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, 2024 ("Third Quarter 2024") and September 30, 2023 ("Third Quarter 2023"), and the nine-month periods ended September 30, 2024 ("Nine Months 2024") and September 30, 2023 ("Nine Months 2023"). 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, 2023 ("2023 Annual Report") filed with the SEC.
NOTE 2. Adoption of Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. We adopted this guidance on January 1, 2024 and it did not have a material impact to our financial condition, results of operations, or disclosures.
In March 2023, the FASB issued ASU 2023-02, Investments — Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02"). This ASU allows companies to elect to account for qualifying tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Companies were previously permitted to apply the proportional amortization method only to qualifying tax equity investments in low income housing tax credit structures. ASU 2023-02 extends the application of the proportional amortization method to qualifying tax equity investments that generate tax credits through other programs. It also requires new disclosures that provide a better understanding of the nature of the tax equity investments and the effect the tax equity investments and related income tax credits and other income tax benefits have on a company's financial position and results of operations. The ASU is effective for annual periods beginning after December 15, 2023, including interim periods within those fiscal years. We adopted ASU 2023-02 on January 1, 2024 and it did not have a material impact to our financial condition, results of operations, or disclosures.
Pronouncements to be effective in the future
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 amends disclosure requirements for segment reporting by modifying and adding disclosure requirements. The additional disclosure requirements include the following on both an interim and annual basis: (i) significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"); (ii) amounts for "other segment items" by reportable segment and a description of its composition; and (iii) the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. In addition, ASU 2023-07 requires all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280, Segment Reporting, to now be disclosed in interim periods. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. As it only requires additional disclosure, ASU 2023-07 will not have a material impact on our financial condition or results of operations.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 amends disclosure requirements to provide greater transparency on income taxes. The following additional disclosures are
required annually: (i) specific required categories in the rate reconciliation, (ii) additional information for reconciling items that meet a quantitative threshold, (iii) the amount of income taxes paid disaggregated by jurisdiction, and (iv) income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Amendments can be applied on a prospective basis; however, retrospective application is permitted. Early adoption is permitted. As it only requires additional disclosure, ASU 2023-09 will not have a material impact on our financial condition or results of operations.
NOTE 3. Statements of Cash Flows
Supplemental cash flow information was as follows:
Nine Months ended September 30,
($ in thousands)
2024
2023
Cash paid (received) during the period for:
Interest
$
22,823
22,712
Federal income tax
46,000
57,000
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
5,915
5,773
Operating cash flows from financing leases
152
41
Financing cash flows from finance leases
1,937
1,933
Non-cash items:
Corporate actions related to fixed income securities, available-for-sale ("AFS")1
33,745
18,840
Corporate actions related to equity securities1
29,250
—
Assets acquired under finance lease arrangements
5,969
1,584
Assets acquired under operating lease arrangements
11,513
5,068
Non-cash purchase of property and equipment
124
22
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, 2024
December 31, 2023
Cash
$
98
180
Restricted cash
12,566
13,092
Total cash and restricted cash shown in the Consolidated Statements of Cash Flows
$
12,664
13,272
Amounts in restricted cash represent cash received from the National Flood Insurance Program ("NFIP") that can only be used to pay flood claims under the Write Your Own program.
NOTE 4. Investments
(a) Information regarding our AFS securities as of September 30, 2024 and December 31, 2023, were as follows:
September 30, 2024
Cost/ Amortized Cost
Allowance for Credit Losses
Unrealized Gains
Unrealized Losses
Fair Value
($ in thousands)
AFS fixed income securities:
U.S. government and government agencies
$
139,877
—
106
(14,581)
125,402
Foreign government
10,671
(24)
—
(985)
9,662
Obligations of states and political subdivisions
512,086
(472)
2,865
(21,623)
492,856
Corporate securities
3,067,267
(12,034)
58,570
(87,018)
3,026,785
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS")
Current Provision for Securities without Prior Allowance
Initial Allowance for Purchased Credit Deteriorated Assets with Credit Deterioration
Increase (Decrease) on Securities with Prior Allowance, excluding intent (or Requirement) to Sell Securities
Reductions for Securities Sold
Reductions for Securities Identified as Intent (or Requirement) to Sell during the Period
Ending Balance
($ in thousands)
Foreign government
$
284
—
—
(252)
—
—
32
Obligations of states and political subdivisions
1,024
100
—
(120)
(112)
—
892
Corporate securities
30,330
6,078
—
(14,992)
(3,600)
(51)
17,765
CLO and other ABS
2,375
904
—
(40)
(21)
—
3,218
RMBS
11,597
24
—
334
(330)
—
11,625
CMBS
111
1
—
38
(144)
—
6
Total AFS fixed income securities
$
45,721
7,107
—
(15,032)
(4,207)
(51)
33,538
During Nine Months 2024 and Nine Months 2023, 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 2023 Annual Report. Accrued interest on AFS securities was $68.9 million as of September 30, 2024, and $64.6 million as of December 31, 2023. We did not record any write-offs of accrued interest in Nine Months 2024 and Nine Months 2023.
(b) Quantitative information about unrealized losses on our AFS portfolio follows:
September 30, 2024
Less than 12 months
12 months or longer
Total
($ in thousands)
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
AFS fixed income securities:
U.S. government and government agencies
$
352
(36)
110,409
(14,545)
110,761
(14,581)
Foreign government
—
—
9,662
(985)
9,662
(985)
Obligations of states and political subdivisions
49,972
(322)
264,599
(21,301)
314,571
(21,623)
Corporate securities
164,625
(1,246)
1,158,745
(85,772)
1,323,370
(87,018)
CLO and other ABS
264,653
(5,352)
657,379
(43,318)
922,032
(48,670)
RMBS
233,580
(966)
727,552
(62,595)
961,132
(63,561)
CMBS
27,946
(107)
451,713
(23,403)
479,659
(23,510)
Total AFS fixed income securities
$
741,128
(8,029)
3,380,059
(251,919)
4,121,187
(259,948)
December 31, 2023
Less than 12 months
12 months or longer
Total
($ in thousands)
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
AFS fixed income securities:
U.S. government and government agencies
$
77,698
(188)
108,578
(18,073)
186,276
(18,261)
Foreign government
1,552
(87)
8,251
(1,215)
9,803
(1,302)
Obligations of states and political subdivisions
137,031
(962)
290,964
(27,965)
427,995
(28,927)
Corporate securities
263,423
(6,369)
1,439,422
(131,519)
1,702,845
(137,888)
CLO and other ABS
278,940
(7,120)
984,175
(78,885)
1,263,115
(86,005)
RMBS
351,976
(4,765)
757,914
(81,086)
1,109,890
(85,851)
CMBS
130,189
(2,995)
471,256
(42,135)
601,445
(45,130)
Total AFS fixed income securities
$
1,240,809
(22,486)
4,060,560
(380,878)
5,301,369
(403,364)
We currently do not intend to sell any of the securities summarized in the tables above, nor do we believe we will be required to sell any of them. 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 2023 Annual Report, we have concluded that no additional allowance for credit loss is required on these balances beyond the allowance for credit loss recorded as of September 30, 2024. This conclusion reflects our current judgment about the financial position and future prospects of the entities that issued the investment security and underlying collateral.
(c) AFS and held-to-maturity ("HTM") fixed income securities at September 30, 2024, by contractual maturity are shown below. The maturities of RMBS, CMBS, CLO and other ABS securities were calculated using each security's estimated average life. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
AFS
HTM
($ in thousands)
Fair Value
Carrying Value
Fair Value
Due in one year or less
$
623,583
820
833
Due after one year through five years
3,638,555
13,971
13,574
Due after five years through 10 years
3,030,532
7,167
7,033
Due after 10 years
795,931
—
—
Total fixed income securities
$
8,088,601
21,958
21,440
(d) The following table summarizes our alternative investment portfolio by strategy:
September 30, 2024
December 31, 2023
($ in thousands)
Carrying Value
Remaining Commitment
Maximum Exposure to Loss
Carrying Value
Remaining Commitment
Maximum Exposure to Loss
Alternative Investments
Private equity
$
337,905
191,411
529,316
301,759
131,885
433,644
Private credit
50,236
96,702
146,938
54,500
89,401
143,901
Real assets
43,858
41,439
85,297
39,520
33,040
72,560
Total alternative investments
$
431,999
329,552
761,551
395,779
254,326
650,105
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 2024 or 2023.
The following table shows gross summarized financial information for our alternative investments portfolio, including the portion we do not own. As the majority of these investments report results to us on a one quarter lag, the summarized financial statement information is for 3- and 9-month periods ended June 30:
Income Statement Information
Quarter ended September 30,
Nine Months ended September 30
($ in millions)
2024
2023
2024
2023
Net investment income (loss)
$
230.6
74.3
$
127.0
(66.9)
Realized gains
1,878.3
1,108.5
5,263.4
3,752.8
Net change in unrealized appreciation (depreciation)
607.7
2,216.3
7,277.0
7,414.1
Net income
$
2,716.6
3,399.1
$
12,667.4
11,100.0
Alternative investment income included in "Net investment income earned" on our Consolidated Statements of Income
$
9.0
6.5
$
26.4
25.6
(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, 2024 to comply with insurance laws. We retain all rights regarding all securities pledged as collateral.
The following table summarizes the market value of these securities at September 30, 2024:
($ in millions)
FHLBI Collateral
FHLBNY Collateral
State and Regulatory Deposits
Total
U.S. government and government agencies
$
—
—
22.0
22.0
Obligations of states and political subdivisions
—
—
3.2
3.2
RMBS
65.9
23.4
—
89.3
CMBS
1.8
8.4
—
10.2
Total pledged as collateral
$
67.7
31.8
25.2
124.7
(f) We did not have exposure to any credit concentration risk of a single issuer greater than 10% of our stockholders' equity, other than to certain U.S. government agencies, as of September 30, 2024, or December 31, 2023.
(g) The components of pre-tax net investment income earned were as follows:
Quarter ended September 30,
Nine Months ended September 30,
($ in thousands)
2024
2023
2024
2023
Fixed income securities
$
98,464
90,013
$
286,501
254,016
Commercial mortgage loans ("CMLs")
3,238
2,516
9,177
6,680
Equity securities
5,362
2,083
12,147
5,524
Short-term investments
6,457
3,941
14,656
11,483
Alternative investments
9,031
6,473
26,429
25,637
Other investments
251
284
632
515
Investment expenses
(5,044)
(4,447)
(15,292)
(13,790)
Net investment income earned
$
117,759
100,863
$
334,250
290,065
The increase in net investment income earned in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods was primarily driven by higher interest rates, active portfolio management, and operating cash flow deployment.
(h) The following table summarizes net realized and unrealized investment gains and losses for the periods indicated:
Quarter ended September 30,
Nine Months ended September 30,
($ in thousands)
2024
2023
2024
2023
Gross gains on sales
$
4,159
367
$
10,681
5,307
Gross losses on sales
(2,012)
(5,264)
(5,228)
(30,146)
Net realized gains (losses) on disposals
2,147
(4,897)
5,453
(24,839)
Net unrealized gains (losses) on equity securities
2,407
489
3,006
8,662
Net credit loss benefit (expense) on fixed income securities, AFS
2,191
(2,468)
(1,692)
7,925
Net credit loss benefit (expense) on CMLs
(2)
(4)
134
(65)
Losses on securities for which we have the intent to sell
(752)
—
(1,248)
(645)
Other realized gains (losses)
(602)
—
(602)
—
Net realized and unrealized investment gains (losses)
$
5,389
(6,880)
$
5,051
(8,962)
Net unrealized gains and losses 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)
2024
2023
2024
2023
Unrealized gains (losses) recognized in income on equity securities:
On securities remaining in our portfolio at end of period
$
1,997
200
$
4,904
2,744
On securities sold in period
410
289
(1,898)
5,918
Total unrealized gains (losses) recognized in income on equity securities
$
2,407
489
$
3,006
8,662
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, 2024, and December 31, 2023:
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 2023 Annual Report.
