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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2019
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________________________to_____________________________
Commission File Number: 001-33067
SELECTIVE INSURANCE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, par value $2 per share |  | SIGI |  | NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 18, 2019, there were 59,401,565 shares of common stock, par value $2.00 per share, outstanding.

Table of Contents

| SELECTIVE INSURANCE GROUP, INC. |
| Table of Contents |
|  | Page No.
PART I. FINANCIAL INFORMATION |
Item 1. | Financial Statements |
| Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018 | 1
| Unaudited Consolidated Statements of Income for the Quarter and Nine Months Ended September 30, 2019 and 2018 | 2
| Unaudited Consolidated Statements of Comprehensive Income for the Quarter and Nine Months Ended September 30, 2019 and 2018 | 3
| Unaudited Consolidated Statements of Stockholders' Equity for the Quarter and Nine Months Ended September 30, 2019 and 2018 | 4
| Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 | 5
| Notes to Unaudited Interim Consolidated Financial Statements | 6
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| Forward-Looking Statements | 23
| Introduction | 24
| Critical Accounting Policies and Estimates | 24
| Financial Highlights of Results for Third Quarter and Nine Months 2019 and Third Quarter and Nine Months 2018 | 25
| Results of Operations and Related Information by Segment | 30
| Federal Income Taxes | 38
| Financial Condition, Liquidity, and Capital Resources | 38
| Ratings | 41
| Off-Balance Sheet Arrangements | 41
| Contractual Obligations, Contingent Liabilities, and Commitments | 42
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 42
Item 4. | Controls and Procedures | 42
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings | 42
Item 1A. | Risk Factors | 43
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 43
Item 6. | Exhibits | 44
Signatures | 44

Table of Contents

PART I. FINANCIAL INFORMATION |

ITEM 1. FINANCIAL STATEMENTS. |

SELECTIVE INSURANCE GROUP, INC. CONSOLIDATED BALANCE SHEETS |  | Unaudited |  |
($ in thousands, except share amounts) |  | September 30, 2019 |  | December 31, 2018
ASSETS |  |  |  |  |  |
Investments: |  |  |  |  |  |
Fixed income securities, held-to-maturity – at carrying value (fair value: $28,356 – 2019; $38,317 – 2018) |  | $ | 26,925 |  |  | 37,110 |
Fixed income securities, available-for-sale – at fair value (amortized cost: $5,706,656 – 2019; $5,270,798 – 2018) |  | 5,930,237 |  |  | 5,273,100 |
Equity securities – at fair value (cost: $77,779 – 2019; $138,144 – 2018) |  | 79,213 |  |  | 147,639 |
Short-term investments (at cost which approximates fair value) |  | 326,121 |  |  | 323,864 |
Other investments |  | 189,243 |  |  | 178,938 |
Total investments (Note 4 and 6) |  | 6,551,739 |  |  | 5,960,651 |
Cash |  | 516 |  |  | 505 |
Restricted cash |  | 9,647 |  |  | 16,414 |
Interest and dividends due or accrued |  | 42,975 |  |  | 41,620 |
Premiums receivable, net of allowance for uncollectible accounts of: $7,800 – 2019; $9,400 – 2018 |  | 860,480 |  |  | 770,518 |
Reinsurance recoverable, net of allowance for uncollectible accounts of: $4,400 – 2019; $4,500 – 2018 |  | 575,984 |  |  | 549,172 |
Prepaid reinsurance premiums |  | 173,557 |  |  | 157,723 |
Deferred federal income tax |  | 5,509 |  |  | 53,540 |
Property and equipment – at cost, net of accumulated depreciation and amortization of: $223,518 – 2019; $211,657 – 2018 |  | 76,423 |  |  | 65,248 |
Deferred policy acquisition costs |  | 279,239 |  |  | 252,612 |
Goodwill |  | 7,849 |  |  | 7,849 |
Other assets |  | 135,488 |  |  | 76,877 |
Total assets |  | $ | 8,719,406 |  |  | 7,952,729 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |
Liabilities: |  |  |  |  |  |
Reserve for loss and loss expense (Note 8) |  | $ | 4,055,631 |  |  | 3,893,868 |
Unearned premiums |  | 1,570,226 |  |  | 1,431,932 |
Long-term debt |  | 550,669 |  |  | 439,540 |
Current federal income tax |  | 2,656 |  |  | 1,302 |
Accrued salaries and benefits |  | 100,445 |  |  | 116,706 |
Other liabilities |  | 302,403 |  |  | 277,579 |
Total liabilities |  | $ | 6,582,030 |  |  | 6,160,927 |
Stockholders’ Equity: |  |  |  |  |  |
Preferred stock of $0 par value per share: |  | $ | — |  |  | — |
Authorized shares 5,000,000; no shares issued or outstanding |  |  |  |
Common stock of $2 par value per share: |  |  |  |
Authorized shares 360,000,000 |  |  |  |
Issued: 103,421,301 – 2019; 102,848,394 – 2018 |  | 206,843 |  |  | 205,697 |
Additional paid-in capital |  | 412,347 |  |  | 390,315 |
Retained earnings |  | 2,012,499 |  |  | 1,858,414 |
Accumulated other comprehensive income (loss) (Note 11) |  | 98,426 |  |  | (77,956 | )
Treasury stock – at cost (shares: 44,021,732 – 2019; 43,899,840 – 2018) |  | (592,739 | ) |  | (584,668 | )
Total stockholders’ equity |  | $ | 2,137,376 |  |  | 1,791,802 |
Commitments and contingencies |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 8,719,406 |  |  | 7,952,729 |

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
1

Table of Contents

SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME |  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands, except per share amounts) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Revenues: |  |  |  |  |  |  |  |  |  |
Net premiums earned |  | $ | 653,620 |  |  | 614,277 |  |  | 1,928,812 |  |  | 1,810,941 |
Net investment income earned |  | 55,826 |  |  | 52,443 |  |  | 164,949 |  |  | 141,227 |
Net realized and unrealized (losses) gains: |  |  |  |  |  |  |  |  |  |
Net realized investment gains (losses) on disposals |  | 20,425 |  |  | (751 | ) |  | 26,752 |  |  | 4,034 |
Unrealized losses on equity securities |  | (20,317 | ) |  | (2,610 | ) |  | (8,091 | ) |  | (15,563 | )
Other-than-temporary impairments |  | (2,291 | ) |  | (1,426 | ) |  | (3,366 | ) |  | (5,459 | )
Total net realized and unrealized (losses) gains |  | (2,183 | ) |  | (4,787 | ) |  | 15,295 |  |  | (16,988 | )
Other income |  | 3,162 |  |  | 2,538 |  |  | 8,535 |  |  | 7,896 |
Total revenues |  | 710,425 |  |  | 664,471 |  |  | 2,117,591 |  |  | 1,943,076 |
Expenses: |  |  |  |  |  |  |  |  |  |
Loss and loss expense incurred |  | 398,675 |  |  | 379,199 |  |  | 1,166,238 |  |  | 1,130,468 |
Amortization of deferred policy acquisition costs |  | 136,572 |  |  | 124,511 |  |  | 399,647 |  |  | 368,265 |
Other insurance expenses |  | 90,234 |  |  | 80,108 |  |  | 261,975 |  |  | 244,342 |
Interest expense |  | 7,397 |  |  | 6,073 |  |  | 26,289 |  |  | 18,350 |
Corporate expenses |  | 6,369 |  |  | 7,450 |  |  | 28,345 |  |  | 22,065 |
Total expenses |  | 639,247 |  |  | 597,341 |  |  | 1,882,494 |  |  | 1,783,490 |
Income before federal income tax |  | 71,178 |  |  | 67,130 |  |  | 235,097 |  |  | 159,586 |
Federal income tax expense: |  |  |  |  |  |  |  |  |  |
Current |  | 13,805 |  |  | 10,314 |  |  | 44,344 |  |  | 23,529 |
Deferred |  | 1,223 |  |  | 1,381 |  |  | 989 |  |  | 2,878 |
Total federal income tax expense |  | 15,028 |  |  | 11,695 |  |  | 45,333 |  |  | 26,407 |
Net income |  | $ | 56,150 |  |  | 55,435 |  |  | 189,764 |  |  | 133,179 |
Earnings per share: |  |  |  |  |  |  |  |  |  |
Basic net income |  | $ | 0.94 |  |  | 0.94 |  |  | 3.20 |  |  | 2.26 |
Diluted net income |  | $ | 0.93 |  |  | 0.93 |  |  | 3.16 |  |  | 2.23 |

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
2

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SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Net income |  | $ | 56,150 |  |  | 55,435 |  |  | 189,764 |  |  | 133,179 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |  |  |  |
Unrealized gains (losses) on investment securities: |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) arising during period |  | 27,168 |  |  | (17,036 | ) |  | 174,483 |  |  | (103,389 | )
Amounts reclassified into net income: |  |  |  |  |  |  |  |
Held-to-maturity securities |  | (2 | ) |  | (6 | ) |  | (26 | ) |  | (22 | )
Realized losses on disposals and other-than-temporary impairments of available-for-sale securities |  | 2,229 |  |  | 8,563 |  |  | 351 |  |  | 14,424 |
Total unrealized gains (losses) on investment securities |  | 29,395 |  |  | (8,479 | ) |  | 174,808 |  |  | (88,987 | )
Defined benefit pension and post-retirement plans: |  |  |  |  |  |  |  |  |  |
Amounts reclassified into net income: |  |  |  |  |  |  |  |
Net actuarial loss |  | 525 |  |  | 420 |  |  | 1,574 |  |  | 1,260 |
Total defined benefit pension and post-retirement plans |  | 525 |  |  | 420 |  |  | 1,574 |  |  | 1,260 |
Other comprehensive income (loss) |  | 29,920 |  |  | (8,059 | ) |  | 176,382 |  |  | (87,727 | )
Comprehensive income |  | $ | 86,070 |  |  | 47,376 |  |  | 366,146 |  |  | 45,452 |

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
3

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SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY |  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands, except share and per share amounts) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Common stock: |  |  |  |  |  |  |  |  |  |
Beginning of period |  | $ | 206,665 |  |  | 205,460 |  |  | 205,697 |  |  | 204,569 |
Dividend reinvestment plan |  | 9 |  |  | 10 |  |  | 31 |  |  | 35 |
Stock purchase and compensation plans |  | 169 |  |  | 103 |  |  | 1,115 |  |  | 969 |
End of period |  | 206,843 |  |  | 205,573 |  |  | 206,843 |  |  | 205,573 |
Additional paid-in capital: |  |  |  |  |  |  |  |  |  |
Beginning of period |  | 407,382 |  |  | 381,641 |  |  | 390,315 |  |  | 367,717 |
Dividend reinvestment plan |  | 366 |  |  | 327 |  |  | 1,095 |  |  | 1,013 |
Stock purchase and compensation plans |  | 4,599 |  |  | 3,483 |  |  | 20,937 |  |  | 16,721 |
End of period |  | 412,347 |  |  | 385,451 |  |  | 412,347 |  |  | 385,451 |
Retained earnings: |  |  |  |  |  |  |  |  |  |
Beginning of period, as previously reported |  | 1,968,374 |  |  | 1,779,928 |  |  | 1,858,414 |  |  | 1,698,613 |
Cumulative effect adjustment due to adoption of equity security guidance, net of tax |  | — |  |  | — |  |  | — |  |  | 30,726 |
Cumulative effect adjustment due to adoption of stranded deferred tax guidance |  | — |  |  | — |  |  | — |  |  | (5,707 | )
Cumulative effect adjustment due to adoption of lease guidance, net of tax (Note 2) |  | — |  |  | — |  |  | 342 |  |  | — |
Balance at beginning of period, as adjusted |  | 1,968,374 |  |  | 1,779,928 |  |  | 1,858,756 |  |  | 1,723,632 |
Net income |  | 56,150 |  |  | 55,435 |  |  | 189,764 |  |  | 133,179 |
Dividends to stockholders |  | (12,025 | ) |  | (10,756 | ) |  | (36,021 | ) |  | (32,204 | )
End of period |  | 2,012,499 |  |  | 1,824,607 |  |  | 2,012,499 |  |  | 1,824,607 |
Accumulated other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |
Beginning of period, as previously reported |  | 68,506 |  |  | (84,517 | ) |  | (77,956 | ) |  | 20,170 |
Cumulative effect adjustment due to adoption of equity security guidance, net of tax |  | — |  |  | — |  |  | — |  |  | (30,726 | )
Cumulative effect adjustment due to adoption of stranded deferred tax guidance |  | — |  |  | — |  |  | — |  |  | 5,707 |
Balance at beginning of period, as adjusted |  | 68,506 |  |  | (84,517 | ) |  | (77,956 | ) |  | (4,849 | )
Other comprehensive income (loss) |  | 29,920 |  |  | (8,059 | ) |  | 176,382 |  |  | (87,727 | )
End of period |  | 98,426 |  |  | (92,576 | ) |  | 98,426 |  |  | (92,576 | )
Treasury stock: |  |  |  |  |  |  |  |  |  |
Beginning of period |  | (591,383 | ) |  | (584,357 | ) |  | (584,668 | ) |  | (578,112 | )
Acquisition of treasury stock |  | (1,356 | ) |  | (178 | ) |  | (8,071 | ) |  | (6,423 | )
End of period |  | (592,739 | ) |  | (584,535 | ) |  | (592,739 | ) |  | (584,535 | )
Total stockholders’ equity |  | $ | 2,137,376 |  |  | 1,738,520 |  |  | 2,137,376 |  |  | 1,738,520 |
Dividends declared per share to stockholders |  | $ | 0.20 |  |  | 0.18 |  |  | 0.60 |  |  | 0.54 |
Common stock, shares outstanding: |  |  |  |  |  |  |  |
Beginning of period |  | 59,328,108 |  |  | 58,835,052 |  |  | 58,948,554 |  |  | 58,495,122 |
Dividend reinvestment plan |  | 4,738 |  |  | 5,310 |  |  | 15,650 |  |  | 17,683 |
Stock purchase and compensation plan |  | 83,979 |  |  | 51,482 |  |  | 557,257 |  |  | 484,491 |
Acquisition of treasury stock |  | (17,256 | ) |  | (2,859 | ) |  | (121,892 | ) |  | (108,311 | )
End of period |  | 59,399,569 |  |  | 58,888,985 |  |  | 59,399,569 |  |  | 58,888,985 |

Selective Insurance Group, Inc. also has authorized, but not issued, 5,000,000 shares of preferred stock, without par value, of which 300,000 shares have been
designated Series A junior preferred stock, without par value.
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
4

Table of Contents

SELECTIVE INSURANCE GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018
Operating Activities |  |  |  |  |  |
Net income |  | $ | 189,764 |  |  | 133,179 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |  |  |
Depreciation and amortization |  | 42,346 |  |  | 34,961 |
Stock-based compensation expense |  | 15,857 |  |  | 12,150 |
Undistributed gains of equity method investments |  | (8,832 | ) |  | (4,243 | )
Distributions in excess of current year income of equity method investments |  | 2,267 |  |  | 3,210 |
(Gain) loss on disposal of fixed assets |  | (21 | ) |  | 62 |
Net realized and unrealized (gains) losses |  | (15,295 | ) |  | 16,988 |
Changes in assets and liabilities: |  |  |  |  |  |
Increase in reserve for loss and loss expense, net of reinsurance recoverable |  | 134,951 |  |  | 144,920 |
Increase in unearned premiums, net of prepaid reinsurance |  | 122,460 |  |  | 120,535 |
Decrease in net federal income taxes |  | 2,408 |  |  | 18,339 |
Increase in premiums receivable |  | (89,962 | ) |  | (79,894 | )
Increase in deferred policy acquisition costs |  | (26,627 | ) |  | (22,978 | )
(Increase) decrease in interest and dividends due or accrued |  | (1,460 | ) |  | 72 |
Decrease in accrued salaries and benefits |  | (16,261 | ) |  | (36,498 | )
Increase in other assets |  | (35,810 | ) |  | (13,881 | )
Increase (decrease) in other liabilities |  | 414 |  |  | (34,437 | )
Net cash provided by operating activities |  | 316,199 |  |  | 292,485 |
Investing Activities |  |  |  |  |  |
Purchase of fixed income securities, held-to-maturity |  | — |  |  | (7,150 | )
Purchase of fixed income securities, available-for-sale |  | (1,330,827 | ) |  | (1,974,253 | )
Purchase of equity securities |  | (40,233 | ) |  | (57,834 | )
Purchase of other investments |  | (41,248 | ) |  | (47,238 | )
Purchase of short-term investments |  | (4,108,414 | ) |  | (2,711,360 | )
Sale of fixed income securities, available-for-sale |  | 461,825 |  |  | 1,382,677 |
Sale of short-term investments |  | 4,106,643 |  |  | 2,572,399 |
Redemption and maturities of fixed income securities, held-to-maturity |  | 10,062 |  |  | 3,923 |
Redemption and maturities of fixed income securities, available-for-sale |  | 413,220 |  |  | 456,037 |
Sale of equity securities |  | 125,302 |  |  | 79,676 |
Sale of other investments |  | 18,016 |  |  | 3,497 |
Distributions from other investments |  | 19,054 |  |  | 23,420 |
Purchase of property and equipment |  | (24,424 | ) |  | (11,150 | )
Fixed asset disposals |  | 35 |  |  | — |
Net cash used in investing activities |  | (390,989 | ) |  | (287,356 | )
Financing Activities |  |  |  |  |  |
Dividends to stockholders |  | (34,440 | ) |  | (30,694 | )
Acquisition of treasury stock |  | (8,071 | ) |  | (6,423 | )
Net proceeds from stock purchase and compensation plans |  | 5,599 |  |  | 5,001 |
Proceeds from borrowings |  | 355,757 |  |  | 130,000 |
Repayments of borrowings |  | (250,000 | ) |  | (130,000 | )
Repayments of finance lease obligations |  | (811 | ) |  | (4,891 | )
Net cash provided by (used in) financing activities |  | 68,034 |  |  | (37,007 | )
Net decrease in cash and restricted cash |  | (6,756 | ) |  | (31,878 | )
Cash and restricted cash, beginning of year |  | 16,919 |  |  | 44,710 |
Cash and restricted cash, end of period |  | $ | 10,163 |  |  | 12,832 |

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
As used herein, the "Company,” “we,” “us,” or “our” refers to Selective Insurance Group, Inc. (the "Parent"), and its subsidiaries, except as expressly indicated or unless the context otherwise requires. Our interim unaudited consolidated financial statements (“Financial Statements”) have been prepared by us in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The preparation of the Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported financial statement balances, as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. All significant intercompany accounts and transactions between the Parent and its subsidiaries are eliminated in consolidation.
Our Financial Statements reflect all adjustments that, in our opinion, are normal, recurring, and necessary for a fair presentation of our results of operations and financial condition. Our Financial Statements cover the third quarters ended September 30, 2019 (“Third Quarter 2019”) and September 30, 2018 (“Third Quarter 2018”) and the nine-month periods ended September 30, 2019 (“Nine Months 2019”) and September 30, 2018 (“Nine Months 2018”). These Financial Statements do not include all of the information and disclosures required by GAAP and the SEC for audited annual financial statements. Additionally, results of operations for any interim period are not necessarily indicative of results for a full year. Consequently, our Financial Statements should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report”) filed with the SEC.
NOTE 2. Adoption of Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued new leasing guidance through ASU 2016-02, Leases, which was issued in February 2016, as well as additional implementation guidance that was issued in 2018 and 2019 (collectively referred to as "ASU 2016-02"). ASU 2016-02 requires all lessees to recognize assets and liabilities on their balance sheets for the rights and obligations created by leases with terms longer than 12 months. For leases with a term of 12 months or less, an accounting policy election is allowed to recognize lease expense on a straight-line basis over the lease term.
ASU 2016-02 allows for certain practical expedients, accounting policy elections, and a transition method election. We adopted practical expedients related to reassessing: (i) whether our existing contracts are, or contain, leases; (ii) lease classification for existing leases; and (iii) initial direct costs for existing leases. Additionally, we adopted accounting policy elections to: (i) aggregate lease and non-lease components of a contract into a single lease component; and (ii) expense short-term leases on a straight-line basis over the lease term. We adopted ASU 2016-02 effective January 1, 2019. See Note 12. "Leases" in this Form 10-Q for additional information regarding our leases and the impact of this guidance on our financial condition and results of operations.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. We adopted ASU 2018-07 in the first quarter of 2019 and it did not have a material impact on our financial condition or results of operations.
Pronouncements to be effective in the future
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, as well as additional implementation guidance issued in 2018 and 2019 (collectively referred to as “ASU 2016-13”). ASU 2016-13 will change the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including, among others, held-to-maturity ("HTM") debt securities, trade receivables, and reinsurance recoverables. ASU 2016-13 requires a valuation allowance to be calculated on financial assets, and that they be presented on the financial statements net of the valuation allowance. The valuation allowance is a measurement of expected losses that is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This methodology is referred to as the current expected credit loss model. This ASU also made targeted changes to the impairment accounting model for available-for-sale ("AFS") debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. We are currently evaluating the impact of this guidance on our financial condition and results of operations.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements for fair value measurements. The modifications removed the following disclosure requirements: (i) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the
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valuation processes for Level 3 fair value measurements. This ASU added the following disclosure requirements: (i) the changes in unrealized gains and losses for the period included in other comprehensive income ("OCI") for recurring Level 3 fair value measurements held at the end of the reporting period; and (ii) the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements. This update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. As the requirements of this literature are disclosure only, ASU 2018-13 will not impact our financial condition or results of operations.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General: Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. These modifications include: (i) removing the requirement to disclose the amount in accumulated other comprehensive income ("AOCI") expected to be recognized as components of net periodic benefit cost over the next fiscal year; and (ii) adding the requirement to disclose an explanation of the reasons for significant gains or losses related to changes in the benefit obligation for the period. This update is effective for fiscal years ending after December 15, 2020, with early adoption permitted. As the requirements of this literature are disclosure only, ASU 2018-14 will not impact our financial condition or results of operations.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of this guidance 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) |  | 2019 |  | 2018
Cash paid during the period for: |  |  |  |  |  |
Interest |  | $ | 19,261 |  |  | 15,449 |
Federal income tax |  | 42,000 |  |  | 7,193 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows from operating leases 1 |  | 6,062 |  |  | — |
Operating cash flows from financing leases |  | 12 |  |  | — |
Financing cash flows from finance leases |  | 811 |  |  | 4,891 |
Non-cash items: |  |  |  |
Corporate actions related to fixed income securities, AFS 2 |  | 29,771 |  |  | 32,757 |
Corporate actions related to equity securities 2 |  | 14,250 |  |  | 944 |
Assets acquired under finance lease arrangements |  | 824 |  |  | 4,114 |
Assets acquired under operating lease arrangements 1 |  | 13,648 |  |  | — |
Non-cash purchase of property and equipment |  | 108 |  |  | — |

