$(4,287)(3)185,170 180,880 (65,781)115,099 
OCI before reclassifications(179,803)— (532,744)(712,547)— (712,547)
Amounts reclassified from AOCI33,214 2 38,233 71,449 988 72,437 
Net current period OCI(146,589)2 (494,511)(641,098)988 (640,110)
Balance, September 30, 2022
$(150,876)(1)(309,341)(460,218)(64,793)(525,011)
1Represents change in unrealized loss on securities with credit loss recognized in earnings.

22
The reclassifications out of AOCI were as follows:

Quarter ended September 30,Nine Months ended September 30,Affected Line Item in the Unaudited Consolidated Statements of Income
($ in thousands)2022202120222021
HTM related
Unrealized losses (gains) on HTM disposals$1 (1)$1 (1)Net realized and unrealized investment (losses) gains
Amortization of net unrealized losses (gains) on HTM securities— 2 1 (3)Net investment income earned
1 1 2 (4)Income before federal income tax
— — — 1 Total federal income tax expense
1 1 2 (3)Net income
Net realized losses (gains) on disposals and intent-to-sell AFS securities
Net realized losses (gains) on disposals and intent-to-sell AFS securities14,235 (1,296)48,396 (634)Net realized and unrealized investment (losses) gains
14,235 (1,296)48,396 (634)Income before federal income tax
(2,989)272 (10,163)133 Total federal income tax expense
11,246 (1,024)38,233 (501)Net income
Credit loss related
Credit loss expense4,471 1,334 42,042 4,059 Net realized and unrealized investment (losses) gains
4,471 1,334 42,042 4,059 Income before federal income tax
(939)(280)(8,828)(852)Total federal income tax expense
3,532 1,054 33,214 3,207 Net income
Defined benefit pension and post-retirement life plans
Net actuarial loss 90 159 270 478 Loss and loss expense incurred
327 534 981 1,601 Other insurance expenses
Total defined benefit pension and post-retirement life417 693 1,251 2,079 Income before federal income tax
(88)(145)(263)(436)Total federal income tax expense
329 548 988 1,643 Net income
Total reclassifications for the period$15,108 579 $72,437 4,346 Net income

NOTE 12. Equity
On December 2, 2020, we announced that 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. The timing and amount of any share repurchases under the authorization will be determined by management at its discretion based on market conditions and other considerations. In Nine Months 2022, we repurchased 165,159 shares of our common stock under our share repurchase program, of which 79,100 were repurchased in Third Quarter 2022. The total cost of repurchases, including commissions, was $12.4 million in Nine Months 2022. We had $84.2 million of remaining capacity under our share repurchase program as of September 30, 2022.

NOTE 13. Earnings per Common Share
The following table presents the calculations of earnings per common share ("EPS") on a basic and diluted basis:

Quarter ended September 30,Nine months ended September 30,
(in thousands, except per share amounts)2022202120222021
Net income available to common stockholders:$40,225 71,405 131,475 297,805 
Weighted average common shares outstanding:
Weighted average common shares outstanding - basic60,40460,23160,40960,161
Effect of dilutive securities - stock compensation plans431355420348
Weighted average common shares outstanding - diluted60,83560,58660,82960,509
EPS:
Basic$0.67 1.19 2.18 4.95 
Diluted0.66 1.18 2.16 4.92 

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NOTE 14. Litigation
As of September 30, 2022, we do not believe we are involved in any legal action that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

In the ordinary course of conducting business, we are parties in various legal actions. Most are claims litigation involving our Insurance Subsidiaries as (i) liability insurers defending or providing indemnity for third-party claims brought against our customers, (ii) insurers defending first-party coverage claims brought against them, or (iii) liability insurers seeking declaratory judgment on our insurance coverage obligations. We account for such activity 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 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 also is 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 punitively 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 defendants in individual actions seeking extra-contractual damages, punitive damages, or penalties, often alleging bad faith claims handling. 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” as defined by the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. These statements relate to 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 industry actual results, activity levels, or performance to materially differ from those expressed 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 can give no assurance that such expectations will prove correct. We undertake no obligation, other than as federal securities laws may require, to publicly update or revise any forward-looking statements for any reason.

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 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.

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Introduction
We classify our business into four reportable segments:

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

For more details about these segments, refer to Note 9. "Segment Information" in Item 1. "Financial Statements." of this Form 10-Q and Note 12. "Segment Information" in Item 8. "Financial Statements and Supplementary Data." of our Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 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 the consolidated results of operations and financial condition, as well as known trends and uncertainties, that may have a material impact in future periods. Investors should read the MD&A in conjunction with Item 1. "Financial Statements." of this Form 10-Q and the consolidated financial statements in our 2021 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 third quarters ended September 30, 2022 (“Third Quarter 2022”) and September 30, 2021 (“Third Quarter 2021”); and the nine-month periods ended September 30, 2022 ("Nine Months 2022") and September 30, 2021 ("Nine Months 2021");
•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 2021 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 35 through 43 of our 2021 Annual Report.

25
Financial Highlights of Results for Third Quarter and Nine Months 2022 and Third Quarter and Nine Months 20211

($ and shares in thousands, except per share amounts)Quarter ended September 30,Change
% or Points		Nine Months ended September 30,Change
% or Points
20222021 20222021
Financial Data:
Revenues$895,020 865,044 3 %$2,605,900 2,509,469 4 %
After-tax net investment income51,533 74,690 (31) 166,706 198,474 (16) 
After-tax underwriting income21,434 8,642 148 95,333 129,984 (27)
Net income before federal income tax52,639 92,636 (43)172,433 381,466 (55)
Net income42,525 73,705 (42)138,375 304,858 (55)
Net income available to common stockholders40,225 71,405 (44)131,475 297,805 (56)
Key Metrics:
Combined ratio96.8 %98.6 (1.8)pts95.2 %92.6 2.6 pts
Invested assets per dollar of common stockholders' equity$3.38 2.89 17 %$3.38 2.89 17 %
Return on common equity ("ROE")7.0 10.6 (3.6)pts7.0 15.1 (8.1)pts
Net premiums written ("NPW") to statutory surplus ratio1.45 x1.35 0.10 1.45 x1.35 0.10 
Per Common Share Amounts:
Diluted net income per share$0.66 1.18 (44)%$2.16 4.92 (56)%
Book value per share36.96 45.27 (18)36.96 45.27 (18)
Dividends declared per share to common stockholders0.28 0.25 12 0.84 0.75 12 
Non-GAAP Information:
Non-GAAP operating income2
$60,514 71,265 (15)%$217,517 285,676 (24)%
Non-GAAP operating income per diluted common share2
0.99 1.18 (16)3.57 4.72 (24)
Non-GAAP operating ROE2
10.5 %10.6 (0.1)pts11.6 %14.5 (2.9)pts
Adjusted book value per common share2
$44.59 41.56 7 %$44.59 41.56 7 %
1Refer to the Glossary of Terms attached to our 2021 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 net income available to common stockholders, net income available to common stockholders per diluted common share, ROE, and book value per common share to non-GAAP operating income, non-GAAP operating income per diluted common share, non-GAAP operating ROE, and adjusted book value per common share, respectively, are provided in the tables below:

Reconciliation of net income available to common stockholders to non-GAAP operating incomeQuarter ended September 30,Nine Months ended September 30,
($ in thousands)2022202120222021
Net income available to common stockholders$40,225 71,405 $131,475 297,805 
Net realized and unrealized investment losses (gains) included in net income, before tax25,681 (177)108,913 (15,353)
Tax on reconciling items(5,392)37 (22,871)3,224 
Non-GAAP operating income$60,514 71,265 $217,517 285,676 

