Selective Insurance Group Annual Report 2017

FY2017 Annual Report · Selective Insurance Group

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SELECTIVE ANNUAL REPORT 2017Driving sustained outperformanceANNUALREPORT2017Selective has a long history of financial
strength, superior execution, and
profitable growth. The 36th largest*
property and casualty company in the
U.S., Selective provides value-added
products and services to businesses,
public entities, and individuals through
the following segments:

Insurance Operations
Standard Commercial

78% of business†
Standard Personal
13% of business†
Excess & Surplus
9% of business†

Investments
After-tax net investment income of $119
million in 2017 was a 20% increase over
2016.

Selective is a super-regional
company, and growing.
In 2017, we commenced our geographic
expansion program by: (i) adding two new
states – Arizona and New Hampshire – to
our Commercial Lines footprint; and (ii)
widening our field model to include our
new Southwest Region office in Arizona.
Expansion will continue throughout 2018
as we open for business in Colorado
(effective January 2018), New Mexico, and
Utah for Commercial Lines, and in Arizona
and Utah for Personal Lines.

To date, we write standard Commercial
Lines business in 25 states and the
District of Columbia. Our long-term
growth plan to achieve a 3% total market
share in our footprint states includes
increasing the market share held by
our “ivy league” distribution partners
to at least 25% of their state’s available
premium and increasing our share of
their business, which we refer to as our
“share of wallet,” to 12%. Combined, this
provides for an additional $2.5 billion of
premium opportunity.

* According to A.M. Best Top 200 U.S. Property/Casualty Writers,
ranked by 2016 net premiums written.
† Based on net premiums written.

2017

A YEAR OF
SUCCESS

93.3%

GAAP
Combined Ratio

Year over Year Growth
in Net Premiums Written

11.4%

Non-GAAP Operating
Return on Average Equity

11%

Year over Year Growth
in Book Value Per Share

2017 FINANCIAL HIGHLIGHTS

($ in millions, except per share data)

Insurance Operations

Net premiums written

GAAP combined ratio

Underwriting gain after-tax

Return on average equity from insurance operations after-tax

Investments

Net investment income after-tax

Net realized gains (losses) after-tax

Total invested assets

Invested assets per dollar of stockholders’ equity

Annual after-tax yield on investment portfolio

Return on average equity from net investment income after-tax

Summary Data

Total revenues

Net income

Return on average equity

Non-GAAP operating income*

Non-GAAP operating return on average equity*

Operating cash flow as % of net premiums written

Total assets

Stockholders’ equity

Per Share Data

Diluted net income

Diluted non-GAAP operating income*

Dividends

Stockholders’ equity

AVERAGE
ANNUAL
RETURN

Growth of a $10,000
investment (year-end
2012-17)

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

2017

2016

% or Point Change
Better (Worse)

$2,370.6

$2,237.3

93.3%

$100.3

6.2%

$118.5

$4.1

92.9%

$98.8

6.7%

$98.4

$(3.2)

$5,685.2

$5,364.9

$3.32

2.1%

7.3%

$3.50

1.9%

6.7%

$2,470.0

$2,284.3

$168.8

10.4%

$184.9

11.4%

15.6%

$158.5

10.8%

$161.7

11.0%

13.5%

$7,686.4

$7,355.8

$1,713.0

$1,531.4

$2.84

$3.11

$0.66

$2.70

$2.75

$0.61

$29.28

$26.42

(0.4) pts

(0.5) pts

20%

229%

(5)%

0.2 pts

0.6 pts

(0.4) pts

14%

0.4 pts

2.1 pts

12%

13%

11%

SIGI

S&P 500

S&P Prop/Cas

2012

2013

2014

2015

2016

2017

* Non-GAAP operating income, non-GAAP operating earnings per share, and non-GAAP operating return on equity are non-GAAP (U.S. Generally Accepted Accounting Principles) measures.

Refer to the section entitled, “Financial Highlights of Results for Years Ended December 31, 2017, 2016, and 2015” in Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” which appears in the Company’s Form 10-K for a reconciliation of the non-GAAP measures to the equivalent GAAP measures.

SELECTIVE 2017 ANNUAL REPORT 1

TO OUR SHAREHOLDERS

We are extremely proud of our 2017 financial results. Non-GAAP operating return on equity of 11.4% was
in line with our long-term goal of achieving a return that is 300 basis points above our weighted average
cost of capital. An impressive result given: (i) record levels of expected industry-wide catastrophe losses;
(ii) an ongoing competitive Commercial Lines underwriting environment; and (iii) sustained low interest rates
continuing to pressure investment yields.

Our 2017 GAAP combined ratio was an excellent
93.3%, and on an underlying basis, or after adjusting
for catastrophe losses and favorable prior year casualty
reserve development, it was an extremely strong 92.5%.
In addition, our 2017 after-tax net investment income was
$119 million, up 20% over last year.

2017 was a turbulent catastrophe year, with global insured
catastrophe losses estimated as high as $136 billion
for the industry. The industry experienced Hurricanes
Harvey, Irma, and Maria in the third quarter, followed by
the devastating California wildfires in the fourth quarter.
For Selective, the impact of catastrophe losses was well
below that of the industry, accounting for 2.9 points on the
2017 combined ratio, and 3.6 points on average over the
past 10 years.

Given the elevated level of industry catastrophe losses
and sub-par return on equity performance for the industry,
we expect to see upward pricing momentum in 2018. If
companies do not achieve overall renewal pure price
increases that keep pace with claims inflation, then loss
ratios will rise. Higher premium rates must support: (i)
increased catastrophe loss volatility; (ii) expected claim
inflation; and (iii) continued low after-tax new money
investment yields.

During 2017, we executed successfully on several difficult
objectives that will permit sustained, strong performance,
including: (i) achieving a standard Commercial Lines
written renewal pure price increase of 2.9%; (ii) improving
renewal underwriting quality while maintaining strong and
stable retention; (iii) targeted underwriting actions in our

During 2017, we executed successfully
on several difficult objectives that will
permit sustained, strong performance...

standard Personal Lines and Excess and Surplus Lines
segments to improve profitability; (iv) excellent investment
income results with after-tax new money investment rates
of 2.1%; and (v) strong operating cash flows that equated
to 16% of net premiums written. All of these achievements,

GAAP COMBINED RATIOS

107.2%

101%

110%

105%

100%

95%

90%

85%

Reported Combined Ratio

Underlying Combined Ratio*

93.3%

92.5%

2011

2012

2013

2014

2015

2016

2017

The achievement of our targeted strategic
initiatives has contributed to strong GAAP reported
and underlying combined ratios.

*Underlying GAAP combined ratio excludes catastrophe losses and
prior year casualty reserve development

coupled with a lower Federal income tax rate for U.S.
corporate taxpayers that reduces our estimated 2018
effective tax rate by approximately 10 points, establish a
strong base for future profitable growth.

Our long-term growth plans include: (i) increased “ivy
league” distribution partner representation; (ii) higher share
of our distribution partners’ premiums; and (iii) geographic
expansion of our Commercial and Personal Lines footprint.

Our expansion efforts are on track, as we opened two
Commercial Lines states, Arizona and New Hampshire,
in 2017. In January 2018, we entered Colorado and
we are now in 25 states. Obtaining our long-term goal
of a 3% market share in these states would create
a Commercial Lines company profile in excess of
$4 billion in net written premiums, representing an
additional $2.5 billion premium opportunity for our
standard Commercial Lines segment. This effort continues
as we plan to open New Mexico and Utah, and later this
year, Arizona and Utah for Personal Lines.

At Selective, talent continues to
differentiate us and drives our market-
leading position in Commercial Lines.

footprint state. Our distribution partners rated us an 8.8 on
a 10-point scale for overall satisfaction.

We continue to expand our sophisticated Commercial
Lines underwriting tools and processes that allow

We are always investing to
make Selective the best - a
truly unique company in the
industry. This commitment
positions us for sustained
financial outperformance
and to attract high-caliber
distribution partners and
employees to support our
future growth.

Our employees are the best
and execute the numerous
strategies that define the
Company’s success. Our
achievements in 2017 could
not have been accomplished
without their perseverance,
focus, and dedication, as
they strive each day to meet
and exceed our targets.
This unwavering focus on
delivering an exceptional
experience to our distribution
partners and customers drives our “Overall Satisfaction”
and “Net Promoter Survey” scores. At Selective, talent
continues to differentiate us and drives our market-leading
position in Commercial Lines.

The Company’s franchise distribution model is enabled
by an empowered field-based underwriting model - a
true differentiator in the marketplace. We are focused on
providing our distribution partners with the tools, products,
services, and resources they need to be successful. We
distribute Commercial Lines business through 1,250
distribution partners, averaging about 50 agents per

Gregory E. Murphy, Chairman and CEO, and
John J. Marchioni, President and COO.

employees to make better
decisions faster, while
enhancing outcomes for new
and renewal business. This is
best demonstrated by our: (i)
market-leading performance
in managing Commercial
Lines renewal pure price and
retention; (ii) continued strong
growth relative to the industry;
and (iii) strong non-GAAP
operating return on equity,
which in 2017, is forecasted to
be more than three times that
of the industry.

We are also making significant
investments to enhance the
overall customer experience
in an omni-channel
environment to meet or exceed
rapidly evolving customer
expectations, as we continue
to strive toward providing

best-in-class customer service in a 24-hour, 365-day
environment. Our goals in this area are centered on
leveraging technology to improve customer retention
rates, which, over time, should lead to higher business
volumes and enhanced quality of business.

Standard Commercial Insurance
Standard Commercial Lines, which accounted for 78% of
total net premiums written, had another excellent year. Net
premiums written increased 6% and the combined ratio
was an extremely profitable 91.6%. Results were driven by
strong performance in larger lines, such as general liability

SELECTIVE 2017 ANNUAL REPORT 3

and workers compensation. Commercial auto results
negatively impacted us and the rest of the industry.
We continue to drive renewal pure price increases that
equal our expected claim inflation. Profitable growth
requires managing renewal pure price, maintaining
strong retention rates, and generating new business.

Standard Personal Insurance
Standard Personal Lines, which accounted for 13% of
total net premiums written, had a profitable year and
generated a 96.2% combined ratio. Steps that we have
taken in recent years to improve performance through
pricing and business mix shifts in the homeowners
line of business resulted in an extremely strong
88.2% combined ratio. Our personal auto business
experienced adverse loss trends, and we continue to
target margin improvement through price increases,
including a plan for rate filings averaging 7.4% in 2018,
and expense reductions.

Excess and Surplus Insurance
Our Excess and Surplus Lines segment, which accounted
for 9% of total net premiums written, generated a 103.0%
combined ratio for 2017. This included 5.3 points of
catastrophe losses and 4.7 points of unfavorable prior
year casualty reserve development. Our underlying
combined ratio improved to 93.0% in 2017. We have
taken a number of steps to address the profitability
of this segment over the past two years, including
implementing substantial targeted price increases and
changing the business mix. We are pleased with the
pricing of new business, and when combined with our
initiatives to centralize claims handling and improve loss
settlement outcomes, profitability should increase.

Investments
We had excellent performance in our investment portfolio
during 2017. Fixed income securities, which represent 92%
of total invested assets, experienced an increase in after-
tax net investment income, resulting mostly from a higher
book yield. This portfolio is highly rated with an average
credit rating of AA- and a 3.8-year effective duration. Our
portfolio managers generated significant alpha during the
year without taking on higher credit or duration risk. Our
equity and alternative investments portfolio generated
$14 million of after-tax net investment income in 2017. The
after-tax yield on total invested assets was 2.1% for the year.
We ended the year with $3.32 of invested assets per dollar

CONSERVATIVE INVESTMENT PORTFOLIO

$5.7 billion as of 12/31/2017

Fixed Income: 92%

Short-term: 3%

Equities: 3%

Other Investments: 2%

Selective invests the premiums collected by
our insurance segments, as well as amounts
generated throughout our capital management
strategies. The primary objective of our
conservative investment portfolio is to maximize
after-tax net investment income while balancing
risk and generating long-term growth in
shareholder value.

We are also making significant
investments to enhance the overall
customer experience in an omni-
channel environment to meet or exceed
rapidly evolving customer expectations.

of stockholders’ equity, which contributed 7.3 percentage
points to our 2017 non-GAAP operating return on equity.

Board Leadership
A. David Brown is retiring in May 2018, after 22 years of
dedicated service, as he reaches our mandatory Director
retirement age. He has been an important part of our
Board, serving previously as Lead Independent Director for
four years and having chaired several committees. Befitting
his influence in our boardroom, Savoy Magazine named
David one of “2017’s Most Influential Black Directors.”

Conclusion
On behalf of our Board of Directors and our employees,
thank you for your ownership position in Selective. We are
proud of our accomplishments in 2017 and look forward to
building on them in 2018. The investments we are making
today to continually grow and improve, while leveraging
the latest tools and technologies, should position us well
for the future.

Sincerely,

Gregory E. Murphy
Chairman and CEO

John J. Marchioni
President and COO

We will miss David’s wisdom, sense of humor, inclusive
leadership, open mindedness, and mentorship.

We are pleased to welcome two new Directors
Thomas A. McCarthy, Cigna Corporation’s former
Executive Vice President and Chief Financial Officer,
joined the Board in January 2018. Tom will play a key
role in contributing to Selective’s overall corporate
strategies. In particular, we think his deep knowledge
of customer experience, agents, investments, and
capital management will be an immediate and
significant asset to our Board.

H. Elizabeth Mitchell, former President and Chief
Executive Officer of Renaissance Reinsurance U.S., Inc.
and Platinum Underwriters Reinsurance, Inc., joined
the Board in March 2018. A member of the American
Academy of Actuaries and a Fellow of the Casualty
Actuarial Society, Liz has over 30 years of property and
casualty insurance and reinsurance expertise. We
believe her broad range of industry and leadership
experiences and her strengths in risk management,
actuarial science, and insurance operations will
greatly assist further development of our corporate
and operating strategies.

BOOK VALUE PER SHARE GROWTH

MARKET CAPITALIZATION

$32

$24

$16

$3.4B

$4B

$1.2B

2009

2011

2013

2015

2017

2009

2011

2013

2015

2017

A strong track record of book value per share growth contributes to greater total shareholder
value creation over time.

SELECTIVE 2017 ANNUAL REPORT 5

CAPABILITIES OF A NATIONAL
CARRIER WITH RELATIONSHIPS
OF A REGIONAL CARRIER

Our Growing Geographic Footprint

Selective is a super-regional insurance carrier operating in the following states:

Standard Commercial (25 states)
Targeted expansion states
Opened for business in January 2018

Standard Personal* (13 states)
Targeted expansion states

* Flood Insurance available in all 50 states

Excess & Surplus (50 states)

Our Competitive Advantages

Unique field model enabled by sophisticated tools and technology
Selective’s empowered and dynamic field model, comprised of locally-based field underwriters, claims professionals, and
safety management specialists, is key to our agency value proposition and underwriting quality. Enabled by sophisticated
tools, our field experts apply a data-driven approach to underwriting and pricing to effectively deliver products and services
to our distribution partners.

Superior customer experience delivered by best-in-class employees
The cornerstone of Selective’s success is our talented team. One of our core values is to “be the best,” which includes
developing the best employees, creating the best products for our customers, and delivering the best service to our
distribution partners and mutual customers.

True franchise value with “ivy league” distribution partners
Selective works closely with more than 1,250 retail and 85 wholesale distribution partners to build strong relationships and deliver
exceptional service to our shared customers. We are committed to our distribution partners’ success and provide them with the
tools, products, services, and resources to prosper and build their market share. We will continue to appoint high-caliber and
diverse distribution partners to drive profitable growth and expand our geographic footprint.

Above-average operating leverage enhances return on equity
Our strong balance sheet, underwriting risk profile, and conservative investment portfolio allow us to take on more operating
leverage with a net premiums written to statutory surplus ratio of 1.4 to 1, which is approximately twice the industry average.
As a result, each point on our combined ratio equates to approximately 1.1 points of non-GAAP operating return on average
equity.†

† Non-GAAP operating income, non-GAAP operating earnings per share, and non-GAAP operating return on equity are non-GAAP (U.S. Generally Accepted Accounting Principles)
measures. Refer to the section entitled, “Financial Highlights of Results for Years Ended December 31, 2017, 2016, and 2015” in Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” which appears in the Company’s Form 10-K for a reconciliation of the non-GAAP measures to the equivalent GAAP measures.

COMMITTED TO
SERVICE EXCELLENCE

Customer-Centricity is Core to Who We Are as a Company.

Selective’s strategy for each segment of our business is underscored by a strong focus on customer experience,
which is central to our long-term success. Our commitment to customer-centricity is driven by our employees and
ensures we continually deliver a superior service experience across all channels, which we call omni-channel, to
serve our customers how and when they choose.

Selective has made significant investments in technology to enhance our
customer experience capabilities. In 2017, we:

Connected multiple systems
to obtain a 360° view of
our customers to better
understand who they are
and what they want.

Launched new technology to
enable more customized,
proactive customer
communication and
risk management
solutions.

Released an improved Customer
Self-Service portal and updated
the Selective Mobile App to enrich
our customers’ digital experience
and simplify transactions, like
paying a bill or submitting a claim.

Initiated the application of more
advanced analytics in our pursuit
to gather deeper customer
insights and improve customer
experience, business acquisition,
and retention.

Deployed a new customer
relationship management tool in
our contact centers to improve the
way we connect, communicate,
and collaborate with our
customers and distribution
partners.

SELECTIVE 2017 ANNUAL REPORT 7

MANAGEMENT TEAM

Gregory E. Murphy
Chairman and Chief Executive Officer

John J. Marchioni
President and Chief Operating Officer

George D. Dufala, Jr.
Executive Vice President
Insurance Operations

Gordon J. Gaudet
Executive Vice President
Chief Information Officer

Michael H. Lanza
Executive Vice President
General Counsel and
Chief Compliance Officer

Charles A. Musilli, III
Executive Vice President
Chief Human Resources
Officer

George A. Neale
Executive Vice President
Chief Claims Officer

Vincent M. Senia
Executive Vice President
Chief Actuary

Mark A. Wilcox
Executive Vice President
Chief Financial Officer

2017 FINANCIALS
FORM 10-K

2017 ANNUAL REPORT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2017

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
(State or Other Jurisdiction of Incorporation or Organization)

22-2168890
(I.R.S. Employer Identification No.)

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

07890
(Zip Code)

Registrant’s telephone number, including area code:

(973) 948-3000

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

Common Stock, par value $2 per share

Title of each class

Name of each exchange on which registered
NASDAQ Global Select Market

5.875% Senior Notes due February 9, 2043

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted 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 and post such files).

Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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

Large accelerated filer
Non-accelerated filer
Emerging growth company

(Do not check if a smaller reporting company)

Accelerated filer
Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standard 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 Act).

Yes

The aggregate market value of the voting company common stock held by non-affiliates of the registrant, based on the closing
price on the NASDAQ Global Select Market, was $2,859,898,742 on June 30, 2017. As of February 9, 2018, the registrant had
outstanding 58,717,701 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2018 Annual Meeting of Stockholders to be held on May 2, 2018
are incorporated by reference into Part III of this report.

SELECTIVE INSURANCE GROUP, INC.

Table of Contents

Page No.

PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.

PART II
Item 5.

Item 6.
Item 7.

Item 7A.
Item 8.

Item 9.
Item 9A.
Item 9B.

PART III
Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

PART IV
Item 15.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
Introduction
Critical Accounting Policies and Estimates
Financial Highlights of Results for Years Ended December 31, 2017, 2016, and 2015
Results of Operations and Related Information by Segment
Federal Income Taxes
Financial Condition, Liquidity, and Capital Resources
Off-Balance Sheet Arrangements
Contractual Obligations, Contingent Liabilities, and Commitments
Ratings
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Income for the Years Ended
December 31, 2017, 2016, and 2015
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2017, 2016, and 2015
Consolidated Statements of Stockholders’ Equity for the Years Ended
December 31, 2017, 2016, and 2015
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2017, 2016, and 2015
Notes to Consolidated Financial Statements
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services

Exhibits, Financial Statement Schedules

4
17
30
30
30

31
34
35
35
35
36
45
50
62
62
65
65
66
66
72
73

77
78
132
132
134

134
134

134
134
134

135

PART I

Item 1. Business.

Overview

Selective Insurance Group, Inc. (referred to as the “Parent”) is a New Jersey holding company that was incorporated in 1977.
Our main office is located in Branchville, New Jersey and the Parent’s common stock is publicly traded on the NASDAQ
Global Select Market under the symbol “SIGI.” The Parent has ten insurance subsidiaries, nine of which are licensed by
various state departments of insurance to write specific lines of property and casualty insurance business in the standard
market. The remaining subsidiary is authorized by various state insurance departments to write property and casualty insurance
in the excess and surplus ("E&S") lines market. Our ten insurance subsidiaries are collectively referred to as the “Insurance
Subsidiaries.” The Parent and its subsidiaries are collectively referred to as "we," “us,” or “our” in this document.

In 2017, we were ranked as the 36th largest property and casualty group in the United States based on 2016 net premiums
written (“NPW”) in A.M. Best Company’s (“A.M. Best”) annual list of “Top 200 U.S. Property/Casualty Writers.”

The property and casualty insurance market is highly competitive, with fragmented market share and three main distribution
methods: (i) sales through independent insurance agents; (ii) direct sales to personal and commercial customers; and (iii) a
combination of independent agent and direct sales. In this highly competitive and regulated industry, we have several strategic
advantages as follows: (i) the true franchise value we have built through our relationships with a small group of distribution
partners that we refer to as our "ivy league" independent distribution partners, who collectively have significant market share in
the states in which we operate and from whom we expect to gain increasing percentages of the business they write; (ii) our
unique field model, in which our underwriting, claims, and safety management personnel are located in the same communities
as our distribution partners and customers supported by sophisticated analytics, technology, and regional and home office
support; and (iii) our focus on service and providing an exceptional and personalized customer experience that is seamless
regardless of whether the method of communication is on-line, over the phone, or in person with one of our distribution
partners. We refer to this as our omni-channel customer experience.

We have defined a long-term financial goal to achieve a non-GAAP operating return on equity of 300 basis points over our
weighted-average cost of capital. For further details regarding our 2017 performance as it relates to return on equity, refer to
"Financial Highlights of Results for Years Ended December 31, 2017, 2016, and 2015" in Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations." of this Form 10-K.

Financial Strength Ratings play a significant role in insurance purchasing recommendations by our distribution partners and in
decision-making by our customers. Distribution partners generally recommend higher rated carriers to limit their liability for
error and omission claims, and customers often have minimum insurer rating requirements in loan and other banking covenants
securing real and personal property. Our Insurance Subsidiaries’ ratings by major rating agency are as follows:

Rating Agency

A.M. Best

Standard & Poor’s Global Ratings (“S&P”)

Moody’s Investors Services (“Moody’s”)

Fitch Ratings (“Fitch”)

Financial Strength Rating

A+

Outlook

Stable

For further discussion on our ratings, please see the “Ratings” section of Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” of this Form 10-K.

We have provided a glossary of terms as Exhibit 99.1 to this Form 10-K, which defines certain industry-specific and other
terms that are used in this Form 10-K.

Segments

We classify our business into four reportable segments, which are as follows:

•

Standard Commercial Lines, which is comprised of insurance products and services provided in the standard
marketplace to commercial enterprises, which are typically businesses, non-profit organizations, and local
government agencies. This business represents 78% of our total insurance operations’ NPW and is sold in 25 states
and the District of Columbia.

Standard Personal Lines, which is comprised of insurance products and services provided primarily to individuals
acquiring coverage in the standard marketplace. This business represents 13% of our total insurance operations’
NPW and is primarily sold in 13 Eastern and Midwestern states. Standard Personal Lines includes flood insurance
coverage. We are the fifth largest writer of this coverage through the National Flood Insurance Program (“NFIP”)
and write flood business in all 50 states and the District of Columbia.

• E&S Lines, which is comprised of insurance products and services provided to customers who have not obtained

coverage in the standard marketplace. We currently only write commercial lines E&S coverages and this business
represents 9% of our total insurance operations’ NPW and is sold in all 50 states and the District of Columbia.

•

Investments, which invests the premiums collected by our insurance operations, as well as amounts generated
through our capital management strategies, which includes the issuance of debt and equity securities.

We derive substantially all of our income in three ways:

• Underwriting income/loss from our insurance operations. Underwriting income/loss is comprised of revenues,

which are the premiums earned on our insurance products and services, less expenses. Gross premiums are direct
premium written (“DPW”) plus premiums assumed from other insurers. Gross premiums less premium ceded to
reinsurers, is NPW. NPW is recognized as revenue ratably over a policy’s term as net premiums earned (“NPE”).
Expenses related to our insurance operations fall into three main categories: (i) losses associated with claims and
various loss expenses incurred for adjusting claims (referred to as “loss and loss expense”); (ii) expenses related to
insurance policy issuance, such as commissions to our distribution partners, premium taxes, and other expenses
incurred in issuing and maintaining policies, including employee compensation and benefits (referred to as
“underwriting expenses”); and (iii) policyholder dividends.

• Net investment income from the investment segment. We generate income from investing insurance premiums and
amounts generated through our capital management strategies. Net investment income consists primarily of: (i)
interest earned on fixed income investments and preferred stocks; (ii) dividends earned on equity securities; and (iii)
other income primarily generated from our alternative investment portfolio.

• Net realized gains and losses on investment securities from the investments segment. Realized gains and losses
from the investment portfolios of the Insurance Subsidiaries and the Parent are typically the result of sales, calls,
and redemptions. They also include write downs from other-than-temporary impairments (“OTTI”).

Our income is partially offset by: (i) expenses at the Parent that include long-term incentive compensation to employees,
interest on our debt obligations, and other general corporate expenses; and (ii) federal income taxes.

We use the combined ratio as the key measure in assessing the performance of our insurance operations. The combined ratio is
calculated by adding: (i) the loss and loss expense ratio, which is the ratio of incurred loss and loss expense to NPE; (ii) the
expense ratio, which is the ratio of underwriting expenses to NPE; and (iii) the dividend ratio, which is the ratio of policyholder
dividends to NPE. A combined ratio under 100% indicates an underwriting profit and a combined ratio over 100% indicates an
underwriting loss. The combined ratio does not reflect investment income, federal income taxes, or Parent company income or
expense.

We use after-tax investment income, and net realized gains or losses as the key measures in assessing the performance of our
investments segment. Our investment philosophy includes setting certain risk and return objectives for the fixed income,
equity, and other investment portfolios. We generally review our performance by comparing our returns for each of these
components of our portfolio to a weighted-average benchmark of comparable indices.

For revenue and profitability measures for each of our segments, see Note 11. "Segment Information" in Item 8. "Financial
Statements and Supplementary Data." of this Form 10-K. We do not allocate assets to individual segments. In addition, for
analysis of segments' results, see "Results of Operations and Related Information by Segment" in Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K.

Insurance Operations

Overview

We derive all of our insurance operations revenue from selling insurance products and services to businesses and individuals
for premium. The majority of our sales are annual insurance policies. Our most significant cost associated with the sale of
insurance policies is our loss and loss expense.

To that end, we establish loss and loss expense reserves that are estimates of the ultimate amounts that we will need to pay in
the future for claims and related expenses for insured losses that have already occurred. Estimating reserves as of any given
date requires the application of estimation techniques, involves a considerable degree of judgment and is an inherently
uncertain process. We regularly review our reserving techniques and the overall adequacy of our reserves. For disclosures
concerning our unpaid loss and loss expense, as well as a full discussion regarding our loss reserving process, see "Critical
Accounting Policies and Estimates" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations." of this Form 10-K. Additionally, for an analysis of changes in our loss reserves over the most recent three-year
period, see Note 9. "Reserve for Loss and Loss Expense" in Item 8. "Financial Statements and Supplementary Data." of this
Form 10-K.

As part of our risk management efforts associated with the sale of our products and services, we use reinsurance to protect our
capital resources and insure us against losses on the risks that we underwrite. We use two main reinsurance vehicles: (i) a
reinsurance pooling agreement among our Insurance Subsidiaries in which each company agrees to share in premiums and
losses based on certain specified percentages; and (ii) reinsurance contracts and arrangements with third parties that cover
various policies that we issue to our customers. For information regarding reinsurance treaties and agreements, see
"Reinsurance" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." of this
Form 10-K.

Insurance Operations Products and Services
The types of insurance we sell in our insurance operations fall into two broad categories:

•

Property insurance, which generally covers the financial consequences of accidental loss of an insured’s real and/or
personal property. Property claims are generally reported and settled in a relatively short period of time.

• Casualty insurance, which generally covers the financial consequences of employee injuries in the course of

employment and bodily injury and/or property damage to a third party as a result of an insured’s negligent acts,
omissions, or legal liabilities. Casualty claims may take several years, and for some casualty claims even several
decades, to be reported and settled.

We underwrite our business primarily through traditional insurance. The following table shows the principal types of policies
we write:

Types of Policies

Category of Insurance

Commercial Property (including Inland Marine)

Property

Commercial Automobile

Property/Casualty

General Liability (including Excess Liability/
Umbrella)

Workers Compensation

Businessowners' Policy

Bonds (Fidelity and Surety)

Homeowners

Personal Automobile

Casualty

Property/Casualty

Casualty

Property/Casualty

Standard Personal
Lines

E&S Lines

Standard Commercial
Lines
X

Personal Umbrella
Flood1
1Flood insurance premiums and losses are 100% ceded to the Federal Government’s Write Your Own ("WYO") Program of the National Flood Insurance
Program ("NFIP").

Casualty

Property

Product Development and Pricing
Our insurance policies are contracts that specify our coverages - what we will pay to or for an insured upon a specified loss.
We develop our coverages internally and by adopting and modifying forms and statistical data licensed from third party
aggregators, notably Insurance Services Office, Inc. (“ISO”), American Association of Insurance Services, Inc. ("AAIS"), and
the National Council on Compensation Insurance, Inc. ("NCCI"). Determining the price to charge for our coverages involves
consideration of many variables. At the time we underwrite and issue a policy, we do not know what our actual costs for the
policy will be in the future. To calculate and project future costs, we examine and analyze historical statistical data and factor
in expected changes in loss trends. Additionally, we have developed predictive models for certain of our Standard Commercial
and Standard Personal Lines. Predictive models analyze historical statistical data regarding our customers and their loss
experience, rank our policies, or potential policies, based on this analysis, and apply this risk data to current and future
customers to predict the likely profitability of an account. A model’s predictive capabilities are limited by the amount and
quality of the statistical data available. As a super-regional insurance group, our loss experience is not always statistically large
enough to analyze and project future costs. Consequently, we use ISO, AAIS, and NCCI data to supplement our proprietary
data.

Customers and Customer Markets
We categorize our Standard Commercial Lines customers into the following strategic business units ("SBUs"):

Percentage of Standard
Commercial Lines

Contractors

Mercantile and Services

Community and Public Services

Manufacturing and Wholesale

Bonds

Total Standard Commercial Lines

37%

26%

19%

17%

100%

General contractors and trade contractors

Description

Focuses on retail, office, service businesses, restaurants, golf courses, and hotels

Focuses on public entities, social services, religious institutions, and schools

Includes manufacturers, wholesalers, and distributors

Includes fidelity and surety

We do not categorize our Standard Personal Line customers or our E&S Line customers by SBU.

The following are general guidelines that can be used as indicators of the approximate size of our customers:

• The average Standard Commercial Lines account size is approximately $11,000.
• The average Standard Personal Lines account size is approximately $2,000.
• The average E&S Lines policy is approximately $3,000.

No one customer accounts for 10% or more of our insurance operations in the aggregate.

Geographic Markets
We principally sell in the following geographic markets:

•

Standard Commercial Lines products and services are primarily sold in 25 states located in the Eastern, Midwestern
and Southwestern regions of the United States and the District of Columbia. In January 2018, we entered Colorado,
and we expect to add New Mexico and Utah later this year. This will bring our total Standard Commercial Lines
states to 27 by the end of 2018.

Standard Personal Lines products and services are primarily sold in 13 states located in the Eastern and Midwestern
regions of the United States, except for the flood portion of this segment, which is sold in all 50 states and the District
of Columbia. In the future, we expect to add Arizona and Utah, which will bring our total primary Standard Personal
Lines states to 15.

• E&S Lines are sold in all 50 states and the District of Columbia.

Geographic diversification lessens our exposure to regulatory, competitive, and catastrophic risk. The following table lists the
principal states in which we write business and the percentage of total NPW each represents for the last three fiscal years:

% of NPW

New Jersey

Pennsylvania

New York

Maryland

Virginia

Georgia

North Carolina

Indiana

Illinois

South Carolina

Michigan

Other states

Total

Years ended December 31,

2017

2016

2015

19.6%

11.8

8.2

5.5

4.6

4.5

4.2

3.7

3.6

3.2

3.1

28.0

100.0%

20.2

11.8

7.8

5.4

4.6

4.3

3.9

3.6

3.1

3.3

28.1

100.0

21.2

11.7

7.2

5.4

4.6

4.1

3.7

4.3

3.7

3.0

3.5

27.6

100.0

We support geographically diversified business from our corporate headquarters in Branchville, New Jersey, and our seven
regional branches (referred to as our “Regions”). The table below lists our Regions and where they have office locations:

Region

Heartland

New Jersey

Northeast

Mid-Atlantic

Southern

Southwest

E&S

Office Location

Carmel, Indiana

Hamilton, New Jersey

Branchville, New Jersey

Allentown, Pennsylvania and Hunt Valley, Maryland

Charlotte, North Carolina

Scottsdale, Arizona

Horsham, Pennsylvania and Scottsdale, Arizona

Distribution Channel
We sell our insurance products and services through the following types of distribution partners:

•

Standard Commercial Lines: independent retail agents;

Standard Personal Lines: independent retail agents; and

• E&S Lines: wholesale general agents and brokers.

We pay our distribution partners commissions that are based on a percentage of direct premiums written, and in some cases are
further based on profit calculations, and other consideration for business placed with us. We seek to compensate them fairly
and in a manner consistent with market practices. No one distribution partner is responsible for 10% or more of our combined
insurance operations' premium. Our top 20 distribution partners generated approximately 27% of our NPW in 2017, with 19 of
the 20 being larger agency groups.

As our customers rely heavily on our distribution partners, it is sometimes difficult to develop brand recognition as these
customers cannot always differentiate between their insurance agents and their insurance carriers. We continue to evolve our
service model, post policy-acquisition, with an increasing focus on the customer. Our goal is to provide our customers with
24/7 access to transactional capabilities and account information. Customers expect this level of access from every business
and, while many insurers offer such solutions in the personal lines space, we want to be a leader in this area for our entire book
of business. When combined with our digital strategy, we believe this level of access will significantly improve the customer
experience. Within our digital strategy, we provide self-servicing capabilities via a mobile application and a web-based portal
where our customers have access to basic account information on demand. These efforts will allow us to continue to offer
customers a shared experience with our distribution partners, while positioning us to more directly demonstrate our value
proposition.

Independent Retail Agents
According to a study released in 2017 by the Independent Insurance Agents & Brokers of America, independent retail insurance
agents and brokers write approximately 83% of standard commercial lines insurance and 36% of standard personal lines
insurance in the United States. We believe that independent retail insurance agents will remain a significant force in overall
insurance industry premium production because they represent more than one insurance carrier and therefore are able to
provide a wider choice of commercial and personal lines insurance products and risk-based consultation to customers.

We currently have 1,250 independent retail agents selling our Standard Commercial Lines business, 685 of which also sell our
Standard Personal Lines business (excluding flood). In total, these 1,250 distribution partners have approximately 2,350 office
locations selling our business. In addition, we have approximately 5,800 retail agents selling our flood insurance products.

In a 2017 survey, we received an overall satisfaction score of 8.8 out of 10 from our standard market distribution partners,
which, we believe, highlighted their satisfaction with our products, the ease of reporting claims, and the professionalism and
effectiveness of our employees.

Wholesale General Agents
E&S Lines are written almost exclusively through 85 wholesale general agents and 9 wholesale brokers with a combined 245
office locations, who are our distribution partners in the E&S market. We have granted limited binding authority to the
wholesale general agents for business that meets our prescribed underwriting and pricing guidelines. The wholesale brokers
submit brokerage business to us for risk acceptability, terms and conditions, and pricing.

Marketing
Our primary marketing strategy is to:

• Use an empowered field underwriting model to provide our Standard Commercial Lines retail distribution partners

with resources within close geographic proximity to their businesses and our mutual customers. For further
discussion on this, see the “Field Model and Technology” section below.

• Develop close relationships with each distribution partner, as well as their principals and producers: (i) by soliciting
their feedback on products and services; (ii) by advising them concerning our product developments; and (iii)
through education and development focusing on producer recruitment, sales training, enhancing customer
experience, online marketing, and distribution operations.

• Develop with each distribution partner, and then carefully monitor, annual goals regarding: (i) types and mix of
risks placed with us; (ii) amount of premium or number of policies placed with us; (iii) customer service and
retention levels; and (iv) profitability of business placed with us.

• Develop brand recognition with our customers through our marketing efforts to be recognized as a proactive risk

manager, which include advertising, proactive communication, and providing exceptional products and services that
help position us as a leader in the marketplace.

Field Model and Technology
We use the service mark “High-tech x High-touch = HT2 SM” to describe our business strategy. “High-tech” refers to our
technology that we use to make it easy for our distribution partners and customers to do business with us. “High-touch” refers
to the close relationships that we have with our distribution partners and customers through our field business model.

High Tech
We leverage the use of technology in our business. We have made significant investments in information technology platforms,
integrated systems, internet-based applications, and predictive modeling initiatives. We do this to provide:

• Our distribution partners and customers with access to accurate business information and the ability to process

certain transactions from their locations, seamlessly integrating those transactions into our systems;

• Our underwriters with targeted underwriting and pricing tools to enhance profitability while growing the business;

• Our workers compensation claims adjusters with predictive tools to indicate when claims are likely to escalate to

better serve our customers;

• Our Special Investigations Unit ("SIU") investigators access to our business intelligence systems to better identify

claims with potential fraudulent activities;

• Our claims recovery and subrogation departments with the ability to expand and enhance their models through the

use of our business intelligence systems; and

• Our customers with 24/7 access to transactional capabilities and information through a web-based customer portal

and a customer mobile application.

We manage our information technology projects through an Enterprise Project Management Office (“EPMO”) governance
model. The EPMO is supported by certified project managers who apply methodologies to: (i) communicate project
management standards; (ii) provide project management training and tools; (iii) manage projects; (iv) review project status and
cost; and (v) provide non-technology project management consulting services to the rest of the organization. The EPMO,
which includes senior management representatives from all major business areas, corporate functions, and information
technology, meets regularly to review all major initiatives and receives reports on the status of other projects. We believe the
EPMO is an important factor in the success of our technology implementation.

Our primary technology operations are located in Branchville, New Jersey and Glastonbury, Connecticut. We have agreements
with multiple consulting, information technology, and service providers for supplemental staffing services. Collectively, these
providers supply approximately 47% of our skilled technology capacity and are principally based in the U.S., although we do
contract with some service providers who are based, or utilize resources, outside the U.S. We retain management oversight of
all projects and ongoing information technology production operations. We believe we would be able to manage an efficient
transition to new vendors without significant impact to our operations if we terminated an existing vendor.

High Touch
To support our distribution partners, we employ a field model for both underwriting and claims, with various employees in the
field, usually working from home offices near our distribution partners. We believe that we build better and stronger
relationships with our distribution partners because of the close proximity of our field employees, and the resulting direct
interaction with our distribution partners and customers. At December 31, 2017, we had approximately 2,260 employees, of
which 560 worked in the field, 860 worked in one of our regional offices, and the remainder worked in our corporate office.

Underwriting Process
Our underwriting process requires communication and interaction among:

• Our Regions, together with our corporate underwriting and actuarial departments, jointly establish and execute upon
the following for our Standard Commercial Lines business: (i) annual premium and pricing goals; (ii) specific new
business targets by distribution partner; and (iii) profit improvement plans as needed across lines, states, and/or
distribution partners;

• Our corporate underwriting department, which develops our underwriting appetite, products, policy forms, pricing,

and underwriting guidelines for our standard market business;

• Our corporate actuaries who assist in the determination of rate and pricing levels, while monitoring pricing and
profitability along with the Regions, corporate underwriting department, and business intelligence staff for our
standard and E&S market business;

• Our distribution partners, which include independent retail agents for our standard market business and wholesale
general agents for our E&S market business, that provide front-line underwriting within our prescribed guidelines;

• Our Agency Management Specialists (“AMSs”), who: (i) manage the growth and profitability of business that their
assigned distribution partners write with us; and (ii) perform field underwriting for new Standard Commercial Lines
business;

• Our territory managers who have oversight of the AMS production team for Standard Commercial Lines, ensure that:
(i) annual profit and growth plans are developed on a state by state basis; (ii) the achievement of these state plans are
monitored at the state, AMS territory and account level; and (iii) individual agency plans are developed and monitored
for achievement annually;

• Our Standard Commercial Lines small business teams that are responsible for handling: (i) new business in need of
review that was submitted by our distribution partners through our automated underwriting platform, One & Done®;
and (ii) other new small accounts and middle market accounts with low underwriting complexity;

• Our Safety Management Specialists (“SMSs”), who provide a wide range of front-line safety management services to

our Standard Commercial Lines customers as discussed more fully below;

• Our regional underwriters, who manage the in-force policies for their assigned Standard Commercial Lines

distribution partners, including, but not limited to, managing profitability and pricing levels within their portfolios by
developing policy-specific pricing;

• Our premium auditors, who supplement the underwriting process by working with insureds to accurately audit

exposures for certain Standard Commercial Lines policies that we write;

• Our field technical coordinators, who are responsible for technology assistance and training to aid our employees and

standard market distribution partners;

• Our Personal Lines Marketing Specialists (“PLMSs”), who have primary responsibility for identifying new

opportunities to grow our Standard Personal Lines; and

• Our E&S territory managers, who have primary responsibility for identifying new opportunities to grow our E&S

Lines.

We have an underwriting service center (“USC”) located in Richmond, Virginia. The USC assists our distribution partners by
servicing certain Standard Personal Lines and smaller Standard Commercial Lines accounts. At the USC, many of our
employees are licensed agents who respond to customer inquiries about insurance coverage, billing transactions, and other
matters. For the convenience of using the USC and our handling of certain transactions, our distribution partners agree to
receive a slightly lower than standard commission for the premium associated with the USC. As of December 31, 2017, our
USC was servicing Standard Commercial Lines NPW of $51.5 million and Standard Personal Lines NPW of $28.3 million.
The $79.8 million total serviced by the USC represents 3% of our total NPW.

As mentioned above, our field model provides a wide range of front-line safety management services focused on improving a
Standard Commercial Lines insured’s safety and risk management programs. Our service mark “Safety Management:
Solutions for a safer workplace”SM includes: (i) risk evaluation and improvement surveys intended to evaluate potential
exposures and provide solutions for mitigation; (ii) internet-based safety management educational resources, including a large
library of coverage-specific safety materials, videos and online courses, such as defensive driving and employee educational
safety courses; (iii) thermographic infrared surveys aimed at identifying electrical hazards; and (iv) Occupational Safety and
Health Administration construction and general industry certification training. Risk improvement efforts for existing customers
are designed to improve loss experience and policyholder retention through valuable ongoing consultative service. Our safety
management goal is to work with our customers to identify, mitigate, and eliminate potential loss exposures.

Claims Management
Effective, fair, and timely claims management is one of the most important services that we provide to our customers and
distribution partners. It is also one of the critical factors in achieving underwriting profitability. We have structured our claims
organization to emphasize: (i) cost-effective delivery of claims services and control of loss and loss expense; and (ii)
maintenance of timely and adequate claims reserves. In connection with our Standard Commercial Lines and Standard
Personal Lines, we achieve better claim outcomes through a field model that locates claim representatives in close proximity to
our customers and distribution partners.

We have a claims service center (“CSC”), co-located with the USC, in Richmond, Virginia. The CSC receives first notices of
loss from our customers and claimants related to our Standard Commercial Lines and Standard Personal Lines and manages
routine automobile and property claims with no injuries. The CSC is designed to help: (i) reduce the claims settlement time on
first- and third-party automobile property damage claims; (ii) increase the use of body shops, glass repair shops, and car rental
agencies that have contracted with us at discounted rates and specified service levels; (iii) handle and settle small property
claims; and (iv) investigate and negotiate auto liability claims. The CSC, as appropriate, will assign claims to the appropriate
regional claims office or other specialized area within our claims organization.

Claims Management Specialists (“CMSs”) are responsible for investigating and resolving the majority of our standard
marketplace commercial automobile bodily injury, general liability, and property losses with low severities. We also have

Property Claims Specialists ("PCSs") to handle property claims with severities ranging from $10,000 to $100,000. They also
form the basis of our catastrophe response team. Strategically located throughout our footprint, CMSs and PCSs are able to
provide highly responsive customer and distribution partner service to quickly resolve claims within their authority.

Our E&S claims processing is consistent with our Standard Commercial Lines and Standard Personal Lines claims processing.
E&S claims are handled in our standard lines regional offices and are segregated by line of business (property and liability),
litigation, and complexity.

Our Quality Assurance Unit conducts monthly file reviews on all of our operations to validate compliance with our quality
claim handling standards.

Complex and litigated claims oversight is handled by specialists within the Complex Claims and Litigation Unit ("CCU").

We have implemented specialized claims handling as follows:

• Liability claims with high severity or technically complex losses are handled by the CCU. The CCU specialists are

primarily field based and handle losses based on injury type or with severities greater than $250,000.

• Litigated matters not meeting the CCU criteria are handled within our regional litigation offices. These teams are
aligned based upon jurisdictional knowledge and technical experience and are supervised by regional litigation
managers. These claims are segregated from the CMSs to allow for focused management and application of specific
technical expertise.

• Workers compensation claims handling is centralized in Charlotte, North Carolina. Jurisdictionally trained and

aligned medical-only and lost-time adjusters manage non-complex workers compensation claims within our footprint.
Claims with high exposure and/or significant escalation risk are referred to the workers compensation strategic case
management unit.

• Low severity/high volume property claims are handled by the CSC. Certain complex claims that do not involve
structural damage (i.e. employee dishonesty and equipment breakdown losses) are handled by a small group of
specialists in the CSC.

• The Large Loss Unit ("LLU") handles complex property claims, typically those in excess of $100,000.

• All asbestos and environmental claims are referred to our specialized corporate Environmental Unit, which also

handles other latent claims.

• The Construction Defect Unit unit handles larger, complex construction defect claims.

This structure allows us to provide experienced adjusting to each claim category.

All insurance operations are supported by the SIU that investigates potential insurance fraud and abuse, and supports efforts by
regulatory bodies and trade associations to curtail the cost of fraud. We have developed a proprietary SIU fraud detection
model that identifies the potential fraud cases early on in the life of the claim. The SIU adheres to uniform internal procedures
to improve detection and take action on potentially fraudulent claims. It is our practice to notify the proper authorities of SIU
findings, which we believe sends a clear message that we will not tolerate fraud against us or our customers. The SIU
supervises anti-fraud training for all claims adjusters and AMSs.

Insurance Operations Competition
Our insurance operations face competition from public, private, and mutual insurance companies, which may have lower
operating costs and/or lower cost of capital than we do. Some, like us, rely on partners for the distribution of their products and
services and have competition within their distribution channel, making growth in market share difficult. Other insurance
carriers either employ their own agents who only represent them or use a combination of distribution partners, captive agents,
and direct marketing. The following provides information on the competition facing our insurance operations:

Standard Commercial Lines
The Standard Commercial Lines property and casualty insurance market is highly competitive and market share is fragmented
among many companies. We compete with two types of companies, primarily on the basis of price, coverage terms, claims
service, customer experience, safety management services, ease of technology usage, and financial ratings:

• Regional insurers, such as Cincinnati Financial Corporation, Erie Indemnity Company, The Hanover Insurance

Group, Inc., and United Fire Group, Inc.; and

• National insurers, such as The Hartford Financial Services Group, Inc., Liberty Mutual Holding Company Inc.,
Nationwide Mutual Insurance Company, Chubb Limited, The Travelers Companies, Inc., and Zurich Insurance
Group, Ltd.

Standard Personal Lines
Our Standard Personal Lines face competition primarily from the regional and national carriers noted above, as well as
companies such as State Farm Mutual Automobile Insurance Company and Allstate Corporation. In addition, we face
competition from direct insurers such as The Government Employees Insurance Company and The Progressive Corporation,
which primarily offer personal auto coverage and market through a direct-to-consumer model.

E&S Lines
Our E&S Lines face competition from the E&S subsidiaries of the regional and national carriers named above, as well as the
following companies:

• Nautilus Insurance Group, a member of W. R. Berkley Company;
• Colony Specialty, a member of the Argo Group International Holding Ltd;
• Western World Insurance Group, a member of the Validus Group;
• Century Insurance Group, a member of the Meadowbrook Insurance Group;
• The Burlington Insurance Company, a member of IFG Companies;
• United States Liability Insurance Group, a member of Berkshire Hathaway, Inc.; and
• Markel Corporation.

Other
In addition, both existing competitors and new industry participants are developing new platforms that are leveraging
technology and the Internet to provide a low cost "direct to the customer" model. New competitors emerging under this digital
platform include, but are not limited to, Lemonade, Attune, and Metromile. Many of these new entrants have significant
financial backing. Further, reinsurers have entered certain primary property and casualty insurance markets to diversity their
operations and compete with us.

Insurance Regulation

Primary Oversight by the States in Which We Operate
Our insurance operations are heavily regulated. The primary public policy behind insurance regulation is the protection of
policyholders and claimants over all other constituencies, including shareholders. By virtue of the McCarran-Ferguson Act,
Congress has largely delegated insurance regulation to the various states. The primary market conduct and financial regulators
of our Insurance Subsidiaries are the departments of insurance in the states in which they are organized and are licensed. The
types of activities that are regulated by the states include:

Pricing and underwriting practices;

•
• Claims practices;
• Exiting geographic markets and/or canceling or non-renewing policies;
• Assessments for guaranty funds and second-injury funds and other mandatory assigned risks and reinsurance;
• The types, quality and concentration of investments we make; and
• Dividends from our Insurance Subsidiaries to the Parent.

For additional discussion of the broad regulatory, administrative, and supervisory powers of the various departments of
insurance, refer to the risk factor that discusses regulation in Item 1A. “Risk Factors.” of this Form 10-K.

Our various state insurance regulators are members of the National Association of Insurance Commissioners ("NAIC"). The
NAIC has codified statutory accounting principles ("SAP") and other accounting reporting formats and drafts model insurance
laws and regulations governing insurance companies. An NAIC model only becomes law when it is enacted in the various state

legislatures or promulgated as a regulation by the state insurance department. The adoption of certain NAIC model laws and
regulations, however, is a key aspect of the NAIC Financial Regulations Standards and Accreditation Program.

NAIC Monitoring Tools
Among the NAIC's various financial monitoring tools that are material to the regulators in states in which our Insurance
Subsidiaries are organized are the following:

• The Insurance Regulatory Information System (“IRIS”). IRIS identifies 13 industry financial ratios and specifies
“usual values” for each ratio. Departure from the usual values on four or more of the financial ratios can lead to
inquiries from individual state insurance departments about certain aspects of the insurer's business. Our Insurance
Subsidiaries have consistently met the majority of the IRIS ratio tests.

• Risk-Based Capital. Risk-based capital is measured by four major areas of risk to which property and casualty

insurers are exposed: (i) asset risk; (ii) credit risk; (iii) underwriting risk; and (iv) off-balance sheet risk. Insurers face
a steadily increasing amount of regulatory scrutiny and potential intervention as their total adjusted capital declines
below two times their "Authorized Control Level". Based on our 2017 statutory financial statements, which have been
prepared in accordance with SAP, the total adjusted capital for each of our Insurance Subsidiaries substantially
exceeded two times their Authorized Control Level.

• Annual Financial Reporting Regulation (referred to as the "Model Audit Rule"). The Model Audit Rule, which is

modeled closely on the Sarbanes-Oxley Act of 2002, as amended ("Sarbanes-Oxley Act"), regulates: (i) auditor
independence; (ii) corporate governance; and (iii) internal control over financial reporting. As permitted under the
Model Audit Rule, the Audit Committee of the Board of Directors (the “Board”) of the Parent also serves as the audit
committee of each of our Insurance Subsidiaries.

• Own Risk and Solvency Assessment ("ORSA"). ORSA requires insurers to maintain a framework for identifying,

assessing, monitoring, managing, and reporting on the “material and relevant risks” associated with the insurers' (or
insurance groups') current and future business plans. ORSA, which has been adopted by the state insurance regulators
of our Insurance Subsidiaries, requires companies to file an internal assessment of their solvency with insurance
regulators annually. Although no specific capital adequacy standard is currently articulated in ORSA, it is possible
that such standard will be developed over time and may increase insurers' minimum capital requirements, which could
adversely impact our growth and return on equity.

In addition to the formal regulation above, we are subject to capital adequacy monitoring by rating agencies, for example,
Best's Capital Adequacy Ratio ("BCAR"). BCAR, which was developed by A.M. Best, examines an insurer's leverage,
underwriting activities, and financial performance.

Federal Regulation
Notable federal legislation and administrative policies that affect the insurance industry are:

• The Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA");
• The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”); and
• Various privacy laws that apply to us because we have personal non-public information, including the:

Gramm-Leach-Bliley Act;
Fair Credit Reporting Act;

Drivers Privacy Protection Act; and
Health Insurance Portability and Accountability Act.

Like all businesses, we are required to enforce the economic and trade sanctions of the Office of Foreign Assets Control
(“OFAC”).