The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at September 30, 2024, and December 31, 2023:
September 30, 2024
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
$
125,402
36,523
88,879
—
Foreign government
9,662
—
9,662
—
Obligations of states and political subdivisions
492,856
—
485,125
7,731
Corporate securities
3,026,785
—
2,777,246
249,539
CLO and other ABS
1,946,393
—
1,638,175
308,218
RMBS
1,740,009
—
1,740,009
—
CMBS
747,494
—
747,132
362
Total AFS fixed income securities
8,088,601
36,523
7,486,228
565,850
Equity securities:
Common stock1
203,733
34,578
—
875
Preferred stock
1,901
1,901
—
—
Total equity securities
205,634
36,479
—
875
Short-term investments
561,032
512,553
48,479
—
Total assets measured at fair value
$
8,855,267
585,555
7,534,707
566,725
December 31, 2023
Fair Value Measurements Using
($ in thousands)
Assets Measured at Fair Value
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies
$
205,035
34,056
170,979
—
Foreign government
9,803
—
9,803
—
Obligations of states and political subdivisions
585,965
—
578,131
7,834
Corporate securities
2,711,239
—
2,413,907
297,332
CLO and other ABS
1,834,827
—
1,589,514
245,313
RMBS
1,477,483
—
1,477,483
—
CMBS
674,845
—
674,489
356
Total AFS fixed income securities
7,499,197
34,056
6,914,306
550,835
Equity securities:
Common stock1
185,339
20,582
—
854
Preferred stock
1,816
1,816
—
—
Total equity securities
187,155
22,398
—
854
Short-term investments
309,317
308,512
805
—
Total assets measured at fair value
$
7,995,669
364,966
6,915,111
551,689
1Investments amounting to $168.3 million at September 30, 2024, and $163.9 million at December 31, 2023, were measured at fair value using the net asset value per share (or its practical expedient) and have not been classified in the fair value hierarchy. These investments are not redeemable and the timing of liquidations of the underlying assets is unknown at each reporting period. The fair value amounts in this table are intended to permit reconciliation of the fair value hierarchy to total assets measured at fair value.
The following tables provide a summary of Level 3 changes in Nine Months 2024 and Nine Months 2023:
September 30, 2024
($ in thousands)
Obligations of States and Political Subdivisions
Corporate Securities
CLO and Other ABS
RMBS
CMBS
Common Stock
Total
Fair value, December 31, 2023
$
7,834
297,332
245,313
—
356
854
551,689
Total net gains (losses) for the period included in:
Other comprehensive income (loss) ("OCI")
25
13,716
4,058
77
15
—
17,891
Net realized and unrealized gains (losses)
(60)
556
(242)
—
—
21
275
Net investment income earned
—
(443)
191
1
(2)
—
(253)
Purchases
—
22,611
98,789
4,888
—
—
126,288
Sales
—
—
—
—
—
—
—
Issuances
—
—
—
—
—
—
—
Settlements
(68)
(22,005)
(28,560)
(255)
(7)
—
(50,895)
Transfers into Level 3
—
28,896
19,671
—
—
—
48,567
Transfers out of Level 3
—
(91,124)
(31,002)
(4,711)
—
—
(126,837)
Fair value, September 30, 2024
$
7,731
249,539
308,218
—
362
875
566,725
Change in unrealized gains (losses) for the period included in earnings for assets held at period end
(60)
568
(242)
—
—
213
479
Change in unrealized gains (losses) for the period included in OCI for assets held at period end
25
13,305
4,636
77
15
—
18,058
September 30, 2023
($ in thousands)
Obligation of state and Political Subdivisions
Corporate Securities
CLO and Other ABS
CMBS
Common Stock
Total
Fair value, December 31, 2022
$
6,661
187,980
153,342
375
897
349,255
Total net gains (losses) for the period included in:
OCI
(80)
(517)
(2,433)
35
—
(2,995)
Net realized and unrealized gains (losses)
62
289
(110)
—
(157)
84
Net investment income earned
—
359
(12)
(264)
—
83
Purchases
—
77,567
60,015
—
—
137,582
Sales
—
—
—
—
—
—
Issuances
—
—
—
—
—
—
Settlements
—
(7,437)
(4,343)
(24)
—
(11,804)
Transfers into Level 3
—
2,238
14,148
2,848
193
19,427
Transfers out of Level 3
—
—
(10,200)
(2,626)
—
(12,826)
Fair value, September 30, 2023
$
6,643
260,479
210,407
344
933
478,806
Change in unrealized gains (losses) for the period included in earnings for assets held at period end
62
289
(110)
—
(157)
84
Change in unrealized gains (losses) for the period included in OCI for assets held at period end
(80)
(528)
(2,433)
35
—
(3,006)
The following tables present quantitative information about the significant unobservable inputs used in the fair value measurements of Level 3 assets at September 30, 2024, and December 31, 2023:
1Other is comprised of broker quotes or other third-party pricing for which there is a lack of transparency into the inputs used to develop the valuations. The quantitative details of these unobservable inputs are neither provided to us, nor reasonably available to us, and therefore are not included in the tables above.
For the securities in the tables above valued using a discounted cash flow analysis, we apply an illiquidity spread in our determination of fair value. An increase in this assumption would result in a lower fair value measurement.
The following tables provide quantitative information about our financial assets and liabilities that were not measured at fair value, but were disclosed as such at September 30, 2024, and December 31, 2023:
September 30, 2024
Fair Value Measurements Using
($ in thousands)
Assets/ Liabilities Disclosed at Fair Value
Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Financial Assets
HTM:
Corporate securities
$
21,440
—
21,440
—
Total HTM fixed income securities
21,440
—
21,440
—
CMLs
$
218,599
—
—
218,599
Financial Liabilities
Long-term debt:
7.25% Senior Notes
$
54,828
—
54,828
—
6.70% Senior Notes
106,814
—
106,814
—
5.375% Senior Notes
296,608
—
296,608
—
3.03% borrowings from FHLBI
59,060
—
59,060
—
Total long-term debt
$
517,310
—
517,310
—
December 31, 2023
Fair Value Measurements Using
($ in thousands)
Assets/ Liabilities Disclosed at Fair Value
Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)
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)
2024
2023
2024
2023
Balance at beginning of period
$
21,100
17,900
$
18,900
16,100
Current period change for expected credit losses
1,970
1,973
6,242
5,398
Write-offs charged against the allowance for credit losses
(2,764)
(1,257)
(5,540)
(3,468)
Recoveries
494
284
1,198
870
Allowance for credit losses, end of period
$
20,800
18,900
$
20,800
18,900
For a discussion of the methodology used to evaluate our estimate of expected credit losses on premiums receivable, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2023 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, 2024, and December 31, 2023:
The $244.6 million increase in "Federal and state pools" as of September 30, 2024, compared to December 31, 2023, was primarily due to reserves recorded in Third Quarter 2024 from our participation in the NFIP Write Your Own Program, driven by Hurricane Helene flood losses, which impacted the Southeastern states of our footprint. These losses are 100% ceded to the NFIP. In addition, the $155.9 million increase in "Total rated reinsurers" as of September 30, 2024, compared to December 31, 2023, was primarily related to an increase in incurred but not reported recoverable balances related to unfavorable prior year casualty reserve development recorded in Nine Months 2024.
The following table provides a roll forward of the allowance for credit losses on our reinsurance recoverable balance for the periods indicated:
Quarter ended September 30,
Nine Months ended September 30,
($ in thousands)
2024
2023
2024
2023
Balance at beginning of period
$
1,700
1,800
$
1,700
1,600
Current period change for expected credit losses
300
—
300
200
Write-offs charged against the allowance for credit losses
—
—
—
—
Recoveries
—
—
—
—
Allowance for credit losses, end of period
$
2,000
1,800
$
2,000
1,800
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 2023 Annual Report.
The following table lists direct, assumed, and ceded reinsurance amounts for premiums written, premiums earned, and loss and loss expense incurred for the indicated periods. For more information about reinsurance, refer to Note 9. "Reinsurance" in Item 8. "Financial Statements and Supplementary Data." of our 2023 Annual Report.
Quarter ended September 30,
Nine Months ended September 30,
($ in thousands)
2024
2023
2024
2023
Premiums written:
Direct
$
1,335,475
1,214,444
$
4,051,124
3,579,700
Assumed
7,611
9,087
20,009
20,058
Ceded
(185,446)
(165,206)
(530,771)
(456,758)
Net
1,157,640
1,058,325
3,540,362
3,143,000
Premiums earned:
Direct
1,279,783
1,123,444
3,727,847
3,229,170
Assumed
6,972
8,916
18,942
21,174
Ceded
(174,527)
(150,443)
(503,386)
(423,941)
Net
1,112,228
981,917
3,243,403
2,826,403
Loss and loss expense incurred:
Direct
1,194,224
741,288
2,957,610
2,053,511
Assumed
6,104
8,182
17,143
19,115
Ceded
(434,670)
(103,573)
(579,255)
(213,161)
Net
$
765,658
645,897
$
2,395,498
1,859,465
The increase in direct and ceded loss and loss expense incurred in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods included a $232.8 million increase of NFIP reserves recorded in Third Quarter 2024 for flood losses as a result of Hurricane Helene, which are 100% ceded to the NFIP. In addition, the increase in direct loss and loss expense incurred in Nine Months 2024 compared to Nine Months 2023 was further impacted by unfavorable prior year casualty reserve development of $211.0 million in Nine Months 2024, compared to $16.5 million of favorable development in Nine Months 2023.
The table below provides a roll forward of the reserve for loss and loss expense for beginning and ending reserve balances:
Nine Months ended September 30,
($ in thousands)
2024
2023
Gross reserve for loss and loss expense, at beginning of period
$
5,336,911
5,144,821
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of period
618,601
757,513
Net reserve for loss and loss expense, at beginning of period
4,718,310
4,387,308
Incurred loss and loss expense for claims occurring in the:
Current year
2,212,750
1,865,247
Prior years
182,748
(5,782)
Total incurred loss and loss expense
2,395,498
1,859,465
Paid loss and loss expense for claims occurring in the:
Current year
638,494
607,595
Prior years
1,053,299
988,859
Total paid loss and loss expense
1,691,793
1,596,454
Net reserve for loss and loss expense, at end of period
5,422,015
4,650,319
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period
1,029,981
651,051
Gross reserve for loss and loss expense, at end of period
$
6,451,996
5,301,370
The increase in the net reserve for loss and loss expense at September 30, 2024 compared to December 31, 2023, primarily reflected (i) net unfavorable prior year reserve development, (ii) higher catastrophe losses in Nine Months 2024, (iii) exposure increases due to premium growth, and (iv) elevated loss cost trends for the current accident year.
Prior year reserve development in Nine Months 2024 was unfavorable by $182.7 million, consisting of $211.0 million of unfavorable casualty reserve development, partially offset by $28.3 million of favorable property reserve development. The unfavorable casualty reserve development was driven by our Standard Commercial Lines segment, which included (i) $216.0 million in our general liability line of business, primarily driven by increased severities in accident years 2020 through 2023, and (ii) $20.0 million in our commercial automobile line of business, partially offset by favorable development of (iii) $20.0 million in our workers compensation line of business and (iv) $5.0 million in our bonds line of business.
Additionally, in our Standard Personal Lines segment, we had unfavorable casualty reserve development of $5.0 million in our personal automobile line of business, offset by favorable development of $5.0 million in our homeowners line of business.
Prior year reserve development in Nine Months 2023 was favorable by $5.8 million, consisting of $16.5 million of favorable casualty reserve development, partially offset by $10.7 million of unfavorable property reserve development. The favorable casualty reserve development included $24.5 million in our workers compensation line of business and $5.0 million in our Excess and Surplus ("E&S") casualty lines of business, partially offset by $9.0 million of unfavorable casualty reserve development in our personal automobile line of business and $4.0 million in our commercial automobile line of business.
NOTE 9. Segment Information
We evaluate the results of our four reportable segments as follows:
•Our Standard Commercial Lines, Standard Personal Lines, and E&S Lines are evaluated on (i) before and after-tax underwriting results (net premiums earned, incurred loss and loss expense, policyholder dividends, policy acquisition costs, and other underwriting expenses), (ii) their return on equity ("ROE") contribution, and (iii) their combined ratios.
•Our Investments segment is primarily evaluated on after-tax net investment income and its ROE contribution. After-tax net realized and unrealized gains and losses are also included in our Investments segment results.
In computing each segment's results, we do not make adjustments for interest expense or corporate expenses. No segment has a separate investment portfolio or allocated assets.