Reconciliation of net income available to common stockholders per diluted common share to non-GAAP operating income per diluted common shareQuarter ended September 30,Nine Months ended September 30,
2022202120222021
Net income available to common stockholders per diluted common share$0.66 1.18 $2.16 4.92 
Net realized and unrealized investment losses (gains) included in net income, before tax0.42 — 1.79 (0.25)
Tax on reconciling items(0.09)— (0.38)0.05 
Non-GAAP operating income per diluted common share$0.99 1.18 $3.57 4.72 

26
Reconciliation of ROE to non-GAAP operating ROEQuarter ended September 30,Nine Months ended September 30,
2022202120222021
ROE7.0 %10.6 7.0 %15.1 
Net realized and unrealized investment losses (gains) included in net income, before tax4.4 — 5.8 (0.8)
Tax on reconciling items(0.9)— (1.2)0.2 
Non-GAAP operating ROE10.5 %10.6 11.6 %14.5 

Reconciliation of book value per common share to adjusted book value per common shareQuarter ended September 30,Nine Months ended September 30,
2022202120222021
Book value per common share$36.96 45.27 $36.96 45.27 
Total unrealized investment losses (gains) included in accumulated other comprehensive (loss) income, before tax9.67 (4.71)9.67 (4.71)
Tax on reconciling items(2.04)1.00 (2.04)1.00 
Adjusted book value per common share$44.59 41.56 $44.59 41.56 

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

ROE and non-GAAP operating ROE ComponentsQuarter ended September 30,Change PointsNine Months ended September 30,Change Points
2022202120222021
Standard Commercial Lines Segment3.1 %2.1 1.0 4.7 %6.2 (1.5)
Standard Personal Lines Segment(0.2)(1.3)1.1 (0.3)0.1 (0.4)
E&S Lines Segment0.8 0.5 0.3 0.7 0.3 0.4 
Total insurance operations3.7 1.3 2.4 5.1 6.6 (1.5)
Investment income8.9 11.0 (2.1)8.9 10.1 %(1.2)
Net realized and unrealized investment (losses) gains(3.5)— (3.5)(4.6)0.6 (5.2)
Total investments segment5.4 11.0 (5.6)4.3 10.7 (6.4)
Other(2.1)(1.7)(0.4)(2.4)(2.2)(0.2)
ROE7.0 10.6 (3.6)7.0 15.1 (8.1)
Net realized and unrealized investment losses (gains), after tax3.5 — 3.5 4.6 (0.6)5.2 
Non-GAAP Operating ROE10.5 10.6 (0.1)11.6 14.5 (2.9)

Our Nine Months 2022 non-GAAP operating ROE of 11.6% was above our full-year 2022 targeted non-GAAP operating ROE of 11%, but below our Nine Months 2021 non-GAAP operating ROE of 14.5%.

The decrease in Nine Months 2022 compared to Nine Months 2021 was primarily driven by a reduction in after-tax underwriting and investment income. After-tax underwriting income decreased $34.7 million, or 1.5 ROE points, in Nine Months 2022 compared to Nine Months 2021, primarily from increased non-catastrophe property loss and loss expenses and lower favorable prior year casualty reserve development, offset partially by a decrease in net catastrophe losses. The higher non-catastrophe property loss and loss expenses were mainly due to the higher inflationary environment.

After-tax investment income decreased $31.8 million, or 1.2 ROE points, in Nine Months 2022 compared to Nine Months 2021, from lower after-tax alternative investment income in Nine Months 2022.

In addition, our ROE was reduced by the impact of net realized and unrealized investment gains and losses, which was 5.2 ROE points in Nine Months 2022. Net realized and unrealized investment losses in both current-year periods compared to net realized and unrealized investment gains in the same prior-year periods drove the reduction in our ROE. The increase in net realized and unrealized losses resulted from (i) a decrease in valuations reflecting the current public equities market, (ii) active trading of our fixed income securities to increase the book yield of our fixed income portfolio due to increasing new money rates, resulting in realized losses, and (iii) higher credit loss expense on our AFS fixed income securities portfolio.

27
Outlook
We entered 2022 in the strongest financial position in our 95-year history, with a record level of GAAP equity, statutory capital and surplus, and holding company cash and investments. We are well positioned to continue executing on our strategic objectives and delivering growth and profitability. Although not as favorable as Nine Months 2021, our overall Nine Months 2022 financial results were strong, with 11% growth in NPW and a 11.6% non-GAAP operating ROE, which was above our full-year target of 11%.

In 2022, the elevated level of economic inflation, the significant increase in interest rates, and predictions of a recession in the near term, which have led to a widening of credit spreads, have all contributed to lower investment valuations and significant financial market volatility. The higher interest rates and widening of credit spreads, with interest rates having the most significant impact, have reduced the fair value of our fixed income securities, which in turn has negatively impacted our stockholders' equity, which was down 19% during Nine Months 2022. The higher economic inflation has also negatively impacted our property loss and loss expenses through increased severities in our short-tail property lines, which has reduced our underwriting income. Should these trends continue, and in the absence of taking rate and other underwriting actions, our underwriting profitability could be negatively impacted in the near term. We will continue to focus on underwriting improvements and achieving written renewal pure price increases that meet or exceed expected loss trend. In Third Quarter 2022, we achieved Standard Commercial Lines renewal pure price increases of 5.8% and exposure growth of 3.8%, resulting in total renewal premium growth of 9.6%. These rates were up sequentially from the second quarter of 2022, which experienced renewal pure price increases of 5.3% and exposure growth of 3.9%, resulting in total renewal premium growth of 9.2%.

While higher interest rates, wider credit spreads, and financial market volatility have negatively impacted our investment valuations and certain key financial metrics, such as stockholders' equity and book value per common share, they have also provided us with the opportunity to invest our cash flows at significantly higher new money rates. Our pre-tax new money purchase rates for fixed income securities averaged 4.2% in Nine Months 2022, compared to 2.2% for Nine Months 2021. The pre-tax new money purchase rates for fixed income securities increased to 5.1% in Third Quarter 2022, which was above our Third Quarter 2022 average pre-tax fixed income investment yield of 4.2%. The portfolio's net investment income also benefits from our 14% allocation to floating rate fixed income securities, which are primarily tied to 90-day LIBOR, which increased from 0.21% at December 31, 2021, to 3.75% at September 30, 2022. These floating securities have reset quarterly at higher rates, which combined with our higher new money purchase rates for fixed income securities, is contributing to higher net investment income from our fixed income securities. Partially offsetting the increase in net investment income from fixed income securities, are lower returns from our allocation to alternative investments. These assumptions are factored into our full-year after-tax net investment income expectations, as discussed below.

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

•Delivering on our strategy for continued disciplined and profitable growth by:
◦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 June 2022, we began writing Standard Commercial Lines business in Vermont. In October 2022, we began writing Standard Commercial Lines business in Alabama and Idaho. We plan to expand our Standard Commercial Lines footprint into other states over time;
◦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 build on a culture centered on the values of diversity, equity, and inclusion that fosters innovation, idea generation, and developing a group of specially trained leaders who can guide us successfully into the future.

Our full-year expectations are as follows:

•A GAAP combined ratio, excluding net catastrophe losses, of 91.5% (prior guidance was 90.5%). Our combined ratio estimate assumes no additional prior year casualty reserve development;
•Net catastrophe losses of 3.5 points (prior guidance 4.0 points) on the combined ratio;
28
•After-tax net investment income of $215 million (prior guidance was $215 million) that includes after-tax net investment income from our alternative investments of $7 million (prior guidance was $15 million);
•An overall effective tax rate of approximately 20.5%, which assumes an effective tax rate of 19.5% 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.