The Mitigation Division of the Federal Emergency Management Agency ("FEMA") oversees the WYO Program of the NFIP,
which was enacted by Congress. Under the program, we receive an expense allowance for flood policies written and a servicing
fee for flood claims administered, and all losses are 100% reinsured by the Federal Government. Congress sets the WYO
Program's budgeting, rules, and rating parameters. Two significant pieces of legislation that impact the WYO Program are the
Biggert-Waters Flood Insurance Reform Act of 2012 ("Biggert-Waters Act") and the Homeowner Flood Insurance Affordability
Act of 2014 ("Flood Affordability Act"). The Biggert-Waters Act: (i) extended the NFIP funding to September 30, 2017; and
(ii) moved the program to more market based rates for certain flood policies. The Flood Affordability Act repealed and
modified certain provisions in the Biggert-Waters Act regarding premium adjustments. The NFIP has received multiple short-
term extensions and currently expires on March 23, 2018.

In response to the financial markets crises in 2008 and 2009, the Dodd-Frank Act was enacted in 2010. This law provided for,
among other things, the following:

• The establishment of the Federal Insurance Office (“FIO”) under the United States Department of the Treasury;
•
• Corporate governance reforms for publicly traded companies.

Federal Reserve oversight of financial services firms designated as systemically important; and

The FIO, the Federal Reserve, state regulators, and other regulatory bodies have been developing models for capital standards,
negotiated a covered agreement with the European Union that, among other things, impacted reinsurance collateral, and have
been gathering data as required under the Dodd-Frank Act. Changes to the Dodd-Frank Act and FIO are expected as the Trump
Administration and the Republican Congress seek opportunities to pare down the Dodd-Frank Act and its regulations.
Legislation has passed the House that would limit the scope of the Dodd-Frank Act but has yet to be considered by the Senate.
The Trump Administration, though, continues to seek regulatory limitations. For additional information on the potential impact
of the Dodd-Frank Act, refer to the risk factor related to this legislation within Item 1A. “Risk Factors.” of this Form 10-K.

International Regulation
We believe that development of global capital standards will influence the development of similar standards by domestic
regulators. Notable international developments include the following:

•

In 2014, the International Association of Insurance Supervisors proposed Basic Capital Standards for Global
Systemically Important Insurers as well as a uniform capital framework for internationally active insurers; and

• The European Union enacted Solvency II, which sets out new requirements on capital adequacy and risk management

for insurers operating in Europe, which was implemented in 2016.

For additional information on the potential impact of international regulation on our business, refer to the risk factor related to
regulation within Item 1A. “Risk Factors.” of this Form 10-K.

Investment Segment
Our Investment segment invests the cash we collect from our insurance policies prior to the payment of claims, as well as
amounts generated through our capital management strategies, which may include the issuance of debt and equity securities, to
generate investment income and to satisfy obligations to our customers, our shareholders, and our debt holders, among others.
At December 31, 2017, our investment portfolio consisted of the following:

Category of Investment

($ in millions, except invested assets per dollar of stockholders' equity)

Fixed income securities

Equity securities

Short-term investments

Other investments, including alternatives

Total

Invested assets per dollar of stockholders' equity

Carrying Value

% of Investment
Portfolio

5,204.6

182.7

165.6

132.3

5,685.2

3.32

100

Our investment philosophy includes certain return and risk objectives for the fixed income, equity, and other investment
portfolios. After-tax yield and income generation are key objectives of our investment strategy, although we also focus on the
total return of the portfolio. In 2016, we determined that a more active management approach to our fixed income portfolio
was appropriate to maximize the risk-adjusted after-tax income and total return of the portfolio, while maintaining a similar
level of credit quality and duration risk. To execute on this revised approach, we hired several new investment managers who
were on-boarded in the fourth quarter of 2016. Since then, through active security selection, we have increased the book yield
of our fixed income portfolio, which resulted in a higher level of net investment income in 2017, while maintaining the overall
credit quality and duration of the portfolio. In addition, we have continued to diversify and have modestly increased our
exposure to risk assets to 8% while moving towards a long-term target risk allocation of approximately 10% of total invested
assets. Risk assets principally include public equities, high-yield fixed income securities, and private assets. Our core
investment philosophy has not changed. We remain focused on diversification, capital preservation, investment quality, and
liquidity to meet our needs and obligations.

For further information regarding our risks associated with the overall investment portfolio, see Item 7A. “Quantitative and
Qualitative Disclosures About Market Risk.” and Item 1A. “Risk Factors.” of this Form 10-K. For additional information
about investments, see the section entitled, “Investments,” in Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” and Item 8. “Financial Statements and Supplementary Data.” Note 5. of this Form 10-K.

Enterprise Risk Management
As a property and casualty holding company, our Insurance Subsidiaries are in the business of assuming risk. We categorize
our major risks into the following five broad categories:

• Asset risk, which stems primarily from our investment portfolio and reinsurance recoverables and includes credit and

market risk;

• Underwriting risk, which is the risk that the insured losses are higher than our expectations, including losses from
inadequate loss reserves, larger than expected non-catastrophe current accident year losses and catastrophe losses;
• Liquidity risk, which is the risk we will be unable to meet contractual obligations as they become due because we are

unable to liquidate assets or obtain adequate funding without incurring unacceptable losses;

• Emerging risks, which are new and known but evolving risks that may have a significant impact on our financial

strength, reputation, or long-term strategy; and

• Other risks, including a broad range of operational risks that can be difficult to quantify, such as legal, regulatory,
reputational and strategic risks as well as the risk of fraud, human failure and failure of controls and systems.

Our internal control framework operates with the three lines of defense model. The first line of defense consists of individual
functions that deliberately assume risks and own and manage our risk on a day-to-day and business operational basis. The
second line of defense is responsible for risk oversight and also supports the first line to understand and manage risk. A
dedicated risk team led by the Chief Risk Officer is responsible for this second line and reports to the Chief Financial Officer.
The third line of defense is our Internal Audit team, which provides independent, objective assurance as to the assessment of
the adequacy and effectiveness of our internal control environment. It also coordinates risk-based audits and compliance
reviews and other specific initiatives to evaluate and address risk within targeted areas of our business.

We use Enterprise Risk Management (“ERM”) as part of our governance and control process to take an entity-wide view of our
major risks and their impact. Our ERM framework is designed to identify, measure, report, and monitor our major risks and
develop appropriate responses to support successful execution of our business strategy.

Our Board oversees our enterprise risk management process and sets our overall risk appetite, while the Executive Risk
Committee is responsible for the holistic evaluation and supervision of our aggregated risk profile and determination of future
risk management actions in support of overall risk appetite. In addition to the Board’s oversight of the overall risk and the
ERM process, various committees of the Board oversee risks specific to their areas of supervision and report their activities and
findings to the full Board. The Executive Risk Committee uses various management committees for detailed analysis and
management of specific major risks. The Executive Risk Committee primarily consists of the Chief Executive Officer, his
direct reports and key operational leaders, each of whom is responsible for management of risk in his or her respective area,
and the Chief Risk Officer.

In addition to the various committees and the governance process over ERM, we believe that high-quality and effective ERM is
best achieved when it is a shared cultural value throughout the organization. We consider ERM to be a key process that is the
responsibility of every employee. We have developed and use tools and processes that we believe support a culture of risk
management and create a robust framework of ERM within our organization. In addition, our compensation policies and
practices, as well as our governance framework, including our Board's leadership structure, are designed to support our overall
risk appetite and strategy. We believe that our ERM processes and practices help us to identify potential events that may affect
us, quantify, evaluate and manage the risks to which we are exposed, and provide reasonable assurance regarding the
achievement of our objectives.

We rely on quantitative and qualitative tools to identify, prioritize, and manage our major risks including proprietary and third-
party computer modeling as well as various other analyses. The Executive Risk Committee meets at least quarterly and
reviews and discusses various aspects and the interrelation of Selective’s major risks, including, but not limited to, capital
modeling results, capital adequacy, risk metrics, emerging risks, and sensitivity analysis. Consistent with the requirements of
state insurance regulators, our Insurance Subsidiaries annually file their ORSA report, which is an internal assessment of our
Insurance Subsidiaries' solvency. The Chief Risk Officer develops the report in coordination with members of the Executive
Risk Committee, and the report is provided to the Board. The Chief Risk Officer reports on the Executive Risk Committee's
activities, analyses, and findings to the Board or the appropriate Board Committee, and provides a quarterly update on certain
risk metrics.

We believe that our risk governance structure facilitates strong risk dialogue across all levels and disciplines of the organization
and promotes robust risk management practices. All of our strategies and controls, however, have inherent limitations. We
cannot be certain that an event or series of unanticipated events will not occur and result in losses greater than we expect and
have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.
An investor should carefully consider the risks and all of the other information included in Item 1A. “Risk Factors.”, Item 7A.
“Quantitative and Qualitative Disclosures About Market Risk.", and Item 8. “Financial Statements and Supplementary Data."
of this Form 10-K.

Reports to Security Holders

We file with the SEC all required disclosures, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, Proxy Statements, and other required information under Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (“Exchange Act”). We provide access to these filed materials on our Internet website,
www.Selective.com.

Item 1A. Risk Factors.

Any of the following risk factors could: (i) significantly impact our business, liquidity, capital resources, results of operations,
financial condition, and debt ratings; and (ii) cause our actual results to differ materially from historical or anticipated results.
These non-exhaustive risk factors might affect, alter, or change our actions 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, redeeming our fixed income securities, or increasing or decreasing stockholders’
dividends.

Risks Related to our Insurance Operations

We are subject to losses from catastrophic events.
Our results are subject to losses from natural and man-made catastrophes, including, but not limited to: hurricanes, tornadoes,
windstorms, earthquakes, hail, terrorism, including cyber-attacks, explosions, severe winter weather, floods, and fires, some of
which may be related to climate changes. The frequency and severity of these catastrophes are inherently unpredictable. One
year may be relatively free of such events while another may have multiple events. For further discussion regarding man-made
catastrophes that relate to terrorism, see the risk factor directly below regarding the potential for significant losses from acts of
terrorism.

There is widespread interest among scientists, legislators, regulators, and the public regarding the effect that greenhouse gas
emissions may have on our environment, including climate change. If greenhouse gasses continue to impact our climate, it is
possible that more devastating catastrophic events could occur.

The magnitude of catastrophe losses is determined by the severity of the event and the total amount of insured exposures in the
area affected by the event as determined by ISO's Property Claim Services unit. Most of the risks underwritten by our
insurance operations are concentrated geographically in the Eastern and Midwestern regions of the country. In 2017,
approximately 20% of NPW were related to insurance policies written in New Jersey. Catastrophes in the Eastern and
Midwestern regions of the U.S. could adversely impact our financial results, as was the case in 2010, 2011, and 2012.

Although catastrophes can cause losses in a variety of property and casualty insurance lines, most of our historical catastrophe-
related claims have been from commercial property and homeowners coverages. In an effort to limit our exposure to
catastrophe losses, we purchase catastrophe reinsurance. Catastrophe reinsurance could prove inadequate if: (i) the various
modeling software programs that we use to analyze the Insurance Subsidiaries’ risk result in an inadequate purchase of
reinsurance by us; (ii) a major catastrophe loss exceeds the reinsurance limit or the reinsurers’ financial capacity; or (iii) the
frequency of catastrophe losses results in our Insurance Subsidiaries exceeding the aggregate limits provided by the catastrophe
reinsurance treaty. Even after considering our reinsurance protection, our exposure to catastrophe risks could have a material
adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

Our loss and loss expense reserves may not be adequate to cover actual losses and expenses.
We are required to maintain loss and loss expense reserves for our estimated liability for loss and loss expense associated with
reported and unreported insurance claims. Our estimates of reserve amounts are based on facts and circumstances that we
know, including our expectations of the ultimate settlement and claim administration expenses, trends in claims severity and
frequency, including inflationary trends particularly regarding medical costs, predictions of future events, and other subjective
factors relating to our insurance policies in force. There is no method for precisely estimating the ultimate liability for

settlement of claims. We cannot be certain that the reserves we establish are adequate or will be adequate in the future. From
time-to-time, we increase reserves if they are inadequate or reduce them if they are redundant. An increase in reserves: (i)
reduces net income and stockholders’ equity for the period in which the reserves are increased; and (ii) could have a material
adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

We are subject to potentially significant losses from acts of terrorism.
As a Standard Commercial Lines and E&S Lines writer, we are required to participate in TRIPRA, which was extended by
Congress to December 31, 2020. TRIPRA requires private insurers and the U.S. government to share the risk of loss on future
acts of terrorism certified by the U.S. Secretary of the Treasury. Under TRIPRA, insureds with non-workers compensation
commercial policies have the option to accept or decline our terrorism coverage or negotiate with us for other terms. In 2017,
90% of our Standard Commercial Lines non-workers compensation policyholders purchased terrorism coverage that included
nuclear, biological, chemical, and radioactive ("NBCR") events. Terrorism coverage is mandatory for all primary workers
compensation policies, so the TRIPRA back-stop applies to these policies. A risk exists that, if the U.S. Secretary of Treasury
does not certify certain future terrorist events, we would be required to pay related covered losses without TRIPRA's risk
sharing benefits. Examples of this potential risk are the 2013 Boston Marathon bombing and the 2015 shootings in San
Bernardino, California, neither of which were certified as terrorism events.

Under TRIPRA, each participating insurer is responsible for paying a deductible of specified losses before federal assistance is
available. This deductible is based on a percentage of the prior year’s applicable Standard Commercial Lines and E&S Lines
premiums. In 2018, our deductible is $323 million. For losses above the deductible, the federal government will pay 82% of
losses to an industry limit of $100 billion, and the insurer retains 18%. The federal share of losses will be reduced by 1% each
year to 80% by 2020. Although TRIPRA’s provisions will mitigate our loss exposure to a large-scale terrorist attack, our
deductible is substantial and could have a material adverse effect on our results of operations, liquidity, financial condition,
financial strength, and debt ratings.

TRIPRA rescinded all previously approved coverage exclusions for terrorism. Many of the states in which we write
commercial property insurance mandate that we cover fire following an act of terrorism regardless of whether the insured
specifically purchased terrorism coverage. Likewise, terrorism coverage cannot be excluded from workers compensation
policies in any state in which we write.

Personal lines of business have never been covered under TRIPRA. Homeowners policies within our Standard Personal Lines
exclude nuclear losses, but do not exclude biological or chemical losses.

Our ability to reduce our risk exposure depends on the availability and cost of reinsurance.
We transfer a portion of our underwriting risk exposure to reinsurance companies. Through our reinsurance arrangements, a
specified portion of our loss and loss expense are assumed by the reinsurer in exchange for a specified portion of premiums.
The availability, amount, and cost of reinsurance depend on market conditions, which may vary significantly. Most of our
reinsurance contracts renew annually and may be impacted by the market conditions at the time of the renewal that are
unrelated to our specific book of business or experience. Any decrease in the amount of our reinsurance will increase our risk
of loss. Any increase in the cost of reinsurance that cannot be included in renewal price increases will reduce our earnings.
Accordingly, we may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance
on acceptable terms. Either could adversely affect our ability to write future business or result in the assumption of more risk
with respect to those policies we issue.

We are exposed to credit risk.
We are exposed to credit risk in several areas of our insurance operations, including from:

• Our reinsurers, who are obligated to us under our reinsurance agreements. Amounts recoverable from our

reinsurers can increase quickly and significantly during periods of high catastrophe loss activity, so our credit risk
related to our reinsurance relationships can increase significantly and will fluctuate over time. In addition, our
reinsurers often rely on their own reinsurance programs, or retrocessions, as part of managing their exposure to
large losses. Given the relatively small size of the global reinsurance community, the inability of our reinsurers to
collect on their retrocession program, or their inability to reinstate their coverage after a large loss, may impair their
ability to pay us for the amounts we cede to them. Accordingly, we have direct and indirect counterparty credit risk
from our reinsurers. We attempt to mitigate this credit risk by: (i) pursuing relationships with reinsurers rated “A-”
or higher by A.M. Best; and/or (ii) obtaining collateral to secure reinsurance obligations.

• Certain life insurance companies if they fail to fulfill their obligations to those customers for whom we have

purchased annuities under structured settlement agreements.

•

Some of our distribution partners, who collect premiums due us from our customers.

Some of our customers, who are responsible for payment of premiums and/or deductibles directly to us.

• The invested assets in our defined benefit plan, which partially serve to fund our liability associated with this plan.
To the extent that credit risk adversely impacts the valuation and performance of the invested assets within our
defined benefit plan, the funded status of the defined benefit plan could be adversely impacted and, as result, could
increase the cost of the plan to us.

Our exposure to credit risk could have a material adverse effect on our results of operations, liquidity, financial condition,
financial strength, and debt ratings.

Difficult conditions in global capital markets and the economy may adversely affect our revenue and profitability and harm
our business, and these conditions may not improve in the near future.
General economic conditions in the U.S. and throughout the world and volatility in financial and insurance markets may
materially affect our results of operations. Factors such as business and consumer confidence, unemployment levels, consumer
spending, business investment, government spending, the volatility and strength of the capital markets, and inflation all affect
the business and economic environment and, indirectly, the amount and profitability of our business. During 2017, 33% of
DPW in our Standard Commercial Lines business was based on payroll/sales of our underlying customers. An economic
downturn in which our customers experience declines in revenue or employee count could adversely affect our audit and
endorsement premium in our Standard Commercial Lines.

Unfavorable economic developments could adversely affect our earnings if our customers have less need for insurance
coverage, cancel existing insurance policies, modify coverage, or choose not to renew with us. Challenging economic
conditions may impair the ability of our customers to pay premiums as they come due. Adverse economic conditions may have
a material effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and could
have a material adverse effect on our financial condition and results of operations.
A significant financial strength rating downgrade, particularly from A.M. Best, would affect our ability to write new or renewal
business with customers, some of whom are required under various third party agreements to maintain insurance with a carrier
with a specified minimum rating. In addition, our $30 million line of credit ("Line of Credit") requires our Insurance
Subsidiaries to maintain an A.M. Best rating of at least “A-” (one level below our current rating) and a default could lead to
acceleration of any outstanding principal. Such an event could trigger default provisions under certain of our other debt
instruments and negatively impact our ability to borrow in the future. As a result, any significant downgrade in our financial
strength ratings could have a material adverse effect on our results of operations, liquidity, financial condition, financial
strength, and debt ratings. Refer to Item 1. "Business" for our current financial strength ratings.

Nationally recognized statistical rating organizations ("NRSROs") also rate our long-term debt creditworthiness. Credit ratings
indicate the ability of debt issuers to meet debt obligations in a timely manner and are important factors in our overall funding
profile and ability to access certain types of liquidity. Our current senior credit ratings are as follows:

NRSRO

Credit Rating

Long Term Credit Outlook

A.M. Best

S&P

Moody’s

Fitch

bbb+

BBB

Baa2

BBB+

Stable

Downgrades in our credit ratings could have a material adverse effect on our financial condition and results of operations in
many ways, including making it more expensive for us to access capital markets. We cannot predict possible actions NRSROs
may take regarding our ratings that could adversely affect our business or the possible actions we may take in response to any
such actions.

We have many competitors and potential competitors.
Demand for insurance is influenced by prevailing general economic conditions. The supply of insurance is related to prevailing
prices, insured loss levels, and industry capital levels that may fluctuate in response to changing rates of return on insurance
industry investments. Pricing also is influenced by the operating performance of insurers, who may increase pricing to meet
return on equity objectives. As a result, the insurance industry has had historical cycles characterized by periods of intense
price competition due to excessive underwriting capacity and periods of favorable pricing driven by shortages of capacity and
poor insurer operating performance. If competitors price business below technical levels, we might find it necessary to reduce
our profit margin to retain our best business.

Pricing and loss trends impact our profitability. For example, assuming retention and all other factors remain constant:

• A pure price decline of approximately 1% would increase our combined ratio by approximately 0.75 points;
• A 3% increase in our expected claim costs for the current accident year would cause our loss and loss expense ratio

to increase by approximately 1.75 points;

• A combination of the two could raise the combined ratio by approximately 2.5 points.

In addition, loss trends impacting current accident year results are likely to impact our reserves for prior accident years. For
example, medical inflation can have a significant impact on the reserves of long-tail lines such as workers compensation and
general liability. A 3% increase in our reserves would cause our loss and loss expense ratio to increase by approximately 4
points.

We compete with regional, national, and direct-writer property and casualty insurance companies for customers, distribution
partners, and employees. Some competitors are public companies and some are mutual companies. Many competitors are
larger and may have lower operating costs, lower cost of capital, or the ability to absorb greater risk while maintaining their
financial strength ratings. Consequently, some competitors may be able to price their products more competitively. These
competitive pressures could result in increased pricing pressures on a number of our products and services, particularly as
competitors seek to win market share, and may limit our ability to maintain or increase our profitability. Because of its
relatively low cost of entry, the internet has emerged as a significant place of new competition, both from existing competitors
and new competitors. New competitors emerging under this digital platform include, but are not limited to, Lemonade and
Attune. Reinsurers also have entered certain primary property and casualty insurance markets to diversify their operations and
compete with us. Further new competition could cause changes in the supply or demand for insurance and adversely affect our
business.

We have less loss experience data than our larger competitors.
Insurers rely on their ability to access reliable data about their customers and loss experience to build complex analytics and
predictive models to assess the profitability of risks, as well as the potential for adverse claim development, recovery
opportunities, fraudulent activities, and customer buying habits. The use of data science and analytics will continue to increase
and become more complex and accurate. The loss experience from our insurance operations may not be large or granular
enough in all circumstances to analyze and project our future costs. In addition, we have more limited experience data related
to our E&S business, which we purchased in 2011. We use data from ISO, AAIS, and NCCI to obtain industry loss experience
to supplement our own data. While statistically relevant, that data is not specific to the performance of risks we have
underwritten. Larger competitors, particularly national carriers, have a significantly larger volume of data regarding the
performance of risks that they have underwritten. The analytics of their loss experience data may be more predictive of
profitability of their risks than our analysis using, in part, general industry loss experience. For the same reason, should
Congress repeal the McCarran-Ferguson Act, which provides an anti-trust exemption for the aggregation of loss data, and we
are unable to access data from ISO, AAIS, and NCCI, we will be at a competitive disadvantage to larger insurers who have
more loss experience data on their own customers and may not need aggregated industry loss data.

We depend on distribution partners.
We market and sell our insurance products through distribution partners who are not our employees. We believe that these
partners will remain a significant force in overall insurance industry premium production because they can provide customers
with a wider choice of insurance products than if they represented only one insurer. However, changes impacting our
distribution channel may present challenges and risks to our strategy, including the following:

• The availability of products from multiple markets creates competition in our distribution channel and we must
market our products and services to our distribution partners before they sell them to our mutual customers.

• Growth in our market share is dependent in part on growth in the market share controlled by our distribution

partners. The independent retail insurance agencies control approximately 83% of Standard Commercial Lines

business but only 36% of Standard Personal Lines business in the U.S. This, in turn, limits our Standard
Personal Lines market opportunity. In addition, in the last several years, both existing and new industry
participants have been focusing on developing new platforms that are leveraging technology and the internet to
provide a low cost "direct to the customer" distribution model. These efforts may impact the overall market
share controlled by our distribution partners and make it more difficult for us to grow or require us to establish
relationships with more distribution partners.

• There has been a trend towards increased consolidation within our distribution channel, which increases

competition among fewer distributors and increases the influence each distribution partner has on our business.
Currently, no one distribution partner is responsible for 10% or more of our combined insurance operations'
premium.

Our financial condition and results of operations are tied to the successful marketing and sales efforts of our products by our
distribution partners. In addition, under insurance laws and regulations and common law, we potentially can be held liable for
business practices or actions taken by our distribution partners.

Expansion of our insurance offerings and geographic footprint may create additional risks
Part of our growth strategy includes careful geographic and product expansion. In 2017, we established a Southwest Region
when we expanded our Standard Commercial Lines writings into Arizona. We also expanded our Standard Commercial Lines
business into New Hampshire in 2017 and on January 1, 2018 we began writing in Colorado. We expect to continue to
diversify our book of business through geographic and product expansion. Although diversification of our business is
beneficial to our competitive position and long-term results, it exposes us to increased and different risks. Among such
increased risks are catastrophic natural risks to which we previously only had limited exposure due to our narrower geographic
footprint. These new risks could have a material adverse effect on our results of operations, liquidity, financial condition,
financial strength, and debt ratings.

We are heavily regulated and changes in regulation may reduce our profitability, increase our capital requirements, and/or
limit our growth.
Our Insurance Subsidiaries are heavily regulated by extensive laws and regulations that may change on short notice. The
primary public policy behind insurance regulation is the protection of policyholders and claimants over all other constituencies,
including shareholders. Historically by virtue of the McCarran-Ferguson Act, our Insurance Subsidiaries are primarily
regulated by the states in which they are domiciled and licensed. State insurance regulation is generally uniform throughout the
U.S. by virtue of similar laws and regulations required by the NAIC to accredit state insurance departments so their
examinations can be given full faith and credit by other state regulators. Despite their general similarity, various provisions of
these laws and regulations vary from state to state. At any given time, there may be various legislative and regulatory proposals
in each of the 50 states and District of Columbia that, if enacted, may affect our Insurance Subsidiaries. The types of activities
that are regulated by the states include:

Pricing and underwriting practices;

•
• Claims practices;
• Exiting geographic markets and/or canceling or non-renewing policies;
• Assessments for guaranty funds and second-injury funds and other mandatory assigned risks and reinsurance;
• The types, quality and concentration of investments we make;
• Dividends from our Insurance Subsidiaries to the Parent; and
• The acquisition of 10% or more of the stock of a company such as Selective, which is an insurance holding company

that owns insurance subsidiaries.

The broad regulatory, administrative, and supervisory powers of the various state departments of insurance include the
following:

• Related to our financial condition, review and approval of such matters as minimum capital and surplus

requirements, standards of solvency, security deposits, methods of accounting, form and content of statutory
financial statements, reserves for unpaid losses and loss adjustment expenses, reinsurance, payment of dividends
and other distributions to shareholders, periodic financial examinations, and annual and other report filings.

• Related to our general business, review and approval of such matters as certificates of authority and other insurance
company licenses, licensing and compensation of distribution partners, premium rates (which may not be excessive,
inadequate, or unfairly discriminatory), policy forms, policy terminations, reporting of statistical information
regarding our premiums and losses, periodic market conduct examinations, unfair trade practices, participation in
mandatory shared market mechanisms, such as assigned risk pools and reinsurance pools, participation in
mandatory state guaranty funds, and mandated continuing workers compensation coverage post-termination of
employment.

• Related to our ownership of the Insurance Subsidiaries, we are required to register as an insurance holding company

system in each state where an insurance subsidiary is domiciled and report information concerning all of our
operations that may materially affect the operations, management, or financial condition of the insurers. As an
insurance holding company, the appropriate state regulatory authority may: (i) examine our Insurance Subsidiaries
or us at any time; (ii) require disclosure or prior approval of material transactions of any of the Insurance
Subsidiaries with its affiliates; and (iii) require prior approval or notice of certain transactions, such as payment of
dividends or distributions to us.

Although Congress has largely delegated insurance regulation to the various states by virtue of the McCarran-Ferguson Act, we
are also subject to federal legislation and administrative policies, such as disclosure under the securities laws, including the
Sarbanes-Oxley Act and the Dodd-Frank Act, TRIPRA, OFAC, and various privacy laws, including the Gramm-Leach-Bliley
Act, the Fair Credit Reporting Act, the Drivers Privacy Protection Act, the Health Insurance Portability and Accountability Act,
and the policies of the Federal Trade Commission. As a result of issuing workers compensation policies, we are subject to
Mandatory Medicare Secondary Payer Reporting under the Medicare, Medicaid, and SCHIP Extension Act of 2007. If
Congress were to enact laws affecting the oversight of insurer solvency but state regulators remain responsible for rate
approval, it is possible that we could be subject to a conflicting and inconsistent regulatory framework that could effect our
profitability and capital adequacy.

The European Union enacted Solvency II, which was implemented in 2016 and sets out new requirements for capital adequacy
and risk management for insurers operating in Europe. The strengthened regime is intended to reduce the possibility of
consumer loss or market disruption in insurance. In addition, in 2014, the International Association of Insurance Supervisors
proposed Basic Capital Standards for Global Systemically Important Insurers as well as a uniform capital framework for
internationally active insurers. Although Solvency II does not govern domestic American insurers, and we do not have
international operations, we believe that development of global capital standards will influence the development of similar
standards by domestic regulators. The NAIC requires insurers to maintain a framework for identifying, assessing, monitoring,
managing, and reporting on the “material and relevant risks” associated with the insurer's (or insurance group's) current and
future business plans. ORSA requires companies to file an internal assessment of their solvency with insurance regulators
annually. Although no specific capital adequacy standard is currently articulated in ORSA, it is possible that such a standard
will be developed over time and may increase insurers' minimum capital requirements, which could adversely impact our
growth and return on equity.

We are subject to non-governmental regulators, such as the NASDAQ Stock Market and the New York Stock Exchange where
we list our securities. Many of these regulators, to some degree, overlap with each other on various matters. They have
different regulations on the same legal issues that are subject to their individual interpretative discretion. Consequently, we
have the risk that one regulator’s position may conflict with another regulator’s position on the same issue. As compliance is
generally reviewed in hindsight, we are subject to the risk that interpretations will change over time.

We believe we are in compliance with all laws and regulations that have a material effect on our results of operations, but the
cost of complying with various, potentially conflicting laws and regulations, and changes in those laws and regulations could
have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

Class action litigation could affect our business practices and financial results.
Our industry has been the target of class action litigation, including the following areas:

• Urban homeowner insurance underwriting practices, including those related to architectural or structural features
and attempts by federal regulators to expand the Federal Housing Administration's guidelines to determine unfair
discrimination;

Investment disclosure;

• Credit scoring and predictive modeling pricing;
• Cybersecurity breaches;
•
• Managed care practices;
•
• Direct repair shop utilization practices;
• The use of after-market replacement parts;
Flood insurance claim practices; and
•
Shareholder class action suits.
•

Prompt and appropriate payment of personal injury protection claims;

If we were to be named in such class action litigation, we could suffer reputational harm with purchasers of insurance and have
increased litigation expenses that could have a materially adverse effect on our operations or results.

Risks Related to Our Investment Segment

We are exposed to interest rate risk in our investment portfolio.
We are exposed to interest rate risk primarily related to the market price, and cash flow variability, associated with changes in
interest rates. Recent economic data points to increased U.S. and global economic growth, continued low levels of
unemployment and signs of rising wages, which compounded with the potential for the pro-growth benefits of the Tax Cuts and
Jobs Act of 2017 ("Tax Reform") and the potential for higher federal budget deficits, has recently led to rising U.S. interest
rates. A rise in interest rates may decrease the fair value of our existing fixed income investments and declines in interest rates
may result in an increase in the fair value of our existing fixed income investments. Our fixed income securities portfolio,
which currently has an effective duration of 3.8 years contains interest rate sensitive instruments that may be adversely affected
by changes in interest rates resulting from governmental monetary policies, domestic and international economic and political
conditions, and other factors beyond our control. A rise in interest rates would decrease the net unrealized gain position of the
investment portfolio, partially offset by our ability to earn higher rates of return on funds reinvested in new investments.
Conversely, a decline in interest rates would increase the net unrealized gain position of the investment portfolio, partially
offset by lower rates of return on new and reinvested cash in the portfolio. Changes in interest rates have an effect on the
calculated duration of certain securities in the portfolio. We seek to mitigate our interest rate risk associated with holding fixed
income investments by monitoring and maintaining the average duration of our portfolio with a view toward achieving an
adequate after-tax return without subjecting the portfolio to an unreasonable level of interest rate risk. This may include
investing in floating rate securities, which currently represent 18% of our fixed income portfolio, and other shorter duration
securities that exhibit low effective duration and interest rate risk, but expose the portfolio to other risks, including the risk of a
change in credit spreads, liquidity spreads, and other factors that may adversely impact the value of the portfolio. Although we
take measures to manage the economic risks of investing in a changing interest rate environment, we may not be able to
mitigate the interest rate risk of our assets relative to our liabilities, particularly our loss reserves. In addition, our pension and
post-retirement benefit obligations include a discount rate assumption, which is an important element of expense and/or
liability measurement. Changes in the discount rate assumption could materially impact our pension and post-retirement life
valuation.

We are exposed to credit risk in our investment portfolio.
The value of our investment portfolio is subject to credit risk from the issuers and/or guarantors of the securities in the
portfolio, other counterparties in certain transactions and, for certain securities, insurers that guarantee specific issuer’s
obligations. Defaults by the issuer or an issuer’s guarantor, insurer, or other counterparties regarding any of our investments,
could reduce our net investment income and net realized investment gains or result in investment losses. We are subject to the
risk that the issuers, or guarantors, of fixed income securities we own may default on principal and interest payments due under
the terms of the securities. In addition, changes in the financial market environment and sentiment regarding the broad
economy may impact the credit spreads demanded by fixed income investors, which in turn may negatively impact the fair
market value of our fixed income securities. At December 31, 2017, our fixed income securities portfolio represented
approximately 92% of our total invested assets, of which approximately 97% were investment grade and 3% were below
investment grade rated, resulting in an average credit rating of AA- of the fixed income securities portfolio. Our spread
duration, which is reflective of the sensitivity of our fixed income portfolio to changes in credit spread is currently 4.6 years.
Over time, our exposure to below investment grade securities and other credit sensitive risk assets may fluctuate as we continue
23

to diversify the portfolio and take advantage of opportunities to add or reduce risk commensurate with our risk-taking capacity
and market conditions. The occurrence of a major economic downturn, acts of corporate malfeasance, widening credit spreads,
budgetary deficits, municipal bankruptcies spurred by, among other things, pension funding issues, or other events that
adversely affect the issuers or guarantors of these securities could cause the value of our fixed income securities portfolio and
our net income to decline and the default rate of our fixed income securities portfolio to increase.

With economic uncertainty, the credit quality of issuers or guarantors could be adversely affected and a ratings downgrade of
the issuers or guarantors of the securities in our portfolio could cause the value of our fixed income securities portfolio and our
net income to decrease. As our stockholders' equity is leveraged at 3.32:1 to our investment portfolio, a reduction in the value
of our investment portfolio could have a material adverse effect on our business, results of operations, financial condition, and
debt ratings. Levels of write-downs are impacted by our assessment of the impairment, including a review of the underlying
collateral of structured securities, and our intent and ability to hold securities that have declined in value until recovery. If we
reposition or realign portions of the portfolio so that we determine not to hold certain securities in an unrealized loss position to
recovery, we will incur an OTTI charge. For further information regarding credit and interest rate risk, see Item 7A.
“Quantitative and Qualitative Disclosures About Market Risk.” of this Form 10-K.

Our statutory surplus may be materially affected by rating downgrades on investments held in our portfolio.
We are exposed to significant financial and capital markets risks, primarily relating to interest rates, credit spreads, equity
prices, and the change in market value of our alternative investment portfolio. A decline in both income and our investment
portfolio asset values could occur as a result of, among other things, a decrease in market liquidity, fluctuations in interest rates,
decreased dividend payment rates, negative market perception of credit risk with respect to types of securities in our portfolio, a
decline in the performance of the underlying collateral of our structured securities, reduced returns on our alternative
investment portfolio, or general market conditions. A global decline in asset values will be more amplified in our financial
condition, as our statutory surplus is leveraged at a 3.2:1 ratio to our investment portfolio.

With economic uncertainty, the credit quality and ratings of securities in our portfolio could be adversely affected. The NAIC
could potentially apply a more adverse class code on a security than was originally assigned, which could adversely affect
statutory surplus because securities with NAIC class codes three through six require securities to be marked-to-market for
statutory accounting purposes, as compared to securities with NAIC class codes of one or two that are carried at amortized cost.

We are subject to the types of risks inherent in investing in private limited partnerships.
Our other investments include investments in private limited partnerships that invest in various strategies, such as private
equity, private credit, and real assets. Since these partnerships’ underlying investments consist primarily of assets or liabilities
for which there are no quoted prices in active markets for the same or similar assets, the valuation of interests in these
partnerships is subject to a higher level of subjectivity and unobservable inputs than substantially all of our other investments
and as such, is subject to greater scrutiny and reconsideration from one reporting period to the next. As these investments are
recorded under the equity method of accounting, any decreases in the valuation of these investments would negatively impact
our results of operations. We currently expect to increase our allocation to these investments, which may result in additional
variability in our net investment income.

We value our investments using methodologies, estimations, and assumptions that are subject to differing interpretations.
Changes in these interpretations could result in fluctuations in the valuations of our investments that may adversely affect
our results of operations or financial condition.
Fixed income, equity, and short-term investments, which are reported at fair value on our Consolidated Balance Sheet,
represented the majority of our total cash and invested assets as of December 31, 2017. As required under accounting rules, we
have categorized these securities into a three-level hierarchy, based on the priority of the inputs to the respective valuation
technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities
(Level 1). The next priority is to quoted prices in markets that are not active or inputs that are observable either directly or
indirectly, including quoted prices for similar assets or liabilities or in markets that are not active and other inputs that can be
derived principally from, or corroborated by, observable market data for substantially the full term of the assets or liabilities
(Level 2). The lowest priority in the fair value hierarchy is to unobservable inputs supported by little or no market activity and
that reflect the reporting entity’s own assumptions about the exit price, including assumptions that market participants would
use in pricing the asset or liability (Level 3).

An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its
valuation. We generally use an independent pricing service and broker quotes to price our investment securities. At
December 31, 2017, approximately 6% and 93% of these securities represented Level 1 and Level 2, respectively. However,
prices provided by independent pricing services and brokers can vary widely even for the same security. Rapidly changing and
unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within our

consolidated financial statements (“Financial Statements”) and the period-to-period changes in value could vary significantly.
Decreases in value may result in an increase in non-cash OTTI charges, which could have a material adverse effect on our
results of operations, liquidity, financial condition, financial strength, and debt ratings.

The determination of the amount of impairments taken on our investments is highly subjective and could materially impact
our results of operations or our financial position.
The determination of the amount of impairments taken on our investments is based on our periodic evaluation and assessment
of our investments and known and inherent risks associated with the various asset classes. Such evaluations and assessments
are revised as conditions change and new information becomes available. Management updates its evaluations regularly and
reflects changes in impairments as such evaluations are revised. There can be no assurance that management has accurately
assessed the level of impairments taken as reflected in our Financial Statements. Furthermore, additional impairments may
need to be taken in the future. It is possible that interest rates, which are at historic lows, will increase which will result in a
reduction in net unrealized gains and may result in net unrealized losses associated with declines in value strictly related to
such interest rate movements. It is possible that this could result in realized losses if we sell such securities or possibly more
OTTI if we determine we do not have the ability and intent to hold those securities until they recover in value. In addition, we
recently hired several new investment managers and expect them to take a more active approach to managing our fixed income
securities portfolio. As a result, we expect our OTTI to increase in coming periods based on an increase in securities that we
may intend to sell despite being in an unrealized loss position. Historical trends may not be indicative of future impairments.
For further information regarding our evaluation and considerations for determining whether a security is other-than-
temporarily impaired, please refer to “Critical Accounting Policies and Estimates” in Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” of this Form 10-K.

Changes in tax law could adversely affect our investments results.
Amendments to the tax laws and regulations of U.S. federal, state, and local governments may adversely impact us. Our
investment portfolio benefits from tax exemptions and certain other tax laws, including, non-exhaustively those governing
dividends received deductions, and tax-advantaged municipal bond interest. Future federal and/or state tax law changes could
lessen or eliminate some or all of these favorable tax advantages, negatively impact the value of our investment portfolio, and
materially and adversely impact our results of operations. In addition, the elimination of the state and local tax deduction (the
"SALT deduction") for U.S. taxpayers filing Federal income tax returns could have negative consequences to the financial
strength of issuers of state and local municipal securities of which we have invested in, which could reduce the value of our
investment portfolio, and materially and adversely impact our results of operations. The elimination of the SALT deduction, as
well as the lower $750,000 mortgage cap on the deductibility of mortgage interest for U.S. taxpayers, could reduce the value of
residential real estate, which could have negative financial consequences to various classes of investments that we have
invested in, such as residential mortgage backed securities, and other asset classes backed by mortgages or real estate, and this
could reduce the value of our investment portfolio, and materially and adversely impact our results of operations.

Uncertainty regarding domestic and international political developments and their impact on the economy could lead to
investment losses, which may adversely affect our results of operations, financial condition, liquidity, and debt ratings.
As a property and casualty insurance holding company, we depend on income from our investment portfolio for a significant
portion of our revenue and earnings. Our investment portfolio is exposed to significant financial and capital market risks, both
in the U.S. and abroad. Volatile changes in general market or economic conditions could lead to a decline in the market value
of our portfolio as well as the performance of the underlying collateral of our structured securities. The current political
climate has created more uncertainty about U.S. domestic and foreign policy that may elevate the volatility of the financial
markets and adversely impact our investment portfolio.

Our notes payable and line of credit are subject to certain debt-to-capitalization restrictions and net worth covenants that a
significant decline in investment value could impact. Significant future declines in investment value also could require further
OTTI charges. Depending on future market conditions, such as an extreme prolonged market event like the global credit crisis,
we could incur additional realized and unrealized losses in future periods that could adversely impact our results of operations,
financial condition, debt and financial strength ratings, and our ability to access capital markets.

For more information regarding market interest rate, credit, and equity price risk, see Item 7A. “Quantitative and Qualitative
Disclosures About Market Risk.” of this Form 10-K.

Risks Related to Our Corporate Structure and Governance

We are a holding company and our ability to declare dividends to our shareholders, pay indebtedness, and enter into
affiliate transactions may be limited because our Insurance Subsidiaries are regulated.
Restrictions on the ability of the Insurance Subsidiaries to pay dividends, make loans or advances to us, or enter into
transactions with affiliates may materially affect our ability to pay dividends on our common stock or repay our indebtedness.

As of December 31, 2017, the Parent had retained earnings of $1.7 billion. Of this amount, $1.6 billion was related to
investments in our Insurance Subsidiaries. The Insurance Subsidiaries have the ability to provide for $211 million in ordinary
annual dividends to us in 2018 under applicable state regulation; however, as they are regulated entities, their ability to pay
dividends or make loans or advances to us is subject to the approval or review of the insurance regulators in the states where
they are domiciled. The standards for review of such transactions are whether: (i) the terms and charges are fair and
reasonable; and (ii) after the transaction, the Insurance Subsidiary's surplus for policyholders is reasonable in relation to its
outstanding liabilities and financial needs. Although dividends and loans to us from our Insurance Subsidiaries historically
have been approved, we can make no assurance that future dividends and loans will be approved. For additional details
regarding dividend restrictions, see Note 19. “Statutory Financial Information, Capital Requirements, and Restrictions on
Dividends and Transfers of Funds” in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

Because we are an insurance holding company and a New Jersey corporation, we may be less attractive to potential
acquirers and the value of our common stock could be adversely affected.
Because we are an insurance holding company that owns insurance subsidiaries, anyone who seeks to acquire 10% or more of
our stock must seek prior approval from the insurance regulators in the states in which the subsidiaries are organized and file
extensive information regarding their business operations and finances.

Provisions in our Amended and Restated Certificate of Incorporation may discourage, delay, or prevent us from being acquired,
including:

•

Supermajority shareholder voting requirements to approve certain business combinations with interested
shareholders (as defined in the Amended and Restated Certificate of Incorporation) unless certain other conditions
are satisfied; and
Supermajority shareholder voting requirements to amend the foregoing provisions in our Amended and Restated
Certificate of Incorporation.

In addition to the requirements in our Amended and Restated Certificate of Incorporation, the New Jersey Shareholders’
Protection Act also prohibits us from engaging in certain business combinations with interested stockholders (as defined in the
statute), in certain instances for a five-year period, and in other instances indefinitely, unless certain conditions are satisfied.
These conditions may relate to, among other things, the interested stockholder’s acquisition of stock, the approval of the
business combination by disinterested members of our Board of Directors and disinterested stockholders, and the price and
payment of the consideration proposed in the business combination. Such conditions are in addition to those requirements set
forth in our Amended and Restated Certificate of Incorporation.

These provisions of our Amended and Restated Certificate of Incorporation and New Jersey law could have the effect of
depriving our stockholders of an opportunity to receive a premium over our common stock’s prevailing market price in the
event of a hostile takeover and may adversely affect the value of our common stock.

Risks Related to Evolving Legislation

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
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. The current
expense allowance is 30.9% of DPW. The servicing fee is the combination of 0.9% of DPW and 1.5% of incurred losses.

As a WYO carrier, we are required to follow 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.

There has been significant public policy and political debate regarding the NFIP and its outstanding debt, including the NFIP's
purchase of reinsurance. Prior to Hurricanes Harvey, Irma, and Maria, in the third quarter of 2017, the NFIP had accumulated
debt totaling approximately $25 billion. Losses from the 2017 storms are estimated to total approximately $16 billion and,
together with its previously accumulated debt, likely would exceed the NFIP’s total borrowing authority. In response, Congress
passed legislation that forgave $16 billion of NFIP debt and allowed recent flood claims to be paid within the program’s $25
billion debt level. In November 2017, the U.S. House of Representatives passed the 21st Century Flood Reform Act, which
would extend the NFIP for 5 years, but reduce the WYO reimbursement rate by 3 points from its current 30.9% to 27.9% over a
three-year period. The bill also proposes changes in certain operational processes and provides incentives for the private flood
markets. The U.S. Senate has yet to consider this bill. While Congress continues to debate a comprehensive reform package,
the NFIP has received multiple short-term extensions and is currently authorized through March 23, 2018. We expect the
program will continue to operate under a series of short-term extensions, but it may also experience a periodic lapse as it
becomes encumbered by other budgetary issues.

Our flood business could be impacted by: (i) a lapse in program authorization; (ii) any mandate for primary insurance carriers
to provide flood insurance; or (iii) private writers becoming more prevalent in the marketplace. The uncertainty created by the
public policy debate and politics of flood insurance reform make it difficult for us to predict the future of the NFIP and our
continued participation in the program.

We are subject to risk that enacted legislation might significantly change insurance regulation and adversely impacts our
business, financial condition, and/or the results of operations.
We cannot predict what federal and state rules or legislation will be proposed and adopted, or what impact, if any, such
proposals or the cost of compliance with such proposals, could have on our results of operations, liquidity, financial condition,
financial strength, and debt ratings.

In 2009, Congress passed the Dodd-Frank Act to address corporate governance and control issues identified in the financial
crises in 2008 and 2009 and the non-insurance subsidiaries of American International Group, Inc. One of the key Dodd-Frank
Act provisions created the FIO as part of the U.S. Department of Treasury to advise the federal government on insurance issues.
Another Dodd-Frank Act provision requires the Federal Reserve, through the Financial Services Oversight Council (“FSOC”),
to supervise financial service firms designated as systemically important financial institutions ("SIFI"). We are not and do not
expect to be designated as a SIFI. Included among Dodd-Frank's corporate governance reforms for public companies were
proxy access, say-on-pay, and other compensation and governance issues. A number of Dodd-Frank reform bills have been
introduced, but it is uncertain whether any proposal will pass into law.

In general, the Trump Administration and the current Republican majority favor less federal involvement in insurance.
Legislative proposals, however, could involve the federal government directly in regulating the business of insurance.
President Trump and the Republican congressional majority favor the repeal of the Affordable Care Act ("ACA"). Repeal of
the ACA presents some legal and practical challenges. Some reform proposals include a provision to permit sales of insurance
across state lines, which is not permitted under current federal law without approval of the respective state insurance regulators.
Some ACA reforms call for the elimination of the anti-trust exemptions for health insurers under the McCarran-Ferguson Act.
While we are not a health insurer, we and our property and casualty competitors operate under anti-trust exemptions that permit
the aggregation of claims and other data in numbers actuarially and statistically sufficient to price insurance. If the MFA were
repealed for the property and casualty industry, we would have to seek a business practices exemption from the Department of
Justice to share information with other insurers. We cannot predict the impact such a legislative event could have on our
product and services supplier relationships, results of operations, liquidity, financial condition, financial strength, and debt
ratings.

Legislative and regulatory proposals in various states sometimes seek to limit the ability of insurers to assess insurance risk,
including limiting or prohibiting the use of certain factors or predictive measures in property and casualty underwriting such as
insurance scores and marketplace considerations. These proposals, if enacted, could impact underwriting pricing and results of
operations.

Risks Related to Our General Operations

The failure of our risk management strategies could have a material adverse effect on our financial condition or results of
operations.
As an insurance provider, it is our business to take on risk from our customers. Our long-term strategy includes the use of
above average operational leverage, which can be measured as the ratio of NPW to our equity or policyholders surplus. We
balance operational leverage risk with a number of risk management strategies within our insurance operations to achieve a
balance of growth and profit and to reduce our exposure. These strategies include, but are not limited to, the following:

• Being disciplined in our underwriting practices;
• Being prudent in our claims management practices, establishing adequate loss and loss expense reserves, and

placing appropriate reliance on our claims analytics;

• Continuing to develop and implement various underwriting tools and automated analytics to examine historical
statistical data regarding our customers and their loss experience to: (i) classify such policies based on that
information; (ii) apply that information to current and prospective accounts; and (iii) better predict account
profitability;

• Continuing to develop our customer experience platform as we grow in our understanding of customer

segmentation;
Purchasing reinsurance and using catastrophe modeling; and

•
• Being prudent in our financial planning process, which supports our underwriting strategies.

We also maintain a conservative approach to our investment portfolio management and employ risk management strategies that
include, but are not limited to:

• Being prudent in establishing our investment policy and appropriately diversifying our investments, which supports

our liabilities and underwriting strategies;

• Using models to analyze historical investment performance and predict future investment performance under a

variety of scenarios using asset concentration, asset volatility, asset correlation, and systematic risk; and

• Closely monitoring investment performance, general economic and financial conditions, and other relevant factors.

All of these strategies have inherent limitations. We cannot be certain that an event or series of unanticipated events will not
occur and result in losses greater than we expect and have a material adverse effect on our results of operations, liquidity,
financial condition, financial strength, and debt ratings.

Operational risks, including human or systems failures, are inherent in our business.
Operational risks and losses can result from, among other things, fraud, errors, failure to document transactions properly or to
obtain proper internal authorization, failure to comply with regulatory requirements, information technology failures, or
external events.

Our predictive models for underwriting, claims, and catastrophe losses, as well as our business analytics and our information
technology and application systems are critical to our business. We expect our information technology and application systems
to remain an important part of our underwriting process and our ability to compete successfully. A major defect or failure in
our internal controls or information technology and application systems could: (i) result in management distraction; (ii) harm
our reputation; or (iii) increase our expenses. We believe appropriate controls and mitigation procedures are in place to prevent
significant risk of a defect in our internal controls around our information technology and application systems, but internal
controls provide only a reasonable, not absolute, assurance as to the absence of errors or irregularities and any ineffectiveness
of such controls and procedures could have a significant and negative effect on our business.

Rapid development of new technologies may result in an unexpected impact on our business and insurance industry overall.
Development of new technologies continues to impact all aspects of business and individuals’ lives at rapid speed. Often such
developments are positive and gradually improve standards of living and speed of communications, and allow for the
development of more efficient processes. The rapid development of new technologies, however, also presents challenges and
risks. Examples of such emerging risks include, but are not limited to:

• Change in exposures and claims frequency and/or severity due to unanticipated consequences of new technologies
and their use. For example, technologies have been developed and are being tested for autonomous self-driving
automobiles. It is unclear and we cannot predict the corresponding impact to automobile claims. It is possible that
these technological developments will affect the profitability and demand for automobile insurance.

• Changes in how insurance products are marketed and purchased due to the availability of new technologies and

changes in customer expectations. For example, comparative rating technologies, which are widely used inpersonal
lines insurance, facilitate the process of efficiently generating quotes from multiple insurance companies. This
technology makes differentiation based upon factors other than pricing more difficult and has increased price
comparisons, resulting in a higher level of quote activity with a lower percentage of quotes becoming new business
written. These trends may continue to accelerate and may affect other lines of business, which could put pressure
on our future profitability and growth.

• New technologies may require the development of new insurance products without the support of sufficient

historical claims data for us to continue to compete effectively for our distribution partners' business and customers.

We depend on key personnel.
To a large extent, our business' success depends on our ability to attract and retain key employees. Competition to attract and
retain key personnel is intense. While we have employment agreements with certain key managers, all of our employees are at-
will employees and we cannot ensure that we will be able to attract and retain key personnel. As of December 31, 2017, our
workforce had an average age of approximately 47 and approximately 18% of our workforce was retirement eligible, which we
define as including individuals who are 55 years of age and have 10 or more years of service.

We are subject to a variety of modeling risks, which could have a material adverse impact on our business results.
We rely on complex financial models, such as predictive underwriting models, a claims fraud model, third party catastrophe
models, an enterprise risk management capital model, and modeling tools used by our investment managers, which have been
developed internally or by third parties to analyze historical loss costs and pricing, trends in claims severity and frequency, the
occurrence of catastrophe losses, investment performance, and portfolio risk. Flaws in these financial models, or faulty
assumptions used by these financial models, could lead to increased losses. We believe that statistical models alone do not
provide a reliable method for monitoring and controlling risk. Therefore, such models are tools and do not substitute for the
experience or judgment of senior management.

We are subject to attempted cyber-attacks and other cybersecurity risks.
Our business heavily relies on various information technology and application systems that are connected to, or may be
accessed from, the Internet and may be impacted by a malicious cyber-attack. Our systems also contain confidential and
proprietary information regarding our operations, our employees, our agents, and our customers and their employees and
property, including personally identifiable information. A malicious cyber-attack on our systems or those of our vendors may
interrupt our ability to operate and impact our results of operations. We have, and expect to continue to, develop and invest in a
variety of controls to prevent, detect, and appropriately react to cyber-attacks, including frequently testing our systems' security
and access controls. Cyber-attacks continue to become more complex and broad-ranging, and our internal controls provide
only a reasonable, not absolute, assurance that we will be able to protect ourselves from significant cyber-attack incidents. By
outsourcing certain business and administrative functions to third parties, we may be exposed to enhanced risk of data security
breaches. Any breach of our systems or data security could damage our reputation and/or result in monetary damages that, in
turn, could have a material adverse effect on our results of operations, liquidity, financial condition, financial strength, and debt
ratings. Although we have not experienced a material cyber-attack, it is possible that it might occur. We have insurance
coverage for certain cybersecurity risks, including privacy breach incidents, that provides protection up to $20 million above a
deductible of $1 million. In addition, within our Standard Commercial Lines segment, we offer cyber-related insurance
products for which we have mitigated the majority of the related risk through protection under our reinsurance treaties.