1 Upon adoption of ASU 2016-02, effective January 1, 2019, we are required to disclose cash paid for amounts included in the measurement of operating lease liabilities, as well as supplemental non-cash information on operating lease liabilities arising from obtaining operating lease assets.
2 Examples of such corporate actions include 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, 2019 |  | December 31, 2018
Cash |  | $ | 516 |  |  | 505 |
Restricted cash |  | 9,647 |  |  | 16,414 |
Total cash and restricted cash shown in the Statements of Cash Flows |  | $ | 10,163 |  |  | 16,919 |

Amounts included in restricted cash represent cash received from the National Flood Insurance Program ("NFIP"), which is restricted to pay flood claims under the Write Your Own program.
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NOTE 4. Investments
(a) Our HTM fixed income securities as of September 30, 2019 represented less than 1% of our total invested assets, down slightly compared to December 31, 2018. The carry value and net unrealized/unrecognized gains were $26.9 million and $1.5 million, respectively, at September 30, 2019, and $37.1 million and $1.3 million, respectively, at December 31, 2018. Included in the net unrealized/unrecognized gains were gross unrealized/unrecognized losses of less than $0.1 million at September 30, 2019 and $0.2 million at December 31, 2018.
Unrecognized holding gains and losses of HTM securities are not reflected in the Financial Statements, as they represent fair value fluctuations from the date a security is designated as HTM through the date of the balance sheet.
(b) Information regarding our AFS securities as of September 30, 2019 and December 31, 2018 was as follows:

September 30, 2019 |  |  |  |  |  |  |  |
($ in thousands) |  | Cost/ Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
AFS fixed income securities: |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 116,555 |  |  | 4,357 |  |  | (12 | ) |  | 120,900 |
Foreign government |  | 20,947 |  |  | 573 |  |  | — |  |  | 21,520 |
Obligations of states and political subdivisions |  | 1,127,709 |  |  | 62,910 |  |  | (4 | ) |  | 1,190,615 |
Corporate securities |  | 1,762,981 |  |  | 78,345 |  |  | (2,399 | ) |  | 1,838,927 |
Collateralized loan obligations and other asset-backed securities ("CLO and other ABS") |  | 764,038 |  |  | 8,998 |  |  | (4,653 | ) |  | 768,383 |
Commercial mortgage-backed securities ("CMBS") |  | 524,441 |  |  | 31,435 |  |  | (145 | ) |  | 555,731 |
Residential mortgage-backed securities (“RMBS”) |  | 1,389,985 |  |  | 44,710 |  |  | (534 | ) |  | 1,434,161 |
Total AFS fixed income securities |  | $ | 5,706,656 |  |  | 231,328 |  |  | (7,747 | ) |  | 5,930,237 |

December 31, 2018 |  |  |  |  |  |  |  |
($ in thousands) |  | Cost/ Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
AFS fixed income securities: |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 120,092 |  |  | 1,810 |  |  | (592 | ) |  | 121,310 |
Foreign government |  | 23,202 |  |  | 36 |  |  | (107 | ) |  | 23,131 |
Obligations of states and political subdivisions |  | 1,121,615 |  |  | 19,485 |  |  | (2,631 | ) |  | 1,138,469 |
Corporate securities |  | 1,639,852 |  |  | 5,521 |  |  | (27,965 | ) |  | 1,617,408 |
CLO and other ABS |  | 720,193 |  |  | 4,112 |  |  | (6,943 | ) |  | 717,362 |
CMBS |  | 527,409 |  |  | 3,417 |  |  | (3,748 | ) |  | 527,078 |
RMBS |  | 1,118,435 |  |  | 12,988 |  |  | (3,081 | ) |  | 1,128,342 |
Total AFS fixed income securities |  | $ | 5,270,798 |  |  | 47,369 |  |  | (45,067 | ) |  | 5,273,100 |

Unrealized gains and losses of AFS securities represent fair value fluctuations from the later of: (i) the date a security is designated as AFS; or (ii) the date that an other-than-temporary impairment ("OTTI") charge is recognized on an AFS security, through the date of the balance sheet. These unrealized gains and losses are recorded in AOCI on the Consolidated Balance Sheets.
(c) The severity of impairment on AFS securities in an unrealized/unrecognized loss position averaged approximately 1% of amortized cost at September 30, 2019 and approximately 2% at December 31, 2018. Quantitative information regarding these losses is provided below.

September 30, 2019 |  | Less than 12 months |  | 12 months or longer |  | Total
($ in thousands) |  | Fair Value |  | Unrealized Losses 1 |  | Fair Value |  | Unrealized Losses 1 |  | Fair Value |  | Unrealized Losses 1
AFS fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 5,014 |  |  | (11 | ) |  | 498 |  |  | (1 | ) |  | 5,512 |  |  | (12 | )
Obligations of states and political subdivisions |  | 437 |  |  | (4 | ) |  | — |  |  | — |  |  | 437 |  |  | (4 | )
Corporate securities |  | 89,919 |  |  | (1,862 | ) |  | 15,867 |  |  | (537 | ) |  | 105,786 |  |  | (2,399 | )
CLO and other ABS |  | 176,999 |  |  | (2,458 | ) |  | 180,898 |  |  | (2,195 | ) |  | 357,897 |  |  | (4,653 | )
CMBS |  | 59,857 |  |  | (126 | ) |  | 7,665 |  |  | (19 | ) |  | 67,522 |  |  | (145 | )
RMBS |  | 84,408 |  |  | (503 | ) |  | 9,513 |  |  | (31 | ) |  | 93,921 |  |  | (534 | )
Total AFS fixed income securities |  | $ | 416,634 |  |  | (4,964 | ) |  | 214,441 |  |  | (2,783 | ) |  | 631,075 |  |  | (7,747 | )

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December 31, 2018 |  | Less than 12 months |  | 12 months or longer |  | Total
($ in thousands) |  | Fair Value |  | Unrealized Losses 1 |  | Fair Value |  | Unrealized Losses 1 |  | Fair Value |  | Unrealized Losses 1
AFS fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 6,693 |  |  | (174 | ) |  | 23,163 |  |  | (418 | ) |  | 29,856 |  |  | (592 | )
Foreign government |  | 12,208 |  |  | (93 | ) |  | 1,482 |  |  | (14 | ) |  | 13,690 |  |  | (107 | )
Obligations of states and political subdivisions |  | 196,798 |  |  | (2,074 | ) |  | 42,821 |  |  | (557 | ) |  | 239,619 |  |  | (2,631 | )
Corporate securities |  | 1,041,952 |  |  | (23,649 | ) |  | 78,953 |  |  | (4,316 | ) |  | 1,120,905 |  |  | (27,965 | )
CLO and other ABS |  | 516,106 |  |  | (6,750 | ) |  | 16,800 |  |  | (193 | ) |  | 532,906 |  |  | (6,943 | )
CMBS |  | 229,338 |  |  | (2,548 | ) |  | 66,294 |  |  | (1,200 | ) |  | 295,632 |  |  | (3,748 | )
RMBS |  | 139,338 |  |  | (1,660 | ) |  | 45,661 |  |  | (1,421 | ) |  | 184,999 |  |  | (3,081 | )
Total AFS fixed income securities |  | $ | 2,142,433 |  |  | (36,948 | ) |  | 275,174 |  |  | (8,119 | ) |  | 2,417,607 |  |  | (45,067 | )

1 Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI.
The $37.3 million decrease in the unrealized loss position reflected: (i) lower interest rates, with an 87-basis point decrease in 2-year U.S. Treasury Note yields and a 102-basis point decrease in 10-year U.S. Treasury Note yields during Nine Months 2019; and (ii) tightening option adjusted corporate credit spreads, with a 38-basis point decrease in the Bloomberg Barclays U.S. Aggregate Corporate Bond Index during Nine Months 2019. We do not currently intend to sell any of the securities in the tables above, nor will we be required to sell any of these securities. Considering these factors, and in accordance with our review of these securities under our OTTI policy, as described in Note 2. “Summary of Significant Accounting Policies” within Item 8. “Financial Statements and Supplementary Data.” of our 2018 Annual Report, we have concluded that they are temporarily impaired as we believe: (i) they will mature at par value; (ii) they have not incurred a credit impairment; and (iii) future values of these securities will fluctuate with changes in interest rates. This conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the investment security and underlying collateral.
(d) Fixed income securities at September 30, 2019, by contractual maturity, are shown below. Mortgage-backed securities are included in the maturity tables using the estimated average life of each security. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations, with or without call or prepayment penalties.
Listed below are the contractual maturities of fixed income securities at September 30, 2019:

|  | AFS |  | HTM
($ in thousands) |  | Fair Value |  | Carrying Value |  | Fair Value
Due in one year or less |  | $ | 310,387 |  |  | 4,754 |  |  | 4,773 |
Due after one year through five years |  | 3,296,126 |  |  | 16,334 |  |  | 17,589 |
Due after five years through 10 years |  | 2,191,633 |  |  | 5,837 |  |  | 5,994 |
Due after 10 years |  | 132,091 |  |  | — |  |  | — |
Total fixed income securities |  | $ | 5,930,237 |  |  | 26,925 |  |  | 28,356 |

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

Other Investments |  | September 30, 2019 |  | December 31, 2018
($ in thousands) |  | Carrying Value |  | Remaining Commitment |  | Maximum Exposure to Loss 1 |  | Carrying Value |  | Remaining Commitment |  | Maximum Exposure to Loss 1
Alternative Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |
Private equity |  | $ | 105,922 |  |  | 97,552 |  |  | 203,474 |  |  | 84,352 |  |  | 93,688 |  |  | 178,040 |
Private credit |  | 37,710 |  |  | 109,797 |  |  | 147,507 |  |  | 41,682 |  |  | 81,453 |  |  | 123,135 |
Real assets |  | 21,828 |  |  | 22,534 |  |  | 44,362 |  |  | 27,862 |  |  | 27,129 |  |  | 54,991 |
Total alternative investments |  | 165,460 |  |  | 229,883 |  |  | 395,343 |  |  | 153,896 |  |  | 202,270 |  |  | 356,166 |
Other securities |  | 23,783 |  |  | — |  |  | 23,783 |  |  | 25,042 |  |  | — |  |  | 25,042 |
Total other investments |  | $ | 189,243 |  |  | 229,883 |  |  | 419,126 |  |  | 178,938 |  |  | 202,270 |  |  | 381,208 |

1 The maximum exposure to loss includes both the carry value of these investments and the related remaining commitments. In addition, tax credits that have been previously recognized in Other securities are subject to the risk of recapture, which we do not consider significant.
We are contractually committed to make additional investments up to the remaining commitments outlined above; however, we do not have a future obligation to fund losses or debts on behalf of these investments. We have not provided any non-contractual financial support at any time during 2019 or 2018.
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The following table sets forth gross summarized financial information for our other investments portfolio, including the portion not owned by us. The majority of these investments are carried under the equity method of accounting. The last line of the table below reflects our share of the aggregate income or loss, which is the portion included in our Financial Statements. As the majority of these investments report results to us on a one quarter lag, the summarized financial statement information for the three-month period ended June 30 is included in our Third Quarter results. This information is as follows:

Income Statement Information |  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in millions) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Net investment (loss) income |  | $ | (14.0 | ) |  | 11.9 |  |  | 10.1 |  |  | (29.9 | )
Realized gains |  | 121.1 |  |  | 124.8 |  |  | 370.4 |  |  | 1,348.3 |
Net change in unrealized appreciation (depreciation) |  | 1,739.4 |  |  | 1,434.3 |  |  | 4,517.4 |  |  | 695.8 |
Net income |  | $ | 1,846.5 |  |  | 1,571.0 |  |  | 4,897.9 |  |  | 2,014.2 |
Insurance subsidiaries’ alternative investments income |  | $ | 5.2 |  |  | 7.1 |  |  | 13.0 |  |  | 10.6 |

(f) We have pledged certain AFS fixed income securities as collateral related to our relationships with the Federal Home Loan Bank of Indianapolis ("FHLBI") and the Federal Home Loan Bank of New York ("FHLBNY"). In addition, certain securities were on deposit with various state and regulatory agencies at September 30, 2019 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, 2019:

($ in millions) |  | FHLBI Collateral |  | FHLBNY Collateral |  | State and Regulatory Deposits |  | Total
U.S. government and government agencies |  | $ | — |  |  | — |  |  | 22.9 |  |  | 22.9 |
Obligations of states and political subdivisions |  | — |  |  | — |  |  | 3.9 |  |  | 3.9 |
Corporate securities |  | — |  |  | — |  |  | 0.3 |  |  | 0.3 |
CMBS |  | 7.3 |  |  | 19.6 |  |  | — |  |  | 26.9 |
RMBS |  | 57.4 |  |  | 81.1 |  |  | — |  |  | 138.5 |
Total pledged as collateral |  | $ | 64.7 |  |  | 100.7 |  |  | 27.1 |  |  | 192.5 |

(g) We did not have exposure to any credit concentration risk of a single issuer greater than 10% of our stockholders' equity, other than certain U.S. government-backed investments, as of September 30, 2019 or December 31, 2018.
(h) The components of pre-tax net investment income earned were as follows:

|  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Fixed income securities |  | $ | 50,749 |  |  | 45,088 |  |  | 150,689 |  |  | 130,903 |
Equity securities |  | 1,885 |  |  | 2,079 |  |  | 5,265 |  |  | 5,876 |
Short-term investments |  | 1,410 |  |  | 867 |  |  | 5,213 |  |  | 2,001 |
Other investments |  | 5,267 |  |  | 7,211 |  |  | 13,421 |  |  | 10,868 |
Investment expenses |  | (3,485 | ) |  | (2,802 | ) |  | (9,639 | ) |  | (8,421 | )
Net investment income earned |  | $ | 55,826 |  |  | 52,443 |  |  | 164,949 |  |  | 141,227 |

(i) OTTI charges were $2.3 million and $1.4 million in Third Quarter 2019 and Third Quarter 2018, respectively, and $3.4 million and $5.5 million in Nine Months 2019 and Nine Months 2018, respectively. All of these charges were related to securities for which we had the intent to sell. For a discussion of our evaluation for OTTI, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2018 Annual Report.
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(j) Net realized and unrealized gains and losses (excluding OTTI charges) for Third Quarter 2019 and 2018 included the following:

|  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Net realized gains (losses) on the disposals of securities: |  |  |  |  |  |  |  |
Fixed income securities |  | $ | (1,141 | ) |  | (9,413 | ) |  | 2,063 |  |  | (13,922 | )
Equity securities |  | 21,602 |  |  | 8,665 |  |  | 24,733 |  |  | 17,960 |
Short-term investments |  | (36 | ) |  | 2 |  |  | (21 | ) |  | 1 |
Other investments |  | — |  |  | (5 | ) |  | (23 | ) |  | (5 | )
Net realized gains (losses) on the disposal of securities |  | 20,425 |  |  | (751 | ) |  | 26,752 |  |  | 4,034 |
OTTI charges |  | (2,291 | ) |  | (1,426 | ) |  | (3,366 | ) |  | (5,459 | )
Net realized gains (losses) |  | 18,134 |  |  | (2,177 | ) |  | 23,386 |  |  | (1,425 | )
Unrealized (losses) recognized in income on equity securities |  | (20,317 | ) |  | (2,610 | ) |  | (8,091 | ) |  | (15,563 | )
Total net realized and unrealized investment (losses) gains |  | $ | (2,183 | ) |  | (4,787 | ) |  | $ | 15,295 |  |  | (16,988 | )

Unrealized (losses) recognized in income on equity securities, as reflected in the table above, include the following:

|  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Unrealized gains (losses) recognized in income on equity securities: |  |  |  |  |  |  |  |
On securities remaining in our portfolio at September 30, 2019 |  | $ | 1,109 |  |  | 5,476 |  |  | 1,805 |  |  | 4,199 |
On securities sold in each respective period |  | (21,426 | ) |  | (8,086 | ) |  | (9,896 | ) |  | (19,762 | )
Total unrealized (losses) recognized in income on equity securities |  | $ | (20,317 | ) |  | (2,610 | ) |  | $ | (8,091 | ) |  | (15,563 | )

The components of net realized gains on disposals of securities for the periods indicated were as follows:

|  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
HTM fixed income securities |  |  |  |  |  |  |  |
Gains |  | $ | — |  |  | — |  |  | 1 |  |  | 2 |
Losses |  | — |  |  | — |  |  | (15 | ) |  | — |
AFS fixed income securities |  |  |  |  |  |  |  |  |  |
Gains |  | 1,078 |  |  | 462 |  |  | 5,565 |  |  | 5,056 |
Losses |  | (2,219 | ) |  | (9,875 | ) |  | (3,488 | ) |  | (18,980 | )
Equity securities |  |  |  |  |  |  |  |  |  |
Gains |  | 21,630 |  |  | 10,584 |  |  | 24,868 |  |  | 20,209 |
Losses |  | (28 | ) |  | (1,919 | ) |  | (135 | ) |  | (2,249 | )
Short-term investments |  |  |  |  |  |  |  |
Gains |  | 2 |  |  | 3 |  |  | 18 |  |  | 6 |
Losses |  | (38 | ) |  | (1 | ) |  | (39 | ) |  | (5 | )
Other investments |  |  |  |  |  |  |  |
Gains |  | — |  |  | — |  |  | 7 |  |  | — |
Losses |  | — |  |  | (5 | ) |  | (30 | ) |  | (5 | )
Total net realized gains on disposals of securities |  | $ | 20,425 |  |  | (751 | ) |  | 26,752 |  |  | 4,034 |

Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold.
Proceeds from the sales of AFS fixed income securities were $89.7 million and $444.4 million in Third Quarter 2019 and Third Quarter 2018, respectively, and $461.8 million and $1,382.7 million in Nine Months 2019 and Nine Months 2018, respectively. Proceeds from the sales of equity securities were $95.2 million and $36.1 million in Third Quarter 2019 and Third Quarter 2018, respectively, and $125.3 million and $79.7 million in Nine Months 2019 and Nine Months 2018, respectively.
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NOTE 5. Indebtedness
The table below provides a summary of our outstanding debt at September 30, 2019 and December 31, 2018:

Outstanding Debt |  | Issuance Date |  | Maturity Date |  | Interest Rate |  | Original Amount |  | 2019 |  | Carry Value
($ in thousands) |  |  |  |  |  | Debt Discount and Unamortized Issuance Costs |  | September 30, 2019 |  | December 31, 2018
Description |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long term |  |  |  |  |  |  |  |  |  |  |  |  |  |
Issuance: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior Notes |  | 3/1/2019 |  | 3/1/2049 |  | 5.375 | % |  | $ | 300,000 |  |  | 9,065 |  |  | 290,935 |  |  | — |
Redemption: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior Notes |  | 2/8/2013 |  | 2/9/2043 |  | 5.875 | % |  | 185,000 |  |  | — |  |  | — |  |  | 180,771 |
Other Outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |
FHLBI |  | 12/16/2016 |  | 12/16/2026 |  | 3.03 | % |  | 60,000 |  |  | — |  |  | 60,000 |  |  | 60,000 |
FHLBNY |  | 8/15/2016 |  | 8/16/2021 |  | 1.56 | % |  | 25,000 |  |  | — |  |  | 25,000 |  |  | 25,000 |
FHLBNY |  | 7/21/2016 |  | 7/21/2021 |  | 1.61 | % |  | 25,000 |  |  | — |  |  | 25,000 |  |  | 25,000 |
Senior Notes |  | 11/3/2005 |  | 11/1/2035 |  | 6.70 | % |  | 100,000 |  |  | 889 |  |  | 99,111 |  |  | 99,069 |
Senior Notes |  | 11/16/2004 |  | 11/15/2034 |  | 7.25 | % |  | 50,000 |  |  | 281 |  |  | 49,719 |  |  | 49,700 |
Finance lease obligations 1 |  |  |  |  |  |  |  |  |  |  |  | 904 |  |  | — |
Total long-term debt |  |  |  |  |  |  |  |  |  | 10,235 |  |  | 550,669 |  |  | 439,540 |

1 Concurrent with the adoption of ASU 2016-02 discussed in Note 2. "Adoption of Accounting Pronouncements," finance lease obligations are now captured in Long-term debt on our Consolidated Balance Sheets.
Short-Term Debt Activity
Short-term debt activity included the following in Nine Months 2019:

• | On March 7, 2019, Selective Insurance Company of America (“SICA”) borrowed short-term funds of $50 million from the FHLBNY at an interest rate of 2.64%. This borrowing was repaid on March 28, 2019.