As we look ahead to 2023, we believe the elevated level of economic inflation will persist and continue to negatively impact our short-tail property lines of business and may impact our general and administrative expenses. In addition, we expect reduced reinsurance capacity and higher demand for new and expanded reinsurance purchases by U.S. primary companies will likely result in higher reinsurance prices in 2023 and less favorable terms and conditions for the industry. These factors could negatively impact our 2023 combined ratio and underwriting profits, although we are well-positioned to navigate these challenges and expect to continue generating strong overall returns.

Results of Operations and Related Information by Segment

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

All LinesQuarter ended September 30,Change % or PointsNine Months ended September 30,Change % or Points
($ in thousands)20222021 20222021
Insurance Operations Results:   
Net premiums written ("NPW")$903,394 812,906 11 %$2,723,933 2,444,289 11 %
Net premiums earned (“NPE”)853,879 767,247 11  2,500,601 2,232,725 12  
Less:    
Loss and loss expense incurred547,826 505,269 8  1,566,930 1,340,293 17  
Net underwriting expenses incurred277,988 250,033 11 809,455 724,484 12 
Dividends to policyholders933 1,006 (7) 3,542 3,411 4  
Underwriting income$27,132 10,939 148 %$120,674 164,537 (27)%
Combined Ratios:    
Loss and loss expense ratio64.1 %65.9 (1.8)pts 62.7 %60.0 2.7 pts 
Underwriting expense ratio32.6 32.6 — 32.4 32.4 — 
Dividends to policyholders ratio0.1 0.1 —  0.1 0.2 (0.1) 
Combined ratio96.8 98.6 (1.8) 95.2 92.6 2.6  

The NPW growth of 11% in Third Quarter and Nine Months 2022 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 September 30,Nine Months ended September 30,
($ in millions)2022202120222021
Direct new business premiums$184.3 168.3 $543.5 497.3 
Renewal pure price increases on NPW5.3 %4.9 5.0 %5.1 

Our NPW growth in Third Quarter and Nine Months 2022 benefited from strong retention. In addition, increased economic activity and inflation in the U.S. resulted in our customers increasing their sales, payrolls, and exposure units, all of which favorably impacted our NPW.

The increase in NPE in Third Quarter and Nine Months 2022 compared to the same prior-year periods resulted from the same impacts to NPW described above.

29
Loss and Loss Expenses
The loss and loss expense ratio decreased 1.8 points in Third Quarter 2022 and increased 2.7 points in Nine Months 2022 compared to the same prior-year periods, primarily due to the following:

Third Quarter 2022Third Quarter 2021
($ 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$34.1 4.0 pts$76.3 10.0 pts(6.0)pts
(Favorable) prior year casualty reserve development(16.0)(1.9)(14.0)(1.8)(0.1)
Non-catastrophe property loss and loss expenses167.5 19.6 123.7 16.1 3.5 
Total$185.6 21.7 $186.0 24.3 (2.6)
Nine Months 2022Nine Months 2021
($ 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$100.2 4.0 pts$128.9 5.8 pts(1.8)pts
(Favorable) prior year casualty reserve development(48.0)(1.9)(66.0)(3.0)1.1 
Non-catastrophe property loss and loss expenses456.4 18.3 346.6 15.5 2.8 
Total$508.6 20.4 $409.5 18.3 2.1 

Net catastrophe losses in Third Quarter and Nine Months 2022 included $10.0 million, or 1.2 points in Third Quarter 2022, and 0.4 points in Nine Months 2022, of net losses from Hurricane Ian, which affected the Southeastern states of our footprint. These losses were partially offset by $1.9 million, or 0.2 points in Third Quarter 2022 and 0.1 points in Nine Months 2022, of flood claims handling fees.

We had less losses from Hurricane Ian in Third Quarter and Nine Months 2022 than Hurricane Ida in Third Quarter and Nine Months 2021. Net catastrophe losses from Hurricane Ida contributed 5.6 percentage points in Third Quarter 2021 and 1.9 percentage points in Nine Months 2021. Losses from Hurricane Ida were primarily attributable to property losses, including personal and commercial automobiles, in New Jersey and the surrounding states. Accordingly, we experienced lower net catastrophe losses in Third Quarter and Nine Months 2022 compared to the same prior-year periods.

Also negatively impacting our loss and loss expense ratio was the recognition of $9.3 million of ceded earned casualty reinstatement premium on the second layer of our Casualty Excess of Loss Treaty (“Casualty Treaty”), which increased the ratio by 0.8 points in Third Quarter 2022 and 0.3 points in Nine Months 2022, compared to the same prior-year periods. The recognition of this reinstatement premium was principally due to development on one large loss from the 2018 treaty year and two large losses from the 2020 treaty year. Despite the development on this casualty treaty layer, our prior year loss development, on a net basis, remains favorable as reflected in the table below:

(Favorable)/Unfavorable Prior Year Casualty Reserve DevelopmentQuarter ended September 30,Nine Months ended September 30,
($ in millions)2022202120222021
General liability$— (4.0)$(5.0)(29.0)
Commercial automobile15.0 — 15.0 — 
Workers compensation(20.0)(8.0)(40.0)(28.0)
Businessowners' policies(8.0)(2.0)(8.0)(2.0)
Bonds(3.0)— (10.0)— 
   Total Standard Commercial Lines(16.0)(14.0)(48.0)(59.0)
Homeowners— — — — 
Personal automobile— — — — 
   Total Standard Personal Lines— — — — 
E&S— — — (7.0)
Total (favorable) prior year casualty reserve development$(16.0)(14.0)$(48.0)(66.0)
(Favorable) impact on loss ratio(1.9)pts(1.8)(1.9)(3.0)

For additional qualitative discussion on reserve development and non-catastrophe property loss and loss expenses, refer to the insurance segment sections below in "Results of Operations and Related Information by Segment."
30
Standard Commercial Lines Segment
 Quarter ended September 30,Change
% or
Points		 Nine Months ended September 30,Change
% or
Points
($ in thousands)20222021 20222021
Insurance Segments Results:    
NPW$727,463 652,603 11 %$2,225,395 1,995,297 12 %
NPE692,437 619,571 12  2,034,143 1,808,466 12  
Less:       
Loss and loss expense incurred438,264 393,503 11  1,244,639 1,048,170 19  
Net underwriting expenses incurred230,739 207,649 11  674,369 602,035 12  
Dividends to policyholders933 1,006 (7) 3,542 3,411 4  
Underwriting income22,501 17,413 29 $111,593 154,850 (28)
Combined Ratios:      
Loss and loss expense ratio63.4 %63.5 (0.1)pts61.1 %57.9 3.2 pts
Underwriting expense ratio33.3 33.5 (0.2) 33.2 33.3 (0.1) 
Dividends to policyholders ratio0.1 0.2 (0.1) 0.2 0.2 —  
Combined ratio96.8 97.2 (0.4) 94.5 91.4 3.1  

NPW growth of 11% in Third Quarter 2022 and 12% in Nine Months 2022 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 exposure growth.

Quarter ended September 30,Nine Months ended September 30,
($ in millions)2022202120222021
Direct new business premiums$128.2 122.3 $385.6 365.6 
Retention86 %86 85 %85 
Renewal pure price increases on NPW5.8 5.3 5.3 5.5 

The increase in NPE in Third Quarter and Nine Months 2022 compared to the same prior-year periods resulted from the same impacts to NPW described above.