The following summaries present revenues (net investment income and net realized and unrealized gains and losses on investments in the case of the Investments segment) and pre-tax income for the individual segments:
Revenue by Segment
Quarter ended September 30,
Nine Months ended September 30,
($ in thousands)
2024
2023
2024
2023
Standard Commercial Lines:
Net premiums earned:
General liability
$
286,641
261,551
$
840,153
759,410
Commercial automobile
269,036
234,622
781,408
677,060
Commercial property
174,855
152,495
504,919
429,135
Workers compensation
81,296
81,672
251,389
254,602
Businessowners' policies
43,091
36,016
124,653
103,572
Bonds
12,511
11,715
37,067
34,731
Other
7,949
7,257
23,393
21,142
Miscellaneous income
8,189
4,606
20,537
12,355
Total Standard Commercial Lines revenue
883,568
789,934
2,583,519
2,292,007
Standard Personal Lines:
Net premiums earned:
Personal automobile
56,599
51,906
171,103
145,050
Homeowners
47,251
40,175
137,419
112,090
Other
3,671
3,088
9,266
7,069
Miscellaneous income
692
575
1,927
1,564
Total Standard Personal Lines revenue
108,213
95,744
319,715
265,773
E&S Lines:
Net premiums earned:
Casualty lines
77,471
67,718
222,996
190,686
Property lines
51,857
33,702
139,637
91,856
Miscellaneous income
49
—
102
—
Total E&S Lines revenue
129,377
101,420
362,735
282,542
Investments:
Net investment income earned
117,759
100,863
334,250
290,065
Net realized and unrealized investment gains (losses)
Underwriting income (loss), before federal income tax
$
7,319
41,339
$
(143,181)
102,406
Underwriting income (loss), after federal income tax
5,782
32,658
(113,113)
80,901
Combined ratio
99.2
%
94.7
105.6
95.5
ROE contribution
0.8
5.4
(5.4)
4.4
Standard Personal Lines:
Underwriting income (loss), before federal income tax
$
(23,774)
(26,099)
$
(48,410)
(62,232)
Underwriting income (loss), after federal income tax
(18,781)
(20,618)
(38,244)
(49,163)
Combined ratio
122.1
%
127.4
115.2
123.6
ROE contribution
(2.6)
(3.4)
(1.8)
(2.7)
E&S Lines:
Underwriting income (loss), before federal income tax
$
21,706
16,351
$
42,192
29,074
Underwriting income (loss), after federal income tax
17,148
12,917
33,332
22,968
Combined ratio
83.2
%
83.9
88.4
89.7
ROE contribution
2.4
2.1
1.6
1.3
Investments:
Net investment income earned
$
117,759
100,863
$
334,250
290,065
Net realized and unrealized investment gains (losses)
5,389
(6,880)
5,051
(8,962)
Total investments segment income, before federal income tax
123,148
93,983
339,301
281,103
Tax on investments segment income
25,511
19,191
70,029
57,092
Total investments segment income, after federal income tax
$
97,637
74,792
$
269,272
224,011
ROE contribution of after-tax net investment income earned
13.1
13.1
12.6
12.7
Reconciliation of Segment Results to Income (Loss) Before Federal Income Tax
Quarter ended September 30,
Nine Months ended September 30,
($ in thousands)
2024
2023
2024
2023
Underwriting income (loss)
Standard Commercial Lines
$
7,319
41,339
$
(143,181)
102,406
Standard Personal Lines
(23,774)
(26,099)
(48,410)
(62,232)
E&S Lines
21,706
16,351
42,192
29,074
Investment income
123,148
93,983
339,301
281,103
Total all segments
128,399
125,574
189,902
350,351
Interest expense
(7,250)
(7,186)
(21,633)
(21,610)
Corporate expenses
(4,662)
(5,871)
(29,314)
(27,308)
Income (loss), before federal income tax
$
116,487
112,517
$
138,955
301,433
Preferred stock dividends
(2,300)
(2,300)
(6,900)
(6,900)
Income (loss) available to common stockholders, before federal income tax
$
114,187
110,217
$
132,055
294,533
NOTE 10. Retirement Plans
The primary pension plan for our employees is the Retirement Income Plan for Selective Insurance Company of America (the "Pension Plan"). The plan is closed to new entrants, and benefits ceased accruing under the Pension Plan after March 31, 2016. For more information about Selective Insurance Company of America's ("SICA") retirement plans, see Note 15. "Retirement Plans" in Item 8. "Financial Statements and Supplementary Data." of our 2023 Annual Report.
The following tables provide information about the Pension Plan:
Pension Plan
Quarter ended September 30,
Nine Months ended September 30,
($ in thousands)
2024
2023
2024
2023
Net Periodic Pension Cost (Benefit):
Interest cost
$
3,888
3,867
$
11,664
11,599
Expected return on plan assets
(5,382)
(5,774)
(16,147)
(17,319)
Amortization of unrecognized net actuarial loss
955
750
2,865
2,251
Total net periodic pension cost (benefit)1
$
(539)
(1,157)
$
(1,618)
(3,469)
1The components of net periodic pension cost (benefit) are included within "Loss and loss expense incurred" and "Other insurance expenses" on the Consolidated Statements of Income.
Pension Plan
Nine Months ended September 30,
2024
2023
Weighted-Average Expense Assumptions:
Discount rate
5.02
%
5.21
%
Effective interest rate for calculation of interest cost
4.91
5.09
Expected return on plan assets
6.40
6.90
NOTE 11. Comprehensive Income (Loss)
The components of comprehensive income (loss), both gross and net of tax, for Third Quarter 2024 and Nine Months 2024 and Third Quarter 2023 and Nine Months 2023 were as follows:
Third Quarter 2024
($ in thousands)
Gross
Tax
Net
Net income (loss)
$
116,487
24,209
92,278
Components of OCI:
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) during the period
187,465
39,367
148,098
Unrealized gains (losses) on securities with credit loss recognized in earnings
43,927
9,225
34,702
Amounts reclassified into net income (loss):
Net realized (gains) losses on disposals and intent-to-sell AFS securities
(1,249)
(263)
(986)
Credit loss (benefit) expense
(2,191)
(459)
(1,732)
Total unrealized gains (losses) on investment securities
227,952
47,870
180,082
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income (loss):
Net actuarial (gain) loss
967
203
764
Total defined benefit pension and post-retirement plans
967
203
764
Other comprehensive income (loss)
228,919
48,073
180,846
Comprehensive income (loss)
$
345,406
72,282
273,124
Third Quarter 2023
($ in thousands)
Gross
Tax
Net
Net income (loss)
$
112,517
23,309
89,208
Components of OCI:
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) during the period
(101,722)
(21,361)
(80,361)
Unrealized gains (losses) on securities with credit loss recognized in earnings
(32,898)
(6,909)
(25,989)
Amounts reclassified into net income (loss):
Net realized (gains) losses on disposals and intent-to-sell AFS securities
4,628
972
3,656
Credit loss (benefit) expense
2,468
519
1,949
Total unrealized gains (losses) on investment securities
(127,524)
(26,779)
(100,745)
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income (loss):
Net actuarial (gain) loss
756
158
598
Total defined benefit pension and post-retirement plans
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) during the period
163,558
34,347
129,211
Unrealized gains (losses) on securities with credit loss recognized in earnings
37,090
7,789
29,301
Amounts reclassified into net income (loss):
Net realized (gains) losses on disposals and intent-to-sell AFS securities
(1,284)
(270)
(1,014)
Credit loss (benefit) expense
1,692
356
1,336
Total unrealized gains (losses) on investment securities
201,056
42,222
158,834
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income (loss):
Net actuarial (gain) loss
2,901
609
2,292
Total defined benefit pension and post-retirement plans
2,901
609
2,292
Other comprehensive income (loss)
203,957
42,831
161,126
Comprehensive income (loss)
$
342,912
70,309
272,603
Nine Months 2023
($ in thousands)
Gross
Tax
Net
Net income (loss)
$
301,433
61,043
240,390
Components of OCI:
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) during the period
(96,478)
(20,259)
(76,219)
Unrealized gains (losses) on securities with credit loss recognized in earnings
(16,497)
(3,465)
(13,032)
Amounts reclassified into net income (loss):
Net realized (gains) losses on disposals and intent-to-sell AFS securities
20,115
4,224
15,891
Credit loss (benefit) expense
(7,925)
(1,664)
(6,261)
Total unrealized gains (losses) on investment securities
(100,785)
(21,164)
(79,621)
Defined benefit pension and post-retirement plans:
Amounts reclassified into net income (loss):
Net actuarial (gain) loss
2,270
476
1,794
Total defined benefit pension and post-retirement plans
2,270
476
1,794
Other comprehensive income (loss)
(98,515)
(20,688)
(77,827)
Comprehensive income (loss)
$
202,918
40,355
162,563
The balances of, and changes in, each component of accumulated other comprehensive income (loss) ("AOCI") (net of taxes) as of September 30, 2024, were as follows:
September 30, 2024
Net Unrealized Gains (Losses) on Investment Securities
Defined Benefit Pension and Post-Retirement Plans
Total AOCI
($ in thousands)
Credit Loss Related1
All Other
Investments Subtotal
Balance, December 31, 2023
$
(84,442)
(194,628)
(279,070)
(93,931)
(373,001)
OCI before reclassifications
29,301
129,211
158,512
—
158,512
Amounts reclassified from AOCI
1,336
(1,014)
322
2,292
2,614
Net current period OCI
30,637
128,197
158,834
2,292
161,126
Balance, September 30, 2024
$
(53,805)
(66,431)
(120,236)
(91,639)
(211,875)
1Represents change in unrealized gains (losses) on securities with credit loss recognized in earnings.
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)
2024
2023
2024
2023
Net realized (gains) losses on disposals and intent-to-sell AFS securities
Net realized (gains) losses
$
(1,249)
4,628
$
(1,284)
20,115
Net realized and unrealized investment gains (losses)
Tax (benefit) expense
263
(972)
270
(4,224)
Total federal income tax expense (benefit)
Net of taxes
(986)
3,656
(1,014)
15,891
Net income (loss)
Credit loss related
Credit loss (benefit) expense
(2,191)
2,468
1,692
(7,925)
Net realized and unrealized investment gains (losses)
Tax (benefit) expense
459
(519)
(356)
1,664
Total federal income tax expense (benefit)
Net of taxes
(1,732)
1,949
1,336
(6,261)
Net income (loss)
Defined benefit pension and post-retirement life plans
Net actuarial loss
222
173
667
521
Loss and loss expense incurred
Net actuarial loss
745
583
2,234
1,749
Other insurance expenses
Total
967
756
2,901
2,270
Income (loss) before federal income tax
Tax (benefit) expense
(203)
(158)
(609)
(476)
Total federal income tax expense (benefit)
Net of taxes
764
598
2,292
1,794
Net income (loss)
Total reclassifications for the period
$
(1,954)
6,203
$
2,614
11,424
Net income (loss)
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 2024, we repurchased 103,000 shares of our common stock under our share repurchase program. The total cost of repurchases, including commissions, was $8.7 million in Nine Months 2024. We had $75.5 million of remaining capacity under our share repurchase program as of September 30, 2024.
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)
2024
2023
2024
2023
Net income (loss) available to common stockholders:
$
89,978
86,908
$
104,577
233,490
Weighted average common shares outstanding:
Weighted average common shares outstanding - basic
60,877
60,676
60,867
60,609
Effect of dilutive securities - stock compensation plans
414
340
392
339
Weighted average common shares outstanding - diluted
61,291
61,016
61,259
60,948
EPS:
Basic
$
1.48
1.43
$
1.72
3.85
Diluted
1.47
1.42
1.71
3.83
NOTE 14. Litigation
As of September 30, 2024, we do not believe we are involved in any legal action that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
In the ordinary course of conducting business, we are parties in various legal actions. Most are claims litigation involving our ten insurance subsidiaries (collectively referred to as "Insurance Subsidiaries") as (i) liability insurers defending or providing indemnity for third-party claims brought against our customers, (ii) insurers defending first-party coverage claims brought against them, or (iii) liability insurers seeking declaratory judgment on our insurance coverage obligations. We account for such activity by establishing unpaid loss and loss expense reserves. Considering potential losses and defense costs reserves, we expect that any potential ultimate liability for ordinary course claims litigation will not be material to our consolidated financial condition, results of operations, or cash flows.
All our commercial property and businessowners' policies require direct physical loss of or damage to property by a covered cause of loss. All our standard lines commercial property and businessowners' policies also include or attach an exclusion that states all loss or property damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease is not a covered cause of loss ("Virus Exclusion"). Whether COVID-19-related contamination, the existence of the COVID-19 pandemic, and the resulting COVID-19-related government shutdown orders cause physical loss of or damage to property is the subject of much public debate and first-party coverage litigation against some insurers, including us. The Virus Exclusion is also the subject of first-party coverage litigation against some insurers, including us. To date, insurers (including us) have prevailed in the majority of these suits, with most decisions holding that COVID-19 does not cause physical loss of or damage to property and the Virus Exclusion is valid. Nonetheless, these two matters continue to be litigated in trial courts, are subject to review by state and federal appellate courts, and their ultimate outcome cannot be assured.