• | On August 5, 2019, SICA borrowed short-term funds of $15 million from the FHLBNY at an interest rate of 2.29%. This borrowing was repaid on August 12, 2019.

Long-Term Debt Activity
In the first quarter of 2019, we issued $300 million of 5.375% Senior Notes due 2049 at a discount of $5.9 million which, when coupled with debt issuance costs of approximately $3.3 million, resulted in net proceeds from the offering of $290.8 million. The 5.375% Senior Notes pay interest on March 1 and September 1 of each year. The first interest payment was made on September 1, 2019. A portion of the proceeds from this debt issuance was used to fully redeem the $185 million aggregate principal amount of our 5.875% Senior Notes due 2043, with the remaining $106 million being used for general corporate purposes. The 5.875% Senior Notes had pre-tax debt retirement costs of $4.2 million, or $3.3 million after tax, which was recorded in Interest expense on the Consolidated Statements of Income in the first quarter of 2019.
For detailed information on our indebtedness, see Note 10. "Indebtedness" in Item 8. "Financial Statements and Supplementary Data." of our 2018 Annual Report.
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NOTE 6. Fair Value Measurements
The financial assets in our investment portfolio are primarily measured at fair value as disclosed on the Consolidated Balance Sheets. The following table presents the carrying amounts and estimated fair values of our financial liabilities as of September 30, 2019 and December 31, 2018:

|  | September 30, 2019 |  | December 31, 2018
($ in thousands) |  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Financial Liabilities |  |  |  |  |  |  |  |
Long-term debt: |  |  |  |  |  |  |  |
7.25% Senior Notes |  | 49,909 |  |  | 65,770 |  |  | 49,907 |  |  | 57,032 |
6.70% Senior Notes |  | 99,476 |  |  | 125,954 |  |  | 99,462 |  |  | 107,075 |
5.875% Senior Notes |  | — |  |  | — |  |  | 185,000 |  |  | 177,230 |
5.375% Senior Notes |  | 294,136 |  |  | 352,156 |  |  | — |  |  | — |
1.61% borrowings from FHLBNY |  | 25,000 |  |  | 24,838 |  |  | 25,000 |  |  | 24,218 |
1.56% borrowings from FHLBNY |  | 25,000 |  |  | 24,808 |  |  | 25,000 |  |  | 24,162 |
3.03% borrowings from FHLBI |  | 60,000 |  |  | 63,741 |  |  | 60,000 |  |  | 58,905 |
Subtotal long-term debt |  | 553,521 |  |  | 657,267 |  |  | 444,369 |  |  | 448,622 |
Unamortized debt issuance costs |  | (3,756 | ) |  |  |  | (4,829 | ) |  |
Finance lease obligations |  | 904 |  |  |  |  | — |  |  |
Total long-term debt |  | 550,669 |  |  |  |  | 439,540 |  |  |

For a discussion of our long-term debt activity in 2019, see Note 5. "Indebtedness" in this Form 10-Q, and for a discussion of the fair value hierarchy and techniques used to value our financial assets and liabilities, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2018 Annual Report.
The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at September 30, 2019 and December 31, 2018:

September 30, 2019 |  |  |  | Fair Value Measurements Using
($ in thousands) |  | Assets Measured at Fair Value |  | Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)1 |  | Significant Other Observable Inputs (Level 2)1 |  | Significant Unobservable Inputs (Level 3)
Description |  |  |  |  |  |  |  |  |  |  |  |
Measured on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
AFS fixed income securities: |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 120,900 |  |  | 41,619 |  |  | 79,281 |  |  | — |
Foreign government |  | 21,520 |  |  | — |  |  | 21,520 |  |  | — |
Obligations of states and political subdivisions |  | 1,190,615 |  |  | — |  |  | 1,190,615 |  |  | — |
Corporate securities |  | 1,838,927 |  |  | — |  |  | 1,822,577 |  |  | 16,350 |
CLO and other ABS |  | 768,383 |  |  | — |  |  | 748,504 |  |  | 19,879 |
CMBS |  | 555,731 |  |  | — |  |  | 555,731 |  |  | — |
RMBS |  | 1,434,161 |  |  | — |  |  | 1,434,161 |  |  | — |
Total AFS fixed income securities |  | 5,930,237 |  |  | 41,619 |  |  | 5,852,389 |  |  | 36,229 |
Equity securities: |  |  |  |  |  |  |  |
Common stock 2 |  | 76,179 |  |  | 42,988 |  |  | — |  |  | — |
Preferred stock |  | 3,034 |  |  | 3,034 |  |  | — |  |  | — |
Total equity securities |  | 79,213 |  |  | 46,022 |  |  | — |  |  | — |
Short-term investments |  | 326,121 |  |  | 319,599 |  |  | 6,522 |  |  | — |
Total assets measured at fair value |  | $ | 6,335,571 |  |  | 407,240 |  |  | 5,858,911 |  |  | 36,229 |

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December 31, 2018 |  |  |  | Fair Value Measurements Using
($ in thousands) |  | Assets Measured at Fair Value |  | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)1 |  | Significant Other Observable Inputs (Level 2)1 |  | Significant Unobservable Inputs (Level 3)
Description |  |  |  |  |  |  |  |  |  |  |  |
Measured on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |
AFS fixed income securities: |  |  |  |  |  |  |  |
U.S. government and government agencies |  | $ | 121,310 |  |  | 78,381 |  |  | 42,929 |  |  | — |
Foreign government |  | 23,131 |  |  | — |  |  | 23,131 |  |  | — |
Obligations of states and political subdivisions |  | 1,138,469 |  |  | — |  |  | 1,138,469 |  |  | — |
Corporate securities |  | 1,617,408 |  |  | — |  |  | 1,617,408 |  |  | — |
CLO and other ABS |  | 717,362 |  |  | — |  |  | 709,953 |  |  | 7,409 |
CMBS |  | 527,078 |  |  | — |  |  | 527,078 |  |  | — |
RMBS |  | 1,128,342 |  |  | — |  |  | 1,128,342 |  |  | — |
Total AFS fixed income securities |  | 5,273,100 |  |  | 78,381 |  |  | 5,187,310 |  |  | 7,409 |
Equity securities: |  |  |  |  |  |  |  |
Common stock 2 |  | 144,727 |  |  | 107,397 |  |  | — |  |  | — |
Preferred stock |  | 2,912 |  |  | 2,912 |  |  | — |  |  | — |
Total equity securities |  | 147,639 |  |  | 110,309 |  |  | — |  |  | — |
Short-term investments |  | 323,864 |  |  | 321,370 |  |  | 2,494 |  |  | — |
Total assets measured at fair value |  | $ | 5,744,603 |  |  | 510,060 |  |  | 5,189,804 |  |  | 7,409 |

1 | There were no transfers of securities between Level 1 and Level 2.

2 | Investments amounting to $33.2 million at September 30, 2019, and $37.3 million at December 31, 2018, were measured at fair value using net asset value per share (or its practical expedient) and have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to total assets measured at fair value.

The following table provides a summary of Level 3 changes in Nine Months 2019:

September 30, 2019 |  |  |  |  |  |
($ in thousands) |  | Corporate Securities |  | CLO and Other ABS |  | Total
Fair value, December 31, 2018 |  | — |  |  | 7,409 |  |  | 7,409 |
Total net (losses) gains for the period included in: |  |  |  |  |  |
OCI |  | (69 | ) |  | (14 | ) |  | (83 | )
Net income |  | — |  |  | 244 |  |  | 244 |
Purchases |  | — |  |  | 18,404 |  |  | 18,404 |
Sales |  | — |  |  | — |  |  | — |
Issuances |  | — |  |  | — |  |  | — |
Settlements |  | — |  |  | (105 | ) |  | (105 | )
Transfers into Level 3 |  | 16,419 |  |  | 13,603 |  |  | 30,022 |
Transfers out of Level 3 |  | — |  |  | (19,662 | ) |  | (19,662 | )
Fair value, September 30, 2019 |  | 16,350 |  |  | 19,879 |  |  | 36,229 |

There were no material changes in the fair value of securities measured using Level 3 prices in Nine Months 2018.
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The following tables provide quantitative information regarding our financial assets and liabilities that were disclosed at fair value at September 30, 2019 and December 31, 2018:

September 30, 2019 |  |  |  | Fair Value Measurements Using
($ in thousands) |  | Assets/ Liabilities Disclosed at Fair Value |  | Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |
HTM: |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | 9,426 |  |  | — |  |  | 9,426 |  |  | — |
Corporate securities |  | 18,930 |  |  | — |  |  | 18,930 |  |  | — |
Total HTM fixed income securities |  | $ | 28,356 |  |  | — |  |  | 28,356 |  |  | — |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt: |  |  |  |  |  |  |  |
7.25% Senior Notes |  | $ | 65,770 |  |  | — |  |  | 65,770 |  |  | — |
6.70% Senior Notes |  | 125,954 |  |  | — |  |  | 125,954 |  |  | — |
5.375% Senior Notes |  | 352,156 |  |  | — |  |  | 352,156 |  |  | — |
1.61% borrowings from FHLBNY |  | 24,838 |  |  | — |  |  | 24,838 |  |  | — |
1.56% borrowings from FHLBNY |  | 24,808 |  |  | — |  |  | 24,808 |  |  | — |
3.03% borrowings from FHLBI |  | 63,741 |  |  | — |  |  | 63,741 |  |  | — |
Total long-term debt |  | $ | 657,267 |  |  | — |  |  | 657,267 |  |  | — |

December 31, 2018 |  |  |  | Fair Value Measurements Using
($ in thousands) |  | Assets/ Liabilities Disclosed at Fair Value |  | Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |
HTM: |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | 17,969 |  |  | — |  |  | 17,969 |  |  | — |
Corporate securities |  | 20,348 |  |  | — |  |  | 20,348 |  |  | — |
Total HTM fixed income securities |  | $ | 38,317 |  |  | — |  |  | 38,317 |  |  | — |
Financial Liabilities |  |  |  |  |  |  |  |  |
Long-term debt: |  |  |  |  |  |  |  |
7.25% Senior Notes |  | $ | 57,032 |  |  | — |  |  | 57,032 |  |  | — |
6.70% Senior Notes |  | 107,075 |  |  | — |  |  | 107,075 |  |  | — |
5.875% Senior Notes |  | 177,230 |  |  | 177,230 |  |  | — |  |  | — |
1.61% borrowings from FHLBNY |  | 24,218 |  |  | — |  |  | 24,218 |  |  | — |
1.56% borrowings from FHLBNY |  | 24,162 |  |  | — |  |  | 24,162 |  |  | — |
3.03% borrowings from FHLBI |  | 58,905 |  |  | — |  |  | 58,905 |  |  | — |
Total long-term debt |  | $ | 448,622 |  |  | 177,230 |  |  | 271,392 |  |  | — |

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NOTE 7. Reinsurance
The following table contains a listing of direct, assumed, and ceded reinsurance amounts for premiums written, premiums earned, and loss and loss expenses incurred for the periods indicated. For more information concerning reinsurance, refer to
Note 8. “Reinsurance” in Item 8. “Financial Statements and Supplementary Data.” of our 2018 Annual Report.

|  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Premiums written: |  |  |  |  |  |  |  |  |  |  |  |
Direct |  | $ | 785,680 |  |  | 752,834 |  |  | $ | 2,359,441 |  |  | 2,220,431 |
Assumed |  | 6,882 |  |  | 7,084 |  |  | 18,770 |  |  | 19,891 |
Ceded |  | (115,634 | ) |  | (108,250 | ) |  | (326,939 | ) |  | (308,846 | )
Net |  | $ | 676,928 |  |  | 651,668 |  |  | $ | 2,051,272 |  |  | 1,931,476 |
Premiums earned: |  |  |  |  |  |  |  |  |  |  |  |
Direct |  | $ | 752,872 |  |  | 706,497 |  |  | $ | 2,221,257 |  |  | 2,086,953 |
Assumed |  | 6,356 |  |  | 6,484 |  |  | 18,660 |  |  | 19,220 |
Ceded |  | (105,608 | ) |  | (98,704 | ) |  | (311,105 | ) |  | (295,232 | )
Net |  | $ | 653,620 |  |  | 614,277 |  |  | $ | 1,928,812 |  |  | 1,810,941 |
Loss and loss expenses incurred: |  |  |  |  |  |  |  |  |  |  |  |
Direct |  | $ | 437,618 |  |  | 477,427 |  |  | $ | 1,297,975 |  |  | 1,289,357 |
Assumed |  | 4,362 |  |  | 6,529 |  |  | 13,975 |  |  | 16,897 |
Ceded |  | (43,305 | ) |  | (104,757 | ) |  | (145,712 | ) |  | (175,786 | )
Net |  | $ | 398,675 |  |  | 379,199 |  |  | $ | 1,166,238 |  |  | 1,130,468 |

Ceded premiums and losses related to our participation in the NFIP, under which 100% of our flood premiums, losses, and loss expenses are ceded to the NFIP, are as follows:

Ceded to NFIP |  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Ceded premiums written |  | $ | (74,864 | ) |  | (70,100 | ) |  | $ | (206,451 | ) |  | (193,110 | )
Ceded premiums earned |  | (65,847 | ) |  | (61,448 | ) |  | (191,914 | ) |  | (180,582 | )
Ceded loss and loss expenses incurred |  | (27,459 | ) |  | (89,396 | ) |  | (62,208 | ) |  | (115,376 | )

Excluding the impact of our participation in the NFIP, ceded loss and loss expenses incurred increased in Nine Months 2019 compared to the respective prior year, due to one significant fire loss in the second quarter of 2019, which added $17.4 million to ceded loss and loss expenses. The elevated ceded loss and loss expenses incurred related to our participation in the NFIP in Third Quarter and Nine Months 2018 were due to Hurricane Florence, which impacted our footprint in September 2018.
NOTE 8. Reserve for Loss and Loss Expense
The table below provides a roll forward of reserve for loss and loss expense balances:

|  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018
Gross reserve for loss and loss expense, at beginning of year |  | $ | 3,893,868 |  |  | 3,771,240 |
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year |  | 537,388 |  |  | 585,855 |
Net reserve for loss and loss expense, at beginning of year |  | 3,356,480 |  |  | 3,185,385 |
Incurred loss and loss expense for claims occurring in the: |  |  |  |  |  |
Current year |  | 1,200,878 |  |  | 1,148,032 |
Prior years |  | (34,640 | ) |  | (17,564 | )
Total incurred loss and loss expense |  | 1,166,238 |  |  | 1,130,468 |
Paid loss and loss expense for claims occurring in the: |  |  |  |  |  |
Current year |  | 384,436 |  |  | 369,036 |
Prior years |  | 631,589 |  |  | 610,734 |
Total paid loss and loss expense |  | 1,016,025 |  |  | 979,770 |
Net reserve for loss and loss expense, at end of period |  | 3,506,693 |  |  | 3,336,083 |
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of period |  | 548,938 |  |  | 589,072 |
Gross reserve for loss and loss expense at end of period |  | $ | 4,055,631 |  |  | 3,925,155 |

Prior year reserve development in Nine Months 2019 of $34.6 million included $41.0 million of favorable casualty reserve development, partially offset by $6.4 million of unfavorable property reserve development. The favorable casualty reserve development included $33.0 million in our workers compensation line of business and $10.0 million in our general liability line
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of business, partially offset by $2.0 million of unfavorable casualty reserve development in our personal automobile line of business.
Prior year reserve development in Nine Months 2018 of $17.6 million included $24.0 million of favorable casualty reserve development, partially offset by $6.4 million of unfavorable property reserve development. The favorable casualty reserve development included $53.0 million of development in our workers compensation line of business and $8.0 million in our general liability line of business, partially offset by $25.0 million of unfavorable casualty reserve development in our commercial automobile line of business and $12.0 million in our excess and surplus ("E&S") casualty lines.
NOTE 9. Segment Information
The results of our four reportable segments are evaluated as follows:

• | Our Standard Commercial Lines, Standard Personal Lines, and E&S Lines are evaluated based on before and after-tax underwriting results (net premiums earned, incurred loss and loss expense, policyholder dividends, policy acquisition costs, and other underwriting expenses), return on equity ("ROE") contribution, and combined ratios.

• | Our Investments segment is primarily evaluated based on after-tax net investment income and its ROE contribution. Also included in Investment segment results are after-tax net realized and unrealized gains and losses, which are not included in non-GAAP operating income.

