Selective Insurance (SIGI) 10-K/A 2017 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)

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

For the fiscal year ended: December 31, 2017

or

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

For the transition period from_______________________to_______________________

Commission file number 001-33067 

SELECTIVE INSURANCE GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

New Jersey	22-2168890
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
40 Wantage Avenue, Branchville, New Jersey	07890
(Address of Principal Executive Offices)	(Zip Code)
Registrant’s telephone number, including area code:	(973) 948-3000

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

Title of each class	Name of each exchange on which registered
Common Stock, par value $2 per share	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.

ý Yes     ¨ No

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     ý No

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.

ý Yes     ¨ No

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).

ý Yes     ¨ No

1

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.

ý

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 x	Accelerated filer ¨
Non-accelerated filer ¨  (Do not check if a smaller reporting company)	Smaller reporting company ¨
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting 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     ý No 

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.

2

Explanatory Note

This Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) amends Selective Insurance Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the U.S. Securities and Exchange Commission on February 20, 2018 (the “Original Filing” and the “Original Filing Date”).

This Amendment No. 1 is being filed to provide revised versions of KPMG LLP’s (“KPMG”) report on the consolidated financial statements of Selective Insurance Group, Inc. and its subsidiaries (the “Company”) included in Part II, Item 8 of the Original Filing and KPMG’s report on the Company’s internal control over financial reporting included in Part II, Item 9A of the Original Filing. KPMG’s report on the Company’s consolidated financial statements was revised for wording that KPMG inadvertently included in its original report related to the financial statement schedules. The report on the Company’s internal control over financial reporting was revised to add section titles and a statement regarding independence that KPMG inadvertently omitted in its original report.

The changes to the filed copies of the reports of KPMG do not affect KPMG’s unqualified opinion on the Company’s consolidated financial statements included in the Original Filing and Amendment No. 1, or KPMG’s unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended, we have included the entire text of Part II, Items 8 and 9A in this Amendment No. 1.

Item 15 has been included herein to reflect a new consent of KPMG and new Section 302 and Section 906 certifications. No other changes were made to the Original Filing. This amendment speaks as of the Original Filing Date, and does not reflect events that may have occurred subsequent to the Original Filing Date.

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	SELECTIVE INSURANCE GROUP, INC.
	Table of Contents
		Page No.
PART II
Item 8.	Financial Statements and Supplementary Data	5
	Consolidated Balance Sheets as of December 31, 2017 and 2016	6
	Consolidated Statements of Income for the Years Ended	7
	December 31, 2017, 2016, and 2015
	Consolidated Statements of Comprehensive Income for the Years Ended	8
	December 31, 2017, 2016, and 2015
	Consolidated Statements of Stockholders’ Equity for the Years Ended	9
	December 31, 2017, 2016, and 2015
	Consolidated Statements of Cash Flows for the Years Ended	10
	December 31, 2017, 2016, and 2015
	Notes to Consolidated Financial Statements	11
Item 9A.	Controls and Procedures	65
PART IV
Item 15.	Exhibits, Financial Statement Schedules	67

4

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.