From time to time, our Insurance Subsidiaries also are named as defendants in other legal actions, some asserting claims for substantial amounts. Plaintiffs may style these actions as class actions and seek judicial certification of a state or national class for allegations involving our business practices, such as improper medical provider reimbursement under workers compensation and personal and commercial automobile insurance policies or improper reimbursement for automobile parts. Similarly, our Insurance Subsidiaries can be named defendants in individual actions seeking extra-contractual damages, punitive damages, or penalties, often alleging bad faith in handling insurance claims. We believe that we have valid defenses to these allegations and 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. Litigation outcomes are inherently unpredictable and the amounts sought in certain actions are large or indeterminate, so adverse outcomes could potentially have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
The terms "Company," "we," "us," and "our" refer to Selective Insurance Group, Inc. (the "Parent") and its subsidiaries, except as expressly indicated or the context otherwise requires. Certain statements in this Quarterly Report on Form 10-Q, including information incorporated by reference, are “forward-looking statements” defined in the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The PSLRA provides a forward-looking statement safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements discuss our intentions, beliefs, projections, estimations, or forecasts of future events and financial performance. They involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, activity levels, or performance to materially differ from those in or implied by the forward-looking statements. In some cases, forward-looking statements include the words "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "attribute," "confident," "strong," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," "continue," or comparable terms. Our forward-looking statements are only predictions; we cannot guarantee or assure that such expectations will prove correct. We undertake no obligation to publicly update or revise any forward-looking statements for any reason except as required by law.
We discuss the factors that could cause our actual results to differ materially from our projections, forecasts, or estimates in forward-looking statements in Item 1A. "Risk Factors." in Part II. "Other Information" of this Form 10-Q. These risk factors may not be exhaustive. We operate in a constantly changing business environment, and new risk factors may emerge at any time. We can neither predict these new risk factors nor assess their impact, if any, on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from any forward-looking statements. Given these risks, uncertainties, and assumptions, the forward-looking events we discuss in this report might not occur.
Introduction
We classify our business into four reportable segments:
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, 2023 ("2023 Annual Report").
We write our Standard Commercial and Standard Personal Lines products and services through nine insurance subsidiaries, some of which participate in the federal government's National Flood Insurance Program's ("NFIP") Write Your Own Program. We write our E&S products through another subsidiary, Mesa Underwriters Specialty Insurance Company, a nationally-authorized non-admitted platform for customers who generally cannot obtain coverage in the standard marketplace. Collectively, we refer to our ten insurance subsidiaries as the "Insurance Subsidiaries."
The following is Management’s Discussion and Analysis ("MD&A") of our financial condition and consolidated results of operations, including an evaluation of the amounts and certainty of cash flows from operations and outside sources, trends, and uncertainties that may have a material impact in future periods. Investors should read the MD&A in conjunction with Item 1. "Financial Statements." of this Form 10-Q and the consolidated financial statements in our 2023 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, 2024 ("Third Quarter 2024") and September 30, 2023 ("Third Quarter 2023"); and the nine-month periods ended September 30, 2024 ("Nine Months 2024") and September 30, 2023 ("Nine Months 2023");
•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 2023 Annual Report, those estimates and judgments most critical to the preparation of the consolidated financial statements involved the following: (i) reserve 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 our use of assumptions about highly uncertain matters that make them subject to change as facts and circumstances develop. If we applied different estimates and judgments, the financial statements might have reported materially different amounts. For additional information regarding our critical accounting policies and estimates, refer to pages 39 through 47 of our 2023 Annual Report.
Financial Highlights of Results for Third Quarter and Nine Months 2024 and Third Quarter and Nine Months 20231
($ and shares in thousands, except per share amounts)
Quarter ended September 30,
Change % or Points
Nine Months ended September 30,
Change % or Points
2024
2023
2024
2023
Financial Data:
Revenues
$
1,244,306
1,081,081
15
%
$
3,605,270
3,121,425
16
%
After-tax net investment income
93,379
80,227
16
265,281
231,091
15
After-tax underwriting income (loss)
4,149
24,957
(83)
(118,025)
54,706
(316)
Net income (loss) before federal income tax
116,487
112,517
4
138,955
301,433
(54)
Net income (loss)
92,278
89,208
3
111,477
240,390
(54)
Net income (loss) available to common stockholders
89,978
86,908
4
104,577
233,490
(55)
Key Metrics:
Combined ratio
99.5
%
96.8
2.7
pts
104.6
%
97.5
7.1
pts
Invested assets per dollar of common stockholders' equity
$
3.25
3.35
(3)
%
$
3.25
3.35
(3)
%
Annualized after-tax yield on investment portfolio
4.0
%
3.9
0.1
pts
3.9
%
3.8
0.1
pts
Return on common equity ("ROE")
12.6
14.1
(1.5)
5.0
12.8
(7.8)
Net premiums written ("NPW") to statutory surplus
$
1.63
1.53
7
%
1.63
1.53
7
%
Per Common Share Amounts:
Diluted net income (loss) per share
$
1.47
1.42
4
%
$
1.71
3.83
(55)
%
Book value per share
48.82
40.35
21
48.82
40.35
21
Dividends declared per share to common stockholders
0.35
0.30
17
1.05
0.90
17
Non-GAAP Information:
Non-GAAP operating income (loss)2
$
85,720
92,343
(7)
%
$
100,586
240,570
(58)
%
Non-GAAP operating income (loss) per diluted common share2
1.40
1.51
(7)
1.64
3.95
(58)
Non-GAAP operating ROE2
12.1
%
15.0
(2.9)
pts
4.8
%
13.2
(8.4)
pts
Adjusted book value per common share2
$
50.80
48.54
5
%
$
50.80
48.54
5
%
1Refer to the Glossary of Terms attached to our 2023 Annual Report as Exhibit 99.1 for definitions of terms used in this Form 10-Q.
2Non-GAAP operating income (loss), non-GAAP operating income (loss) per diluted common share, and non-GAAP operating ROE are comparable to net income (loss) available to common stockholders, net income (loss) 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 (loss). Adjusted book value per common share is comparable to book value per common share, but excludes total after-tax unrealized gains and losses on investments included in accumulated other comprehensive income (loss). These non-GAAP measures are important financial measures used by us, analysts, and investors because the timing of realized and unrealized investment gains and losses on securities in any given period is largely discretionary. In addition, net realized and unrealized investment gains and losses on investments could distort the analysis of trends.
Reconciliations of our GAAP to non-GAAP measures are provided in the tables below:
Reconciliation of net income (loss) available to common stockholders to non-GAAP operating income (loss)
Quarter ended September 30,
Nine Months ended September 30,
($ in thousands)
2024
2023
2024
2023
Net income (loss) available to common stockholders
$
89,978
86,908
$
104,577
233,490
Net realized and unrealized investment (gains) losses included in net income (loss), before tax
(5,389)
6,880
(5,051)
8,962
Tax on reconciling items
1,131
(1,445)
1,060
(1,882)
Non-GAAP operating income (loss)
$
85,720
92,343
$
100,586
240,570
Reconciliation of net income (loss) available to common stockholders per diluted common share to non-GAAP operating income (loss) per diluted common share
Quarter ended September 30,
Nine Months ended September 30,
2024
2023
2024
2023
Net income (loss) available to common stockholders per diluted common share
$
1.47
1.42
$
1.71
3.83
Net realized and unrealized investment (gains) losses included in net income (loss), before tax
(0.09)
0.11
(0.08)
0.15
Tax on reconciling items
0.02
(0.02)
0.01
(0.03)
Non-GAAP operating income (loss) per diluted common share
Net realized and unrealized investment (gains) losses included in net income (loss), before tax
(0.8)
1.1
(0.2)
0.5
Tax on reconciling items
0.3
(0.2)
—
(0.1)
Non-GAAP operating ROE
12.1
%
15.0
4.8
%
13.2
Reconciliation of book value per common share to adjusted book value per common share
Quarter ended September 30,
Nine Months ended September 30,
2024
2023
2024
2023
Book value per common share
$
48.82
40.35
$
48.82
40.35
Total unrealized investment (gains) losses included in accumulated other comprehensive income (loss), before tax
2.50
10.38
2.50
10.38
Tax on reconciling items
(0.52)
(2.19)
(0.52)
(2.19)
Adjusted book value per common share
$
50.80
48.54
$
50.80
48.54
The components of our ROE and non-GAAP operating ROE are as follows:
ROE and non-GAAP operating ROE Components
Quarter ended September 30,
Change Points
Nine Months ended September 30,
Change Points
2024
2023
2024
2023
Standard Commercial Lines Segment
0.8
%
5.4
(4.6)
(5.4)
%
4.4
(9.8)
Standard Personal Lines Segment
(2.6)
(3.4)
0.8
(1.8)
(2.7)
0.9
E&S Lines Segment
2.4
2.1
0.3
1.6
1.3
0.3
Total insurance operations
0.6
4.1
(3.5)
(5.6)
3.0
(8.6)
Investment income
13.1
13.1
—
12.6
12.7
(0.1)
Net realized and unrealized investment gains (losses)
0.5
(0.9)
1.4
0.2
(0.4)
0.6
Total investments segment
13.6
12.2
1.4
12.8
12.3
0.5
Other
(1.6)
(2.2)
0.6
(2.2)
(2.5)
0.3
ROE
12.6
14.1
(1.5)
5.0
12.8
(7.8)
Net realized and unrealized investment (gains) losses, after tax
(0.5)
0.9
(1.4)
(0.2)
0.4
(0.6)
Non-GAAP operating ROE
12.1
15.0
(2.9)
4.8
13.2
(8.4)
Our non-GAAP operating ROE in Third Quarter 2024 slightly exceeded our 12% target, while our Nine Months 2024 non-GAAP operating ROE was below our 12% target. The decrease in our non-GAAP operating ROE in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods was driven by reduced after-tax underwriting income. We recorded after-tax underwriting income of $4.1 million in Third Quarter 2024 compared to $25.0 million in Third Quarter 2023, resulting in a reduction to ROE of 3.5 points. In Nine Months 2024, we recorded an after-tax underwriting loss of $118.0 million, compared to after-tax underwriting income of $54.7 million in Nine Months 2023, resulting in a reduction to ROE of 8.6 points.
The after-tax underwriting income decrease in Third Quarter 2024 compared to Third Quarter 2023 was primarily driven by elevated net catastrophe losses in Third Quarter 2024, partially offset by lower non-catastrophe property loss and loss expenses in Third Quarter 2024. We were impacted by 19 Property Claim Services ("PCS") named events in Third Quarter 2024. Hurricane Helene, which is estimated at $85.0 million of net catastrophe losses, accounted for the majority of the losses in Third Quarter 2024.
The after-tax underwriting income decrease in Nine Months 2024 compared to Nine Months 2023 was primarily attributable to unfavorable prior year casualty reserve development in Nine Months 2024. We recorded $211.0 million of unfavorable prior year casualty reserve development in Nine Months 2024 compared to $16.5 million of favorable prior year casualty reserve development in Nine Months 2023. There was no net prior year casualty reserve development in Third Quarter 2024 and Third Quarter 2023. Development in Nine Months 2024 primarily impacted the general liability line of business in our Standard Commercial Lines segment. We believe that current market conditions and environmental factors, most notably social inflation, are impacting us and the industry more than historically. As a commercial lines-focused underwriter with a higher mix of casualty business, we recognize this social inflationary environment has increased loss severities. In response to these external trends and the data we observed in our in-depth quarterly reserve review process during Nine Months 2024, we
recorded unfavorable prior year casualty reserve development in our general liability line of business, primarily related to accident years 2020 through 2023.
For additional qualitative discussion on prior year casualty reserve development, refer to the insurance segment sections below.
Outlook
Although our Nine Months 2024 financial results were below our target, our capital position and the quality of our underwriting portfolio remain strong. Given the consistency in our underwriting appetite and risk profile over time, we have focused our corrective actions primarily on achieving higher price levels to reflect elevated and uncertain loss trends. Our prudent underwriting, pricing discipline, strong relationships with our distribution partners, and sophisticated analytical tools have enabled us to effectively balance our pricing and retention objectives over the long term.
We will continue to balance growth and profitability, with a goal to consistently achieve a 95% combined ratio across our three insurance segments by:
•Standard Commercial Lines
◦Achieving overall Standard Commercial Lines renewal pure price increases that reflect forward loss trend expectations. Our overall Standard Commercial Lines renewal pure price increase was 9.1% in Third Quarter 2024, up from 7.9% last quarter. Excluding workers compensation, our Standard Commercial Lines renewal pure price increase was 10.2% in Third Quarter 2024, up from 9.2% last quarter. In addition, our general liability renewal pure price increase was 10.2% in Third Quarter 2024, up from 7.6% last quarter. We expect that our general liability pricing will remain strong through the end of the year;
◦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 the use of our enhanced small business platform; and
◦Expanding our geographic footprint. In April 2024, we entered West Virginia and Maine, and in October 2024, we entered Washington, Nevada, and Oregon, now covering 35 states and the District of Columbia. Kansas, Montana, and Wyoming are the next three states we expect to enter over the next two years. Over time, we plan to expand our Standard Commercial Lines footprint to be near national.