In computing the results of each segment, we do not make adjustments for interest expense or corporate expenses. We do not maintain separate investment portfolios for the segments and therefore, do not allocate assets to the segments.
The following summaries present revenues (net investment income and net realized and unrealized gains 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) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Standard Commercial Lines: |  |  |  |  |  |  |  |  |  |
Net premiums earned: |  |  |  |  |  |  |  |  |  |
Commercial automobile |  | $ | 141,182 |  |  | 124,862 |  |  | 408,706 |  |  | 365,197 |
Workers compensation |  | 75,478 |  |  | 78,784 |  |  | 232,657 |  |  | 237,628 |
General liability |  | 169,084 |  |  | 154,974 |  |  | 495,402 |  |  | 457,805 |
Commercial property |  | 89,215 |  |  | 83,056 |  |  | 262,418 |  |  | 245,544 |
Businessowners’ policies |  | 26,371 |  |  | 25,994 |  |  | 78,624 |  |  | 77,414 |
Bonds |  | 8,990 |  |  | 8,778 |  |  | 26,861 |  |  | 25,247 |
Other |  | 4,841 |  |  | 4,608 |  |  | 14,326 |  |  | 13,597 |
Miscellaneous income |  | 2,782 |  |  | 2,228 |  |  | 7,544 |  |  | 6,936 |
Total Standard Commercial Lines revenue |  | 517,943 |  |  | 483,284 |  |  | 1,526,538 |  |  | 1,429,368 |
Standard Personal Lines: |  |  |  |  |  |  |  |
Net premiums earned: |  |  |  |  |  |  |  |
Personal automobile |  | 43,226 |  |  | 42,772 |  |  | 129,777 |  |  | 125,024 |
Homeowners |  | 31,529 |  |  | 32,293 |  |  | 95,672 |  |  | 96,717 |
Other |  | 1,983 |  |  | 2,092 |  |  | 5,709 |  |  | 5,349 |
Miscellaneous income |  | 380 |  |  | 310 |  |  | 991 |  |  | 959 |
Total Standard Personal Lines revenue |  | 77,118 |  |  | 77,467 |  |  | 232,149 |  |  | 228,049 |
E&S Lines: |  |  |  |  |  |  |  |
Net premiums earned: |  |  |  |  |  |  |  |
Casualty lines |  | 47,171 |  |  | 42,179 |  |  | 136,455 |  |  | 120,098 |
Property lines |  | 14,550 |  |  | 13,885 |  |  | 42,205 |  |  | 41,321 |
Miscellaneous income |  | — |  |  | — |  |  | — |  |  | 1 |
Total E&S Lines revenue |  | 61,721 |  |  | 56,064 |  |  | 178,660 |  |  | 161,420 |
Investments: |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  | 55,826 |  |  | 52,443 |  |  | 164,949 |  |  | 141,227 |
Net realized and unrealized investment (losses) gains |  | (2,183 | ) |  | (4,787 | ) |  | 15,295 |  |  | (16,988 | )
Total Investments revenue |  | 53,643 |  |  | 47,656 |  |  | 180,244 |  |  | 124,239 |
Total revenues |  | $ | 710,425 |  |  | 664,471 |  |  | 2,117,591 |  |  | 1,943,076 |

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Income Before and After Federal Income Tax |  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Standard Commercial Lines: |  |  |  |  |  |  |  |  |  |
Underwriting gain, before federal income tax |  | $ | 30,016 |  |  | 26,333 |  |  | 92,974 |  |  | 74,153 |
Underwriting gain, after federal income tax |  | 23,713 |  |  | 20,803 |  |  | 73,450 |  |  | 58,581 |
Combined ratio |  | 94.2 | % |  | 94.5 |  |  | 93.9 |  |  | 94.8 |
ROE contribution |  | 4.5 |  |  | 4.9 |  |  | 5.0 |  |  | 4.5 |
Standard Personal Lines: |  |  |  |  |  |  |  |
Underwriting (loss) gain, before federal income tax |  | $ | (631 | ) |  | 3,158 |  |  | 7,074 |  |  | 6,457 |
Underwriting (loss) gain, after federal income tax |  | (499 | ) |  | 2,495 |  |  | 5,588 |  |  | 5,101 |
Combined ratio |  | 100.8 | % |  | 95.9 |  |  | 96.9 |  |  | 97.2 |
ROE contribution |  | (0.1 | ) |  | 0.6 |  |  | 0.4 |  |  | 0.4 |
E&S Lines: |  |  |  |  |  |  |  |
Underwriting gain (loss), before federal income tax |  | $ | 1,916 |  |  | 3,506 |  |  | 9,439 |  |  | (4,848 | )
Underwriting gain (loss), after federal income tax |  | 1,514 |  |  | 2,770 |  |  | 7,457 |  |  | (3,830 | )
Combined ratio |  | 96.9 | % |  | 93.7 |  |  | 94.7 |  |  | 103.0 |
ROE contribution |  | 0.3 |  |  | 0.6 |  |  | 0.5 |  |  | (0.3 | )
Investments: |  |  |  |  |  |  |  |  |  |
Net investment income |  | $ | 55,826 |  |  | 52,443 |  |  | 164,949 |  |  | 141,227 |
Net realized and unrealized investment (losses) gains |  | (2,183 | ) |  | (4,787 | ) |  | 15,295 |  |  | (16,988 | )
Total investment segment income, before federal income tax |  | 53,643 |  |  | 47,656 |  |  | 180,244 |  |  | 124,239 |
Tax on investment segment income |  | 10,884 |  |  | 8,562 |  |  | 34,733 |  |  | 21,405 |
Total investment segment income, after federal income tax |  | $ | 42,759 |  |  | 39,094 |  |  | 145,511 |  |  | 102,834 |
ROE contribution of after-tax net investment income |  | 8.6 |  |  | 10.0 |  |  | 9.1 |  |  | 9.0 |

Reconciliation of Segment Results to Income Before Federal Income Tax |  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Underwriting gain (loss) |  |  |  |  |  |  |  |
Standard Commercial Lines |  | $ | 30,016 |  |  | 26,333 |  |  | 92,974 |  |  | 74,153 |
Standard Personal Lines |  | (631 | ) |  | 3,158 |  |  | 7,074 |  |  | 6,457 |
E&S Lines |  | 1,916 |  |  | 3,506 |  |  | 9,439 |  |  | (4,848 | )
Investment income |  | 53,643 |  |  | 47,656 |  |  | 180,244 |  |  | 124,239 |
Total all segments |  | 84,944 |  |  | 80,653 |  |  | 289,731 |  |  | 200,001 |
Interest expense |  | (7,397 | ) |  | (6,073 | ) |  | (26,289 | ) |  | (18,350 | )
Corporate expenses |  | (6,369 | ) |  | (7,450 | ) |  | (28,345 | ) |  | (22,065 | )
Income, before federal income tax |  | $ | 71,178 |  |  | 67,130 |  |  | 235,097 |  |  | 159,586 |

NOTE 10. Retirement Plans
SICA's primary pension plan is the Retirement Income Plan for Selective Insurance Company of America (the “Pension Plan”). SICA also sponsors the Supplemental Excess Retirement Plan (the “Excess Plan”) and a life insurance benefit plan. All plans are closed to new entrants and benefits ceased accruing under the Pension Plan and the Excess Plan after March 31, 2016. For more information concerning SICA's retirement plans, refer to Note 14. “Retirement Plans” in Item 8. “Financial Statements and Supplementary Data.” of our 2018 Annual Report.
The following tables provide information regarding the Pension Plan:

|  | Pension Plan |  | Pension Plan
|  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Net Periodic Pension Cost (Benefit): |  |  |  |  |  |  |  |
Interest cost |  | $ | 3,376 |  |  | 3,095 |  |  | 10,129 |  |  | 9,285 |
Expected return on plan assets |  | (5,278 | ) |  | (5,681 | ) |  | (15,835 | ) |  | (17,044 | )
Amortization of unrecognized net actuarial loss |  | 644 |  |  | 494 |  |  | 1,931 |  |  | 1,481 |
Total net periodic pension cost (benefit)1 |  | $ | (1,258 | ) |  | (2,092 | ) |  | (3,775 | ) |  | (6,278 | )

1 The components of net periodic pension cost (benefit) are included within "Loss and loss expense incurred" and "Other insurance expenses" on the Consolidated Statements of Income.
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|  | Pension Plan
|  | Nine Months ended September 30,
|  | 2019 |  | 2018
Weighted-Average Expense Assumptions: |  |  |  |
Discount rate |  | 4.46 | % |  | 3.78 | %
Effective interest rate for calculation of interest cost |  | 4.12 |  |  | 3.46 |
Expected return on plan assets |  | 6.50 |  |  | 6.36 |

NOTE 11. Comprehensive Income
The components of comprehensive income, both gross and net of tax, for Third Quarter and Nine Months 2019 and Third Quarter and Nine Months 2018 were as follows:

Third Quarter 2019 |  |  |  |  |  |
($ in thousands) |  | Gross |  | Tax |  | Net
Net income |  | $ | 71,178 |  |  | 15,028 |  |  | 56,150 |
Components of OCI: |  |  |  |  |  |  |  |  |
Unrealized gains on investment securities: |  |  |  |  |  |  |  |  |
Unrealized holding gains during the period |  | 34,392 |  |  | 7,224 |  |  | 27,168 |
Amounts reclassified into net income: |  |  |  |  |  |
HTM securities |  | (3 | ) |  | (1 | ) |  | (2 | )
Realized losses on disposals and OTTI of AFS securities |  | 2,821 |  |  | 592 |  |  | 2,229 |
Total unrealized gains on investment securities |  | 37,210 |  |  | 7,815 |  |  | 29,395 |
Defined benefit pension and post-retirement plans: |  |  |  |  |  |  |  |  |
Amounts reclassified into net income: |  |  |  |  |  |  |  |  |
Net actuarial loss |  | 665 |  |  | 140 |  |  | 525 |
Total defined benefit pension and post-retirement plans |  | 665 |  |  | 140 |  |  | 525 |
Other comprehensive income |  | 37,875 |  |  | 7,955 |  |  | 29,920 |
Comprehensive income |  | $ | 109,053 |  |  | 22,983 |  |  | 86,070 |
Third Quarter 2018 |  |  |  |  |  |
($ in thousands) |  | Gross |  | Tax |  | Net
Net income |  | $ | 67,130 |  |  | 11,695 |  |  | 55,435 |
Components of other comprehensive loss: |  |  |  |  |  |  |  |  |
Unrealized losses on investment securities: |  |  |  |  |  |  |  |  |
Unrealized holding losses during the period |  | (21,565 | ) |  | (4,529 | ) |  | (17,036 | )
Amounts reclassified into net income: |  |  |  |  |  |
HTM securities |  | (8 | ) |  | (2 | ) |  | (6 | )
Realized losses on disposals and OTTI of AFS securities |  | 10,839 |  |  | 2,276 |  |  | 8,563 |
Total unrealized losses on investment securities |  | (10,734 | ) |  | (2,255 | ) |  | (8,479 | )
Defined benefit pension and post-retirement plans: |  |  |  |  |  |  |  |  |
Amounts reclassified into net income: |  |  |  |  |  |  |  |  |
Net actuarial loss |  | 532 |  |  | 112 |  |  | 420 |
Total defined benefit pension and post-retirement plans |  | 532 |  |  | 112 |  |  | 420 |
Other comprehensive loss |  | (10,202 | ) |  | (2,143 | ) |  | (8,059 | )
Comprehensive income |  | $ | 56,928 |  |  | 9,552 |  |  | 47,376 |

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Nine Months 2019 |  |  |  |  |  |
($ in thousands) |  | Gross |  | Tax |  | Net
Net income |  | $ | 235,097 |  |  | 45,333 |  |  | 189,764 |
Components of OCI: |  |  |  |  |  |  |
Unrealized gains on investment securities: |  |  |  |  |  |  |
Unrealized holding gains during the period |  | 220,864 |  |  | 46,381 |  |  | 174,483 |
Amounts reclassified into net income: |  |  |  |  |  |
HTM securities |  | (33 | ) |  | (7 | ) |  | (26 | )
Realized losses on disposals and OTTI of AFS securities |  | 444 |  |  | 93 |  |  | 351 |
Total unrealized gains on investment securities |  | 221,275 |  |  | 46,467 |  |  | 174,808 |
Defined benefit pension and post-retirement plans: |  |  |  |  |  |  |  |  |
Amounts reclassified into net income: |  |  |  |  |  |  |
Net actuarial loss |  | 1,993 |  |  | 419 |  |  | 1,574 |
Total defined benefit pension and post-retirement plans |  | 1,993 |  |  | 419 |  |  | 1,574 |
Other comprehensive income |  | 223,268 |  |  | 46,886 |  |  | 176,382 |
Comprehensive income |  | $ | 458,365 |  |  | 92,219 |  |  | 366,146 |
Nine Months 2018 |  |  |  |  |  |
($ in thousands) |  | Gross |  | Tax |  | Net
Net income |  | $ | 159,586 |  |  | 26,407 |  |  | 133,179 |
Components of other comprehensive loss: |  |  |  |  |  |  |
Unrealized losses on investment securities: |  |  |  |  |  |  |
Unrealized holding losses during the period |  | (130,873 | ) |  | (27,484 | ) |  | (103,389 | )
Amounts reclassified into net income: |  |  |  |  |  |
HTM securities |  | (28 | ) |  | (6 | ) |  | (22 | )
Realized losses on disposals and OTTI of AFS securities |  | 18,258 |  |  | 3,834 |  |  | 14,424 |
Total unrealized losses on investment securities |  | (112,643 | ) |  | (23,656 | ) |  | (88,987 | )
Defined benefit pension and post-retirement plans: |  |  |  |  |  |  |  |  |
Amounts reclassified into net income: |  |  |  |  |  |  |
Net actuarial loss |  | 1,595 |  |  | 335 |  |  | 1,260 |
Total defined benefit pension and post-retirement plans |  | 1,595 |  |  | 335 |  |  | 1,260 |
Other comprehensive loss |  | (111,048 | ) |  | (23,321 | ) |  | (87,727 | )
Comprehensive income |  | $ | 48,538 |  |  | 3,086 |  |  | 45,452 |

The balances of, and changes in, each component of AOCI (net of taxes) as of September 30, 2019 were as follows:

September 30, 2019 |  |  |  | Defined Benefit Pension and Post-Retirement Plans |  |
|  | Net Unrealized Gains (Losses) on Investment Securities |  |  | Total AOCI
($ in thousands) |  | OTTI Related |  | HTM Related |  | All Other |  | Investments Subtotal |  |
Balance, December 31, 2018 |  | $ | (71 | ) |  | 71 |  |  | 1,888 |  |  | 1,888 |  |  | (79,844 | ) |  | (77,956 | )
OCI before reclassifications |  | — |  |  | — |  |  | 174,483 |  |  | 174,483 |  |  | — |  |  | 174,483 |
Amounts reclassified from AOCI |  | — |  |  | (26 | ) |  | 351 |  |  | 325 |  |  | 1,574 |  |  | 1,899 |
Net current period OCI |  | — |  |  | (26 | ) |  | 174,834 |  |  | 174,808 |  |  | 1,574 |  |  | 176,382 |
Balance, September 30, 2019 |  | $ | (71 | ) |  | 45 |  |  | 176,722 |  |  | 176,696 |  |  | (78,270 | ) |  | 98,426 |

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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) | 2019 |  | 2018 |  | 2019 |  | 2018
HTM related |  |  |  |  |  |  |  |
Unrealized (gains) losses on HTM disposals | $ | (3 | ) |  | 11 |  |  | (12 | ) |  | 5 |  | Net realized and unrealized (losses) gains
Amortization of net unrealized gains on HTM securities | — |  |  | (19 | ) |  | (21 | ) |  | (33 | ) | Net investment income earned
| (3 | ) |  | (8 | ) |  | (33 | ) |  | (28 | ) | Income before federal income tax
| 1 |  |  | 2 |  |  | 7 |  |  | 6 |  | Total federal income tax expense
| (2 | ) |  | (6 | ) |  | (26 | ) |  | (22 | ) | Net income
Realized losses on AFS and OTTI |  |  |  |  |  |  |  |
Realized losses on AFS disposals and OTTI | 2,821 |  |  | 10,839 |  |  | 444 |  |  | 18,258 |  | Net realized and unrealized (losses) gains
| 2,821 |  |  | 10,839 |  |  | 444 |  |  | 18,258 |  | Income before federal income tax
| (592 | ) |  | (2,276 | ) |  | (93 | ) |  | (3,834 | ) | Total federal income tax expense
| 2,229 |  |  | 8,563 |  |  | 351 |  |  | 14,424 |  | Net income
Defined benefit pension and post-retirement life plans |  |  |  |  |  |  |  |
Net actuarial loss | 146 |  |  | 112 |  |  | 436 |  |  | 337 |  | Loss and loss expense incurred
| 519 |  |  | 420 |  |  | 1,557 |  |  | 1,258 |  | Other insurance expenses
Total defined benefit pension and post-retirement life | 665 |  |  | 532 |  |  | 1,993 |  |  | 1,595 |  | Income before federal income tax
| (140 | ) |  | (112 | ) |  | (419 | ) |  | (335 | ) | Total federal income tax expense
| 525 |  |  | 420 |  |  | 1,574 |  |  | 1,260 |  | Net income
Total reclassifications for the period | $ | 2,752 |  |  | 8,977 |  |  | 1,899 |  |  | 15,662 |  | Net income

NOTE 12. Leases
We have various operating leases for office space, equipment, and fleet vehicles. In addition, we have various finance leases for computer hardware. Such lease agreements, which expire at various dates through 2030, are generally renewed or replaced by similar leases.
We determine if an arrangement is a lease on the commencement date of the contract. Lease assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. The lease asset and liability are measured by the present value of the future minimum lease payments over the lease term. Our fleet vehicle leases include a residual value guarantee; however, it is not probable of being owed. Therefore, there is no impact to the lease liability or lease asset. To measure the present value, the discount rate available in the contract is used. If the discount rate is not readily determinable, our incremental borrowing rate is used. The lease asset is then adjusted to exclude lease incentives. We recognize variable lease payments in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is calculated using the straight-line method.
Upon adoption of ASU 2016-02 on January 1, 2019, we recorded operating lease right-of-use assets of $20.7 million with related lease liabilities of $21.0 million. The differential of $0.3 million was recognized, on an after-tax basis, as a cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2019. Financing lease right-of-use assets and the related lease liabilities were $0.9 million as of January 1, 2019. See Note 2. "Adoption of Accounting Pronouncements" in this Form 10-Q for additional information regarding ASU 2016-02 and accounting policy elections made.
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The components of lease expense in Third Quarter and Nine Months 2019 were as follows:

($ in thousands) |  | Quarter ended September 30, 2019 | Nine Months ended September 30, 2019
Operating lease cost, included in Other insurance expenses on the Consolidated Statements of Income |  | $ | 2,234 |  | 6,631 |
Finance lease cost: |  |  |
Amortization of assets, included in Other insurance expenses on the Consolidated Statements of Income |  | 217 |  | 816 |
Interest on lease liabilities, included in Interest expense on the Consolidated Statements of Income |  | 5 |  | 12 |
Total finance lease cost |  | 222 |  | 828 |
Variable lease cost, included in Other insurance expenses on the Consolidated Statements of Income |  | (548 | ) | 120 |
Short-term lease cost, included in Other insurance expenses on the Consolidated Statements of Income |  | 502 |  | 1,677 |

The following table provides supplemental information regarding our operating and finance leases.

| September 30, 2019
Weighted-average remaining lease term |  |
Operating leases | 6 | years
Finance leases | 2 |
Weighted-average discount rate |  |
Operating leases | 3.4 | %
Finance leases 1 | 2.0 |

1 Prior to adoption of ASU 2016-02, our historical capital lease liability and asset were measured using an un-discounted cash flow stream due to immateriality of the capital lease population.
Operating and finance lease asset and liability balances are included within the following line items on the Consolidated Balance Sheets:

($ in thousands) | September 30, 2019
Operating leases |
Other assets | $ | 28,348 |
Other liabilities | 29,218 |
Finance leases |
Property and equipment - at cost, net of accumulated depreciation and amortization | 899 |
Long-term debt | 904 |

At September 30, 2019, the maturities of our lease liabilities were as follows:

($ in thousands) |  | Finance Leases | Operating Leases | Total
Year ended December 31, |  |  |  |
2019 (excluding the nine months ended September 30, 2019) |  | $ | 171 |  | 2,071 |  | 2,242 |
2020 |  | 451 |  | 8,164 |  | 8,615 |
2021 |  | 248 |  | 6,033 |  | 6,281 |
2022 |  | 54 |  | 4,443 |  | 4,497 |
2023 |  | — |  | 3,232 |  | 3,232 |
Thereafter |  | — |  | 11,446 |  | 11,446 |
Total lease payments |  | 924 |  | 35,389 |  | 36,313 |
Less: imputed interest |  | 20 |  | 3,230 |  | 3,250 |
Less: leases that have not yet commenced |  | — |  | 2,941 |  | 2,941 |
Total lease liabilities |  | $ | 904 |  | 29,218 |  | 30,122 |

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At December 31, 2018, the maturities of our lease liabilities for capital and operating leases were as follows:

($ in thousands) |  | Capital Leases | Operating Leases | Total
2019 |  | $ | 728 |  | 7,762 |  | 8,490 |
2020 |  | 141 |  | 7,355 |  | 7,496 |
2021 |  | 22 |  | 5,083 |  | 5,105 |
2022 |  | — |  | 3,641 |  | 3,641 |
2023 |  | — |  | 2,900 |  | 2,900 |
Thereafter |  | — |  | 9,698 |  | 9,698 |
Total minimum payment required |  | $ | 891 |  | 36,439 |  | 37,330 |

Refer to Note. 3 "Statements of Cash Flows" in this Form 10-Q for supplemental cash and non-cash transactions included in the measurement of operating and finance lease liabilities.
NOTE 13. Litigation
In the ordinary course of conducting business, we can be named as defendants in various legal actions. Most are claims litigation involving our Insurance Subsidiaries as either: (i) liability insurers defending or providing indemnity for third-party claims brought against our customers; or (ii) insurers defending first-party coverage claims brought against them. We account for such activity through the establishment of unpaid loss and loss expense reserves. In ordinary course claims litigation, we expect that any potential ultimate liability, after consideration of provisions made for potential losses and costs of defense, will not be material to our consolidated financial condition, results of operations, or cash flows.
From time to time, our Insurance Subsidiaries also are named as defendants in other legal actions, some of which assert claims for substantial amounts. Plaintiffs may style these actions as putative class actions and seek judicial certification of a state or national class for allegations such as improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance policies or improper reimbursement for automobile parts. Similarly, our Insurance Subsidiaries can be named in individual actions seeking extra-contractual damages, punitive damages, or penalties, often alleging bad faith in the handling of insurance claims. We believe that we have valid defenses to these allegations and we account for such activity through the establishment of unpaid loss and loss expense reserves. In these other legal actions, we expect that any potential ultimate liability, after consideration of provisions made for estimated losses, will not be material to our consolidated financial condition. Nonetheless, litigation outcomes are inherently unpredictable and, because the amounts sought in certain of these actions are large or indeterminate, it is possible that any adverse outcomes could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.
As of September 30, 2019, 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
As used herein, the "Company," "we," "us," or "our" refers to Selective Insurance Group, Inc. (the "Parent"), and its subsidiaries, except as expressly indicated or unless the context otherwise requires. In this Quarterly Report on Form 10-Q, we discuss and make statements regarding our intentions, beliefs, current expectations, and projections regarding our company’s future operations and performance. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by words such as “anticipates,” “believes,” “expects,” “will,” “should,” and “intends” and their negatives. We caution prospective investors that such forward-looking statements are not guarantees of future performance. Risks and uncertainties are inherent in our future performance. Factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, those discussed under Item 1A. “Risk Factors” below in Part II. “Other Information.” These risk factors may not be exhaustive. We operate in a continually changing business environment and new risk factors emerge from time to time. We can neither predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied in any forward-looking statements in this report. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this report might not occur. We make forward-looking statements based on currently available information and assume no obligation to update these statements due to changes in underlying factors, new information, future developments, or otherwise.
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Introduction
The Parent, through its ten insurance subsidiaries, collectively referred to as the "Insurance Subsidiaries," offers property and casualty insurance products in the standard and excess and surplus ("E&S") marketplaces. We classify our business into four reportable segments, which are as follows:

• | Standard Commercial Lines;

• | Standard Personal Lines;

• | E&S Lines; and

• | Investments.