Given the increased number of identity thefts from cyber-attacks, federal and state policymakers have, and will likely continue
to propose increased regulation of the protection of personally identifiable information and appropriate protocols after a related
cybersecurity breach. The New York Department of Financial Services recently adopted a cyber protection and reporting
regulation for financial services companies with which we are complying. The NAIC also has adopted a model regulation
based upon the New York regulation, and we expect other states to consider adoption of the NAIC model in 2018. Compliance
with these regulations and efforts to address continually developing cybersecurity risks may result in a material adverse effect
on our results of operations, liquidity, financial condition, financial strength, and debt ratings.

Changes in tax law could adversely affect our results of operations and financial condition.
We are subject to the tax laws and regulations of U.S. federal, state, and local governments, and their amendment could
adversely impact us. For example, the U.S. tax code was recently amended to reduce the federal corporate income tax rate
from 35% to 21% effective for the 2018 tax year. As a result, our deferred tax assets were reduced and we were required to
recognize a reduction of a previously-recognized federal tax benefit in the fourth quarter of 2017, when enacted. Potential
future tax rule changes may increase or decrease our actual tax expense and could materially and adversely affect our results of
operations.

If we experience difficulties with outsourcing relationships, our ability to conduct our business might be negatively
impacted.
We currently outsource certain business and administrative functions to third parties for expediency, efficiency and economies
of scale and this outsourcing may increase in the future. If we or our third-party partners falter in the development,
implementation, or execution of our outsourcing strategies, we may experience operational difficulties, increased costs, and
customer losses that may have a material adverse effect on our results of operations or financial condition. We have
supplemental staffing service agreements with multiple consulting, information technology, and service providers that supply
approximately 47% of our skilled technology capacity. These resources are principally based in the U.S., although some of the
resources are foreign. The impact of the recently-enacted U.S. tax reform on the availability and cost of these services is still
uncertain.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our main office is located in Branchville, New Jersey on a site owned by a subsidiary with approximately 114 acres and
315,000 square feet of operational space. We lease all of our other facilities. The principal office locations related to our
insurance operations are described in the “Geographic Markets” section of Item 1. “Business.” of this Form 10-K. We believe
our facilities provide adequate space for our present needs and that additional space, if needed, would be available on
reasonable terms.

Item 3. Legal Proceedings.

In the ordinary course of conducting business, we are named as defendants in various legal proceedings. Most of these
proceedings 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 losses and loss expense reserves. We expect
that any potential ultimate liability in such ordinary course claims litigation will not be material to our consolidated financial
condition, results of operations, or cash flows after consideration of provisions made for potential losses and costs of defense.

From time to time, our Insurance Subsidiaries also are named as defendants in other legal actions, some of which assert claims
for substantial amounts. These actions include, among others, putative class actions seeking certification of a state or national
class. Such putative class actions have alleged, for example, improper reimbursement of medical providers paid under workers
compensation and personal and commercial automobile insurance policies. Similarly, our Insurance Subsidiaries are also
named from time-to-time in individual actions seeking extra-contractual damages, punitive damages, or penalties, some of
which allege bad faith in the handling of insurance claims. We believe that we have valid defenses to these cases. We expect
that any potential ultimate liability in any such lawsuit will not be material to our consolidated financial condition, after
consideration of provisions made for estimated losses. Nonetheless, given the inherent unpredictability of litigation and the
large or indeterminate amounts sought in certain of these actions, an adverse outcome in certain matters could possibly have a
material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

As of December 31, 2017, we do not believe the Company or any of the Insurance Subsidiaries was a defendant in any legal
action that could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

PART II

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.

(a) Market Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol “SIGI.” The following table sets forth
the high and low sales prices, as reported on the NASDAQ Global Select Market, for our common stock for each full quarterly
period within the two most recent fiscal years:

First quarter

Second quarter

Third quarter

Fourth quarter

2017

2016

High

Low

High

Low

49.05

53.75

54.05

62.40

38.50

44.65

46.28

53.55

36.92

38.67

41.30

44.00

29.27

33.60

35.90

34.95

On February 9, 2018, the closing price of our common stock as reported on the NASDAQ Global Select Market was $57.10.

(b) Holders
We had 3,197 stockholders of record as of February 9, 2018 according to the records maintained by our transfer agent.

(c) Dividends
Dividends on shares of our common stock are declared and paid at the discretion of the Board based on our results of
operations, financial condition, capital requirements, contractual restrictions, and other relevant factors. On October 25, 2017,
the Board of Directors approved a 13% increase in our dividend to $0.18 per share. In addition, on February 1, 2018, the Board
of Directors declared a $0.18 per share quarterly cash dividend on common stock that is payable March 1, 2018, to
stockholders of record as of February 15, 2018. The following table provides information on the dividends declared for each
quarterly period within our two most recent fiscal years:

Dividend Per Share

First quarter

Second quarter

Third quarter

Fourth quarter

2017

2016

0.16

0.18

0.15

0.16

Our ability to receive dividends, loans, or advances from our Insurance Subsidiaries is subject to the approval and/or review of
the insurance regulators in the respective domiciliary states of our Insurance Subsidiaries. Such approval and/or review is
made under the respective domiciliary states’ insurance holding company acts, which generally require that any transaction
between related companies be fair and equitable to the insurance company and its policyholders. Although our dividends have
historically been met with regulatory approval, there is no assurance that future dividends will be approved given current
market conditions. We currently expect to continue to pay quarterly cash dividends on shares of our common stock in the
future. For additional information, see Note 19. "Statutory Financial Information, Capital Requirements, and Restrictions on
Dividends and Transfers of Funds" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

(d) Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about our common stock authorized for issuance under equity compensation plans as
of December 31, 2017:

Plan Category

(a)

(b)

Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

(c)
Number of securities remaining
available for
future issuance under
equity compensation
plans (excluding
securities reflected in column (a))

Equity compensation plans approved by security holders

229,864 1 $

15.38

4,833,993 2

1 Weighted average remaining contractual life of options is 1.50 years.
2 Includes 499,629 shares available for issuance under our Employee Stock Purchase Plan (2009); 1,817,493 shares available for issuance under the Stock
Purchase Plan for Independent Insurance Agencies; and 2,516,871 shares for issuance under the Selective Insurance Group, Inc. 2014 Omnibus Stock Plan
("Stock Plan"). Future grants under the Stock Plan can be made, among other things, as stock options, restricted stock units, or restricted stock.

(e) Performance Graph
The following chart, produced by Research Data Group, Inc., depicts our performance for the period beginning December 31,
2012 and ending December 31, 2017, as measured by total stockholder return on our common stock compared with the total
return of the NASDAQ Composite Index and a select group of peer companies comprised of NASDAQ-listed companies in
SIC Code 6330-6339, Fire, Marine, and Casualty Insurance.

This performance graph is not incorporated into any other filing we have made with the U.S. Securities and Exchange
Commission ("SEC") and will not be incorporated into any future filing we may make with the SEC unless we so specifically
incorporate it by reference. This performance graph shall not be deemed to be “soliciting material” or to be “filed” with the
SEC unless we specifically request so or specifically incorporate it by reference in any filing we make with the SEC.

(f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information regarding our purchases of our common stock in the fourth quarter of 2017:

Period

October 1 – 31, 2017

November 1 – 30, 2017

December 1 – 31, 2017

Total

Total Number of
Shares Purchased1

Average Price
Paid Per Share

193

—

193

54.95

—

54.95

Total Number of
Shares Purchased
as Part of Publicly
Announced Programs

Maximum Number of
Shares that May Yet
Be Purchased Under the
Announced Programs

—

1During the fourth quarter of 2017, 193 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. These shares were not purchased as part of any publicly announced program. The
shares were purchased at fair market value as defined in the Stock Plan.

Item 6. Selected Financial Data.

Five-Year Financial Highlights

(All presentations are in accordance with GAAP unless noted otherwise, number of weighted average shares and dollars in thousands, except per share amounts)

Net premiums written

Net premiums earned

Net investment income earned

Net realized gains (losses)

Total revenues

Catastrophe losses

Underwriting income

Net income

Comprehensive income

Total assets

Short-term debt

Long-term debt

Stockholders’ equity

Statutory premiums to surplus ratio

Combined ratio

Impact of catastrophe losses on combined ratio

2017

2,370,641

2,291,027

161,882

6,359

2,469,984

67,299

154,336

168,826

204,946

7,686,431

—

439,116

1,712,957

1.4

93.3 %

2.9

pts

Invested assets per dollar of stockholders' equity

3.32

Yield on investments, before tax

Debt to capitalization ratio

Return on average equity

Per share data:

Net income from continuing operations:

Basic

Diluted

Net income:

Basic

Diluted

Dividends to stockholders

2.9 %

20.4

10.4

2.89

2.84

2.89

2.84

0.66

2016

2015

2014

2013

2,237,288

2,149,572

130,754

(4,937)

2,069,904

1,989,909

121,316

13,171

1,885,280

1,852,609

138,708

26,599

1,810,159

1,736,072

134,643

20,732

2,284,270

2,131,852

2,034,861

1,903,741

59,735

151,933

158,495

151,970

59,055

149,029

165,861

136,648

59,971

78,143

141,827

136,764

47,415

38,766

106,418

77,229

7,355,848

6,904,433

6,574,942

6,262,585

—

438,667

1,531,370

60,000

328,192

1,398,041

—

372,689

1,275,586

13,000

371,829

1,153,928

1.4

92.9

2.8

3.50

2.5

22.3

10.8

2.74

2.70

2.74

2.70

0.61

1.5

92.5

3.0

3.64

2.5

21.7

12.4

2.90

2.85

2.90

2.85

0.57

1.4

95.8

3.2

3.77

3.0

22.6

11.7

2.52

2.47

2.52

2.47

0.53

1.4

97.8

2.7

3.97

3.0

25.0

9.5

1.93

1.89

1.91

1.87

0.52

Stockholders’ equity

29.28

26.42

24.37

22.54

20.63

Price range of common stock:

High

Low

Number of weighted average shares:

Basic

Diluted

62.40

38.50

58.70

58,458

59,357

44.00

29.27

43.05

57,889

58,747

37.91

25.49

33.58

57,212

58,156

27.65

21.38

27.17

56,310

57,351

28.31

19.53

27.06

55,638

56,810

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking Statements
Certain statements in this report, including information incorporated by reference, are “forward-looking statements” as that
term is defined in the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a safe harbor under
the Securities Act of 1933, as amended, and the Exchange Act for forward-looking statements. These statements relate to our
intentions, beliefs, projections, estimations or forecasts of future events or future financial performance and involve known and
unknown risks, uncertainties and other factors that may cause us or the industry’s actual results, levels of activity, or
performance to be materially different from those expressed or implied by the forward-looking statements. In some cases,
forward-looking statements may be identified by use of the words such as “may,” “will,” “could,” “would,” “should,” “expect,”
“plan,” “anticipate,” “target,” “project,” “intend,” “believe,” “estimate,” “predict,” “potential,” “pro forma,” “seek,” “likely,” or
“continue” or other comparable terminology. These statements are only predictions, and we can give no assurance that such
expectations will prove to be correct. We undertake no obligation, other than as may be required under the federal securities
laws, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or
otherwise.

Factors that could cause our actual results to differ materially from those we have projected, forecasted or estimated in forward-
looking statements are discussed in further detail in Item 1A. “Risk Factors.” of this Form 10-K. 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.

Introduction
We classify our business into four reportable segments, which are as follows:

•

Standard Commercial Lines - comprised of insurance products and services provided in the standard marketplace to
our commercial enterprises, which are typically businesses, non-profit organizations, and local government agencies.

Standard Personal Lines - comprised of insurance products and services, including flood insurance coverage, provided
primarily to individuals acquiring coverage in the standard marketplace.

• Excess and surplus ("E&S") Lines - comprised of insurance products and services provided to customers who have not

obtained coverage in the standard marketplace.

•

Investments - invests the premiums collected by our insurance operations, as well as amounts generated through our
capital management strategies, which may include the issuance of debt and equity securities.

Our Standard Commercial and Standard Personal Lines products and services are written through our nine 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 Lines products and services are written through one subsidiary, Mesa Underwriters
Specialty Insurance Company ("MUSIC"). This subsidiary provides us with a nationally-authorized non-admitted platform to
offer insurance products and services to customers who generally cannot obtain coverage in the standard marketplace.

Our ten insurance subsidiaries are collectively referred to as the "Insurance Subsidiaries."

The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated results of operations and financial
condition, as well as known trends and uncertainties, that may have a material impact in future periods.

In the MD&A, we will discuss and analyze the following:

Financial Highlights of Results for Years Ended December 31, 2017, 2016, and 2015;

• Critical Accounting Policies and Estimates;
•
• Results of Operations and Related Information by Segment;
•
•
• Off-Balance Sheet Arrangements;
• Contractual Obligations, Contingent Liabilities, and Commitments; and
• Ratings.

Federal Income Taxes;
Financial Condition, Liquidity, and Capital Resources;

Critical Accounting Policies and Estimates
We have identified the policies and estimates described below as critical to our business operations and the understanding of
the results of our operations. Our preparation of the Financial Statements requires us to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our Financial
Statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that
actual results will not differ from those estimates. Those estimates that were most critical to the preparation of the 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.

Reserves for Loss and Loss Expense
Significant periods of time can elapse between the occurrence of an insured loss, the reporting of the loss to the insurer, and the
insurer’s payment of that loss. To recognize liabilities for unpaid loss and loss expense, insurers establish reserves as balance
sheet liabilities representing an estimate of amounts needed to pay reported and unreported net loss and loss expense. We had
accrued $3.8 billion of gross loss and loss expense reserves and $3.2 billion of net loss and loss expense reserves at
December 31, 2017. At December 31, 2016, these gross and net reserves were $3.7 billion and $3.1 billion, respectively.

The following tables provide case and incurred but not reported (“IBNR”) reserves for loss and loss expenses, and reinsurance
recoverable on unpaid loss and loss expense as of December 31, 2017 and 2016:

As of December 31, 2017

Losses and Loss Expense Reserves

Case
Reserves

IBNR
Reserves

Total

Reinsurance
Recoverable on
Unpaid Loss and
Loss Expense

Net Reserves

($ in thousands)

General liability

Workers compensation

Commercial automobile

Businessowners' policies

Commercial property

Other

Total Standard Commercial Lines

Personal automobile

Homeowners

Other

Total Standard Personal Lines

Casualty lines1

Property lines2

Total E&S Lines

260,605

427,955

200,409

31,758

64,192

5,018

989,937

76,895

15,477

51,646

144,018

53,764

6,586

60,350

1,046,261

756,609

291,681

58,522

13,420

8,787

1,306,866

1,184,564

492,090

90,280

77,612

13,805

2,175,280

3,165,217

73,356

18,763

27,029

119,148

273,607

8,900

282,507

150,251

34,240

78,675

263,166

327,371

15,486

342,857

Total
3,771,240
1Includes general liability (95% of net reserves) and commercial auto liability coverages (5% of net reserves).
2Includes commercial property (90% of net reserves) and commercial auto property coverages (10% of net reserves).

2,576,935

1,194,305

175,276

218,024

16,745

3,926

24,387

2,287

440,645

53,129

999

69,333

123,461

21,360

389

21,749

1,131,590

966,540

475,345

86,354

53,225

11,518

2,724,572

97,122

33,241

9,342

139,705

306,011

15,097

321,108

585,855

3,185,385

December 31, 2016

($ in thousands)

General liability

Workers compensation

Commercial auto

Businessowners' policies

Commercial property

Other

Total Standard Commercial Lines

Personal automobile

Homeowners

Other

Total Standard Personal Lines

Casualty lines1
Property lines2

E&S Lines

Losses and Loss Expense Reserves

Case
Reserves

IBNR
Reserves

Total

Reinsurance
Recoverable on
Unpaid Loss and
Loss Expense

Net Reserves

235,329

463,523

170,380

40,018

50,757

5,243

965,250

78,512

24,779

64,314

167,605

50,337

8,253

58,590

1,053,400

745,590

259,861

56,894

7,910

9,647

1,288,729

1,209,113

430,241

96,912

58,667

14,890

2,133,302

3,098,552

72,435

19,845

26,198

118,478

241,473

7,021

248,494

150,947

44,624

90,512

286,083

291,810

15,274

307,084

179,997

223,327

17,373

7,012

13,615

2,613

443,937

55,223

3,206

82,625

141,054

25,741

468

26,209

1,108,732

985,786

412,868

89,900

45,052

12,277

2,654,615

95,724

41,418

7,887

145,029

266,069

14,806

280,875

611,200

3,080,519

Total
3,691,719
1Includes general liability (97% of net reserves) and commercial auto liability coverages (3% of net reserves).
2Includes commercial property (93% of net reserves) and commercial auto property coverages (7% of net reserves).

1,191,445

2,500,274

How reserves are established
Each quarter, our internal actuaries prepare a comprehensive loss and loss expense reserve analysis. This analysis uses
standard actuarial projection techniques, applied to our own loss and loss expense experience, to produce updated ultimate loss
and loss expense estimates. In addition, other non-standard approaches may be considered. The results of the reserve analysis
are then discussed with management in order to determine if any changes are required to the estimated ultimate loss and loss
expense reserves. In addition to the actuarial loss and loss expense projections, management also considers other information
and factors. Other considerations include internal impacts such as changes to our underwriting and claims practices, as well as
external impacts, such as economic, legal, judicial and social trends. Upon considering all of this information, management
makes a decision regarding changes to the reserve estimates.

The actuarial reserve analysis is the foundation of the quarterly reserve review process. Using generally accepted actuarial
reserving techniques, we project our estimate of ultimate loss and loss expense at each reporting date. Our IBNR reserve is the
difference between the projected ultimate loss and loss expense incurred and the sum of: (i) case loss and loss expense
reserves; and (ii) paid loss and loss expense. The actuarial techniques used in determining ultimate losses are part of a
comprehensive reserving process that includes two primary components. The first component is a detailed quarterly reserve
analysis performed by our internal actuarial staff. In completing this analysis, the actuaries must gather substantially similar
data in sufficient volume to ensure statistical credibility of the data, while maintaining appropriate differentiation. This process
defines the reserving segments, to which various actuarial projection methods are applied. When applying these methods, the
actuaries are required to make numerous assumptions including, for example, the selection of loss and loss expense
development factors and the weight to be applied to each individual projection method. These methods include paid and
incurred versions of the following methods: aggregate loss and loss expense development, Bornhuetter-Ferguson, Berquist-
Sherman, and frequency/severity modeling (via a development approach). The second component of the analysis is the
projection of the expected ultimate loss and loss expense ratio for each line of business for the current accident year. This
projection is part of our planning process wherein we review and update expected loss and loss expense ratios each quarter.
This review includes actual versus expected pricing changes, loss and loss expense trend assumptions, and updated prior period
loss and loss expense ratios from the most recent quarterly reserve analysis. Actual claims counts and severities are also
considered relative to initial expectations.

In addition to the quarterly reserve analysis, a range of possible IBNR reserves is estimated annually and continually
considered, among other factors, in establishing IBNR for each reporting period. Loss and loss expense trends are also
considered, which include, but are not limited to, large loss activity, asbestos and environmental claim activity, large case
reserve additions or reductions for prior accident years, and reinsurance recoverable issues. We also consider factors such as:
(i) per claim information; (ii) company and industry historical loss experience; (iii) legislative enactments, judicial decisions,
legal developments, and changes in political attitudes; and (iv) trends in general economic conditions, including the effects of
inflation. Based upon our quarterly reserve analysis, our annual reserve range, and other relevant factors and considerations,
IBNR is established and the ultimate net liability for loss and loss expense is determined. Such an assessment requires
considerable judgment given that it is frequently not possible to determine whether a change in the data is an anomaly until
sometime after the event. Even if a change is determined to be permanent, it is not always possible to reliably determine the
extent of the change until sometime later. There is no precise method for subsequently evaluating the impact of any specific
factor on the adequacy of reserves because the eventual deficiency or redundancy is affected by many factors. The changes in
these estimates, resulting from the continuous review process and the differences between estimates and ultimate payments, are
reflected in the Consolidated Statements of Income for the period in which such estimates are changed. Any changes in the
liability estimate may be material to the results of operations in future periods. In addition to our internal review, statutory
regulation requires us to have a Statement of Actuarial Opinion issued annually on our statutory reserve adequacy. We engage
an external consulting actuary to issue this opinion based on their independent review.

Range of reasonable reserves
We have estimated a range of reasonably possible reserves for net loss and loss expense claims to be $2,899 million to $3,361
million at December 31, 2017, which compares to $2,780 million to $3,237 million at December 31, 2016. These ranges reflect
low and high reasonable reserve estimates, which were selected primarily by considering the range of indications calculated
using generally accepted actuarial techniques. Such techniques assume that past experience, adjusted for the effects of current
developments and anticipated trends, are an appropriate basis for predicting future events. Although these reflect ranges of
reasonable estimates, it is possible that the final outcomes may fall above or below these amounts. The ranges do not include a
provision for potential increases or decreases associated with asbestos, environmental, and certain other continuous exposure
claims, as traditional actuarial techniques cannot be effectively applied to these exposures.

Major developments related to loss and loss expense reserve estimates and uncertainty
The Insurance Subsidiaries are multi-state, multi-line property and casualty insurance companies and, as such, are subject to
reserve uncertainty stemming from a variety of sources. These uncertainties are considered at each step in the process of
establishing loss and loss expense reserves. As market conditions change, certain developments may occur that increase or
decrease the amount of uncertainty. These developments include impacts within our own paid and reported loss and loss
expense experience, as well as other internal and external factors that have not yet manifested within our data, but may do so in
the future. All of these developments are considered when establishing loss and loss expense reserves, and in estimating the
range of reasonable reserves.

Changes in Reserve Estimates (Loss Development)
Each quarter a reserve review produces updated reserve estimates for the current and prior accident years, which in turn leads
to changes in the booked reserves, favorably, or unfavorably. In 2017, we experienced overall net favorable loss development
of $39.2 million, compared to $65.8 million in 2016, and $69.0 million in 2015. The following table summarizes prior year
development by line of business:

(Favorable)/Unfavorable Prior Year Loss and Loss Expense Development

($ in millions)

General liability

Workers compensation

Commercial automobile

Businessowners' policies

Commercial property

Personal automobile

Homeowners

E&S casualty lines

Other

Total

2017

2016

2015

(48.3)

(52.3)

35.6

1.9

8.7

6.7

0.4

10.0

(1.9)

(39.2)

(45.0)

(56.0)

25.3

1.8

0.3

1.0

1.7

6.0

(0.9)

(65.8)

(51.0)

(37.0)

2.4

2.2

(3.0)

0.4

1.5

16.0

(0.5)

(69.0)

A detailed discussion of recent reserve developments, by line of business, follows.

Standard Market General Liability Line of Business
At December 31, 2017, our general liability line of business had recorded reserves, net of reinsurance, of $1.1 billion, which
represented 36% of our total net reserves. In 2017, this line experienced favorable development of $48.3 million, attributable
to lower than expected frequencies and severities, mainly in accident years 2016 and prior.

During 2016, this line experienced favorable development of $45.0 million, attributable mainly to lower than anticipated claims
severities in accident years 2008 through 2013 and 2015.

By its nature, this line presents a diverse set of exposures, and therefore can be influenced by a variety of factors. In recent
years, the line has been favorably impacted by decreasing frequencies and relatively benign severity trends. As the economy
continues to improve it is possible that these trends will be affected. Our actuarial department actively monitors these trends
within our reserve review data, and holds frequent discussions with claims, to identify any potential shifts in these trends.

Standard Market Workers Compensation Line of Business
At December 31, 2017, our workers compensation line of business recorded reserves, net of reinsurance, of $966.5 million,
which represented 30% of our total net reserves. During 2017, this line experienced favorable development of $52.3 million
driven by accident years 2016 and prior. During 2016, this line experienced favorable development of $56.0 million driven by
accident years 2014 and prior. During 2017, this line again showed lower loss emergence than expected, due, in part, to: (i)
lower medical inflation than originally anticipated; (ii) our proactive underwriting actions in recent years; and (iii) various
significant claims initiatives that we have implemented.

While we believe these changes are significant drivers of our improved loss experience, there is always risk associated with
change. Most notably, these changes in operations may inherently change paid and reported development patterns. While our
reserve analyses incorporate methods that adjust for these changes, there nevertheless remains a greater risk in the estimated
reserves.

In addition to the uncertainties associated with actuarial assumptions and methodologies described above, the workers
compensation line of business can be impacted by a variety of issues, such as the following:

Unexpected changes in medical cost inflation - The industry is currently experiencing a period of lower claim cost
inflation. Changes in our historical workers compensation medical costs, along with uncertainty regarding future
medical inflation, creates the potential for additional variability in our reserves;

Changes in statutory workers compensation benefits - Benefit changes may be enacted that affect all outstanding
claims, regardless of having occurred in the past. Depending upon the social and political climate, these changes may
either increase or decrease associated claim costs;

Changes in utilization of the workers compensation system - These changes may be driven by economic, legislative, or
other changes. For example, this includes increased use of pharmaceuticals and more complex medical procedures.

Audit premium and endorsement premium may also introduce uncertainty into our reserves, since earned premiums are used as
a basis to set initial reserves. Over recent years, this activity has been fairly consistent. In 2017, audit and endorsement
activity resulted in additional premium of $18.2 million, and in 2016 it resulted in additional premium of $22.6 million.

Standard Market Commercial Automobile Line of Business
At December 31, 2017, our commercial automobile line of business had recorded reserves, net of reinsurance, of $475 million,
which represented 15% of our total net reserves. In 2017, this line experienced unfavorable development of $35.6 million,
which was mainly driven by increases in accident years 2012 through 2016, due to higher than expected frequency and severity.

In 2016, this line experienced unfavorable development of $25.3 million, which was mainly driven by higher severity in
accident year 2014 and higher frequency and severity in 2015.

For the industry, the commercial automobile line has experienced unfavorable trends in recent years, in both its casualty and
property coverages. We believe the increased frequencies are largely due to increased miles driven as a result of lower

unemployment and lower gasoline prices, as well as an increase in distracted driving. Rising severities may be the result of the
increasing complexity of vehicles and the technology they incorporate, which results in increased repair costs.

We are currently taking actions to improve the profitability of this line of business, including:

• Taking meaningful rate and underwriting actions on our renewal portfolio. We will continue to leverage our predictive

modeling and analytical capabilities to provide more granular insights as to where best to focus our actions.

• Aggressively managing new business pricing and hazard mix, co-underwriting selected higher hazard classes by the

field and home office, providing better recognition of risk drivers and improved pricing.

• Reducing premium leakage by improving the quality of our rating information. This includes validating application

information using third party data and obtaining more detailed driver information.

• Exploring new tools to score drivers to underwrite more effectively and align rate with exposure.

Standard Market Personal Automobile Line of Business
At December 31, 2017, our personal automobile line of business had recorded reserves, net of reinsurance, of $97 million,
which represented 3% of our total net reserves. In 2017, this line experienced unfavorable development of $6.7 million mainly
attributable to an increase in accident years 2011 through 2016. This line experienced unfavorable prior year development of
$1.0 million in 2016.

Some of the drivers affecting the commercial automobile line are also affecting this line. Increased usage and vehicle repair
costs, coupled with social trends such as distracted driving, are likely causes of increased frequencies and rising severities. We
continue to recalibrate our predictive models, as well as refine our underwriting and pricing approaches. While we believe
these changes will ultimately lead to improved profitability and greater stability, they may impact paid and reported
development patterns, thereby increasing the uncertainty in the reserves in the near-term.

E&S Casualty Lines of Business
At December 31, 2017, our E&S casualty lines of business had recorded reserves, net of reinsurance, of $306 million, which
represented 10% of our total net reserves. In 2017, this line experienced unfavorable development of $10.0 million, mostly
associated with accident years 2014 and 2015. In 2016, this line experienced unfavorable development of $6.0 million, mostly
associated with accident year 2014. Since we have limited historical loss experience in this segment, our reserve estimates are
subject to somewhat greater uncertainty than the comparable Standard Commercial and Personal Line segments. In addition,
by its nature, the composition of this book changes over time, which may impact development patterns.

While E&S results have improved over recent years, they still have not reached our target return. In order to improve
outcomes, we have taken the following actions related to E&S casualty claims:

• Over the course of late 2015 and early 2016, our E&S claims handling function was aligned with our standard
operations claims function. E&S claims were migrated from the business unit in Scottsdale, Arizona, to the
appropriate regional claims operation. Complex claims are referred to the corporate Complex Claims Unit ("CCU")
for specialized handling.

• Claims have been segregated into “litigated” versus “non-litigated.” Separate claim handling teams have been created,

with the required skill sets, to appropriately handle these two types of claims.

• We implemented the following expense improvement initiatives regarding outside adjusters and legal counsel:
Maximized use of staff counsel, increasing staff where necessary to support claims volume;
Utilized staff coverage attorney for coverage reviews;
Heightened focus on legal budgeting and expense management;
Required panel counsel firms to use our electronic legal billing and budgeting system to better manage

budgets and expenses associated with litigation; and
Implemented a panel counsel review process.

We believe that the actions above will not only lead to earlier identification of severe claims, but also earlier claims resolutions
with improved outcomes. With that said, changes in claims operations can result in changes to claims reserving and settlement
patterns. Over time, we expect these patterns to stabilize, but in the near term these operational changes increase the
uncertainty in reserve estimates.

Other impacts creating additional loss and loss expense reserve uncertainty

Claims Initiative Impacts
In addition to the line of business specific issues mentioned above, our lines of business have been impacted by a number of
initiatives undertaken by our Claims Department that have resulted in variability, or shifts, in the average level of case reserves.
Some of these initiatives have also impacted claims settlement rates. These changes affect the data upon which the ultimate
loss and loss expense projections are made. While these changes in case reserve levels and settlement rates increase the
uncertainty in the short run, we expect the longer-term benefit will be a more refined management of the claims process.

Some of the specific actions implemented over the past several years, in addition to those regarding E&S as discussed above,
are as follows:

•

Increased focus on reducing workers compensation medical costs through more favorable Preferred Provider
Organization ("PPO") contracts and greater PPO penetration.

• A more comprehensive approach for handling workers compensation claims, with an emphasis towards improving

recovery times, allowing for earlier “return-to-work.” This involves elevated and proactive case management in the
areas of medical, pharmaceutical, and physical therapy treatments.

• The continued use of our CCU, to which all significant and complex liability claims are assigned. This unit has been

staffed with personnel that have significant experience in handling and settling these types of claims.

• The strategic realignment of our CMS model to handle property claims under $5,000.
• The continued use of our Property Claims Specialists ("PCS") and our Property Large Loss Unit ("LLU"). Our PCSs

handle claims between $5,000 and $100,000, while the LLU handles claims above $100,000. Both groups form the
core of our catastrophe response team. During 2016, we began increasing the number of property claims specialists to
respond to property claims with higher severity and/or complexity. This provides us with more staff to respond to
claim volume, including the fluctuations that result from catastrophes, while ensuring we have the highest level of
property expertise available to apply to our more complex claims.

• Continued efforts in the areas of fraud investigation and salvage/subrogation recoveries. These efforts have been

supported by the introduction of predictive models that allow us to better focus our efforts.

Our internal reserve analyses incorporate certain actuarial projection methods, which make adjustments for changes in case
reserve adequacy and claims settlement rates. These methods adjust our historical loss experience to the current level of case
adequacy or settlement rate, which provides a more consistent basis for projecting future development patterns. These methods
have their own assumptions and judgments associated with them, so as with any projection method, they are not definitive in
and of themselves. Furthermore, given that the expected benefits from our claims initiatives take time to fully manifest, we do
not take full credit for the anticipated benefit in establishing our loss and loss expense reserves. These initiatives may prove
more or less beneficial than currently reflected, which will affect development in future years. Our various projection methods
provide an indication of these potential future impacts. These impacts would be greatest within our larger reserve lines of
workers compensation, general liability, and commercial automobile liability, within the more recent accident years.

Economic Inflationary Impacts
Current United States monetary policy and global economic conditions bring additional uncertainty in the long-term given the
length of time required for claim settlement and the impact of medical cost trends relating to longer-tail liability and workers
compensation claims. In addition, recent economic data points to increased U.S. and global economic growth, continued low
levels of unemployment and signs of rising wages, which compounded with the potential for the pro-growth benefits of the Tax
Cuts and Jobs Act of 2017 ("Tax Reform") and the potential for higher Federal budget deficits, has recently led to rising U.S.
interest rates and may result in a higher level of inflation in 2018 and beyond. Uncertainty regarding future inflation or
deflation creates the potential for additional volatility in our reserves for these lines of business.

Sensitivity analysis: Potential impact on reserve uncertainty due to changes in key assumptions
Our process to establish reserves includes a variety of key assumptions, including, but not limited to, the following:

• The selection of loss and loss expense development factors;
• The weight to be applied to each individual actuarial projection method;
•
• Expected claim frequencies, severities and ultimate loss and loss expense ratios for the current accident year.

Projected future loss trends; and

The importance of any single assumption depends on several considerations, such as the line of business and the accident year.
If the actual experience emerges differently than the assumptions used in the process to establish reserves, changes in our
reserve estimate are possible and may be material to the results of operations in future periods. Set forth below are sensitivity
tests that highlight potential impacts to loss and loss expense reserves under different scenarios, for the major casualty lines of
business. These tests consider each assumption and line of business individually, without any consideration of correlation
between lines of business and accident years. Therefore, the results in the tables below do not constitute an actuarial range.
While the figures represent possible impacts from variations in key assumptions as identified by management, there is no
assurance that the future emergence of our loss and loss expense experience will be consistent with either our current or
alternative sets of assumptions.

While the sources of variability discussed above are generated by different internal and external trends and operational changes,
they ultimately manifest themselves as changes in the expected loss and loss expense development patterns. These patterns are
a key assumption in the reserving process. In addition to the expected development patterns, the expected loss and loss
expense ratios are another key assumption in the reserving process. These expected ratios are developed through a rigorous
process of projecting recent accident years' experience to an ultimate settlement basis, and then adjusting it to the current
accident year's pricing and loss cost levels. Impact from changes in the underwriting portfolio and changes in claims handling
practices are also quantified and reflected, where appropriate. As is the case with all estimates, the ultimate loss and loss
expense ratios may differ from those currently estimated.

The sensitivities of loss and loss expense reserves to these key assumptions are illustrated below for the major casualty lines.
The first table shows the estimated impacts from changes in expected reported loss and loss expense development patterns. It
shows reserve impacts by line of business if the actual calendar year incurred amounts are greater or less than current
expectations by the selected percentages. While the selected percentages by line are judgmental, they are based upon the
reserve range analysis, as well as the actual historical reserve development for the line of business. The second table shows the
estimated impacts from changes to the expected loss and loss expense ratios for the current accident year. It shows reserve
impacts by line of business if the expected loss and loss expense ratios for the current accident year are greater or less than
current expectations by the selected percentages.

Reserve Impacts of Changes to Expected Loss and Loss Expense Reporting Patterns

($ in millions)

General liability

Workers compensation

Commercial automobile liability

Personal automobile liability

E&S casualty lines

Percentage
Decrease/
Increase

(Decrease) to Future
Calendar Year Reported

Increase to Future Calendar
Year Reported

(80) $

(70)

(50)

(10)

(35)

Reserve Impacts of Changes to Current Year Expected Ultimate Loss and Loss Expense Ratios

($ in millions)

General liability

Workers compensation

Commercial automobile liability

Personal automobile liability

E&S casualty lines

Percentage
Decrease/
Increase

(Decrease) to Current
Accident Year Expected Loss
and Loss Expense Ratio

Increase to Current Accident
Year Expected Loss and Loss
Expense Ratio

10 pts $

(60) $

(35)

(10)

(15)

Note that there is some overlap between the impacts in the two tables. For example, increases in the calendar year development
would ultimately impact our view of the current accident year's loss and loss expense ratios. Nevertheless, these tables provide
perspective into the sensitivity of each of these key assumptions.

Asbestos and Environmental Reserves
Our general liability, excess liability, and homeowners reserves include exposure to asbestos and environmental claims. Our
exposure to environmental liability is primarily due to: (i) landfill exposures from policies written prior to the absolute
pollution endorsement in the mid 1980s; and (ii) underground storage tank leaks mainly from New Jersey homeowners policies.
These environmental claims stem primarily from insured exposures in municipal government, small non-manufacturing
commercial risks, and homeowners policies.

The total carried net losses and loss expense reserves for these claims were $21.2 million as of December 31, 2017 and $22.7
million as of December 31, 2016. The emergence of these claims occurs over an extended period and is highly unpredictable.
For example, within our Standard Commercial Lines book, certain landfill sites are included on the National Priorities List
(“NPL”) by the United States Environmental Protection Agency (“USEPA”). Once on the NPL, the USEPA determines an
appropriate remediation plan for these sites. A landfill can remain on the NPL for many years until final approval for the
removal of the site is granted from the USEPA. The USEPA has the authority to re-open previously closed sites and return
them to the NPL. We currently have reserves for seven customers related to four sites on the NPL.

“Asbestos claims” are claims for bodily injury alleged to have occurred from exposure to asbestos-containing products. Our
primary exposure arises from insuring various distributors of asbestos-containing products, such as electrical and plumbing
materials. At December 31, 2017, asbestos claims constituted 30% of our $21.2 million net asbestos and environmental
reserves, compared to 29% of our $22.7 million net asbestos and environmental reserves at December 31, 2016.

“Environmental claims” are claims alleging bodily injury or property damage from pollution or other environmental
contaminants other than asbestos. These claims include landfills and leaking underground storage tanks. Our landfill exposure
lies largely in policies written for municipal governments, in their operation or maintenance of certain public lands. In addition
to landfill exposures, in recent years, we have experienced a relatively consistent level of reported losses in the homeowners
line of business related to claims for groundwater contamination from leaking underground heating oil storage tanks in New
Jersey. In 2007, we instituted a fuel oil system exclusion on our New Jersey homeowners policies that limits our exposure to
leaking underground storage tanks for certain customers. At that time, existing customers were offered a one-time opportunity
to buy back oil tank liability coverage. The exclusion applies to all new homeowners policies in New Jersey. These customers
are eligible for the buy-back option only if the tank meets specific eligibility criteria.

Our asbestos and environmental claims are handled in our centralized and specialized asbestos and environmental claim unit.
Case reserves for these exposures are evaluated on a claim-by-claim basis. The ability to assess potential exposure often
improves as a claim develops, including judicial determinations of coverage issues. As a result, reserves are adjusted
accordingly.

Estimating IBNR reserves for asbestos and environmental claims is difficult because of the delayed and inconsistent reporting
patterns associated with these claims. In addition, there are significant uncertainties associated with estimating critical
assumptions, such as average clean-up costs, third-party costs, potentially responsible party shares, allocation of damages,
litigation and coverage costs, and potential state and federal legislative changes. Normal historically-based actuarial
approaches cannot be applied to asbestos and environmental claims because past loss history is not indicative of future
potential loss emergence. In addition, while certain alternative models can be applied, such models can produce significantly
different results with small changes in assumptions. As a result, we do not calculate an asbestos and environmental loss range.
Historically, our asbestos and environmental claims have been significantly lower in volume, with less volatility and
uncertainty than many of our competitors in the Standard Commercial Lines industry. Prior to the introduction of the absolute
pollution exclusion endorsement in the mid-1980's, we were primarily a Standard Personal Lines carrier and therefore do not
have broad exposure to asbestos and environmental claims. Additionally, we are the primary insurance carrier on the majority
of these exposures, which provides more certainty in our reserve position compared to others in the insurance marketplace.

Pension and Post-retirement Benefit Plan Actuarial Assumptions
Our pension and post-retirement benefit obligations and related costs are calculated using actuarial methods, within the
framework of U.S. GAAP. Two key assumptions, the discount rate and the expected return on plan assets, are important
elements of expense and/or liability measurement. We evaluate these key assumptions annually. Other assumptions involve
demographic factors, such as retirement age and mortality.

The discount rate enables us to state expected future cash flows at their present value on the measurement date. The purpose of
the discount rate is to determine the interest rates inherent in the price at which pension benefits could be effectively settled.
Our discount rate selection is based on high-quality, long-term corporate bonds. A higher discount rate reduces the present
value of benefit obligations. Conversely, a lower discount rate increases the present value of benefit obligations. Our discount
rate decreased 63 basis points, to 3.78%, as of December 31, 2017 compared to 4.41% as of December 31, 2016. For
additional information regarding our discount rate selection, refer to Note 14. “Retirement Plans” in Item 8. “Financial
Statements and Supplementary Data.” of this Form 10-K.

The expected long-term rate of return on the plan assets is determined by considering the current and expected asset allocation,
as well as historical and expected returns on each plan asset class. A lower expected rate of return on pension plan assets would
increase pension expense. Our long-term expected return on plan assets increased 12 basis points, to 6.36%, as of

December 31, 2017 compared to 6.24% as of December 31, 2016, reflecting a higher allocation to equity securities in the
portfolio.

At December 31, 2017, our pension and post-retirement benefit plan obligation was $381.0 million compared to $346.0 million
at December 31, 2016. Plan assets were $363.7 million and $316.5 million at December 31, 2017 and December 31, 2016,
respectively. Volatility in the marketplace, coupled with changes in the discount rate assumption, could materially impact our
pension and post-retirement life valuation in the future. For additional information regarding our pension and post-retirement
benefit plan obligations, see Note 14. “Retirement Plans” in Item 8. “Financial Statements and Supplementary Data.” of this
Form 10-K.

Investment Valuation and OTTI
Investment Valuation
The fair value of our investment portfolio is defined under accounting guidance as the exit price or the amount that would be:
(i) received to sell an asset; or (ii) paid to transfer a liability in an orderly transaction between market participants. When
determining an exit price we must, when available, rely upon observable market data. Our available-for-sale ("AFS") portfolio
is carried at fair value and the related unrealized gains or losses are reflected in stockholders' equity, net of tax. For both our
AFS and held-to-maturity ("HTM") portfolios, fair value is a key factor in the evaluation of a security for OTTI.

We have categorized our investment portfolio, based on the priority of the inputs to the valuation technique, into a three-level
fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets
and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The fair value of approximately 99% of our investment portfolio is classified as either Level 1 or Level 2 in the fair value
hierarchy. Fair value measurements in Level 1 represent quoted prices in active markets for identical assets. Fair value
measurements in Level 2 represent prices determined using observable data from similar securities that have traded in the
marketplace, typically using matrix pricing. The fair value of our Level 2 securities are determined by external pricing
services. We have evaluated the pricing methodology used for these Level 2 prices and have determined that the inputs used
are observable. For additional information regarding the valuation techniques used, refer to item (e) of Note 2. "Summary of
Significant Accounting Policies" within Item 8. "Financial Statements and Supplementary Data." of this Annual Report.

Less than 1% of our investment portfolio is classified as Level 3 in the fair value hierarchy. Fair value measurements in Level
3 are based on unobservable market inputs because the related securities are not traded on a public market. For additional
information regarding the valuation techniques used for our Level 3 securities, refer to item (e) of Note 2. "Summary of
Significant Accounting Policies" within Item 8. "Financial Statements and Supplementary Data." of this Annual Report.

OTTI
Our investment portfolio is subject to market declines below amortized cost that may be other than temporary and therefore
may result in the recognition of OTTI losses. Factors considered in the determination of whether or not a decline is other than
temporary require significant judgment and include, but are not limited to, the financial condition of the issuer, the expected
near-term and long-term prospects of the issuer, and our evaluation of the projected cash flow stream from the security. For
additional information regarding our OTTI process and OTTI charges recorded, see item (d) of Note 2. "Summary of
Significant Accounting Policies" and item (j) of Note 5. "Investments" within Item 8. "Financial Statements and Supplementary
Data." of this Annual Report, respectively.

Reinsurance
Reinsurance recoverables on paid and unpaid loss and loss expense represent estimates of the portion of such liabilities that will
be recovered from reinsurers. Each reinsurance contract is analyzed to ensure that the transfer of risk exists to properly record
the transactions in the Financial Statements. Amounts recovered from reinsurers are recognized as assets at the same time and
in a manner consistent with the paid and unpaid losses associated with the reinsured policies. An allowance for estimated
uncollectible reinsurance is recorded based on an evaluation of balances due from reinsurers and other available information.
This allowance totaled $4.6 million at December 31, 2017 and $5.5 million at December 31, 2016. We continually monitor
developments that may impact recoverability from our reinsurers and have available to us contractually provided remedies if
necessary. For further information regarding reinsurance, see the “Reinsurance” section below and Note 8. “Reinsurance” in
Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K.

Financial Highlights of Results for Years Ended December 31, 2017, 2016, and 20151

($ in thousands, except per share amounts)

2017

Revenues

After-tax net investment income

After-tax underwriting income

Net income before federal income tax

Net income

Diluted net income per share

Diluted weighted-average outstanding shares

Combined ratio

Invested assets per dollar of stockholders' equity

After-tax yield on investments

Return on average equity ("ROE")

Non-GAAP operating income

Diluted non-GAAP operating income per share

2,469,984

118,520

100,318

261,968

168,826

2.84

59,357

93.3 %

3.32

2.1 %

10.4

184,898

3.11

2016

2,284,270

98,405

98,756

219,955

158,495

2.70

58,747

92.9

3.50

1.9

10.8

161,704

2.75

2017 vs.
2016

8 % $
20

2015

2,131,852

93,836

96,869

232,692

165,861

2.85

58,156

0.4
pts
(5) % $
pts
0.2

(0.4)

92.5 %

3.64

1.9 %

12.4

14 % $
13

157,300

2.70

2016 vs.
2015

7 %

(5)

(4)

(5)

0.4

pts

(4) %

— pts

(1.6)

3 %

Non-GAAP operating ROE
1Refer to the Glossary of Terms attached to this Form 10-K as Exhibit 99.1 for definitions of terms used in this financial review.

11.4 %

11.0

pts

0.4

11.8 %

(0.8) pts

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

Reconciliation of net income to non-GAAP operating income

($ in thousands)

Net income

Exclude: Net realized (gains) losses

Exclude: Tax on net realized gains (losses)

Exclude: Tax reform impact

Non-GAAP operating income

Reconciliation of net income per share to non-GAAP operating income per share

Diluted net income per share

Exclude: Net realized (gains) losses per share

Exclude: Tax on net realized gains (losses) per share

Exclude: Tax reform impact per share

Diluted non-GAAP operating income per share

2017

2016

2015

168,826

158,495

(6,359)

2,226

20,205

184,898

4,937

(1,728)

—

161,704

2017

2016

2015

2.84

(0.11)

0.04

0.34

3.11

2.70

0.08

(0.03)

—

2.75

Reconciliation of ROE to non-GAAP operating ROE

2017

2016

2015

Insurance operations

Investment income

Other

Net realized gains (losses)

Tax on net realized (gains) losses

Tax reform impact

ROE

Exclude: Net realized (gains) losses

Exclude: Tax on net realized gains (losses)

Exclude: Tax reform impact

Non-GAAP operating ROE

6.2%

7.3

(2.1)

0.4

(0.2)

(1.2)

10.4

(0.4)

0.2

1.2

11.4%

6.7

(2.4)

(0.3)

0.1

—

10.8

0.3

(0.1)

—

11.0

165,861

(13,171)

4,610

—

157,300

2.85

(0.23)

0.08

—

2.70

7.3

7.0

(2.5)

1.0

(0.4)

—

12.4

(1.0)

0.4

—

11.8

We delivered strong financial results in 2017 with net income of $168.8 million, up 7% from 2016, and non-GAAP operating
income of $184.9 million, up 14% from 2016. We generated a 10.4% ROE in 2017 and an 11.4% non-GAAP operating ROE,
our key measure of long term financial success, with our non-GAAP operating ROE increasing 40 basis points from 11.0% in
2016. Our strong financial results were driven by a record level of after-tax underwriting income, despite the record level of
insured global catastrophe losses in 2017 and a relatively weak overall commercial lines pricing environment, and a record
level of after-tax net investment income, despite the continued low interest rate environment. Our record level of after-tax
underwriting income reflect our efforts to: (i) drive renewal pure price increases at the account level within our Standard
Commercial and Standard Personal Lines segments as well as our E&S segment; (ii) generate new business and grow our net
premiums written; and (iii) improve the underlying profitability of our book of business through various underwriting and
claims initiatives. Our NPW growth of 6% in 2017 and 8% in 2016 was driven by our strong franchise value with our "ivy
league" distribution partners. In addition, for more than eight years our Standard Commercial Lines renewal pure price
increases have cumulatively outperformed the Willis Towers Watson Commercial Lines Pricing (or CLIPs) survey by
approximately 2,100 basis points, while maintaining high retention rates, which has helped improve underlying results.
Additionally, in 2017, we appointed 102 retail agents, which is exclusive of 26 agents that have been appointed in our new
states of Arizona and New Hampshire, as we continue to seek ways to increase our market share.

In addition to the cumulative renewal pure price increases we have achieved over the past several years, we have driven
underwriting and claims process enhancements, and we have improved our mix of business based on expected future
profitability. For example, our workers compensation book of business, which represents approximately 17% of our Standard
Commercial Lines business, continues to benefit from the steps we have taken in recent years to increase premium rates on this
line, despite the fact that pricing was flat in 2017. Additionally, this line has benefited from: (i) an improved business mix that
is shifting towards lower hazard and smaller accounts from higher hazard and larger accounts; (ii) claims initiatives, such as
reducing workers compensation medical costs through more favorable PPO contracts and greater PPO penetration; and (iii)
lower inflationary trends for this long-tail line. For a full discussion of the claims initiatives that we have deployed, refer to the
“Reserves for Loss and Loss Expenses” section within Critical Accounting Policies and Estimates in Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”

Our commercial and personal automobile lines of business have been unprofitable in recent years and remain areas of focus as
we are taking steps to improve profitability in these lines of business. In 2017, we recorded unfavorable prior year casualty
reserve development and increases to our current year loss costs for these lines. We will continue to seek to actively implement
renewal pure price increases in these lines, which have averaged 6.7% in 2017 for commercial auto and 4.1% for personal auto,
to improve the level of profitability of these lines of business, which have not met our risk adjusted return expectations in
recent years. We have also been managing our commercial auto in-force book of business in targeted industry segments and we
have been reducing exposures to higher hazard commercial auto classes to improve the underlying profitability of this business.

Our E&S segment also remains a focus area, with a combined ratio of 103.0% for 2017. We face a competitive environment in
this segment, and our pricing and underwriting initiatives aimed at improving profitability have resulted in a decline in new
business volume. Our focus in E&S is on improving profitability, rather than premium volume or growth, and we expect
continued volatility in net premiums written in this segment until the E&S segment meets our risk adjusted return expectations.

After-tax net investment income grew 20% in 2017 and 5% in 2016. The improvements in 2017 and 2016 were driven by a
higher fixed income book yield and improved returns on our alternative investments. We have continued to diversify and
modestly increase our exposure to risk assets and move towards a long-term target allocation of approximately 10% of total
invested assets. Risk assets, which principally include public equities, high-yield fixed income securities, and private assets,
represented 8% of our total invested assets at December 31, 2017.

We generated a non-GAAP operating ROE of 11.4% in 2017, which is in line with our long-term goal of generating a non-
GAAP operating ROE that is 300 basis points in excess of our weighted average cost of capital. Our long-term financial target
for 2017 was 11.5%, based on an estimated weighted average cost of capital of 8.5%. Our non-GAAP operating ROE was
11.0% for 2016, compared to our target of 11.7%, which was based on our weighted average cost of capital of 8.7%.
Underwriting profitability, coupled with the performance of our investment portfolio, contributed to this achievement.

Insurance Operations
The key metric in understanding our insurance operations’ contribution to ROE is the GAAP combined ratio. The following
table provides a quantitative foundation for analyzing this ratio:

All Lines

($ in thousands)
Insurance Operations Results:

Net premiums written ("NPW")

Net premiums earned ("NPE")
Less:

Loss and loss expense incurred

Net underwriting expenses incurred

Dividends to policyholders

Underwriting income
Combined Ratios:

Loss and loss expense ratio

Underwriting expense ratio

Dividends to policyholders ratio

Combined ratio

2017

2016

2017
vs. 2016

2015

2016
vs. 2015

2,370,641

2,291,027

1,345,074

786,983

4,634

154,336

58.7 %

34.4

0.2

93.3

2,237,288

2,149,572

1,234,797

759,194

3,648

151,933

57.4

35.3

0.2

92.9

6 % $
7

2,069,904

1,989,909

27
2 % $

1,148,541

686,120

6,219

149,029

8 %

(41)

2 %

1.3 pts

57.7 %

(0.3) pts

(0.9)

—

0.4

34.5

0.3

92.5

0.8

(0.1)

0.4

Increases in our combined ratio were driven by: (i) lower levels of net favorable prior year casualty loss development; (ii) a
slightly higher level of catastrophe losses; and (iii) a slightly higher level of non-catastrophe property losses. These items were
offset in part in 2017 by a lower underwriting expense ratio. The details of these items are provided below:

• Net favorable prior year casualty reserve development:

(Favorable)/Unfavorable Prior Year Casualty Reserve Development

($ in millions)

General liability

Commercial automobile

Workers compensation

Businessowners' policies

Other

Total Standard Commercial Lines

Homeowners

Personal automobile

Total Standard Personal Lines

E&S casualty lines

2017

2016

2015

(48.3)

36.0

(52.3)

—

(2.0)

(66.6)

1.0

7.0

8.0

10.0

(45.0)

25.0

(56.0)

0.5

(2.0)

(77.5)

1.5

1.0

2.5

6.0

(51.0)

3.0

(37.0)

4.0

—

(81.0)

(2.0)

—

(2.0)

16.0

Total favorable prior year casualty reserve development

(48.6)

(69.0)

(67.0)

(Favorable) impact on loss ratio

(2.1) pts

(3.2)

(3.4)

For a qualitative discussion of this reserve development, please see the related insurance segment discussions below.