•Standard Personal Lines
◦Taking actions to improve the profitability of our Standard Personal Lines segment by:
▪Prioritizing additional rate filings state-by-state and further refining our pricing factors. These filed rate increases began to take effect early in 2023 and increased in number and magnitude throughout 2023 and 2024, and we expect them to continue into 2025. Our Standard Personal Lines renewal pure price increase was 22.8% in Third Quarter 2024 and 18.5% in Nine Months 2024, up from 17.7% in six-months ended 2024;
▪Seeking to improve our homeowners line of business profitability through the introduction of new policy terms and conditions, including (i) coverage for older roofs based on depreciation schedules rather than replacement cost and (ii) implementing mandatory wind/hail deductibles in states exposed to severe convective storms, where law permits; and
▪Continuing the migration of our Standard Personal Lines products and services towards customers in the mass affluent market, where we believe our strong coverage and servicing capabilities can be more competitive, while also limiting the migration in states where, due to regulatory constraints, we cannot charge risk-adequate premiums.
•E&S Lines
◦Achieving E&S Lines renewal pure price increases that reflect forward loss trend expectations. Our E&S Lines renewal pure price increase was 8.0% in Third Quarter 2024, up from 6.4% last quarter; and
◦Continuing to invest in product expansion, risk evaluation, and operational efficiency for small and middle market E&S lines accounts.
For 2024, we increased our expected GAAP combined ratio to 102.5%. The change reflects elevated catastrophe losses in Third Quarter 2024, partially offset by better-than-expected non-catastrophe property loss and loss expenses. Full-year expectations are as follows:
•A GAAP combined ratio of 102.5%, up 1 point from our prior guidance of 101.5%. Our combined ratio estimate includes net catastrophe losses of 7.5 points, up from prior guidance of 5.5 points. Although too early to provide a specific estimate, we expect losses from Hurricane Milton, which made landfall on October 9, 2024, to be immaterial. Our combined ratio estimate assumes no additional prior year casualty reserve development;
•After-tax net investment income of $360 million, including $32 million from alternative investments;
•An overall effective tax rate of approximately 21.0%, which assumes an effective tax rate of 20.5% for net investment income and 21% for all other items; and
•Weighted average shares on a fully diluted basis of 61.5 million, which assumes no share repurchases we may make under our authorization.
Results of Operations and Related Information by Segment
Insurance Operations
The following table provides quantitative information for analyzing the combined ratio:
All Lines
Quarter ended September 30,
Change % or Points
Nine Months ended September 30,
Change % or Points
($ in thousands)
2024
2023
2024
2023
Insurance Operations Results:
NPW
$
1,157,640
1,058,325
9
%
$
3,540,362
3,143,000
13
%
Net premiums earned (“NPE”)
1,112,228
981,917
13
3,243,403
2,826,403
15
Less:
Loss and loss expense incurred
765,658
645,897
19
2,395,498
1,859,465
29
Net underwriting expenses incurred
339,969
303,076
12
991,646
892,716
11
Dividends to policyholders
1,350
1,353
—
5,658
4,974
14
Underwriting income (loss)
$
5,251
31,591
(83)
%
$
(149,399)
69,248
(316)
%
Combined Ratios:
Loss and loss expense ratio
68.8
%
65.8
3.0
pts
73.8
%
65.7
8.1
pts
Underwriting expense ratio
30.6
30.9
(0.3)
30.6
31.6
(1.0)
Dividends to policyholders ratio
0.1
0.1
—
0.2
0.2
—
Combined ratio
99.5
96.8
2.7
104.6
97.5
7.1
The NPW growth of 9% in Third Quarter 2024 and 13% in Nine Months 2024 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)
2024
2023
2024
2023
Direct new business premiums
$
234.2
232.3
$
762.4
690.8
Renewal pure price increases
10.5
%
7.0
9.1
%
6.6
Our NPW growth in Third Quarter 2024 and Nine Months 2024 also benefited from stable retention in our Standard Commercial Lines and E&S Lines and exposure growth on renewal policies.
The increase in NPE in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods resulted from the same impacts to NPW described above.
The loss and loss expense ratio increased 3.0 points in Third Quarter 2024 and 8.1 points in Nine Months 2024 compared to the same prior-year periods, primarily due to the following:
Third Quarter 2024
Third Quarter 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses
$
148.8
13.4
pts
$
64.6
6.6
pts
6.8
pts
Non-catastrophe property loss and loss expenses
146.7
13.2
172.8
17.6
(4.4)
Total
$
295.5
26.6
$
237.4
24.2
2.4
Nine Months 2024
Nine Months 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Loss and Loss Expense
Incurred
Impact on Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses
$
294.6
9.1
pts
$
219.9
7.8
pts
1.3
pts
(Favorable) unfavorable prior year casualty reserve development
211.0
6.5
(16.5)
(0.6)
7.1
Non-catastrophe property loss and loss expenses
503.4
15.5
478.2
16.9
(1.4)
Total
$
1,009.0
31.1
$
681.6
24.1
7.0
We had higher net catastrophe losses in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods, primarily attributable to Hurricane Helene, which resulted in estimated net catastrophe losses of $85.0 million, or 7.6 points, in Third Quarter 2024, and 2.6 points in Nine Months 2024. Hurricane Helene primarily affected states in our Southeastern footprint. Nine Months 2024 was further impacted by 65 other PCS-named events, mainly wind and thunderstorm events with higher severity, compared to the 60 PCS-named events in Nine Months 2023.
Details of the prior year casualty reserve development follow:
(Favorable)/Unfavorable Prior Year Casualty Reserve Development
Quarter ended September 30,
Nine Months ended September 30,
($ in millions)
2024
2023
2024
2023
General liability
$
—
—
$
216.0
—
Commercial automobile
10.0
4.0
20.0
4.0
Workers compensation
(5.0)
(7.0)
(20.0)
(24.5)
Bonds
(5.0)
—
(5.0)
—
Total Standard Commercial Lines
—
(3.0)
211.0
(20.5)
Homeowners
—
—
(5.0)
—
Personal automobile
—
3.0
5.0
9.0
Total Standard Personal Lines
—
3.0
—
9.0
E&S
—
—
—
(5.0)
Total (favorable) unfavorable prior year casualty reserve development
$
—
—
$
211.0
(16.5)
(Favorable) unfavorable impact on loss ratio
—
pts
—
6.5
pts
(0.6)
There was no net prior year casualty reserve development in Third Quarter 2024 and Third Quarter 2023. The unfavorable prior year casualty reserve development in Nine Months 2024 of (i) $216.0 million in our general liability line of business was driven by severities in accident years 2020 through 2023 that continued to show higher than expected emergence and (ii) $20.0 million in our commercial automobile line of business was driven by increased severities in accident year 2023. The unfavorable development in these lines of business in Nine Months 2024 was partially offset by favorable workers compensation development of $20.0 million and favorable bonds development of $5.0 million.
In addition, the loss and loss expense ratio was adversely impacted by an increase in current year casualty loss costs of 0.7 points in Third Quarter 2024 and 1.0 point in Nine Months 2024 compared to the same prior-year periods, primarily due to increased loss trend expectations and higher prior-year severity assumptions related to the impacts of social inflation on our general liability line of business.
For additional qualitative discussion on prior year casualty reserve development and non-catastrophe property loss and loss expenses, refer to the insurance segment sections below.
Underwriting Expenses
The underwriting expense ratio decreased 0.3 points in Third Quarter 2024 and 1.0 points in Nine Months 2024 compared to the same prior-year periods, primarily due to a decrease in expected profit-based employee compensation and the growth in premium outpacing the growth in underwriting expenses.
Standard Commercial Lines Segment
Quarter ended September 30,
Change % or Points
Nine Months ended September 30,
Change % or Points
($ in thousands)
2024
2023
2024
2023
Insurance Segments Results:
NPW
$
903,921
833,576
8
%
$
2,798,727
2,517,037
11
%
NPE
875,379
785,328
11
2,562,982
2,279,652
12
Less:
Loss and loss expense incurred
591,564
493,771
20
1,895,351
1,436,604
32
Net underwriting expenses incurred
275,146
248,865
11
805,154
735,668
9
Dividends to policyholders
1,350
1,353
—
5,658
4,974
14
Underwriting income (loss)
7,319
41,339
(82)
$
(143,181)
102,406
(240)
Combined Ratios:
Loss and loss expense ratio
67.6
%
62.8
4.8
pts
74.0
%
63.0
11.0
pts
Underwriting expense ratio
31.4
31.7
(0.3)
31.4
32.3
(0.9)
Dividends to policyholders ratio
0.2
0.2
—
0.2
0.2
—
Combined ratio
99.2
94.7
4.5
105.6
95.5
10.1
NPW growth of 8% in Third Quarter 2024 and 11% in Nine Months 2024 compared to the same prior-year periods primarily reflected (i) renewal pure price increases and (ii) strong retention as shown in the table below. In addition, NPW growth benefited from strong exposure growth on renewal policies.
Quarter ended September 30,
Nine Months ended September 30,
($ in millions)
2024
2023
2024
2023
Direct new business premiums
$
139.2
145.5
$
479.6
452.3
Retention
86
%
86
85
%
85
Renewal pure price increases
9.1
7.1
8.2
6.9
The increase in NPE in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods resulted from the same impacts to NPW described above.
The loss and loss expense ratio increased 4.8 points in Third Quarter 2024 and 11.0 points in Nine Months 2024 compared to the same prior-year periods, primarily driven by the following:
Third Quarter 2024
Third Quarter 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses
$
100.4
11.5
pts
$
36.7
4.7
6.8
pts
Non-catastrophe property loss and loss expenses
95.9
11.0
122.8
15.6
(4.6)
(Favorable) unfavorable prior year casualty reserve development
—
—
(3.0)
(0.4)
0.4
Total
$
196.3
22.5
$
156.5
19.9
2.6
Nine Months 2024
Nine Months 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses
$
189.8
7.4
pts
$
134.4
5.9
1.5
pts
Non-catastrophe property loss and loss expenses
335.4
13.1
339.6
14.9
(1.8)
(Favorable) unfavorable prior year casualty reserve development
211.0
8.2
(20.5)
(0.9)
9.1
Total
$
736.2
28.7
$
453.5
19.9
8.8
Net catastrophe losses increased in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods, primarily attributable to Hurricane Helene, which mainly affected Georgia and the Carolinas and resulted in estimated net catastrophe losses of $61.5 million, or 7.0 points in Third Quarter 2024 and 2.4 points in Nine Months 2024. Nine Months 2024 was further impacted by 54 other PCS-named events, mainly wind and thunderstorm events with higher severity, compared to the 51 PCS-named events in Nine Months 2023, coupled with increased severity of the events.
There was no net prior year casualty reserve development in Third Quarter 2024, compared to $3.0 million, or 0.4 points, of favorable development in Third Quarter 2023. Prior year casualty reserve development was unfavorable by $211.0 million, or 8.2 points, in Nine Months 2024 compared to $20.5 million, or 0.9 points, of favorable development in Nine Months 2023.
Despite increasing our expected loss trend in recent years, loss severities continued to show higher-than-expected emergence in Nine Months 2024 in the general liability line of business. In response to these unfavorable trends, we recorded unfavorable prior year casualty reserve development in our general liability line of business of $216.0 million in Nine Months 2024, primarily driven by increased severities in accident years 2020 through 2023. In addition, we recorded $20.0 million of unfavorable prior year casualty reserve development in our commercial automobile line of business in Nine Months 2024, primarily driven by increased severities in accident year 2023. The unfavorable development in Nine Months 2024 was partially offset by (i) $20.0 million of favorable workers compensation development, primarily due to lower loss severities in accident years 2021 and prior, and (ii) $5.0 million of favorable bonds development.
In addition, the loss and loss expense ratio was adversely impacted by an increase in current year casualty loss costs of 2.2 points in Third Quarter 2024 and 2.1 points in Nine Months 2024 compared to the same prior-year periods, primarily due to increased loss trend expectations and higher prior-year severity assumptions attributable to impacts from social inflation in the general liability line of business.
Refer to the line of business sections below for a qualitative discussion on the significant drivers of unfavorable prior year casualty reserve development and current year loss costs.
The underwriting expense ratio decreased 0.3 points in Third Quarter 2024 and 0.9 points in Nine Months 2024 compared to the same prior-year periods, primarily due to a decrease in expected profit-based employee compensation and the growth in premium outpacing growth in underwriting expenses.
The following is a discussion of our most significant Standard Commercial Lines of business:
General Liability
Quarter ended September 30,
Change
% or
Points1
Nine Months ended September 30,
Change
% or
Points1
($ in thousands)
2024
2023
2024
2023
NPW
$
290,749
273,880
6
%
$
918,148
838,852
9
%
Direct new business
38,905
42,015
n/a
139,427
135,155
n/a
Retention
87
%
86
n/a
86
%
85
n/a
Renewal pure price increases
10.2
5.5
n/a
8.0
5.4
n/a
NPE
$
286,641
261,551
10
%
$
840,153
759,410
11
%
Underwriting income (loss)
13,329
34,326
(61)
(182,221)
94,078
(294)
Combined ratio
95.3
%
86.9
8.4
pts
121.7
%
87.6
34.1
pts
% of total Standard Commercial Lines NPW
32
33
33
33
1n/a: not applicable.