For further details regarding these segments, refer to Note 9. "Segment Information" in Item 1. "Financial Statements." of this Form 10-Q and Note 11. "Segment Information" in Item 8. "Financial Statements and Supplementary Data." of our Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Annual Report").
Our Standard Commercial and Standard Personal Lines products and services are written through nine of our Insurance Subsidiaries, some of which write flood business through the Write Your Own ("WYO") program of the National Flood Insurance Program ("NFIP"). Our E&S products and services are written through one subsidiary, Mesa Underwriters Specialty Insurance Company. This subsidiary provides us with a nationally-authorized non-admitted platform to offer insurance products and services to customers who have not obtained coverage in the standard marketplace.
The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated results of operations and financial condition, as well as known trends and uncertainties, that may have a material impact in future periods. Consequently, 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 2018 Annual Report filed with the U.S. Securities and Exchange Commission. Within this MD&A, all prior year amounts for non-catastrophe property losses, and the related ratios, have been adjusted to include the related loss expenses, which is consistent with the current year presentation.
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, 2019 (“Third Quarter 2019”) and September 30, 2018 (“Third Quarter 2018”) and the nine-month periods ended September 30, 2019 (“Nine Months 2019”) and September 30, 2018 (“Nine Months 2018”);

• | Results of Operations and Related Information by Segment;

• | Federal Income Taxes;

• | Financial Condition, Liquidity, and Capital Resources;

• | Ratings;

• | Off-Balance Sheet Arrangements; and

• | Contractual Obligations, Contingent Liabilities, and Commitments.

Critical Accounting Policies and Estimates
Our unaudited interim consolidated financial statements include amounts based on our informed estimates and judgments for those transactions that are not yet complete. Such estimates and judgments affect the reported amounts in the consolidated financial statements. Those estimates and judgments that were most critical to the preparation of the consolidated financial statements involved the following: (i) reserves for loss and loss expense; (ii) pension and post-retirement benefit plan actuarial assumptions; (iii) investment valuation and other-than-temporary-impairments ("OTTI"); and (iv) reinsurance. These estimates and judgments require the use of assumptions about matters that are highly uncertain and, therefore, are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements. For additional information regarding our critical accounting policies, refer to pages 37 through 46 of our 2018 Annual Report.
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Financial Highlights of Results for Third Quarter and Nine Months 2019 and Third Quarter and Nine Months 2018 1

($ and shares in thousands, except per share amounts) |  | Quarter ended September 30, |  | Change % or Points |  |  | Nine Months ended September 30, |  | Change % or Points |
| 2019 |  | 2018 |  |  |  | 2019 |  | 2018 |  |
Revenues |  | $ | 710,425 |  |  | 664,471 |  |  | 7 |  | % |  | $ | 2,117,591 |  |  | 1,943,076 |  |  | 9 |  | %
After-tax net investment income |  | 45,374 |  |  | 42,875 |  |  | 6 |  |  |  | 134,319 |  |  | 116,254 |  |  | 16 |  |
After-tax underwriting income |  | 24,728 |  |  | 26,068 |  |  | (5 | ) |  |  | 86,495 |  |  | 59,852 |  |  | 45 |  |
Net income before federal income tax |  | 71,178 |  |  | 67,130 |  |  | 6 |  |  |  | 235,097 |  |  | 159,586 |  |  | 47 |  |
Net income |  | 56,150 |  |  | 55,435 |  |  | 1 |  |  |  | 189,764 |  |  | 133,179 |  |  | 42 |  |
Diluted net income per share |  | 0.93 |  |  | 0.93 |  |  | — |  |  |  | 3.16 |  |  | 2.23 |  |  | 42 |  |
Diluted weighted-average outstanding shares |  | 60,057 |  |  | 59,711 |  |  | 1 |  |  |  | 59,960 |  |  | 59,626 |  |  | 1 |  |
Combined ratio |  | 95.2 | % |  | 94.6 |  |  | 0.6 |  | pts |  | 94.3 | % |  | 95.8 |  |  | (1.5 | ) | pts
Invested assets per dollar of stockholders' equity |  | $ | 3.07 |  |  | 3.37 |  |  | (9 | ) | % |  | $ | 3.07 |  |  | 3.37 |  |  | (9 | ) | %
After-tax yield on investments |  | 2.8 | % |  | 3.0 |  |  | (0.2 | ) | pts |  | 2.9 | % |  | 2.7 |  |  | 0.2 |  | pts
Book value per share |  | $ | 35.98 |  |  | 29.52 |  |  | 22 |  | % |  | $ | 35.98 |  |  | 29.52 |  |  | 22 |  | %
Dividends declared per share to stockholders |  | 0.20 |  |  | 0.18 |  |  | 11 |  |  |  | 0.60 |  |  | 0.54 |  |  | 11 |  |
Annualized return on equity ("ROE") |  | 10.7 |  |  | 12.9 |  |  | (2.2 | ) | pts |  | 12.9 |  |  | 10.3 |  |  | 2.6 |  | pts
Non-Generally Accepted Accounting Principles ("GAAP") operating income 2 |  | $ | 58,765 |  |  | 59,216 |  |  | (1 | ) | % |  | $ | 181,870 |  |  | 146,599 |  |  | 24 |  | %
Diluted non-GAAP operating income per share 2 |  | 0.97 |  |  | 0.99 |  |  | (2 | ) |  |  | 3.02 |  |  | 2.46 |  |  | 23 |  |
Annualized non-GAAP operating ROE 2 |  | 11.2 | % |  | 13.8 |  |  | (2.6 | ) | pts |  | 12.3 | % |  | 11.3 |  |  | 1.0 |  | pts

1 | Refer to the Glossary of Terms attached to our 2018 Annual Report as Exhibit 99.1 for definitions of terms used in this Form 10-Q.

2 | Non-GAAP operating income is used as an important financial measure by us, analysts, and investors, because the realization of net investment gains and losses on sales of securities in any given period is largely discretionary as to timing. In addition, these net realized investment gains and losses, OTTI that are charged to earnings, unrealized gains and losses on equity securities, and the debt retirement costs could distort the analysis of trends.

Reconciliations of net income, net income per diluted share, and annualized ROE to non-GAAP operating income, non-GAAP operating income per diluted share, and annualized non-GAAP operating ROE, respectively, are provided in the tables below:

Reconciliation of net income to non-GAAP operating income |  | Quarter ended September 30, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Net income |  | $ | 56,150 |  |  | 55,435 |  |  | 189,764 |  |  | 133,179 |
Net realized and unrealized losses (gains), before tax |  | 2,183 |  |  | 4,787 |  |  | (15,295 | ) |  | 16,988 |
Debt retirement costs, before tax |  | — |  |  | — |  |  | 4,175 |  |  | — |
Tax on reconciling items |  | 432 |  |  | (1,006 | ) |  | 3,226 |  |  | (3,568 | )
Non-GAAP operating income |  | $ | 58,765 |  |  | 59,216 |  |  | 181,870 |  |  | 146,599 |

Reconciliation of net income per diluted share to non-GAAP operating income per diluted share |  | Quarter ended September 30, |  | Nine Months ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Net income per diluted share |  | $ | 0.93 |  |  | 0.93 |  |  | 3.16 |  |  | 2.23 |
Net realized and unrealized losses (gains), before tax |  | 0.04 |  |  | 0.08 |  |  | (0.26 | ) |  | 0.28 |
Debt retirement costs, before tax |  | — |  |  | — |  |  | 0.07 |  |  | — |
Tax on reconciling items |  | — |  |  | (0.02 | ) |  | 0.05 |  |  | (0.05 | )
Non-GAAP operating income per diluted share |  | $ | 0.97 |  |  | 0.99 |  |  | 3.02 |  |  | 2.46 |

Reconciliation of annualized ROE to annualized non-GAAP operating ROE |  | Quarter ended September 30, |  | Nine Months ended September 30,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
Annualized ROE |  | 10.7 | % |  | 12.9 |  |  | 12.9 |  |  | 10.3 |
Net realized and unrealized losses (gains), before tax |  | 0.4 |  |  | 1.1 |  |  | (1.0 | ) |  | 1.3 |
Debt retirement costs, before tax |  | — |  |  | — |  |  | 0.3 |  |  | — |
Tax on reconciling items |  | 0.1 |  |  | (0.2 | ) |  | 0.1 |  |  | (0.3 | )
Annualized non-GAAP operating ROE |  | 11.2 | % |  | 13.8 |  |  | 12.3 |  |  | 11.3 |

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The components of our annualized ROE are as follows:

Annualized ROE Components |  | Quarter ended September 30, |  | Change Points |  | Nine Months ended September 30, |  | Change Points
|  | 2019 |  | 2018 |  |  | 2019 |  | 2018 |
Standard Commercial Lines Segment |  | 4.5 | % |  | 4.9 |  |  | (0.4 | ) |  | 5.0 |  |  | 4.5 |  |  | 0.5 |
Standard Personal Lines Segment |  | (0.1 | ) |  | 0.6 |  |  | (0.7 | ) |  | 0.4 |  |  | 0.4 |  |  | — |
E&S Lines Segment |  | 0.3 |  |  | 0.6 |  |  | (0.3 | ) |  | 0.5 |  |  | (0.3 | ) |  | 0.8 |
Total insurance operations |  | 4.7 |  |  | 6.1 |  |  | (1.4 | ) |  | 5.9 |  |  | 4.6 |  |  | 1.3 |
Investment income |  | 8.6 |  |  | 10.0 |  |  | (1.4 | ) |  | 9.1 |  |  | 9.0 |  |  | 0.1 |
Net realized and unrealized (losses) gains |  | (0.5 | ) |  | (0.9 | ) |  | 0.4 |  |  | 0.8 |  |  | (1.0 | ) |  | 1.8 |
Total investments segment |  | 8.1 |  |  | 9.1 |  |  | (1.0 | ) |  | 9.9 |  |  | 8.0 |  |  | 1.9 |
Other |  | (2.1 | ) |  | (2.3 | ) |  | 0.2 |  |  | (2.9 | ) |  | (2.3 | ) |  | (0.6 | )
Annualized ROE |  | 10.7 | % |  | 12.9 |  |  | (2.2 | ) |  | 12.9 |  |  | 10.3 |  |  | 2.6 |

In Third Quarter 2019, we generated net income per diluted share of $0.93, in line with the same quarter a year ago. Non-GAAP operating income per diluted share was $0.97, compared to $0.99 a year ago. The Third Quarter 2019 results were impacted by: (i) higher than expected levels of non-catastrophe property loss and loss expenses of $5 million, after-tax, or $0.09 per diluted share; and (ii) $3 million of after-tax employee severance-related expenses, split between underwriting and corporate expenses on the Consolidated Statements of Income, that accounted for $0.05 per diluted share. On a year-to-date basis, non-catastrophe property loss and loss expenses were generally in line with expected levels.
We generated 18% growth in book value per share through Nine Months 2019. The strong growth in book value per share was driven by net income and appreciation in the value of our fixed income securities portfolio, which experienced net unrealized after-tax gains of approximately $29 million during Third Quarter 2019 and $175 million during Nine Months 2019. This growth was partially offset by dividends paid to shareholders.
In addition to strong growth in book value per share, the financial results this year continue to build on our five-year track record of consistently generating double-digit non-GAAP operating ROEs on an annual basis. Our annualized non-GAAP operating ROE of 12.3% in Nine Months 2019 was 30 basis points above our 2019 target of 12% and 100 basis points higher than the annualized non-GAAP operating ROE in Nine Months 2018.
Despite exceeding our target, our annualized non-GAAP operating ROE was negatively impacted by net unrealized after-tax gains of $175 million on our fixed income securities portfolio, which decreased our annualized non-GAAP operating ROE by 60 basis points. We currently expect interest rates to remain low, which will likely put pressure on our ROE and non-GAAP operating ROE in 2020.
Insurance Operations
Our insurance segments delivered profitable results in Third Quarter and Nine Months 2019, contributing to a combined annualized ROE in the quarter of 4.7% and in the year-to-date period of 5.9%. The Third Quarter 2019 annualized ROE decreased 1.4 points compared to Third Quarter 2018, reflecting an increase in our combined ratio of 0.6 points. The increase was principally driven by higher non-catastrophe property loss and loss expenses and a higher expense ratio. The higher expense ratio of 1.6 points reflected the following: (i) a 0.5-point increase in employee-related expenses, including 0.3 points for employee severance-related expenses noted above; and (ii) a 0.6-point increase in profit-based compensation to our distribution partners and employees.
The annualized ROE in Nine Months 2019 increased 1.3 points compared to Nine Months 2018, because of the improvement in the combined ratio of 1.5 points. The combined ratio improvement was principally driven by: (i) lower levels of non-catastrophe property loss and loss expenses; and (ii) higher levels of favorable prior year casualty reserve development. These improvements were partially offset by the increase in the expense ratio of 0.6 points, which reflected a 0.4-point increase in profit-based compensation to our distribution partners and employees.
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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) |  | 2019 |  | 2018 |  |  |  | 2019 |  | 2018 |  |
Insurance Operations Results: |  |  |  |  |  |  |  |  |  |  |  |
Net premiums written ("NPW") |  | $ | 676,928 |  |  | 651,668 |  |  | 4 |  | % |  | $ | 2,051,272 |  |  | 1,931,476 |  |  | 6 |  | %
Net premiums earned (“NPE”) |  | 653,620 |  |  | 614,277 |  |  | 6 |  |  |  | 1,928,812 |  |  | 1,810,941 |  |  | 7 |  |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense incurred |  | 398,675 |  |  | 379,199 |  |  | 5 |  |  |  | 1,166,238 |  |  | 1,130,468 |  |  | 3 |  |
Net underwriting expenses incurred |  | 222,599 |  |  | 199,791 |  |  | 11 |  |  |  | 648,693 |  |  | 598,437 |  |  | 8 |  |
Dividends to policyholders |  | 1,045 |  |  | 2,290 |  |  | (54 | ) |  |  | 4,394 |  |  | 6,274 |  |  | (30 | ) |
Underwriting income |  | $ | 31,301 |  |  | 32,997 |  |  | (5 | ) | % |  | $ | 109,487 |  |  | 75,762 |  |  | 45 |  | %
Combined Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense ratio |  | 60.9 |  | % | 61.7 |  |  | (0.8 | ) | pts |  | 60.5 |  | % | 62.5 |  |  | (2.0 | ) | pts
Underwriting expense ratio |  | 34.1 |  |  | 32.5 |  |  | 1.6 |  |  |  | 33.6 |  |  | 33.0 |  |  | 0.6 |  |
Dividends to policyholders ratio |  | 0.2 |  |  | 0.4 |  |  | (0.2 | ) |  |  | 0.2 |  |  | 0.3 |  |  | (0.1 | ) |
Combined ratio |  | 95.2 |  |  | 94.6 |  |  | 0.6 |  |  |  | 94.3 |  |  | 95.8 |  |  | (1.5 | ) |

Our Third Quarter and Nine Months 2019 results continue to reflect our efforts to: (i) achieve overall renewal pure price increases at levels that are in line with expected loss trend; (ii) generate new business; and (iii) improve the underlying profitability of our business through various underwriting and claims initiatives. We continue to execute on our strategy for disciplined NPW growth, with 4% growth in Third Quarter 2019 and 6% growth in Nine Months 2019 compared to the same prior year periods. This growth was primarily due to renewal pure price increases and new business growth in our Standard Commercial Lines. Our growth was aided by the net appointment of 57 retail agents, excluding agency consolidations.
Loss and Loss Expenses
The decreases in the loss and loss expense ratio during both periods presented above were driven by the following:

| Third Quarter 2019 |  | Third Quarter 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  | Change in Ratio |
Catastrophe losses | $ | 24.2 |  | 3.7 |  | pts |  | $ | 28.1 |  | 4.6 |  | pts | (0.9 | ) | pts
(Favorable) prior year casualty reserve development | (14.0 | ) | (2.1 | ) |  |  | (12.0 | ) | (2.0 | ) |  | (0.1 | ) |
Non-catastrophe property loss and loss expenses | 108.8 |  | 16.7 |  |  |  | 100.8 |  | 16.4 |  |  | 0.3 |  |
Total | 119.0 |  | 18.3 |  |  |  | 116.9 |  | 19.0 |  |  | (0.7 | ) |
| Nine Months 2019 |  | Nine Months 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  | Change in Ratio |
Catastrophe losses | $ | 74.5 |  | 3.9 |  | pts |  | $ | 72.9 |  | 4.0 |  | pts | (0.1 | ) | pts
(Favorable) prior year casualty reserve development | (41.0 | ) | (2.1 | ) |  |  | (24.0 | ) | (1.3 | ) |  | (0.8 | ) |
Non-catastrophe property loss and loss expenses | 309.6 |  | 16.1 |  |  |  | 310.9 |  | 17.2 |  |  | (1.1 | ) |
Total | 343.1 |  | 17.9 |  |  |  | 359.8 |  | 19.9 |  |  | (2.0 | ) |

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

(Favorable)/Unfavorable Prior Year Casualty Reserve Development | Quarter ended September 30, |  | Nine Months ended September 30, |
($ in millions) | 2019 |  | 2018 |  | 2019 |  | 2018 |
General liability | $ | (3.0 | ) |  | (8.0 | ) |  | (10.0 | ) |  | (8.0 | ) |
Commercial automobile | — |  |  | 10.0 |  |  | — |  |  | 25.0 |  |
Workers compensation | (13.0 | ) |  | (20.0 | ) |  | (33.0 | ) |  | (53.0 | ) |
Total Standard Commercial Lines | (16.0 | ) |  | (18.0 | ) |  | (43.0 | ) |  | (36.0 | ) |
Homeowners | — |  |  | — |  |  | — |  |  | — |  |
Personal automobile | 2.0 |  |  | — |  |  | 2.0 |  |  | — |  |
Total Standard Personal Lines | 2.0 |  |  | — |  |  | 2.0 |  |  | — |  |
E&S | — |  |  | 6.0 |  |  | — |  |  | 12.0 |  |
Total (favorable) prior year casualty reserve development | $ | (14.0 | ) |  | (12.0 | ) |  | (41.0 | ) |  | (24.0 | ) |
(Favorable) impact on loss ratio | (2.1 | ) | pts | (2.0 | ) |  | (2.1 | ) |  | (1.3 | ) |

For additional qualitative discussions regarding reserve development, please refer to the insurance segment sections below in "Results of Operations and Related Information by Segment."
Investments Segment
Net investment income, after tax, grew 6% in Third Quarter 2019 and 16% in Nine Months 2019, compared to the same prior year periods, principally driven by: (i) cash flows from operations that were 22% of NPW in the quarter and 15% of NPW in the year-to-date period; (ii) $106 million in net proceeds from our 5.375% Senior Notes issuance earlier in 2019; and (iii) alternative investment income that, for Nine Months 2019, was $2.4 million higher than the comparable prior year period. Net investment income, after tax, contributed 8.6 points to ROE in Third Quarter 2019 and 9.1 points in Nine Months 2019, compared to 10.0 points in Third Quarter 2018 and 9.0 points in Nine Months 2018.
Net realized and unrealized gains and losses reduced ROE by 0.5 points in Third Quarter 2019, compared to a reduction of 0.9 points in Third Quarter 2018. Net realized and unrealized gains and losses increased ROE by 0.8 points in Nine Months 2019, compared to a reduction of 1.0 point in Nine Months 2018. The improvement in both periods was primarily driven by a reduction in realized losses on our fixed income securities portfolio, which was driven by less opportunistic sales. During Third Quarter 2019, we sold a significant portion of our public equity securities and generated $21.6 million of realized gains on the sale, which was principally offset by a $21.4 million reversal of previously-recorded unrealized gains on these securities.
Other
Our interest and corporate expenses, which are primarily comprised of stock compensation expense at the holding company
level, reduced ROE by 2.1 points and 2.9 points in Third Quarter and Nine Months 2019, respectively, compared to 2.3 points in both Third Quarter and Nine Months 2018. The quarter-to-date variance was driven primarily by a 0.6-point decrease in stock compensation expense related to our liability-based awards, as the stock price increase in Third Quarter 2019 was less than the increase in Third Quarter 2018, partially offset by a 0.3-point increase in stock compensation expense associated with employee severance-related expenses.
In addition, on March 1, 2019, Selective issued 5.375% Senior Notes with an aggregate principal amount of $300 million, the proceeds of which were used, in part, to redeem our 5.875% Senior Notes with an aggregate principal balance of $185 million that became callable last year. As a result of this redemption, we incurred after-tax debt retirement costs of $3.3 million, which reduced our ROE by 0.2 points in Nine Months 2019. These costs have been excluded from non-GAAP operating income.
Outlook
We ended 2018 with record levels of capital and liquidity and our strong Nine Months 2019 results have continued to improve our financial position. In the first quarter of 2019, we executed our first institutional public debt offering with the issuance of $300 million aggregate principal amount of 5.375% Senior Notes.
For 2019, we have established a non-GAAP operating ROE target of 12%, which is an appropriate return for our shareholders based on our current estimated weighted average cost of capital, the current interest rate environment, and property and casualty insurance market conditions, and have exceeded our target with 12.3% annualized non-GAAP operating ROE through Nine Months 2019.
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As we head into the closing months of 2019, our focus will be on the following areas:

• | Achieving written renewal pure price increases that are in line with expected loss trend. We achieved renewal pure price increases on our overall insurance operations of 3.6% in Nine Months 2019.