/s/ KPMG LLP

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

New York, New York

February 19, 2018 

5

Consolidated Balance Sheets
December 31,
($ in thousands, except share amounts)	2017			2016
ASSETS
Investments:
Fixed income securities, held-to-maturity – at carrying value (fair value:  $44,100 – 2017; $105,211 – 2016)	$	42,129		101,556
Fixed income securities, available-for-sale – at fair value (amortized cost:  $5,076,716 – 2017; $4,753,759 – 2016)	5,162,522			4,792,540
Equity securities, available-for-sale – at fair value (cost:  $143,811 – 2017; $120,889 – 2016)	182,705			146,753
Short-term investments (at cost which approximates fair value)	165,555			221,701
Other investments	132,268			102,397
Total investments (Notes 5 and 7)	5,685,179			5,364,947
Cash	534			458
Interest and dividends due or accrued	40,897			40,164
Premiums receivable, net of allowance for uncollectible accounts of:  $10,000 – 2017; $5,980 – 2016	747,029			681,611
Reinsurance recoverable, net of allowance for uncollectible accounts of: $4,600 – 2017; $5,500 – 2016 (Note 8)	594,832			621,537
Prepaid reinsurance premiums (Note 8)	153,493			146,282
Current federal income tax (Note 13)	3,243			2,486
Deferred federal income tax (Note 13)	31,990			84,840
Property and equipment – at cost, net of accumulated depreciation and amortization of:  $213,227 – 2017; $198,729 – 2016	63,959			69,576
Deferred policy acquisition costs (Note 2)	235,055			222,564
Goodwill (Note 11)	7,849			7,849
Other assets	122,371			113,534
Total assets	$	7,686,431		7,355,848
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserve for loss and loss expense (Note 9)	$	3,771,240		3,691,719
Unearned premiums	1,349,644			1,262,819
Long-term debt (Note 10)	439,116			438,667
Accrued salaries and benefits	131,850			132,880
Other liabilities	281,624			298,393
Total liabilities	$	5,973,474		5,824,478
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	204,569			203,241
Additional paid-in capital	367,717			347,295
Retained earnings	1,698,613			1,568,881
Accumulated other comprehensive income (loss) (Note 6)	20,170			(15,950	)
Treasury stock – at cost (shares:  43,789,442 – 2017; 43,653,237 – 2016)	(578,112		)	(572,097	)
Total stockholders’ equity	1,712,957			1,531,370
Commitments and contingencies (Notes 17 and 18)
Total liabilities and stockholders’ equity	$	7,686,431		7,355,848

See accompanying Notes to Consolidated Financial Statements.

6

Consolidated Statements of Income
December 31,
($ in thousands, except per share amounts)	2017			2016		2015
Revenues:
Net premiums earned	$	2,291,027		2,149,572		1,989,909
Net investment income earned	161,882			130,754		121,316
Net realized gains (losses):
Net realized investment gains	11,204			3,562		31,537
Other-than-temporary impairments	(4,809		)	(8,509	)	(18,366	)
Other-than-temporary impairments on fixed income securities recognized in other comprehensive income	(36		)	10		—
Total net realized gains (losses)	6,359			(4,937	)	13,171
Other income	10,716			8,881		7,456
Total revenues	2,469,984			2,284,270		2,131,852
Expenses:
Loss and loss expense incurred	1,345,074			1,234,797		1,148,541
Amortization of deferred policy acquisition costs	469,236			450,328		399,436
Other insurance expenses	333,097			321,395		300,359
Interest expense	24,354			22,771		22,428
Corporate expenses	36,255			35,024		28,396
Total expenses	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	62,184			48,581		45,347
Deferred	30,958			12,879		21,484
Total federal income tax expense	93,142			61,460		66,831
Net income	$	168,826		158,495		165,861
Earnings per share:
Basic net income	$	2.89		2.74		2.90
Diluted net income	$	2.84		2.70		2.85
Dividends to stockholders	$	0.66		0.61		0.57

See accompanying Notes to Consolidated Financial Statements.

7

Consolidated Statements of Comprehensive Income
December 31,
($ in thousands)	2017			2016		2015
Net income	$	168,826		158,495		165,861
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during year	43,015			(5,977	)	(26,143	)
Non-credit portion of other-than-temporary impairments recognized in other comprehensive income	23			(6	)	—
Amounts reclassified into net income:
Held-to-maturity securities	(116		)	(92	)	(377	)
Non-credit other-than-temporary impairments	68			138		232
Realized (gains) losses on available for sale securities	(4,537		)	3,064		(9,110	)
Total unrealized gains (losses) on investment securities	38,453			(2,873	)	(35,398	)
Defined benefit pension and post-retirement plans:
Net actuarial (loss) gain	(3,700		)	(7,852	)	1,585
Amounts reclassified into net income:
Net actuarial loss	1,367			4,200		4,600
Total defined benefit pension and post-retirement plans	(2,333		)	(3,652	)	6,185
Other comprehensive income (loss)	36,120			(6,525	)	(29,213	)
Comprehensive income	$	204,946		151,970		136,648

See accompanying Notes to Consolidated Financial Statements.