NPW grew 6% in Third Quarter 2024 and 9% in Nine Months 2024 compared to the same prior-year periods, benefiting from renewal pure price increases, exposure growth on renewal policies, and strong retention.
The combined ratio increased 8.4 points in Third Quarter 2024 and 34.1 points in Nine Months 2024 compared to the same prior-year periods and included the following:
Nine Months 2024
Nine Months 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Combined Ratio
Loss and Loss Expense Incurred
Impact on Combined Ratio
Change in Ratio
(Favorable) unfavorable prior year casualty reserve development
$
216.0
25.7
pts
$
—
—
25.7
pts
The general liability line of business has experienced a long-term historical trend of meaningful severity increases that have been partially offset by claim frequency decreases. Prior-year severities have developed adversely, previously impacting the pre-pandemic period, but in 2024 they have extended into the more recent accident years. We attribute the increased severities to elevated social inflation, which we view as an industry dynamic characterized by higher claimant propensity for attorney representation and litigation, longer settlement times, and higher settlement values. Certain jurisdictions with expanded liability theories and higher damage awards pose increased challenges. We are closely monitoring these jurisdictions and the broader trends across our business.
The unfavorable prior year casualty reserve development in Nine Months 2024 was primarily due to the impact of social inflation, which resulted in higher severity assumptions embedded in our initial loss ratio estimates for recent years. Although we planned for higher expected loss trends, claim emergence in Nine Months 2024 exceeded our expectations. In response to these unfavorable trends, we recorded unfavorable prior year development of $216.0 million in Nine Months 2024, primarily in accident years 2020 through 2023. There was no prior year casualty reserve development in Third Quarter 2024 and Third Quarter 2023.
Additionally, the combined ratio was adversely impacted by an increase in current year casualty loss costs of 8.7 points in Third Quarter 2024 and 8.9 points in Nine Months 2024 compared to the same prior-year periods, primarily driven by our increased loss trend expectations and higher prior-year severity assumptions for increases in the impact of social inflation.
We believe that social inflation and elevated loss trends are an industry dynamic, which we expect to lead to a more favorable rate environment in the near term. Given the consistency in our underwriting appetite and risk profile over time, we have focused our actions primarily on prudent underwriting and achieving additional rate. Our renewal pure price increase in this line of business accelerated to 10.2% in Third Quarter 2024, up from 7.6% last quarter, and 6.5% for the first quarter of 2024.
NPW grew 11% in Third Quarter 2024 and 15% in Nine Months 2024 compared to the same prior-year periods, primarily benefiting from renewal pure price increases and strong retention. This strong retention and higher direct new business in Nine Months 2024 contributed to a 7% growth of in-force vehicle counts as of September 30, 2024, compared to September 30, 2023.
The combined ratio decreased 3.1 points in Third Quarter 2024 and 3.3 points in Nine Months 2024 compared to the same prior-year periods, and included the following:
Third Quarter 2024
Third Quarter 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Combined Ratio
Loss and Loss Expense Incurred
Impact on Combined Ratio
Change in Ratio
Net catastrophe losses
$
2.3
0.9
pts
$
2.1
0.9
—
pts
Non-catastrophe property loss and loss expenses
43.2
16.0
43.8
18.7
(2.7)
(Favorable) unfavorable prior year casualty reserve development
10.0
3.7
4.0
1.7
2.0
Total
$
55.5
20.6
$
49.9
21.3
(0.7)
Nine Months 2024
Nine Months 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Combined Ratio
Loss and Loss Expense Incurred
Impact on Combined Ratio
Change in Ratio
Net catastrophe losses
$
6.4
0.8
pts
$
4.2
0.6
0.2
pts
Non-catastrophe property loss and loss expenses
126.6
16.2
133.0
19.6
(3.4)
(Favorable) unfavorable prior year casualty reserve development
20.0
2.6
4.0
0.6
2.0
Total
$
153.0
19.6
$
141.2
20.8
(1.2)
Non-catastrophe property loss and loss expenses in Third Quarter 2024 and Nine Months 2024 were lower compared to the same prior-year periods, primarily due to lower claim frequencies.
In addition, the combined ratio was reduced by the following:
•Despite increasing current year casualty loss costs by $5.0 million in Third Quarter 2024 and Nine Months 2024, current year casualty loss costs decreased 1.7 points in Third Quarter 2024 and 1.4 points in Nine Months 2024 compared to the same prior-year periods, primarily driven by the earned impact of higher renewal pure price increases in both periods as highlighted above; and
•Decreases in the underwriting expense ratio of 0.8 points in Third Quarter 2024 and 0.7 points in Nine Months 2024 compared to the same prior-year periods, as discussed in the "Standard Commercial Lines Segment" section above.
Offsetting the favorable combined ratio drivers mentioned above, was unfavorable prior year casualty reserve development in Third Quarter 2024 and Nine Months 2024, primarily due to increased severities in accident year 2023. The unfavorable prior year casualty reserve development in Third Quarter 2023 and Nine Months 2023 was primarily due to increased loss expenses in accident years 2022 and prior.
NPW grew 12% in Third Quarter 2024 and 14% in Nine Months 2024 compared to the same prior-year periods, primarily benefiting from renewal pure price increases, strong retention, and exposure growth on renewal policies.
The combined ratio increased 16.7 points in Third Quarter 2024 and 1.2 points in Nine Months 2024 compared to the same prior-year periods and included the following:
Third Quarter 2024
Third Quarter 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Combined Ratio
Loss and Loss Expense Incurred
Impact on Combined Ratio
Change in Ratio
Net catastrophe losses
$
93.7
53.6
pts
30.3
19.8
33.8
pts
Non-catastrophe property loss and loss expenses
46.2
26.4
66.2
43.4
(17.0)
Total
$
139.9
80.0
96.5
63.2
16.8
Nine Months 2024
Nine Months 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Combined Ratio
Loss and Loss Expense Incurred
Impact on Combined Ratio
Change in Ratio
Net catastrophe losses
$
168.1
33.3
pts
114.1
26.6
6.7
pts
Non-catastrophe property loss and loss expenses
180.5
35.7
170.3
39.7
(4.0)
Total
$
348.6
69.0
284.4
66.3
2.7
Net catastrophe losses in Third Quarter 2024 and Nine Months 2024 were elevated compared to the same prior-year periods, as discussed in the "Standard Commercial Lines Segment" section above.
Partially offsetting the increase in net catastrophe losses was the following:
•Lower non-catastrophe property loss and loss expense ratios in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods. This reduction reflects (i) the earned impact of higher renewal pure price increases in both current-year periods, and (ii) the continued variability from period to period normally associated with the commercial property line of business. We continue to manage our long-term profitability through (i) price increases, and (ii) targeted underwriting actions, including an ongoing focus on appropriate policy terms and conditions and achieving accurate insurance-to-value ratios; and
•A decrease in the underwriting expense ratio of 1.7 points in Nine Months 2024 compared to Nine Months 2023, as discussed in the "Standard Commercial Lines Segment" section above.
NPW decreased 6% in Third Quarter 2024 and 4% in Nine Months 2024 compared to the same prior-year periods, primarily due to renewal pure price decreases and a reduction in direct new business.
The combined ratio increased 6.9 points in Third Quarter 2024 and 4.1 points in Nine Months 2024 compared to the same prior-year periods and included the following:
Third Quarter 2024
Third Quarter 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Combined Ratio
Loss and Loss Expense Incurred
Impact on Combined Ratio
Change in Ratio
(Favorable) unfavorable prior year casualty reserve development
$
(5.0)
(6.2)
pts
$
(7.0)
(8.6)
2.4
pts
Nine Months 2024
Nine Months 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Combined Ratio
Loss and Loss Expense Incurred
Impact on Combined Ratio
Change in Ratio
(Favorable) unfavorable prior year casualty reserve development
$
(20.0)
(8.0)
pts
$
(24.5)
(9.6)
1.6
pts
The favorable prior year casualty reserve development in Third Quarter 2024 and Nine Months 2024 was primarily due to lower loss severities in accident years 2021 and prior. The favorable prior year casualty reserve development in Third Quarter 2023 and Nine Months 2023 was primarily due to improved loss severities in accident years 2020 and prior.
In addition, the combined ratio was adversely impacted by an increase in current year casualty loss costs of 4.0 points in Third Quarter 2024 and 3.4 points in Nine Months 2024, primarily driven by loss trend outpacing rate achieved on this line.
Standard Personal Lines Segment
Quarter ended September 30,
Change % or Points
Nine Months ended September 30,
Change % or Points
($ in thousands)
2024
2023
2024
2023
Insurance Segments Results:
NPW
$
111,038
113,160
(2)
%
$
327,091
307,541
6
%
NPE
107,521
95,169
13
317,788
264,209
20
Less:
Loss and loss expense incurred
106,113
99,496
7
291,897
260,646
12
Net underwriting expenses incurred
25,182
21,772
16
74,301
65,795
13
Underwriting income (loss)
$
(23,774)
(26,099)
9
$
(48,410)
(62,232)
22
Combined Ratios:
Loss and loss expense ratio
98.7
%
104.5
(5.8)
pts
91.8
%
98.7
(6.9)
pts
Underwriting expense ratio
23.4
22.9
0.5
23.4
24.9
(1.5)
Combined ratio
122.1
127.4
(5.3)
115.2
123.6
(8.4)
NPW decreased 2% in Third Quarter 2024 and increased 6% in Nine Months 2024 compared to the same prior-year periods. The decrease in Third Quarter 2024 compared to Third Quarter 2023 was primarily due to reductions in direct new business and retention, partially offset by renewal pure price increases and higher average policy sizes from our mass affluent market strategy. The increase in Nine Months 2024 compared to Nine Months 2023 was primarily due to renewal pure price increases, exposure growth on renewal policies, and higher average policy sizes from our mass affluent market strategy, partially offset by reductions in direct new business and retention. The reduction in direct new business premiums in both periods was primarily
due to a decrease in new policy counts, which were down 62% in Third Quarter 2024 and 49% in Nine Months 2024 compared to the same prior-year periods. We anticipated these reductions given the rate increases we are implementing as part of our overall profit improvement plan.
Quarter ended September 30,
Nine Months ended September 30,
($ in millions)
2024
2023
2024
2023
Direct new business premiums1
$
16.0
31.6
$
59.3
90.5
Retention
75
%
88
78
%
87
Renewal pure price increases
22.8
6.1
18.5
3.9
1Excludes our Flood direct premiums written, which is 100% ceded to the NFIP and therefore, has no impact on our NPW.
We are taking aggressive actions to improve the profitability of this business by continuing to prioritize additional rate filings state-by-state to mitigate inflationary impacts, and further refining our pricing factors. These filed rate increases began to take effect early in 2023 and increased in number and magnitude throughout 2023 and 2024, and we expect them to continue into 2025. We achieved a renewal pure price increase of 22.8% in Third Quarter 2024 and 18.5% in Nine Months 2024, a direct outcome of these actions. In addition, we are seeking to further improve profitability within our homeowners line of business by introducing new policy terms and conditions, including (i) coverage for older roofs based on a schedule of factors rather than replacement cost, and (ii) implementing mandatory wind/hail deductibles in states exposed to severe convective storms, where law permits.
The change in NPE in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods resulted from the same impacts to NPW described above.
The loss and loss expense ratio decreased 5.8 points in Third Quarter 2024 and 6.9 points in Nine Months 2024 compared to the same prior-year periods, driven by the following:
Third Quarter 2024
Third Quarter 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses
$
41.7
38.8
pts
$
24.4
25.6
13.2
pts
Non-catastrophe property loss and loss expenses
38.0
35.3
42.5
44.7
(9.4)
(Favorable) unfavorable prior year casualty reserve development
—
—
3.0
3.2
(3.2)
Total
$
79.7
74.1
$
69.9
73.5
0.6
Nine Months 2024
Nine Months 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses
$
78.9
24.8
pts
$
60.2
22.8
2.0
pts
Non-catastrophe property loss and loss expenses
125.2
39.4
114.1
43.2
(3.8)
(Favorable) unfavorable prior year casualty reserve development
—
—
9.0
3.4
(3.4)
Total
$
204.1
64.2
$
183.3
69.4
(5.2)
Net catastrophe losses increased in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods, primarily attributable to Hurricane Helene, which mainly affected South Carolina in our Southeastern state footprint and resulted in estimated net catastrophe losses of $20.1 million, or 18.7 points in Third Quarter 2024 and 6.3 points in Nine Months 2024.