• | Delivering on our strategy for continued disciplined growth, which will be driven by the addition of new agents,

greater "share of wallet" in our existing agents’ offices, and geographic expansion. Our longer-term Standard Commercial Lines target is to attain a 3% market share in the states in which we operate, by appointing distribution partner relationships approximating 25% of their markets and seeking an average "share of wallet" of 12% across the relationships. This goal represents an additional premium opportunity in excess of $2.7 billion in our 27 state footprint. In Nine Months 2019, we achieved NPW growth of 6%. Our current agency market share stands at over 20%, and our average "share of wallet" is approximately 8% in our legacy states.

• | Continuing to enhance the customer experience strategy that we have been highlighting over the past few years, including value-added technologies and services such as: (i) our “Selective® Drive” program, which was first introduced to certain commercial automobile policyholders through our distribution partners in the fourth quarter of 2018; (ii) proactive communications in relation to product recalls, possible loss activity, policy changes, and risk management activities; (iii) Security Mentor, a product provided to our customers to better understand and manage cybersecurity risks; (iv) technology usage to reduce claim cycle time, such as SWIFTClaim® fast tracking; and (v) digital self-service capabilities for our customers.

• | Improving profitability in our lines of business by: (i) generating overall renewal pure price increases that are in line with expected loss trend; (ii) actively managing new and renewal books of business in targeted industry segments, which we expect will have a positive impact on profitability through business mix; (iii) deploying sophisticated claims tools, including enhanced modeling and segmentation strategies, which we expect will improve loss experience; and (iv) within our E&S segment, exiting some underperforming classes, while entering into new distribution relationships.

• | Actively managing the investment portfolio to enhance after-tax yields while managing credit, duration, and liquidity

risk. There was a significant decline in interest rates in Nine Months 2019, which demonstrates the need to maintain a strong focus on underwriting discipline to generate adequate returns on invested capital.
Our agile approach to driving underwriting, pricing and claims improvements is best demonstrated by our combined ratio that has averaged 94.0% since 2014, well ahead of the U.S. property and casualty industry average combined ratio that averaged 99.6% during the same period. Our strong technical and underwriting capabilities, underwriting leverage of 1.4x, and proven track record of effectively managing renewal pricing and retention, position us well for continued success in this low interest rate environment. As we look to the remainder of 2019, we remain pleased with our financial and strategic position. Our steadfast focus on underwriting discipline, combined with the investments we are making today in our franchise distribution model, sophisticated underwriting tools and technology, and overall customer experience in an omni-channel environment, will position us for continued long-term success.
For 2019, Conning, Inc.'s ("Conning") third quarter 2019 "Property-Casualty Forecast & Analysis" forecasts a property and casualty insurance industry statutory combined ratio of 96.7%, with a return on equity of 8.5%. This suggests an operating return on equity of approximately 7.5%, after excluding Conning's forecasted after-tax realized gains. We feel positive about the overall environment, and believe our major initiatives highlighted above set the stage for continued financial outperformance.
After three quarters of results, our full-year expectations are as follows:

• | A GAAP combined ratio, excluding catastrophe losses, of 91.0%. This assumes no fourth quarter prior-year casualty reserve development;

• | Catastrophe losses of 3.5 points;

• | After-tax net investment income of $180 million, which includes $14 million after-tax net investment income from our alternative investments;

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• | An overall effective tax rate of approximately 19%, which includes an effective tax rate of 18.5% for net investment income, reflecting a tax rate of 5.25% for tax-advantaged municipal bonds and a tax rate of 21% for all other items; and

• | Weighted average shares of 60 million on a diluted basis.

Results of Operations and Related Information by Segment
Standard Commercial Lines Segment

|  | Quarter ended September 30, |  | Change % or Points |  |  | Nine Months ended September 30, |  | Change % or Points |
($ in thousands) |  | 2019 |  | 2018 |  |  |  | 2019 |  | 2018 |  |
Insurance Segments Results: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NPW |  | $ | 532,921 |  |  | 502,312 |  |  | 6 |  | % |  | $ | 1,636,983 |  |  | 1,526,318 |  |  | 7 |  | %
NPE |  | 515,161 |  |  | 481,056 |  |  | 7 |  |  |  | 1,518,994 |  |  | 1,422,432 |  |  | 7 |  |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense incurred |  | 304,038 |  |  | 291,110 |  |  | 4 |  |  |  | 895,999 |  |  | 858,550 |  |  | 4 |  |
Net underwriting expenses incurred |  | 180,062 |  |  | 161,323 |  |  | 12 |  |  |  | 525,627 |  |  | 483,455 |  |  | 9 |  |
Dividends to policyholders |  | 1,045 |  |  | 2,290 |  |  | (54 | ) |  |  | 4,394 |  |  | 6,274 |  |  | (30 | ) |
Underwriting income |  | $ | 30,016 |  |  | 26,333 |  |  | 14 |  | % |  | $ | 92,974 |  |  | 74,153 |  |  | 25 |  | %
Combined Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense ratio |  | 59.0 |  | % | 60.5 |  |  | (1.5 | ) | pts |  | 59.0 |  | % | 60.4 |  |  | (1.4 | ) | pts
Underwriting expense ratio |  | 35.0 |  |  | 33.5 |  |  | 1.5 |  |  |  | 34.6 |  |  | 34.0 |  |  | 0.6 |  |
Dividends to policyholders ratio |  | 0.2 |  |  | 0.5 |  |  | (0.3 | ) |  |  | 0.3 |  |  | 0.4 |  |  | (0.1 | ) |
Combined ratio |  | 94.2 |  |  | 94.5 |  |  | (0.3 | ) |  |  | 93.9 |  |  | 94.8 |  |  | (0.9 | ) |

The increases in NPW in the quarter and year-to-date periods reflected in the table above were driven by: (i) direct new business; and (ii) renewal pure price increases.

|  | Quarter ended September 30, |  | Change % or Points |  |  | Nine Months ended September 30, | Change % or Points |
($ in millions) |  | 2019 |  | 2018 |  |  |  | 2019 |  | 2018
Direct new business |  | $ | 96.5 |  |  | 90.4 |  |  | 7 |  | % |  | 316.2 |  |  | 289.5 |  | 9 |  | %
Renewal pure price increases |  | 3.5 |  |  | 3.7 |  |  | (0.2 | ) |  |  | 3.3 |  |  | 3.5 |  | (0.2 | ) |
Retention |  | 84 |  | % | 84 |  |  | — |  | pts |  | 83 | % |  | 83 |  | — |  | pts

The loss and loss expense ratio decreased 1.5 points in Third Quarter 2019 compared to Third Quarter 2018, and decreased 1.4 points in Nine Months 2019 compared to Nine Months 2018, and were driven by the following:

| Third Quarter 2019 |  | Third Quarter 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  | Change in Ratio |
Catastrophe losses | $ | 14.8 |  | 2.9 |  | pts |  | $ | 22.1 |  | 4.6 |  | pts | (1.7 | ) | pts
Non-catastrophe property loss and loss expenses | 76.7 |  | 14.9 |  |  |  | 67.1 |  | 13.9 |  |  | 1.0 |  |
(Favorable) prior year casualty reserve development | (16.0 | ) | (3.1 | ) |  |  | (18.0 | ) | (3.7 | ) |  | 0.6 |  |
Total | 75.5 |  | 14.7 |  |  |  | 71.2 |  | 14.8 |  |  | (0.1 | ) |
| Nine Months 2019 |  | Nine Months 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  |  | Loss and Loss Expense Incurred | Impact on Loss and Loss Expense Ratio |  | Change in Ratio |
Catastrophe losses | $ | 52.1 |  | 3.4 |  | pts |  | $ | 52.0 |  | 3.7 |  | pts | (0.3 | ) | pts
Non-catastrophe property loss and loss expenses | 213.8 |  | 14.1 |  |  |  | 208.3 |  | 14.6 |  |  | (0.5 | ) |
(Favorable) prior year casualty reserve development | (43.0 | ) | (2.8 | ) |  |  | (36.0 | ) | (2.5 | ) |  | (0.3 | ) |
Total | 222.9 |  | 14.7 |  |  |  | 224.3 |  | 15.8 |  |  | (1.1 | ) |

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In addition to the items described above, during the quarter there was a 1.1-point improvement in current year loss costs. This improvement reflects the impact of elevated frequencies we experienced during Third Quarter 2018 related to the then current accident year.
For additional information regarding favorable prior year casualty reserve development by line of business, see the "Financial Highlights of Results for Third Quarter and Nine Months 2019 and Third Quarter and Nine Months 2018" section above and the line of business discussions below.
There was a 1.5-point increase in the underwriting expense ratio in Third Quarter 2019 compared to Third Quarter 2018, and a 0.6-point increase in the underwriting expense ratio in Nine Months 2019 compared to Nine Months 2018. The primary driver was increased profit-based expenses to our distribution partners and employees of 0.6 points in the quarter and 0.4 points in the year-to-date period.
The following is a discussion of our most significant Standard Commercial Lines of business:

General Liability |  |  |  |  |  |  |
|  | Quarter ended September 30, |  | Change % or Points |  |  | Nine Months ended September 30, |  | Change % or Points |
($ in thousands) |  | 2019 |  | 2018 |  |  |  | 2019 |  | 2018 |  |
NPW |  | $ | 172,471 |  |  | 160,105 |  |  | 8 |  | % |  | $ | 536,448 |  |  | 494,984 |  |  | 8 |  | %
Direct new business |  | 27,788 |  |  | 26,768 |  |  | 4 |  |  |  | 92,288 |  |  | 86,210 |  |  | 7 |  |
Retention |  | 85 |  | % | 85 |  |  | — |  | pts |  | 83 |  | % | 84 |  |  | (1 | ) | pts
Renewal pure price increases |  | 3.3 |  |  | 2.9 |  |  | 0.4 |  |  |  | 2.7 |  |  | 2.7 |  |  | — |  |
NPE |  | $ | 169,084 |  |  | 154,974 |  |  | 9 |  | % |  | $ | 495,402 |  |  | 457,805 |  |  | 8 |  | %
Underwriting income |  | 22,399 |  |  | 24,374 |  |  | (8 | ) |  |  | 62,232 |  |  | 54,074 |  |  | 15 |  |
Combined ratio |  | 86.8 |  | % | 84.3 |  |  | 2.5 |  | pts |  | 87.4 |  | % | 88.2 | % |  | (0.8 | ) | pts
% of total Standard Commercial Lines NPW |  | 32 |  |  | 32 |  |  |  |  |  |  | 33 |  |  | 32 |  |  |  |  |

The fluctuations in the combined ratios illustrated in the table above included the following:

| Third Quarter 2019 | Third Quarter 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Change Points |
(Favorable) prior year casualty reserve development | $ | (3.0 | ) | (1.8 | ) | pts | $ | (8.0 | ) | (5.2 | ) | pts | 3.4 |  | pts
| Nine Months 2019 | Nine Months 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Change Points |
(Favorable) prior year casualty reserve development | $ | (10.0 | ) | (2.0 | ) | pts | $ | (8.0 | ) | (1.7 | ) | pts | (0.3 | ) | pts

The Third Quarter and Nine Months 2019 reserve development was primarily attributable to favorable reserve development on loss severities in accident years 2015 through 2017. The Third Quarter and Nine Months 2018 reserve development was primarily attributable to favorable reserve development on loss adjustment expenses in accident years 2014 through 2017.

Commercial Automobile |  |  |  |  |  |  |
|  | Quarter ended September 30, |  | Change % or Points |  |  | Nine Months ended September 30, |  | Change % or Points |
($ in thousands) |  | 2019 |  | 2018 |  |  |  | 2019 |  | 2018 |  |
NPW |  | $ | 150,765 |  |  | 135,579 |  |  | 11 |  | % |  | $ | 453,201 |  |  | 399,506 |  |  | 13 |  | %
Direct new business |  | 24,096 |  |  | 23,363 |  |  | 3 |  |  |  | 80,840 |  |  | 70,668 |  |  | 14 |  |
Retention |  | 85 |  | % | 82 |  |  | 3 |  | pts |  | 82 |  | % | 83 |  |  | (1 | ) | pts
Renewal pure price increases |  | 7.5 |  |  | 7.5 |  |  | — |  |  |  | 7.4 |  |  | 7.4 |  |  | — |  |
NPE |  | $ | 141,182 |  |  | 124,862 |  |  | 13 |  | % |  | $ | 408,706 |  |  | 365,197 |  |  | 12 |  | %
Underwriting loss |  | (11,398 | ) |  | (22,785 | ) |  | 50 |  |  |  | (28,919 | ) |  | (46,922 | ) |  | 38 |  |
Combined ratio |  | 108.1 |  | % | 118.2 |  |  | (10.1 | ) | pts |  | 107.1 |  | % | 112.8 |  |  | (5.7 | ) | pts
% of total Standard Commercial Lines NPW |  | 28 |  |  | 27 |  |  |  |  |  |  | 28 |  |  | 26 |  |  |  |  |

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The increases in NPW shown in the table above reflect renewal pure price increases on this line, coupled with an increase in new business as we continue to write commercial automobile policies as part of our overall customer accounts. The growth in NPW of 13% in Nine Months 2019 compared to Nine Months 2018 reflects an 8% growth in vehicle counts and a 7.4% renewal pure price increase, reflecting our efforts to improve profitability on this line by actively implementing price increases in recent years.
The combined ratio improvements outlined above were driven by the following:

| Third Quarter 2019 |  | Third Quarter 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Combined Ratio |  |  | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Change in Ratio |
Non-catastrophe property loss and loss expenses | $ | 26.5 |  | 18.8 |  | pts |  | $ | 21.9 |  | 17.6 |  | pts | 1.2 |  | pts
Unfavorable prior year casualty reserve development | — |  | — |  |  |  | 10.0 |  | 8.0 |  |  | (8.0 | ) |
Catastrophe losses | 1.2 |  | 0.9 |  |  |  | 0.4 |  | 0.3 |  |  | 0.6 |  |
Total | 27.7 |  | 19.7 |  |  |  | 32.3 |  | 25.9 |  |  | (6.2 | ) |

| Nine Months 2019 |  | Nine Months 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Combined Ratio |  |  | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Change in Ratio |
Non-catastrophe property loss and loss expenses | $ | 75.5 |  | 18.5 |  | pts |  | $ | 65.6 |  | 18.0 |  | pts | 0.5 |  | pts
Unfavorable prior year casualty reserve development | — |  | — |  |  |  | 25.0 |  | 6.8 |  |  | (6.8 | ) |
Catastrophe losses | 2.3 |  | 0.6 |  |  |  | 1.9 |  | 0.5 |  |  | 0.1 |  |
Total | 77.8 |  | 19.1 |  |  |  | 92.5 |  | 25.3 |  |  | (6.2 | ) |

Our commercial automobile line of business has not experienced prior year casualty reserve development in 2019. The unfavorable development in Third Quarter 2018 and Nine Months 2018 was primarily due to higher claim frequencies, and to some extent severities, in accident years 2015 through 2017.
This line of business remains an area of focus for both us and the industry, as profitability challenges continue to generate combined ratios that are higher than target levels. To address profitability in this line, we have been actively implementing price increases, which averaged 7.4% for Nine Months 2019. In addition to price increases, we have also been actively managing our new and renewal business, which we expect will have a positive impact on profitability through business mix improvement. Over the longer term, we expect accounts that adopt our recently introduced Selective® Drive program will have greater insight to their commercial auto risks and have the potential to reduce their loss experience.

Workers Compensation |  |  |  |  |  |  |
|  | Quarter ended September 30, |  | Change % or Points |  |  | Nine Months ended September 30, |  | Change % or Points |
($ in thousands) |  | 2019 |  | 2018 |  |  |  | 2019 |  | 2018 |  |
NPW |  | $ | 71,534 |  |  | 77,827 |  |  | (8 | ) | % |  | $ | 238,037 |  |  | 248,728 |  |  | (4 | ) | %
Direct new business |  | 12,025 |  |  | 12,582 |  |  | (4 | ) |  |  | 46,765 |  |  | 46,000 |  |  | 2 |  |
Retention |  | 84 |  | % | 84 |  |  | — |  | pts |  | 83 |  | % | 84 |  |  | (1 | ) | pts
Renewal pure price (decreases) increases |  | (2.7 | ) |  | — |  |  | (2.7 | ) |  |  | (2.8 | ) |  | 0.1 |  |  | (2.9 | ) |
NPE |  | $ | 75,478 |  |  | 78,784 |  |  | (4 | ) | % |  | $ | 232,657 |  |  | 237,628 |  |  | (2 | ) | %
Underwriting income |  | 17,333 |  |  | 23,380 |  |  | (26 | ) |  |  | 42,566 |  |  | 61,601 |  |  | (31 | ) |
Combined ratio |  | 77.0 |  | % | 70.3 |  |  | 6.7 |  | pts |  | 81.7 |  | % | 74.1 |  |  | 7.6 |  | pts
% of total Standard Commercial Lines NPW |  | 13 |  |  | 16 |  |  |  |  |  |  | 15 |  |  | 16 |  |  |  |

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The increases in the combined ratio in Third Quarter and Nine Months 2019 compared to the same prior year periods were driven by less favorable prior year casualty reserve development, as follows:

| Third Quarter 2019 | Third Quarter 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Change Points |
(Favorable) prior year casualty reserve development | $ | (13.0 | ) | (17.2 | ) | pts | $ | (20.0 | ) | (25.4 | ) | pts | 8.2 | pts
| Nine Months 2019 | Nine Months 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Change Points |
(Favorable) prior year casualty reserve development | $ | (33.0 | ) | (14.2 | ) | pts | $ | (53.0 | ) | (22.3 | ) | pts | 8.1 | pts

The development in both Third Quarter and Nine Months 2019 was primarily due to lower severities in accident years 2017 and prior, and the development in both Third Quarter and Nine Months 2018 was primarily due to lower severities in accident years 2016 and prior.
While reported profitability on this line remains strong due to favorable emergence on prior year reserves, current accident year margins do not support the continued negative pricing levels that are being set by the National Council on Compensation Insurance and independent state rating bureaus. A reduction or reversal in the trend of favorable frequencies and severities has the potential to significantly increase this line's combined ratio, which we are monitoring closely.