The loss and loss expense ratio decreased 0.1 points in Third Quarter 2022 and increased 3.2 points in Nine Months 2022 compared to the same prior-year periods, primarily driven by the following:

Third Quarter 2022Third Quarter 2021
($ 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$18.2 2.6 pts$50.0 8.1 (5.5)pts
Non-catastrophe property loss and loss expenses129.8 18.7 90.1 14.5 4.2 
(Favorable) prior year casualty reserve development(16.0)(2.3)(14.0)(2.3)— 
Total132.0 19.0 126.1 20.3 (1.3)
Nine Months 2022Nine Months 2021
($ 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$55.4 2.7 pts$77.3 4.3 (1.6)pts
Non-catastrophe property loss and loss expenses344.7 16.9 248.4 13.7 3.2 
(Favorable) prior year casualty reserve development(48.0)(2.4)(59.0)(3.3)0.9 
Total352.1 17.2 266.7 14.7 2.5 

Compared to the same prior-year periods, Third Quarter and Nine Months 2022 included (i) lower net catastrophe losses, and (ii) an increase to the loss and loss expense ratio of 0.9 points in Third Quarter 2022 and 0.3 points in Nine Months 2022 due to higher ceded earned casualty reinstatement premium. See the "Insurance Operations" section above for more information.

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

31
The following is a discussion of our most significant Standard Commercial Lines of business:

General Liability
 Quarter ended September 30,
Change
 % or
Points1
Nine Months ended September 30,
Change
 % or
Points1
($ in thousands)2022202120222021
NPW$234,975 216,897 8 %$736,561 664,462 11 %
  Direct new business38,537 38,376 n/a112,700 109,803 n/a
  Retention86 %86 n/a85 %85 n/a
  Renewal pure price increases4.9 4.4 n/a4.4 4.5 n/a
NPE$225,302 205,904 9 %$667,912 596,717 12 %
Underwriting income21,943 29,993 (27)75,765 97,611 (22)
Combined ratio90.3 %85.4 4.9 pts88.7 %83.6 5.1 pts
% of total Standard Commercial Lines NPW32 33  33 33 
1n/a: not applicable.

NPW growth of 8% in Third Quarter 2022 and 11% in Nine Months 2022 compared to the same prior-year periods benefited from exposure growth, strong retention, renewal pure price increases, and direct new business.

The combined ratio increased 4.9 points in Third Quarter 2022 and 5.1 points in Nine Months 2022 compared to the same prior-year periods, partly driven by less favorable prior year casualty reserve development, as follows:

Third Quarter 2022Third Quarter 2021
($ 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$— — pts$(4.0)(1.9)1.9 pts
Nine Months 2022Nine Months 2021
($ 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$(5.0)(0.7)pts$(29.0)(4.9)4.2 pts

The favorable prior year casualty reserve development in Nine Months 2022 was primarily attributable to improved loss severities in accident years 2019 and prior. The Third Quarter and Nine Months 2021 favorable prior year casualty reserve development was primarily attributable to improved loss severities in accident years 2018 and prior.

The combined ratio increase in Third Quarter and Nine Months 2022 also included the following loss and loss expense ratio impacts:

•An increase in ceded earned casualty reinstatement premium, adding 1.9 points in Third Quarter 2022 and 0.7 points in Nine Months 2022 compared to the same prior-year periods, as discussed in the "Insurance Operations" section above; and
•An increase in current year casualty loss costs of 0.7 points in Third Quarter 2022 and 0.5 points in Nine Months 2022 compared to the same prior-year periods, in anticipation of higher loss trend for this line.

Commercial Automobile
 Quarter ended September 30,
Change
 % or
Points1
Nine Months ended September 30,
Change
 % or
Points1
($ in thousands)2022202120222021
NPW$223,809 197,459 13 %$659,251 594,011 11 %
  Direct new business31,503 28,968 n/a92,795 91,120 n/a
  Retention87 %87 n/a86 %86 n/a
  Renewal pure price increases8.7 7.9 n/a8.0 8.6 n/a
NPE$207,129 185,610 12 %$599,340 535,519 12 %
Underwriting (loss) income(30,612)(12,547)144 (45,790)(5,514)730 
Combined ratio114.8 %106.8 8.0 pts107.6 %101.0 6.6 pts
% of total Standard Commercial Lines NPW31 30  30 30  
1n/a: not applicable.

32
NPW growth of 13% in Third Quarter 2022 and 11% in Nine Months 2022 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 September 30, 2022, compared to September 30, 2021.

The combined ratio increased 8.0 points in Third Quarter 2022 and 6.6 points in Nine Months 2022 compared to the same prior-year periods, primarily driven by the following:

Third Quarter 2022Third Quarter 2021
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio		Loss and Loss Expense IncurredImpact on
Combined Ratio		Change in Ratio
Net catastrophe losses$1.4 0.7 pts$8.3 4.4 (3.7)pts
Non-catastrophe property loss and loss expenses46.2 22.3 35.2 18.9 3.4 
Unfavorable prior year casualty reserve development15.0 7.2 — — 7.2 
Total$62.6 30.2 $43.5 23.3 6.9 
Nine Months 2022Nine Months 2021
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio		Loss and Loss Expense IncurredImpact on
Combined Ratio		Change in Ratio
Net catastrophe losses$2.3 0.4 pts$8.9 1.7 (1.3)pts
Non-catastrophe property loss and loss expenses124.0 20.7 90.8 16.9 3.8 
Unfavorable prior year casualty reserve development15.0 2.5 — — 2.5 
Total$141.3 23.6 $99.7 18.6 5.0 

Compared to the same prior-year periods, Third Quarter and Nine Months 2022 experienced (i) lower net catastrophe losses, as discussed in the "Insurance Operations" section above, and (ii) elevated non-catastrophe property loss and loss expenses, primarily due to higher severities from inflationary and supply chain impacts that have increased labor and material costs, as well as the duration of claims, which impacts vehicle rental days.

The unfavorable prior year casualty reserve development in Third Quarter and Nine Months 2022 was primarily due to increased severities in the 2021 accident year. There was no prior year casualty reserve development in Third Quarter and Nine Months 2021.

In addition, the combined ratio was impacted by a 0.9-point increase in current year casualty loss costs in Third Quarter 2022 and a 1.5-point increase in Nine Months 2022, compared to the same prior-year periods. The increase in current year casualty loss costs in both periods was primarily due to an expected increase in claim frequencies from a more normalized amount of miles driven as COVID-19-related impacts continue to lessen.

Commercial Property
 Quarter ended September 30,
Change
 % or
Points1
Nine Months ended September 30,
Change
 % or
Points1
($ in thousands)2022202120222021
NPW$143,117 124,725 15 %$414,170 357,248 16 %
  Direct new business30,691 28,024 n/a89,826 82,237 n/a
  Retention85 %85 n/a84 %84 n/a
Renewal pure price increases6.2 6.4 n/a6.1 6.0 n/a
NPE$128,268 111,981 15 %$371,892 320,904 16 %
Underwriting income(2,385)(12,137)80 608 11,449 (95)
Combined ratio101.9 %110.8 (8.9)pts99.8 %96.4 3.4 pts
% of total Standard Commercial Lines NPW20 19  19 18 
1n/a: not applicable.

NPW growth of 15% in Third Quarter 2022 and 16% in Nine Months 2022 compared to the same prior-year periods benefited from renewal pure price increases, exposure growth, strong retention, and higher direct new business.