In Nine Months 2024, we experienced (i) favorable prior year casualty reserve development on our homeowners line of business of $5.0 million, primarily due to lower loss severities in accident years 2021 and prior, offset by (ii) $5.0 million of unfavorable prior year casualty reserve development on our personal automobile line of business, primarily driven by increased loss severities in accident years 2021 through 2023. The unfavorable prior year casualty reserve development in Third Quarter 2023 and Nine Months 2023 was primarily due to increased loss severities in accident year 2022 on our personal automobile line of business.
The loss and loss expense ratio was also impacted by a 6.5-point decrease in current year casualty loss costs in Third Quarter 2024 and a 1.7-point decrease in Nine Months 2024 compared to the same prior year periods, primarily due to (i) significant rate increases and (ii) an increase in flood claims handling fees related to Hurricane Helenefrom our participation in the NFIP.
The underwriting expense ratio increased 0.5 points in Third Quarter 2024 compared to Third Quarter 2023, primarily due to a 1.7-point increase in the ratio related to a reduction in the commission benefit from our participation in the NFIP. Partially offsetting this increase was a decrease in expected profit-based employee compensation and the impact of premium growth on the underwriting expense ratio. The underwriting expense ratio decreased 1.5 points in Nine Months 2024 compared Nine Months 2023, primarily due to a decrease in expected profit-based employee compensation and growth in premium outpacing growth in underwriting expenses.
E&S Lines Segment
Quarter ended September 30,
Change % or Points
Nine Months ended September 30,
Change % or Points
($ in thousands)
2024
2023
2024
2023
Insurance Segments Results:
NPW
$
142,681
111,589
28
%
$
414,544
318,422
30
%
NPE
129,328
101,420
28
362,633
282,542
28
Less:
Loss and loss expense incurred
67,981
52,630
29
208,250
162,215
28
Net underwriting expenses incurred
39,641
32,439
22
112,191
91,253
23
Underwriting income (loss)
21,706
16,351
33
42,192
29,074
45
Combined Ratios:
Loss and loss expense ratio
52.5
%
51.9
0.6
pts
57.5
%
57.4
0.1
pts
Underwriting expense ratio
30.7
32.0
(1.3)
30.9
32.3
(1.4)
Combined ratio
83.2
83.9
(0.7)
88.4
89.7
(1.3)
NPW grew 28% in Third Quarter 2024 and 30% in Nine Months 2024 compared to the same prior-year periods, reflecting renewal pure price increases and higher direct new business as shown in the table below. In addition, NPW growth in Third Quarter 2024 and Nine Months 2024 benefited from both property and casualty exposure growth on renewal policies and higher rates per exposure.
Quarter ended September 30,
Nine Months ended September 30,
($ in millions)
2024
2023
2024
2023
Direct new business premiums
$
79.0
55.2
$
223.5
148.1
Renewal pure price increases
8.0
%
6.6
6.8
%
7.1
The increase in NPE in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods resulted from the same impacts to NPW described above.
The loss and loss expense ratio increased 0.6 points in Third Quarter 2024 and 0.1 points in Nine Months 2024 compared to the same prior-year periods, and included the following:
Third Quarter 2024
Third Quarter 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses
$
6.7
5.2
pts
$
3.5
3.5
1.7
pts
Non-catastrophe property loss and loss expenses
12.9
10.0
7.5
7.4
2.6
Total
$
19.6
15.2
$
11.0
10.9
4.3
Nine Months 2024
Nine Months 2023
($ in millions)
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Loss and Loss Expense Incurred
Impact on Loss and Loss Expense Ratio
Change in Ratio
Net catastrophe losses
$
25.9
7.1
pts
$
25.4
9.0
(1.9)
pts
Non-catastrophe property loss and loss expenses
42.8
11.8
24.6
8.7
3.1
(Favorable) unfavorable prior year casualty reserve development
—
—
(5.0)
(1.8)
1.8
Total
$
68.7
18.9
$
45.0
15.9
3.0
Net catastrophe losses in Third Quarter 2024 and Nine Months 2024 included $3.4 million, or 2.6 points in Third Quarter 2024 and 0.9 points in Nine Months 2024, of estimated net losses from Hurricane Helene, which primarily affected Georgia in our Southeastern state footprint.
In addition, we experienced higher non-catastrophe property loss and loss expenses in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods, primarily due to the impact of large fire losses, reflecting the continued period to period variability normally associated with our E&S property line of business.
There was no prior year casualty reserve development in Third Quarter 2024 and Nine Months 2024. The Nine Months 2023 development was primarily due to lower severities in accident years 2021 and prior.
The loss and loss expense ratio was favorably impacted by current year casualty loss cost decreases of 3.6 points in Third Quarter 2024 and 3.0 points in Nine Months 2024 compared to the same prior-year periods, primarily due to the mix of business between our property and casualty lines of business. Our E&S property line of business has a lower loss ratio compared to our E&S casualty line of business and represented a more significant portion of this segment in Third Quarter 2024 and Nine Months 2024 compared to the same prior-year periods.
The decrease in the underwriting expense ratio of 1.3 points in Third Quarter 2024 and 1.4 points in Nine Months 2024, compared to the same prior-year periods, was primarily due to premium growth outpacing underwriting expense growth in both periods.
Reinsurance
We successfully completed negotiations of our July 1, 2024 excess of loss treaties, which cover our Standard Commercial Lines, Standard Personal Lines, and E&S Lines.
We renewed the Casualty Excess of Loss Treaty ("Casualty Treaty") with substantially the same structure as the expiring treaty with a co-participation of 17.5% on the first $3 million in excess of $2 million layer, but with the benefit of additional reinstatements on several of the layers. The treaty year 2024 deposit premium increased, reflecting (i) higher projected subject earned premium due to growth in our book of business, including pure renewal rate increases; and (ii) higher anticipated losses in the excess layers, partially offset by (iii) the introduction of the first layer co-participation.
We renewed the Property Excess of Loss Treaty ("Property Treaty") with substantially the same structure as the expiring treaty and an additional reinstatement on the second layer of the program. The treaty year deposit premium increased, reflecting higher projected subject earned premium due to growth in our book of business.
The following table summarizes the Property Treaty and Casualty Treaty arrangements covering our Insurance Subsidiaries:
Treaty Name
Reinsurance Coverage
Terrorism Coverage
Property Treaty (covers all insurance operations)
There are three layers covering 100% of $65 million in excess of $5 million. Losses other than Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA") certified losses are subject to the following reinstatements and annual aggregate limits:
- $5 million in excess of $5 million layer provides 15
reinstatements, $80 million in aggregate limits;
- $20 million in excess of $10 million layer provides four
reinstatements, $100 million in aggregate limits; and
- $40 million in excess of $30 million layer provides two
reinstatements, $120 million in aggregate limits.
All nuclear, biological, chemical, and radioactive ("NBCR") losses are excluded regardless of whether or not they are certified under the TRIPRA. For non-NBCR losses, the treaty distinguishes between acts committed on behalf of foreign persons or foreign interests ("Foreign Terrorism") and those that are not. The treaty provides annual aggregate limits for Foreign Terrorism (other than NBCR) acts of $15 million for the first layer, $60 million for the second layer, and $40 million for the third layer. Non-Foreign Terrorism losses (other than NBCR) are covered to the same extent as non-terrorism losses.
Casualty Treaty (covers all insurance operations)
There are six layers covering $88 million in excess of $2 million. Losses other than terrorism losses are subject to the following:
- 82.5% of $3 million in excess of $2 million layer provides 71
reinstatements, $216 million annual aggregate limit;
- 100% of $7 million in excess of $5 million layer provides 12 reinstatements, $91 million annual aggregate limit;
- 100% of $9 million in excess of $12 million layer provides three reinstatements, $36 million annual aggregate limit;
- 100% of $9 million in excess of $21 million layer provides one reinstatement, $18 million annual aggregate limit;
- 100% of $20 million in excess of $30 million layer provides one reinstatement, $40 million annual aggregate limit; and
- 100% of $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:
- 82.5% of $3 million in excess of $2 million layer with $15 million net annual terrorism aggregate limit;
- 100% of $7 million in excess of $5 million layer with $28 million net annual terrorism aggregate limit;
- 100% of $9 million in excess of $12 million layer with $27 million net annual terrorism aggregate limit;
- 100% of $9 million in excess of $21 million layer with $18 million net annual terrorism aggregate limit;
- 100% of $20 million in excess of $30 million layer with $40 million net annual terrorism aggregate limit; and
- 100% of $40 million in excess of $50 million layer with $80 million net annual terrorism aggregate limit.
Investments
Our investment portfolio's objectives are to maximize after-tax net investment income and generate long-term book value per share growth by maximizing the portfolio's overall total return by investing our insurance operations premiums and the amounts our capital management strategies generate, including debt and equity security issuances. We balance those objectives against prevailing market conditions, capital preservation considerations, and our enterprise risk-taking appetite. We maintain (i) a well-diversified portfolio across issuers, sectors, and asset classes, and (ii) a high credit quality fixed income securities portfolio with a duration and maturity profile at an acceptable risk level that provides ample liquidity.
The effective duration of our fixed income and short-term investments was 3.9 years as of September 30, 2024. We monitor and manage the effective duration to maximize yield while managing interest rate risk at an acceptable level. We buy and sell investments with the intent of maximizing investment returns in the current market environment, while balancing capital preservation.
Our fixed income and short-term investments represented 92% of our invested assets and had a weighted average credit rating of "AA-" as of both September 30, 2024 and December 31, 2023. Investment grade holdings represented 97% of the total fixed income and short-term investments portfolio as of September 30, 2024, and 96% as of December 31, 2023.
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 2023 Annual Report.
Invested assets per dollar of common stockholders' equity
3.25
3.16
3
Components of unrealized gains (losses) – before tax:
Fixed income securities
(152,197)
(353,253)
(57)
%
Equity securities
7,086
4,079
74
Net unrealized gains (losses) – before tax
(145,111)
-145111000
(349,174)
(58)
Components of unrealized gains (losses) – after tax:
Fixed income securities
(120,236)
(279,070)
(57)
Equity securities
5,598
3,223
74
Net unrealized gains (losses) – after tax
(114,638)
(275,847)
(58)
Invested assets increased $941.6 million at September 30, 2024, compared to December 31, 2023, primarily reflecting our active investment of operating cash flows. Operating cash flows during Nine Months 2024 were 22% of NPW.
Net Investment Income
The components of net investment income earned were as follows:
Quarter ended September 30,
Change % or Points
Nine Months ended September 30,
Change % or Points
($ in thousands)
2024
2023
2024
2023
Fixed income securities
$
98,464
90,013
9
%
$
286,501
254,016
13
%
Commercial mortgage loans ("CMLs")
3,238
2,516
29
9,177
6,680
37
Equity securities
5,362
2,083
157
12,147
5,524
120
Short-term investments
6,457
3,941
64
14,656
11,483
28
Alternative investments
9,031
6,473
40
26,429
25,637
3
Other investments
251
284
(12)
632
515
23
Investment expenses
(5,044)
(4,447)
13
(15,292)
(13,790)
11
Net investment income earned – before tax
117,759
100,863
17
334,250
290,065
15
Net investment income tax expense
(24,380)
(20,636)
18
(68,969)
(58,974)
17
Net investment income earned – after tax
$
93,379
80,227
16
$
265,281
231,091
15
Effective tax rate
20.7
%
20.5
0.2
pts
20.6
%
20.3
0.3
pts
Annualized after-tax yield on fixed income investments
4.0
4.1
(0.1)
3.9
4.0
(0.1)
Annualized after-tax yield on investment portfolio
4.0
3.9
0.1
3.9
3.8
0.1
After-tax net investment income earned increased 16% in Third Quarter 2024 and 15% in Nine Months 2024 compared to the same prior-year periods, primarily driven by higher interest rates, active portfolio management, and operating cash flow deployment.
Realized and Unrealized Gains and Losses
When evaluating securities for sale, our general philosophy is to reduce our exposure to securities and sectors based on economic evaluations of whether (i) the fundamentals for that security or sector have deteriorated or (ii) the timing is appropriate to trade opportunistically 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)
2024
2023
2024
2023
Net realized gains (losses) on disposals
$
2,147
(4,897)
(144)
%
$
5,453
(24,839)
(122)
%
Net unrealized gains (losses) on equity securities
2,407
489
392
3,006
8,662
(65)
Net credit loss benefit (expense) on fixed income securities, AFS
2,191
(2,468)
(189)
(1,692)
7,925
(121)
Net credit loss benefit (expense) on CMLs
(2)
(4)
(50)
134
(65)
(306)
Losses on securities for which we have the intent to sell
(752)
—
—
(1,248)
(645)
93
Other realized gains (losses)
(602)
—
—
(602)
—
—
Total net realized and unrealized investment gains (losses)
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)
2024
2023
2024
2023
Tax at statutory rate
$
24,463
23,629
$
29,181
63,301
Tax-advantaged interest
(306)
(508)
(1,062)
(1,766)
Dividends received deduction
(44)
(38)
(161)
(174)
Executive compensation
203
617
2,160
1,886
Stock-based compensation
(4)
(51)
(1,458)
(1,775)
Other
(103)
(340)
(1,182)
(429)
Federal income tax expense (benefit)
$
24,209
23,309
$
27,478
61,043
Income before federal income tax, less preferred stock dividends
$
114,187
110,217
$
132,055
294,533
Effective tax rate
21.2
%
21.1
20.8
%
20.7
Liquidity and Capital Resources
Capital resources and liquidity reflect our ability to generate cash flows from business operations, borrow funds at competitive rates, and raise new capital to meet our operating and growth needs.