• Catastrophe losses:

Catastrophe Losses

($ in millions)

For the Year ended December 31,

Loss and Loss
Expense Incurred

Impact on Loss and Loss
Expense Ratio

(Favorable)/
Unfavorable Year-
Over-Year Change

2017

2016

2015

67.3

59.7

59.1

2.9 pts

2.8

3.0

0.1

(0.2)

• Non-catastrophe property losses:

Non-Catastrophe Property Losses

($ in millions)

For the Year ended December 31,

2017

2016

2015

Loss and Loss
Expense Incurred

Impact on Loss and Loss
Expense Ratio

(Favorable)/
Unfavorable Year-Over-
Year Change

303.7

279.2

265.4

13.3 pts

13.0

13.3

0.3

(0.3)

(2.2)

The deterioration in the loss and loss expense ratio in 2017 was partially offset by improvement in the underwriting expense
ratio of 0.9 points in 2017. This improvement was driven by:

• A 0.5-point decrease in commissions to our distribution partners in 2017 due to lower supplemental commission
expense, as well as lower base commissions that were driven by targeted actions we took in late 2016 on our
homeowners book of business;

• A 0.4-point decrease in labor expenses as a percentage of premium in 2017, as we recognized productivity gains from

the growth of our business; and

• A 0.3-point decrease in pension expense in 2017 reflecting expected returns on pension plan assets that have outpaced
expenses in the current year periods. For additional information on our pension plan, refer to Note 14. "Retirement
Plans" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

•

Partially offsetting these improvements was an increase of 0.3 points of other expense items.

The 0.8-point increase in the 2016 underwriting expense ratio compared to 2015 was driven by 0.7 points of higher
supplemental commissions to our distribution partners as a result of improved underwriting profitability, as well as increased
compensation paid to our employees, partially offset by reduced pension costs driven in part by the curtailment of our pension
plan in the first quarter of 2016.

Investments Segment
The ROE contribution from investment income has increased in 2017 compared to 2016 reflecting higher yields on our core
fixed income portfolio, coupled with a higher asset base driven by cash flows from operations that were 16% of NPW for the
year. In addition, our alternative investment portfolio generated $8.3 million in after-tax income in 2017 compared to $2.0
million in 2016.

Net realized gains/losses, which is another component of our investment segments' results, experienced volatility in its
contribution to ROE in 2015 through 2017. For qualitative information regarding these fluctuations, which include OTTI
charges and investment sales that are largely discretionary as to timing, refer to Note 5. "Investments" in Item 8. "Financial
Statements and Supplementary Data." of this Form 10-K.

Other
The reduction to ROE from "other" in the "Reconciliation of ROE to non-GAAP operating ROE" table above is primarily
related to share-based compensation expense at the holding company level. This component of ROE improved marginally in
2017, reflecting a 0.3-point benefit from a change in accounting treatment that requires certain share-based compensation tax
benefits to be recorded through income beginning in 2017, coupled with a change in our share-based compensation agreements
that began with our 2017 awards. We restructured our newly-issued stock compensation awards to be more aligned with grant
date fair value expense treatment and lowered the allocation to awards that require fair value adjustments subsequent to grant
date. However, the 36% increase in our stock price during 2017 has resulted in fair value adjustments to our outstanding
awards that have increased our share-based compensation expense and offset the savings associated with the structural changes.

Outlook
We continue to execute successfully on several important objectives that have set the table for our performance in 2018,
including: (i) achieving Standard Commercial Lines renewal pure price increases of 2.9% for full-year 2017 and 2.8% in
January 2018; (ii) improving renewal underwriting quality while maintaining strong and stable retention; (iii) targeting
underwriting actions in our E&S Lines to improve profitability in this segment; and (iv) achieving strong investment results
with after-tax new money rates of 2.1% and strong operating cash flow that was 16% of NPW in 2017. All of these
achievements will help drive our future financial performance in 2018 and beyond.

Despite our strong financial performance in 2017 and expectations for 2018, the U.S. property and casualty insurance industry
continues to be characterized by an abundance of capital, intense competition and low overall premium growth. According to
A.M. Best's "US Property/Casualty: 2018 Review & Preview," for 2018, rate increases are expected to remain in the low single
digits for most lines of business. A.M. Best is estimating an overall statutory combined ratio for the industry for 2018 of
100.0% and an estimated after-tax return on surplus of 5.8%. In addition, A.M. Best estimates that property and casualty loss
and loss adjustment expense reserve adequacy peaked several years ago and reserve adequacy has been declining since.

Our long-term growth plans include: (i) increasing the Standard Commercial Lines market share held by our "ivy league"
distribution partners to at least 25%; (ii) increasing our share of the business within these distribution partners, which we refer
to as our "share of wallet," to 12%; and (iii) geographic expansion. To date, we write Standard Commercial Lines business in
25 states and the District of Columbia, which at a 3% market share, would create a corporate Standard Commercial Lines
profile in excess of $4 billion of net premiums written.

Effective July 1, 2017, we opened Arizona and New Hampshire for Standard Commercial Lines business. We have appointed a
total of 26 agents in these states, with appointments in each state controlling in excess of 20% of that state's available Standard
Commercial Lines premium. During 2017, we generated $9.1 million of premium volume in these new markets. On January
1, 2018 we opened Standard Commercial Lines business in Colorado, and we expect to open New Mexico and Utah by the end
of 2018. We also expect to open Arizona and Utah for Standard Personal Lines business in the future.

Investing in the development and implementation of leading technologies to enhance our underwriting is integral to our overall
strategy. The ability to segment our business on a granular basis allows us to present the right price for a given risk. In 2017,
we deployed a new underwriting tool that provides real-time insights into how each piece of new business compares with
similar accounts already in our portfolio. We believe this tool positions us better to grow the business regardless of overall
market dynamics. It also demonstrates our commitment to developing and implementing a best-in-class technology platform
that enhances our decision making capabilities.

As an organization, we are making significant investments that are focused on enhancing the overall customer experience in an
omni-channel environment. To that end, we have recently deployed a new customer experience desktop to our contact center
employees and we are also working closely with our distribution partners to ensure we present our customers with a seamless
experience. We recognize that our customers' expectations on how they engage with us are rapidly evolving and we continue to
strive towards providing best-in-class customer service in a 24-hour, 365-day environment. Our goals in this area are centered
around leveraging technology to improve customer retention rates, which should, over time, enhance the quality of our
business.

Our investment portfolio generated after-tax net investment income of $119 million in 2017, which was a 20% increase over
2016. We have generated strong investment returns despite low interest rates, while maintaining a similar level of credit quality
and duration risk on the portfolio. Risk assets, which principally include high-yield fixed income securities, equities, and our
alternative investment portfolio, are up modestly to 8% from 7% last year end. We have been gradually diversifying our
portfolio, and will likely continue to modestly increase our risk asset allocation over time up to approximately 10% of our
invested assets, depending on market conditions.

Our 2018 results will be favorably impacted by Tax Reform, which we expect to lower our effective tax rate by 10 percentage
points, to approximately 18% going forward, including 17% from net investment income and approximately 21% for all other
items. This effective rate will fluctuate depending on the investment portfolio's allocation to tax-advantaged municipal
securities, which will continue to be taxed at 5.25%. We expect this benefit to assist us in achieving our long-term goal of
generating non-GAAP operating ROE that is approximately 300 basis points in excess of our weighted average cost of capital
over time.

Our achievements in 2017, coupled with the impact of Tax Reform, will help drive our future financial performance in 2018
and beyond.

In January 2018, we experienced an estimated $63 million of insured property losses which were approximately $30 million in
excess of our property loss expectations for the month of January. Refer to Note 21. "Subsequent Events" in Item 8. "Financial
Statements and Supplementary Data." of this Form 10-K for additional information.

For 2018, we expect to generate the following results:

• A GAAP combined ratio, excluding catastrophe losses, of approximately 91.0%. This assumes no prior year casualty

reserve development;

• Catastrophe losses of 3.5 points;
• After-tax net investment income of $144 million, which includes $10 million of after-tax net investment income from

our alternative investments;

• An overall effective tax rate of approximately 18%, which includes an effective tax rate of 17% for net investment

income, inclusive of tax-advantaged municipal securities' tax rate of 5.25%, and approximately 21% for all other
items; and

• Weighted average shares outstanding of 59.6 million.

Our weighted average cost of capital has increased from 8.5% in 2017 to 9.0% in 2018, driven principally by a higher
estimated cost of equity, and as such our long-term financial target of generating a non-GAAP operating ROE of 300 basis
points above our weighted average cost of capital, has increased our financial target to 12.0% for 2018.

Results of Operations and Related Information by Segment

Standard Commercial Lines Segment

($ in thousands)

Insurance Segments Results:

NPW

NPE

Less:

Loss and loss expense incurred

Net underwriting expenses incurred

Dividends to policyholders

Underwriting income

Combined Ratios:

Loss and loss expense ratio

Underwriting expense ratio

Dividends to policyholders ratio

Combined ratio

2017

2016

2017
vs. 2016

2015

2016
vs. 2015

1,858,735

1,788,499

1,008,150

626,201

4,634

149,514

56.3 %

35.0

0.3

91.6

1,745,782

1,665,483

913,506

601,894

3,648

146,435

54.8

36.2

0.2

91.2

6 % $

1,596,965

1,529,442

819,573

539,154

6,219

(41)

2 % $

164,496

(11) %

1.5 pts

53.6 %

(1.2)

0.1

0.4

35.2

0.4

89.2

pts

1.2

1.0

(0.2)

2.0

For the past three years, growth in this segment of our business has reflected: (i) renewal pure price increases; (ii) new business
growth; and (iii) stable retention. Quantitative information on these drivers is as follows:

($ in millions)

Retention

Renewal pure price increases on NPW

Direct new business

For the Year Ended December 31,

2017

2016

2015

83 %

2.9

368.2

2.6

357.6

3.0

339.6

Increases in the loss and loss expense ratio over the three-year period were driven by lower favorable prior year casualty
reserve development coupled with higher property losses, as displayed in the tables below. For quantitative information on the
prior year development by line of business, see "Financial Highlights of Results for Years Ended December 2017, 2016, and
2015" above and for qualitative information about the significant drivers of this development, see the line of business
discussions below.

($ in millions)

For the year ended December 31,

2017

2016

2015

(Favorable) Prior Year Casualty Reserve
Development

Losses and Loss
Expense Incurred

Impact on Losses and
Loss Expense Ratio

Unfavorable/
(Favorable)
Year-Over-Year
Change

(66.6)

(77.5)

(81.0)

(3.7) pts

(4.7)

(5.3)

1.0

0.6

(2.1)

($ in millions)

Non-Catastrophe Property Losses

Catastrophe Losses

For the year ended
December 31,

Losses and Loss
Expense
Incurred

Impact on
Losses and Loss
Expense Ratio

Losses and Loss
Expense
Incurred

Impact on
Losses and Loss
Expense Ratio

Total Impact on
Losses and Loss
Expense Ratio

Unfavorable/
(Favorable)
Year-Over-Year
Change

2017

2016

2015

204.9

182.4

154.7

11.5 pts $

11.0

10.1

40.0

35.0

34.1

2.2 pts

2.1

2.2

13.7

13.1

12.3

0.6

0.8

(3.1)

The increase in the loss and loss expense ratio in 2017 was partially offset by a 1.2-point decrease in the underwriting expense
ratio in 2017 compared to 2016. The expense improvement drivers in this segment of our business are similar to those driving
our overall insurance results as described in the financial highlights section above and include:

• A 0.3-point decrease in supplemental commissions to our distribution partners;

• A 0.4-point decrease in labor expenses reflecting productivity gains from the growth of our business, including our

geographic expansion efforts; and

• A 0.3-point decrease in pension expense due to the extension of the amortization period over which we are

recognizing the net actuarial loss on our pension plan.

There was an increase of 1.0 point in the underwriting expense ratio in 2016 compared to 2015. This increase was primarily
attributable to higher supplemental commission expense to our distribution partners of 0.9 points.

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

General Liability

($ in thousands)

NPW

Direct new business

Retention

Renewal pure price increases

NPE

Underwriting income

Combined ratio

% of total standard commercial NPW

2017

594,816

110,069

83 %

2.6

569,217
98,229

82.7

2016

2017
vs. 2016

553,579

105,961

1.8

527,859

79,120

85.0

7 % $
4

— pts

0.8

8 % $
24

(2.3)

2015

505,891

99,938

83 %

2.7

483,291

86,015

82.2

2016
vs. 2015

9 %

— pts

(0.9)

9 %

(8)

2.8

Growth in 2017 and 2016 premium was primarily due to direct new business as outlined in the table above, coupled with strong
retention and renewal pure price increases.

The combined ratio decreased in 2017 by 2.3 points driven by: (i) a decrease in supplemental commission to our distribution
partners of 0.4 points; (ii) a decrease in pension expense of 0.3 points; and (iii) a decrease in current year loss costs of
approximately 0.4 points. Favorable prior year development was consistent with 2016 at 8.5 points.

The combined ratio increased in 2016 compared to 2015 by 2.8 points driven by a reduction in favorable prior year
development. The impact of the prior year casualty reserve development on this line was as follows:

•

2017: favorable prior year development of 8.5 points attributable to decreases in accident years 2016 and prior, driven
by lower than expected frequencies and severities.

2016: favorable prior year development of 8.5 points attributable to accident years 2008 through 2013 and 2015. This
was primarily driven by lower than anticipated claims severities.

2015: favorable prior year development of 10.6 points attributable to accident years 2013 and prior. This was
primarily driven by severities that continued to develop lower than expected, within both the premises and operations
and products liability coverages. In addition, the reduction in frequencies exhibited in recent accident years continued
into accident year 2015.

Commercial Automobile

($ in thousands)

NPW

Direct new business

Retention

Renewal pure price increases

NPE

Underwriting loss

Combined ratio

% of total standard commercial NPW

2017

2016

2017
vs. 2016

465,621

78,869

84 %

6.7

442,818

(65,267)

114.7

422,013

77,255

4.9

398,942

(43,163)

110.8

10 % $

— pts

1.8

2015

376,064

70,556

83 %

3.8

11 % $

358,909

(51)

3.9

(7,794)

102.2

2016
vs. 2015

12 %

1 pts

1.1

11 %

(454)

8.6

For the past three years, growth in this line of business has reflected: (i) renewal pure price increases; (ii) new business growth;
and (iii) stable retention.

The 3.9-point increase in the combined ratio in 2017 compared to 2016 was primarily driven by a 5.4-point increase in the loss
and loss expense ratio, which was attributable to the following: (i) an increase in the current year loss reserve estimate of 4.6
points reflecting higher casualty claim frequency; and (ii) unfavorable prior year casualty reserve development that increased
the combined ratio by 1.8 points compared to last year. The increase in the loss and loss expense ratio was partially offset by a
1.3-point decrease in the underwriting expense ratio.

The 8.6-point increase in the combined ratio in 2016 compared to 2015 was driven by: (i) unfavorable prior year casualty
reserve development that increased the combined ratio by 5.5 points compared to 2015; (ii) an increase in the current year loss
reserve estimate of 2.1 points reflecting higher casualty claim frequency; and (iii) higher property losses of 1.0 point.

Prior year casualty reserve development was as follows:

•

2017: Unfavorable development of 8.1 points, which was driven primarily by increases in accident years 2012
through 2016, due to higher than expected frequency and severity.

2016: Unfavorable development of 6.3 points, which was driven primarily by bodily injury liability for accident years
2014 and 2015. The unfavorable development in accident year 2014 was driven by higher than expected severity,
whereas accident year 2015 was driven by higher than expected frequency and severity.

2015: Unfavorable development of 0.8 points, which was driven by bodily injury liability for accident years 2013 and
2014. This was partially offset by favorable development in accident years 2010 and 2011. The unfavorable
development in accident years 2013 and 2014 was driven by severities that were greater than expected.

Workers Compensation

($ in thousands)

NPW

Direct new business

Retention

Renewal pure price increases

NPE

Underwriting income

Combined ratio

% of total standard commercial NPW

2017

2016

2017
vs. 2016

323,263

66,616

84 %

—

317,982

61,693

80.6

319,807

67,102

1.2

308,233

56,118

81.8

1 % $

(1)

— pts

(1.2)

3 % $

(1.2)

2016
vs. 2015

7 %

(3)

1 pts

(1.4)

6 %

(6.7)

2015

299,686

68,971

83 %

2.6

290,075

33,399

88.5

NPW increases in the last three years were due to strong retention and new business. The NPW increases in 2016 compared to
2015 were also driven by renewal pure price increases.

The improvement in the combined ratio was attributable to the loss and loss expense ratio, which decreased 0.9 points in 2017
driven by lower current year loss costs, which was partially offset by lower favorable prior year development. Additionally, the
expense ratio improved by 1.2-points, consistent with the improvement in overall Standard Commercial Lines discussed above.

The 2016 combined ratio decrease compared to 2015 was due primarily to a favorable prior year casualty development, which
for all years is outlined in the table below.

($ in millions)

For the year ended December 31,

2017

2016

2015

(Favorable) Prior Year Casualty Reserve
Development

Losses and Loss
Expense Incurred

Impact on Losses and
Loss Expense Ratio

Unfavorable/
(Favorable)
Year-Over-Year
Change

(52.3)

(56.0)

(37.0)

(16.4) pts

(18.2)

(12.8)

1.8

(5.4)

12.8

The favorable development in this line is due, in part, to lower medical inflation than originally anticipated, as well as the
various claims initiatives that we have implemented.

Commercial Property

($ in thousands)
NPW
Direct new business
Retention
Renewal pure price increases
NPE
Underwriting income
Combined ratio
% of total standard commercial NPW

2017

322,343
73,951

82 %
1.7
311,932
31,976
89.7
17

2016

2017
vs. 2016

2015

2016
vs. 2015

308,140
74,901
82
2.4
293,438
42,270
85.6
18

5 % $
(1)
— pts

(0.7)

6 % $

(24)
4.1

282,731
72,118

82 %
2.8
269,022
47,674
82.3
18

9 %
4
— pts

(0.4)

9 %

(11)
3.3

Our commercial property business has experienced profitable results during the three-year period in the table above despite a
competitive pricing environment. Although the table below reflects higher severities for our property losses, our results have
benefited from generally benign catastrophe loss activity in our geographic footprint. We believe pricing will strengthen as a
result of the level of industry-wide catastrophic events.

Quantitative information regarding property losses is as follows:

($ in millions)

For the year ended
December 31,

Non-Catastrophe Property Losses
Losses and Loss
Expense
Incurred

Impact on
Losses and Loss
Expense Ratio

Catastrophe Losses

Losses and Loss
Expense
Incurred

Impact on
Losses and Loss
Expense Ratio

2017
2016
2015

109.5
95.9
78.4

35.1 pts $
32.7
29.1

34.2
23.7
25.8

11.0 pts
8.1
9.6

Total Impact on
Losses and Loss
Expense Ratio
46.1
40.8
38.7

Unfavorable/
(Favorable)
Year-Over-Year
Change

5.3
2.1
(16.3)

Standard Personal Lines Segment

($ in thousands)

Insurance Segments Results:

NPW

NPE

Less:

Loss and loss expense incurred

Net underwriting expenses incurred

Underwriting income

Combined Ratios:

Loss and loss expense ratio

Underwriting expense ratio

Combined ratio

2017

2016

2017
vs. 2016

2015

2016
vs. 2015

296,775

289,701

189,294

89,303

11,104

65.4 %

30.8

96.2

281,822

280,607

177,749

90,439

12,419

63.3

32.3

95.6

5 % $

(1)

(11) % $

2.1 pts

(1.5)

0.6

283,926

288,134

200,237

86,561

1,336

(1) %

(3)

(11)

830 %

69.5 %

(6.2) pts

30.0

99.5

2.3

(3.9)

NPW in this segment increased 5% in 2017 compared to 2016 as shown in the table above. As illustrated in the table below, the
increase in 2017 was primarily due to increases in new business and improving retention. In 2016, NPW decreased compared to
2015 reflecting the highly competitive market.

($ in millions)

Retention

Renewal pure price increases on NPW

Direct new business premiums

2017

2016

2015

84 %

3.0

50.9

4.8

39.7

5.8

32.9

The loss and loss expense ratio increased 2.1 points in 2017 compared to 2016, primarily driven by unfavorable prior year
casualty reserve development. Despite the unfavorable prior year casualty reserve development in 2016 as compared to 2015,
the overall combined ratio improved almost 4 points primarily as a result of improved property results. The details of the prior
year casualty reserve development, catastrophe losses and non-catastrophe property losses for all of the years presented were as
follows:

($ in millions)

Non-Catastrophe Property Losses

Catastrophe Losses

For the year ended
December 31,

Losses and Loss
Expense
Incurred

Impact on
Losses and Loss
Expense Ratio

Losses and Loss
Expense
Incurred

Impact on
Losses and Loss
Expense Ratio

Total Impact on
Losses and Loss
Expense Ratio

(Favorable)/
Unfavorable
Year-Over-Year
Change

2017

2016

2015

76.2

71.2

87.2

26.3 pts $

25.4

30.3

16.1

18.2

21.7

5.6 pts

6.5

7.5

31.9

37.8

—

(5.9)

0.9

($ in millions)

For the year ended December 31,

2017

2016

2015

(Favorable)/Unfavorable Prior Year Casualty
Reserve Development

Losses and Loss
Expense Incurred

Impact on Losses and
Loss Expense Ratio

Unfavorable
Year-Over-Year
Change

8.0

2.5

(2.0)

pts

2.8

0.9

(0.7)

1.9

1.6

2.2

The prior year development in both 2017 and 2016 primarily related to our personal automobile book of business.

The underwriting expense ratio decreased in 2017 compared to 2016 reflecting: (i) targeted actions taken on our homeowners
book of business that drove a 0.7-point decrease in direct commissions for this segment; (ii) a decrease in supplemental
commissions to our distribution partners of 0.2 points; and (iii) a reduction in pension expense of 0.3 points.

The increase in the underwriting expense ratio in 2016 compared to 2015 was primarily driven by increased costs related to: (i)
capital improvements of 0.8 points; (ii) underwriting expenses from third-party data vendors of 0.4 points; and (iii)
supplemental commission expense to our distribution partners of 0.3 points.

E&S Lines Segment

($ in thousands)

2017

2016

Insurance Segments Results:

NPW

NPE

Less:

Loss and loss expense incurred

Net underwriting expenses incurred

Underwriting loss

Combined Ratios:

Loss and loss expense ratio

Underwriting expense ratio

Combined ratio

215,131

212,827

147,630

71,479

(6,282)

69.4 %

33.6

103.0

209,684

203,482

143,542

66,861

(6,921)

70.5

32.9

103.4

2017
vs. 2016

2015

2016
vs. 2015

3 % $

9 % $

189,013

172,333

128,731

60,405

(16,803)

(1.1) pts

0.7

(0.4)

74.7 %

35.1

109.8

11 %

59 %

(4.2) pts

(2.2)

(6.4)

We continue to focus on profitability drivers in our E&S operations and have been actively managing price increases during the
past two years. While the NPW growth rate has declined as a consequence of these actions, our primary focus is on bringing
this segment to targeted levels of profitability. Quantitative information is as follows:

($ in millions)

Overall new/renewal price increases

Direct new business premiums

2017

2016

2015

5.0 %

90.5

4.9

100.0

2.9

99.6

The loss and loss expense ratio improvement in 2017 compared to 2016 is primarily attributable to a decrease in current year
loss costs reflecting our underwriting and claims improvement initiatives, including generating earned rate that is sufficient to
outpace loss costs. The 2016 improvement compared to 2015 was primarily due to lower unfavorable prior year casualty
reserve development.

Quantitative information pertaining to our property losses and prior year development are as follows:

($ in millions)

Non-Catastrophe Property Losses

Catastrophe Losses

For the year ended
December 31,

Losses and Loss
Expense
Incurred

Impact on
Losses and Loss
Expense Ratio

Losses and Loss
Expense
Incurred

Impact on
Losses and Loss
Expense Ratio

Total Impact on
Losses and Loss
Expense Ratio

Unfavorable
Year-Over-Year
Change

2017

2016

2015

22.6

25.6

23.6

10.6 pts $

12.6

13.7

11.2

6.5

3.2

5.3 pts

3.2

1.9

15.9

15.8

15.6

($ in millions)

For the year ended December 31,

2017

2016

2015

Unfavorable Prior Year Casualty Reserve
Development

Losses and Loss
Expense Incurred

Impact on Losses and
Loss Expense Ratio

Unfavorable/
(Favorable)
Year-Over-Year
Change

10.0

6.0

16.0

pts

4.7

2.9

9.3

0.1

0.2

1.5

1.8

(6.4)

5.2

Unfavorable prior year casualty reserve development for 2017 was $10 million, driven by increases in claims severities in
accident years 2014 and 2015. Unfavorable prior year casualty reserve development for 2016 was $6 million, driven by
increases in claims severity in accident year 2014.

The underwriting expense ratio improvement in 2017 compared to 2016 was primarily due to a 0.8-point increase in the
allocation of corporate services to this segment in 2017. The improvement in the underwriting expense ratio in 2016 compared
to 2015 was primarily driven by a 1.6-point reduction year over year from the annual cash incentive plan payment for
employees in this segment based on 2015 underwriting results.

Reinsurance
We use reinsurance to protect our capital resources and insure us against losses on property and casualty risks that we
underwrite. We use two main reinsurance vehicles: (i) a reinsurance pooling agreement among our Insurance Subsidiaries
through which each company agrees to share in premiums and losses based on certain specified percentages; and (ii)
reinsurance contracts and arrangements with third parties that cover various policies that we issue to our customers.

Reinsurance Pooling Agreement
The primary purposes of the reinsurance pooling agreement among our Insurance Subsidiaries are the following:

•

Pool or share proportionately the underwriting profit and loss results of property and casualty insurance
underwriting operations through reinsurance;

•

Prevent any of our Insurance Subsidiaries from suffering undue loss;

• Reduce administration expenses; and

•

Permit all of the Insurance Subsidiaries to obtain a uniform rating from A.M. Best.

The following illustrates the pooling percentages by Insurance Subsidiary as of December 31, 2017:

Insurance Subsidiary

Selective Insurance Company of America ("SICA")

Selective Way Insurance Company ("SWIC")

Selective Insurance Company of South Carolina ("SICSC")

Selective Insurance Company of the Southeast ("SICSE")

Selective Insurance Company of New York ("SICNY")

Selective Casualty Insurance Company ("SCIC")

Selective Auto Insurance Company of New Jersey ("SAICNJ")

Mesa Underwriters Specialty Insurance Company ("MUSIC")

Selective Insurance Company of New England ("SICNE")

Selective Fire and Casualty Insurance Company ("SFCIC")

Pooling Percentage

32.0%

21.0%

9.0%

7.0%

6.0%

5.0%

3.0%

Reinsurance Treaties and Arrangements
By entering into reinsurance treaties and arrangements, we are able to increase our underwriting capacity and accept larger
individual risks and a larger aggregation of risks without directly increasing our capital or surplus. Our reinsurance program
principally consists of traditional reinsurance. Under our reinsurance treaties, the reinsurer generally assumes a portion of the
losses we cede to them in exchange for a portion of the premium. Amounts not reinsured below an attachment point are known
as retention. Reinsurance does not legally discharge us from liability under the terms and limits of our policies, but it does
make our reinsurer liable to us for the amount of liability we cede to them. In addition, our reinsurers often rely on their own
reinsurance programs, or retrocession, as part of managing their exposure to large losses. Given the relatively small size of the
global reinsurance community, the inability of our reinsurers to collect on their retrocession program may impair their ability to
pay us for the amounts we cede to them. Accordingly, we have direct and indirect counterparty credit risk from our reinsurers.
We attempt to mitigate this credit risk by: (i) pursuing relationships with reinsurers rated “A-” or higher by A.M. Best; and/or
(ii) obtaining collateral to secure reinsurance obligations. Some of our reinsurance contracts include provisions that permit us
to terminate or commute the reinsurance treaty if the reinsurer's financial condition or rating deteriorates or otherwise require
our reinsurers to post collateral. We monitor the financial condition of our reinsurers and we review the quality of reinsurance
recoverables and reserves for uncollectible reinsurance. For additional information regarding our counterparty credit risk with
our reinsurers, see Note 8. "Reinsurance" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

We have reinsurance contracts that separately cover our property and casualty insurance business. Available reinsurance can be
segregated into the following key categories:

• Property Reinsurance - includes our property excess of loss treaties purchased for protection against large

individual property losses and our property catastrophe treaties purchased to provide protection for the overall
property portfolio against severe catastrophic events. Facultative reinsurance is used for property risks that are in
excess of our treaty capacity.

• Casualty Reinsurance - purchased to provide protection for both individual large casualty losses and catastrophic
casualty losses involving multiple claimants or customers. Facultative reinsurance is also used for casualty risks
that are in excess of our treaty capacity.

•

Terrorism Reinsurance - in addition to protection built into our property and casualty reinsurance treaties, terrorism
protection is available as a federal backstop related to terrorism losses as provided under the Terrorism Risk
Insurance Program Reauthorization Act (“TRIPRA”). For further information regarding this legislation, see Item
1A. “Risk Factors.” of this Form 10-K.

• Flood Reinsurance - as a servicing carrier in the WYO Program, we receive a fee for writing flood business, for

which the related premiums and losses are 100% ceded to the federal government.

In addition to the above categories, we have entered into several reinsurance agreements with Montpelier Re Insurance Ltd.,
now part of SOMPO Holdings, Inc., as part of the acquisition of MUSIC in December 2011. Together, these agreements
provide protection for losses on policies written prior to the acquisition and any development on reserves established by
MUSIC as of the date of acquisition. The reinsurance recoverables under these treaties are collateralized.

Property Reinsurance
The property catastrophe treaty, which covers both our standard market and E&S business, was renewed effective January
2018. An additional $50 million layer was placed at the top of the program, bringing the total program's coverage to $735
million in excess of $40 million. The annual aggregate limit net of our co-participation is approximately $1.1 billion for 2018.
We also renewed the separate catastrophe treaty of $35 million in excess of $5 million that covers events outside of our
historical standard lines footprint, in support of our growing E&S property book and geographic expansion into Arizona, New
Hampshire, and Colorado. Overall catastrophe ceded premium for 2018 increased due to some hardening of the reinsurance
market and the purchase of the additional $50 million layer. On a risk-adjusted basis, the expiring layers saw a very modest
increase in price.

As our need for catastrophe reinsurance increases, we seek ways to minimize credit risk inherent in a reinsurance transaction by
dealing with highly-rated reinsurance partners and purchasing collateralized reinsurance products, particularly for high severity,
low-probability events. The current reinsurance program includes $224 million in collateralized limit, primarily in the top
layers of the catastrophe program.

We continue to assess our property catastrophe exposure aggregations, modeled results, and effects of growth on our property
portfolio, and strive to manage our exposure to individual large events balanced against the cost of reinsurance protections.

Although we model various catastrophic perils, due to our geographic spread, the risk of hurricane continues to be the most
significant natural catastrophe peril to which our portfolio is exposed. Below is a summary of the largest five actual hurricane
losses that we experienced in the past 25 years:

($ in millions)

Hurricane Name
Superstorm Sandy

Hurricane Irene

Hurricane Hugo

Hurricane Isabel

Hurricane Floyd

Actual Gross Loss
125.5 1

44.9

26.4

25.1

14.5

Net Loss2

45.6

40.2

3.0

15.7

14.5

Accident
Year

2012

2011

1989

2003

1999

1 This amount represents reported and unreported gross losses estimated as of December 31, 2017.
2 Net loss does not include reinstatement premiums, taxes, or flood claims handling fees.

We use the results of the Risk Management Solutions and AIR Worldwide models in our review of exposure to hurricane risk.
Each of these third party vendors provide two views of the modeled results as follows: (i) a long-term view that closely relates
modeled event frequency to historical hurricane activity; and (ii) a medium-term view that adjusts historical frequencies to
reflect expectations of hurricane activity in the near future. We believe that modeled estimates provide a range of potential
outcomes and we review multiple estimates for purposes of understanding our catastrophic risk. The following table provides
modeled hurricane results based on a blended view of the four models for the Insurance Subsidiaries' combined property book
as of July 2017:

Occurrence Exceedence Probability

Four-Model Blend

($ in thousands)

4.0% (1 in 25 year event)
2.0% (1 in 50 year event)
1.0% (1 in 100 year event)
0.67% (1 in 150 year event)
0.5% (1 in 200 year event)
0.4% (1 in 250 year event)
0.2% (1 in 500 year event)
1 Include assumptions for certain un-modeled costs, such as the impact of loss expenses, residual market assessments, and automobile-related losses, which
collectively increase our gross losses by an estimated 13%.
2 Losses are after a 21% Federal income tax benefit and include applicable reinstatement premiums.
3 Equity as of December 31, 2017.

Gross
Losses1
$139,419
251,195
436,963
586,317
710,461
791,029
1,170,133

Net
Losses2
36,229
40,431
47,750
57,892
62,863
82,601
374,353

Net Losses
as a Percent of
Equity3
2%
2
3
3
4
5
22

Our current catastrophe reinsurance program exhausts at approximately 1 in 250 year return period, or events with 0.4%
probability, based on a multi-model view of hurricane risk. Our actual gross and net losses incurred from U.S. landfalling
hurricanes will vary, perhaps materially, from our estimated modeled losses.

The property excess of loss treaty, which covers both our standard market and E&S business, was renewed on July 1, 2017 with
the top layer renewed on January 1, 2018. The major terms of these treaties are consistent with the prior year.

The following is a summary of our property reinsurance treaties and arrangements covering our Insurance Subsidiaries:

PROPERTY REINSURANCE ON INSURANCE PRODUCTS

Treaty Name

Reinsurance Coverage

Terrorism Coverage

Property Catastrophe
Excess of Loss
(covers all insurance
operations)

Property Excess of Loss
(covers all insurance
operations)

Flood

$735 million above $40 million retention treaty in five layers:

- 80% of losses in excess of $40 million up to
$100 million;
- 95% of losses in excess of $100 million up to
$225 million;
- 95% of losses in excess of $225 million up to
$475 million; and
- 90% of losses in excess of $475 million up
to $725 million.
- 90% of losses in excess of $725 million up
to $775 million.
- The treaty provides various reinstatement provisions
depending on the layer. The annual aggregate limit is $1.1
billion, net of the Insurance Subsidiaries' co-participation.
In addition, our $35 million above $5 million retention treaty
covers 85% of losses outside of our standard lines historical
footprint states and has an annual aggregate limit of $30
million, net of the Insurance Subsidiaries' co-participation.
This layer was purchased primarily to protect the growth of
our E&S property book but also provides coverage for our
Standard Lines expansion states.

$58 million above $2 million retention covering 100% in
three layers. Losses other than TRIPRA certified losses are
subject to the following reinstatements and annual aggregate
limits:

- $8 million in excess of $2 million layer
provides unlimited reinstatements;

- $30 million in excess of $10 million layer
provides three reinstatements, $120 million in
aggregate limits; and
- $20 million in excess of $40 million layer
provides approximately $75 million in aggregate limits.
100% reinsurance by the federal government’s WYO
Program.

All nuclear, biological, chemical, and radioactive ("NBCR")
losses are excluded regardless of whether or not they are
certified under TRIPRA. Non-NBCR losses are covered to
the same extent as non-terrorism losses. Please see Item 1A.
“Risk Factors.” of this Form 10-K for discussion regarding
TRIPRA.

All NBCR losses are excluded regardless of whether or not
they are certified under TRIPRA. For non-NBCR losses, the
treaty distinguishes between acts committed on behalf of
foreign persons or foreign interests ("Foreign Terrorism") and
those that are not. The treaty provides annual aggregate limits
for Foreign Terrorism (other than NBCR) acts of $24 million
for the first layer and $60 million for the second layer and for
the third layer approximately $35 million in annual aggregate
limits. Non-foreign terrorism losses (other than NBCR) are
covered to the same extent as non-terrorism losses.

None

Casualty Reinsurance
The casualty excess of loss treaty, which covers both our standard market and E&S business, was renewed on July 1, 2017 and
is effective through June 30, 2018, with substantially the same terms as the expiring treaty.

The following is a summary of our casualty reinsurance treaties and arrangements covering our Insurance Subsidiaries:

CASUALTY REINSURANCE ON INSURANCE PRODUCTS

Treaty Name

Reinsurance Coverage

Terrorism Coverage

Casualty Excess of Loss
(covers all insurance
operations)

There are six layers covering 100% of $88 million in excess
of $2 million. Losses other than terrorism losses are subject to
the following reinstatements and annual aggregate limits:

All NBCR losses are excluded. All other losses stemming
from the acts of terrorism are subject to the following
reinstatements and annual aggregate limits:

- $3 million in excess of $2 million layer
with $78 million annual aggregate limit;
- $7 million in excess of $5 million layer
with $35 million annual aggregate limit;
- $9 million in excess of $12 million layer
with $27 million annual aggregate limit;
- $9 million in excess of $21 million layer
with $18 million annual aggregate limit;
- $20 million in excess of $30 million layer
with $40 million annual aggregate limit;
- $40 million in excess of $50 million layer
with $80 million annual aggregate limit;

Montpelier Re Quota
Share and Loss
Development Cover
(covers E&S Lines)

As part of the acquisition of MUSIC we entered into several
reinsurance agreements that together provide protection for
losses on policies written prior to the acquisition and any
development on reserves established by MUSIC as of the date
of acquisition. The reinsurance recoverables under these
treaties are 100% collateralized. Montpelier Re was acquired
by Endurance Specialty on December 29, 2015. On March
28, 2017, Endurance Specialty was acquired by SOMPO
Holdings, Inc.

- $3 million in excess of $2 million layer with
$15 million net annual terrorism aggregate limit;
- $7 million in excess of $5 million layer with
$28 million net annual terrorism aggregate limit;
- $9 million in excess of $12 million layer with
$27 million net annual terrorism aggregate limit;
- $9 million in excess of $21 million layer with
$18 million net annual terrorism aggregate limit;
- $20 million in excess of $30 million layer with
$40 million net annual terrorism aggregate limit;
- $40 million in excess of $50 million layer with
$80 million net annual terrorism aggregate limit;

Provides full terrorism coverage including NBCR.

We have other reinsurance treaties that we do not consider core to our reinsurance program, such as our Surety and Fidelity
Excess of Loss Reinsurance Treaty, National Workers Compensation Reinsurance Pool Quota Share, which covers business
assumed from the involuntary workers compensation pool, our Equipment Breakdown Coverage Reinsurance Treaty, and our
Data Compromise Reinsurance Treaty.

We regularly reevaluate our overall reinsurance program and try to develop effective ways to manage the transfer of risk. Our
analysis is based on a comprehensive process that includes periodic analysis of modeling results, aggregation of exposures,
exposure growth, diversification of risks, limits written, projected reinsurance costs, financial strength of reinsurers, and
projected impact on earnings, equity, and statutory surplus. We strive to balance sometimes opposing considerations of
reinsurer credit quality, price, terms, and our appetite for retaining a certain level of risk.

Investments Segment
The primary objective of the investment portfolio is to maximize after-tax income and total return of the portfolio, while
maintaining credit quality and managing our duration risk profile. Our investment philosophy includes certain return and risk
objectives for the fixed income, equity, and other investment portfolios. After-tax yield and income generation are key drivers
to our investment strategy, which we believe will be obtained through more active management of the portfolio.

Total Invested Assets

($ in thousands)

Total invested assets

Invested assets per dollar of stockholders' equity

Unrealized gain – before tax

Unrealized gain – after tax

2017

2016

Change

5,685,179

3.32

124,679

80,575

5,364,947

3.50

64,803

42,122

(5)

The increase in our investment portfolio at December 31, 2017 compared with year-end 2016 was primarily driven by
operating cash flow of $370.7 million, $51.1 million of which was used to fund shareholder dividends and capital expenditures
in the aggregate. The $59.9 million change in unrealized gains was comprised of $46.8 million from our fixed income
securities and $13.0 million from our equity portfolio.

We seek to structure our portfolio conservatively with a focus on: (i) asset diversification; (ii) investment quality; (iii) liquidity,
particularly to meet the cash obligations of our insurance operations; (iv) consideration of taxes; and (v) preservation of capital.
We have a high quality and liquid investment portfolio. The breakdown of our investment portfolio is as follows:

As of December 31,

Fixed income securities:

U.S. government obligations
Foreign government obligations
State and municipal obligations
Corporate securities1
Mortgage-backed securities (“MBS”)
Collateralized loan obligations ("CLO") and other asset-backed securities ("ABS")

Total fixed income securities

2017

2016

1 %
—
29
28
20
14
92

2
1
27
37
15
10
92

Equity securities:
Common stock
Preferred stock1

Total equity securities

2
—
2
4
Short-term investments
2
Other investments
100
Total
1Includes $75.8 million of preferred stock within corporate securities and $15.0 million of preferred stock within equity securities. In aggregate, these account
for approximately 1% of invested assets at December 31, 2017.

3
—
3
3
2
100 %

Fixed Income Securities
The effective duration of the fixed income securities portfolio as of December 31, 2017 was 3.8 years, compared to the
Insurance Subsidiaries’ liability duration of approximately 3.8 years. The current duration of the fixed income securities
portfolio is within our historical range, and 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. Every purchase or sale is made with the intent of maximizing risk-adjusted 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 fixed income securities portfolio maintained a weighted average credit rating of AA- as of December 31, 2017 with 97%
of the securities within the portfolio being investment grade quality at both December 31, 2017 and December 31, 2016. For
further details on how we manage overall credit quality and the various risks to which our portfolio is subject, see Item 7A.
“Quantitative and Qualitative Disclosures About Market Risk.” of this Form 10-K.

Unrealized/Unrecognized Losses
HTM fixed income securities were in an unrealized/unrecognized loss position of $0.1 million at December 31, 2017. AFS
fixed income securities that were in an unrealized loss position at December 31, 2017 by contractual maturity are shown below.
MBS 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.

Contractual Maturities

($ in thousands)

Available-for-sale ("AFS") fixed income securities:

Amortized Cost

Fair Value

Unrealized Loss

One year or less

Due after one year through five years

Due after five years through ten years

Due after ten years

Total

66,353

353,822

469,452

20,686

910,313

66,217

351,951

466,530

20,554

905,252

(136)

(1,871)

(2,922)

(132)

(5,061)

We have reviewed securities in an unrealized/unrecognized loss position in accordance with our OTTI policy as discussed in
Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form
10-K. For qualitative information regarding our conclusions as to why these impairments are deemed temporary, see Note 5.
“Investments” in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K.

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

($ in thousands)

Fixed income securities

Equity securities

Short-term investments

Other investments

Investment expenses

Net investment income earned – before tax

Net investment income tax expense

Net investment income earned – after tax

Effective tax rate

Annual after-tax yield on fixed income securities

Annual after-tax yield on investment portfolio

2017

2016

2015

153,230

6,442

1,526

12,871

(12,187)

161,882

43,362

118,520

26.8%

2.2

2.1

129,306

7,368

686

2,940

(9,546)

130,754

32,349

98,405

24.7

2.0

1.9

123,230

9,161

112

(1,890)

(9,297)

121,316

27,480

93,836

22.7

2.1

1.9

Net investment income before tax increased $31.1 million in 2017 compared to 2016, driven by higher yields on our core fixed
income securities portfolio, coupled with a higher asset base from operating cash flows that were 16% of net premiums written.
In addition, our alternative income portfolio generated higher returns this year as compared to last.

The $9.4 million increase in net investment income before tax in 2016, compared to 2015, was primarily attributable to
increases in fixed income securities of $6.1 million and in other investment income of $4.8 million. Returns on fixed income
securities increased due to a higher asset base, with a modest increase to taxable asset classes, while improved returns on our
energy-related and private equity limited partnerships drove the increase in income on our other investment portfolio.

The effective tax rate on our investment portfolio applicable to net investment income has increased approximately 200 basis
points per year in the three-year period presented above. This has been driven by a modest increase to taxable asset classes
recently coupled with higher returns on our alternative investment portfolio, which is taxed at 35%. As a result of Tax Reform,
we anticipate a reduction in the effective rate on net investment income to approximately 17%, inclusive of tax-advantaged
municipal securities' tax rate of 5.25% and approximately 21% for all other items, beginning with the 2018 tax year, although
the actual effective tax rate will be impacted by our allocation to tax-advantaged municipal securities. See the "Federal Income
Taxes" discussion below for additional information regarding the impact of this legislation.

Realized 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 gains (losses) for the indicated periods were as follows:

($ in thousands)
Net realized gains, excluding OTTI
OTTI
Total net realized gains (losses)

2017

2016

2015

11,204
(4,845)
6,359

3,562
(8,499)
(4,937)

31,537
(18,366)
13,171

We regularly review our entire investment portfolio for declines in fair value. If we believe that a decline in the value of a
particular investment is other than temporary, which would typically be for reasons other than changes in fair values
attributable to interest rate movements, we record it as an OTTI through realized losses in earnings for the credit-related portion
and through unrealized losses in other comprehensive income for the non-credit related portion for fixed income securities. If
there is a decline in fair value of an equity security that we do not intend to hold or if we determine the decline is other than
temporary, we write down the cost of the investment to fair value and record the charge through earnings as a component of
realized losses.

For additional information regarding our realized gains and losses as well as our OTTI methodology, see Note 2. “Summary of
Significant Accounting Policies” and Note 5. "Investments" in Item 8. “Financial Statements and Supplementary Data.” of this
Form 10-K.

As a result of a change in accounting guidance that became effective on January 1, 2018, realized gains and losses now include
the change in market value of our equity securities, which are now recognized in earnings, rather than in accumulated other
comprehensive income (loss). If this guidance were effective in 2017, realized gains would have included $13.0 million from

this fluctuation on a pre-tax basis. For additional information regarding this change in accounting guidance, see Note 3.
"Adoption of Accounting Pronouncements."

Federal Income Taxes
The following table provides information regarding federal income taxes.

($ in millions)

Federal income tax expense

Exclude: Tax reform impact

Federal income tax expense, excluding tax reform impact

Effective tax rate

Effective tax rate without tax reform impact

2017

2016

2015

93.1

20.2

72.9

35.6%

27.8

61.5

—

61.5

27.9

66.8

—

66.8

28.7

On December 22, 2017, Tax Reform was signed into law, which among other provisions, will reduce our statutory corporate tax
rate from 35% to 21% beginning with our 2018 tax year. We revalued our deferred tax inventory as of December 31, 2017 in
consideration of this reduction, which resulted in a $20.2 million charge to federal income tax expense as our net deferred tax
assets have become less valuable given the decrease in the tax rate. Excluding the impact of this charge, our effective tax rate
for 2017 was 27.8%, which is consistent with the other years presented in the table above. In general, our effective tax rate
differs from the statutory tax rate of 35% primarily because of tax-advantaged interest and dividend income. The contribution
of this tax-advantaged income to overall pre-tax income remained relatively stable in 2015 through 2016 and, as a result, there
is not a significant variance in our overall effective tax rate during these periods.

As a result of Tax Reform, we anticipate a reduction in our effective rate to approximately 18% going forward, including 17%
for net investment income and approximately 21% for all other items. Included in the investment effective tax rate is the tax-
advantaged municipal securities' tax rate of 5.25% and 13.125% for dividends on U.S. public equity securities.

See Note 13. “Federal Income Taxes” in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K for further
information regarding the following: (i) the implementation of Tax Reform; (ii) a reconciliation of our effective tax rate to the
statutory rate of 35%; and (iii) details regarding our net deferred tax assets.

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 and short-term investment position of $166 million at December 31, 2017 was comprised
of $25 million at Selective Insurance Group, Inc. (the “Parent”) and $141 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 ("NAIC"). The Parent maintains an investment portfolio containing high-quality, highly-liquid government and
corporate fixed income securities. This portfolio amounted to $90 million at December 31, 2017, compared to $74 million at
December 31, 2016. In total, we had $114 million of cash and investments at the Parent at December 31, 2017 compared to
$92 million at December 31, 2016. We expect to continue to increase the level of cash and invested assets at the Parent over
time, although there will be fluctuations in these cash and invested asset balances, based on factors including the amount and
availability of dividends from our Insurance Subsidiaries, investment income, expenses and other needs of the Parent. Our
target is to increase the cash and liquidity at the Parent to two years of its expected annual needs.

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
The Insurance Subsidiaries paid $80 million in dividends to the Parent in 2017. As of December 31, 2017, our allowable
ordinary maximum dividend is $211 million for 2018.

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 this Form
10-K.

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 flow for claims payments in the ordinary course of business.
The effective duration of the fixed income securities portfolio, as well as the liabilities of the Insurance Subsidiaries, was 3.8
years as of December 31, 2017. As protection for the capital resources at the Insurance Subsidiaries, we purchase reinsurance
coverage for any 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 which varies and is based on, among other factors, the Parent's debt ratings.

For information regarding the Line of Credit agreement and corresponding representations, warranties, and covenants, refer to
Note 10. “Indebtedness” in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K.

Several of our Insurance Subsidiaries are members of certain branches of the Federal Home Loan Bank, which provides those
subsidiaries with additional access to short-term and/or long-term liquidity. Membership is as follows:

Branch

Insurance Subsidiary Member

Federal Home Loan Bank of Indianapolis ("FHLBI")

Federal Home Loan Bank of New York ("FHLBNY")

SICSC1
SICSE1

SICA

SICNY

1These subsidiaries are jointly referred to as the "Indiana Subsidiaries" as they are domiciled in Indiana.

The Line of Credit permits aggregate borrowings from the FHLBI and the FHLBNY up to 10% of the respective member
company’s admitted assets for the previous year. Additionally, as SICNY is domiciled in New York, 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.

All borrowings from both the FHLBI and the FHLBNY are required to be secured by investments pledged as collateral. For
additional information regarding collateral outstanding, refer to Note 5. "Investments" in Item 8. "Financial Statements and
Supplementary Data." of this Form 10-K.

The following table provides information on the remaining capacity for Federal Home Loan Bank borrowings based on these
restrictions, as well as the amount of additional stock that would need to be purchased to allow these member companies to
borrow their remaining capacity:

($ in millions)

As of December 31, 2017

SICSC

SICSE

SICA

SICNY

Total

Admitted
Assets

Borrowing
Limitation

Amount
Borrowed

Remaining
Capacity

Additional
Stock
Requirements

648.0

507.5

2,434.9

442.5

64.8

50.8

243.5

22.1

381.2

32.0

28.0

50.0

—

110.0

32.8

22.8

193.5

22.1

271.2

1.4

1.0

8.7

1.0

12.1

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 following table provides information on the Parent’s borrowings and remaining borrowing capacity from the Indiana
Subsidiaries:

($ in millions)

As of December 31, 2017

SICSC

SICSE

Total

Admitted
Assets
as of
December 31,
2017

Borrowing
Limitation

Amount
Borrowed

Remaining
Capacity

648.0

507.5

64.8

50.8

115.6

27.0

18.0

45.0

37.8

32.8

70.6

Short-term Borrowings
There were no balances outstanding under the Line of Credit at December 31, 2017 or at any time during 2017. During 2017,
SICA borrowed an aggregate of $84 million from the FHLBNY, which was subject to the borrowing limitations outlined above.
This amount has already matured and has been paid.

For additional information regarding other borrowings, see Note 10. "Indebtedness" in Item 8. "Financial Statements and
Supplementary Data." of this Form 10-K.

Capital Market Activities
The Parent had no private or public issuances of stock or debt instruments during 2017.

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. In October
2017, our Board of Directors approved an increase in the quarterly cash dividend, to $0.18 from $0.16 per share.

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, with the next following principal payment due in 2026. We
have $185 million of Senior Notes due February 9, 2043 that became callable on February 8, 2018. We may elect to call these
Senior Notes, in whole or in part, at any time on or after February 8, 2018. If we were to call and redeem these Senior Notes
we would write-off the associated unamortized debt issuance costs. The balance of the unamortized debt issuance costs
associated with our $185 million of Senior Notes was $4.6 million at December 31, 2017.

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 December 31, 2017, we had GAAP stockholders’ equity and
statutory surplus of $1.7 billion. With total debt of $439 million, our debt-to-capital ratio was approximately 20%.

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

operations, issuing additional debt and/or equity securities, 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 $29.28 as of December 31, 2017, from $26.42 as of December 31, 2016, primarily due to
$2.84 in net income per share and a $0.66 per share increase in unrealized gains related to our investment portfolio. These
increases were partially offset by $0.66 paid in dividends per share to our shareholders.

Off-Balance Sheet Arrangements
At December 31, 2017 and December 31, 2016, 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.

Contractual Obligations, Contingent Liabilities, and Commitments
Our contractual obligations include required payments under capital and operating leases, debt obligations, and reserves for
loss and loss expenses. As discussed in the “Reserves for Loss and Loss Expense” section in the "Critical Accounting Policies
and Estimates" section of this MD&A, we maintain case reserves and estimates of reserves for loss and loss expense IBNR, in
accordance with industry practice. Using generally accepted actuarial reserving techniques, we project our estimate of ultimate
loss and loss expense at each reporting date.

Given that the losses and loss expense reserves are estimates, as described in detail under the “Critical Accounting Policies and
Estimates” section of this MD&A, the payment of actual loss and loss expense is generally not fixed as to amount or timing.
Due to this uncertainty, financial accounting standards prohibit us from discounting these reserves to their present value.
Additionally, estimated losses as of the financial statement date do not consider the impact of estimated losses from future
business. Therefore, the projected settlement of the reserves for net loss and loss expense will differ, perhaps significantly,
from actual future payments.