Commercial Property |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Quarter ended September 30, |  | Change % or Points |  |  | Nine Months ended September 30, |  | Change % or Points |
($ in thousands) |  | 2019 |  | 2018 |  |  |  | 2019 |  | 2018 |  |
NPW |  | $ | 97,393 |  |  | 89,737 |  |  | 9 |  | % |  | $ | 284,861 |  |  | 263,318 |  |  | 8 |  | %
Direct new business |  | 22,527 |  |  | 18,073 |  |  | 25 |  |  |  | 64,960 |  |  | 57,485 |  |  | 13 |  |
Retention |  | 83 |  | % | 83 |  |  | — |  | pts |  | 82 |  | % | 82 |  |  | — |  | pts
Renewal pure price increases |  | 2.8 |  |  | 3.3 |  |  | (0.5 | ) |  |  | 3.3 |  |  | 3.1 |  |  | 0.2 |  |
NPE |  | $ | 89,215 |  |  | 83,056 |  |  | 7 |  | % |  | $ | 262,418 |  |  | 245,544 |  |  | 7 |  | %
Underwriting (loss) income |  | (409 | ) |  | (6,768 | ) |  | (94 | ) |  |  | 2,866 |  |  | (9,266 | ) |  | 131 |  |
Combined ratio |  | 100.5 |  | % | 108.1 |  |  | (7.6 | ) | pts |  | 98.9 |  | % | 103.8 |  |  | (4.9 | ) | pts
% of total Standard Commercial Lines NPW |  | 18 |  |  | 18 |  |  |  |  |  |  | 17 |  |  | 17 |  |  |  |

The decrease in the combined ratio in Third Quarter 2019 compared to Third Quarter 2018, and the decrease in the combined ratio in Nine Months 2019 compared to Nine Months 2018, were driven by the following:

| Third Quarter 2019 |  | Third Quarter 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Combined Ratio |  |  | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Change % or Points |
Catastrophe losses | $ | 12.4 |  | 13.9 | pts |  | $ | 20.1 |  | 24.2 | pts | (10.3 | ) | pts
Non-catastrophe property loss and loss expenses | 41.5 |  | 46.5 |  |  | 38.1 |  | 45.9 |  | 0.6 |  |
Total | 53.9 |  | 60.4 |  |  | 58.2 |  | 70.1 |  | (9.7 | ) |
| Nine Months 2019 |  | Nine Months 2018 |  |
($ in millions) | Loss and Loss Expense Incurred | Impact on Combined Ratio |  |  | Loss and Loss Expense Incurred | Impact on Combined Ratio |  | Change % or Points |
Catastrophe losses | $ | 43.6 |  | 16.6 | pts |  | $ | 42.6 |  | 17.4 | pts | (0.8 | ) | pts
Non-catastrophe property loss and loss expenses | 114.6 |  | 43.7 |  |  | 118.7 |  | 48.3 |  | (4.6 | ) |
Total | 158.2 |  | 60.3 |  |  | 161.3 |  | 65.7 |  | (5.4 | ) |

Lower catastrophe losses in Third Quarter 2019 compared to Third Quarter 2018 was driven by the impact of Hurricane Florence in September 2018. On a year-to-date basis, non-catastrophe property loss and loss expenses were lower in Nine Month 2019 compared to Nine Months 2018, as non-catastrophe property loss and loss expenses in the first quarter of 2018 were elevated by a January deep freeze in our footprint states and an increase in the number of severe fire losses.
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Standard Personal Lines Segment

|  | Quarter ended September 30, |  | Change % or Points |  |  |  | Nine Months ended September 30, |  | Change % or Points |
($ in thousands) |  | 2019 |  | 2018 |  |  |  |  | 2019 |  | 2018 |  |
Insurance Segments Results: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NPW |  | $ | 81,639 |  |  | 84,735 |  |  | (4 | ) |  | % |  | $ | 233,717 |  |  | 236,530 |  |  | (1 | ) | %
NPE |  | 76,738 |  |  | 77,157 |  |  | (1 | ) |  |  |  | 231,158 |  |  | 227,090 |  |  | 2 |  |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense incurred |  | 54,843 |  |  | 52,631 |  |  | 4 |  |  |  |  | 158,467 |  |  | 157,330 |  |  | 1 |  |
Net underwriting expenses incurred |  | 22,526 |  |  | 21,368 |  |  | 5 |  |  |  |  | 65,617 |  |  | 63,303 |  |  | 4 |  |
Underwriting (loss) income |  | $ | (631 | ) |  | 3,158 |  |  | (120 | ) |  | % |  | $ | 7,074 |  |  | 6,457 |  |  | 10 |  | %
Combined Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense ratio |  | 71.4 |  | % | 68.2 |  |  | 3.2 |  |  | pts |  | 68.5 |  | % | 69.3 |  |  | (0.8 | ) | pts
Underwriting expense ratio |  | 29.4 |  |  | 27.7 |  |  | 1.7 |  |  |  |  | 28.4 |  |  | 27.9 |  |  | 0.5 |  |
Combined ratio |  | 100.8 |  |  | 95.9 |  |  | 4.9 |  |  |  |  | 96.9 |  |  | 97.2 |  |  | (0.3 | ) |

NPW was down in both Third Quarter and Nine Months 2019 compared to the same prior year periods, reflecting the impact of a decrease in direct new business as a result of a competitive marketplace. Retention has decreased in both Third Quarter and Nine Months 2019 compared to the same periods last year, as we continue to achieve renewal pure price increases on our personal automobile line of business in excess of loss trends, while the industry has seen a softening in rate activity. Additionally, the deteriorating competitive position on our automobile business has led to lower new homeowners business, as we typically write policies at the account level, which include both automobile and homeowners coverage.

|  | Quarter ended September 30, | Change % or Points |  |  | Nine Months ended September 30, | Change % or Points |
($ in millions) |  | 2019 |  | 2018 |  |  | 2019 |  | 2018 |
Direct new business |  | $ | 10.2 |  |  | 13.1 |  | (22 | ) | % |  | $ | 31.1 |  |  | 40.8 |  | (24 | ) | %
Retention |  | 83 |  | % | 85 |  | (2 | ) | pts |  | 83 |  | % | 85 |  | (2 | ) | pts
Renewal pure price increases |  | 5.0 |  |  | 3.8 |  | 1.2 |  |  |  | 5.3 |  |  | 3.6 |  | 1.7 |  |

The loss and loss expense ratio increased 3.2 points in Third Quarter 2019 compared to Third Quarter 2018, and decreased 0.8 points in Nine Months 2019 compared to Nine Months 2018. The drivers of these fluctuations are as follows:

| Third Quarter 2019 |  | Third Quarter 2018 |  |
($ 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 |
Non-catastrophe property loss and loss expenses | $ | 25.2 |  | 32.8 |  | pts |  | $ | 28.2 |  | 36.5 |  | pts | (3.7 | ) | pts
Catastrophe losses | 7.9 |  | 10.3 |  |  |  | 5.4 |  | 7.1 |  |  | 3.2 |  |
Unfavorable prior year development | 2.0 |  | 2.6 |  |  |  | — |  | — |  |  | 2.6 |  |
Flood claims handling fees | (1.1 | ) | (1.4 | ) |  |  | (2.1 | ) | (2.7 | ) |  | 1.3 |  |
Total | 34.0 |  | 44.3 |  |  |  | 31.5 |  | 40.9 |  |  | 3.4 |  |
| Nine Months 2019 |  | Nine Months 2018 |  |
($ 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 |
Non-catastrophe property loss and loss expenses | $ | 78.7 |  | 34.1 |  | pts |  | $ | 80.4 |  | 35.4 |  | pts | (1.3 | ) | pts
Catastrophe losses | 18.1 |  | 7.8 |  |  |  | 18.1 |  | 8.0 |  |  | (0.2 | ) |
Unfavorable prior year casualty reserve development | 2.0 |  | 0.9 |  |  |  | — |  | — |  |  | 0.9 |  |
Flood claims handling fees | (2.7 | ) | (1.2 | ) |  |  | (3.6 | ) | (1.6 | ) |  | 0.4 |  |
Total | 96.1 |  | 41.6 |  |  |  | 94.9 |  | 41.8 |  |  | (0.2 | ) |

The underwriting expense ratio increased 1.7 points in the Third Quarter 2019 compared to Third Quarter 2018, and 0.5 points in Nine Months 2019 compared to Nine Months 2018. The primary drivers of these changes were increased profit-based expenses to our distribution partners and employees.
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E&S Lines Segment

|  | Quarter ended September 30, |  | Change % or Points |  |  | Nine Months ended September 30, |  | Change % or Points |
($ in thousands) |  | 2019 |  | 2018 |  |  |  | 2019 |  | 2018 |  |
Insurance Segments Results: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NPW |  | $ | 62,368 |  |  | 64,621 |  |  | (3 | ) | % |  | $ | 180,572 |  |  | 168,628 |  |  | 7 |  | %
NPE |  | 61,721 |  |  | 56,064 |  |  | 10 |  |  |  | 178,660 |  |  | 161,419 |  |  | 11 |  |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense incurred |  | 39,794 |  |  | 35,458 |  |  | 12 |  |  |  | 111,772 |  |  | 114,588 |  |  | (2 | ) |
Net underwriting expenses incurred |  | 20,011 |  |  | 17,100 |  |  | 17 |  |  |  | 57,449 |  |  | 51,679 |  |  | 11 |  |
Underwriting income (loss) |  | $ | 1,916 |  |  | 3,506 |  |  | (45 | ) | % |  | $ | 9,439 |  |  | (4,848 | ) |  | 295 |  | %
Combined Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense ratio |  | 64.5 |  | % | 63.2 |  |  | 1.3 |  | pts |  | 62.5 |  | % | 71.0 |  |  | (8.5 | ) | pts
Underwriting expense ratio |  | 32.4 |  |  | 30.5 |  |  | 1.9 |  |  |  | 32.2 |  |  | 32.0 |  |  | 0.2 |  |
Combined ratio |  | 96.9 |  |  | 93.7 |  |  | 3.2 |  |  |  | 94.7 |  |  | 103.0 |  |  | (8.3 | ) |

NPW decreased 3% in Third Quarter 2019 and increased 7% in Nine Months 2019 compared to the respective prior year periods. Over the past two-year period, we have taken steps to exit certain underperforming classes of E&S business, while entering into new distribution relationships. The premium growth on a year-to-date basis continues to reflect the impact of one particularly large relationship that we reestablished in the second quarter of 2018. We do not anticipate the same level of year-over-year growth going forward from this relationship, as it has now been in place for a full year, which is in part the reason for the decline during the quarter compared to the same period last year.
Quantitative information on the premium in this segment is as follows:

|  | Quarter ended September 30, | Change % or Points |  |  | Nine Months ended September 30, | Change % or Points |
($ in millions) |  | 2019 |  | 2018 |  |  | 2019 |  | 2018 |
Direct new business |  | $ | 23.1 |  |  | 32.2 |  | (28 | ) | % |  | $ | 73.8 |  |  | 70.8 |  | 4 |  | %
Renewal pure price increases 1 |  | 3.7 |  | % | 4.9 |  | (1.2 | ) | pts |  | 4.4 |  | % | 5.3 |  | (0.9 | ) | pts

1 E&S casualty renewal price increases were 3.0% for Third Quarter 2019, compared to 5.2% for Third Quarter 2018, and 4.0% for Nine Months 2019, compared to 6.2% for Nine Months 2018.
The combined ratio increased 3.2 points in Third Quarter 2019 compared to Third Quarter 2018, and improved 8.3 points in Nine Months 2019 compared to Nine Months 2018, primarily due to the items outlined in the tables and commentary below:

| Third Quarter 2019 |  |  | Third Quarter 2018 |  |  |
($ 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 |
Unfavorable prior year casualty reserve development | — |  | — | pts |  | 6.0 |  | 10.7 | pts | (10.7 | ) | pts
Non-catastrophe property loss and loss expenses | 7.0 |  | 11.4 |  |  | 5.6 |  | 10.0 |  | 1.4 |  |
Catastrophe losses | 1.5 |  | 2.4 |  |  | 0.6 |  | 1.0 |  | 1.4 |  |
Total | 8.5 |  | 13.8 |  |  | 12.2 |  | 21.7 |  | (7.9 | ) |
| Nine Months 2019 |  |  | Nine Months 2018 |  |  |
($ 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 |
Unfavorable prior year casualty reserve development | $ | — |  | — | pts |  | $ | 12.0 |  | 7.4 | pts | (7.4 | ) | pts
Non-catastrophe property loss and loss expenses | 17.1 |  | 9.6 |  |  | 22.2 |  | 13.7 |  | (4.1 | ) |
Catastrophe losses | 4.3 |  | 2.4 |  |  | 2.7 |  | 1.7 |  | 0.7 |  |
Total | 21.4 |  | 12.0 |  |  | 36.9 |  | 22.8 |  | (10.8 | ) |

The improvement in prior year casualty reserve development of 10.7 points in Third Quarter 2019 compared to Third Quarter 2018 was partially offset by current year loss costs that were 8.6 points higher in Third Quarter 2019 compared to Third Quarter 2018. These variances were driven by adjustments made during 2018 as a result of the normal reserve review process, which indicated unfavorable development in older years, while showing improvements in the then current year-to-date period,
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largely due to our pricing and underwriting actions.
The underwriting expense ratio increased 1.9 points in Third Quarter 2019 compared to Third Quarter 2018, primarily driven by an increase in profit-based compensation to our distribution partners.
While the relatively small size of this segment can lead to some volatility in results from quarter to quarter, on a longer-term basis, improved underwriting, pricing, and claims outcomes have us on track to achieve our risk-adjusted profitability target for this segment by the end of 2020.
Reinsurance
We have successfully completed the renewals of our July 1, 2019 excess of loss treaties, which provide coverage for our Standard Commercial Lines, Standard Personal Lines, and E&S Lines. These treaties were renewed with principally the same structure as the expiring treaties, with an underwriting year ceded premium increase estimated at $10 million, or 14%, which reflects an increase in our estimated subject matter premium and a risk-adjusted price increase for our property treaty,driven by heavy loss activity from the 2018 underwriting year and the pricing environment in the property per-risk reinsurance marketplace.
Details of the treaties are as follows:
Property Excess of Loss
Our property excess of loss treaty ("Property Treaty") provides protection against large individual property losses with $58.0 million of coverage in excess of a $2.0 million retention:

• | The per occurrence cap on the first and second layers is $84.0 million.

• | The first layer has unlimited reinstatements and a limit of $8.0 million in excess of $2.0 million.

• | The annual aggregate limit, for the $30.0 million in excess of $10.0 million second layer, is $120.0 million.

• | A third layer has a limit of $20.0 million in excess of $40.0 million, with an annual aggregate limit of approximately $75.0 million.

• | The Property Treaty excludes nuclear, biological, chemical, and radiological ("NBCR") terrorism losses, and includes non-NBCR losses from terrorism.

Casualty Excess of Loss
Our casualty excess of loss treaty (“Casualty Treaty”) provides protection against large individual casualty losses with $88.0 million of coverage in excess of a $2.0 million retention:

• | The first through sixth layers provide coverage for 100% of up to $88.0 million in excess of a $2.0 million retention.

• | The Casualty Treaty includes a $25.0 million limit, per life, on our workers compensation business, which remains unchanged from the prior treaty.

• | The Casualty Treaty excludes NBCR terrorism losses and has annual aggregate non-NBCR terrorism limits of $208.0 million.

Investments
The primary objective of the investment portfolio is to maximize after-tax net investment income and the overall total return of the portfolio, while maintaining a high credit quality core fixed income securities portfolio and managing our duration risk profile. The effective duration of the fixed income securities portfolio as of September 30, 2019 was 3.4 years, compared to the Insurance Subsidiaries’ liability duration as of December 31, 2018 of approximately 3.6 years. The effective duration of the fixed income securities portfolio is monitored and managed to maximize yield, while managing interest rate risk at an acceptable level. We maintain a well-diversified portfolio across sectors, credit quality, and maturities that affords us ample liquidity. Purchases and sales are made with the intent of maximizing investment returns in the current market environment while balancing capital preservation. Over time, we may seek to increase or decrease the duration and overall credit quality of the portfolio based on market conditions.
Our investment philosophy includes certain return and risk objectives for the fixed income, equity, and other investment portfolios. After-tax yield and net investment income generation are key drivers to our investment strategy, which we believe will be obtained through active management of the portfolio.
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Total Invested Assets |  |  |  |  |  |  |
($ in thousands) |  | September 30, 2019 |  | December 31, 2018 |  | Change |
Total invested assets |  | $ | 6,551,739 |  |  | 5,960,651 |  |  | 10 |  | %
Invested assets per dollar of stockholders' equity |  | 3.07 |  |  | 3.33 |  |  | (8 | ) |
Unrealized gain – before tax 1 |  | 225,100 |  |  | 11,916 |  |  | 1,789 |  |
Unrealized gain – after tax 1 |  | 177,829 |  |  | 9,414 |  |  | 1,789 |  |

1 Includes unrealized gains on fixed income and equity securities.
The increase in invested assets at September 30, 2019, compared to December 31, 2018, was driven by: (i) operating cash flow generated in Nine Months 2019 of $316 million; (ii) pre-tax net unrealized gains in our fixed income and equity securities portfolios of $213 million, due to a reduction in interest rates and tightening corporate credit spreads; and (iii) net proceeds of $106 million from the issuance of our 5.375% Senior Notes. For additional information regarding these debt transactions, see Note 5. "Indebtedness" in Item 1. "Financial Statements" of this Form 10-Q.
At September 30, 2019, our fixed income securities and short-term investment portfolios represented 96% of our invested assets, compared to 95% at December 31, 2018. These portfolios had a weighted average credit rating of “ AA- ,” as of both September 30, 2019 and December 31, 2018, with 97% and 98% of the securities in the portfolio being investment grade quality, respectively. The sector composition and credit quality of our major asset categories within our fixed income securities portfolio did not significantly change from December 31, 2018.
For details regarding the credit quality of our portfolio, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” of our 2018 Annual Report.
Net Investment Income
The components of net investment income earned for the indicated periods were as follows:

|  | Quarter ended September 30, |  | Change % or Points |  |  | Nine Months ended September 30, | Change % or Points |
($ in thousands) |  | 2019 |  | 2018 |  |  | 2019 |  | 2018
Fixed income securities |  | $ | 50,749 |  |  | 45,088 |  |  | 13 | % |  |  | 150,689 |  |  | 130,903 |  | 15 | % |
Equity securities |  | 1,885 |  |  | 2,079 |  |  | (9 | ) |  |  | 5,265 |  |  | 5,876 |  | (10 | ) |
Short-term investments |  | 1,410 |  |  | 867 |  |  | 63 |  |  |  | 5,213 |  |  | 2,001 |  | 161 |  |
Other investments |  | 5,267 |  |  | 7,211 |  |  | (27 | ) |  |  | 13,421 |  |  | 10,868 |  | 23 |  |
Investment expenses |  | (3,485 | ) |  | (2,802 | ) |  | (24 | ) |  |  | (9,639 | ) |  | (8,421 | ) | (14 | ) |
Net investment income earned – before tax |  | 55,826 |  |  | 52,443 |  |  | 6 |  |  |  | 164,949 |  |  | 141,227 |  | 17 |  |
Net investment income tax expense |  | (10,452 | ) |  | (9,568 | ) |  | (9 | ) |  |  | (30,630 | ) |  | (24,973 | ) | (23 | ) |
Net investment income earned – after tax |  | $ | 45,374 |  |  | 42,875 |  |  | 6 |  |  |  | 134,319 |  |  | 116,254 |  | 16 |  |
Effective tax rate |  | 18.7 | % |  | 18.2 |  |  | 0.5 |  | pts |  | 18.6 |  |  | 17.7 |  | 0.9 |  | pts
Annualized after-tax yield on fixed income securities |  | 2.8 |  |  | 2.8 |  |  | — |  |  |  | 2.9 |  |  | 2.8 |  | 0.1 |  |
Annualized after-tax yield on investment portfolio |  | 2.8 |  |  | 3.0 |  |  | (0.2 | ) |  |  | 2.9 |  |  | 2.7 |  | 0.2 |  |

The increase in pre-tax net investment income in Third Quarter and Nine Months 2019, compared to the same periods last year, was primarily driven by: (i) cash flow from operations that was 22% of NPW in the quarter and 15% of NPW in the year-to-date period; and (ii) $106 million of net proceeds from our 5.375% Senior Notes issuance earlier in 2019, which were invested in fixed income securities. Additionally, Nine Months 2019 included alternative investment returns that were $2.4 million higher than the comparable prior year period.
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Realized and Unrealized Gains and Losses
Our general philosophy for sales of securities is to reduce our exposure to securities and sectors based on economic evaluations and when the fundamentals for that security or sector have deteriorated, or to opportunistically trade out of securities to 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, |  | Nine Months ended September 30,
($ in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Net realized gains (losses) on disposals, excluding OTTI |  | $ | 20,425 |  |  | (751 | ) |  | 26,752 |  |  | 4,034 |
Unrealized (losses) recognized in income on equity securities |  | (20,317 | ) |  | (2,610 | ) |  | (8,091 | ) |  | (15,563 | )
OTTI charges |  | (2,291 | ) |  | (1,426 | ) |  | (3,366 | ) |  | (5,459 | )
Total net realized and unrealized (losses) gains |  | $ | (2,183 | ) |  | (4,787 | ) |  | 15,295 |  |  | (16,988 | )