8

Consolidated Statements of Stockholders’ Equity
December 31,
($ in thousands, except share amounts)	2017			2016		2015
Common stock:
Beginning of year	$	203,241		201,723		199,896
Dividend reinvestment plan (shares:  28,607 – 2017; 38,741 – 2016; 50,013 – 2015)	57			77		100
Stock purchase and compensation plans (shares:  635,521 – 2017; 720,323 – 2016; 863,426 – 2015)	1,271			1,441		1,727
End of year	204,569			203,241		201,723
Additional paid-in capital:
Beginning of year	347,295			326,656		305,385
Dividend reinvestment plan	1,395			1,389		1,374
Stock purchase and compensation plans	19,027			19,250		19,897
End of year	367,717			347,295		326,656
Retained earnings:
Beginning of year	1,568,881			1,446,192		1,313,440
Net income	168,826			158,495		165,861
Dividends to stockholders ($0.66 per share –  2017; $0.61 per share – 2016; $0.57 per share – 2015)	(39,094		)	(35,806	)	(33,109	)
End of year	1,698,613			1,568,881		1,446,192
Accumulated other comprehensive income (loss):
Beginning of year	(15,950		)	(9,425	)	19,788
Other comprehensive income (loss)	36,120			(6,525	)	(29,213	)
End of year	20,170			(15,950	)	(9,425	)
Treasury stock:
Beginning of year	(572,097		)	(567,105	)	(562,923	)
Acquisition of treasury stock (shares:  136,205 – 2017; 152,595 – 2016; 147,461 – 2015)	(6,015		)	(4,992	)	(4,182	)
End of year	(578,112		)	(572,097	)	(567,105	)
Total stockholders’ equity	$	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.

9

Consolidated Statements of Cash Flows
December 31,
($ in thousands)	2017			2016		2015
Operating Activities
Net income	$	168,826		158,495		165,861
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	52,100			61,671		59,688
Stock-based compensation expense	12,089			10,449		8,973
Undistributed (gains) losses of equity method investments	(6,393		)	(2,316	)	1,889
Net realized (gains) losses	(6,359		)	4,937		(13,171	)
Loss on disposal of fixed assets	998			—		—
Changes in assets and liabilities:
Increase in reserves for loss and loss expense, net of reinsurance recoverables	106,226			114,422		59,438
Increase in unearned premiums, net of prepaid reinsurance	79,614			87,716		79,995
Decrease in net federal income taxes	30,918			11,150		25,004
Increase in premiums receivable	(65,418		)	(66,447	)	(56,386	)
Increase in deferred policy acquisition costs	(12,491		)	(9,405	)	(27,551	)
(Increase) decrease in interest and dividends due or accrued	(1,088		)	(1,473	)	407
(Decrease) increase in accrued salaries and benefits	(5,714		)	(46,536	)	11,392
Increase in other assets	(9,872		)	(30,071	)	(11,523	)
Increase in other liabilities	27,297			9,191		77,564
Net cash provided by operating activities	370,733			301,783		381,580
Investing Activities
Purchase of fixed income securities, held-to-maturity	—			(4,235	)	(3,316	)
Purchase of fixed income securities, available-for-sale	(2,130,362		)	(1,982,023	)	(1,041,916	)
Purchase of equity securities, available-for-sale	(61,931		)	(35,490	)	(195,720	)
Purchase of other investments	(55,830		)	(66,164	)	(12,170	)
Purchase of short-term investments	(4,280,553		)	(3,499,380	)	(1,602,327	)
Sale of fixed income securities, available-for-sale	1,197,920			926,470		61,571
Sale of short-term investments	4,338,318			3,470,022		1,539,480
Redemption and maturities of fixed income securities, held-to-maturity	58,832			102,868		106,621
Redemption and maturities of fixed income securities, available-for-sale	555,216			641,524		567,445
Sale of equity securities, available-for-sale	37,960			119,617		172,561
Distributions from other investments	23,426			26,837		32,457
Purchase of property and equipment	(14,071		)	(18,147	)	(16,229	)
Net cash used in investing activities	(331,075		)	(318,101	)	(391,543	)
Financing Activities
Dividends to stockholders	(37,045		)	(33,758	)	(31,052	)
Acquisition of treasury stock	(6,015		)	(4,992	)	(4,182	)
Net proceeds from stock purchase and compensation plans	7,599			7,811		10,089
Proceeds from borrowings	84,000			165,000		15,000
Repayment of borrowings	(84,000		)	(115,000	)	—
Excess tax benefits from share-based payment arrangements	—			1,819		1,736
Repayment of capital lease obligations	(4,121		)	(5,002	)	(4,689	)
Net cash (used in) provided by financing activities	(39,582		)	15,878		(13,098	)
Net increase (decrease) in cash	76			(440	)	(23,061	)
Cash, beginning of year	458			898		23,959
Cash, end of year	$	534		458		898

See accompanying Notes to Consolidated Financial Statements.