The projected paid amounts in the table below by year are estimates based on past experience, adjusted for the effects of current
developments and anticipated trends, and include considerable judgment. There is no precise method for evaluating the impact
of any specific factor on the projected timing of when loss and loss expense reserves will be paid and as a result, the timing and
amounts of the actual payments will be affected by many factors. Care must be taken to avoid misinterpretation by those
unfamiliar with this information or familiar with other data commonly reported by the insurance industry.

Our future cash payments associated with contractual obligations pursuant to operating and capital leases, debt, interest on debt
obligations, and loss and loss expense as of December 31, 2017 are summarized below:

Contractual Obligations

($ in millions)

Operating leases
Capital leases
Notes payable
Interest on debt obligations
Subtotal

Gross losses and loss expense payments
Ceded losses and loss expense payments
Net losses and loss expense payments

Total

31.9
2.4
445.0
476.6
955.9

3,771.2
585.8
3,185.4

Payment Due by Period

Less than
1 year

1-3
years

3-5
years

More than
5 years

10.0
2.3
—
23.8
36.1

1,005.7
174.0
831.7

13.5
0.1
—
47.7
61.3

1,155.3
134.5
1,020.8

5.8
—
50.0
46.6
102.4

568.4
71.4
497.0

599.4

2.6
—
395.0
358.5
756.1

1,041.8
205.9
835.9

1,592.0

Total

4,141.3

867.8

1,082.1

See the “Short-term Borrowings” section above for a discussion of our syndicated Line of Credit agreement.

Certain of our notes payable in table above contain cross-default provisions, the details are which are included in Note 10.
"Indebtedness" in Item 8. "Financial Statements and Supplementary Data." in this Form 10-K.

At December 31, 2017, we had contractual obligations that expire at various dates through 2032 that may require us to invest
up to an additional $221 million in alternative and other investments. There is no certainty that any such additional investment
will be required. 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. We have no material transactions with related parties other than those
disclosed in Note 16. “Related Party Transactions” included in Item 8. “Financial Statements and Supplementary Data.” of this
Form 10-K.

Additionally, as of December 31, 2017, we had contractual obligations that expire in 2023 to invest $16.3 million in a non-
publicly traded common stock within our available-for-sale portfolio. We expect to have the capacity to repay and/or refinance
these obligations as they come due.

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. In the third quarter of 2017, A.M. Best reaffirmed our rating of "A (Excellent)," their third highest of 13
financial strength ratings with a "stable" outlook. The rating reflects A.M. Best's view that we have an excellent level of risk-
adjusted capitalization, strong operating performance, and high policy retention across our standard lines of business. We have
been rated "A" or higher by A.M. Best for the past 87 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.

Ratings by other major rating agencies are as follows:

•

Fitch Ratings ("Fitch") - Our "A+" Rating was reaffirmed in the second quarter of 2017 with a "stable" outlook by
Fitch. In taking this action, Fitch cited our strong financial performance and capitalization with growth in
stockholders' equity, as well as a strong competitive position and diversified underwriting.

S&P Global Ratings ("S&P") - Our "A" rating was reaffirmed in the fourth quarter of 2017 with a "stable" outlook by
S&P. In taking this action, S&P cited our strong business risk profile and strong financial risk profile, built on our
strong competitive position and very strong capital and earnings. In addition, our stable outlook reflects S&P's
expectation that we will sustain our strong competitive position and operating performance.

• Moody's Investor Service ("Moody's") - Our "A2" financial strength rating with a "stable" outlook was reaffirmed in

the second quarter of 2017 by Moody's. In taking this action, Moody's cited our solid regional franchise with
established independent agency support, solid risk adjusted capitalization, strong invested asset quality, and good
underwriting profitability.

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 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk
The fair value of our assets and liabilities are subject to market risk, primarily interest rate, credit risk, and equity price risk
related to our investment portfolio as well as fluctuations in the value of our alternative investment portfolio. The allocation of
our portfolio was 92% fixed income securities, 3% equity securities, 3% short-term investments, and 2% other investments as
of December 31, 2017. We do not hold derivative or commodity investments. Foreign investments are made on a limited
basis, and all fixed income transactions are denominated in U.S. currency. We have minimal foreign currency fluctuation risk.
For a discussion of our investment objective and philosophy, see the "Investments" section of Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations." of this Form 10-K.

We manage our investment portfolio to mitigate risks associated with various financial market scenarios. We will, however,
take prudent risk to enhance our overall long-term results while managing a conservative, well-diversified investment portfolio
to support our underwriting activities.

Interest Rate Risk

Investment Portfolio
We invest in interest rate-sensitive securities, mainly fixed income securities. Our fixed income securities portfolio is
comprised of primarily investment grade (investments receiving S&P or an equivalent rating of BBB- or above) corporate
securities, U.S. government and agency securities, municipal obligations, CLO and other ABS, and MBS. Our strategy to
manage interest rate risk is to purchase intermediate-term fixed income investments that are attractively priced in relation to
perceived credit risks.

Our exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in
interest rates. As our fixed income securities portfolio contains interest rate-sensitive instruments, it may be adversely affected
by changes in interest rates resulting from governmental monetary policies, domestic and international economic and political
conditions, and other factors beyond our control. Recent economic data points to increased U.S. and global economic growth,
continued low levels of unemployment and signs of rising wages, which compounded with the potential for the pro-growth
benefits of Tax Reform and the potential for higher Federal budget deficits, has recently led to rising U.S. interest rates. A rise
in interest rates will decrease the fair value of our existing fixed income investments and a decline in interest rates will result in
an increase in the fair value of our existing fixed income investments. However, new and reinvested money used to purchase
fixed income securities would benefit from rising interest rates and would be negatively impacted by falling interest rates.

We seek to mitigate our interest rate risk associated with holding fixed income investments by monitoring and maintaining the
effective duration of our portfolio with a view toward achieving an adequate after-tax return without subjecting the portfolio to
an unreasonable level of interest rate risk. The effective duration of the fixed income securities portfolio at December 31, 2017
and December 31, 2016 was 3.8 years. The current duration is within our historical range, and is monitored and managed to
maximize yield while managing interest rate risk at an acceptable level. The Insurance Subsidiaries’ liability duration is
approximately 3.8 years.

We use an interest rate sensitivity analysis to measure the potential loss or gain in future earnings, fair values, or cash flows of
market sensitive fixed income securities. The sensitivity analysis hypothetically assumes an instant parallel 200 basis point
shift in interest rates up and down in 100 basis point increments from the date of the Financial Statements. We use fair values
to measure the potential loss. This analysis is not intended to provide a precise forecast of the effect of changes in market
interest rates and equity prices on our income or stockholders’ equity. Further, the calculations do not take into account any
actions we may take in response to market fluctuations, and do not take into account changes to credit spreads, liquidity
spreads, and other risk factors which may also impact the value of the fixed income portfolio.

The following table presents the sensitivity analysis of interest rate risk as of December 31, 2017:

($ in thousands)

HTM fixed income securities

Fair value of HTM fixed income securities portfolio

Fair value change

Fair value change from base (%)

AFS fixed income securities

2017
Interest Rate Shift in Basis Points

-200

-100

100

200

46,202

2,102

45,231

1,131

4.77%

2.56%

44,100

43,021

(1,079)

41,988

(2,112)

(2.45)%

(4.79)%

Fair value of AFS fixed income securities portfolio

5,526,150

5,357,189

5,162,522

4,962,328

4,763,513

Fair value change

Fair value change from base (%)

363,628

194,667

7.04%

3.77%

(200,194)

(399,009)

(3.88)%

(7.73)%

Pension and Post-Retirement Benefit Plan Obligation
Our pension and post-retirement benefit obligations and related costs are calculated using actuarial methods within the
framework of U.S. GAAP. The discount rate assumption is an important element of expense and liability measurement.
Changes in the discount rate assumption could materially impact our pension and post-retirement life valuation in the future.
For additional information regarding our discount rate selection, refer to Note 14. "Retirement Plans" in Item 8. “Financial
Statements and Supplementary Data.” of this Form 10-K.

Credit Risk
Our most significant credit risk is within our fixed income security portfolio, which had an overall credit quality of “AA-” as of
December 31, 2017 and December 31, 2016. Exposure to non-investment grade bonds represented approximately 3% of the
total fixed income securities portfolio at both December 31, 2017 and 2016.

The following table summarizes the fair value, carry value, net unrealized/unrecognized gain (loss) balances, and the weighted
average credit qualities of our fixed income securities at December 31, 2017 and December 31, 2016:

Total fixed income portfolio

5,206.6

5,204.7

December 31, 2017

($ in millions)

U.S. government obligations

Foreign government obligations

State and municipal obligations

Corporate securities

CLO and Other ABS

CMBS

RMBS

December 31, 2016

($ in millions)

U.S. government obligations

Foreign government obligations

State and municipal obligations

Corporate securities

CLO and Other ABS

CMBS

RMBS

Fair
Value

Carry
Value

Unrealized/
Unrecognized
Gain (Loss)

Weighted
Average
Credit
Quality

49.7

18.6

1,609.2

1,635.3

795.5

383.4

714.9

49.7

18.6

1,608.2

1,634.4

795.5

383.4

714.9

Fair
Value

Carry
Value

Unrealized/
Unrecognized
Gain (Loss)

77.3

26.9

1,459.5

2,021.8

529.0

258.0

525.2

77.3

26.9

1,457.4

2,020.3

529.0

258.0

525.2

0.4

0.5

44.8

30.0

6.3

0.7

5.1

87.8

2.2

0.3

15.7

22.6

1.1

0.5

0.2

42.6

AAA

BBB+

AA+

AA-

Weighted
Average
Credit
Quality

AAA

A-

AA+

AAA

AA+

AA-

Total fixed income portfolio

4,897.7

4,894.1

State and Municipal Obligations
The following table details the top 10 state exposures of the municipal bond portion of our fixed income portfolio at
December 31, 2017:

General Obligation

Local

State

% of Total

Weighted Average
Credit Quality

State Exposures of Municipal Bonds

($ in thousands)

New York

California
Texas1

New Jersey

Washington

Pennsylvania

Florida

Arizona

Massachusetts

Ohio

Other

Pre-refunded/escrowed to maturity bonds

Special
Revenue

127,128

101,178

61,696

76,668

38,882

55,371

51,067

53,379

51,465

30,700

Fair
Value

149,605

143,893

122,813

76,668

71,883

71,838

65,310

64,518

52,371

41,635

434,564

653,779

—

14,718

18,573

—

12,814

16,467

8,953

—

906

5,263

58,517

136,211

1,082,098

1,514,313

18,581

53,264

94,918

22,477

27,997

42,544

—

20,187

—

5,290

11,139

—

5,672

160,698

296,004

23,073

41%

94%

AA-

A+

AA-

Total

$ 319,077

154,792

1,135,362

1,609,231

100%

% of Total Municipal Portfolio
1 Of the $42.5 million in local Texas general obligation bonds, $23.9 million represents investments in Texas Permanent School Fund bonds, which are
considered to have lower risk as a result of the bond guarantee programs that support these bonds.

100%

70%

20%

10%

Special revenue fixed income securities of municipalities (referred to as “special revenue bonds”) generally do not have the
“full faith and credit” backing of the municipal or state governments, as do general obligation bonds, but special revenue bonds
have a dedicated revenue stream for repayment. For our special revenue bonds, 81% of the dedicated revenue stream is
comprised of the following: (i) essential services (46%), which is comprised of transportation, water and sewer, and electric;
(ii) education (11%), which includes school districts and higher education, including state-wide university systems; and (iii)
special tax (24%), which are backed by a dedicated lien on a tax or other revenue repayment source. As such, we believe our
special revenue bond portfolio is appropriate for the current environment.

Corporate Securities
For investment-grade corporate bonds, we address the risk of an individual issuers' default by maintaining a diverse portfolio of
holdings. The primary risk related to non-investment grade corporate bonds is credit risk. A weak financial profile can lead to
rating downgrades from the credit rating agencies, which can put further downward pressure on bond prices. Valuations on
these bonds are related more directly to underlying operating performance than to general interest rates. Our holdings of non-
investment grade corporate bonds represent less than 3% of our overall investment portfolio.

The tables below provide details on our corporate bond holdings at December 31, 2017 and December 31, 2016:

December 31, 2017

($ in millions)

Investment grade

Non-investment grade

Total corporate securities

December 31, 2016

($ in millions)

Investment grade

Non-investment grade

Total corporate securities

Fair
Value

Carry
Value

1,505.0

130.3

1,635.3

1,504.1

130.3

1,634.4

Fair
Value

Carry
Value

1,892.4

129.4

2,021.8

1,890.9

129.4

2,020.3

Unrealized/
Unrecognized
Gain (Loss)

27.5

2.5

30.0

Unrealized/
Unrecognized
Gain (Loss)

21.0

1.6

22.6

Weighted
Average
Credit
Quality

A-

BBB+

Weighted
Average
Credit
Quality

A-

B+

A-

CLO and Other ABS Portfolio
For CLO and other ABS, the primary risk is credit risk. We manage this risk by evaluating a number of factors, including the
structuring of the deal, the credit quality of underlying loans or assets, the composition of the underlying portfolio, and the
track record and capabilities of the portfolio manager. Key performance metrics, including over collateralization, interest
coverage, and cash flows, are monitored on an on-going basis. We consider the overall credit environment, economic
conditions, total projected return on the investment, and overall asset allocation of the portfolio in our decisions to purchase or
sell CLO and other ABS.

The tables below provide details on our CLO and other ABS holdings at December 31, 2017 and December 31, 2016:

December 31, 2017

($ in millions)

Investment grade:

CLO

Other ABS

Total investment grade

Non-investment grade:

CLO

Other ABS

Total non-investment grade

Total CLO and other ABS

Fair
Value

Carry
Value

Unrealized/
Unrecognized
Gain (Loss)

Weighted
Average
Credit
Quality

572.5

202.2

774.7

20.8

—

20.8

795.5

572.5

202.2

774.7

20.8

—

20.8

795.5

2.1

2.9

5.0

1.3

—

1.3

6.3

AA+

AA-

AA+

BB-

—

BB-

December 31, 2016

($ in millions)

Investment grade:

CLO

Other ABS

Total investment grade

Non-investment grade:

CLO

Other ABS

Total non-investment grade

Total CLO and other ABS

Fair
Value

Carry
Value

Unrealized/
Unrecognized
Gain (Loss)

Weighted
Average
Credit
Quality

341.9

170.2

512.1

16.9

—

16.9

529.0

341.9

170.2

512.1

16.9

—

16.9

529.0

0.1

0.2

0.3

0.8

—

0.8

1.1

AAA

AA+

BB-

—

BB-

AA+

MBS Portfolio
To manage and mitigate exposure on our MBS portfolio (CMBS and RMBS), we perform analysis both at the time of purchase
and as part of the ongoing portfolio evaluation. This analysis includes review of loan-to-value ratios, geographic spread of the
assets securing the bond, delinquencies in payments for the underlying mortgages, gains/losses on sales, evaluations of
projected cash flows, as well as other information that aids in determination of the health of the underlying assets. We consider
the overall credit environment, economic conditions, total projected return on the investment, and overall asset allocation of the
portfolio in our decisions to purchase or sell MBS.

Equity Price Risk
Our equity securities portfolio is exposed to risk arising from potential volatility in equity market prices. We attempt to
minimize the exposure to equity price risk by maintaining a diversified portfolio and limiting concentrations in any one
company or industry. The following table presents the hypothetical increases and decreases in 10% increments in market value
of the equity portfolio as of December 31, 2017:

($ in thousands)

(30)%

(20)%

(10)%

Fair value of AFS equity portfolio

127,893

Fair value change

(54,812)

146,164

(36,541)

164,434

(18,271)

182,705

10%

20%

30%

200,976

18,271

219,246

36,541

237,517

54,812

Change in Equity Values in Percent

In addition to our equity securities, we invest in certain other investments that are also subject to price risk. Our other
investments primarily include alternative investments in private limited partnerships that invest in various strategies such as
private equity, energy/power generation, middle market lending, mezzanine debt, distressed debt, and real estate. As of
December 31, 2017, other investments represented 2% of our total invested assets and 8% of our stockholders’ equity. These
investments are subject to the risks arising from the fact that their valuation is inherently subjective. The general partner of
each of these partnerships usually reports the change in the value of the interests in the partnership on a one quarter lag because
of the nature of the underlying assets or liabilities. Since these partnerships' underlying investments consist primarily of assets
or liabilities for which there are no quoted prices in active markets for the same or similar assets, the valuation of interests in
these partnerships are subject to a higher level of subjectivity and unobservable inputs than substantially all of our other
investments. Each of these general partners is required to determine the partnerships' value by the price obtainable for the sale
of the interest at the time of determination. Valuations based on unobservable inputs are subject to greater scrutiny and
reconsideration from one reporting period to the next and therefore, may be subject to significant fluctuations, which could lead
to significant decreases from one reporting period to the next. As we record our investments in these various partnerships
under the equity method of accounting, any decreases in the valuation of these investments would negatively impact our results
of operations. For additional information regarding these alternative investment strategies, see Note 5. “Investments” in Item 8.
“Financial Statements and Supplementary Data.” of this Form 10-K.

In addition to the above, we have a defined benefit pension plan with $363.1 million in invested assets as of December 31,
2017, of which approximately 60% was invested in assets subject to equity price risk. The value of these invested assets is an
important element of expense and liability measurement for our pension plan. For additional information regarding the fair
value of our pension assets, refer to Note 14. "Retirement Plans" in Item 8. “Financial Statements and Supplementary Data.” of
this Form 10-K

Indebtedness
(a) Long-Term Debt
As of December 31, 2017, we had outstanding long-term debt of $439.1 million that matures as shown in the following table:

($ in thousands)

Financial liabilities

Long-term debt

1.61% Borrowings from FHLBNY

1.56% Borrowings from FHLBNY

3.03% Borrowings from FHLBI

7.25% Senior Notes

6.70% Senior Notes

5.875% Senior Notes

Subtotal

Unamortized debt issuance costs

Total notes payable

Year of
Maturity

Carrying
Amount

Fair
Value

2017

2021

2026

2034

2035

2043

25,000

60,000

49,904

99,446

185,000

444,350

(5,234)

439,116

24,270

24,210

60,334

61,391

116,597

186,332

473,134

The weighted average effective interest rate for our outstanding long-term debt was 5.3% at December 31, 2017. Our debt is
not exposed to material changes in interest rates because the interest rates are fixed. Our $185 million of Senior Notes due
2043 became callable on February 8, 2018. We may elect to call these Senior Notes, in whole or in part, at any time on or after
February 8, 2018. If we were to call and redeem these Senior Notes we would write-off the associated unamortized debt
issuance costs. The balance of the unamortized debt issuance costs associated with our $185 million of Senior Notes was $4.6
million at December 31, 2017.

Refer to Note 10. "Indebtedness", within Item 8. "Financial Statements and Supplementary Data." of this Form 10-K for
discussion on debt covenant provisions.

(b) Short-Term Debt
Our Line of Credit with Wells Fargo Bank, National Association, as administrative agent, and Branch Banking and Trust
Company (BB&T), 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.

The Line of Credit provides the Parent with an additional source of short-term liquidity. The interest rate on our Line of Credit
varies and is based on, among other factors, the Parent’s debt ratings. The Line of Credit expires on December 1, 2020. There
were no balances outstanding under this Line of Credit or the previous credit facility at December 31, 2017 or at any time
during 2017.

PART II

Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Selective Insurance Group, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Selective Insurance Group, Inc. and subsidiaries (the
Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related
notes and financial statement schedules I to V (collectively, the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 19, 2018 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.

We have served as the Company's auditor since 1964.

/s/ KPMG LLP

New York, New York
February 19, 2018

Consolidated Balance Sheets

December 31,

($ in thousands, except share amounts)

ASSETS

Investments:

Fixed income securities, held-to-maturity – at carrying value
(fair value: $44,100 – 2017; $105,211 – 2016)

Fixed income securities, available-for-sale – at fair value
(amortized cost: $5,076,716 – 2017; $4,753,759 – 2016)

Equity securities, available-for-sale – at fair value
(cost: $143,811 – 2017; $120,889 – 2016)

Short-term investments (at cost which approximates fair value)

Other investments

Total investments (Notes 5 and 7)

Cash

Interest and dividends due or accrued

Premiums receivable, net of allowance for uncollectible
accounts of: $10,000 – 2017; $5,980 – 2016

Reinsurance recoverable, net of allowance for uncollectible
accounts of: $4,600 – 2017; $5,500 – 2016 (Note 8)

Prepaid reinsurance premiums (Note 8)

Current federal income tax (Note 13)

Deferred federal income tax (Note 13)

Property and equipment – at cost, net of accumulated
depreciation and amortization of: $213,227 – 2017; $198,729 – 2016

Deferred policy acquisition costs (Note 2)

Goodwill (Note 11)

Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Reserve for loss and loss expense (Note 9)

Unearned premiums

Long-term debt (Note 10)

Accrued salaries and benefits

Other liabilities

Total liabilities

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: 102,284,564 – 2017; 101,620,436 – 2016

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss) (Note 6)

Treasury stock – at cost (shares: 43,789,442 – 2017; 43,653,237 – 2016)

Total stockholders’ equity

Commitments and contingencies (Notes 17 and 18)

Total liabilities and stockholders’ equity

See accompanying Notes to Consolidated Financial Statements.

2017

2016

42,129

101,556

5,162,522

4,792,540

182,705

165,555

132,268

146,753

221,701

102,397

5,685,179

5,364,947

534

40,897

747,029

594,832

153,493

3,243

31,990

63,959

235,055

7,849

122,371

458

40,164

681,611

621,537

146,282

2,486

84,840

69,576

222,564

7,849

113,534

7,686,431

7,355,848

3,771,240

1,349,644

439,116

131,850

281,624

3,691,719

1,262,819

438,667

132,880

298,393

5,973,474

5,824,478

—

204,569

367,717

1,698,613

20,170

(578,112)

1,712,957

203,241

347,295

1,568,881

(15,950)

(572,097)

1,531,370

7,686,431

7,355,848

Consolidated Statements of Income

December 31,

($ in thousands, except per share amounts)

Revenues:

Net premiums earned

Net investment income earned

Net realized gains (losses):

Net realized investment gains

Other-than-temporary impairments

Other-than-temporary impairments on fixed income securities recognized in other
comprehensive income

Total net realized gains (losses)

Other income

Total revenues

Expenses:

Loss and loss expense incurred

Amortization of deferred policy acquisition costs

Other insurance expenses

Interest expense

Corporate expenses

Total expenses

2017

2016

2015

2,291,027

161,882

2,149,572

130,754

1,989,909

121,316

11,204

(4,809)

(36)

6,359

10,716

3,562

(8,509)

(4,937)

8,881

31,537

(18,366)

—

13,171

7,456

2,469,984

2,284,270

2,131,852

1,345,074

1,234,797

1,148,541

469,236

333,097

24,354

36,255

450,328

321,395

22,771

35,024

399,436

300,359

22,428

28,396

2,208,016

2,064,315

1,899,160

Income before federal income tax

261,968

219,955

232,692

Federal income tax expense:

Current

Deferred

Total federal income tax expense

Net income

Earnings per share:

Basic net income

Diluted net income

Dividends to stockholders

See accompanying Notes to Consolidated Financial Statements.

62,184

30,958

93,142

48,581

12,879

61,460

45,347

21,484

66,831

168,826

158,495

165,861

2.89

2.84

0.66

2.74

2.70

0.61

2.90

2.85

0.57

Consolidated Statements of Comprehensive Income

December 31,

($ in thousands)

Net income

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on investment securities:

Unrealized holding gains (losses) arising during year

Non-credit portion of other-than-temporary impairments recognized in other comprehensive income

Amounts reclassified into net income:

Held-to-maturity securities

Non-credit other-than-temporary impairments

Realized (gains) losses on available for sale securities

Total unrealized gains (losses) on investment securities

Defined benefit pension and post-retirement plans:

Net actuarial (loss) gain

Amounts reclassified into net income:

Net actuarial loss

Total defined benefit pension and post-retirement plans

Other comprehensive income (loss)

Comprehensive income

See accompanying Notes to Consolidated Financial Statements.

2017

2016

2015

168,826

158,495

165,861

43,015

(116)

(4,537)

38,453

(5,977)

(26,143)

(6)

—

(92)

138

3,064

(2,873)

(377)

232

(9,110)

(35,398)

(3,700)

(7,852)

1,585

1,367

(2,333)

36,120

4,200

(3,652)

(6,525)

204,946

151,970

4,600

6,185

(29,213)

136,648

Consolidated Statements of Stockholders’ Equity

December 31,

($ in thousands, except share amounts)

Common stock:

Beginning of year

Dividend reinvestment plan
(shares: 28,607 – 2017; 38,741 – 2016; 50,013 – 2015)

Stock purchase and compensation plans
(shares: 635,521 – 2017; 720,323 – 2016; 863,426 – 2015)

End of year

Additional paid-in capital:

Beginning of year

Dividend reinvestment plan

Stock purchase and compensation plans

End of year

Retained earnings:

Beginning of year

Net income

Dividends to stockholders
($0.66 per share – 2017; $0.61 per share – 2016; $0.57 per share – 2015)

End of year

Accumulated other comprehensive income (loss):

Beginning of year

Other comprehensive income (loss)

End of year

Treasury stock:

Beginning of year

Acquisition of treasury stock
(shares: 136,205 – 2017; 152,595 – 2016; 147,461 – 2015)

End of year

Total stockholders’ equity

2017

2016

2015

203,241

201,723

199,896

100

1,271

204,569

1,441

203,241

1,727

201,723

347,295

1,395

19,027

367,717

326,656

1,389

19,250

347,295

305,385

1,374

19,897

326,656

1,568,881

1,446,192

1,313,440

168,826

158,495

165,861

(39,094)

(35,806)

(33,109)

1,698,613

1,568,881

1,446,192

(15,950)

36,120

20,170

(9,425)

(6,525)

(15,950)

19,788

(29,213)

(9,425)

(572,097)

(567,105)

(562,923)

(6,015)

(4,992)

(4,182)

(578,112)

(572,097)

(567,105)

1,712,957

1,531,370

1,398,041

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.

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows

December 31,

($ in thousands)
Operating Activities

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Stock-based compensation expense

Undistributed (gains) losses of equity method investments

Net realized (gains) losses

Loss on disposal of fixed assets

Changes in assets and liabilities:

Increase in reserves for loss and loss expense, net of reinsurance recoverables

Increase in unearned premiums, net of prepaid reinsurance

Decrease in net federal income taxes

Increase in premiums receivable

Increase in deferred policy acquisition costs

(Increase) decrease in interest and dividends due or accrued

(Decrease) increase in accrued salaries and benefits
Increase in other assets

Increase in other liabilities

Net cash provided by operating activities

Investing Activities

Purchase of fixed income securities, held-to-maturity

Purchase of fixed income securities, available-for-sale

Purchase of equity securities, available-for-sale

Purchase of other investments

Purchase of short-term investments

Sale of fixed income securities, available-for-sale

Sale of short-term investments

Redemption and maturities of fixed income securities, held-to-maturity

Redemption and maturities of fixed income securities, available-for-sale

Sale of equity securities, available-for-sale

Distributions from other investments

Purchase of property and equipment

Net cash used in investing activities

Financing Activities

Dividends to stockholders

Acquisition of treasury stock

Net proceeds from stock purchase and compensation plans

Proceeds from borrowings

Repayment of borrowings

Excess tax benefits from share-based payment arrangements

Repayment of capital lease obligations

Net cash (used in) provided by financing activities

Net increase (decrease) in cash

Cash, beginning of year

Cash, end of year

See accompanying Notes to Consolidated Financial Statements.

2017

2016

2015

168,826

158,495

165,861

52,100

12,089

(6,393)

(6,359)

998

106,226

79,614

30,918

(65,418)

(12,491)

(1,088)

(5,714)

(9,872)

27,297

370,733

61,671

10,449

(2,316)

4,937

—

114,422

87,716

11,150

(66,447)

(9,405)

(1,473)

(46,536)
(30,071)

9,191

301,783

59,688

8,973

1,889

(13,171)

—

59,438

79,995

25,004

(56,386)

(27,551)

407

11,392
(11,523)

77,564

381,580

—

(4,235)

(3,316)

(2,130,362)

(1,982,023)

(1,041,916)

(61,931)

(55,830)

(35,490)

(66,164)

(195,720)

(12,170)

(4,280,553)

(3,499,380)

(1,602,327)

1,197,920

4,338,318

58,832

555,216

37,960

23,426

(14,071)

(331,075)

(37,045)

(6,015)

7,599

84,000

(84,000)

—

(4,121)

(39,582)

458

534

926,470

3,470,022

102,868

641,524

119,617

26,837

(18,147)

(318,101)

(33,758)

(4,992)

7,811

165,000

(115,000)

1,819

(5,002)

15,878

(440)

898

458

61,571

1,539,480

106,621

567,445

172,561

32,457

(16,229)

(391,543)

(31,052)

(4,182)

10,089

15,000

—

1,736

(4,689)

(13,098)

(23,061)

23,959

898

Notes to Consolidated Financial Statements

Note 1. Organization
Selective Insurance Group, Inc., through its subsidiaries, (collectively referred to as “we,” “us,” or “our”) offers standard
commercial, standard personal, and excess and surplus ("E&S") lines property and casualty insurance products. Selective
Insurance Group, Inc. (referred to as the “Parent”) was incorporated in New Jersey in 1977 and its corporate headquarters is
located in Branchville, New Jersey. The Parent’s common stock is publicly traded on the NASDAQ Global Select Market
under the symbol “SIGI.” We have provided a glossary of terms as Exhibit 99.1 to this Form 10-K, which defines certain
industry-specific and other terms that are used in this Form 10-K.

We classify our business into four reportable segments, which are as follows:

•

Standard Commercial Lines - comprised of insurance products and services provided in the standard marketplace to
commercial enterprises, which are typically businesses, non-profit organizations, and local government agencies.

Standard Personal Lines - comprised of insurance products and services, including flood insurance coverage, provided
primarily to individuals acquiring coverage in the standard marketplace.

• E&S Lines - comprised of insurance products and services provided to customers who have not obtained coverage in

the standard marketplace.

•

Note 2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements (“Financial Statements”) include the accounts of the Parent and its
subsidiaries, and have been prepared in conformity with: (i) U.S. generally accepted accounting principles ("GAAP"); and (ii)
the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). All significant intercompany accounts and
transactions are eliminated in consolidation.

(b) Use of Estimates
The preparation of our Financial Statements in conformity with GAAP requires management 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.

(c) Reclassifications
In 2017, we reclassified certain line items within our Consolidated Statements of Income to enhance the ability to analyze our
expenses. Specifically, we reclassified our insurance underwriting expenses into amortization of deferred policy acquisition
costs and other insurance expenses. These expenses were previously included in policy acquisition costs and other expenses. In
addition, all expenses of the Parent, which were previously included in other expenses, are now separately identifiable as
corporate expenses on the Consolidated Statements of Income. All prior periods presented in this Form 10-K have been
reclassified to reflect this change.

(d) Investments
Fixed income securities may include investment grade and below investment grade rated bonds, redeemable preferred stocks,
non-redeemable preferred stocks with certain debt-like characteristics, mortgage-backed securities (“MBS”), collateralized loan
obligations ("CLO"), and other asset-backed securities (“ABS”). MBS, CLO, and other ABS are jointly referred to as
structured securities. Fixed income securities classified as available-for-sale (“AFS”) are reported at fair value. Those fixed
income securities that we have the ability and positive intent to hold to maturity are classified as held-to-maturity (“HTM”) and
are carried at either: (i) amortized cost; or (ii) market value at the date of transfer into the HTM category, adjusted for
subsequent amortization. The amortized cost of fixed income securities is adjusted for the amortization of premiums and the
accretion of discounts over the expected life of the security using the effective yield method. Premiums and discounts arising
from the purchase of structured securities are amortized over the expected life of the security based on future principal
payments, giving additional consideration to prepayments. These prepayments are estimated based on historical and projected
cash flows. Prepayment assumptions are reviewed quarterly and adjusted to reflect actual prepayments and changes in
expectations. Future amortization of any premium and/or discount is adjusted to reflect the revised assumptions. Interest
income, as well as amortization and accretion, is included in "Net investment income earned" on our Consolidated Statements
of Income. The amortized cost of a fixed income security is written down to fair value when a decline in value is considered to

be other than temporary. See the discussion below on realized investment gains and losses for a description of the accounting
for impairments. After-tax unrealized gains and losses on: (i) fixed income securities classified as AFS; and (ii) fixed income
securities that were transferred into an HTM designation from an AFS designation, are included in accumulated other
comprehensive income (loss) ("AOCI").

Equity securities, which are classified as AFS, may include common and non-redeemable preferred stocks. These securities are
carried at fair value and the related dividend income is included in "Net investment income earned" on our Consolidated
Statements of Income. The cost of equity securities is written down to fair value when a decline in value is considered to be
other than temporary. See the discussion below on realized investment gains and losses for a description of the accounting for
impairments. After-tax unrealized gains and losses are included in AOCI.

Short-term investments may include certain money market instruments, savings accounts, commercial paper, and debt issues
purchased with a maturity of less than one year. We also enter into reverse repurchase agreements that are included in short-
term investments. These loans are fully collateralized with high quality, readily marketable instruments at a minimum of 102%
of the loan principal. At maturity, we receive principal and interest income on these agreements. All short-term investments
are carried at cost, which approximates fair value. The associated income is included in "Net investment income earned" on
our Consolidated Statements of Income.

Other investments may include alternative investments and other securities. Alternative investments are accounted for using
the equity method. Our share of distributed and undistributed net income from alternative investments is included in "Net
investment income earned" on our Consolidated Statements of Income. Other securities are primarily comprised of tax credit
investments. Low income housing tax credits are accounted for under the proportional amortization method and all other tax
credits are accounted for using the equity method. Under the proportional amortization method, our share of the investment’s
performance is recorded in our Consolidated Statements of Income as a component of “Federal income tax expense.” Under
the equity method, our share of distributed and undistributed net income is included in "Net investment income earned" on our
Consolidated Statements of Income. For federal income tax credits accounted for under the equity method, we use the deferral
method for recognizing the benefit of the tax credit with the related deferred revenue being recognized in our Consolidated
Statements of Income as a component of "Federal income tax expense" proportionately over the life of the investment.

We evaluate the alternative investments and tax credit investments included in our other investments portfolio to determine
whether those investments are variable interest entities ("VIEs") and if so, whether consolidation is required. A VIE is an entity
that either has equity investors that lack certain essential characteristics of a controlling financial interest or lack sufficient
funds to finance its own activities without financial support provided by other entities. We consider several significant factors
in determining if our investments are VIEs and if we are the primary beneficiary, including whether we have: (i) the power to
direct activities of the VIE; (ii) the ability to remove the decision maker of the VIE; (iii) the ability to participate in making
decisions that are significant to the VIE; and (iv) the obligation to absorb losses and the right to receive benefits that could
potentially be significant to the VIE. We have reviewed our alternative and tax credit investments and have concluded that they
are VIEs, but that we are not the primary beneficiary and therefore, consolidation is not required.

Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold and
are credited or charged to income. Included in realized gains and losses are the other-than-temporary impairment ("OTTI")
charges recognized in earnings, which are discussed below.

On a quarterly basis, we review our investment portfolio for impairments that are other than temporary. Interest-related
unrealized losses typically do not result in other-than-temporary impairments. The following provides information on this
analysis for our fixed income securities and short-term investments, equity securities, and other investments.

Fixed Income Securities and Short-Term Investments
We review securities that are in an unrealized loss position to determine: (i) if we have the intent to sell the security; (ii) if it is
more likely than not that we will be required to sell the debt security before its anticipated recovery; and (iii) if the decline is
other than temporary. Broad changes in the overall market or interest rate environment generally will not lead to a write down.
If we determine that we have either the intent or requirement to sell the security, we write down its amortized cost to its fair
value through a charge to earnings as a component of realized losses. If we do not have either the intent or requirement to sell
the security, our evaluation for OTTI may include, but is not limited to, evaluation of the following factors:

• Whether the decline appears to be issuer or industry specific;
• The degree to which the issuer is current or in arrears in making principal and interest payments on the fixed income

security;

• The issuer’s current financial condition and ability to make future scheduled principal and interest payments on a

timely basis;

• Evaluation of projected cash flows;
• Buy/hold/sell recommendations published by outside investment advisors and analysts; and
• Relevant rating history, analysis, and guidance provided by rating agencies and analysts.

Non-redeemable preferred stocks that are classified as fixed income securities are evaluated under this OTTI method unless the
security is below investment grade, at which time it is evaluated under the equity securities OTTI model discussed below.

To determine if an impairment is other than temporary, we perform assessments that may include, but are not limited to, a
discounted cash flow analysis ("DCF") to determine the security's present value of future cash flows. This analysis is also
performed on all previously-impaired debt securities that continue to be held by us and all structured securities that were not of
high credit quality at the date of purchase. Any shortfall in the expected present value of the future cash flows, based on the
DCF, from the amortized cost basis of a security is considered a “credit impairment,” with the remaining decline in fair value of
a security considered a “non-credit impairment.” Credit impairments are charged to earnings as a component of realized losses,
while non-credit impairments are recorded to Other Comprehensive Income ("OCI") as a component of unrealized losses.

The discount rate we use in a DCF is the effective interest rate implicit in the security at the date of acquisition for those
structured securities that were not of high credit quality at acquisition. For all other securities, we use a discount rate that
equals the current yield, excluding the impact of previous OTTI charges, used to accrete the beneficial interest. DCFs may
include, but are not necessarily limited to: (i) generating cash flows for each tranche considering tranche-specific data, market
data, and other pertinent information, such as the historical performance of the underlying collateral, including net operating
income generated by underlying properties, conditional default rate assumptions, loan loss severity assumptions, consensus
projections, prepayment projections, and actual pool and collateral information; (ii) identifying applicable benchmark yields;
and (iii) applying market-based tranche specific spreads to determine an appropriate yield by incorporating collateral
performance, tranche-level attributes, trades, bids, and offers.

Equity Securities
We review securities that are in an unrealized loss position to determine: (i) if we do not intend to hold the security to its
forecasted recovery; or (ii) if the decline is other than temporary, which includes declines driven by market volatility for which
we cannot assert the security will recover in the near term. If we determine either that we do not intend to hold a security, or
the decline is other than temporary, we write down the security's cost to its fair value through a charge to earnings as a
component of realized losses. If we intend to hold the security, our evaluation for OTTI may include, but is not limited to, an
evaluation of the following factors:

• Whether the decline appears to be issuer or industry specific;
• The relationship of market prices per share to book value per share at the date of acquisition and date of evaluation;
• The price-earnings ratio at the time of acquisition and date of evaluation;
• The financial condition and near-term prospects of the issuer, including any specific events that may influence the

issuer's operations, coupled with our intention to hold the securities in the near-term;

• The recent income or loss of the issuer;
• The independent auditors' report on the issuer's recent financial statements;
• The dividend policy of the issuer at the date of acquisition and the date of evaluation;
• Buy/hold/sell recommendations or price projections published by outside investment advisors;
• Rating agency announcements;
• The length of time and the extent to which the fair value has been, or is expected to be, less than its cost in the near

term; and

• Our expectation of when the cost of the security will be recovered.

Other Investments
Our evaluation for OTTI of an other investment (i.e., an alternative investment) may include, but is not limited to,
conversations with the management of the alternative investment concerning the following:

• The current investment strategy;
• Changes made or future changes to be made to the investment strategy;
• Emerging issues that may affect the success of the strategy; and
• The appropriateness of the valuation methodology used regarding the underlying investments.

If there is a decline in the fair value of an other investment that we do not intend to hold, or if we determine the decline is other
than temporary, we write down the carry value of the investment and record the charge through earnings as a component of
realized losses.

(e) Fair Values of Financial Instruments

Assets
The fair values of our investments are generated using various valuation techniques and are placed into the fair value hierarchy
considering the following: (i) the highest priority is given to quoted prices in active markets for identical assets (Level 1); (ii)
the next highest priority is given to quoted prices in markets that are not active or inputs that are observable either directly or
indirectly, including quoted prices for similar assets in markets that are not active and other inputs that can be derived
principally from, or corroborated by, observable market data for substantially the full term of the assets (Level 2); and (iii) the
lowest priority is given to unobservable inputs supported by little or no market activity and that reflect our assumptions about
the exit price, including assumptions that market participants would use in pricing the asset (Level 3). An asset’s classification
within the fair value hierarchy is based on the lowest level of significant input to its valuation. Transfers between levels in the
fair value hierarchy are recognized at the end of the reporting period.

The techniques used to value our financial assets are as follows:

Level 1 Pricing

Security Type

Equity Securities;
U.S. Treasury Notes

Short-Term Investments

Methodology

Equity and U.S. Treasury Note prices are received from an independent pricing service that are based on observable
market transactions. We validate these prices against a second external pricing service, and if established market
value comparison thresholds are breached, further analysis is performed to determine the price to be used.

Short-term investments are carried at cost, which approximates fair value. Given the liquid nature of our short-term
investments, we generally validate their fair value by way of active trades within approximately one week of the
financial statement close.

Level 2 Pricing
We utilize a market approach for our Level 2 securities, using primarily matrix pricing models prepared by external pricing
services. Matrix pricing models use mathematical techniques to value debt securities by relying on the securities' relationship
to other benchmark quoted securities, and not relying exclusively on quoted prices for specific securities, as the specific
securities are not always frequently traded. As a matter of policy, we consistently use one pricing service as our primary source
and secondary pricing services if prices are not available from the primary pricing service. Fixed income securities portfolio
pricing is reviewed for reasonableness in the following ways: (i) comparing our pricing to other third-party pricing services as
well as benchmark indexed pricing; (ii) comparing fair value fluctuations between months for reasonableness; and (iii)
reviewing stale prices. If further analysis is needed, a challenge is sent to the pricing service for review and confirmation of the
price.

Further information on our Level 2 asset pricing is included in the following table:

Security Type

Methodology

Corporate Securities including
preferred stocks classified as Fixed
Income Securities, and U.S.
Government and Government Agencies

Evaluations include obtaining relevant trade data, benchmark quotes and spreads and incorporating this information
into either spread-based or price-based evaluations as determined by the observed market data. Spread-based
evaluations include: (i) creating a range of spreads for relevant maturities of each issuer based on the new issue
market, secondary trading, and dealer quotes; and (ii) incorporating option adjusted spreads for issues that have
early redemption features. Based on the findings in (i) and (ii) above, final spreads are derived and added to
benchmark curves. Price-based evaluations include matching each issue to its best-known market maker and
contacting firms that transact in these securities.

Obligations of States and Political
Subdivisions

Evaluations are based on yield curves that are developed based on factors such as: (i) benchmarks to issues with
interest rates near prevailing market rates; (ii) established trading spreads over widely-accepted market benchmarks;
(iii) yields on new issues; and (iv) market information from third-party sources such as reportable trades, broker-
dealers, or issuers.

Structured Securities (including CLO
and other ABS, Commercial Mortgage-
Backed Securities ("CMBS"),
Residential Mortgage-Backed
Securities ("RMBS"))

Evaluations are based on a DCF, including: (i) generating cash flows for each tranche considering tranche-specific
data, market data, and other pertinent information, such as historical performance of the underlying collateral,
including net operating income generated by the underlying properties, conditional default rate assumptions, loan
loss severity assumptions, consensus projections, prepayment projections, and actual pool and loan level collateral
information; (ii) identifying applicable benchmark yields; and (iii) applying market-based tranche-specific spreads
to determine an appropriate yield by incorporating collateral performance, tranche-level attributes, trades, bids, and
offers.

Foreign Government

Evaluations are performed using a DCF model and by incorporating observed market yields of benchmarks as
inputs, adjusting for varied maturities.

Level 3 Pricing
Less than 1% of our portfolio cannot be priced using our primary or secondary pricing service. At times, we may use non-
binding broker quotes to value some of these securities. These prices are from various broker/dealers that use bid or ask prices,
or benchmarks to indices, in measuring the fair value of a security. We review these fair value measurements for
reasonableness. This review typically includes an analysis of price fluctuations between months with variances over
established thresholds being analyzed further.

Further information on our current Level 3 asset pricing is included in the following table:

Security Type

Methodology

Corporate Securities

These tax credit investments are priced internally using spread-based evaluations.

Equity Securities

These non-publicly traded stocks are valued by the issuer and reviewed internally.

Liabilities
The techniques used to value our notes payable are as follows:

Level 1 Pricing

Security Type

5.875% Senior Notes

Level 2 Pricing

Security Type

7.25% Senior Notes;
6.70% Senior Notes

Based on the quoted market prices.

Methodology

Based on matrix pricing models prepared by external pricing services.

Borrowings from Federal Home Loan
Banks

Evaluations are performed using a DCF model based on current borrowing rates provided by the Federal Home
Loan Banks that are consistent with the remaining term of the borrowing.

See Note 7. “Fair Value Measurements” for a summary table of the fair value and related carrying amounts of financial
instruments.

(f) Allowance for Doubtful Accounts
We estimate an allowance for doubtful accounts on our premiums receivable. This allowance is based on historical write-off
percentages adjusted for the effects of current and anticipated trends. An account is charged off when we believe it is probable
that we will not collect a receivable. In making this determination, we consider information obtained from our efforts to collect
amounts due directly or through collection agencies.

(g) Share-Based Compensation
Share-based compensation consists of all share-based payment transactions in which an entity acquires goods or services by
issuing (or offering to issue) its shares, share units, share options, or other equity instruments. The cost resulting from all
share-based payment transactions are recognized in the Financial Statements based on the fair value of both equity and liability
awards. The fair value is measured at grant date for equity awards, whereas the fair value for liability awards are remeasured at
each reporting period. The fair value of both equity and liability awards is recognized over the requisite service period. The
requisite service period is typically the lesser of the vesting period or the period of time from the grant date to the date of
retirement eligibility. The expense recognized for share-based awards, which, in some cases, contain performance criteria, is
based on the number of shares or units expected to be issued at the end of the performance period. We repurchase the Parent’s
stock from our employees in connection with tax withholding obligations, as permitted under our stock-based compensation
plans. This activity is disclosed in our Consolidated Statements of Stockholders' Equity.

(h) Reinsurance
Reinsurance recoverables represent estimates of amounts that will be recovered from reinsurers under our various treaties.
Generally, amounts recoverable from reinsurers are recognized as assets at the same time and in a manner consistent with the
paid and unpaid losses associated with the reinsured policies. We require collateral to secure reinsurance recoverables
primarily from our reinsurance carriers that are not authorized, otherwise approved, or certified to do business in one or more
of our ten insurance subsidiaries' domiciliary states. Our ten insurance subsidiaries are collectively referred to as the

"Insurance Subsidiaries." This collateral is typically in the form of a letter of credit or cash. An allowance for estimated
uncollectible reinsurance is recorded based on an evaluation of balances due from reinsurers and other available information,
such as each reinsurers' credit rating from A.M. Best Company ("A.M. Best") or Standard & Poor's Rating Services ("S&P").
We charge off reinsurance recoverables on paid losses when it becomes probable that we will not collect the balance.

(i) Property and Equipment
Property and equipment used in operations, including certain costs incurred to develop or obtain computer software for internal
use, are capitalized and carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets. The following estimated useful lives can be considered as general guidelines:

Asset Category

Computer hardware

Computer software

Internally developed software

Software licenses

Furniture and fixtures

Buildings and improvements

Years

3 to 5

5 to 10

3 to 5

5 to 40

We recorded depreciation expense of $17.8 million, $17.4 million, and $16.4 million for 2017, 2016, and 2015, respectively.

(j) Deferred Policy Acquisition Costs
Deferred policy acquisition costs are limited to costs directly related to the successful acquisition of insurance contracts. Costs
meeting this definition typically include, among other things, sales commissions paid to our distribution partners, premium
taxes, and the portion of employee salaries and benefits directly related to time spent on acquired contracts. These costs are
deferred and amortized over the life of the contracts.

Accounting guidance requires a premium deficiency analysis to be performed at the level an entity acquires, services, and
measures the profitability of its insurance contracts. We currently perform three premium deficiency analyses for our insurance
operations, consistent with our reportable segments of Standard Commercial Lines, Standard Personal Lines, and E&S Lines.
A combined ratio of over 100% does not necessarily indicate a premium deficiency, as any year's combined ratio includes a
portion of underwriting expenses that are expensed at policy inception and therefore are not covered by the remaining unearned
premium. In addition, investment income is not contemplated in the combined ratio calculation.

There were no premium deficiencies for any of the reported years, as the sum of the anticipated loss and loss expense,
unamortized acquisition costs, policyholder dividends, and other expenses for each segment did not exceed that segment’s
related unearned premium and anticipated investment income. The investment yields assumed in the premium deficiency
assessment for each reporting period, which were based on our actual average investment yield before tax as of the September
30 calculation date, were 2.9% for 2017, 2.4% for 2016, and 2.5% for 2015.

(k) Goodwill
Goodwill results from business acquisitions where the cost of assets and liabilities acquired exceeds the fair value of those
assets and liabilities. A quantitative goodwill impairment analysis is performed if our quarterly qualitative analysis indicates
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Goodwill is allocated to the
reporting units for purposes of these analyses. Based on our analysis at December 31, 2017, goodwill was not impaired.

(l) Reserves for Loss and Loss Expense
Reserves for loss and loss expense are comprised of both case reserves on individual claims and reserves for claims incurred
but not reported ("IBNR"). Case reserves result from claims that have been reported to one or more of our Insurance
Subsidiaries, and are estimated at the amount of the expected ultimate payment. IBNR reserves are established at more
aggregated levels than case basis reserves, and in addition to reserves on claims that have been incurred but not reported, they
include provisions for future emergence on known claims, as well as reopened claims. IBNR reserves are established based on
the results of the Insurance Subsidiaries’ internal reserve analysis, supplemented with other internal and external information.

The internal reserve analysis is performed quarterly, and relies upon generally accepted actuarial techniques. Such techniques
assume that past experience, adjusted for the effects of current developments and anticipated trends, are an appropriate basis for
predicting future events. Our analyses rely upon historical paid and case loss and loss expense experience organized by line of
business, accident year, and maturity (i.e., “triangles”). Standard actuarial projection methods are applied to this history,

producing a set of estimated ultimate loss and loss expenses. Ultimate loss and loss expenses are selected from the various
methods, considering the strengths and weaknesses of the methods as they apply to the specific line and accident year.

Certain types of exposures do not lend themselves to standard actuarial methods. Examples of these are:

• Certain property catastrophe events may be low in frequency and high in severity. These events may affect many

insureds simultaneously. Due to the unique nature of these events, ultimate liabilities are estimated for each event,
based on surveys of our portfolio of exposures, in conjunction with individual claims estimates. While generally
short-tailed, the liabilities associated with these events are subject to a higher degree of uncertainty. We maintain
significant reinsurance protection that greatly limits the impact that these extreme events have on net loss and loss
expenses.

•

Some insured events may span multiple years and trigger multiple policies, as in the case of asbestos and
environmental claims, where the injury is deemed to occur over an extended period of time. These types of losses
often do not lend themselves to traditional actuarial methods. Where we deem appropriate, our experience may be
analyzed without differentiating by accident year, using alternative methods and metrics. In these cases, the associated
selected ultimate loss and loss expenses are then allocated to the applicable accident years for reporting.

• Another example of non-standard methods relate to loss expenses that cannot be attributed to a specific claim (referred
to as “unallocated loss expenses”). These expenses are first allocated to line of business, and alternative projection
methods are then applied to estimate expenses by calendar year, which are then allocated back to the applicable
accident years for reporting.

The selected ultimate losses and loss adjustment expenses are translated into indicated IBNR reserves, which are then
compared to the recorded IBNR reserves. Management's judgment is applied in determining any required adjustments and the
resulting adjustments are then recorded and assigned or allocated to accident year using the results of the actuarial analysis.

While the reserve analysis is the primary basis for determining the recorded IBNR reserves, other internal and external factors
are considered. Internal factors include: (i) supplemental data regarding claims reporting and settlement trends; (ii) exposure
estimates for reported claims, along with recent development on those estimates with respect to individual large claims and the
aggregate of all claims; (iii) the rate at which new large or complex claims are being reported; and (iv) additional trends
observed by claims personnel or reported to them by defense counsel. External factors considered include: (i) legislative
enactments; (ii) judicial decisions; (iii) legal developments in the determination of liability and the imposition of damages; and
(iv) trends in general economic conditions, including the effects of inflation.

Loss reserves are estimates, and as such, we also consider a range of possible loss and loss expense reserve estimates. This
range is determined at the beginning of each year, using prior year-end data, and reflects the fact that there is no single precise
method for estimating the required reserves, due to the many factors that may influence the amounts ultimately paid.
Considering the reserve range along with all of the items described above, as well as current market conditions, IBNR estimates
are then established and recorded.

The combination of the IBNR estimates along with the case reserve estimates on individual claims results in our total reserves
for loss and loss expense. These reserves are expected to be sufficient for settling losses and loss reserve obligations under our
policies on unpaid claims, including changes in the volume of business written, claims frequency and severity, the mix of
business, claims processing, and other items that management expects to affect our ultimate settlement of loss and loss expense.
However, the ultimate claim settlements may be higher or lower than reserves established. As our experience emerges and
other information develops, we revise our reserve estimates accordingly. The changes in these estimates, resulting from the
continuous review process and the differences between estimates and ultimate payments, are reflected in the Consolidated
Statements of Income for the period in which such estimates are changed. The associated impacts may be material to the
results of operations in future periods.

We do not discount to present value that portion of our losses and loss expense reserves expected to be paid in future periods.

Our loss and loss expense reserves implicitly include anticipated recoveries for salvage and subrogation claims.