Liquidity
We manage liquidity by generating sufficient cash flows to meet our business operations' short-term and long-term cash requirements. As discussed further below, we adjust our liquidity requirements based on economic conditions, market conditions, and future cash flow commitments.
Sources of Liquidity
The Parent's sources of cash historically have consisted of dividends from the Insurance Subsidiaries, the Parent's investment portfolio, borrowings under third-party lines of credit, intercompany revolving demand 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 cash and components of its investment portfolio were as follows:
($ in thousands)
September 30, 2024
December 31, 2023
Fixed income securities
$
283,437
421,089
Equity securities
55,795
50,920
Short-term investments
76,286
17,671
Alternative investments
18,260
18,134
Cash
98
180
Total investments and cash
$
433,876
507,994
Short-term investments have historically been maintained in "AAA" rated money market funds and fixed income securities are comprised of high-quality, liquid government and corporate securities.
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 liquid investments of at least twice its expected annual net cash outflow needs.
Insurance Subsidiary Dividends
The Insurance Subsidiaries generate liquidity through insurance float, 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 $44 million in total dividends to the Parent in Nine Months 2024. As of December 31, 2023,
our allowable ordinary maximum dividend is $316 million for 2024. 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 have historically approved dividends, there is no assurance they will approve future Insurance Subsidiary dividends.
New Jersey corporate law also limits the maximum amount of dividends the Parent can pay our stockholders if either (i) the Parent would be unable to pay its debts as they become due in the usual course of business or (ii) the Parent’s total assets would be less than its total liabilities. The Parent’s ability to pay dividends to stockholders is also impacted by (i) covenants in its credit agreement that obligate it, among other things, to maintain a minimum consolidated net worth and a maximum ratio of consolidated debt to total capitalization and (ii) the terms of our preferred stock that prohibit dividends from being declared or paid on our common stock if dividends are not declared and paid, or made payable, on all outstanding preferred stock for the latest completed dividend period.
For additional information regarding dividend restrictions and financial covenants, where applicable, see Note 11. "Indebtedness," Note 17. "Equity," and Note 22. "Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds" in Item 8. "Financial Statements and Supplementary Data." of our 2023 Annual Report.
Line of Credit
On November 7, 2022, the Parent entered into a Credit Agreement with the lenders named therein (the "Lenders") and Wells Fargo Bank, National Association, as Administrative Agent ("Line of Credit"). Under the Line of Credit, the Lenders have agreed to provide the Parent with a $50 million revolving credit facility that can be increased to $125 million with the Lenders' consent. No borrowings were made under the Line of Credit in Nine Months 2024. The Line of Credit will mature on November 7, 2025, and has a variable interest rate based on the Parent’s debt ratings. We expect to continue to maintain a credit facility for liquidity purposes. For additional information regarding the Line of Credit and corresponding representations, warranties, and covenants, refer to Note 11. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of our 2023 Annual Report. We met all covenants under our Line of Credit as of September 30, 2024.
Four Insurance Subsidiaries are members of Federal Home Loan Bank ("FHLB") branches, as shown in the following table. Membership requires the ownership of branch stock and includes the right to access liquidity. All Federal Home Loan Bank of Indianapolis ("FHLBI") and Federal Home Loan Bank of New York ("FHLBNY") borrowings are required to be secured by investments pledged as collateral. For additional information regarding collateral outstanding, refer to Note 4. "Investments" in Item 1. "Financial Statements." of this Form 10-Q.
Branch
Insurance Subsidiary Member
FHLBI
Selective Insurance Company of South Carolina1
Selective Insurance Company of the Southeast1
FHLBNY
Selective Insurance Company of America
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. SICNY is domiciled in New York, which limits its FHLBNY borrowings to the lesser of 5% of admitted assets for the most recently completed fiscal quarter or 10% of the previous year-end's admitted assets. As of September 30, 2024, we had remaining capacity of $530.9 million for FHLB borrowings, with a $21.4 million additional stock purchase requirement to allow the member companies to borrow their remaining capacity amounts.
Short-term Borrowings
We made no short-term borrowings from FHLB branches during Nine Months 2024.
Intercompany Loan Agreements
The Parent has lending agreements with the Indiana Subsidiaries, approved by the Indiana Department of Insurance, that provide the Parent with additional intercompany liquidity. Like 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 $35.0 million as of September 30, 2024, and $67.0 million as of December 31, 2023. The remaining capacity under these intercompany loan agreements was $146.5 million as of September 30, 2024, and $114.5 million as of December 31, 2023. Additionally, we have other insurance regulator-approved intercompany agreements that facilitate liquidity management between the Parent and the Insurance Subsidiaries to enhance flexibility.
The Parent had no private or public stock issuances during Nine Months 2024. During Nine Months 2024, we repurchased 103,000 shares of our common stock under our existing share repurchase program for $8.7 million, an $84.34 average price per share, excluding commissions paid. We had $75.5 million of remaining capacity under our share repurchase program as of September 30, 2024. For additional information on the share repurchase program, refer to Note 17. "Equity" in Item 8. "Financial Statements and Supplementary Data." of our 2023 Annual Report.
Uses of Liquidity
The Parent uses the liquidity generated from the sources discussed above to pay dividends to our stockholders, among other things. 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. Our Board declared:
•A 9% increase in the quarterly cash dividend on common stock, to $0.38 per common share, that is payable December 2, 2024, to holders of record on November 15, 2024; and
•A quarterly cash dividend of $287.50 per share on our 4.60% Non-Cumulative Preferred Stock, Series B (equivalent to $0.28750 per depositary share) payable on December 16, 2024, to holders of record as of December 2, 2024.
Our ability to meet our interest and principal repayment obligations on our debt and our ability to continue to pay dividends to our stockholders is dependent on (i) liquidity at the Parent, (ii) the ability of the Insurance Subsidiaries to pay dividends, if necessary, and/or (iii) the availability of other sources of liquidity to the Parent. Our next borrowing principal repayment is $60 million to FHLBI due on December 16, 2026.
Restrictions on the ability of the Insurance Subsidiaries to declare and pay dividends without alternative liquidity options could materially affect our ability to service debt and pay dividends on common and preferred stock.
Capital Resources
Capital resources ensure we can pay policyholder claims, furnish the financial strength to support the business of underwriting insurance risks, and facilitate continued business growth. At September 30, 2024, we had GAAP stockholders' equity of $3.2 billion and statutory surplus of $2.8 billion. With total debt of $508.2 million at September 30, 2024, our debt-to-capital ratio was 13.8%. For additional information on our statutory surplus, see Note 22. "Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds" in Item 8. "Financial Statements and Supplementary Data." of our 2023 Annual Report.
The following table summarizes certain contractual obligations we had at September 30, 2024, that may require us to invest additional amounts into our investment portfolio, which we would fund primarily with operating cash flows.
($ in millions)
Amount of Obligation
Alternative and other investments
$
329.6
Non-publicly traded collateralized loan obligations in our fixed income securities portfolio
96.9
Non-publicly traded common stock within our equity portfolio
24.5
CMLs
2.5
Privately-placed corporate securities
45.9
Total
$
499.4
There is no certainty (i) these additional investments will be required or (ii) about the timing of 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, 2023. The Insurance Subsidiaries' net loss and loss expense reserves duration was 3.1 years at December 31, 2023.
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, 2024, and December 31, 2023, 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 2023 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 Insurance 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 adjusting common stockholders’ dividends.
Our capital management strategy is intended to protect the interests of the policyholders of the Insurance Subsidiaries and our stockholders and enhance our financial strength and underwriting capacity. We have a solid capital base and high-quality underwriting portfolio, positioning us well to take advantage of potential market opportunities.
Book value per common share increased 7% to $48.82 as of September 30, 2024, from $45.42 as of December 31, 2023, driven by a $2.61 decrease in net unrealized losses on our fixed income securities portfolio and $1.71 in net income (loss) available to common stockholders per diluted common share, partially offset by $1.05 in dividends to our common stockholders. The decrease in net unrealized losses on our fixed income securities was primarily driven by a decline in benchmark U.S. Treasury rates. Our adjusted book value per share, which is book value per share excluding total after-tax unrealized gains or losses on investments included in accumulated other comprehensive income (loss), increased to $50.80 as of September 30, 2024, from $50.03 as of December 31, 2023.
Cash Flows
Net cash provided by operating activities increased to $767.7 million in Nine Months 2024, compared to $522.3 million in Nine Months 2023, primarily driven by higher levels of cash received for premiums. For more information on our underwriting results, refer to "Insurance Operations" above in this MD&A.
Net cash used in investing activities increased to $687.3 million in Nine Months 2024, compared to $470.0 million in Nine Months 2023, as a result of investing more cash from operating activities. Operating cash flows were 22% of NPW in Nine Months 2024 compared to 17% of NPW in Nine Months 2023.
Net cash used in financing activities increased to $81.0 million in Nine Months 2024, compared to $64.1 million in Nine Months 2023, primarily due to greater activity in our share repurchase program in Nine Months 2024.
On May 14, 2024, Fitch reaffirmed our "A+" rating with a "stable" outlook. In taking this rating action, Fitch cited our (i) business profile as having favorable competitive positioning within our core standard lines businesses with strong independent agency relationships, (ii) continued profitable underwriting, (iii) strong capitalization, and (iv) very strong debt service.
On June 26, 2024, Moody's reaffirmed our "A2" rating and changed our rating outlook to "stable" from "positive." In taking this rating action, Moody's cited our (i) strong regional franchise focused on low-to-medium hazard and small-to-midsize commercial accounts, (ii) strong independent agency relationships, (iii) long record of underwriting profitability, and (iv) conservative investment portfolio. In addition, Moody's cited our narrower market presence relative to national peers, contributing to the rating outlook change.
On September 27, 2024, S&P reaffirmed our "A" rating with a "stable" outlook. In taking this rating action, S&P cited our (i)
strong historical operating performance driven by positive renewal rates, enhanced underwriting tools, and detailed risk segmentation, and (ii) focus on profitability through steady rate increases and targeted risk selection, aiding in retention of lower-risk, more-profitable accounts.
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 2023 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 2024 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, 2024, we have no material pending legal proceedings that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
ITEM 1A. RISK FACTORS.
Certain risk factors can significantly impact our business, liquidity, capital resources, results of operations, financial condition, and debt ratings. These risk factors might affect, alter, or change our actions in executing our long-term capital strategy. Examples include, without limitation, contributing capital to any or all of the Insurance Subsidiaries, issuing additional debt and/or equity securities, repurchasing our existing debt and/or equity securities, or increasing or decreasing common stockholders' dividends. We operate in a continually changing business environment, and new risk factors that we cannot predict or assess may emerge at any time. Consequently, we can neither predict such new risk factors nor assess the potential future impact on our business. There have been no material changes from the risk factors disclosed in Item 1A. "Risk Factors." in our 2023 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table provides information regarding our purchases of our common stock in Third Quarter 2024:
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, 2024
103,379
$
84.37
103,000
$
75.5
August 1 – 31, 2024
995
87.15
—
75.5
September 1 – 30, 2024
—
—
—
75.5
Total
104,374
$
84.40
103,000
$
75.5
1Total number of shares purchased includes 1,374 shares purchased 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 ("Board") authorized a $100 million share repurchase program with no set expiration or termination date. Our repurchase program does not obligate us to acquire any particular amount of our common stock. Management will determine the timing and amount of any share repurchases under the authorization at its discretion based on market conditions and other considerations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
During the three months ended September 30, 2024, no director or officer of the Company adopted, modified, or terminated any contract, instruction, or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) (a "Rule 10b5-1 trading arrangement") or any "non-Rule 10b5-1 trading arrangement" (as defined in Item 408(c) of Regulation S-K).
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, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (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, 2024, formatted in iXBRL.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SELECTIVE INSURANCE GROUP, INC.
Registrant
Date:
October 25, 2024
By: /s/ John J. Marchioni
John J. Marchioni
Chairman of the Board, President and Chief Executive Officer
(principal executive officer)
Date:
October 25, 2024
By: /s/ Anthony D. Harnett
Anthony D. Harnett
Senior Vice President and Chief Accounting Officer