33
The combined ratio decreased 8.9 points in Third Quarter 2022 and increased 3.4 points in Nine Months 2022 compared to the same prior-year periods, primarily driven by the following:

Third Quarter 2022Third Quarter 2021
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio		Loss and Loss Expense IncurredImpact on
Combined Ratio		Change in Ratio
Net catastrophe losses$13.3 10.4 pts32.8 29.3 (18.9)pts
Non-catastrophe property loss and loss expenses69.4 54.1 48.8 43.6 10.5 
Total$82.7 64.5 81.6 72.9 (8.4)
Nine Months 2022Nine Months 2021
($ in millions)Loss and Loss Expense IncurredImpact on
Combined Ratio		Loss and Loss Expense IncurredImpact on
Combined Ratio		Change in Ratio
Net catastrophe losses$45.4 12.2 pts55.7 17.3 (5.1)pts
Non-catastrophe property loss and loss expenses188.0 50.6 133.7 41.7 8.9 
Total$233.4 62.8 189.4 59.0 3.8 

Compared to the same prior-year periods, Third Quarter and Nine Months 2022 experienced (i) lower net catastrophe losses, as discussed in the "Insurance Operations" section above, and (ii) elevated non-catastrophe property loss and loss expenses. The elevated non-catastrophe property loss and loss expenses was primarily due to increased severity compared to the same prior-year periods reflecting period-to-period volatility generally associated with our commercial property line of business and inflationary pressures on building material and labor costs.

Workers Compensation
 Quarter ended September 30,
Change
 % or
Points1
Nine Months ended September 30,
Change
 % or
Points1
($ in thousands)2022202120222021
NPW$74,698 76,317 (2)%$260,557 249,099 5 %
Direct new business13,597 15,408 n/a47,552 47,355 n/a
Retention85 %86 n/a86 %86 n/a
Renewal pure price increases(0.1)— n/a(0.4)— n/a
NPE$81,996 78,318 5 %$250,178 230,845 8 %
Underwriting income23,220 15,527 50 54,756 44,631 23 
Combined ratio71.7 %80.2 (8.5)pts78.1 %80.7 (2.6)pts
% of total Standard Commercial Lines NPW10 12  12 12 
1n/a: not applicable.

NPW did not significantly change in Third Quarter 2022 compared to Third Quarter 2021, but NPW increased 5% in Nine Months 2022 compared to Nine Months 2021 due to exposure growth and strong retention.

The combined ratio decreased 8.5 points in Third Quarter 2022 and 2.6 points in Nine Months 2022 compared to the same prior-year periods, primarily driven by favorable prior year casualty reserve development, as follows:

Third Quarter 2022Third Quarter 2021
($ 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$(20.0)(24.4)pts$(8.0)(10.2)(14.2)pts
Nine Months 2022Nine Months 2021
($ 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$(40.0)(16.0)pts$(28.0)(12.1)(3.9)pts

The favorable prior year casualty reserve development in Third Quarter and Nine Months 2022 was primarily due to improved loss severities in accident years 2019 and prior. The favorable prior year casualty reserve development in Third Quarter and Nine Months 2021 was primarily due to improved loss severities in accident years 2018 and prior.

34
Partially offsetting the increase in favorable prior year casualty reserve development this year, was an increase in ceded earned casualty reinstatement premium that impacted the loss and loss expense ratio by 4.2 points in Third Quarter 2022 and 1.4 points in Nine Months 2022, compared to the same prior-year periods, as discussed in the "Insurance Operations" section above.

Standard Personal Lines Segment
Quarter ended September 30,Change
% or
Points		 Nine Months ended September 30,Change
% or
Points
($ in thousands)20222021 20222021
Insurance Segments Results:    
NPW$86,844 78,247 11 %$234,465 221,883 6 %
NPE75,638 73,362 3  221,618 220,476 1  
Less:    
Loss and loss expense incurred57,263 65,123 (12) 172,396 160,273 8  
Net underwriting expenses incurred19,760 19,385 2 56,454 58,010 (3)
Underwriting income (loss)(1,385)(11,146)88 $(7,232)2,193 (430)%
Combined Ratios:    
Loss and loss expense ratio75.7 %88.8 (13.1)pts77.8 %72.7 5.1 pts
Underwriting expense ratio26.1 26.4 (0.3)25.5 26.3 (0.8)
Combined ratio101.8 115.2 (13.4) 103.3 99.0 4.3  

NPW increased 11% in Third Quarter 2022 and 6% in Nine Months 2022 compared to the same prior-year periods, due to (i) higher direct new business, (ii) stronger retention, (iii) higher homeowner coverage amounts due to inflation adjustments, and (iv) higher average policy sizes from our mass affluent market strategy. In the third quarter of 2021, we transitioned our personal lines strategy to targeting customers in the mass affluent market where we believe our strong coverage and servicing capabilities will be more competitive.

Quarter ended September 30,Nine Months ended September 30,
($ in millions)2022202120222021
Direct new business premiums1
$17.4 10.2 $40.5 31.0 
Retention85 %84 85 %83 
Renewal pure price increases on NPW0.5 1.2 0.6 1.0 
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 Third Quarter and Nine Months 2022 compared to the same prior-year periods resulted from the same impacts to NPW described above.

The loss and loss expense ratio decreased 13.1 points in Third Quarter 2022 and increased 5.1 points in Nine Months 2022 compared to the same prior-year periods, driven by the following:

Third Quarter 2022Third Quarter 2021
($ 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$11.3 14.9 pts19.5 26.7 (11.8)pts
Non-catastrophe property loss and loss expenses29.0 38.4 28.7 39.1 (0.7)
Flood claims handling fee reimbursement(2.7)(3.6)(2.9)(4.0)0.4 
Total$37.6 49.7 45.3 61.8 (12.1)
Nine Months 2022Nine Months 2021
($ 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$36.7 16.5 pts30.1 13.7 2.8 pts
Non-catastrophe property loss and loss expenses81.5 36.8 76.7 34.8 2.0 
Flood claims handling fee reimbursement(4.0)(1.8)(4.5)(2.0)0.2 
Total$114.2 51.5 102.3 46.5 5.0 

Third Quarter 2022 experienced lower net catastrophe losses compared to the same prior-year period, as discussed in the "Insurance Operations" section above. Our Third Quarter 2022 net catastrophe losses were impacted by Hurricane Ian, which primarily affected the Southeastern states in our footprint in late September 2022. Partially offsetting these losses was $1.9 million of flood claims handling fees. Nine Months 2022 experienced elevated net catastrophe losses compared to the same
35
prior-year period as a result of several Midwest wind and thunderstorm events that occurred throughout the second quarter of 2022.

Nine Months 2022 experienced elevated non-catastrophe property loss and loss expenses, driven by higher personal automobile physical damage losses. These higher losses resulted from (i) higher frequencies from increased miles driven, and (ii) greater severities from inflationary and supply chain impacts that have increased labor and material costs, and the duration of claims, which impacts vehicle rental days. 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 are filing rate increases to mitigate these inflationary impacts.

E&S Lines Segment
 Quarter ended September 30,Change
% or
Points		Nine Months ended September 30,Change
% or
Points
($ in thousands)2022202120222021
Insurance Segments Results:   
NPW$89,087 82,056 9 %$264,073 227,109 16 %
NPE85,804 74,314 15  244,840 203,783 20  
Less:        
Loss and loss expense incurred52,299 46,643 12  149,895 131,850 14  
Net underwriting expenses incurred27,489 22,999 20  78,632 64,439 22  
Underwriting income (loss)6,016 4,672 29 $16,313 7,494 118 
Combined Ratios:        
Loss and loss expense ratio61.0 %62.8 (1.8)pts61.2 %64.7 (3.5)pts
Underwriting expense ratio32.0 30.9 1.1 32.1 31.6 0.5 
Combined ratio93.0 93.7 (0.7) 93.3 96.3 (3.0) 

NPW growth of 9% in Third Quarter 2022 and 16% in Nine Months 2022 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 Third Quarter and Nine Months 2022 benefited from exposure growth driven by favorable E&S Lines marketplace conditions.

Quarter ended September 30,Nine Months ended September 30,
($ in millions)2022202120222021
Direct new business premiums$38.6 35.7 $117.3 100.7 
Renewal pure price increases on NPW6.7 %5.6 7.1 %6.5 

The increase in NPE in Third Quarter and Nine Months 2022 compared to the same prior-year periods resulted from the same impacts to NPW described above.