10

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.

• 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.

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

11

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;

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• 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.

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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	Methodology
Equity Securities; U.S. Treasury Notes	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	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.

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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	Methodology
5.875% Senior Notes	Based on the quoted market prices.

Level 2 Pricing

Security Type	Methodology
7.25% Senior Notes; 6.70% Senior Notes	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

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"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	Years
Computer hardware	3
Computer software	3 to 5
Internally developed software	5 to 10
Software licenses	3 to 5
Furniture and fixtures	10
Buildings and improvements	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,

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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

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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.

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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.

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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.

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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)	2017		2016	2015
Cash paid during the period for:
Interest	$	23,905	22,098	21,892
Federal income tax	62,000		46,405	39,500
Non-cash items:
Exchange of fixed income securities, AFS	22,511		23,579	36,792
Exchange of fixed income securities, HTM	—		—	15,257
Corporate actions related to equity securities, AFS1	4,725		3,263	4,239
Assets acquired under capital lease arrangements	278		3,151	6,760
Non-cash purchase of property and equipment	—		78	—

¹Examples of such corporate actions include non-cash acquisitions and stock-splits.

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.

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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)	2017			2016		2015
AFS securities:
Fixed income securities	$	85,806		38,781		55,689
Equity securities	38,894			25,864		13,235
Total AFS securities	124,700			64,645		68,924
HTM securities:
Fixed income securities	(21		)	159		300
Total HTM securities	(21		)	159		300
Total net unrealized gains	124,679			64,804		69,224
Deferred income tax	(44,103		)	(22,681	)	(24,228	)
Net unrealized gains, net of deferred income tax	80,576			42,123		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			Net
			Unrealized			Unrecognized	Unrecognized
	Amortized		Gains		Carrying	Holding	Holding		Fair
($ in thousands)	Cost		(Losses)		Value	Gains	Losses		Value
Obligations of state and political subdivisions	$	25,154	84		25,238	1,023	—		26,261
Corporate securities	16,996		(105	)	16,891	1,003	(55	)	17,839
Total HTM fixed income securities	$	42,150	(21	)	42,129	2,026	(55	)	44,100

December 31, 2016			Net
			Unrealized			Unrecognized	Unrecognized
	Amortized		Gains		Carrying	Holding	Holding		Fair
($ in thousands)	Cost		(Losses)		Value	Gains	Losses		Value
Obligations of state and political subdivisions	77,466		317		77,783	2,133	—		79,916
Corporate securities	22,711		(143	)	22,568	1,665	(158	)	24,075
CMBS	1,220		(15	)	1,205	15	—		1,220
Total HTM fixed income securities	$	101,397	159		101,556	3,813	(158	)	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.

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(c) The cost/amortized cost, unrealized gains and losses, and fair value of AFS securities were as follows:

December 31, 2017
	Cost/
	Amortized		Unrealized	Unrealized		Fair
($ in thousands)	Cost		Gains	Losses		Value
AFS fixed income securities:
U.S. government and government agencies	$	49,326	647	(233	)	49,740
Foreign government	18,040		526	(11	)	18,555
Obligations of states and political subdivisions	1,539,307		44,245	(582	)	1,582,970
Corporate securities	1,588,339		30,891	(1,762	)	1,617,468
CLO and other ABS	789,152		6,508	(202	)	795,458
CMBS	382,727		1,563	(841	)	383,449
RMBS	709,825		6,487	(1,430	)	714,882
Total AFS fixed income securities	5,076,716		90,867	(5,061	)	5,162,522
AFS equity securities:
Common stock	129,696		38,287	(226	)	167,757
Preferred stock	14,115		904	(71	)	14,948
Total AFS equity securities	143,811		39,191	(297	)	182,705
Total AFS securities	$	5,220,527	130,058	(5,358	)	5,345,227

December 31, 2016
	Cost/
	Amortized		Unrealized	Unrealized		Fair
($ in thousands)	Cost		Gains	Losses		Value
AFS fixed income securities:
U.S. government and government agencies	$	75,139	2,230	(36	)	77,333
Foreign government	26,559		322	(16	)	26,865
Obligations of states and political subdivisions	1,366,287		18,610	(5,304	)	1,379,593
Corporate securities	1,976,556		27,057	(5,860	)	1,997,753
CLO and other ABS	527,876		1,439	(355	)	528,960
CMBS	256,356		1,514	(1,028	)	256,842
RMBS	524,986		3,006	(2,798	)	525,194
Total AFS fixed income securities	4,753,759		54,178	(15,397	)	4,792,540
AFS equity securities:
Common stock	104,663		26,250	(305	)	130,608
Preferred stock	16,226		274	(355	)	16,145
Total AFS equity securities	120,889		26,524	(660	)	146,753
Total AFS securities	$	4,874,648	80,702	(16,057	)	4,939,293

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.