Claims are counted at the occurrence, line of business, and policy level. For example, if a single occurrence (e.g. an auto
accident) leads to a claim under an auto and an associated umbrella policy, they are each counted separately. Conversely,
multiple claimants under the same occurrence/line/policy would contribute only a single count. The claim counts provided are

on a reported basis. A claim is considered reported when a reserve is established or payment is made. Therefore, claims closed
without payment are included in the count as long as there was an associated case reserve at some point in its life cycle.

We also write a small amount of assumed reinsurance. Currently, this business is limited to our share of certain involuntary
pools. Since the associated claims are not processed by us, they are not captured within our claims system. Therefore, the
claim counts reported exclude this business.

(m) Revenue Recognition
The Insurance Subsidiaries' net premiums written (“NPW”) include direct insurance policy writings, plus reinsurance assumed
and estimates of premiums earned but unbilled on the workers compensation and general liability lines of insurance, less
reinsurance ceded. The estimated premium on the workers compensation and general liability lines is referred to as audit
premium. We estimate this premium, as it is anticipated to be either billed or returned on policies subsequent to expiration
based on exposure levels (i.e. payroll or sales). Audit premium is based on historical trends adjusted for the uncertainty of
future economic conditions. Economic instability could ultimately impact our estimates and assumptions, and changes in our
estimate may be material to the results of operations in future periods. Premiums written are recognized as revenue over the
period that coverage is provided using the semi-monthly pro-rata method. Unearned premiums and prepaid reinsurance
premiums represent that portion of premiums written that are applicable to the unexpired terms of policies in force.

(n) Dividends to Policyholders
We establish reserves for dividends to policyholders on certain policies, most significantly workers compensation policies.
These dividends are based on the policyholders' loss experience. Dividend reserves are established based on past experience,
adjusted for the effects of current developments and anticipated trends. The expense for these dividends is recognized over a
period that begins at policy inception and ends with the payment of the dividend. We do not issue policies that entitle the
policyholder to participate in the earnings or surplus of our Insurance Subsidiaries.

(o) Federal Income Tax
We use the asset and liability method of accounting for income taxes. Current federal income taxes are recognized for the
estimated taxes payable or refundable on tax returns for the current year. Deferred federal income taxes arise from the
recognition of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities.
We consider all evidence, both positive and negative, with respect to our federal tax loss carryback availability, expected levels
of pre-tax financial statement income, and federal taxable income, when evaluating whether the temporary differences will be
realized. In projecting future taxable income, we begin with budgeted pre-tax income adjusted for estimated non-taxable items.
The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we
use to manage our businesses. A valuation allowance is established when it is more likely than not that some portion of the
deferred tax asset will not be realized. A liability for uncertain tax positions is recorded when it is more likely than not that a
tax position will not be sustained upon examination by taxing authorities. The effect of a change in tax rates is recognized in
the period of enactment. If we were to be levied interest and penalties by the Internal Revenue Service (“IRS”), the interest
would be recognized as “Interest expense” and the penalties would be recognized as either “Other insurance expenses” or
"Corporate expenses" on the Consolidated Statements of Income depending on the nature of what caused the occurrence of
such an item.

For information regarding the impact of the the recent tax reform, refer to Note 13. "Federal Income Taxes" of this Form 10-K.

(p) Leases
We have various operating leases for office space, equipment, and fleet vehicles. Rental expense for such leases is recorded on
a straight-line basis over the lease term. If a lease has a fixed and determinable escalation clause, or periods of rent holidays,
the difference between rental expense and rent paid is included in "Other liabilities" in the Consolidated Balance Sheets.

In addition, we have various capital leases for computer hardware and software. These leases are accounted for as an
acquisition of an asset with a corresponding obligation. Depreciation is calculated using the straight-line method over the
shorter of the estimated useful life of the asset or the lease term.

(q) Pension
Our pension and post-retirement life benefit obligations and related costs are calculated using actuarial methods, within the
framework of GAAP. Our pension benefit obligation is determined as the actuarial present value of the vested benefits to
which the employee is currently entitled, based on the average life expectancy of the employee. Our funding policy provides
that payments to our pension trust shall be equal to the minimum funding requirements of the Employee Retirement Income
Security Act, plus additional amounts that the Board of Directors of Selective Insurance Company of America (“SICA”) may
approve from time to time.

Two key assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or
liability measurement. We evaluate these key assumptions annually unless facts indicate that a more frequent review is
required. The discount rate enables us to state expected future cash flows at their present value on the measurement date. The
purpose of the discount rate is to determine the interest rates inherent in the price at which pension benefits could be effectively
settled. Our discount rate selection is based on high-quality, long-term corporate bonds. To determine the expected long-term
rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns
on each plan asset class. Other assumptions involve demographic factors such as retirement age and mortality.

Note 3. Adoption of Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-09,
Compensation - Stock Compensation: Improvements to Employee Share-based Payment Accounting (“ASU 2016-09”). ASU
2016-09 simplifies several aspects of the accounting for share-based payment transactions. We adopted this guidance in the
first quarter of 2017, which resulted in the following impacts on our consolidated financial statements:

Consolidated Statements of Income
The new standard requires that the tax effects of share-based compensation be recognized in the income tax provision as
discrete items outside of the annual estimated expected tax rate. In addition, all excess tax benefits and tax deficiencies should
be recognized as income tax benefit or expense in the income statement. Previously, these amounts were recorded in additional
paid-in capital. In addition, in calculating potential common shares used to determine diluted earnings per share, GAAP
requires us to use the treasury stock method. The new standard requires that assumed proceeds under the treasury stock method
be modified to exclude the amount of excess tax benefits that would have been recognized in additional paid-in capital. These
changes were adopted on a prospective basis. As a result of adoption, we recognized an income tax benefit in the Consolidated
Statements of Income of $4.3 million in 2017 related to stock grants that have vested this year.

In recording share-based compensation expense, the standard allows companies to make a policy election as to whether they
will include an estimate of awards expected to be forfeited or whether they will account for forfeitures as they occur. We have
elected to include an estimate of forfeitures in the computation of our share-based compensation expense. As this treatment is
consistent with previous guidance, this election had no impact on our consolidated financial statements.

Consolidated Statements of Cash Flows
ASU 2016-09 requires that excess tax benefits from share-based awards be reported as operating activities in the consolidated
statement of cash flows. Previously, these cash flows were included in financing activities. We elected to apply this change on
a prospective basis; therefore, no changes have been made to the prior periods disclosed in this report.

ASU 2016-09 also requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be
reported as financing activities in the consolidated statement of cash flows. This requirement has no impact to us as we have
historically reported these cash flows as part of financing activities.

In October 2016, the FASB issued ASU 2016-17, Consolidation: Interests Held through Related Parties That Are under
Common Control ("ASU 2016-17"). ASU 2016-17 changes how a decision maker considers indirect interests in a VIE held
under common control in making the primary beneficiary determination. We adopted ASU 2016-17 in the first quarter of 2017.
This adoption did not impact us, as we are not the decision maker in any of the VIEs in which we invest.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs: Premium Amortization on
Purchased Callable Debt Securities ("ASU 2017-08"). ASU 2017-08 revises the amortization period for certain callable debt
securities held at a premium, requiring the premium to be amortized to the earliest call date. Under current GAAP, entities
generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 is effective
for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption
permitted. We adopted this guidance in the fourth quarter of 2017 and the adoption did not impact us as we amortize premium
on these callable debt securities to the earliest call date.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting ("ASU
2017-09"). ASU 2017-09 provides clarification about which changes to the terms or conditions of a share-based payment
award would require the application of modification accounting. ASU 2017-09 is effective for annual and interim periods
beginning after December 15, 2017, with early adoption permitted. We adopted this guidance in the fourth quarter of 2017 and
the adoption did not impact us, as we currently record modifications in accordance with this ASU.

Pronouncements to be effective in the future
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial
Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 provides guidance to improve certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. Specifically the guidance: (i) requires equity investments
to be measured at fair value with changes in fair value recognized in earnings; (ii) simplifies the impairment assessment of
equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii)
eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to
be disclosed for financial instruments measured at amortized cost; (iv) requires the use of the exit price notion when measuring
the fair value of financial instruments for disclosure purposes; and (v) clarifies that the need for a valuation allowance on a
deferred tax asset related to an available-for-sale ("AFS") security should be evaluated with other deferred tax assets.

ASU 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual
periods. Our adoption of this guidance will require a cumulative-effect adjustment between AOCI and retained earnings on the
balance sheet for approximately $25 million, which represents the after-tax unrealized gain on our equity securities portfolio as
of December 31, 2017. On a pre-tax basis, the unrealized gain on our equity securities portfolio increased $13 million during
2017 and, had this literature been in effect, we would have recognized additional after-tax net income of approximately $10
million, or $0.17 per diluted share, assuming a 21% corporate tax rate.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires all lessees to recognize a
lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease
commencement date. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim reporting
periods within that fiscal year, with early adoption permitted. ASU 2016-02 requires the application of a modified retrospective
approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements. While we are currently evaluating ASU 2016-02, we do not expect a material impact on our financial condition or
results of operations from the adoption of this guidance.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“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 debt securities,
trade receivables, and reinsurance recoverables. ASU 2016-13 requires a valuation allowance to be calculated on these
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. ASU 2016-13 is effective for fiscal years beginning after
December 15, 2019, including interim periods within those annual periods. Early adoption is permitted, but no earlier than
fiscal years beginning after December 15, 2018. We are currently evaluating the impact of this guidance on our financial
condition and results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments (“ASU 2016-15”). ASU 2016-15 adds or clarifies guidance on the classification of certain cash receipts and
payments in the statement of cash flows, including, but not limited to: (i) debt prepayment or debt extinguishment costs; (ii)
proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (iii)
distributions received from equity method investees; and (iv) separately identifiable cash flows and application of the
predominance principle. ASU 2016-15 is effective, with retrospective adoption, for annual periods beginning after December
15, 2017, and interim periods within those fiscal years. We anticipate that the adoption of this guidance in 2018 will result in
an increase to our 2017 and 2016 operating cash flows of approximately $2 million and $3 million, respectively, reflecting
adjustments for distributions received from equity method investees.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash ("ASU 2016-18"). ASU
2016-18, requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents in the
reconciliation of beginning and ending cash on the statements of cash flows. This update also requires a reconciliation of the
statement of the cash flows to the balance sheet if the balance sheet includes more than one line item containing cash, cash
equivalents, and restricted cash. We currently have restricted cash associated with our participation in the National Flood
Insurance Program ("NFIP") within "Other assets" on our consolidating balance sheets. This restricted cash amounted to $44.2
million, $36.9 million, and $11.9 million on December 31, 2017, 2016, and 2015, respectively. ASU 2016-18 is effective, with
retrospective adoption, for annual periods beginning after December 15, 2017, and interim periods within those annual periods.
We anticipate that the adoption of this guidance in 2018 will result in increases to operating cash flows of $7 million and $25
million for 2017 and 2016, respectively. The restricted cash balance will also be included in the reconciliation of beginning and
ending cash balances.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill
Impairment (“ASU 2017-04”). ASU 2017-04 eliminates the second step of the two part goodwill impairment test, which
required entities to determine the fair value of individual assets and liabilities of a reporting unit to measure the goodwill
impairment. Under the new guidance, a goodwill impairment is calculated as the amount by which a reporting unit’s carrying
value exceeds its fair value, not to exceed the carrying amount of goodwill. An entity still has the option to perform the
qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this
update should be applied on a prospective basis for annual or interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates
after January 1, 2017. We intend to adopt this guidance in 2018, but do not expect it to impact our financial condition or results
of operations.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits: Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). ASU 2017-07 requires that an
employer report a pension plan's service cost in the same line item or line items as other compensation costs arising from
services rendered by pertinent employees during the period. ASU 2017-07 also requires that other components of net benefit
cost be presented in the income statement separately from the service cost component. If a separate line item or items are not
used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.
ASU 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual
periods, with early adoption permitted at the beginning of an annual period. As our pension plan was frozen as of March 2016,
we have ceased accruing additional service fee costs since that time. Therefore, the application of this guidance is not
anticipated to impact our financial condition, results of operations, or disclosures.

Note 4. Statements of Cash Flows
Supplemental cash flow information for the years ended December 31, 2017, 2016, and 2015 is as follows:

($ in thousands)

Cash paid during the period for:

Interest

Federal income tax

Non-cash items:

Exchange of fixed income securities, AFS

Exchange of fixed income securities, HTM
Corporate actions related to equity securities, AFS1

Assets acquired under capital lease arrangements

Non-cash purchase of property and equipment
1Examples of such corporate actions include non-cash acquisitions and stock-splits.

2017

2016

2015

23,905

62,000

22,511

—

4,725

278

—

22,098

46,405

23,579

—

3,263

3,151

21,892

39,500

36,792

15,257

4,239

6,760

—

Included in "Other assets" on the Consolidated Balance Sheet was $44.2 million at December 31, 2017 and $36.9 million at
December 31, 2016 of cash received from the NFIP, which is restricted to pay flood claims under the Write Your Own Program.

Note 5. Investments
(a) Net unrealized gains on investments included in OCI by asset class were as follows for the years ended December 31, 2017,
2016, and 2015:

($ in thousands)

AFS securities:

Fixed income securities

Equity securities

Total AFS securities

HTM securities:

Fixed income securities

Total HTM securities

Total net unrealized gains

Deferred income tax

Net unrealized gains, net of deferred income tax

2017

2016

2015

85,806

38,894

124,700

(21)

124,679

(44,103)

80,576

38,781

25,864

64,645

159

64,804

(22,681)

42,123

55,689

13,235

68,924

300

69,224

(24,228)

44,996

Increase (decrease) in net unrealized gains in OCI, net of deferred income tax

38,453

(2,873)

(35,398)

(b) The amortized cost, net unrealized gains and losses, carrying value, unrecognized holding gains and losses, and fair value of
HTM fixed income securities were as follows:

December 31, 2017

($ in thousands)
Obligations of state and political
subdivisions
Corporate securities

Total HTM fixed income securities

December 31, 2016

($ in thousands)
Obligations of state and political
subdivisions

Corporate securities

CMBS

Amortized
Cost

25,154

16,996

42,150

Amortized
Cost

77,466

22,711

1,220

Total HTM fixed income securities

101,397

Net
Unrealized
Gains
(Losses)

Carrying
Value

Unrecognized
Holding
Gains

Unrecognized
Holding
Losses

Fair
Value

(105)

(21)

25,238

16,891

42,129

1,023

1,003

2,026

—

(55)

26,261

17,839

44,100

Net
Unrealized
Gains
(Losses)

Carrying
Value

Unrecognized
Holding
Gains

Unrecognized
Holding
Losses

Fair
Value

317

(143)

(15)

159

77,783

22,568

1,205

101,556

2,133

1,665

3,813

—

(158)

—

(158)

79,916

24,075

1,220

105,211

Unrecognized holding gains and losses of HTM securities are not reflected in the Financial Statements, as they represent fair
value fluctuations from the later of: (i) the date a security is designated as HTM either through purchase or transfer from AFS;
or (ii) the date that an OTTI charge is recognized on an HTM security, through the date of the balance sheet.

December 31, 2017

($ in thousands)
AFS fixed income securities:

U.S. government and government agencies

Foreign government

Obligations of states and political subdivisions

Cost/
Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value

Corporate securities

CLO and other ABS

CMBS

RMBS

Total AFS fixed income securities

AFS equity securities:

Common stock

Preferred stock

Total AFS equity securities

Total AFS securities

December 31, 2016

($ in thousands)
AFS fixed income securities:

Corporate securities

CLO and other ABS

CMBS

RMBS

Total AFS fixed income securities

AFS equity securities:

Common stock

Preferred stock

Total AFS equity securities

Total AFS securities

U.S. government and government agencies

Foreign government

Obligations of states and political subdivisions

5,220,527

49,326

18,040

1,539,307

1,588,339

789,152

382,727

709,825

5,076,716

129,696

14,115

143,811

75,139

26,559

1,366,287

1,976,556

527,876

256,356

524,986

4,753,759

104,663

16,226

120,889

4,874,648

647

526

44,245

30,891

6,508

1,563

6,487

90,867

38,287

904

39,191

130,058

(233)

(11)

(582)

(1,762)

(202)

(841)

(1,430)

(5,061)

(226)

(71)

(297)

49,740

18,555

1,582,970

1,617,468

795,458

383,449

714,882

5,162,522

167,757

14,948

182,705

(5,358)

5,345,227

2,230

322

18,610

27,057

1,439

1,514

3,006

54,178

26,250

274

26,524

80,702

(36)

(16)

(5,304)

(5,860)

(355)

(1,028)

(2,798)

77,333

26,865

1,379,593

1,997,753

528,960

256,842

525,194

(15,397)

4,792,540

(305)

(355)

(660)

130,608

16,145

146,753

(16,057)

4,939,293

Cost/
Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value

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 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.

(d) The severity of impairment on the securities in an unrealized/unrecognized loss position averaged 1% of amortized cost at
December 31, 2017 and December 31, 2016. Quantitative information regarding unrealized losses on our AFS portfolio is
provided below. Our HTM portfolio had $0.1 million in unrealized/unrecognized losses at December 31, 2017 and no
unrealized/unrecognized losses at December 31, 2016.

December 31, 2017

Less than 12 months

12 months or longer

Total

($ in thousands)

AFS fixed income securities:

U.S. government and government agencies

Foreign government

Obligations of states and political subdivisions

Corporate securities

CLO and other ABS

CMBS

RMBS

Total AFS fixed income securities

AFS equity securities:

Common stock

Preferred stock

Total AFS equity securities

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

23,516

1,481

107,514

238,326

74,977

154,267

269,485

869,566

4,727

3,833

8,560

(233)

(11)

(422)

(1,744)

(196)

(773)

(1,285)

(4,664)

(226)

(71)

(297)

250

—

14,139

3,228

1,655

5,214

11,200

35,686

—

(160)

(18)

(6)

(68)

(145)

(397)

—

23,766

1,481

121,653

241,554

76,632

159,481

280,685

905,252

4,727

3,833

8,560

(233)

(11)

(582)

(1,762)

(202)

(841)

(1,430)

(5,061)

(226)

(71)

(297)

Total AFS securities

878,126

(4,961)

35,686

(397)

913,812

(5,358)

December 31, 2016

Less than 12 months

12 months or longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

($ in thousands)

AFS fixed income securities:

U.S. government and government agencies

Foreign government

Obligations of states and political subdivisions

Corporate securities

CLO and other ABS

CMBS

RMBS

6,419

13,075

306,509

462,902

189,795

82,492

279,480

(36)

(16)

(5,304)

(5,771)

(354)

(1,021)

(2,489)

—

4,913

319

1,645

8,749

Total AFS fixed income securities

1,340,672

(14,991)

15,626

AFS equity securities:

Common stock

Preferred stock

Total AFS equity securities

11,271

6,168

17,439

(305)

(355)

(660)

—

— $

6,419

13,075

306,509

467,815

190,114

84,137

288,229

(36)

(16)

(5,304)

(5,860)

(355)

(1,028)

(2,798)

1,356,298

(15,397)

11,271

6,168

17,439

(305)

(355)

(660)

—

(89)

(1)

(7)

(309)

(406)

—

Total AFS securities

1,358,111

(15,651)

15,626

(406) $

1,373,737

(16,057)

We do not intend to sell any of the securities in the tables above, nor do we believe we will be required to sell any of these
securities. Additionally, we have reviewed these securities in accordance with our OTTI policy, as described in Note 2.
“Summary of Significant Accounting Policies” of this Form 10-K and have concluded that they are temporarily impaired. This
conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the security
and underlying collateral. If our judgment about an individual security changes in the future, we may ultimately record a credit
loss after having originally concluded that one did not exist, which could have a material impact on our net income and
financial position in future periods.

(e) Fixed income securities at December 31, 2017, by contractual maturity are shown below. MBS 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 December 31, 2017:

($ in thousands)

Due in one year or less

Due after one year through five years

Due after five years through 10 years

Due after 10 years

Total fixed income securities

AFS

HTM

Fair Value

Carrying Value

Fair Value

315,857

2,099,529

2,510,294

236,842

5,162,522

10,997

23,035

8,097
—

42,129

11,168

24,235

8,697
—

44,100

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

Other Investments

December 31, 2017

December 31, 2016

($ in thousands)

Alternative Investments

Private equity

Private credit

Real assets

Total alternative investments

Carrying
Value

Remaining
Commitment

Maximum
Exposure to Loss1

Carrying
Value

Remaining
Commitment

Maximum
Exposure to Loss1

52,251

37,743

25,379

115,373

99,026

94,959

27,014

220,999

151,277

132,702

52,393

336,372

41,135

28,193

14,486

83,814

76,774

40,613

22,899

140,286

117,909

68,806

37,385

224,100

Other securities2
Total other investments
246,083
1The maximum exposure to loss includes both the carrying value of these investments and the related unfunded 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.
2 Other securities primarily consists of tax credit investments.

16,895
132,268

16,895
353,267

—
220,999

143,686

102,397

18,583

21,983

3,400

We have reviewed various investments included in the table above and have concluded that they are VIEs, but that we are not
the primary beneficiary and therefore, consolidation is not required. We do not have a future obligation to fund losses or debts
on behalf of these investments; however, we are contractually committed to make additional investments up to the remaining
commitment outlined above. We have not provided any non-contractual financial support at any time during 2017 or 2016.

The following is a description of our alternative investment strategies:

Our private equity strategy includes the following:

• Primary Private Equity: This strategy makes private equity investments, primarily in established large and middle

market companies across diverse industries globally.

•

Secondary Private Equity: This strategy purchases seasoned private equity funds from investors desiring liquidity
prior to normal fund termination. Investments are made across all sectors of the private equity market, including
leveraged buyouts ("LBO"), venture capital, distressed securities, mezzanine financing, real estate, and infrastructure.

• Venture Capital: In general, these investments are made principally by investing in equity securities of privately-held
corporations, for long-term capital appreciation. This strategy makes private equity investments in growth equity and
buyout partnerships.

Our private credit strategy includes the following:

• Middle Market Lending: This strategy provides privately negotiated loans to U.S. middle market companies.

Typically, these are floating rate, senior secured loans diversified across industries. Loans can be made to private
equity sponsor-backed companies or non-sponsored companies to finance LBOs, recapitalizations, and acquisitions.

• Mezzanine Financing: This strategy provides privately negotiated fixed income securities, generally with an equity
component, to LBO firms and private and publicly traded large, mid, and small-cap companies to finance LBOs,
recapitalizations, and acquisitions.

• Distressed Debt: This strategy makes direct and indirect investments in debt and equity securities of companies that
are experiencing financial and/or operational distress. Investments include buying indebtedness of bankrupt or
financially troubled companies, small balance loan portfolios, special situations and capital structure arbitrage trades,

commercial real estate mortgages, and similar non-U.S. securities and debt obligations.

Our real assets strategy includes the following:

• Energy & Power Generation: This strategy makes energy and power generation investments in cash flow generating
infrastructure assets. Energy investments are made in a variety of industries including oil, natural gas, and coal.
These investments are diversified across the energy supply chain and include assets in the exploration and production,
pipeline, and refining sectors. Power generation includes investments in: (i) conventional power, such as natural gas
and oil; (ii) renewable power, such as wind and solar; and (iii) electric transmission and distribution.

• Real Estate: This strategy invests in real estate in North America, Europe, and Asia via direct property ownership,

joint ventures, mortgages, and investments in equity and debt instruments.

Our alternative investment strategies generally employ low or moderate levels of leverage and use hedging only to reduce
foreign exchange or interest rate volatility. At this time, our alternative investment strategies do not include hedge funds. We
cannot redeem our investments with the general partners of these investments; however, occasionally these partnerships can be
traded on the secondary market. Once liquidation is triggered by clauses within the limited partnership agreements or at the
funds’ stated end date, we will receive our final allocation of capital and any earned appreciation of the underlying investments,
assuming we have not divested ourselves of our partnership interests prior to that time. We currently receive distributions from
these alternative investments through the realization of the underlying investments in the limited partnerships. We anticipate
that the general partners of these alternative investments will liquidate their underlying investment portfolios through 2032.

The following tables set forth summarized financial information for our other investments portfolio, including the portion not
owned by us. The investments are carried under the equity method of accounting. The last line in the income statement
information table below reflects our share of the aggregate income, 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 is
as of, and for the 12-month period ended, September 30:

Balance Sheet Information

September 30,

($ in millions)

Investments

Total assets

Total liabilities

Total partners’ capital

Income Statement Information
12 months ended September 30,
($ in millions)
Net investment (loss) income
Realized gains
Net change in unrealized appreciation (depreciation)
Net income

Insurance Subsidiaries' alternative investments income (loss)

2017

2016

21,046

22,357

4,767

17,590

2017

2016

2015

(143)
325
2,894
3,076

12.7

(44)
1,374
(719)
611

3.1

11,244

12,075

1,802

10,273

129
1,187
(1,364)
(48)

(1.9)

(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 agencies, as of December 31, 2017 or December 31, 2016.

(h) 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 December 31, 2017 to comply with insurance laws. We retain all
rights regarding securities pledged as collateral.

The following table summarizes the market value of these securities at December 31, 2017:

($ in millions)

U.S. government and government agencies

Obligations of states and political subdivisions

CMBS

RMBS

Total pledged as collateral

FHLBI
Collateral

FHLBNY
Collateral

State and
Regulatory
Deposits

Total

3.0

—

6.2

56.3

65.5

—

14.1

59.6

73.7

22.6

3.1

—

25.7

25.6

3.1

20.3

115.9

164.9

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

($ in thousands)

Fixed income securities

Equity securities

Short-term investments

Other investments

Investment expenses

Net investment income earned

2017

2016

2015

153,230

6,442

1,526

12,871

(12,187)

161,882

129,306

123,230

7,368

686

2,940

(9,546)

130,754

9,161

112

(1,890)

(9,297)

121,316

(j) The following tables summarize OTTI by asset type for the periods indicated:

2017

($ in thousands)

AFS fixed income securities:

U.S. government and government agencies

Obligations of states and political subdivisions

Corporate securities

CLO and other ABS

CMBS

RMBS

Total AFS fixed income securities

AFS equity securities:

Common stock

Total AFS equity securities

Other investments

Total OTTI losses

2016

($ in thousands)

AFS fixed income securities:

Obligations of states and political subdivisons

Corporate securities

CLO and other ABS

CMBS

RMBS

Total AFS fixed income securities

AFS equity securities:

Common stock

Preferred stock

Total AFS equity securities

Total OTTI losses

Gross

Included in OCI

Recognized in
Earnings

612

587

670

1,183

3,184

1,435

190

4,809

—

(36)

—

(36)

612

587

670

1,219

3,220

1,435

190

4,845

Gross

Included in OCI

Recognized in
Earnings

2,797

1,880

220

275

5,191

3,316

3,318

8,509

—

2,797

1,880

220

265

5,181

3,316

3,318

8,499

2015

($ in thousands)

AFS fixed income securities:

Corporate securities

RMBS

Total AFS fixed income securities

AFS equity securities:

Common stock

Preferred stock

Total AFS equity securities

Total OTTI losses

Gross

Included in OCI

Recognized in
Earnings

2,188

2,189

15,996

181

16,177

18,366

—

2,188

2,189

15,996

181

16,177

18,366

The majority of the OTTI charges in both 2017 and 2016 were on securities for which we had the intent to sell to facilitate our
fixed income strategy change to more actively manage the portfolio to maximize after-tax income and total return, while
maintaining a similar level of credit quality and duration risk. Charges in 2015 related to equity securities for which we had the
intent to sell in relation to our high-dividend yield strategy, with the remaining charges relating to securities that we did not
believe would recover in the near term.

(k) The components of net realized gains, excluding OTTI charges, were as follows:

($ in thousands)

HTM fixed income securities

Gains

Losses

AFS fixed income securities

Gains

Losses

AFS equity securities

Gains

Losses

Short-term investments

Gains

Losses

Other investments

Gains

Losses

Total net realized investment gains

2017

2016

2015

(1)

10,193

(3,292)

5,829

(1,200)

(6)

494

(859)

11,204

(1)

7,741

(11,411)

8,108

(864)

—

(13)

(4)

3,562

(1)

4,515

(312)

29,168

(1,347)

—

162

(653)

31,537

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 sale of AFS securities were $1,235.9 million in 2017, $1,046.1 million in 2016, and $234.1 million in 2015.

Net realized gains in the table above were driven by the following:

•

2017: A higher trading volume in our fixed income securities portfolio related to a more active external investment
management approach and opportunistic sales in our equity portfolio.
2016: A repositioning of our equity portfolio partially offset by net losses in our AFS fixed income portfolio related to
the change in our strategy to more actively manage this portfolio.
2015: A change in our dividend strategy from a quantitative, model-driven stock selection strategy to a
fundamentally-based stock selection approach that incorporates an assessment of the sustainability and growth rate of
a company's dividends and future cash flow.

Note 6. Comprehensive Income
(a) The components of comprehensive income, both gross and net of tax, for 2017, 2016, and 2015 were as follows:

2017
($ in thousands)
Net income

Components of OCI:
Unrealized gains (losses) on investment securities:
Unrealized holding gains during the year

Non-credit portion of OTTI recognized in OCI

Amounts reclassified into net income:

HTM securities

Non-credit OTTI

Realized gains on AFS securities

Net unrealized gains

Defined benefit pension and post-retirement plans:

Net actuarial loss

Amounts reclassified into net income:

Net actuarial loss

Defined benefit pension and post-retirement plans

Other comprehensive income

Comprehensive income

2016
($ in thousands)
Net income
Components of OCI:
Unrealized (losses) gains on investment securities:
Unrealized holding losses during the year
Non-credit portion of OTTI recognized in OCI

Amounts reclassified into net income:

HTM securities
Non-credit OTTI
Realized losses on AFS securities

Net unrealized losses

Defined benefit pension and post-retirement plans:

Net actuarial loss
Amounts reclassified into net income:

Net actuarial loss

Defined benefit pension and post-retirement plans

Other comprehensive loss
Comprehensive income

Gross

Tax

Net

261,968

93,142

168,826

66,894

(179)

104

(6,979)

59,876

(4,684)

2,102

(2,582)

57,294
319,262

23,879

(63)

(2,442)

21,423

(984)

735

(249)

21,174
114,316

43,015

(116)

(4,537)

38,453

(3,700)

1,367

(2,333)

36,120
204,946

Gross

Tax

Net

219,955

61,460

158,495

(9,195)
(10)

(141)
213
4,713
(4,420)

(12,079)

6,462
(5,617)
(10,037)
209,918

(3,218)
(4)

(49)
75
1,649
(1,547)

(4,227)

2,262
(1,965)
(3,512)
57,948

(5,977)
(6)

(92)
138
3,064
(2,873)

(7,852)

4,200
(3,652)
(6,525)
151,970

2015

($ in thousands)

Net income

Components of OCI:
Unrealized (losses) gains on investment securities:

Unrealized holding losses during the year

Amounts reclassified into net income:

HTM securities

Non-credit OTTI

Realized gains on AFS securities

Net unrealized losses

Defined benefit pension and post-retirement plans:

Net actuarial gain
Amounts reclassified into net income:

Net actuarial loss

Defined benefit pension and post-retirement plans

Other comprehensive loss

Comprehensive income

Gross

Tax

Net

232,692

66,831

165,861

(40,221)

(14,078)

(26,143)

(580)

357

(14,016)

(54,460)

2,438

7,077

9,515

(44,945)

187,747

(203)

125

(4,906)

(19,062)

853

2,477

3,330

(15,732)

51,099

(377)

232

(9,110)

(35,398)

1,585

4,600

6,185

(29,213)

136,648

(b) The balances of, and changes in, each component of AOCI (net of taxes) as of December 31, 2017 and 2016 were as
follows:

Net Unrealized (Loss) Gain on Investment Securities

($ in thousands)

OTTI Related

HTM Related

All Other

Investments
Subtotal

Defined Benefit
Pension and Post-
retirement Plans

Total AOCI

Balance, December 31, 2015

OCI before reclassifications

Amounts reclassified from AOCI

Net current period OCI

Balance, December 31, 2016

OCI before reclassifications

Amounts reclassified from AOCI

Net current period OCI

Balance, December 31, 2017

(282)

(6)

138

132

(150)

(59)

194

—

(92)

102

—

(116)

(14)

45,083

(5,977)

3,064

(2,913)

42,170

43,015

(4,537)

38,478

80,648

44,995

(5,983)

3,110

(2,873)

42,122

43,038

(4,585)

38,453

80,575

(54,420)

(7,852)

4,200

(3,652)

(58,072)

(3,700)

1,367

(2,333)

(60,405)

(9,425)

(13,835)

7,310

(6,525)

(15,950)

39,338

(3,218)

36,120
20,170

The reclassifications out of AOCI are as follows:

($ in thousands)

OTTI related

Non-credit OTTI on disposed securities

HTM related

Unrealized losses on HTM disposals

Amortization of net unrealized gains on HTM
securities

Realized (losses) gains on AFS

Realized (losses) gains on AFS disposals

Defined benefit pension and post-retirement life plans

Net actuarial loss

Total defined benefit pension and post-retirement life

Year ended
December 31, 2017

Year ended
December 31, 2016

Affected Line Item in the Consolidated
Statements of Income

104

(36)

(211)

(179)

(116)

(6,979)

2,442

(4,537)

450

1,652

2,102

(735)

1,367

213 Net realized gains (losses)

213

Income before federal income tax

(75) Total federal income tax expense

138 Net income

169 Net realized gains (losses)

(310) Net investment income earned

(141)

Income before federal income tax

49 Total federal income tax expense

(92) Net income

4,713 Net realized gains (losses)

4,713

Income before federal income tax

(1,649) Total federal income tax expense

3,064 Net income

1,486 Loss and loss expense incurred

4,976 Other insurance expenses

6,462

Income before federal income tax

(2,262) Total federal income tax expense

4,200 Net income

Total reclassifications for the period

(3,218)

7,310 Net income

Note 7. Fair Value Measurements
The following table presents the carrying amounts and estimated fair values of our financial instruments as of December 31,
2017 and 2016:

($ in thousands)

Financial Assets

Fixed income securities:

HTM

AFS

Equity securities, AFS

Short-term investments

Long-term debt:

7.25% Senior Notes

6.70% Senior Notes

5.875% Senior Notes

1.61% Borrowings from FHLBNY

1.56% Borrowings from FHLBNY

3.03% Borrowings from FHLBI

Subtotal long-term debt

Unamortized debt issuance costs

Total long-term debt

December 31, 2017

December 31, 2016

Carrying
Amount

Fair Value

Carrying
Amount

Fair Value

42,129

5,162,522

182,705

165,555

49,904

99,446

185,000

25,000

60,000

444,350

(5,234)
439,116

44,100

5,162,522

182,705

165,555

61,391

116,597

186,332

24,270

24,210

60,334

473,134

105,211

4,792,540

146,753

221,701

56,148

108,333

176,860

24,286

24,219

59,313

449,159

101,556

4,792,540

146,753

221,701

49,901

99,430

185,000

25,000

60,000

444,331

(5,664)

438,667

For discussion regarding the fair value techniques of our financial instruments, refer to Note 2. "Summary of Significant
Accounting Policies" in this Form 10-K.

The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at
December 31, 2017 and 2016:

December 31, 2017

($ in thousands)

Description

Measured on a recurring basis:

AFS fixed income securities:

Fair Value Measurements Using

Quoted Prices in
Active Markets for
Identical Assets/
Liabilities
(Level 1)1

Significant Other
Observable Inputs
(Level 2)1

Significant
Unobservable
Inputs
(Level 3)

Assets Measured
at Fair Value

U.S. government and government agencies

Foreign government

Obligations of states and political subdivisions

Corporate securities

CLO and other ABS

CMBS

RMBS

Total AFS fixed income securities

AFS equity securities:
Common stock2
Preferred stock

Total AFS equity securities

Total AFS securities

Short-term investments

Total assets measured at fair value

49,740

18,555

1,582,970

1,617,468

795,458

383,449

714,882

5,162,522

167,757

14,948
182,705

5,345,227

165,555

5,510,782

24,652

—

24,652

138,640

14,948
153,588

178,240

165,555

343,795

25,088

18,555

1,582,970

1,617,468

795,458

376,895

714,882

5,131,316

—

—
—

5,131,316

—

5,131,316

—

6,554

—

6,554

5,398

—
5,398

11,952

—

11,952

December 31, 2016

Fair Value Measurements Using

($ in thousands)

Description

Measured on a recurring basis:

AFS fixed income securities:

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)

U.S. government and government agencies

Foreign government

Obligations of states and political subdivisions

Corporate securities

CLO and other ABS

CMBS

RMBS

Total AFS fixed income securities

AFS equity securities:

Common stock

Preferred stock

Total AFS equity securities

Total AFS securities

Short-term investments

Total assets measured at fair value

77,333

26,865

1,379,593

1,997,753

528,960

256,842

525,194

4,792,540

130,608

16,145

146,753

4,939,293

221,701

5,160,994

27,520

—

49,813

26,865

1,379,593

1,997,753

528,960

256,842

525,194

27,520

4,765,020

122,932

16,145

139,077

166,597

221,701

388,298

—

4,765,020

—

4,765,020

—

7,676

—

7,676

—

7,676

1 There were no transfers of securities between Level 1 and Level 2.
2 In accordance with ASU 2015-07, investments amounting to $23.7 million at December 31, 2017, respectively, were measured at fair value using the net asset
value per share (or its practical expedient) and have not been classified in the fair value hierarchy. 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 the changes in the fair value of securities measured using Level 3 inputs and related
quantitative information during 2017:

2017

($ in thousands)

Fair value, December 31, 2016

Total net (losses) gains for the period included in:

OCI

Net income

Purchases

Sales

Issuances

Settlements

Transfers into Level 3

Transfers out of Level 3

Fair value, December 31, 2017

CMBS

Common Stock

—

6,550

—

6,554

7,676

—

3,780

(3,958)

—

(2,100)

5,398

The following tables provide quantitative information regarding our financial assets and liabilities that were not measured, but
were disclosed at fair value at December 31, 2017 and 2016:

December 31, 2017

Fair Value Measurements Using

($ in thousands)

Financial Assets

HTM:

Obligations of states and political subdivisions

Corporate securities

Total HTM fixed income securities

Financial Liabilities

Long-term debt:

7.25% Senior Notes

6.70% Senior Notes

5.875% Senior Notes

1.61% Borrowings from FHLBNY

1.56% Borrowings from FHLBNY

3.03% Borrowings from FHLBI

Total long-term debt

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)

26,261

17,839

44,100

61,391

116,597

186,332

24,270

24,210

60,334

—

186,332

—

473,134

186,332

26,261

12,306

38,567

61,391

116,597

—

24,270

24,210

60,334

286,802

—

5,533

—

100

December 31, 2016

Fair Value Measurements Using

($ in thousands)

Financial Assets

HTM:

Obligations of states and political subdivisions

Corporate securities

CMBS

Total HTM fixed income securities

Financial Liabilities

Long-term debt:

7.25% Senior Notes

6.70% Senior Notes

5.875% Senior Notes

1.61% Borrowings from FHLBNY

1.56% Borrowings from FHLBNY

3.03% Borrowings from FHLBI

Total long-term debt

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)

79,916

24,075

1,220

105,211

56,148

108,333

176,860

24,286

24,219

59,313

—

176,860

—

449,159

176,860

79,916

16,565

1,220

97,701

56,148

108,333

—

24,286

24,219

59,313

272,299

—

7,510

—

7,510

—

Note 8. Reinsurance
Our Financial Statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the
acceptance of certain insurance risks that other insurance entities have underwritten. Ceded reinsurance involves transferring
certain insurance risks (along with the related written and earned premiums) that we have underwritten to other insurance
companies that agree to share these risks. The primary purpose of ceded reinsurance is to protect the Insurance Subsidiaries
from potential losses in excess of the amount that we are prepared to accept. Our major treaties covering property, property
catastrophe, and casualty business are excess of loss contracts. In addition, we have an intercompany quota share pooling
arrangement and other minor quota share treaties.

As a Standard Commercial Lines and E&S Lines writer, we are subject to the Terrorism Risk Insurance Program
Reauthorization Act ("TRIPRA"), which was extended by Congress to December 31, 2020. TRIPRA requires private insurers
and the United States government to share the risk of loss on future acts of terrorism certified by the U.S. Secretary of the
Treasury. Under TRIPRA, each participating insurer is responsible for paying a deductible of specified losses before federal
assistance is available. This deductible is based on a percentage of the prior year’s applicable Standard Commercial Lines and
E&S Lines premiums. In 2018, our deductible is approximately $323 million. For losses above the deductible, the federal
government will pay 82% of losses to an industry limit of $100 billion, and the insurer retains 18%. The federal share of losses
will be reduced by 1% each year to 80% by 2020.

The Insurance Subsidiaries remain liable to policyholders to the extent that any reinsurer becomes unable to meet their
contractual obligations. In addition to this direct counterparty credit risk, we have indirect counterparty credit risk as our
reinsurers often enter into their own reinsurance programs, or retrocessions, as part of managing their exposure to large losses.
We evaluate and monitor the financial condition of our reinsurers under voluntary reinsurance arrangements to minimize our
exposure to significant losses from reinsurer insolvencies. On an ongoing basis, we review amounts outstanding, length of
collection period, changes in reinsurer credit ratings, and other relevant factors to determine collectability of reinsurance
recoverables. The allowance for uncollectible reinsurance recoverables was $4.6 million at December 31, 2017 and $5.5
million at December 31, 2016.

101

The following table represents our total reinsurance balances segregated by reinsurer to depict our concentration of risk
throughout our reinsurance portfolio:

($ in thousands)

Total reinsurance recoverables

Total prepaid reinsurance premiums

Total reinsurance balance

Federal and state pools1:

NFIP

New Jersey Unsatisfied Claim Judgment Fund

Other

Total federal and state pools

Remaining reinsurance balance

Munich Re Group (A.M. Best rated "A+")

Hannover Ruckversicherungs AG (A.M. Best rated "A+")

AXIS Reinsurance Company (A.M. Best rated "A+")

Swiss Re Group (A.M. Best rated "A+")

Partner Reinsurance Company of the U.S. (A.M. Best rated “A”)

All other reinsurers

Total reinsurers
Less: collateral2

Reinsurers, net of collateral

As of December 31, 2017

As of December 31, 2016

Reinsurance
Balances

% of
Reinsurance
Balance

Reinsurance
Balances

% of
Reinsurance
Balance

594,832

153,493

748,325

204,161

62,947

3,634

270,742

477,583

117,460

101,652

62,396

40,772

16,925

138,378

477,583

27%

—

64%

621,537

146,282

767,819

211,181

65,574

3,227

279,982

487,837

119,520

106,298

59,737

50,494

21,125

130,663

487,837

(122,413)

355,170

(113,763)

374,074

27%

—

64%

1 Considered to have minimal risk of default.
2 Includes letters of credit, trust funds, and funds held against reinsurance recoverables.

Under our reinsurance arrangements, which are prospective in nature, reinsurance premiums ceded are recorded as prepaid
reinsurance and amortized over the remaining contract period in proportion to the reinsurance protection provided, or recorded
periodically, as per the terms of the contract, in a direct relationship to the gross premium recording. Reinsurance recoveries
are recognized as gross losses are incurred.

The following table contains a listing of direct, assumed, and ceded reinsurance amounts for premiums written, premiums
earned, and loss and loss expense incurred:

($ in thousands)
Premiums written:
Direct
Assumed
Ceded
Net

Premiums earned:
Direct
Assumed
Ceded
Net

Loss and loss expense incurred:
Direct
Assumed
Ceded
Net

2017

2016

2015

2,733,459
26,685
(389,503)
2,370,641

2,647,488
25,831
(382,292)
2,291,027

1,570,678
17,588
(243,192)
1,345,074

2,577,259
28,779
(368,750)
2,237,288

2,484,715
28,214
(363,357)
2,149,572

1,560,356
22,708
(348,267)
1,234,797

2,403,519
23,848
(357,463)
2,069,904

2,330,267
23,209
(363,567)
1,989,909

1,274,872
16,996
(143,327)
1,148,541

102

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

Ceded to NFIP ($ in thousands)

Ceded premiums written

Ceded premiums earned

Ceded loss and loss expense incurred

2017

2016

2015

(241,345)

(235,088)

(160,922)

(232,245)

(227,882)

(239,891)

(228,907)

(233,940)

(62,078)

Note 9. Reserve for Loss and Loss Expense
(a) The table below provides a roll forward of reserves for loss and loss expense for beginning and ending reserve balances:

($ in thousands)

2017

2016

2015

Gross reserves for loss and loss expense, at beginning of year

3,691,719

Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year

Net reserves for loss and loss expense, at beginning of year

Incurred loss and loss expense for claims occurring in the:

Current year

Prior years

Total incurred loss and loss expense

Paid loss and loss expense for claims occurring in the:

Current year
Prior years

Total paid loss and loss expense

Net reserves for loss and loss expense, at end of year

Add: Reinsurance recoverable on unpaid loss and loss expense, at end of year

611,200

3,080,519

1,384,266

(39,192)

1,345,074

497,486

742,722

1,240,208

3,185,385

585,855

Gross reserves for loss and loss expense at end of year

3,771,240

3,517,728

551,019

2,966,709

1,300,565

(65,768)

1,234,797

450,811
670,176

1,120,987

3,080,519

611,200

3,691,719

3,477,870

571,978

2,905,892

1,217,550

(69,009)

1,148,541

446,550
641,174

1,087,724

2,966,709

551,019

3,517,728

Our net loss and loss expense reserves increased by $104.9 million in 2017, $113.8 million in 2016, and $60.8 million in 2015.
The loss and loss expense reserves are net of anticipated recoveries for salvage and subrogation claims, which amounted to $64.8
million for 2017, $64.9 million for 2016, and $62.1 million for 2015. The changes in the net loss and loss expense reserves were
the result of growth in exposures, anticipated loss trends, payments of claims, and normal reserve changes inherent in the
uncertainty in establishing reserves for loss and loss expense. As additional information is collected in the loss settlement
process, reserves are adjusted accordingly. These adjustments are reflected in the Consolidated Statements of Income in the
period in which such adjustments are identified. These changes could have a material impact on the results of operations of future
periods when the adjustments are made.

In 2017, we experienced overall net favorable prior year loss development of $39.2 million, compared to $65.8 million in 2016
and $69.0 million in 2015. The following table summarizes the prior year development by line of business:

(Favorable)/Unfavorable Prior Year Development

($ in millions)

General Liability

Commercial Automobile

Workers Compensation

Businessowners' Policies

Commercial Property

Homeowners

Personal Automobile

E&S Casualty Lines

Other

Total

2017

2016

2015

(48.3)

35.6

(52.3)

1.9

8.7

0.4

6.7

10.0

(1.9)

(39.2)

(45.0)

25.3

(56.0)

1.8

0.3

1.7

1.0

6.0

(0.9)

(65.8)

(51.0)

2.4

(37.0)

2.2

(3.0)

1.5

0.4

16.0

(0.5)

(69.0)

The Insurance Subsidiaries had $39.2 million of favorable prior accident year development during 2017, which included $48.6
million of net favorable casualty development and $9.4 million of unfavorable property development. The net favorable casualty
reserve development was largely driven by the workers compensation and general liability lines of business, including products
liability and excess liability. Partially offsetting this net favorable development was $36.0 million of unfavorable casualty
development in the commercial auto line of business. In addition, our E&S casualty lines experienced unfavorable development
of $10.0 million in 2017.

103

The majority of the 2017 net favorable development was attributable to accident years 2016 and prior, driven by the general
liability and workers compensation lines of business. This net favorable development was partially offset by unfavorable
development in accident years 2015 and 2016 attributable to our commercial auto and E&S casualty lines of business. The
unfavorable development in our commercial auto line of business was driven primarily by bodily injury liability for accident
years 2012 through 2016, driven by higher than expected frequency and severity.

The Insurance Subsidiaries had $65.8 million of favorable prior accident year development during 2016, which included $69.0
million of net favorable casualty development and $3.2 million of unfavorable property development. The net favorable casualty
reserve development was largely driven by the workers compensation and general liability lines of business, including products
liability and excess liability. Partially offsetting this net favorable development was $25.0 million of unfavorable casualty
development in the commercial automobile line of business. In addition, our E&S casualty lines experienced unfavorable
development of $6.0 million in 2016.

The majority of the 2016 net favorable development was attributable to accident years 2013 and prior, driven by the workers
compensation and general liability lines of business. This net favorable development was partially offset by unfavorable
development in accident years 2014 and 2015 attributable to our commercial auto and E&S casualty lines of business. The
unfavorable development in our commercial auto line of business was driven primarily by bodily injury liability for accident
years 2014 and 2015. The unfavorable development in accident year 2014 was driven by higher than expected severity, whereas
accident year 2015 was driven by higher than expected frequency and severity.

The Insurance Subsidiaries had $69.0 million of favorable prior accident year development during 2015, which included $67.0
million of net favorable casualty development and $2.0 million of favorable property development. The net favorable casualty
reserve development was largely driven by the workers compensation and general liability lines of business. Our E&S casualty
lines experienced unfavorable development of $16.0 million in 2015.

The majority of the 2015 net favorable development was attributable to accident years 2009 through 2013, driven by the workers
compensation and general liability lines of business. This net favorable development was partially offset by unfavorable
development in accident years 2012 through 2014 attributable to our E&S casualty lines of business.

(b) Reserves established for liability insurance include exposure to asbestos and environmental claims. These claims have arisen
primarily from insured exposures in municipal government, small non-manufacturing commercial risk, and homeowners policies.
The emergence of these claims is slow and highly unpredictable. There are significant uncertainties in estimating our exposure to
asbestos and environmental claims (for both case and IBNR reserves) resulting from lack of relevant historical data, the delayed
and inconsistent reporting patterns associated with these claims, and uncertainty as to the number and identity of claimants and
complex legal and coverage issues. Legal issues that arise in asbestos and environmental cases include federal or state venue,
choice of law, causation, admissibility of evidence, allocation of damages and contribution among joint defendants, successor and
predecessor liability, and whether direct action against insurers can be maintained. Coverage issues that arise in asbestos and
environmental cases include the interpretation and application of policy exclusions, the determination and calculation of policy
limits, the determination of the ultimate amount of a loss, the extent to which a loss is covered by a policy, if at all, the obligation
of an insurer to defend a claim, and the extent to which a party can prove the existence of coverage. Courts have reached different
and sometimes inconsistent conclusions on these legal and coverage issues. We do not discount to present value that portion of
our losses and loss expense reserves expected to be paid in future periods.

The following table details our loss and loss expense reserves for various asbestos and environmental claims:

($ in millions)

Asbestos

Landfill sites

Underground storage tanks

Total

2017

Gross

Net

7.6

12.4

8.4

28.4

6.3

7.7

7.2

21.2

Reserves for asbestos and environmental claims are highly uncertain. There are significant uncertainties associated with
estimating critical assumptions, such as average clean-up costs, third-party costs, potentially responsible party shares, allocation
of damages, litigation and coverage costs, and potential state and federal legislative changes. Estimating IBNR is challenging
because of the delayed and inconsistent reporting patterns associated with these claims. Traditional actuarial approaches cannot
be applied because past loss history is not necessarily indicative of future behavior. While certain alternative projection models

104

can be applied, such models can produce significantly different results with small changes in assumptions. As a result, reserves
for asbestos and environmental require a high degree of judgment. Because of the significant uncertainty in the estimate, we do
not calculate an asbestos and environmental loss range.

Historically, our asbestos and environmental claims have been significantly lower in volume than many other standard
commercial lines carriers since, prior to the introduction of the absolute pollution exclusion endorsement in the mid-1980’s, we
were primarily a Standard Personal Lines carrier and therefore do not have broad exposure to asbestos and environmental claims.
Additionally, we are the primary insurance carrier on the majority of these exposures, which provides more certainty in our
reserve position compared to other insurance carriers.

The following table provides a roll forward of gross and net asbestos and environmental incurred loss and loss expense and
related reserves thereon:

($ in thousands)
Asbestos

Reserves for loss and loss expense at beginning of year

Incurred loss and loss expense

Less: loss and loss expense paid

Reserves for loss and loss expense at the end of year

Environmental

Reserves for loss and loss expense at beginning of year

Incurred loss and loss expense

Less: loss and loss expense paid

Reserves for loss and loss expense at the end of year

Total Asbestos and Environmental Claims

Reserves for loss and loss expense at beginning of year

Incurred loss and loss expense

Less: loss and loss expense paid

Reserves for loss and loss expense at the end of year

2017

2016

2015

Gross

Net

Gross

Net

Gross

Net

7,847

—

(270)

7,577

22,115

126

(1,403)

20,838

29,962

126

(1,673)

28,415

6,615

—

(269)

6,346

16,101

—

(1,235)

14,866

22,716

—

(1,504)

21,212

8,024

(254)

7,847

22,387

1,406

(1,678)

22,115

30,411

1,483

(1,932)

29,962

6,793

(255)

6,615

16,368

1,303

(1,570)

16,101

23,161

1,380

(1,825)

22,716

8,751

(428)

(299)

8,024

21,902

3,396

(2,911)

22,387

30,653

2,968

(3,210)

30,411

7,314

(77)

(444)

6,793

15,680

3,397

(2,709)

16,368

22,994

3,320

(3,153)

23,161

(c) The following is information about incurred and paid claims development as of December 31, 2017, net of reinsurance, as well
as cumulative claim frequency and the total of IBNR liabilities. During the experience period, we implemented a series of
claims-related initiatives and claims management changes. These initiatives focused on claims handling and reserving, medical
claims costs, and loss adjustment expenses. As a result of these initiatives, several historical patterns have changed and may no
longer be appropriate to use as the sole basis for projections.