The loss and loss expense ratio decreased 1.8 points in Third Quarter 2022 and 3.5 points in Nine Months 2022 compared to the same prior-year periods, primarily driven by the following:

Third Quarter 2022Third Quarter 2021
($ 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$4.6 5.4 pts$6.8 9.2 (3.8)pts
Non-catastrophe property loss and loss expenses8.7 10.1 4.8 6.5 3.6 
Total$13.3 15.5 $11.6 15.7 (0.2)
Nine Months 2022Nine Months 2021
($ 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$8.1 3.3 pts$21.5 10.5 pts(7.2)pts
Non-catastrophe property loss and loss expenses30.2 12.4 21.5 10.5 1.9 
(Favorable) prior year casualty reserve development— — (7.0)(3.4)3.4 
Total$38.3 15.7 $36.0 17.6 (1.9)

Third Quarter and Nine Months 2022 experienced lower net catastrophe losses compared to the same prior-year periods, primarily due to (i) Hurricane Ida in 2021, and (ii) a series of large storms that significantly impacted Texas and other Southern and Midwestern states in Nine Months 2021. These catastrophe events resulted in greater net catastrophe losses in Third
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Quarter and Nine Months 2021 compared to events in Third Quarter and Nine Months 2022.

Third Quarter and Nine Months 2022 experienced elevated non-catastrophe property loss and loss expenses compared to the same prior-year periods, primarily due to increased severity that reflects the normal period-to-period volatility of our property lines of business in this segment and inflationary pressures on labor and material costs.

There was no prior year casualty reserve development in Third Quarter and Nine Months 2022. The favorable prior year casualty reserve development in Nine Months 2021 was primarily due to lower loss severities in accident years 2016 through 2018.

In addition, the loss and loss expense ratio was favorably impacted by a 1.6-point decrease in current year casualty loss costs in both Third Quarter 2022 and Nine Months 2022 compared to the same prior year periods. Our E&S casualty lines results have improved over recent years after several underwriting and claims initiatives and strong rate increases. The decrease in current year casualty loss costs reflects the impacts of these actions.

The underwriting expense ratio increased 1.1 points in Third Quarter 2022 compared to Third Quarter 2021, primarily due to an increase of (i) 0.7 points in labor expenses, and (ii) 0.4 points in commissions. In addition, the underwriting expense ratio increased 0.5 points in Nine Months 2022 compared to Nine Months 2021, primarily due to increased travel expenses.

Reinsurance
We successfully completed negotiations of our July 1, 2022 excess of loss treaties, which cover our Standard Commercial Lines, Standard Personal Lines, and E&S Lines.

We renewed the Casualty Treaty with substantially the same structure as the expiring treaty. The treaty year 2022 deposit premium increased by $16.2 million, or 23%, reflecting higher projected subject earned premium due to growth in our book of business and pure renewal rate increases, coupled with a modest risk-adjusted reinsurance rate increase.

The Property Excess of Loss Treaty (“Property Treaty”) was renewed with a $10 million limit increase in the highest layer. The treaty year 2022 deposit premium increased by $11.3 million, or 28%, from 2021, reflecting (i) an increase in projected subject premium driven by growth in total insured values, insured locations, and rate increases on our underlying policies, (ii) the purchase of additional coverage, and (iii) risk-adjusted insurance rate increases. We anticipate the increase in expected ceded premium will be partially offset by the premium reduction benefit of reduced facultative reinsurance placements resulting from the higher treaty limit.

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)
$67 million above $3 million retention covering 100% in three layers. Losses other than Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA") certified losses are subject to the following reinstatements and annual aggregate limits:

- $7 million in excess of $3 million layer provides unlimited
        reinstatements;
- $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 $21 million for the first layer, $60 million for the second layer, and $40 million for the third layer. Non-foreign terrorism losses (other than NBCR) are covered to the same extent as non-terrorism losses.
Casualty Excess of Loss (covers all insurance operations)
There are six layers covering 100% of $88 million in excess of $2 million. Losses other than terrorism losses are subject to the following:

- $3 million in excess of $2 million layer provides 41
      reinstatements, $126 million annual aggregate limit;
- $7 million in excess of $5 million layer provides six
      reinstatements, $49 million annual aggregate limit;
- $9 million in excess of $12 million layer provides three
      reinstatements, $36 million annual aggregate limit;
- $9 million in excess of $21 million layer provides one
      reinstatement, $18 million annual aggregate limit;
- $20 million in excess of $30 million layer provides one
      reinstatement, $40 million annual aggregate limit; and
- $40 million in excess of $50 million layer provides one
      reinstatement, $80 million annual aggregate limit.
All NBCR losses are excluded. All other losses stemming from the acts of terrorism are subject to the following:

- $3 million in excess of $2 million layer with $15 million net
       annual terrorism aggregate limit;
- $7 million in excess of $5 million layer with $28 million net
      annual terrorism aggregate limit;
- $9 million in excess of $12 million layer with $27 million net
      annual terrorism aggregate limit;
- $9 million in excess of $21 million layer with $18 million net
      annual terrorism aggregate limit;
- $20 million in excess of $30 million layer with $40 million
      net annual terrorism aggregate limit; and
 - $40 million in excess of $50 million layer with $80 million
      net annual terrorism aggregate limit.
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Investments
The primary objectives of the investment portfolio are to maximize after-tax net investment income and generate long-term growth in book value by maximizing the overall total return of the portfolio. Each objective is balanced 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 core 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 4.2 years as of September 30, 2022, compared to the Insurance Subsidiaries' net loss and loss expense reserves duration of 3.5 years at December 31, 2021.

Our fixed income and short-term investments represented 92% of our invested assets at September 30, 2022, and 91% at December 31, 2021. Our fixed income and short-term investments portfolio had a weighted average credit rating of "AA-" as of September 30, 2022 and "A+" as of December 31, 2021, with investment grade holdings representing 96% of the total portfolio at both periods. The improvement in our weighted average credit rating reflects active management of our investment portfolio in Nine Months 2022 to optimize our risk-adjusted investment yields in the rising interest rate environment, resulting in higher credit quality fixed income security purchases.

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 2021 Annual Report.

Total Invested Assets
($ in thousands)September 30, 2022December 31, 2021Change
Total invested assets$7,536,111 8,026,988 (6)%
Invested assets per dollar of common stockholders' equity3.38 2.88 17 
Unrealized (loss) gain – before tax1
(587,650)255,658 (330)
Unrealized (loss) gain – after tax1
(464,244)201,970 (330)
1Includes unrealized losses on fixed income securities of $583 million and unrealized losses on equity securities of $5 million at September 30, 2022, and unrealized gains on fixed income securities of $229 million and unrealized gains of $27 million at December 31, 2021.

Invested assets decreased $490.9 million at September 30, 2022, compared to December 31, 2021, reflecting an $843.3 million increase in pre-tax unrealized losses during Nine Months 2022. The increase in pre-tax unrealized losses was primarily due to an increase in benchmark U.S. Treasury rates and the widening of credit spreads, with the increase in interest rates having the most significant impact. This decrease in invested assets was partially offset by operating cash flows during Nine Months 2022 that were 18% of NPW.