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(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)	Fair  Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
AFS fixed income securities:
U.S. government and government agencies	$	23,516	(233	)	250	—		23,766	(233	)
Foreign government	1,481		(11	)	—	—		1,481	(11	)
Obligations of states and political subdivisions	107,514		(422	)	14,139	(160	)	121,653	(582	)
Corporate securities	238,326		(1,744	)	3,228	(18	)	241,554	(1,762	)
CLO and other ABS	74,977		(196	)	1,655	(6	)	76,632	(202	)
CMBS	154,267		(773	)	5,214	(68	)	159,481	(841	)
RMBS	269,485		(1,285	)	11,200	(145	)	280,685	(1,430	)
Total AFS fixed income securities	869,566		(4,664	)	35,686	(397	)	905,252	(5,061	)
AFS equity securities:
Common stock	4,727		(226	)	—	—		4,727	(226	)
Preferred stock	3,833		(71	)	—	—		3,833	(71	)
Total AFS equity securities	8,560		(297	)	—	—		8,560	(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
($ in thousands)	Fair  Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value		Unrealized Losses
AFS fixed income securities:
U.S. government and government agencies	$	6,419	(36	)	—	—		$	6,419	$	(36	)
Foreign government	13,075		(16	)	—	—		13,075		(16		)
Obligations of states and political subdivisions	306,509		(5,304	)	—	—		306,509		(5,304		)
Corporate securities	462,902		(5,771	)	4,913	(89	)	467,815		(5,860		)
CLO and other ABS	189,795		(354	)	319	(1	)	190,114		(355		)
CMBS	82,492		(1,021	)	1,645	(7	)	84,137		(1,028		)
RMBS	279,480		(2,489	)	8,749	(309	)	288,229		(2,798		)
Total AFS fixed income securities	1,340,672		(14,991	)	15,626	(406	)	1,356,298		(15,397		)
AFS equity securities:
Common stock	11,271		(305	)	—	—		11,271		(305		)
Preferred stock	6,168		(355	)	—	—		6,168		(355		)
Total AFS equity securities	17,439		(660	)	—	—		17,439		(660		)
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.

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Listed below are the contractual maturities of fixed income securities at December 31, 2017:

	AFS		HTM
($ in thousands)	Fair Value		Carrying Value	Fair Value
Due in one year or less	$	315,857	10,997	11,168
Due after one year through five years	2,099,529		23,035	24,235
Due after five years through 10 years	2,510,294		8,097	8,697
Due after 10 years	236,842		—	—
Total fixed income securities	$	5,162,522	42,129	44,100

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

Other Investments	December 31, 2017				December 31, 2016
($ in thousands)	Carrying Value		Remaining Commitment	Maximum Exposure to Loss1	Carrying Value	Remaining Commitment	Maximum Exposure to Loss1
Alternative Investments
Private equity	$	52,251	99,026	151,277	41,135	76,774	117,909
Private credit	37,743		94,959	132,702	28,193	40,613	68,806
Real assets	25,379		27,014	52,393	14,486	22,899	37,385
Total alternative investments	115,373		220,999	336,372	83,814	140,286	224,100
Other securities2	16,895		—	16,895	18,583	3,400	21,983
Total other investments	$	132,268	220,999	353,267	102,397	143,686	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.

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,

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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)	2017		2016
Investments	$	21,046	11,244
Total assets	22,357		12,075
Total liabilities	4,767		1,802
Total partners’ capital	17,590		10,273

Income Statement Information
12 months ended September 30,
($ in millions)	2017			2016		2015
Net investment (loss) income	$	(143	)	(44	)	129
Realized gains	325			1,374		1,187
Net change in unrealized appreciation (depreciation)	2,894			(719	)	(1,364	)
Net income	$	3,076		611		(48	)
Insurance Subsidiaries' alternative investments income (loss)	12.7			3.1		(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.