All Lines
(in thousands, except for claim counts)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IBNR

957,247

988,584

990,931

964,862

947,306

936,975

927,958

931,785

926,017

920,143

941,972

916,691

883,590

870,057

869,927

857,960

853,401

950,114

973,742

977,959

956,600

943,118

922,404

915,131

923,978

848,413

907,074

1,042,576 1,061,667 1,062,233 1,056,107 1,033,518 1,023,726

1,019,351

1,065,437 1,071,290 1,020,655

998,028

973,089

973,644

41,791

41,937

50,293

63,891

77,542

1,044,142 1,062,045 1,047,230 1,021,007

1,002,316

116,449

1,107,513 1,133,798 1,146,990

1,124,014

171,913

1,114,081 1,130,513

1,144,830

256,758

1,188,608

1,203,634

416,010

1,270,110

634,863

Total

10,417,364

105

As of
December 31, 2017

Cumulative
Number of
Reported
Claims

85,338

85,575

94,258

104,500

103,745

90,755

94,375

92,891

92,191

88,941

All Lines
(in thousands)

Accident
Year

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

286,314

489,633

277,275

609,851

442,417

328,826

690,016

540,982

509,910

391,944

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

764,196

634,902

625,229

585,867

378,067

798,996

695,249

704,895

692,730

555,819

335,956

819,280

736,100

773,536

782,655

651,544

518,872

405,898

839,392

760,589

803,773

852,202

743,742

644,475

614,075

376,641

853,769

775,885

823,770

901,801

810,135

748,758

736,154

581,203

387,272

860,745

784,713

835,532

924,111

856,195

833,823

855,959

725,385

617,958

433,440

All outstanding liabilities before 2008, net of reinsurance

352,192

Liabilities for loss and loss adjustment expenses, net of reinsurance

3,041,694

Total

7,727,861

General Liability
(in thousands, except for claim counts)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IBNR

$ 250,239

243,755

243,536

234,770

233,712

224,236

219,551

221,640

221,203

237,913

241,625

233,530

223,146

212,947

211,243

206,387

205,741

215,208

228,680

242,499

237,154

222,328

211,619

208,968

227,769

228,720

239,480

230,785

217,256

211,196

238,979

245,561

215,083

194,144

175,305

250,609

251,421

239,776

225,709

244,312

249,946

257,132

254,720

245,710

277,214

219,617

201,568

202,394

212,011

175,268

210,785

239,333

246,990

272,048

293,747

14,326

17,629

18,403

25,729

27,702

53,014

80,168

124,639

178,904

249,085

Total

2,273,761

General Liability
(in thousands)

As of
December 31, 2017

Cumulative
Number of
Reported
Claims

13,769

13,841

12,672

11,579

9,922

10,226

10,391

9,987

9,617

8,194

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

16,397

45,595

14,346

82,421

37,143

15,726

113,088

64,970

46,201

13,924

151,055

103,213

80,018

42,692

13,030

166,394

130,554

113,050

73,643

35,241

12,789

176,873

151,920

143,360

102,978

56,580

35,113

14,901

186,896

166,767

161,487

135,377

89,008

72,127

46,825

14,665

194,257

176,316

172,394

159,768

109,448

104,587

79,972

39,978

15,684

Total

All outstanding liabilities before 2008, net of reinsurance

198,360

180,621

178,179

170,525

130,866

139,114

121,969

78,668

46,549

17,366
1,262,217

80,514

Liabilities for loss and loss adjustment expenses, net of reinsurance

1,092,058

106

Workers Compensation
(in thousands, except for claim counts)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IBNR

$ 219,616

243,186

255,810

250,423

241,921

245,993

244,100

243,512

238,836

197,504

215,946

213,036

210,109

210,756

216,992

212,536

208,611

198,371

214,469

212,815

211,030

214,916

212,448

208,155

205,238

218,973

214,743

215,114

210,591

205,708

203,864

208,036

199,360

195,197

188,596

199,794

194,318

187,658

173,160

199,346

187,065

182,579

193,729

194,639

196,774

238,218

208,142

204,423

200,674

187,359

166,662

172,515

183,604

184,946

195,202

25,993

22,575

28,964

32,881

36,233

34,776

42,869

42,287

70,424

112,086

Total

1,941,745

Workers Compensation
(in thousands)

As of
December 31, 2017

Cumulative
Number of
Reported
Claims

14,401

12,217

12,184

11,845

11,605

11,366

10,482

10,530

10,509

10,182

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

39,628

100,678

37,885

139,144

87,299

46,795

158,083

117,019

93,281

42,941

171,403

133,116

122,442

90,836

40,911

180,556

145,417

137,184

118,847

86,909

36,829

188,206

154,726

149,086

134,646

108,211

74,568

35,924

191,265

160,529

153,795

139,232

122,755

96,376

78,944

33,857

195,962

164,336

158,078

149,269

132,052

109,739

100,876

77,320

34,525

198,512

167,894

162,796

154,320

139,477

118,669

113,626

98,195

78,531

40,375

All outstanding liabilities before 2008, net of reinsurance

Liabilities for loss and loss adjustment expenses, net of reinsurance

247,121

916,471

Total

1,272,395

Commercial Automobile
(in thousands, except for claim counts)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IBNR

$196,370

195,823

190,349

187,100

187,417

182,785

180,902

183,736

183,618

199,541

191,079

182,724

169,858

166,682

162,911

161,251

161,923

187,562

189,305

187,778

181,923

179,854

172,969

173,157

174,006

183,044

182,325

178,421

172,617

174,882

179,551

191,947

183,527

184,289

184,367

188,289

205,282

209,197

207,994

200,534

212,725

216,824

220,994

240,958

255,187

183,151

161,300

173,471

174,514

186,128

210,410

219,925

253,074

274,367

301,274
Total 2,137,614

736

897

1,491

2,937

3,880

8,258

19,053

36,137

71,303

132,814

107

As of
December 31, 2017

Cumulative
Number of
Reported
Claims

24,129

24,652

25,301

25,272

23,889

25,392

27,338

28,818

30,480

30,187

Commercial Automobile
(in thousands)

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

69,053

104,711

63,126

130,857

94,406

68,098

151,741

113,697

99,254

69,849

166,487

137,564

128,015

99,196

73,316

173,795

149,949

146,913

121,576

105,371

76,469

175,244

155,560

163,513

142,507

127,235

109,893

80,810

180,779

158,303

167,227

157,291

148,669

140,015

117,169

91,347

181,779

159,723

169,100

166,082

168,114

169,850

148,884

132,260

106,022

181,979

160,013

169,793

170,000

176,656

189,626

180,701

175,866

155,720

117,287

All outstanding liabilities before 2008, net of reinsurance

Liabilities for loss and loss adjustment expenses, net of reinsurance

4,158

464,131

Total

1,677,641

Businessowners' Policies
(in thousands, except for claim counts)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IBNR

$ 39,660

38,986

48,535

39,334

51,762

53,669

32,974

46,645

49,285

54,469

30,250

43,828

42,408

57,083

54,342

29,793

43,553

39,915

51,047

48,029

49,617

31,066

44,938

40,899

58,242

46,303

42,618

55,962

31,340

44,299

40,581

59,256

44,172

41,005

60,949

52,871

30,967

44,273

41,239

58,966

44,077

40,624

62,548

53,768

52,335

31,065

43,933

41,197

58,456

43,747

41,369

59,806

57,245

53,792

46,624

Total

477,234

192

272

697

1,080

756

3,192

5,952

10,256

11,938

15,252

Businessowners' Policies
(in thousands)

As of
December 31, 2017

Cumulative
Number of
Reported
Claims

3,258

3,474

3,917

4,959

5,540

3,479

4,054

3,913

3,757

3,462

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

15,019

21,765

18,915

24,449

29,612

20,821

25,738

32,689

28,131

27,884

28,026

36,073

31,027

37,362

22,199

28,660

40,052

34,705

41,011

31,833

17,412

28,589

42,895

37,819

46,444

35,089

26,592

28,914

29,778

43,358

38,900

52,114

37,215

30,845

40,584

24,189

30,873

43,448

40,279

55,856

38,766

34,760

44,911

36,014

24,655

30,873

43,547

40,395

57,045

40,627

37,993

49,460

42,710

36,848

21,865

All outstanding liabilities before 2008, net of reinsurance

Liabilities for loss and loss adjustment expenses, net of reinsurance

7,292

83,163

Total

401,363

108

Commercial Property
(in thousands, except for claim counts)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

As of
December 31, 2017

Cumulative
Number of
Reported
Claims

7,604

7,009

7,667

9,036

8,514

5,709

6,512

6,398

6,686

6,358

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IBNR

$ 97,578

102,860

101,436

101,470

101,265

101,702

101,043

100,881

101,043

101,054

82,619

82,124

105,647

82,025

96,851

82,014

97,386

80,774

96,127

80,455

95,530

80,558

95,363

80,545

95,178

136,954

131,667

130,942

131,282

131,353

131,113

118,464

114,224

115,375

116,658

117,102

88,101

90,639

90,103

90,005

141,192

136,249

136,820

110,270

109,513

121,927

80,416

95,155

131,049

117,170

90,436

138,751

111,750

126,185

138,773

Total

1,130,739

126

261

804

8,794

Commercial Property
(in thousands)

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

68,211

98,921

59,933

100,465

78,695

69,543

99,288

80,433

91,918

94,538

100,213

100,752

100,908

100,868

101,034

80,894

94,602

127,580

81,528

80,251

95,111

129,579

108,834

60,244

80,352

95,270

130,681

111,503

87,874

101,131

80,529

95,147

131,060

114,699

90,446

132,909

79,048

80,509

95,156

131,115

116,291

90,350

136,634

106,182

83,966

101,032

80,405

95,150

131,089

116,625

90,840

137,883

109,829

118,789

99,047

All outstanding liabilities before 2008, net of reinsurance

Liabilities for loss and loss adjustment expenses, net of reinsurance

250

50,300

Total

1,080,689

Personal Automobile
(in thousands, except for claim counts)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IBNR

$100,311

106,999

106,842

103,934

100,213

99,912

99,686

99,255

99,116

93,808

103,319

105,033

103,908

104,734

103,866

103,393

103,412

103,340

110,075

112,346

109,515

107,490

107,405

107,224

113,232

116,164

113,686

112,993

114,241

113,830

113,771

114,921

109,832

109,324

110,294

108,417

109,620

106,225

106,703

102,250

109,325

106,757

96,387

99,698

92,727

99,270

103,348

107,054

113,988

110,300

107,759

107,452

100,214

98,032

101,880

191

222

284

728

851

2,554

6,541

11,651

22,284

Total

1,049,297

109

As of
December 31, 2017

Cumulative
Number of
Reported
Claims

16,042

17,346

20,822

22,700

22,332

22,371

22,499

20,840

19,747

19,818

Personal Automobile
(in thousands)

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

50,396

73,194

51,039

84,715

71,911

58,786

91,834

86,431

82,490

61,323

95,932

96,229

95,300

82,102

63,704

97,723

100,566

101,540

93,878

82,729

61,384

98,174

102,187

104,061

105,068

94,842

80,861

62,519

98,604

102,322

105,849

111,085

102,977

92,637

83,739

58,725

98,668

102,437

106,453

112,732

107,890

100,528

92,589

76,470

57,961

98,810

103,009

106,733

113,551

109,355

105,131

99,173

87,163

76,823

62,854

All outstanding liabilities before 2008, net of reinsurance

Liabilities for loss and loss adjustment expenses, net of reinsurance

5,862

92,557

Total

962,602

Homeowners
(in thousands, except for claim counts)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

IBNR

$ 41,224

41,747

47,636

39,342

44,511

68,373

39,203

42,609

67,525

103,804

38,062

40,313

63,285

98,211

87,260

38,410

61,927

97,761

82,744

82,745

73,670

38,111

40,400

62,462

94,167

86,560

72,528

80,111

38,042

40,465

62,402

94,543

86,667

71,494

82,461

76,637

38,045

40,457

62,339

94,183

86,271

72,145

83,637

76,400

60,105

38,038

40,451

62,392

94,378

86,330

71,714

83,844

76,559

60,931

59,167

Total

673,804

159

180

284

1,146

2,744

2,067

5,315

As of
December 31, 2017

Cumulative
Number of
Reported
Claims

5,139

5,633

9,131

15,106

16,936

7,747

8,762

7,724

6,820

6,651

Homeowners
(in thousands)

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

21,277

33,535

28,299

36,271

36,965

43,699

37,086

38,078

58,638

71,668

37,763

39,342

60,295

89,963

69,056

37,837

39,731

61,106

91,718

79,584

50,664

37,933

39,819

62,155

92,185

82,720

65,528

61,561

37,939

39,907

62,227

93,312

84,250

67,838

76,007

52,589

37,930

40,189

62,241

93,720

85,196

69,775

79,751

70,078

42,252

Total

All outstanding liabilities before 2008, net of reinsurance

Liabilities for loss and loss adjustment expenses, net of reinsurance

37,928

40,269

62,272

94,007

85,562

71,776

81,664

72,202

57,333

45,466
648,479

5,403

30,728

110

E&S Casualty Lines
(in thousands, except for claim counts)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

Accident
Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2011

2012

2013

2014

2015

2016

2017

IBNR

885

3,294

8,127

169

1,053

4,106

7,102

42,367

146

938

3,369

9,853

42,621

55,468

119

728

4,299

12,207

43,175

60,309

55,316

710

3,831

10,273

46,149

67,099

63,505

75,498

(162)

3,055

9,652

46,165

69,112

69,929

76,432

94,451

119

737

4,932

10,228

45,988

67,647

71,719

82,404

96,416

91,438

—

361

7,313

15,326

18,224

32,909

65,489

79,354

Total

471,628

As of
December 31, 2017

Cumulative
Number of
Reported
Claims

274

804

1,316

2,006

2,219

1,987

2,606

2,454

1,760

E&S Casualty Lines
(in thousands)

Accident
Year

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Unaudited

2011

2012

2013

2014

2015

2016

2017

—

198

1,218

806

3,722

431

2,570

3,200

7,914

2,715

605

3,574

6,445

16,430

9,470

2,353

626

4,078

9,954

25,064

21,980

12,234

3,036

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

709

4,513

9,912

32,343

35,200

25,571

13,057

3,720

Total

All outstanding liabilities before 2008, net of reinsurance

Liabilities for loss and loss adjustment expenses, net of reinsurance

737

4,610

10,256

36,278

46,108

43,877

29,389

16,195

5,057

192,604

—

279,023

In 2011, the Parent purchased Mesa Underwriters Specialty Insurance Company ("MUSIC"), a wholly-owned E&S Lines
subsidiary of Montpelier Re Holdings, Ltd. Under the terms of the purchase agreement, the Parent acquired net loss and loss
adjustment reserves amounting to approximately $15 million. All development on this acquired business was fully reinsured as of
the acquisition date.

111

(d) The reconciliation of the net incurred and paid claims development tables to the liability for loss and loss adjustment expenses
in the consolidated statement of financial position is as follows:

(in thousands)
Net outstanding liabilities:

Standard Commercial Lines

General liability

Workers compensation

Commercial automobile

Businessowners' policies

Commercial property

Other Standard Commercial Lines

Total Standard Commercial Lines net outstanding liabilities

Standard Personal Lines

Personal automobile

Homeowners

Other Standard Personal Lines

Total Standard Personal Lines net outstanding liabilities

E&S Lines

Casualty lines

Property lines

Total E&S Lines net outstanding liabilities

Total liabilities for unpaid loss and loss adjustment expenses, net of reinsurance

Reinsurance recoverable on unpaid claims:

Standard Commercial Lines

General liability

Workers compensation

Commercial automobile

Businessowners' policies

Commercial property

Other Standard Commercial Lines

Total Standard Commercial Lines reinsurance recoverable on unpaid loss

Standard Personal Lines

Personal automobile

Homeowners

Other Standard Personal Lines

Total Standard Personal Lines reinsurance recoverable on unpaid loss

E&S Lines

Casualty lines

Property lines

Total E&S Lines reinsurance recoverable on unpaid loss

Total reinsurance recoverable on unpaid loss

Unallocated loss adjustment expenses

Total gross liability for unpaid loss and loss adjustment expenses

112

December 31, 2017

1,092,058

916,471

464,131

83,163

50,300

10,560

2,616,683

92,557

30,728

9,184

132,469

279,023

13,519

292,542

3,041,694

175,276

218,024

16,745

3,926

24,387

2,287

440,645

53,129

999

69,333

123,461

21,360

389

21,749

585,855

143,691

3,771,240

(e) The table below reflects the historical average annual percentage payout of incurred claims by age. For example, the general
liability line of business averages payout of 6.6% of its ultimate losses in the first year, 12.5% in the second year, and so forth.
The following is supplementary information about average historical claims duration as of December 31, 2017:

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance

Years

General liability

Workers compensation

Commercial automobile

Businessowners’ policies

Commercial property

Personal automobile

Homeowners

E&S Lines - casualty

6.6%

20.2

38.2

46.6

70.5

56.1

71.1

4.5

12.5

23.9

17.4

20.8

25.6

18.9

21.0

12.5

15.4

13.6

14.0

8.1

2.7

10.7

3.3

18.2

16.7

8.3

12.8

7.5

0.7

7.4

2.1

14.9

5.0

9.0

7.5

0.4

4.2

1.6

20.4

15.5

10.1

3.9

4.1

0.1

1.5

0.1

8.3

6.0

2.8

1.6

2.0

—

0.4

—

4.0

4.6

2.0

1.4

1.6

—

0.1

0.2

2.2

1.8

0.7

0.1

—

0.2

1.3

1.9

0.1

1.1

—

0.1

Note 10. Indebtedness
The table below provides a summary of our outstanding debt at December 31, 2017 and 2016:

Outstanding Debt

($ in thousands)

Description

Long-term:

(1) FHLBI

(2) FHLBNY

(3) Senior Notes

(4) Senior Notes

(5) Senior Notes

Total long-term debt

Issuance
Date

Maturity
Date

Interest
Rate

Original
Amount

12/16/2016

12/16/2026

3.03% $

60,000

8/15/2016

8/16/2021

7/21/2016

7/21/2021

1.56%

1.61%

2/8/2013

2/9/2043

5.875%

11/3/2005

11/1/2035

11/16/2004

11/15/2034

6.70%

7.25%

25,000

185,000

100,000

50,000

$ 445,000

2017

Debt Discount
and Unamortized
Issuance Costs

Carry Value

December 31, 2017 December 31, 2016

—

(4,570)

(989)

(325)

(5,884)

60,000

25,000

180,430

99,011

49,675

439,116

60,000

25,000

180,068

98,952

49,647

438,667

Short-term Debt
Selective Insurance Company of America ("SICA") borrowed: (i) $64 million in short-term funds from the FHLBNY on
February 28, 2017 at an interest rate of 0.75%, which it repaid on March 21, 2017; and (ii) $20 million in short-term funds from
the FHLBNY on November 8, 2017 at an interest rate of 1.29%, which it repaid on November 15, 2017.

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. Our Line of Credit expires on
December 1, 2020, and has an interest rate, which varies and is based on, among other factors, the Parent’s debt ratings. There
were no balances outstanding under our Line of Credit at December 31, 2017 or at any time during 2017.

Our Line of Credit agreement contains representations, warranties, and covenants that are customary for credit facilities of this
type, including, without limitation, financial covenants under which we are obligated to maintain a minimum consolidated net
worth, minimum combined statutory surplus, maximum ratio of consolidated debt to total capitalization, and covenants limiting
our ability to: (i) merge or liquidate; (ii) incur debt or liens; (iii) dispose of assets; (iv) make investments and acquisitions; and
(v) engage in transactions with affiliates.

The table below outlines information regarding certain of the covenants in the Line of Credit:

Consolidated net worth

Statutory surplus
Debt-to-capitalization ratio1

A.M. Best financial strength rating
1 Calculated in accordance with the Line of Credit agreement.

Required as of
December 31, 2017
Not less than $1.2 billion

Not less than $750 million

Not to exceed 35%

Minimum of A-

113

Actual as of
December 31, 2017
$1.7 billion

$1.7 billion

20.5%

In addition to the above requirements, the Line of Credit agreement contains a cross-default provision that provides that the
Line of Credit will be in default if we fail to comply with any condition, covenant, or agreement (including payment of
principal and interest when due on any debt with an aggregate principal amount of at least $20 million), which causes or
permits the acceleration of principal. Additionally, the Line of Credit limits borrowings from the FHLBI and the FHLBNY to
10% of the respective member company's admitted assets for the previous year.

Long-term Debt
(1) In the first quarter of 2009, Selective Insurance Company of South Carolina ("SICSC") and Selective Insurance Company
of the Southeast ("SICSE"), which are collectively referred to as the "Indiana Subsidiaries" as they are domiciled in Indiana,
joined, and invested in, the FHLBI, which provides them with access to additional liquidity. The Indiana Subsidiaries’
aggregate investment in the FHLBI was $2.8 million at December 31, 2017 and December 31, 2016. Our investment provides
us the ability to borrow approximately 20 times the total amount of the FHLBI common stock purchased with additional
collateral, at comparatively low borrowing rates. The proceeds from the FHLBI borrowing on December 16, 2016 of $60
million were used to repay a $45 million borrowing from the FHLBI that was outstanding at the time, with the remaining $15
million used for general corporate purposes. All borrowings from the FHLBI require security. For information on investments
that are pledged as collateral for these borrowings, see Note 5. "Investments" above.

(2) In the fourth quarter of 2015, SICA and Selective Insurance Company of New York ("SICNY") joined, and invested in, the
FHLBNY, which provides them with access to additional liquidity. The aggregate investment for both subsidiaries was $2.6
million at December 31, 2017 and $2.8 million at December 31, 2016. Our investment provides us the ability to borrow
approximately 20 times the total amount of the FHLBNY common stock purchased with additional collateral, at comparatively
low borrowing rates. In 2016, SICA borrowed the following amounts from the FHLBNY: (i) $25 million in August 2016 at an
interest rate of 1.56%, which is due on August 16, 2021; and (ii) $25 million from the FHLBNY at an interest rate of 1.61%,
which is due on July 21, 2021.

All borrowings from the FHLBNY require security. For information on investments that are pledged as collateral for these
borrowings, see Note 5. "Investments" above.

(3) In February 2013, we issued $185 million of 5.875% Senior Notes due 2043. The notes became callable by us on February
8, 2018, at a price equal to 100% of their principal outstanding amount, plus accrued and unpaid interest to, but excluding, the
date of redemption. A portion of the proceeds from this debt issuance was used to fully redeem the $100 million aggregate
principal amount of our 7.5% Junior Subordinated Notes due 2066. Of the remaining net proceeds, $57.1 million was used to
make capital contributions to the Insurance Subsidiaries, while the balance was used for general corporate purposes. There are
no financial debt covenants to which we are required to comply in regards to these Senior Notes.

(4) In November 2005, we issued $100 million of 6.70% Senior Notes due 2035. These notes were issued at a discount of $0.7
million resulting in an effective yield of 6.754%. Net proceeds of approximately $50 million were used to fund an irrevocable
trust that subsequently funded certain payment obligations in respect of our outstanding debt. The remainder of the proceeds
was used for general corporate purposes. The agreements covering these notes contain a standard default cross-acceleration
provision that provides the 6.70% Senior Notes will enter a state of default upon the failure to pay principal when due or upon
any event or condition that results in an acceleration of principal of any other debt instrument in excess of $10 million that we
have outstanding concurrently with the 6.70% Senior Notes. There are no financial debt covenants to which we are required to
comply in regards to these notes.

(5) In November 2004, we issued $50 million of 7.25% Senior Notes due 2034. These notes were issued at a discount of $0.1
million, resulting in an effective yield of 7.27%. We contributed $25 million of the bond proceeds to the Insurance Subsidiaries
as capital. The remainder of the proceeds was used for general corporate purposes. The agreements covering these notes
contain a standard default cross-acceleration provision that provides the 7.25% Senior Notes will enter a state of default upon
the failure to pay principal when due or upon any event or condition that results in an acceleration of principal of any other debt
instrument in excess of $10 million that we have outstanding concurrently with the 7.25% Senior Notes. There are no financial
debt covenants to which we are required to comply in regards to these notes.

114

Note 11. Segment Information
The disaggregated results of our four reportable segments are used by senior management to manage our operations. These
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, policyholders dividends, policy
acquisition costs, and other underwriting expenses), and combined ratios.

• Our Investments segment is evaluated based on after-tax net investment income and net realized gains and losses.

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.

Our combined insurance operations are subject to certain geographic concentrations, particularly in the Northeast and Mid-
Atlantic regions of the country. In 2017, approximately 20% of NPW were related to insurance policies written in New Jersey.

The goodwill balance of $7.8 million at both December 31, 2017 and 2016 relates to our Standard Commercial Lines reporting
unit.

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

Revenue by Segment

($ in thousands)
Standard Commercial Lines:

Net premiums earned:

Commercial automobile

Workers compensation

General liability

Commercial property

Businessowners’ policies

Bonds

Other

Miscellaneous income

Total Standard Commercial Lines revenue
Standard Personal Lines:

Net premiums earned:

Personal automobile

Homeowners

Other

Miscellaneous income

Total Standard Personal Lines revenue
E&S Lines:

Net premiums earned:

Casualty lines

Property lines

Miscellaneous income

Total E&S Lines revenue
Investments:

Net investment income

Net realized investment gains (losses)

Total Investments revenues

Total revenues

Years ended December 31,

2017

2016

2015

442,818

317,982

569,217

311,932

100,266

29,086

17,198

9,488

398,942

308,233

527,859

293,438

97,754

23,227

16,030

7,782

358,909

290,075

483,291

269,022

93,428

20,350

14,367

6,343

1,797,987

1,673,265

1,535,785

153,147

129,699

6,855

1,228

290,929

157,366

55,461

—

212,827

161,882

6,359

168,241

142,876

130,973

6,758

1,098

281,705

151,638

51,844

203,483

130,754

(4,937)

125,817

146,784

134,382

6,968

1,113

289,247

126,064

46,269

—

172,333

121,316

13,171

134,487

2,469,984

2,284,270

2,131,852

115

Income Before Federal Income Tax

($ in thousands)
Standard Commercial Lines:

Underwriting gain, before federal income tax

Underwriting gain, after federal income tax

Combined ratio

Standard Personal Lines:

Underwriting gain, before federal income tax

Underwriting gain, after federal income tax

Combined ratio

E&S Lines:

Underwriting loss, before federal income tax

Underwriting loss, after federal income tax

Combined ratio

Investments:

Net investment income

Net realized investment gains (losses)

Total investment income, before federal income tax
Tax on investment income

Total investment income, after federal income tax

Reconciliation of Segment Results to Income Before Federal Income Tax

($ in thousands)

Underwriting gain (loss)

Standard Commercial Lines

Standard Personal Lines

E&S Lines

Investment income

Total all segments

Interest expense

Corporate expenses

Income, before federal income tax

Years ended December 31,

2017

2016

2015

149,514

97,184

91.6%

146,435

95,183

91.2%

11,104

7,217

96.2%

(6,282)

(4,083)

103.0%

161,882

6,359

168,241

45,588

122,653

12,419

8,072

95.6%

(6,921)

(4,499)

103.4%

130,754

(4,937)

125,817
30,621

95,196

164,496

106,923

89.2%

1,336

868

99.5%

(16,803)

(10,922)

109.8%

121,316

13,171

134,487
32,090

102,397

Years ended December 31,

2017

2016

2015

149,514

11,104

(6,282)

168,241

322,577

(24,354)

(36,255)

261,968

146,435

12,419

(6,921)

125,817

277,750

(22,771)

(35,024)

219,955

164,496

1,336

(16,803)

134,487

283,516

(22,428)

(28,396)

232,692

Note 12. Earnings per Share
The following table provides a reconciliation of the numerators and denominators of basic and diluted earnings per share
("EPS"):

2017
($ in thousands, except per share amounts)
Basic EPS:

Net income available to common stockholders

Effect of dilutive securities:

Stock compensation plans

Diluted EPS:

Income
(Numerator)

Shares
(Denominator)

Per Share
Amount

168,826

58,458

2.89

—

899

Net income available to common stockholders

168,826

59,357

2.84

116

2016
($ in thousands, except per share amounts)
Basic EPS:

Net income available to common stockholders

Effect of dilutive securities:

Stock compensation plans

Diluted EPS:

Net income available to common stockholders

2015
($ in thousands, except per share amounts)
Basic EPS:

Net income available to common stockholders

Effect of dilutive securities:

Stock compensation plans

Diluted EPS:

Income
(Numerator)

Shares
(Denominator)

Per Share
Amount

158,495

57,889

2.74

—

858

158,495

58,747

2.70

Income
(Numerator)

Shares
(Denominator)

Per Share
Amount

165,861

57,212

2.90

—

944

Net income available to common stockholders

165,861

58,156

2.85

Note 13. Federal Income Taxes
(a) On December 22, 2017, the Tax Cuts and Jobs Act of 2017 ("Tax Reform") was signed into law, which among other
implications, will reduce our statutory corporate tax rate from 35% to 21% beginning with our 2018 tax year. We revalued our
deferred tax inventory as of December 31, 2017 in anticipation of this reduction, which resulted in a $20.2 million charge to
income as illustrated in the rate reconciliation table below. This charge included a $5.7 million benefit related to net unrealized
gains on our investment portfolio and pension plan, which were originally recorded through AOCI.

Our accounting for the impact of Tax Reform on our deferred tax assets and liabilities is complete with the exception of
amounts related to loss reserve discounting. Prior to Tax Reform, we had elected to use our own loss reserve payment patterns
in determining the factors that we use in our discounting calculation. Under Tax Reform, this election has been eliminated and
we are required to use an industry experience approach that includes a discount rate based on a corporate bond yield curve for
which the IRS has not yet issued any guidance. Considering this, we have recorded a $7.5 million provisional increase to our
deferred tax asset that is based on the industry experience approach under the tax law that existed prior to Tax Reform. We
believe this is a reasonable estimate for the elimination of the company experience method election. We have not estimated a
provisional amount based on the revised Tax Reform industry experience approach. Based on a Tax Reform transition rule that
allows for this type of change in accounting method to be amortized into expense over an eight-year period beginning in 2018,
we have established an offsetting deferred tax liability of $7.5 million as of December 31, 2017. During 2018, we will obtain,
prepare, and analyze the necessary information to complete the accounting for loss reserve discounting.

(b) A reconciliation of federal income tax on income at the corporate rate to the effective tax rate is as follows:

($ in thousands)

Tax at statutory rate of 35%

Tax-advantaged interest

Dividends received deduction

Stock based compensation

Tax reform rate change

Other

Federal income tax expense from continuing operations

2017

2016

2015

91,689

(11,510)

(1,961)

(4,281)

20,205

(1,000)

93,142

76,984

(12,126)

(1,114)

—

(2,284)

61,460

81,442

(13,164)

(1,817)

—

370

66,831

In addition to the impact of Tax Reform discussed above, our rate reconciliation for 2017 was also impacted by the $4.3 million
impact of new accounting literature requiring that the tax effects of share-based compensation be recognized in the income tax
provision. Previously, these amounts were recorded in additional paid-in capital. See Note 3. "Adoption of Accounting
Pronouncements" for additional information regarding this literature change.

117

(c) The tax effects of the significant temporary differences that gave rise to deferred tax assets and liabilities were as follows:

($ in thousands)

Deferred tax assets:

Net loss reserve discounting

Net unearned premiums

Employee benefits

Long-term incentive compensation plans

Temporary investment write-downs

Other investment related items, net

Net operating loss

Other

Total deferred tax assets

Deferred tax liabilities:

Deferred policy acquisition costs

Unrealized gains on investment securities

Other investment-related items, net

Accelerated depreciation and amortization

Total deferred tax liabilities

Net deferred federal income tax asset

2017

2016

38,771

50,267

8,606

12,221

1,044

—

5,784

116,747

47,484

26,183

2,500

8,590

84,757

31,990

70,065

78,201

17,881

17,750

2,475

1,484

771

8,344

196,971

75,310

22,681

—

14,140

112,131

84,840

Net deferred federal income tax assets decreased by $52.9 million during 2017. As mentioned above, net deferred federal
income tax assets were reduced by $20.2 million in relation to Tax Reform. In addition to this charge, net deferred assets
decreased by $21.4 million resulting from additional unrealized gains generated during the year on our investment portfolio.

After considering all evidence, both positive and negative, with respect to our federal tax loss carryback availability, expected
levels of pre-tax financial statement income, and federal taxable income, we believe it is more likely than not that the existing
deductible temporary differences will reverse during periods in which we generate net federal taxable income or have adequate
federal carryback availability. As a result, we had no valuation allowance recognized for federal deferred tax assets at
December 31, 2017 or 2016.

As of December 31, 2017, we had federal tax net operating loss ("NOL") carryforwards of $0.3 million. These NOLs, which
are subject to an annual limitation of $1.9 million, will expire between 2030 and 2031.

Stockholders' equity reflects tax benefits related to compensation expense deductions for share-based compensation awards of
$23.8 million at December 31, 2017 and December 31, 2016, and $22.0 million at December 31, 2015. As mentioned above,
beginning in 2017, all excess tax benefits and tax deficiencies on share-based payment awards are recognized as income tax
expense or benefit on the Consolidated Statements of Income.

We have analyzed our tax positions in all open tax years, which as of December 31, 2017 were 2014 through 2016, and we
believe our tax positions will more likely than not be sustained upon examination, including related appeals or litigation. In the
event we had a tax position that did not meet the more likely than not criteria, any tax, interest, and penalties incurred related to
such a position would be reflected in "Total federal income tax expense" on our Consolidated Statements of Income. We are
not currently under a federal income tax audit for any tax year.

Note 14. Retirement Plans
(a) Selective Insurance Retirement Savings Plan (“Retirement Savings Plan”)
SICA offers a voluntary defined contribution 401(k) plan, which is available to most of our employees and is a tax-qualified
retirement plan subject to the Employee Retirement Income Security Act of 1974 ("ERISA"). Expense recorded for this plan
was $15.8 million in 2017, $15.0 million in 2016, and $14.1 million in 2015.

118

(b) Deferred Compensation Plan
SICA offers a nonqualified deferred compensation plan ("Deferred Compensation Plan") to a group of management or highly
compensated employees as a method of recognizing and retaining such employees. The Deferred Compensation Plan provides
these employees the opportunity to elect to defer receipt of specified portions of compensation and to have such deferred
amounts deemed to be invested in specified investment options. In addition to the employee deferrals, SICA may choose to
make matching contributions to some or all of the participants in this plan to the extent the participant did not receive the
maximum matching or non-elective contributions permissible under the Retirement Savings Plan due to limitations under the
Internal Revenue Code or the Retirement Savings Plan. Expense recorded for these contributions was $0.2 million in 2017,
$0.3 million in 2016, and $0.2 million in 2015.

(c) Retirement Income Plan and Retirement Life Plan
SICA's primary pension plan is the Retirement Income Plan for Selective Insurance Company of America (the "Pension Plan").
This qualified, noncontributory defined benefit plan is closed to new entrants and existing participants ceased accruing benefits
after March 31, 2016.

In addition to the Pension Plan, SICA also sponsors the Supplemental Excess Retirement Plan (the "Excess Plan") and a life
insurance benefit plan (the "Retirement Life Plan"). Both of these plans are closed to new entrants and participants in the
Excess Plan ceased accruing benefits after March 31, 2016. The Retirement Life Plan does not accrue benefits and this plan
applies only to retirees who terminated employment with SICA on or before March 31, 2009. These are both unfunded plans
with benefit obligations as of December 31, 2017 and December 31, 2016 of $10.1 million and $9.1 million, respectively, for
the Excess Plan and $6.4 million and $6.3 million, respectively, for the Retirement Life Plan. Expense recorded for the Excess
Plan was $0.4 million in 2017, $0.5 million in 2016, and $0.8 million in 2015. Expense recorded for the Retirement Life Plan
was $0.3 million in 2017, 2016, and 2015.

The following tables provide details on the Pension Plan for 2017 and 2016:

December 31,

($ in thousands)
Change in Benefit Obligation:

Benefit obligation, beginning of year

Service cost

Interest cost

Actuarial losses

Benefits paid

Benefit obligation, end of year

Change in Fair Value of Assets:

Fair value of assets, beginning of year

Actual return on plan assets, net of expenses

Contributions by the employer to funded plans

Benefits paid

Fair value of assets, end of year

Funded status

Amounts Recognized in the Consolidated Balance Sheet:

Liabilities

Net pension liability, end of year

Amounts Recognized in AOCI:

Net actuarial loss

Total

Other Information as of December 31:

Accumulated benefit obligation

Weighted-Average Liability Assumptions as of December 31:

Discount rate

119

Pension Plan

2017

2016

330,588

—

12,490

31,158

(9,825)

364,411

316,515

46,983

10,000

(9,825)

363,673

(738)

87,438

364,411

3.78%

310,308

1,647

12,336

15,086

(8,789)

330,588

249,700

21,079

54,525

(8,789)

316,515

(14,073)

85,845

330,588

4.41

($ in thousands)
Components of Net Periodic Benefit Cost and Other Amounts Recognized in
Other Comprehensive Income:

2017

Pension Plan

2016

2015

Net Periodic Benefit Cost:

Service cost

Interest cost

Expected return on plan assets

Amortization of unrecognized actuarial loss

Total net periodic cost

Other Changes in Plan Assets and Benefit Obligations Recognized in Other
Comprehensive Income:

Net actuarial loss (gain)

Reversal of amortization of net actuarial loss

Total recognized in other comprehensive income

Total recognized in net periodic benefit cost and other comprehensive income

—

12,490

(19,419)

2,001

(4,928)

3,594

(2,001)

1,593

(3,335)

1,647

12,336

(17,309)

6,299

2,973

11,316

(6,299)

5,017

7,990

7,215

13,668

(15,969)

6,831

11,745

(1,425)

(6,831)

(8,256)

3,489

The estimated net actuarial loss for the Pension Plan that will be amortized from AOCI into net periodic benefit cost during the
2018 fiscal year is $2.0 million.

Weighted-Average Expense Assumptions for the years ended December 31:

Discount rate

4.41%

4.69

2017

Pension Plan

2016

2015

Expected return on plan assets
Rate of compensation increase1
1This assumption was 4.00% through March 31, 2016, the date after which benefits ceased accruing for all participants of the Pension Plan.

6.37

6.24

—

4.29

6.27

4.00

Our latest measurement date was December 31, 2017, at which time we increased our expected return on plan assets to 6.36%,
reflecting a higher allocation to equity securities in the portfolio.

When determining the most appropriate discount rate to be used in the valuation, we consider, among other factors, our
expected payout patterns of the Pension Plan's obligations as well as our investment strategy and we ultimately select the rate
that we believe best represents our estimate of the inherent interest rate at which our pension and post-retirement life benefits
can be effectively settled. Effective January 1, 2016, the approach used to calculate the service and interest components of net
periodic benefit cost for benefit plans was changed to provide a more precise measurement of service and interest costs. Prior
to 2016, we calculated these service and interest components utilizing a single weighted-average discount rate derived from the
yield curve used to measure the benefit obligation at the beginning of the period. Beginning in 2016, we elected to utilize an
approach that discounts the individual expected cash flows using the applicable spot rates derived from the yield curve over the
projected cash flow period. We have accounted for this change prospectively as a change in accounting estimate. The weighted
average discount rate used to determine 2018 interest cost is 3.46%.

Plan Assets
Assets of the Pension Plan are invested to adequately support the liability associated with the Pension Plan's defined benefit
obligation. Our return objective is to exceed the returns of the plan's policy benchmark, which is the return the plan would have
earned if the assets were invested according to the target asset class weightings and earned index returns shown below. In 2018,
we will continue to phase in adjustments to the asset allocation to steadily close the gap between the duration of the assets and
the duration of the liabilities, provided certain improved funding targets are achieved. Over time, the target and actual asset
allocations may change based on the funded status of the Pension Plan and market return expectations.

120

The Pension Plan’s equity investments may not contain investments in any one security greater than 8% of the portfolio value
without notification to our management investment committee, nor have more than 5% of the outstanding shares of any one
corporation or other entity. The use of derivative instruments is permitted under certain circumstances, but shall not be used for
unrelated speculative hedging or to apply leverage to portfolio positions. Within the alternative investments portfolio, some
leverage is permitted as defined and limited by the partnership agreements.

The plan’s target ranges, as well as the actual weighted average asset allocation by strategy, at December 31 were as follows:

Return seeking assets1

Liability hedging assets

20% - 60%

40% - 80%

Total
1Includes limited partnerships.
2Target percent allocations may change over time based on the funded status of the plan and market return expectations.

100%

58%

42%

100%

50%

100%

2017

2016

Target Percentage2

Actual Percentage

The Pension Plan had no investments in the Parent’s common stock as of December 31, 2017 or 2016.

The techniques used to determine the fair value of the Pension Plan's invested assets that appear on the following page are as
follows:

• The long-duration fixed income mutual funds utilize a market approach wherein the quoted prices in the active market
for identical assets are used. All of the mutual funds are traded in active markets at their net asset value per share.
These investments are classified as Level 1 in the fair value hierarchy.

• The investments in global equity collective investment funds utilize a market approach wherein the published prices in
the active market for identical assets are used. These investments are traded at their net asset value per share. There are
no restrictions as to the redemption of these investments nor do we have any contractual obligations for further
investment. These investments are classified as Level 1 in the fair value hierarchy.

• The investments in private equity limited partnerships are valued utilizing net asset value as a practical expedient for

fair value. These investments are not classified in the fair value hierarchy.

• The investments in other private equity securities are non-publicly traded stocks and are valued by the issuer and

•

reviewed internally. These investments are classified as Level 3 in the fair value hierarchy.
Short-term investments are carried at cost, which approximates fair value. Given that these investments are listed on
active exchanges, coupled with their liquid nature, these investments are classified as Level 1 in the fair value
hierarchy.

• The deposit administration contract is carried at cost, which approximates fair value. Given the liquid nature of the

underlying investments in overnight cash deposits and other short-term duration products, we have determined that a
correlation exists between the deposit administration contract and other short-term investments, such as money market
funds. As such, this investment is classified as Level 2 in the fair value hierarchy.

For discussion regarding the levels within the fair value hierarchy, see Note 2. "Summary of Significant Accounting Policies."

In addition, refer to Note 5. "Investments" for discussion regarding the limited partnership investment strategies, excluding the
middle market lending strategy, as these investments are not part of the Pension Plan. The hedge fund strategy is part of the
overall private asset strategy and is only included in the Pension Plan assets. The Pension Plan invests in hedge funds with
diversified exposure to a number of underlying systematic strategies that include arbitrage, macro-oriented and equity related
strategies. These positions are expected to improve the risk-adjusted return of the portfolio given their lower volatility profile
than public equities with returns that are generally uncorrelated to traditional asset classes over a complete market cycle.

121

The following tables provide quantitative disclosures of the Pension Plan’s invested assets that are measured at fair value on a
recurring basis:

December 31, 2017

Fair Value Measurements at 12/31/17 Using

($ in thousands)

Description

Return seeking assets:

Long-duration fixed income:

Global asset allocation fund

Global equity:

Non-U.S. equity

U.S. equity

Total global equity

Private assets:

Limited partnerships (at net asset value)1:

Real assets

Private equity

Private credit

Hedge fund

Total limited partnerships

Other private assets

Total private assets

Total return seeking assets

Liability hedging assets:

Long-duration fixed income:

Extended duration fixed income

Cash and short-term investments:

Short-term investments

Deposit administration contracts

Total cash and short-term investments

Total liability hedging assets

Total invested assets

Assets Measured at
Fair Value
At 12/31/17

Quoted Prices in
Active Markets for
Identical Assets/
Liabilities
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

41,309

67,989

66,353

134,342

16,305

1,096

460

15,192

33,053

980

34,033

209,684

67,989

66,353

134,342

—

175,651

146,837

4,939

1,615

6,554

153,391

4,939

—

4,939

151,776

—

1,615

363,075

327,427

1,615

—

980

—

980

122

December 31, 2016

Fair Value Measurements at 12/31/16 Using

($ in thousands)

Description

Return seeking assets:

Long-duration fixed income:

Global asset allocation fund

Global equity:

Non-U.S. equity

U.S. equity

Total global equity

Private assets (limited partnerships, at net asset value)1:

Real assets

Private equity

Private credit

Total private assets

Total return seeking assets

Liability hedging assets:

Long-duration fixed income:

Extended duration fixed income

Cash and short-term investments:

Short-term investments

Deposit administration contracts

Total cash and short-term investments

Total liability hedging assets

Assets Measured at
Fair Value
At 12/31/16

Quoted Prices in
Active Markets for
Identical Assets/
Liabilities
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

37,878

48,836

55,073

103,909

15,466

1,615

1,108

18,189

159,976

48,836

55,073

103,909

—

141,787

131,457

23,722

1,832

25,554

157,011

23,722

—

23,722

155,179

—

1,832

—

Total invested assets

—
1In accordance with ASU 2015-07, certain investments that are measured at fair value using the net asset value per share (or its practical expedient) 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
Pension Plan invested assets.

316,987

296,966

1,832

Contributions
We presently do not anticipate contributing to the Pension Plan in 2018, as we have no minimum required contribution
amounts.

Benefit Payments

($ in thousands)

Benefits Expected to be Paid in Future

Fiscal Years:

2018

2019

2020

2021

2022

2023-2027

Pension Plan

12,913

12,936

13,987

15,093

16,128

94,542

123

Note 15. Share-Based Payments

Active Plans
As of December 31, 2017, the following four plans were available for the issuance of share-based payment awards:

• The 2014 Omnibus Stock Plan (the "Stock Plan");
• The Cash Incentive Plan, amended and restated effective as of May 1, 2014 (the "Cash Plan");
• The Employee Stock Purchase Plan (2009) ("ESPP"); and
• The Amended and Restated Stock Purchase Plan for Independent Insurance Agencies (the "Agent Plan").

The following table provides information regarding the approval of these plans:

Plan

Stock Plan

Cash Plan

ESPP

Agent Plan

Approvals

Approved effective as of May 1, 2014 by stockholders on April 23, 2014.

Approved effective April 1, 2005 by stockholders on April 27, 2005.
Most recently amended and restated plan was approved effective May 1, 2014 by stockholders on April 23, 2014.

Approved by stockholders on April 29, 2009 effective July 1, 2009.

Approved by stockholders on April 26, 2006.
Most recently amended and restated plan was approved on December 13, 2016 by the Parent's Board of Directors' Salary and
Employee Benefits Committee. The amendment was effective February 1, 2017.

The types of awards that can be issued under each of these plans are as follows:

Plan

Types of Share-Based Payments Issued

Stock Plan

Cash Plan

ESPP

Agent Plan

Qualified and nonqualified stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units ("RSUs"), stock
grants, and other awards valued in whole or in part by reference to the Parent's common stock. The maximum exercise period for an
option grant under this plan is 10 years from the date of the grant. Dividend equivalent units ("DEUs") are earned during the vesting
period on RSU grants. The DEUs are reinvested in the Parent's common stock at fair value on each dividend payment date. The
requisite service period for grants to employees under this plan is the lesser of: (i) the stated vested date, which is typically three
years from issuance; or (ii) the date the employee becomes eligible to retire.

Cash incentive units (“CIUs”). The initial dollar value of each CIU will be adjusted to reflect the percentage increase or decrease in
the total shareholder return on the Parent's common stock over a specified performance period. In addition, for certain grants, the
number of CIUs granted will be increased or decreased to reflect our performance on specified performance indicators as compared to
targeted peer companies. The requisite service period for grants under this plan is the lesser of: (i) the stated vested date, which is
typically three years from issuance; or (ii) the date the employee becomes eligible to retire.

Enables employees to purchase shares of the Parent’s common stock. The purchase price is the lower of: (i) 85% of the closing
market price at the time the option is granted; or (ii) 85% of the closing price at the time the option is exercised. Shares are generally
issued on June 30 and December 31 of each year.

Quarterly offerings to purchase the Parent's common stock at a 10% discount with a one year restricted period during which the shares
purchased cannot be sold or transferred. Only our independent retail insurance agencies and wholesale general agencies, and certain
eligible persons associated with the agencies, are eligible to participate in this plan.

Shares authorized and available for issuance as of December 31, 2017 are as follows:

As of December 31, 2017

Authorized

Available for Issuance

Awards Outstanding

Stock Plan

ESPP

Agent Plan

3,500,000

1,500,000

3,000,000

2,516,871

499,629

1,817,493

882,490

—

124

Retired Plans
The following plans are closed for the issuance of new awards, although awards outstanding continue in effect according to the
terms of the applicable award agreements:

Types of Share-Based Payments Issued

Reserve Shares

Awards Outstanding1

December 31, 2017

Plan

2005 Omnibus Stock Plan
("2005 Stock Plan")

Qualified and nonqualified stock options, SARs, restricted stock, RSUs,
phantom stock, stock bonuses, and other awards in such amounts and with
such terms and conditions as it determined, subject to the provisions of the
2005 Stock Plan. The maximum exercise period for an option grant under
this plan is 10 years from the date of the grant. DEUs are earned during
the vesting period on RSU grants. The DEUs are reinvested in the Parent's
common stock at fair value on each dividend payment date.

Parent's Stock Compensation
Plan for Non-employee Directors
("Directors Stock Compensation
Plan")
1 Awards outstanding under the 2005 Stock Plan consisted of 47,268 RSUs and 229,864 stock options.

Directors could elect to receive a portion of their annual compensation in
shares of the Parent's common stock.

RSU Transactions
A summary of the RSU transactions under our share-based payment plans is as follows:

Unvested RSU awards at December 31, 2016

Granted in 2017

Vested in 2017

Forfeited in 2017

Unvested RSU awards at December 31, 2017

2,202,532

277,132

66,506

Number
of Shares

Weighted
Average
Grant Date
Fair Value

916,640

321,928

(360,702)

(12,279)

865,587

26.20

42.66

22.78

32.09

33.66

As of December 31, 2017, total unrecognized compensation expense related to unvested RSU awards granted under our stock
plans was $8.0 million. That expense is expected to be recognized over a weighted-average period of 1.8 years. The total
intrinsic value of RSUs vested was $16.0 million for 2017, $12.6 million for 2016, and $10.3 million for 2015. In connection
with vested RSUs, the total value of the DEU shares that vested was $0.9 million during 2017 and $0.7 million in 2016 and
2015.

Option Transactions
A summary of the stock option transactions under our share-based payment plans is as follows:

Outstanding at December 31, 2016

Granted in 2017

Exercised in 2017

Forfeited or expired in 2017

Outstanding at December 31, 2017

Exercisable at December 31, 2017

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life in Years

Aggregate
Intrinsic Value
($ in thousands)

16.87

—

19.39

24.54

15.38

1.50

9,958

Number
of Shares

355,391

—

(120,496)

(5,031)

229,864

The total intrinsic value of options exercised was $4.0 million in 2017, $2.3 million in 2016, and $2.2 million in 2015.

CIU Transactions
The liability recorded in connection with our Cash Plan was $37.0 million at December 31, 2017 and $32.0 million at
December 31, 2016. The remaining cost associated with the CIUs is expected to be recognized over a weighted average period
of 0.9 years. The CIU payments made were $14.2 million in 2017, $14.3 million in 2016, and $10.2 million in 2015.

125

ESPP and Agent Plan Transactions
A summary of ESPP and Agent Plan share issuances is as follows:

ESPP Issuances

Agent Plan Issuances

2017

2016

2015

75,093

49,794

88,432

69,867

100,944

82,142

Fair Value Measurements
The grant date fair value of RSUs is based on the market price of our common stock on the grant date, adjusted for the present
value of our expected dividend payments. The expense recognized for share-based awards is based on the number of shares or
units expected to be issued at the end of the performance period and the grant date fair value.

The grant date fair value of each option award is estimated using the Black Scholes option valuation model ("Black Scholes").
The following are the significant assumptions used in applying Black Scholes: (i) the risk-free interest rate, which is the
implied yield currently available on U.S. Treasury zero-coupon issues with an equal remaining term; (ii) the expected term,
which is based on historical experience of similar awards; (iii) the dividend yield, which is determined by dividing the expected
per share dividend during the coming year by the grant date stock price; and (iv) the expected volatility, which is based on the
volatility of the Parent's stock price over a historical period comparable to the expected term. In applying Black Scholes, we
use the weighted average assumptions illustrated in the following table:

Risk-free interest rate

Expected term

Dividend yield

Expected volatility

2017

1.07%

6 months

1.3%

24%

ESPP

2016

0.47

6 months

1.7

2015

0.10

6 months

2.0

The weighted-average fair value of options and stock per share, including RSUs granted for the Parent's stock plans, during
2017, 2016, and 2015 was as follows:

RSUs

ESPP:

Six month option

Discount of grant date market value

Total ESPP

Agent Plan:

Discount of grant date market value

2017

2016

2015

42.66

32.53

25.22

2.73

7.06

9.79

5.04

2.63

5.23

7.86

3.79

1.26

4.16

5.42

2.94

The fair value of the CIU liability is remeasured at each reporting period through the settlement date of the awards, which is
three years from the date of grant based on an amount expected to be paid. A Monte Carlo simulation is performed to
approximate the projected fair value of the CIUs that, in accordance with the Cash Plan, is adjusted to reflect our performance
on specified indicators as compared to targeted peer companies.

Expense Recognition
The following table provides share-based compensation expense in 2017, 2016, and 2015:

($ in millions)

Share-based compensation expense, pre-tax

Income tax benefit, including the benefit related to stock grants that have vested during the year

Share-based compensation expense, after-tax

2017

2016

2015

31.2

(15.0)

16.2

30.3

(10.3)

20.0

23.8

(8.0)

15.8

126

Note 16. Related Party Transactions
William M. Rue, a Director of the Parent, is Chairman of, and owns more than 10% of the equity of, Chas. E. Rue & Son, Inc.,
t/a Rue Insurance, a general independent retail insurance agency ("Rue Insurance"). Rue Insurance is an appointed distribution
partner of the Insurance Subsidiaries on terms and conditions similar to those of our other distribution partners, which includes
the right to participate in the Agent Plan. Mr. Rue’s son is President, and an employee, of Rue Insurance and Mr. Rue’s
daughter is an employee of Rue Insurance. Our relationship with Rue Insurance has existed since 1928.