Net Investment Income
The components of net investment income earned were as follows:

 Quarter ended September 30,Change
% or Points		Nine Months ended September 30,Change
% or Points
($ in thousands)2022202120222021
Fixed income securities$68,236 51,683 32 %$184,305 157,114 17 %
Commercial mortgage loans ("CMLs")1,600 683 134 3,762 1,892 99 
Equity securities2,604 2,955 (12)7,661 8,425 (9)
Short-term investments1,152 64 1,700 1,660 204 714 
Other investments(5,469)42,865 (113)22,896 93,158 (75)
Investment expenses(4,234)(5,218)(19)(13,571)(14,314)(5)
Net investment income earned – before tax63,889 93,032 (31)206,713 246,479 (16)
Net investment income tax expense(12,356)(18,342)(33)(40,007)(48,005)(17)
Net investment income earned – after tax$51,533 74,690 (31)$166,706 198,474 (16)
Effective tax rate19.3 %19.7 (0.4)pts19.4 %19.5 (0.1)pts
Annualized after-tax yield on fixed income investments3.4 2.5 0.9 3.0 2.6 0.4 
Annualized after-tax yield on investment portfolio2.7 3.8 (1.1)2.9 3.4 (0.5)

Net investment income earned decreased 31% in Third Quarter 2022 and 16% in Nine Months 2022 compared to the same prior-year periods. The decrease in both periods was driven by lower returns on the alternative investments in our other investments portfolio, reflecting lower public market returns.

Partially offsetting the decrease in net investment income earned in both periods, was an increase in income earned on fixed income securities. During Nine Months 2022, we managed our fixed income securities portfolio to opportunistically increase yield in the rising interest rate environment. The average pre-tax new purchase yield on fixed income securities in Third
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Quarter 2022 was 5.1%, up sequentially from 4.5% in the second quarter of 2022 and 3.3% in the first quarter of 2022. In addition, as of September 30, 2022, 14% of our fixed income securities portfolio was invested in floating rate securities that reset principally to 90-day U.S. dollar-denominated London Interbank Offered Rate ("LIBOR"). LIBOR increased 324 basis points in Nine Months 2022, from 0.21% at December 31, 2021 to 3.75% at September 30, 2022.

Over the remainder of 2022, we expect higher reinvestment yields within our fixed income securities portfolio, which will result in higher net investment income from our fixed income securities. However, we expect this higher income will be largely offset by the impact of Third Quarter 2022 capital market volatility that will likely result in lower valuations on our alternative investments in the fourth quarter of 2022, as our alternative investment results are reported to us on a one-quarter lag.

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 the fundamentals for that security or sector have deteriorated or 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 September 30,Change %Nine Months ended September 30,Change %
($ in thousands)2022202120222021
Net realized (losses) gains on disposals$(12,574)4,646 (371)%$(28,730)4,119 (797)%
Net unrealized (losses) gains on equity securities(7,777)(3,111)150 (31,791)15,830 (301)
Net credit loss expense on fixed income securities, AFS(4,471)(1,334)235 (42,042)(4,059)936 
Net credit loss (expense) benefit on fixed income securities, held-to-maturity54 6 800 62 (54)(215)
Losses on securities for which we have the intent to sell(913)(30)2,943 (6,412)(483)1,228 
Total net realized and unrealized investment (losses) gains$(25,681)177 (14,609)$(108,913)15,353 (809)

Net realized and unrealized investment losses were primarily driven by (i) a decrease in valuations reflecting the current public equities market, (ii) active trading of our fixed income securities to opportunistically increase yield in the rising interest rate environment, and (iii) higher credit loss expense on our AFS fixed income securities portfolio.

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 September 30,Nine Months ended September 30,
($ in thousands)20222021 2022  2021
Tax at statutory rate$11,054 19,454 $36,211 80,108 
Tax-advantaged interest(981)(1,114)(3,097)(3,432)
Dividends received deduction(95)(101)(355)(377)
Executive compensation598 566 1,340 1,536 
Stock-based compensation(25)(29)(812)(652)
Other(437)155 771 (575)
Federal income tax expense10,114 18,931 34,058 76,608 
Income before federal income tax, less preferred stock dividends50,339 90,336 165,533 374,413 
Effective tax rate20.1 %21.0 20.6 20.5 

As of September 30, 2022, our deferred federal income tax asset was $164.6 million compared to a deferred federal income tax liability of $13.4 million as of December 31, 2021. This change was primarily due to an increase in unrealized losses on our investment portfolio resulting from an increase in benchmark U.S. Treasury rates and the widening of credit spreads, with the increase in interest rates having the most significant impact. We believe this change is temporary and recoverable, and therefore, we had no valuation allowance recognized for our deferred federal income tax asset as of September 30, 2022.

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 focusing on generating sufficient cash flows to meet the short-term and long-term cash requirements of
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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 generally maintained in “AAA” rated money market funds approved by the National Association of Insurance Commissioners, (ii) high-quality, highly liquid government and corporate fixed income securities; (iii) equity securities; (iv) other investments, and (v) a cash balance. In the aggregate, Parent cash and total investments amounted to $506 million at September 30, 2022, and $527 million at December 31, 2021.

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 $120 million in total dividends to the Parent during Nine Months 2022. As of December 31, 2021, our allowable ordinary maximum dividend is $322 million for 2022. 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 became due in the usual course of business, or (ii) the Parent’s total assets would be less than its total liabilities. The Parent’s ability to pay dividends to 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 to be declared or paid on our common stock if dividends are not declared and paid, or made payable, on all outstanding preferred stock for the latest completed dividend period.

For additional information regarding dividend restrictions and financial covenants, where applicable, see Note 11. "Indebtedness," Note 17. "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 2021 Annual Report.

Line of Credit
On December 20, 2019, the Parent entered into a Credit Agreement with the lenders named therein (the “Lenders”) and the Bank of Montreal, Chicago Branch, as Administrative Agent ("Line of Credit"). Under the Line of Credit, the Lenders have agreed to provide the Parent with a $50 million revolving credit facility that can be increased to $125 million with the Lenders' consent. No borrowings were made under the Line of Credit in Nine Months 2022. The Line of Credit will mature on December 20, 2022, and has a variable interest rate based on the Parent’s debt ratings, among other factors. 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 2021 Annual Report. We met all covenants under our Line of Credit as of September 30, 2022.

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.
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"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 September 30, 2022, we had remaining capacity of $436.5 million for FHLB borrowings, with a $17.2 million additional stock purchase requirement to allow the member companies to borrow their remaining capacity amounts.

Short-term Borrowings
During Nine Months 2022, SICA borrowed $35 million from the FHLBNY on April 1, 2022 at an interest rate of 0.70% with repayment due on May 2, 2022. This borrowing was refinanced upon its maturity on May 2, 2022, at an interest rate of 1.10% and was subsequently repaid on June 27, 2022. 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 additional liquidity. Similar to the Line of Credit, these lending agreements limit the Parent's borrowings from the Indiana Subsidiaries to 10% of the admitted assets of the respective Indiana Subsidiary. The outstanding balance on these intercompany loans was $40.0 million as of both September 30, 2022, and December 31, 2021. The remaining capacity under these intercompany loan agreements was $109.9 million as of both September 30, 2022, and December 31, 2021.

Capital Market Activities
The Parent had no private or public stock issuances during Nine Months 2022. During Nine Months 2022, we repurchased 165,159 shares of our common stock under our existing share repurchase program for $12.4 million, or a $75.20 average price per share, excluding commission costs paid. We had $84.2 million of remaining capacity under our share repurchase program as of September 30, 2022. For additional information on the share repurchase program, refer to Note 17. “Equity” in Item 8. "Financial Statements and Supplementary Data." of our 2021 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 November 2, 2022, our Board declared:

•A 7% increase in the quarterly cash dividend on common stock, to $0.30 per common share, that is payable December 1, 2022, to holders of record on November 15, 2022; 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 December 15, 2022, to holders of record as of November 30, 2022.