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The following table summarizes the market value of these securities at December 31, 2017:

($ in millions)	FHLBI Collateral		FHLBNY Collateral	State and Regulatory Deposits	Total
U.S. government and government agencies	$	3.0	—	22.6	25.6
Obligations of states and political subdivisions	—		—	3.1	3.1
CMBS	6.2		14.1	—	20.3
RMBS	56.3		59.6	—	115.9
Total pledged as collateral	$	65.5	73.7	25.7	164.9

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

($ in thousands)	2017			2016		2015
Fixed income securities	$	153,230		129,306		123,230
Equity securities	6,442			7,368		9,161
Short-term investments	1,526			686		112
Other investments	12,871			2,940		(1,890	)
Investment expenses	(12,187		)	(9,546	)	(9,297	)
Net investment income earned	$	161,882		130,754		121,316

(j) The following tables summarize OTTI by asset type for the periods indicated:

2017					Recognized in Earnings
($ in thousands)	Gross		Included in OCI
AFS fixed income securities:
U.S. government and government agencies	$	36	—		36
Obligations of states and political subdivisions	612		—		612
Corporate securities	587		—		587
CLO and other ABS	96		—		96
CMBS	670		—		670
RMBS	1,183		(36	)	1,219
Total AFS fixed income securities	3,184		(36	)	3,220
AFS equity securities:
Common stock	1,435		—		1,435
Total AFS equity securities	1,435		—		1,435
Other investments	$	190	—		190
Total OTTI losses	$	4,809	(36	)	4,845

2016				Recognized in Earnings
($ in thousands)	Gross		Included in OCI
AFS fixed income securities:
Obligations of states and political subdivisons	$	2,797	—	2,797
Corporate securities	1,880		—	1,880
CLO and other ABS	19		—	19
CMBS	220		—	220
RMBS	275		10	265
Total AFS fixed income securities	5,191		10	5,181
AFS equity securities:
Common stock	3,316		—	3,316
Preferred stock	2		—	2
Total AFS equity securities	3,318		—	3,318
Total OTTI losses	$	8,509	10	8,499

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2015				Recognized in Earnings
($ in thousands)	Gross		Included in OCI
AFS fixed income securities:
Corporate securities	$	2,188	—	2,188
RMBS	1		—	1
Total AFS fixed income securities	2,189		—	2,189
AFS equity securities:
Common stock	15,996		—	15,996
Preferred stock	181		—	181
Total AFS equity securities	16,177		—	16,177
Total OTTI losses	$	18,366	—	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)	2017			2016		2015
HTM fixed income securities
Gains	$	44		3		5
Losses	(1		)	(1	)	(1	)
AFS fixed income securities
Gains	10,193			7,741		4,515
Losses	(3,292		)	(11,411	)	(312	)
AFS equity securities
Gains	5,829			8,108		29,168
Losses	(1,200		)	(864	)	(1,347	)
Short-term investments
Gains	2			—		—
Losses	(6		)	(13	)	—
Other investments
Gains	494			3		162
Losses	(859		)	(4	)	(653	)
Total net realized investment gains	$	11,204		3,562		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.

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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)	Gross			Tax		Net
Net income	$	261,968		93,142		168,826
Components of OCI:
Unrealized gains (losses) on investment securities:
Unrealized holding gains during the year	66,894			23,879		43,015
Non-credit portion of OTTI recognized in OCI	36			13		23
Amounts reclassified into net income:
HTM securities	(179		)	(63	)	(116	)
Non-credit OTTI	104			36		68
Realized gains on AFS securities	(6,979		)	(2,442	)	(4,537	)
Net unrealized gains	59,876			21,423		38,453
Defined benefit pension and post-retirement plans:
Net actuarial loss	(4,684		)	(984	)	(3,700	)
Amounts reclassified into net income:
Net actuarial loss	2,102			735		1,367
Defined benefit pension and post-retirement plans	(2,582		)	(249	)	(2,333	)
Other comprehensive income	57,294			21,174		36,120
Comprehensive income	$	319,262		114,316		204,946