Rue Insurance placed insurance policies with the Insurance Subsidiaries for its customers and itself. Direct premiums written
associated with these policies were $11.1 million in 2017, $10.4 million in 2016, and $9.6 million in 2015. In return, the
Insurance Subsidiaries paid standard market commissions, including supplemental commissions, to Rue Insurance of $2.3
million in 2017, $2.1 million in 2016, and $1.7 million in 2015. Amounts due to Rue Insurance at December 31, 2017 and
December 31, 2016 were $0.6 million and $0.7 million, respectively.

In 2005, we established a private foundation, now named The Selective Insurance Group Foundation (the "Foundation"), under
Section 501(c)(3) of the Internal Revenue Code. The Board of Directors of the Foundation is comprised of some of the Parent's
officers. We made less than $0.1 million of contributions and no contributions to the Foundation in 2017 and 2016,
respectively. We made contributions to the Foundation in the amount of $1.0 million in 2015.

BlackRock, Inc., a leading publicly traded investment management firm (“BlackRock”), has purchased our common shares in
the ordinary course of its investment business and has previously filed Schedules 13G/A with the SEC. On January 19, 2018,
BlackRock filed a Schedule 13G/A reporting beneficial ownership as of December 31, 2017, of 12.8% of our common stock.
In connection with purchasing our common shares, BlackRock filed the necessary filings with insurance regulatory authorities.
On the basis of those filings, BlackRock is deemed not to be a controlling person for the purposes of applicable insurance law.

We are required to disclose related party information for our transactions with BlackRock. BlackRock is highly regulated,
serves its clients as a fiduciary, and has a diverse platform of active (alpha) and index (beta) investment strategies across asset
classes that enables it to tailor investment outcomes and asset allocation solutions for clients. BlackRock also offers the
BlackRock Solutions® investment and risk management technology platform, Aladdin®, risk analytics, advisory, and technology
services and solutions to a broad base of institutional and wealth management investors. In 2017 and 2016, we incurred
expenses related to BlackRock of $2.0 million and $0.4 million, respectively, for services rendered. Amounts payable for such
services at December 31, 2017 and December 31, 2016, were $0.5 million and $0.4 million, respectively. All contracts with
BlackRock were consummated in the ordinary course of business on an arm's-length basis.

Note 17. Commitments and Contingencies
(a) We purchase annuities from life insurance companies to fulfill obligations under claim settlements that provide for periodic
future payments to claimants. As of December 31, 2017, we had purchased such annuities with a present value of $18.5 million
for settlement of claims on a structured basis for which we are contingently liable. To our knowledge, there are no material
defaults from any of the issuers of such annuities.

(b) We have various operating leases for office space, equipment, and fleet vehicles. Such lease agreements, which expire at
various times, are generally renewed or replaced by similar leases. Rental expense under these leases amounted to $10.8
million in 2017, $12.3 million in 2016, and $11.7 million in 2015. We also lease computer hardware and software under capital
lease agreements expiring at various dates through 2019. See item (p) of Note 2. "Summary of Significant Accounting
Policies" in this Form 10-K for information on our accounting policy regarding leases.

127

In addition, certain of these leases are non-cancelable, and liability for payment will continue even though the leased asset may
no longer be in use. At December 31, 2017, the total future minimum rental commitments under non-cancelable leases were as
follows:

($ in millions)

Capital Leases

Operating Leases

Total

2018

2019

2020

2021

2022

After 2022

Total minimum payment required

2.3

0.1

—

2.4

10.0

7.5

6.0

3.7

2.1

2.6

31.9

12.3

7.6

6.0

3.7

2.1

2.6

34.3

(c) As of December 31, 2017, we had contractual obligations that expire at various dates through 2032 to invest up to an
additional $221 million in alternative and other investments. There is no certainty that any such additional investment will be
required. For additional information regarding these investments, see item (f) of Note 5. "Investments" in this Form 10-K. In
addition, as of December 31, 2017, we had contractual obligations that expire in 2023 to invest $16.3 million in a non-publicly
traded common stock within our available-for-sale portfolio. We expect to have the capacity to repay and/or refinance these
obligations as they become due.

Note 18. Litigation
In the ordinary course of conducting business, we are named as defendants in various legal proceedings. Most of these
proceedings 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 losses and loss expense reserves. We expect
that any potential ultimate liability in such ordinary course claims litigation will not be material to our consolidated financial
condition, results of operations, or cash flows after consideration of provisions made for potential losses and costs of defense.

As of December 31, 2017, we do not believe the Company was involved in any legal action that could have a material adverse
effect on our consolidated financial condition, results of operations, or cash flows.

Note 19. Statutory Financial Information, Capital Requirements, and Restrictions on Dividends and Transfers of Funds
(a) Statutory Financial Information
The Insurance Subsidiaries prepare their statutory financial statements in accordance with accounting principles prescribed or
permitted by the various state insurance departments of domicile. Prescribed statutory accounting principles include state laws,
regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance
Commissioners (“NAIC"). Permitted statutory accounting principles encompass all accounting principles that are not
prescribed; such principles differ from state to state, may differ from company to company within a state and may change in the
future. The Insurance Subsidiaries do not utilize any permitted statutory accounting principles that materially affect the
determination of statutory surplus, statutory net income, or risk-based capital (“RBC”). As of December 31, 2017, the various
state insurance departments of domicile have adopted the March 2017 version of the NAIC Accounting Practices and
Procedures manual in its entirety, as a component of prescribed or permitted practices.

128

The following table provides statutory data for each of our Insurance Subsidiaries:

State of
Domicile

Unassigned Surplus

Statutory Surplus

Statutory Net Income

2017

2016

2017

2016

2017

2016

2015

($ in millions)

SICA

Selective Way Insurance Company ("SWIC")

SICSC

SICSE

SICNY

New Jersey

Indiana

New York

Selective Insurance Company of New England ("SICNE") New Jersey

Selective Auto Insurance Company of New Jersey
("SAICNJ")

MUSIC

Selective Casualty Insurance Company ("SCIC")

Selective Fire and Casualty Insurance Company
("SFCIC")

New Jersey

455.5

276.1

112.9

86.2

78.8

16.1

42.1

21.4

34.5

13.7

414.4

260.5

110.6

83.5

74.1

13.6

36.9

16.7

26.6

609.7

325.1

144.1

111.8

106.5

46.3

84.9

89.9

568.6

309.5

141.9

109.1

101.8

43.7

79.8

85.2

109.0

101.0

84.6

43.6

17.9

14.7

13.4

6.3

11.4

10.3

13.4

72.2

41.2

17.4

13.4

12.9

5.9

11.5

9.7

12.6

11.3

45.6

43.2

5.6

5.5

69.6

42.3

15.9

12.1

12.7

5.5

10.8

9.5

12.1

5.3

Total

$ 1,137.3

1,048.2

1,672.9

1,583.8

221.2

202.3

195.8

(b) Capital Requirements
The Insurance Subsidiaries are required to maintain certain minimum amounts of statutory surplus to satisfy the requirements
of their various state insurance departments of domicile. RBC requirements for property and casualty insurance companies are
designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. The
Insurance Subsidiaries' combined total adjusted capital exceeded the authorized control level RBC, as defined by the NAIC
based on their 2017 statutory financial statements. In addition to statutory capital requirements, we are impacted by various
rating agency requirements related to certain rating levels. These required capital levels may be more than statutory
requirements.

(c) Restrictions on Dividends and Transfers of Funds
Our ability to declare and pay dividends on the Parent's common stock is dependent on liquidity at the Parent coupled with the
ability of the Insurance Subsidiaries to declare and pay dividends, if necessary, and/or the availability of other sources of
liquidity to the Parent. As of December 31, 2017, the Parent had an aggregate of $114.5 million in investments and cash
available to fund future dividends and interest payments. These amounts are not subject to any regulatory restrictions other
than standard state insolvency restrictions, whereas our consolidated retained earnings of $1.7 billion is predominately
restricted due to the regulation associated with our Insurance Subsidiaries. In 2018, the Insurance Subsidiaries have the ability
to provide for $211.0 million in annual dividends to the Parent; however, as regulated entities, these dividends are subject to
certain restrictions, which are further discussed below. The Parent also has available to it other potential sources of liquidity,
such as: (i) borrowings from our Indiana Subsidiaries; (ii) debt issuances; (iii) common stock issuances; and (iv) borrowings
under our Line of Credit. Borrowings from our Indiana Subsidiaries are governed by approved intercompany lending
agreements with the Parent that provide for additional capacity of $70.5 million as of December 31, 2017, based on restrictions
in these agreements that limit borrowings to 10% of the admitted assets of the Indiana Subsidiaries. For additional restrictions
on the Parent's debt, see Note 10. "Indebtedness" in this Form 10-K.

Insurance Subsidiaries Dividend Restrictions
As noted above, the restriction on our net assets and retained earnings is predominantly driven by our Insurance Subsidiaries'
ability to pay dividends to the Parent under applicable law and regulations. Under the insurance laws of the domiciliary states
of the Insurance Subsidiaries, New Jersey, Indiana, and New York, an insurer can potentially make an ordinary dividend
payment if its statutory surplus following such dividend is reasonable in relation to its outstanding liabilities, is adequate to its
financial needs, and the dividend does not exceed the insurer's unassigned surplus. In general, New Jersey defines an ordinary
dividend as a dividend whose fair market value, together with other dividends made within the preceding 12 months, is less
than the greater of 10% of the insurer's statutory surplus as of the preceding December 31, or the insurer's net income
(excluding capital gains) for the 12-month period ending on the preceding December 31. Indiana's ordinary dividend
calculation is consistent with New Jersey's, except that it does not exclude capital gains from net income. In general, New York
defines an ordinary dividend as a dividend whose fair market value, together with other dividends made within the preceding
12 months, is less than the lesser of 10% of the insurer's statutory surplus, or 100% of adjusted net investment income.

New Jersey and Indiana require notice of the declaration of any ordinary dividend distribution. During the notice period, the
relevant state regulatory authority may disallow all or part of the proposed dividend if it determines that the dividend is not
appropriate given the above considerations. New York does not require notice of ordinary dividends. Dividend payments

129

28.0

19.0

10.0

7.5

4.5

2.0

2.5

2.1

3.0

1.5

80.1

77.6

43.3

17.9

14.7

10.7

6.2

11.3

10.3

13.4

5.6

211.0

exceeding ordinary dividends are referred to as extraordinary dividends and require review and approval by the applicable
domiciliary insurance regulatory authority prior to payment.

The following table provides quantitative data regarding all Insurance Subsidiaries' dividends paid to the Parent in 2017 for
debt service, shareholder dividends, and general operating purposes:

State of Domicile

Ordinary Dividends Paid

Twelve Months ended December 31, 2017

Dividends

($ in millions)

SICA

SWIC

SICSC

SICSE

SICNY

SICNE

SAICNJ

MUSIC

SCIC

SFCIC

Total

New Jersey

Indiana

New York

New Jersey

Based on the 2017 statutory financial statements, the maximum ordinary dividends that can be paid to the Parent by the
Insurance Subsidiaries in 2018 are as follows:

($ in millions)

State of Domicile

Maximum Ordinary Dividends

2018

SICA

SWIC

SICSC

SICSE

SICNY

SICNE

SAICNJ

MUSIC

SCIC

SFCIC

Total

New Jersey

Indiana

New York

New Jersey

Note 20. Quarterly Financial Information

(unaudited, $ in thousands,

First Quarter

Second Quarter

Third Quarter

except per share data)

Net premiums earned

Net investment income earned

Net realized (losses) gains

Other income

Total revenues

Income before federal income taxes

Net income

Net income per share:

Basic

2017

2016

560,854

522,458

37,419

(1,045)

3,241

30,769

(2,704)

951

2017

568,030

41,430

1,734

3,291

2016

531,932

31,182

1,765

3,868

2017

572,055

40,446

6,798

1,994

2016

542,429

33,375

3,688

2,199

Fourth Quarter

2017 1

2016

590,088

552,753

42,587

(1,128)

2,190

35,428

(7,686)

1,863

600,469

551,474

614,485

568,747

621,293

581,691

633,737

582,358

67,574

50,440

51,875

37,032

58,929

41,426

62,311

43,601

67,315

46,718

55,443

38,502

68,150

30,242

50,326

39,360

0.87

0.64

0.71

0.75

0.80

0.66

0.52

0.68

Diluted
0.67
1 Results for the fourth quarter of 2017 include the impact of the $20.2 million write off of deferred tax assets required with the implementation of Tax Reform.
See Note 13. "Federal Income Taxes" above for additional information.

0.51

0.70

0.79

0.85

0.63

0.66

0.74

The addition of all quarters may not agree to annual amounts on the Financial Statements due to rounding.

130

Note 21. Subsequent Events
Subsequent to year-end and through the end of January 2018, our insurance operations experienced significant insured property
losses, principally due to the deep freeze that impacted our footprint states during the month, the Property Claims Services
("PCS") named winter storm that occurred between January 3 and January 6, and a relatively large number of severe fire losses.
For January 2018, non-catastrophe property losses amounted to $47 million and catastrophe losses, which we define as only
those losses specifically attributable to a named PCS catastrophe, totaled $16 million. In total, the $63 million of insured
property losses were approximately $30 million in excess of our property loss expectations for the month of January.

131

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

Item 9A. 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. 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.

Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) is a process designed by,
or under the supervision of, a company's principal executive and principal financial officers and effected by the Board,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:

•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In
making this assessment, 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 assessment, our management believes that, as of December 31, 2017, our internal control over financial reporting
is effective.

Except for internal controls over financial reporting related to the October 1, 2017 implementation of a new billing system,
there were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the
Exchange Act) that occurred during the fourth quarter ended December 31, 2017 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial reporting. Management reviewed and tested the
effectiveness of the internal controls over financial reporting related to the implementation of the new billing system and
concluded they were effective.

Attestation Report of the Independent Registered Public Accounting Firm
Our independent registered public accounting firm, KPMG, LLP, has issued their attestation report on our internal control over
financial reporting which is set forth below.

132

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Selective Insurance Group, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Selective Insurance Group, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated
statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2017, and the related notes and financial statement schedules I to V (collectively, the consolidated
financial statements), and our report dated February 19, 2018 expressed an unqualified opinion on those consolidated
financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

New York, New York
February 19, 2018

/s/ KPMG LLP

1 3 3

Item 9B. Other Information.
There is no other information that was required to be disclosed in a report on Form 8-K during the fourth quarter of 2017 that
we did not report.

PART III
Because we will file a Proxy Statement within 120 days after the end of the fiscal year ending December 31, 2017, this Annual
Report on Form 10-K omits certain information required by Part III and incorporates by reference certain information included
in the Proxy Statement.

Item 10. Directors, Executive Officers and Corporate Governance.
Information about our executive officers, Directors, and all other matters required to be disclosed in Item 10. "Directors,
Executive Officers and Corporate Governance." appears under the "Executive Officers" and "Information About Proposal 1 -
Election of Directors" sections of the Proxy Statement. These portions of the Proxy Statement are hereby incorporated by
reference.

Section 16(a) Beneficial Ownership Reporting Compliance
Information about compliance with Section 16(a) of the Exchange Act appears under "Section 16(a) Beneficial Ownership
Reporting Compliance" in the "Information About Proposal 1 - Election of Directors" section of the Proxy Statement and is
hereby incorporated by reference.

Item 11. Executive Compensation.
Information about compensation of our named executive officers appears under "Executive Compensation" in the "Information
About Proposal 1 - Election of Directors" section of the Proxy Statement and is hereby incorporated by reference. Information
about compensation of the Board appears under "Director Compensation" in the "Information About Proposal 1 - Election of
Directors" section of the Proxy Statement and is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information about security ownership of certain beneficial owners and management appears under "Security Ownership of
Management and Certain Beneficial Owners" in the "Information About Proposal 1 - Election of Directors" section of the
Proxy Statement and is hereby incorporated by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information about certain relationships and related transactions, and director independence appears under “Transactions with
Related Persons” in the "Information About Proposal 1 - Election of Directors" section of the Proxy Statement and is hereby
incorporated by reference.

Item 14. Principal Accounting Fees and Services.
Information about the fees and services of our principal accountants appears under "Audit Committee Report" and "Fees of
Independent Registered Public Accounting Firm" in the "Information About Proposal 4 - Ratification of Appointment of
Independent Registered Public Accounting Firm" section of the Proxy Statement and is hereby incorporated by reference.

134

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this report:

(1) Financial Statements:

The Financial Statements listed below are included in Item 8. "Financial Statements and Supplementary Data."

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Income for the Years Ended December 31, 2017, 2016, and 2015

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2017, 2016, and 2015

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015

Notes to Consolidated Financial Statements, December 31, 2017, 2016, and 2015

(2) Financial Statement Schedules:

Form 10-K

Page

The financial statement schedules, with Independent Auditors' Report thereon, required to be filed are listed below by page
number as filed in this report. All other schedules are omitted as the information required is inapplicable, immaterial, or the
information is presented in the Financial Statements or related notes.

Schedule I

Summary of Investments – Other than Investments in Related Parties at December 31, 2017

Schedule II

Condensed Financial Information of Registrant at December 31, 2017 and 2016 and for the Years Ended
December 31, 2017, 2016, and 2015

Schedule III

Supplementary Insurance Information for the Years Ended December 31, 2017, 2016, and 2015

Schedule IV

Reinsurance for the Years Ended December 31, 2017, 2016, and 2015

Schedule V

Allowance for Uncollectible Premiums and Other Receivables for the Years Ended December 31, 2017, 2016,
and 2015

Form 10-K

Page

136

137

140

142

(3) Exhibits:

The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index, which is incorporated by reference and
immediately precedes the exhibits filed with or incorporated by reference in this Form 10-K.

135

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2017

SCHEDULE I

Types of investment

($ in thousands)

Fixed income securities:

Held-to-maturity:

Amortized Cost
or Cost

Fair Value

Carrying
Amount

Obligations of states and political subdivisions

Public utilities

All other corporate securities

Total fixed income securities, held-to-maturity

Available-for-sale:

U.S. government and government agencies

Foreign government

Obligations of states and political subdivisions

Public utilities

All other corporate securities

Collateralized loan obligation securities and other asset-backed securities

Commercial mortgage-backed securities

Residential mortgage-backed securities

25,154

7,466

9,530

42,150

49,326

18,040

1,539,307

50,071

1,538,268

789,152

382,727

709,825

26,261

7,956

9,883

44,100

49,740

18,555

1,582,970

51,035

1,566,433

795,458

383,449

714,882

25,238

7,443

9,448

42,129

49,740

18,555

1,582,970

51,035

1,566,433

795,458

383,449

714,882

Total fixed income securities, available-for-sale

5,076,716

5,162,522

Equity securities:

Common stock:

Public utilities

Banks, trusts and insurance companies

Industrial, miscellaneous and all other

Total common stock, available-for-sale

Preferred stock:

Banks, trusts and insurance companies

Total preferred stock, available-for-sale

Total equity securities, available-for-sale

Short-term investments

Other investments

Total investments

5,957

34,301

89,438

129,696

14,115

143,811

165,555

132,268

5,560,500

6,156

40,510

121,091

167,757

14,948

182,705

165,555

6,156

40,510

121,091

167,757

14,948

182,705

165,555

132,268

5,685,179

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

136

SELECTIVE INSURANCE GROUP, INC.
(Parent Corporation)
Balance Sheets

($ in thousands, except share amounts)

Assets:

Fixed income securities, available-for-sale – at fair value (amortized cost: $89,799 – 2017; $73,471 – 2016)

Short-term investments

Cash

Investment in subsidiaries

Current federal income tax

Deferred federal income tax

Other assets

Total assets

Liabilities:

Long-term debt

Intercompany notes payable

Accrued long-term stock compensation

Other liabilities

Total liabilities

Stockholders’ Equity:

Preferred stock at $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: 102,284,564 – 2017; 101,620,436 – 2016

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss)

Treasury stock – at cost (shares: 43,789,442 – 2017; 43,653,237 – 2016)

Total stockholders’ equity

Total liabilities and stockholders’ equity

SCHEDULE II

December 31,

2017

2016

89,872

24,080

534

73,509

17,777

458

2,013,304

1,845,410

22,266

13,239

871

19,766

19,562

840

2,164,166

1,977,322

329,116

78,443

37,017

6,633

451,209

328,667

79,324

32,029

5,932

445,952

—

204,569

367,717

1,698,613

20,170

(578,112)

1,712,957

2,164,166

203,241

347,295

1,568,881

(15,950)

(572,097)

1,531,370

1,977,322

See accompanying Report of Independent Registered Public Accounting Firm. Information should be read in conjunction with the Notes to Consolidated
Financial Statements of Selective Insurance Group, Inc. and its subsidiaries. Both items are in Item 8. “Financial Statements and Supplementary Data.” of this
Form 10-K.

137

SELECTIVE INSURANCE GROUP, INC.
(Parent Corporation)
Statements of Income

SCHEDULE II (continued)

Year ended December 31,

2017

2016

2015

80,096

2,044

(15)

82,125

24,721

36,251

60,972

61,014

1,259

(220)

62,053

24,030

35,020

59,050

57,752

852

—

58,604

24,057

28,393

52,450

($ in thousands)

Revenues:

Dividends from subsidiaries

Net investment income earned

Net realized losses

Total revenues

Expenses:

Interest expense

Other expenses

Total expenses

Income before federal income tax

21,153

3,003

6,154

Federal income tax (benefit) expense:

Current

Deferred

Total federal income tax benefit

(22,187)

6,311

(15,876)

(17,924)

(2,143)

(20,067)

(16,609)

(1,603)

(18,212)

Net income before equity in undistributed income of subsidiaries

37,029

23,070

24,366

Equity in undistributed income of subsidiaries, net of tax

131,797

135,425

141,495

Net income

168,826

158,495

165,861

138

SELECTIVE INSURANCE GROUP, INC.
(Parent Corporation)
Statements of Cash Flows

SCHEDULE II (continued)

($ in thousands)

Operating Activities:

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Equity in undistributed income of subsidiaries, net of tax

Stock-based compensation expense

Net realized losses

Amortization – other

Changes in assets and liabilities:

Increase in accrued long-term stock compensation

Decrease (increase) in net federal income taxes

Decrease in other assets

Increase (decrease) in other liabilities

Net cash provided by operating activities

Investing Activities:

Purchase of fixed income securities, available-for-sale

Redemption and maturities of fixed income securities, available-for-sale

Sale of fixed income securities, available-for-sale

Purchase of short-term investments

Sale of short-term investments

Net cash used in investing activities

Financing Activities:

Dividends to stockholders

Acquisition of treasury stock

Net proceeds from stock purchase and compensation plans

Excess tax benefits from share-based payment arrangements

Principal payment on borrowings from subsidiaries

Net cash used in financing activities

Net increase (decrease) in cash

Cash, beginning of year

Cash, end of year

Year ended December 31,

2017

2016

2015

168,826

158,495

165,861

(131,797)

12,089

678

4,988

3,811

(60)

714

59,264

(58,832)

10,465

31,819

(185,590)

179,292

(22,846)

(37,045)

(6,015)

7,599

—

(881)

(36,342)

458

534

(135,425)

10,449

220

648

5,564

(3,612)

(202)

36,217

(45,789)

14,983

18,768

(119,501)

130,841

(698)

(33,758)

(4,992)

7,811

1,819

(6,839)

(35,959)

(440)

898

458

(141,495)

8,973

—

740

4,575

(3,052)

(12)

(202)

35,388

(33,717)

21,578

—

(106,933)

94,422

(24,650)

(31,052)

(4,182)

10,089

1,736

(2,798)

(26,207)

(15,469)

16,367

898

139

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
Year ended December 31, 2017

SCHEDULE III

Deferred
policy
acquisition
costs

Reserve
for loss
and loss
expense

Unearned
premiums

Net
premiums
earned

Net
investment
income1

Loss
and loss
expense
incurred

Amortization
of deferred
policy
acquisition
costs

Other
operating
expenses2

Net
premiums
written

193,408

3,165,217

956,173

1,788,499

— 1,008,150

387,552

243,283

1,858,735

16,952

24,695

263,166

342,857

295,435

98,036

289,701

212,827

—

189,294

147,630

32,542

49,142

56,761

22,337

296,775

215,131

($ in thousands)

Standard Commercial
Lines Segment

Standard Personal
Lines Segment

E&S Lines Segment

Investments Segment

—

168,241

—

Total

235,055

3,771,240

1,349,644

2,291,027

168,241

1,345,074

469,236

322,381

2,370,641

1 Includes “Net investment income earned” and “Net realized investment gains” on the Consolidated Statements of Income.
2 “Other operating expenses” of $322,381 reconciles to the Consolidated Statements of Income as follows:

Other insurance expenses

Other income

Total

333,097

(10,716)

322,381

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

Year ended December 31, 2016

Deferred
policy
acquisition
costs

Reserve
for loss
and loss
expense

Unearned
premiums

Net
premiums
earned

Net
investment
income1

Loss
and loss
expense
incurred

Amortization
of deferred
policy
acquisition
costs

Other
operating
expenses2

Net
premiums
written

$ 181,193

3,098,554

884,976

1,665,483

16,664

24,707

—

286,081

307,084

—

282,111

95,732

—

280,607

203,482

—

125,817

—

913,506

367,813

237,729

1,745,782

177,749

143,542

—

34,105

48,410

—

56,334

18,451

—

281,822

209,684

—

($ in thousands)

Standard Commercial
Lines Segment

Standard Personal
Lines Segment

E&S Lines Segment

Investments Segment

Total

$ 222,564

3,691,719

1,262,819

2,149,572

125,817

1,234,797

450,328

312,514

2,237,288

1 Includes “Net investment income earned” and “Net realized investment gains” on the Consolidated Statements of Income.
2 “Other operating expenses” of $312,514 reconciles to the Consolidated Statements of Income as follows:

Other insurance expenses

Other income

Total

321,395

(8,881)

312,514

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

140

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
Year ended December 31, 2015

SCHEDULE III (continued)

Deferred
policy
acquisition
costs

Reserve
for loss
and loss
expense

Unearned
premiums

Net
premiums
earned

Net
investment
income1

Loss
and loss
expense
incurred

Amortization
of deferred
policy
acquisition
costs

Other
operating
expenses2

Net
premiums
written

$ 171,476

2,998,749

803,648

1,529,442

17,258

24,425

—

265,054

253,925

—

276,533

89,529

—

288,134

172,333

—

134,487

—

819,573

323,754

221,619

1,596,965

200,237

128,731

—

33,638

42,044

—

52,923

18,361

—

283,926

189,013

—

($ in thousands)

Standard Commercial
Lines Segment

Standard Personal
Lines Segment

E&S Lines Segment

Investments Segment

Total

$ 213,159

3,517,728

1,169,710

1,989,909

134,487

1,148,541

399,436

292,903

2,069,904

1 Includes “Net investment income earned” and “Net realized investment gains” on the Consolidated Statements of Income.
2 “Other operating expenses” of $292,903 reconciles to the Consolidated Statements of Income as follows:

Other insurance expenses

Other income

Total

300,359

(7,456)

292,903

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

141

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES
REINSURANCE
Years ended December 31, 2017, 2016, and 2015

SCHEDULE IV

($ thousands)

2017

Premiums earned:

Accident and health insurance

Property and liability insurance

Total premiums earned

2016

Premiums earned:

Accident and health insurance

Property and liability insurance

Total premiums earned

2015

Premiums earned:

Accident and health insurance

Property and liability insurance

Total premiums earned

Direct Amount

Assumed from
Other
Companies

Ceded to Other
Companies

Net Amount

% of Amount
Assumed to Net

2,647,464

2,647,488

2,484,683

2,484,715

2,330,230

2,330,267

—

25,831

—

28,214

—

23,209

382,268

382,292

—

2,291,027

—

363,357

2,149,540

2,149,572

363,530

363,567

—

1,989,909

—

1 %

—

1 %

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES
ALLOWANCE FOR UNCOLLECTIBLE PREMIUMS AND OTHER RECEIVABLES
Years ended December 31, 2017, 2016, and 2015

SCHEDULE V

($ in thousands)

Balance, January 1

Additions

Deductions

Balance, December 31

2017

2016

2015

11,480

6,414

(3,294)

14,600

10,122

4,669

(3,311)

11,480

11,037

3,604

(4,519)

10,122

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

142

EXHIBIT INDEX

Exhibit
Number
3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

10.1+

10.1a+

10.2+

10.2a

Amended and Restated Certificate of Incorporation of Selective Insurance Group, Inc., filed May 4, 2010
(incorporated by reference herein to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, File No. 001-33067).

By-Laws of Selective Insurance Group, Inc., effective July 29, 2015 (incorporated by reference herein to
Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, File No.
001-33067).

Indenture, dated as of September 24, 2002, between Selective Insurance Group, Inc. and National City Bank,
as Trustee, relating to the Company's 1.6155% Senior Convertible Notes due September 24, 2032
(incorporated by reference herein to Exhibit 4.1 of the Company's Registration Statement on Form S-3 No.
333-101489).

Indenture, dated as of November 16, 2004, between Selective Insurance Group, Inc. and Wachovia Bank,
National Association, as Trustee, relating to the Company's 7.25% Senior Notes due 2034 (incorporated by
reference herein to Exhibit 4.1 of the Company's Current Report on Form 8-K filed November 18, 2004, File
No. 000-08641).

Indenture, dated as of November 3, 2005, between Selective Insurance Group, Inc. and Wachovia Bank,
National Association, as Trustee, relating to the Company’s 6.70% Senior Notes due 2035 (incorporated by
reference herein to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed November 9, 2005, File
No. 000-08641).

Registration Rights Agreement, dated as of November 16, 2004, between Selective Insurance Group, Inc. and
Keefe, Bruyette & Woods, Inc. (incorporated by reference herein to Exhibit 4.2 of the Company’s Current
Report on Form 8-K filed November 18, 2004, File No. 000-08641).

Registration Rights Agreement, dated as of November 3, 2005, between Selective Insurance Group, Inc. and
Keefe, Bruyette & Woods, Inc. (incorporated by reference herein to Exhibit 4.2 of the Company’s Current
Report on Form 8-K filed November 9, 2005, File No. 000-08641).

Indenture, dated as of February 8, 2013, between Selective Insurance Group, Inc. and U.S. Bank National
Association, as Trustee (incorporated by reference herein to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed February 8, 2013, File No. 001-33067).

First Supplemental Indenture, dated as of February 8, 2013, between Selective Insurance Group, Inc. and U.S.
Bank National Association, as Trustee, relating to the Company’s 5.875% Senior Notes due 2043 (incorporated
by reference herein to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed February 8, 2013, File
No. 001-33067).

Selective Insurance Supplemental Pension Plan, As Amended and Restated Effective January 1, 2005
(incorporated by reference herein to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008, File No. 001-33067).

Amendment No. 1 to Selective Insurance Supplemental Pension Plan, As Amended and Restated Effective
January 1, 2005 (incorporated by reference herein to Exhibit 10.1 of the Company's Current Report on Form 8-
K filed March 25, 2013, File No. 001-33067).

Selective Insurance Company of America Deferred Compensation Plan (2005), As Amended and Restated
Effective as of January 1, 2010 (incorporated by reference herein to Exhibit 10.2 of the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2011, File No. 001-33067).

Amendment No 1. to Selective Insurance Company of America Deferred Compensation Plan (2005)
(incorporated by reference herein to Exhibit 10.2a of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2011, File No. 001-33067).

143

Exhibit

Number

10.2b+

10.3+

10.4+

10.5+

10.6+

10.7+

10.8+

10.9+

10.10+

10.11+

10.12+

10.13+

10.14+

10.15+

Amendment No. 2 to Selective Insurance Company of America Deferred Compensation Plan (2005), As
Amended and Restated Effective as of January 1, 2010 (incorporated by reference herein to Exhibit 10.2 of the
Company's Current Report on Form 8-K filed March 25, 2013, File No. 001-33067).

Selective Insurance Group, Inc. 2014 Omnibus Stock Plan, effective May 1, 2014 (incorporated by reference
herein to Appendix A-1 to the Company’s Definitive Proxy Statement for its 2014 Annual Meeting of
Stockholders filed April 3, 2014, File No. 000-08641).

Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Director Stock Option Agreement (incorporated by
reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2014, File No. 000-08641).

Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Stock Option Agreement (incorporated by reference
herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2014, File No. 000-08641).

Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Service-Based Restricted Stock Agreement
(incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2014 File No. 000-08641).

Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Performance-Based Restricted Stock Agreement
(incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2014, File No. 000-08641).

Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Service-Based Restricted Stock Unit Agreement
(incorporated by reference herein to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2014 File No. 000-08641).

Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Performance-Based Restricted Stock Unit
Agreement (incorporated by reference herein to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-
Q for the quarter ended March 31, 2014, File No. 000-08641).

Selective Insurance Group, Inc. 2014 Omnibus Stock Plan Director Restricted Stock Unit Agreement
(incorporated by reference herein to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2014, File No. 000-08641).

Selective Insurance Group, Inc. 2005 Omnibus Stock Plan As Amended and Restated Effective as of May 1,
2010 (incorporated by reference herein to Appendix C of the Company’s Definitive Proxy Statement for its
2010 Annual Meeting of Stockholders filed March 25, 2010, File No. 001-33067).

Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Stock Option Agreement (incorporated by reference
herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2006, File No. 000-08641).

Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Director Restricted Stock Unit Agreement
(incorporated by reference herein to Exhibit 10.8 of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2009, File No. 001-33067).

Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Director Stock Option Agreement (incorporated by
reference herein to Exhibit 10.9 of the Company’s Annual Report on Form 10-K for the year ended December
31, 2005, File No. 000-08641).

Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted Stock Unit Agreement (incorporated by
reference herein to Exhibit 10.12 of the Company’s Annual Report on Form 10-K for the year ended December
31, 2009, File No. 001-33067).

144

Exhibit
Number
10.16+

10.17+

10.18+

10.19+

10.20+

10.21+

10.22+

10.23+

10.24+

10.25+

10.26+

10.27+

10.28+

10.29+

Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted Stock Unit Agreement (incorporated by
reference herein to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the year ended December
31, 2009, File No. 001-33067).

Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Automatic Director Stock Option Agreement
(incorporated by reference herein to Exhibit 2 of the Company’s Definitive Proxy Statement for its 2005
Annual Meeting of Stockholders filed April 6, 2005, File No. 000-08641).

Selective Insurance Group, Inc. Non-Employee Directors’ Compensation and Deferral Plan, As Amended and
Restated Effective as of January 1, 2017 (incorporated by reference herein to Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the year ended December 31, 2016, File No. 000-08641).

Deferred Compensation Plan for Directors (incorporated by reference herein to Exhibit 10.5 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1993, File No. 000-08641) (paper filed).

Selective Insurance Group, Inc. Employee Stock Purchase Plan (2009), amended and restated effective July 1,
2009 (incorporated by reference herein to Appendix A to the Company’s Definitive Proxy Statement for its
2009 Annual Meeting of Stockholders filed March 26, 2009, File No. 001-33067).

Selective Insurance Group, Inc. Cash Incentive Plan As Amended and Restated as of May 1, 2014
(incorporated by reference herein to Appendix B to the Company’s Definitive Proxy Statement for its 2014
Annual Meeting of Stockholders filed March 24, 2014, File No. 001-33067).

Selective Insurance Group, Inc. Cash Incentive Plan Service-Based Cash Incentive Unit Award Agreement
(incorporated by reference herein to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2014, File No. 001-33067).

Selective Insurance Group, Inc. Cash Incentive Plan Performance-Based Cash Incentive Unit Award
Agreement (incorporated by reference herein to Exhibit 10.9 of the Company’s Quarterly Report on Form 10-
Q for the quarter ended March 31, 2014, File No. 001-33067).

Selective Insurance Group, Inc. Cash Incentive Plan Cash Incentive Unit Award Agreement (incorporated by
reference herein to Exhibit 10.14c of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-33067).

Selective Insurance Group, Inc. Cash Incentive Plan Cash Incentive Unit Award Agreement (incorporated by
reference herein to Exhibit 10.14d of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-33067).

Amended and Restated Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance
Agencies (2010), Amended and Restated as of February 1, 2017 (incorporated by reference herein to Exhibit
10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016, File No.
000-08641).

Selective Insurance Group, Inc. Stock Option Plan for Directors (incorporated by reference herein to Exhibit B
of the Company’s Definitive Proxy Statement for its 2000 Annual Meeting of Stockholders filed March 31,
2000, File No. 000-08641).

Amendment to the Selective Insurance Group, Inc. Stock Option Plan for Directors, as amended, effective as
of July 26, 2006, (incorporated by reference herein to Exhibit 10.3 of the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006, File No. 000-08641).

Selective Insurance Group, Inc. Stock Compensation Plan for Nonemployee Directors, (incorporated by
reference herein to Exhibit A of the Company’s Definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders filed March 31, 2000, File No. 000-08641).

145

Exhibit
Number

10.30+

10.31+

10.32+

10.33+

10.34+

10.35

10.36

10.37+

10.38+

Amendment to Selective Insurance Group, Inc. Stock Compensation Plan for Nonemployee Directors, as
amended (incorporated by reference herein to Exhibit 10.22a of the Company’s Annual Report on Form 10-K
for the year ended December 31, 2008, File No. 001-33067).

Employment Agreement between Selective Insurance Company of America and Gregory E. Murphy, dated as
of December 23, 2008 (incorporated by reference herein to Exhibit 10.1 of the Company’s Current Report on
Form 8-K filed December 30, 2008, File No. 001-33067).

Employment Agreement between Selective Insurance Company of America and Michael H. Lanza, dated as of
December 23, 2008 (incorporated by reference herein to Exhibit 10.23e of the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008, File No. 001-33067).

Employment Agreement between Selective Insurance Company of America and John J. Marchioni, dated as of
September 10, 2013 (incorporated by reference herein to Exhibit 10.1 of the Company’s Current Report on
Form 8-K filed September 11, 2013, File No. 001-33067).

Employment Agreement between Selective Insurance Company of America and Mark A. Wilcox, dated as of
October 28, 2016 (incorporated by reference herein to Exhibit 10.1 of the Company’s Current Report on Form
8-K filed October 31, 2016, File No. 001-33067).

Credit Agreement among Selective Insurance Group, Inc., the Lenders Named Therein and Wells Fargo Bank,
National Association, as Administrative Agent, dated as of December 1, 2015 (incorporated by reference
herein to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the year ended December 31, 2015,
File No. 001-33067).

Form of Indemnification Agreement between Selective Insurance Group, Inc. and each of its directors and
executive officers, as adopted on May 19, 2005 (incorporated by reference herein to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed May 20, 2005, File No. 000-08641).

Selective Insurance Group, Inc. Non-Employee Directors’ Deferred Compensation Plan (incorporated by
reference herein to Exhibit 10.27 of the Company’s Annual Report on Form 10-K for the year ended December
31, 2009, File No. 001-33067).

Amendment No. 1 to the Selective Insurance Group, Inc. Non-Employee Directors’ Deferred Compensation
Plan (incorporated by reference herein to Exhibit 10.27a of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2010, File No. 001-33067).

146

Exhibit
Number
*21

*23.1

*24.1

*24.2

*24.3

*24.4

*24.5

*24.6

*24.7

*24.8

*24.9

*24.10

*24.11

*24.12

*31.1

*31.2

*32.1

*32.2

*99.1

Subsidiaries of Selective Insurance Group, Inc.

Consent of KPMG LLP.

Power of Attorney of Paul D. Bauer.

Power of Attorney of A. David Brown.

Power of Attorney of John C. Burville.

Power of Attorney of Robert Kelly Doherty.

Power of Attorney of Thomas A. McCarthy.

Power of Attorney of Michael J. Morrissey.

Power of Attorney of Cynthia S. Nicholson.

Power of Attorney of Ronald L. O'Kelley.

Power of Attorney of William M. Rue.

Power of Attorney of John S. Scheid.

Power of Attorney of J. Brian Thebault.

Power of Attorney of Philip H. Urban.

Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.

Glossary of Terms.

XBRL Instance Document.

** 101.INS
** 101.SCH XBRL Taxonomy Extension Schema Document.
** 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
** 101.LAB XBRL Taxonomy Extension Label Linkbase Document.
** 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
** 101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

* Filed herewith.
** Furnished and not filed herewith.
+ Management compensation plan or arrangement.

147

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

By: /s/ Gregory E. Murphy
Gregory E. Murphy
Chairman of the Board and Chief Executive Officer

By: /s/ Mark A. Wilcox
Mark A. Wilcox
Executive Vice President and Chief Financial Officer
(principal financial officer)

By: /s/ Anthony D. Harnett
Anthony D. Harnett
Senior Vice President and Chief Accounting Officer
(principal accounting officer)

February 19, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date indicated.

148

By: /s/ Gregory E. Murphy
Gregory E. Murphy
Chairman of the Board and Chief Executive Officer

Paul D. Bauer
Director

A. David Brown
Director

John C. Burville
Director

Robert Kelly Doherty
Director

Thomas A. McCarthy
Director

Michael J. Morrissey
Director

Cynthia S. Nicholson
Director

Ronald L. O’Kelley
Director

William M. Rue
Director

John S. Scheid
Director

J. Brian Thebault
Director

Philip H. Urban
Director

* By: /s/ Michael H. Lanza
Michael H. Lanza
Attorney-in-fact

149

February 19, 2018

Glossary of Terms
Accident Year: accident year reporting focuses on the cost of the losses that
occurred in a given year regardless of when reported. These losses are calculated
by adding all payments that have been made for those losses occurring in a
given calendar year (regardless of the year in which they were paid) to any
current reserve that remains for losses that occurred in that given calendar year.

Agent (Independent Retail Insurance Agent): a distribution partner who
recommends and markets insurance to individuals and businesses; usually
represents several insurance companies. Insurance companies pay agents for
business production.

Allocated loss adjustment expenses: defense, litigation, and medical cost
containment expense, whether internal or external.

Audit Premium: premiums based on data from an insured’s records, such as
payroll data. Insured’s records are subject to periodic audit for purposes of
verifying premium amounts.

Catastrophe Loss: severe loss, as defined by the Insurance Services Office's
Property Claims Service (PCS) unit, either natural or man-made, usually
involving, but not limited to, many risks from one occurrence such as fire,
hurricane, tornado, earthquake, windstorm, explosion, hail, severe winter
weather, and terrorism.

Combined Ratio: measure of underwriting profitability determined by
dividing the sum of all GAAP expenses (losses, loss expenses, underwriting
expenses, and dividends to policyholders) by GAAP net premiums earned for
the period. A ratio over 100% is indicative of an underwriting loss, and a ratio
below 100% is indicative of an underwriting profit.

Contract Binding Authority: business that is written in accordance with a
well-defined underwriting strategy that clearly delineates risk eligibility, rates,
and coverages; generally distributed through wholesale general agents.

Credit Risk: risk that a financially-obligated party will default on any type of
debt by failing to make payment obligations. Examples include: (i) a bond issuer
does not make a payment on a coupon or principal payment when due; or (ii)
a reinsurer does not pay policy obligations.

Credit Spread Risk: represent the risk premium required by market
participants for a given credit quality and debt issuer. Spread is the difference
between the yield on a particular debt instrument and the yield of a similar
maturity U.S. Treasury debt security. Changes in credit spreads may arise from
changes in economic conditions and perceived risk of default or downgrade of
individual debt issuers.

Customers: another term for policyholders; individuals or entities that
purchase our insurance products or services.

Diluted Weighted Average Shares Outstanding: represents weighted-
average common shares outstanding adjusted for the impact of any dilutive
common stock equivalents.

Distribution Partners: insurance consultants that we partner with in selling
our insurance products and services. Independent retail insurance agents are
our distribution partners for standard market business and wholesale general
agents are our distribution partners for E&S market business.

Earned Premiums: portion of a premium that is recognized as income based
on the expired portion of the policy period.

Effective Duration: expressed in years, provides an approximate measure of
the portfolio's price sensitivity to a change in interest rates, taking into
consideration how the change in interest rates may impact the timing of expected
cash flows.

Frequency: likelihood that a loss will occur. Expressed as low frequency
(meaning the loss event is possible but has rarely happened in the past and is
not likely to occur in the future), moderate frequency (meaning the loss event
has happened once in a while and can be expected to occur sometime in the
future), or high frequency (meaning the loss event happens regularly and can
be expected to occur regularly in the future).

Exhibit 99.1
Liquidity Spread: represents the risk premium that flows to a market
participant willing to provide liquidity to another market participant that is
demanding it. The spread is the difference between the price a seller is willing
to accept to sell the asset and the price the buyer is willing to pay for the asset.

Loss Expenses: expenses incurred in the process of evaluating, defending, and
paying claims.

Loss and Loss Expense Reserves: amount of money an insurer expects to pay
for claim obligations and related expenses resulting from losses that have
occurred and are covered by insurance policies it has sold.

Non-GAAP Operating Income: non-GAAP measure that is comparable to net
income with the exclusion of capital gains and losses, the deferred tax write-
off that was recognized in 2017 in relation to the tax reform, and the results of
discontinued operations. Non-GAAP operating income is used as an important
financial measure by us, analysts, and investors, because the realization of
investment gains and losses on sales in any given period is largely discretionary
as to timing. Realized investment gains and losses, other-than-temporary
impairment charges included in earnings, the deferred tax write-off, and the
results of discontinued operations, could distort the analysis of trends.

Non-GAAP Operating Income per Diluted Share: non-GAAP measure that
is comparable to net income per diluted share with the exclusion of capital gains
and losses, the deferred tax write-off that was recognized in 2017 in relation to
the tax reform, and the results of discontinued operations.

Non-GAAP Operating Return on Average Equity: measurement of
profitability that reveals the amount of non-GAAP operating income generated
by dividing non-GAAP operating income by average stockholders’ equity
during the period.

Reinsurance: insurance company assuming all or part of a risk undertaken by
another insurance company. Reinsurance spreads the risk among insurance
companies to reduce the impact of losses on individual companies. Types of
reinsurance include proportional, excess of loss, treaty, and facultative.

Premiums Written: premiums for all policies sold during a specific accounting
period.

Renewal Pure Price: estimated average premium change on renewal policies
(excludes exposure changes).

Reported claim count: amount of reported claims, including those closed
without payment.

Retention: measures how well an insurance company retains business by count;
is expressed as a ratio of renewed over expired policies.

Risk: two distinct and frequently used meanings in insurance: (i) the chance
that a claim loss will occur; or (ii) an insured or the property covered by a policy.

Severity: amount of damage that is, or may be, inflicted by a loss or catastrophe.

Statutory Accounting Principles (SAP): accounting practices prescribed and
required by the National Association of Insurance Commissioners (“NAIC”)
and state insurance departments that stress evaluation of a company’s solvency.

Statutory Premiums to Surplus Ratio: statutory measure of solvency risk
calculated by dividing net statutory premiums written for the year by the ending
statutory surplus.

Statutory Surplus: amount left after an insurance company’s liabilities are
subtracted from its assets. Statutory surplus is not based on GAAP, but SAP
prescribed or permitted by state and foreign insurance regulators.

Unallocated loss adjustment expenses: loss adjustment expenses other than
allocated loss adjustment expenses.

Underwriting: insurer’s process of reviewing applications submitted for
insurance coverage, deciding whether to provide all or part of the coverage
requested, and determining applicable premiums and terms and conditions of
coverage.

Generally Accepted Accounting Principles (GAAP): accounting practices
used in the United States of America determined by the Financial Accounting
Standards Board. Public companies use GAAP when preparing financial
statements to be filed with the United States Securities and Exchange
Commission.

Underwriting Result: underwriting income or loss; represents premiums
earned less insurance losses and loss expenses, underwriting expenses, and
dividends to policyholders. This measure of performance is used by
management and analysts to evaluate profitability of underwriting operations
and is not intended to replace GAAP net income.

Incurred But Not Reported (IBNR) Reserves: reserves for estimated losses
that have been incurred by insureds but not yet reported plus provisions for
future emergence on known claims and reopened claims.

Interest Rate Risk: exposure to interest rate risk relates primarily to market
price and cash flow variability associated with changes in interest rates. A rise
in interest rates may decrease the fair value of our existing fixed maturity
investments and declines in interest rates may result in an increase in the fair
value of our existing fixed maturity investments.

Invested Assets per Dollar of Stockholders' Equity Ratio: measure of
investment leverage calculated by dividing invested assets by stockholders'
equity.

Unearned Premiums: portion of a premium that a company has written but
has yet to earn because a portion of the policy is unexpired.

Wholesale General Agent: distribution partner authorized to underwrite on
behalf of a surplus lines insurer through binding authority agreements.
Insurance companies pay wholesale general agents for business production.

DIRECTORS

Paul D. Bauer 1998
Independent Consultant, and retired,
former Executive Vice President and
Chief Financial Officer, Tops Markets, Inc.

A. David Brown 1996 to April 2015 and since July 2015
Retired, former Executive Vice President and
Chief Administrative Officer, Urban Brands, Inc.

John C. Burville, Ph.D, FIA, MAAA 2006
Retired, former Insurance Consultant
to the Bermuda Government

Robert Kelly Doherty 2015
Managing Partner, Caymen Advisors
and Caymen Partners

Thomas A. McCarthy 2018
Retired, former Executive Vice President and
Chief Financial Officer, CIGNA

H. Elizabeth Mitchell 2018
Retired, former President and Chief Executive Officer
of Renaissance Reinsurance U.S., Inc.

Michael J. Morrissey, CFA 2008
President and Chief Executive Officer,
International Insurance Society, Inc.

Gregory E. Murphy 1997
Chairman and Chief Executive Officer,
Selective Insurance Group, Inc.

Cynthia (Cie) S. Nicholson 2009
Chief Marketing Officer, Forkcast

Ronald L. O’Kelley 2005
Chairman and Chief Executive Officer,
Atlantic Coast Venture Investments Inc.

William M. Rue 1977
Chairman, Chas. E. Rue & Son, Inc.,
t/a Rue Insurance

John S. Scheid, CPA 2014
Owner, Scheid Investment Group, LLC
Former Senior Partner, PricewaterhouseCoopers LLC

J. Brian Thebault 1996
Lead Independent Director, Selective Insurance Group, Inc.
Partner, Thebault Associates

Philip H. Urban 2014
Retired, former President and
Chief Executive Officer, Grange Insurance

SELECTIVE 2017 ANNUAL REPORT

OFFICERS

Chairman and
Chief Executive Officer

Gregory E. Murphy 1,2

President and
Chief Operating Officer

John J. Marchioni 1,2

Executive
Vice Presidents

George D. Dufala, Jr. 2
Insurance Operations

Gordon J. Gaudet 2
Chief Information Officer

Michael H. Lanza 1,2
General Counsel and
Chief Compliance Officer

Charles A. Musilli, III 2
Chief Human Resources Officer

George A. Neale 2
Chief Claims Officer

Vincent M. Senia 2
Chief Actuary

Mark A. Wilcox 1,2
Chief Financial Officer

1 Selective Insurance Group, Inc.

2 Selective Insurance Company of America

Senior Vice Presidents

Charles C. Adams 2
Regional Manager
Mid-Atlantic Region

Shadi Albert 2
Regional Manager
Southwest Region

Allen H. Anderson 2
Chief Underwriting Officer
Personal Lines/Flood

Jeffrey F. Beck 2
Government and Regulatory
Affairs

John P. Bresney 2
Enterprise Application
Delivery Services

Teresa M. Caro 2
Regional Manager
New Jersey Region

Sarita G. Chakravarthi 1,2
Tax and Assistant Treasurer

Thomas M. Clark 2
Claims General Counsel

Joseph O. Eppers 1,2
Chief Investment Officer

Brenda M. Hall 2
Chief Strategic Operations Officer

Anthony D. Harnett 1,2
Chief Accounting Officer

Todd Hoivik 2
Commercial Lines Pricing
and Research

Martin Hollander 1,2
Chief Audit Executive

Kory Jensen 2
IT Infrastructure and Operations

Jeffrey F. Kamrowski 2
MUSIC
President, Mesa Underwriters
Specialty Insurance Company

Robert J. McKenna, Jr. 2
Enterprise Architecture and
Information Security

James McLain 2
Chief Field Operations Officer

Ryan Miller 2
Regional Manager
Southern Region

Yanina Montau-Hupka 1,2
Chief Risk Officer

Rohit Mull 2
Chief Marketing Officer

Maria Orecchio 2
Deputy General Counsel

Rohan Pai 1,2
Investor Relations and Treasurer

Thomas S. Purnell 2
Regional Manager
Northeast Region

Erik A. Reidenbach 2
Regional Manager
Heartland Region

Brian C. Sarisky 2
Chief Underwriting Officer,
Commercial Lines

INVESTOR
INFORMATION

Annual Meeting
Wednesday, May 2, 2018 - 9:00 a.m. (ET)
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890

Investor Relations
Rohan Pai
Senior Vice President
Investor Relations and Treasurer
(973) 948.1364
Investor.Relations@Selective.com

Dividend Reinvestment Plan
Selective Insurance Group, Inc. makes available
to holders of its common stock an automatic
dividend reinvestment and stock purchase plan.

For information contact:
EQ Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164
(866) 877.6351

Registrar and Transfer Agent
EQ Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164
(866) 877.6351

Auditors
KPMG LLP
345 Park Avenue
New York, New York 10154

Internal Audit Department
Martin Hollander
Chief Audit Executive
Internal.Audit@Selective.com

Executive Office
40 Wantage Avenue
Branchville, New Jersey 07890
(973) 948.3000

Shareholder Relations
Robyn P. Turner
Corporate Secretary
(973) 948.1766
Shareholder.Relations@Selective.com

Common Stock Information
Selective Insurance Group, Inc.’s common
stock trades on the NASDAQ Global Select
Market under the symbol: SIGI.

Form 10-K
Selective’s Form 10-K, as filed with the
U.S. Securities and Exchange Commission,
is provided as part of this 2017 Annual Report.

Website
Visit us at www.Selective.com
for information about Selective,
including our latest financial news.

Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890