The $2.6 million improvement in net realized and unrealized losses in Third Quarter 2019 compared to Third Quarter 2018 was primarily driven by an $8.3 million reduction in realized losses on our fixed income securities portfolio reflecting less opportunistic sales, partially offset by a decrease of $4.8 million in unrealized gains due to market value increases on our equity securities that were less in Third Quarter 2019 compared to Third Quarter 2018.
The significant drivers of the $32.3 million improvement in net realized and unrealized gains in Nine Months 2019 compared to net realized and unrealized losses in Nine Months 2018 were: (i) a $16.0 million reduction in realized losses on our fixed income securities portfolio driven by less opportunistic sales; and (ii) an increase of $14.2 million in unrealized gains due to more significant market value increases on our equity securities portfolio in Nine Months 2019 compared to Nine Months 2018.
In addition to the activity above, during Third Quarter 2019, we sold a significant portion of our public equity securities, realizing net gains of $21.6 million on the securities sold. These realized gains were substantially offset in the quarter by the reversal of previously-recorded unrealized gains related to the securities sold, which accounted for $21.4 million of the $20.3 million reduction in the table above.
Federal Income Taxes
The following table provides information regarding federal income taxes:

| Quarter ended September 30, |  | Nine Months ended September 30,
($ in millions) | 2019 |  | 2018 |  | 2019 |  | 2018
Federal income tax expense | $ | 15.0 |  |  | 11.7 |  |  | 45.3 |  |  | 26.4 |
Effective tax rate | 21.1 | % |  | 17.4 |  |  | 19.3 |  |  | 16.5 |

The effective tax rate in the table above differs from the statutory rate of 21% principally due to: (i) the benefit of tax-advantaged interest and dividend income; and (ii) the impact of excess tax benefits on our stock-based compensation awards, partially offset by the disallowance of certain executive compensation. The increase in the effective tax rate in Third Quarter and Nine Months 2019, compared to Third Quarter and Nine Months 2018, reflects a greater pre-tax income contribution from our insurance operations compared to the relative contribution of tax-advantaged income this year compared to last.
Financial Condition, Liquidity, and Capital Resources
Capital resources and liquidity reflect our ability to generate cash flows from business operations, borrow funds at competitive rates, and raise new capital to meet operating and growth needs.
Liquidity
We manage liquidity with a focus on generating sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. Our cash, excluding restricted cash, and short-term investment position of $327 million at September 30, 2019 was comprised of $34 million at the Parent and $293 million at the Insurance Subsidiaries. Short-term investments are generally maintained in "AAA" rated money market funds approved by the National Association of Insurance Commissioners. The Parent maintains a fixed income security investment portfolio containing high-quality, highly-liquid government and corporate fixed income securities. This portfolio amounted to $224 million at September 30, 2019 and $110 million at December 31, 2018. The Parent had a total of $267 million of cash and liquid investments at September 30, 2019, compared to $146 million at December 31, 2018, with the increase driven by our capital market activities discussed below. The level of cash and invested assets may fluctuate based on various factors, including the amount and availability of dividends from our Insurance Subsidiaries, investment income, expenses, and other liquidity needs of the Parent. Our target is to
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maintain the cash and liquidity at the Parent to two times its expected annual needs, which is currently estimated at $160 million.
Sources of Liquidity
Sources of cash for the Parent have historically consisted of dividends from the Insurance Subsidiaries, the investment portfolio discussed above, borrowings under lines of credit and loan agreements with certain Insurance Subsidiaries, and the issuance of stock and debt securities. We continue to monitor these sources, giving consideration to our long-term liquidity and capital preservation strategies.
Insurance Subsidiary Dividends
We currently anticipate that the Insurance Subsidiaries may pay $110 million in total dividends to the Parent in 2019, a $10 million increase from $100 million paid in 2018, of which $83 million was paid during Nine Months 2019. As of December 31, 2018, our allowable ordinary maximum dividend was $210 million for 2019.
Any dividends to the Parent are subject to the approval and/or review of the insurance regulators in the respective Insurance Subsidiaries' domiciliary states and are generally payable only from earned surplus as reported in the statutory annual statements of those subsidiaries as of the preceding December 31. Although past dividends have historically been met with regulatory approval, there is no assurance that future dividends that may be declared will be approved. For additional information regarding dividend restrictions, refer to Note 19. “Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds” in Item 8. “Financial Statements and Supplementary Data.” of our 2018 Annual Report.
The Insurance Subsidiaries generate liquidity through insurance float, which is created by collecting premiums and earning investment income before losses are paid. The period of the float can extend over many years. Our investment portfolio consists of maturity dates that continually provide a source of cash flows for claims payments in the ordinary course of business. The effective duration of the fixed income securities portfolio was 3.4 years as of September 30, 2019, while the liabilities of the Insurance Subsidiaries had a duration as of December 31, 2018 of 3.6 years. As protection for the capital resources of the Insurance Subsidiaries, we purchase reinsurance coverage for significantly large claims or catastrophes that may occur during the year.
Line of Credit
The Parent's line of credit with Wells Fargo Bank, National Association, as administrative agent, and Branch Banking and Trust Company (BB&T) (referred to as our "Line of Credit"), was renewed effective December 1, 2015 with a borrowing capacity of $30 million, which can be increased to $50 million with the approval of both lending partners. This Line of Credit expires on December 1, 2020 and has an interest rate that varies and is based on, among other factors, the Parent's debt ratings. There were no balances outstanding under the Line of Credit at September 30, 2019 or at any time during 2019.
For additional information regarding the Line of Credit agreement and corresponding representations, warranties, and covenants, refer to Note 10. "Indebtedness" in Item 8. "Financial Statements." of our 2018 Annual Report. We continue to meet all covenants under our Line of Credit agreement as of September 30, 2019.
Several of our Insurance Subsidiaries are members of certain branches of the Federal Home Loan Bank, which provides those subsidiaries with additional access to liquidity. Membership is as follows:

Branch | Insurance Subsidiary Member
Federal Home Loan Bank of Indianapolis ("FHLBI") | Selective Insurance Company of South Carolina ("SICSC")1 Selective Insurance Company of the Southeast ("SICSE")1
Federal Home Loan Bank of New York ("FHLBNY") | Selective Insurance Company of America ("SICA") Selective Insurance Company of New York ("SICNY")

1 These subsidiaries are jointly referred to as the "Indiana Subsidiaries" as they are domiciled in Indiana.
The Line of Credit permits aggregate borrowings from the FHLBI and the FHLBNY up to 10% of the respective member company’s admitted assets for the previous year end. Additionally, as SICNY is domiciled in New York, this company's borrowings from the FHLBNY are limited to the lower of 5% of admitted assets for the most recently completed fiscal quarter or 10% of admitted assets for the previous year end. We have a remaining capacity of $289.4 million for Federal Home Loan Bank borrowings, with a $12.9 million additional stock purchase requirement to allow the member companies to borrow their full remaining capacity amounts.
All borrowings from both the FHLBI and the FHLBNY are required to be secured by investments pledged as collateral. For
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additional information regarding collateral outstanding, refer to Note 4. "Investments" in Item 1. "Financial Statements." of this Form 10-Q.
Short-term Borrowings
During Nine Months 2019, SICA borrowed the following from FHLBNY:

• | $50 million in the first quarter of 2019, which was repaid on March 28, 2019.

• | $15 million in Third Quarter 2019, which was repaid on August 12, 2019.

For further information regarding this borrowing, see Note 5. "Indebtedness" in Item 1. "Financial Statements." of this Form 10-Q.
Intercompany Loan Agreements
The Parent has lending agreements with the Indiana Subsidiaries that have been approved by the Indiana Department of Insurance, which provide additional liquidity to the Parent. Similar to the Line of Credit agreement, these lending agreements limit borrowings by the Parent from the Indiana Subsidiaries to 10% of the admitted assets of the respective Indiana Subsidiary. The outstanding balance on these intercompany loans was $41.3 million as of September 30, 2019, compared to $45.0 million as of December 31, 2018. The remaining capacity under these intercompany loan agreements was $80.0 million as of September 30, 2019, compared to $76.2 million as of December 31, 2018. Despite not being contractually obligated to do so, the Parent currently plans to repay the remaining outstanding balance over time.
Capital Market Activities
In the first quarter of 2019, the Parent issued $300 million of 5.375% Senior Notes at a discount of $5.9 million which, when coupled with debt issuance costs of approximately $3.3 million, resulted in net proceeds from the offering of $290.8 million. The Parent used a portion of the proceeds to fully redeem the then outstanding $185 million aggregate principal amount of its 5.875% Senior Notes, with the remaining $106 million being used for general corporate purposes. For additional information on these transactions, refer to Note 5. "Indebtedness" in Item 1. "Financial Statements." of this Form 10-Q. The Parent had no private or public issuances of stock during Nine Months 2019.
Uses of Liquidity
The liquidity generated from the sources discussed above is used, among other things, to pay dividends to our shareholders. Dividends on shares of the Parent's common stock are declared and paid at the discretion of the Board of Directors based on our operating results, financial condition, capital requirements, contractual restrictions, and other relevant factors.
On October 30, 2019, our Board of Directors declared, for stockholders of record as of November 15, 2019, a $0.23 per share dividend to be paid on December 2, 2019. This is a 15% increase compared to the dividend declared on July 31, 2019.
Our ability to meet our interest and principal repayment obligations on our debt, as well as our ability to continue to pay dividends to our stockholders, is dependent on liquidity at the Parent coupled with the ability of the Insurance Subsidiaries to pay dividends, if necessary, and/or the availability of other sources of liquidity to the Parent. Our next two principal
repayments, each in the amount of $25 million, are due in 2021, and the next principal payment is due in 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 stock.
Capital Resources
Capital resources provide protection for policyholders, furnish the financial strength to support the business of underwriting insurance risks, and facilitate continued business growth. At September 30, 2019, we had GAAP stockholders' equity of $2.1 billion and statutory surplus of $1.9 billion. With total debt of $550.7 million, our debt-to-capital ratio was 20.5% at September 30, 2019.
Our cash requirements include, but are not limited to, principal and interest payments on various notes payable, dividends to stockholders, payment of claims, payment of commitments under limited partnership agreements and capital expenditures, as well as other operating expenses, which include commissions to our distribution partners, labor costs, premium taxes, general and administrative expenses, and income taxes. For further details regarding our cash requirements, refer to the section below entitled, “Contractual Obligations, Contingent Liabilities, and Commitments.”
We continually monitor our cash requirements and the amount of capital resources that we maintain at the holding company and operating subsidiary levels. As part of our long-term capital strategy, we strive to maintain capital metrics, relative to the macroeconomic environment, that support our targeted financial strength. Based on our analysis and market conditions, we may take a variety of actions, including, but not limited to, contributing capital to the Insurance Subsidiaries in our insurance
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operations, issuing additional debt and/or equity securities, repurchasing existing debt, repurchasing shares of the Parent’s common stock, and increasing stockholders’ dividends.
Our capital management strategy is intended to protect the interests of the policyholders of the Insurance Subsidiaries and our stockholders, while enhancing our financial strength and underwriting capacity.
Book value per share increased to $35.98 as of September 30, 2019, from $30.40 as of December 31, 2018, driven by $3.16 in net income per share and $2.94 in unrealized gains on our fixed income securities portfolio, partially offset by $0.60 in dividends to our shareholders.
Ratings
We are rated by major rating agencies that issue opinions on our financial strength, operating performance, strategic position, and ability to meet policyholder obligations. We believe that our ability to write insurance business is most influenced by our rating from A.M. Best Company ("A.M. Best"). We have been rated “A” or higher by A.M. Best for the past 89 years. A downgrade from A.M. Best to a rating below “A-” is an event of default under our Line of Credit and could affect our ability to write new business with customers and/or distribution partners, some of whom are required (under various third-party agreements) to maintain insurance with a carrier that maintains a specified A.M. Best minimum rating.
On October 31, 2019, A.M. Best reaffirmed our "A" rating and upgraded our outlook to "positive" from "stable." In taking this action, A.M. Best cited our strong balance sheet strength, favorable business profile, and appropriate enterprise risk management. In addition, the positive outlook reflects A.M. Best's view of our improved profitability over the past five years on an absolute basis and relative to our peers.
Our other ratings have not changed from those reported in our "Ratings" section of Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." in our 2018 Annual Report and continue to be as follows:

NRSRO |  | Financial Strength Rating |  | Outlook
Moody's Investor Services ("Moody's") |  | A2 |  | Stable
Fitch Ratings ("Fitch") |  | A+ |  | Stable
Standard & Poor's Global Ratings ("S&P") |  | A |  | Stable

In the second quarter of 2019, Fitch reaffirmed our "A+" rating with a "stable" outlook. In taking this action, Fitch cited our strong capitalization and financial performance, with stable underwriting results and return metrics that have remained favorable compared to our peers.
In Third Quarter 2019, S&P reaffirmed our "A" rating with a "stable" outlook. In taking this action, S&P cited our strong capital adequacy and strong operating performance, driven by sound underwriting and steady pure renewal price increases.
Our S&P, Moody's, and Fitch financial strength and associated credit ratings affect our ability to access capital markets. The interest rate on our Line of Credit varies and is based on, among other factors, the Parent's debt ratings. There can be no assurance that our ratings will continue for any given period of time or that they will not be changed. It is possible that positive or negative ratings actions by one or more of the rating agencies may occur in the future.
Off-Balance Sheet Arrangements
At September 30, 2019 and December 31, 2018, we did not have any material relationships with unconsolidated entities or financial partnerships, such entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, we are not exposed to any material financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.
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Contractual Obligations, Contingent Liabilities, and Commitments
Our future cash payments associated with: (i) loss and loss expense reserves; and (ii) contractual obligations pursuant to operating and financing leases for office space and equipment have not materially changed since December 31, 2018. The following table provides future cash payments on our notes payable as of September 30, 2019, giving consideration to the $300 million 5.375% Senior Notes issuance and the redemption of our $185 million 5.875% Senior Notes in the first quarter of 2019, the details of which are contained in Note 5. "Indebtedness" in Item 1. "Financial Statements." in this Form 10-Q:

Contractual Obligations |  | Payment Due by Period
|  |  |  | Less than 1 year |  | 1-3 years |  | 3-5 years |  | More than 5 years
($ in millions) |  | Total |  |  |  |
Notes payable |  | $ | 560.0 |  |  | — |  |  | 50.0 |  |  | — |  |  | 510.0 |
Interest on debt obligations |  | 657.3 |  |  | 29.1 |  |  | 57.3 |  |  | 56.6 |  |  | 514.3 |
Total |  | $ | 1,217.3 |  |  | 29.1 |  |  | 107.3 |  |  | 56.6 |  |  | 1,024.3 |

As of September 30, 2019, we had contractual obligations that expire at various dates through 2036 that may require us to invest up to $229.9 million in alternative investments. There is no certainty that any such additional investment will be required. Additionally, as of September 30, 2019, we had the following contractual obligations: (i) $6.7 million to further invest in non-publicly traded common stock within our equity portfolio that expire through 2023; and (ii) $31.9 million to further invest in non-publicly traded collateralized loan obligations in our fixed income securities portfolio that expire through 2030. We expect to have the capacity to repay and/or refinance these obligations as they come due.
We have issued no material guarantees on behalf of others and have no trading activities involving non-exchange traded contracts accounted for at fair value. For additional details on transactions with related parties, see Note 16. "Related Party Transactions" in Item 8. "Financial Statements and Supplementary Data." in our 2018 Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in the information about market risk set forth in our 2018 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, as of the end of such period, our disclosure controls and procedures 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 accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding 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 Nine Months 2019 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of conducting business, we can be named as defendants in various legal actions. Most are claims litigation involving our Insurance Subsidiaries as either: (i) liability insurers defending or providing indemnity for third-party claims brought against our customers; or (ii) insurers defending first-party coverage claims brought against them. We account for such activity through the establishment of unpaid loss and loss expense reserves. In ordinary course claims litigation, we expect that any potential ultimate liability, after consideration of provisions made for potential losses and costs of defense, will not be material to our consolidated financial condition, results of operations, or cash flows.
From time to time, our Insurance Subsidiaries also are named as defendants in other legal actions, some of which assert claims for substantial amounts. Plaintiffs may style these actions as putative class actions and seek judicial certification of a state or national class for allegations such as improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance policies or improper reimbursement for automobile parts. Similarly, our Insurance Subsidiaries can be named in individual actions seeking extra-contractual damages, punitive damages, or penalties,
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often alleging bad faith in the handling of insurance claims. We believe that we have valid defenses to these allegations and we account for such activity through the establishment of unpaid loss and loss expense reserves. In these other legal actions, we expect that any potential ultimate liability, after consideration of provisions made for estimated losses, will not be material to our consolidated financial condition. Nonetheless, litigation outcomes are inherently unpredictable and, because the amounts sought in certain of these actions are large or indeterminate, it is possible that any adverse outcomes could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.
As of September 30, 2019, 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.
ITEM 1A. RISK FACTORS.
Certain risk factors exist that can have a significant impact on our business, liquidity, capital resources, results of operations, financial condition, and debt ratings. These risk factors might affect, alter, or change actions that we might take in executing our long-term capital strategy, including but not limited to, contributing capital to any or all of the Insurance Subsidiaries, issuing additional debt and/or equity securities, repurchasing our equity securities, repurchasing our existing debt, or increasing or decreasing stockholders' dividends. We operate in a continually changing business environment and new risk factors emerge from time to time. Consequently, we can neither predict such new risk factors nor assess the potential future impact, if any, they might have on our business. There have been no material changes from the risk factors disclosed in Item 1A. “Risk Factors.” in our 2018 Annual Report other than as discussed below.
We face risks regarding our flood business because of uncertainties regarding the NFIP.
We are the fifth largest insurance group in the WYO arrangement of the NFIP, which is managed by the Mitigation Division of the Federal Emergency Management Agency ("FEMA") in the U.S. Department of Homeland Security. Under the arrangement, we receive an expense allowance for policies written and a servicing fee for claims administered, and all losses are 100% reinsured by the Federal Government. Effective October 1, 2019, the underwriting expense allowance increased to 30.1%, from 30.0%, of direct premium written. The claim servicing fee remains the combination of 0.9% of direct premium written and 1.5% of incurred losses.
As a WYO carrier, we are required to follow certain NFIP procedures in the administration of flood policies and claims. Some of these requirements may differ from our normal business practices and may present a reputational risk to our brand. While insurance companies are regulated by the states and the NFIP requires WYO carriers to be licensed in the states in which they operate, the NFIP is a federal program and WYO carriers are fiscal agents of the U.S. Government and must follow the NFIP's directives. Consequently, we have the risk that directives from the NFIP and a state regulator on the same issue may conflict.
During Third Quarter 2019, the NFIP's authorization was extended until November 21, 2019, as a short-term solution while Congress continues to debate a more comprehensive proposal. There continues to be significant public policy and political debate in Congress about an extension of the NFIP, appropriate compensation for the WYO carriers, and solutions for flood risk throughout the country. Legislation introduced in Congress, if enacted, could greatly reduce the compensation WYO carriers receive under the NFIP. FEMA can act on its own to revise the arrangement, and did so in October 2019 by increasing the WYO’s underwriting expense allowance by 0.1 points, to 30.1%, from 30.0% .
Our flood business could be impacted by: (i) a lapse in program authorization; (ii) further changes to WYO carrier compensation; (iii) any mandate for primary insurance carriers to provide flood insurance; or (iv) private writers becoming more prevalent in the marketplace. The uncertainty created by the public policy debate and politics of flood insurance reform makes it difficult for us to predict the future of the NFIP and our continued participation in the program.
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 2019:

Period |  | Total Number of Shares Purchased 1 |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Programs |  | Maximum Number of Shares that May Yet Be Purchased Under the Announced Programs
July 1 – 31, 2019 |  | 179 |  |  | $ | 77.50 |  |  | — |  |  | — |
August 1 - 31, 2019 |  | 540 |  |  | 80.59 |  |  | — |  |  | — |
September 1 - 30, 2019 |  | 16,537 |  |  | 78.52 |  |  | — |  |  | — |
Total |  | 17,256 |  |  | $ | 78.57 |  |  | — |  |  | — |

1 These shares were purchased from employees in connection with the vesting of restricted stock units. These repurchases were made to satisfy tax withholding obligations with respect to those employees.
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ITEM 6. EXHIBITS.

Exhibit No. |  |
* 11 |  | Statement Re: Computation of Per Share Earnings.
* 31.1 |  | Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
* 31.2 |  | Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
** 32.1 |  | Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
** 32.2 |  | Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
* 101 |  | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.
*104 |  | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in iXBRL.

* Filed herewith.
** Furnished and not filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
SELECTIVE INSURANCE GROUP, INC.
Registrant

Date: | October 31, 2019 |  | By: /s/ Gregory E. Murphy
|  |  | Gregory E. Murphy
|  |  | Chairman of the Board and Chief Executive Officer
|  |  | (principal executive officer)
Date: | October 31, 2019 |  | By: /s/ Mark A. Wilcox
|  |  | Mark A. Wilcox
|  |  | Executive Vice President and Chief Financial Officer
|  |  | (principal financial officer)

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