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 FHLB 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 September 30, 2022, we had GAAP stockholders' equity of $2.4 billion and statutory surplus of $2.4 billion. With total debt of $505.2 million at September 30, 2022, our debt-to-capital ratio was 17.2%. For additional information on our statutory surplus, see Note 22. "Statutory Financial Information, Capital
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Requirements, and Restrictions on Dividends and Transfers of Funds" in Item 8. "Financial Statements and Supplementary Data." of our 2021 Annual Report.

The following table summarizes certain contractual obligations we had at September 30, 2022, 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$246.7 
Non-publicly traded collateralized loan obligations in our fixed income securities portfolio49.0 
Non-publicly traded common stock within our equity portfolio37.1 
CMLs6.4 
Privately-placed corporate securities45.0 
Total$384.2 

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, 2021.

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 September 30, 2022, and December 31, 2021, 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 2021 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 decreased 20% to $36.96 as of September 30, 2022, from $46.24 as of December 31, 2021, driven by a $10.64 change in net unrealized losses on our fixed income securities portfolio and $0.84 in dividends to our common stockholders, partially offset by $2.16 in net income available to common stockholders per diluted common share. The increase in net unrealized losses on our fixed income securities was primarily driven by an increase in benchmark U.S. Treasury rates and the widening of credit spreads, with the increase in interest rates having the most significant impact. 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 (loss) income, increased slightly to $44.59 as of September 30, 2022, from $43.23 as of December 31, 2021.

Cash Flows
Net cash provided by operating activities was $485.4 million in Nine Months 2022 compared to $543.3 million in Nine Months 2021. The decrease was primarily driven by lower underwriting results in our insurance operations. For more information on our underwriting results, refer to "Insurance Operations" above in this MD&A.

Net cash used in investing activities increased to $450.9 million in Nine Months 2022 compared to $417.8 million in Nine Months 2021, as a result of investing more cash from operating activities. Operating cash flows during Nine Months 2022 were
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18% of NPW.

Net cash used in financing activities decreased to $70.6 million in Nine Months 2022 compared to $106.0 million in Nine Months 2021, primarily due to a decrease in borrowing repayments made in Nine Months 2022, partially offset by increased dividends to our common stockholders and increased activity in our share repurchase program in Nine Months 2022.

Ratings
Our ratings remain the same as reported in our "Overview" section of Item 1. "Business." of our 2021 Annual Report and are as follows:

NRSROFinancial Strength RatingOutlook
AM Best CompanyA+Stable
Moody's Investors ServicesA2Stable
Fitch Ratings ("Fitch")A+Stable
Standard & Poor's Global Ratings ("S&P")AStable

On March 24, 2022, 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 October 13, 2022, S&P reaffirmed our "A" rating with a "stable" outlook. In taking this rating action, S&P cited our strong financial and business risk profiles, driven by strong capital adequacy and operating performance.

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 2021 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 Third Quarter 2022 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 14. "Litigation" in Item 1. "Financial Statements." of this Form 10-Q and Item 1A. “Risk Factors.” below in Part II. “Other Information.” As of September 30, 2022, 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.
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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 predict or assess may emerge anytime. Consequently, we can neither predict such new risk factors nor assess the potential future impact they might have on our business. Except as discussed below, there have been no material changes from the risk factors disclosed in Item 1A. “Risk Factors.” in our 2021 Annual Report.

Our ability to reduce our risk exposure depends on the availability and cost of reinsurance.
We transfer a significant portion of our underwriting risk exposure – specifically parts of our loss and loss expense – to reinsurance companies in exchange for specified amounts or percentages of premiums. The availability, amount, and cost of reinsurance depend on market conditions, including retrocessional reinsurance market capacity. By purchasing reinsurance, we have direct and indirect counterparty credit risk to our reinsurers and the reinsurance industry.

The combination of recent economic, geopolitical, and insured loss events increased global reinsurance market uncertainty. The impacts of (i) higher inflation-related reinsurance demand, (ii) reduced capacity due to reinsurer investment portfolio losses, (iii) weakened Euro-United States dollar currency exchange rates, (iv) recent Hurricane Ian-related reinsurer losses, (v) poor reinsurer profitability over the past five years, and (vi) investor and reinsurer concerns about the potential impacts of climate change are all likely to raise prices and reduce the availability of reinsurance. Current market conditions may put pressure on the availability and pricing of reinsurance as we negotiate the January 1, 2023 renewal of our property catastrophe reinsurance treaty.

To the extent we are exposed to primary policy losses from risks that may be excluded from our upcoming reinsurance treaty renewal coverage, we face increased underwriting risk. Increased underwriting risk could increase our net loss and loss expenses, increasing our underwriting results volatility. Decreased reinsurance capacity also would increase our underwriting risk if we cannot fully place our existing reinsurance treaty coverage on renewal. If our reinsurers have difficulty collecting on their retrocession programs or reinstating retrocession coverage after a large loss, we also may not receive timely or full payment of our reinsurance claims.

National and global economic conditions could adversely and materially affect our business, results of operations, financial condition, and growth.
We write business domestically in the United States, and our insurance operations do not have direct exposure to businesses or individuals in Russia or the Ukraine. We do not have material exposure to investments subject to embargoes or Russian reinsurance counterparties. However, the ongoing Russian war against Ukraine is impacting global economic, banking, commodity, and financial markets, exacerbating ongoing economic challenges, including inflation and supply chain disruption, which influence insurance loss costs, premiums, and investment valuation.

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

The following table provides information regarding our purchases of our common stock in Third Quarter 2022:

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
July 1 – 31, 2022727 $87.52 — $90.1 
August 1 - 31, 2022136 80.37 79,100 84.2 
September 1 - 30, 2022— — — 84.2 
Total863 $86.40 79,100 $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.

44
ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

The information set forth below is included herein, by our option, for the purpose of providing disclosure under "Item 5.03 – Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year" of Form 8-K.

On November 2, 2022, the Board of Directors of Selective Insurance Group, Inc. (the "Company") adopted the following amendments to the Company’s By-Laws (the "By-Laws"), effective November 2, 2022:

•Section 3A. of the By-Laws has been amended to provide that a meeting of stockholders may be held solely or in part by means of remote communication, consistent with applicable provisions of the New Jersey Business Corporation Act.

•Section 3B. of the By-Laws has been amended to enhance certain procedural mechanics and disclosure requirements in connection with stockholder nominations of directors, including to provide that, at the request of the Company, the proposed nominee must submit all completed and signed questionnaires prepared by the Company (including those required of the Company’s directors and officers and any other questionnaire the Company determines is necessary or advisable to assess whether the proposed nominee will satisfy any qualifications or requirements imposed by the Company’s Certificate of Incorporation or By-Laws, any applicable law, rule, regulation or listing requirement, and any Company policies and guidelines applicable to directors).

•Section 7C. of the By-Laws has been amended to provide that no person who has attained his or her 72nd birthday shall be eligible for election as a director of the Company.

The By-Laws, as amended, also incorporate certain ministerial, non-substantive and conforming changes.

The foregoing description is a summary and is qualified in its entirety by reference to the full text of the amended By-Laws, a copy of which is attached as Exhibit 3.2 to this Quarterly Report on Form 10-Q and is incorporated by reference herein.

ITEM 6. EXHIBITS.

Exhibit No. 
By-Laws of Selective Insurance Group, Inc., effective November 2, 2022.
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 September 30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.
**104
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in iXBRL.
* Filed herewith.
** Furnished and not filed herewith.


45
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:November 3, 2022By: /s/ John J. Marchioni
 John J. Marchioni
 Chairperson of the Board, President and Chief Executive Officer
(principal executive officer)
Date:November 3, 2022By: /s/ Mark A. Wilcox
Mark A. Wilcox
Executive Vice President and Chief Financial Officer
(principal financial officer)

46

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