2016
($ in thousands)	Gross			Tax		Net
Net income	$	219,955		61,460		158,495
Components of OCI:
Unrealized (losses) gains on investment securities:
Unrealized holding losses during the year	(9,195		)	(3,218	)	(5,977	)
Non-credit portion of OTTI recognized in OCI	(10		)	(4	)	(6	)
Amounts reclassified into net income:
HTM securities	(141		)	(49	)	(92	)
Non-credit OTTI	213			75		138
Realized losses on AFS securities	4,713			1,649		3,064
Net unrealized losses	(4,420		)	(1,547	)	(2,873	)
Defined benefit pension and post-retirement plans:
Net actuarial loss	(12,079		)	(4,227	)	(7,852	)
Amounts reclassified into net income:
Net actuarial loss	6,462			2,262		4,200
Defined benefit pension and post-retirement plans	(5,617		)	(1,965	)	(3,652	)
Other comprehensive loss	(10,037		)	(3,512	)	(6,525	)
Comprehensive income	$	209,918		57,948		151,970

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2015
($ in thousands)	Gross			Tax		Net
Net income	$	232,692		66,831		165,861
Components of OCI:
Unrealized (losses) gains on investment securities:
Unrealized holding losses during the year	(40,221		)	(14,078	)	(26,143	)
Amounts reclassified into net income:
HTM securities	(580		)	(203	)	(377	)
Non-credit OTTI	357			125		232
Realized gains on AFS securities	(14,016		)	(4,906	)	(9,110	)
Net unrealized losses	(54,460		)	(19,062	)	(35,398	)
Defined benefit pension and post-retirement plans:
Net actuarial gain	2,438			853		1,585
Amounts reclassified into net income:
Net actuarial loss	7,077			2,477		4,600
Defined benefit pension and post-retirement plans	9,515			3,330		6,185
Other comprehensive loss	(44,945		)	(15,732	)	(29,213	)
Comprehensive income	$	187,747		51,099		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	$	(282	)	194		45,083		44,995		(54,420	)	(9,425	)
OCI before reclassifications	(6		)	—		(5,977	)	(5,983	)	(7,852	)	(13,835	)
Amounts reclassified from AOCI	138			(92	)	3,064		3,110		4,200		7,310
Net current period OCI	132			(92	)	(2,913	)	(2,873	)	(3,652	)	(6,525	)
Balance, December 31, 2016	(150		)	102		42,170		42,122		(58,072	)	(15,950	)
OCI before reclassifications	23			—		43,015		43,038		(3,700	)	39,338
Amounts reclassified from AOCI	68			(116	)	(4,537	)	(4,585	)	1,367		(3,218	)
Net current period OCI	91			(116	)	38,478		38,453		(2,333	)	36,120
Balance, December 31, 2017	$	(59	)	(14	)	80,648		80,575		(60,405	)	20,170

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The reclassifications out of AOCI are as follows:

($ in thousands)	Year ended December 31, 2017			Year ended December 31, 2016		Affected Line Item in the Consolidated Statements of Income
OTTI related
Non-credit OTTI on disposed securities	$	104		213		Net realized gains (losses)
	104			213		Income before federal income tax
	(36		)	(75	)	Total federal income tax expense
	68			138		Net income
HTM related
Unrealized losses on HTM disposals	32			169		Net realized gains (losses)
Amortization of net unrealized gains on HTM securities	(211		)	(310	)	Net investment income earned
	(179		)	(141	)	Income before federal income tax
	63			49		Total federal income tax expense
	(116		)	(92	)	Net income
Realized (losses) gains on AFS
Realized (losses) gains on AFS disposals	(6,979		)	4,713		Net realized gains (losses)
	(6,979		)	4,713		Income before federal income tax
	2,442			(1,649	)	Total federal income tax expense
	(4,537		)	3,064		Net income
Defined benefit pension and post-retirement life plans
Net actuarial loss	450			1,486		Loss and loss expense incurred
	1,652			4,976		Other insurance expenses
Total defined benefit pension and post-retirement life	2,102			6,462		Income before federal income tax
	(735		)	(2,262	)	Total federal income tax expense
	1,367			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:

	December 31, 2017				December 31, 2016
($ in thousands)	Carrying Amount			Fair Value	Carrying Amount		Fair Value
Financial Assets
Fixed income securities:
HTM	$	42,129		44,100	101,556		105,211
AFS	5,162,522			5,162,522	4,792,540		4,792,540
Equity securities, AFS	182,705			182,705	146,753		146,753
Short-term investments	165,555			165,555	221,701		221,701
Long-term debt:
7.25% Senior Notes	49,904			61,391	49,901		56,148
6.70% Senior Notes	99,446			116,597	99,430		108,333
5.875% Senior Notes	185,000			186,332	185,000		176,860
1.61% Borrowings from FHLBNY	25,000			24,270	25,000		24,286
1.56% Borrowings from FHLBNY	25,000			24,210	25,000		24,219
3.03% Borrowings from FHLBI	60,000			60,334	60,000		59,313
Subtotal long-term debt	444,350			473,134	444,331		449,159
Unamortized debt issuance costs	(5,234		)		(5,664	)
Total long-term debt	$	439,116			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.

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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			Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)1	Significant Other Observable Inputs (Level 2)1	Significant Unobservable Inputs  (Level 3)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies	$	49,740	24,652	25,088	—
Foreign government	18,555		—	18,555	—
Obligations of states and political subdivisions	1,582,970		—	1,582,970	—
Corporate securities	1,617,468		—	1,617,468	—
CLO and other ABS	795,458		—	795,458	—
CMBS	383,449		—	376,895	6,554
RMBS	714,882		—	714,882	—
Total AFS fixed income securities	5,162,522		24,652	5,131,316	6,554
AFS equity securities:
Common stock2	167,757		138,640	—	5,398
Preferred stock	14,948		14,948	—	—
Total AFS equity securities	182,705		153,588	—	5,398
Total AFS securities	5,345,227		178,240	5,131,316	11,952
Short-term investments	165,555		165,555	—	—
Total assets measured at fair value	$	5,510,782	343,795	5,131,316	11,952

December 31, 2016			Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)1	Significant Other Observable Inputs (Level 2)1	Significant Unobservable Inputs  (Level 3)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies	$	77,333	27,520	49,813	—
Foreign government	26,865		—	26,865	—
Obligations of states and political subdivisions	1,379,593		—	1,379,593	—
Corporate securities	1,997,753		—	1,997,753	—
CLO and other ABS	528,960		—	528,960	—
CMBS	256,842		—	256,842	—
RMBS	525,194		—	525,194	—
Total AFS fixed income securities	4,792,540		27,520	4,765,020	—
AFS equity securities:
Common stock	130,608		122,932	—	7,676
Preferred stock	16,145		16,145	—	—
Total AFS equity securities	146,753		139,077	—	7,676
Total AFS securities	4,939,293		166,597	4,765,020	7,676
Short-term investments	221,701		221,701	—	—
Total assets measured at fair value	$	5,160,994	388,298	4,765,020	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.

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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)	CMBS		Common Stock
Fair value, December 31, 2016	$	—	7,676
Total net (losses) gains for the period included in:
OCI	4		—
Net income	—		—
Purchases	6,550		3,780
Sales	—		(3,958		)
Issuances	—		—
Settlements	—		—
Transfers into Level 3	—		—
Transfers out of Level 3	—		(2,100		)
Fair value, December 31, 2017	$	6,554	$	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)	Assets/Liabilities Disclosed at Fair Value		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial Assets
HTM:
Obligations of states and political subdivisions	$	26,261	—	26,261	—
Corporate securities	17,839		—	12,306	5,533
Total HTM fixed income securities	$	44,100	—	38,567	5,533
Financial Liabilities
Long-term debt:
7.25% Senior Notes	$	61,391	—	61,391	—
6.70% Senior Notes	116,597		—	116,597	—
5.875% Senior Notes	186,332		186,332	—	—
1.61% Borrowings from FHLBNY	24,270		—	24,270	—
1.56% Borrowings from FHLBNY	24,210		—	24,210	—
3.03% Borrowings from FHLBI	60,334		—	60,334	—
Total long-term debt	$	473,134	186,332	286,802	—

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December 31, 2016			Fair Value Measurements Using
($ in thousands)	Assets/Liabilities Disclosed at Fair Value		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial Assets
HTM:
Obligations of states and political subdivisions	$	79,916	—	79,916	—
Corporate securities	24,075		—	16,565	7,510
CMBS	1,220		—	1,220	—
Total HTM fixed income securities	$	105,211	—	97,701	7,510
Financial Liabilities
Long-term debt:
7.25% Senior Notes	$	56,148	—	56,148	—
6.70% Senior Notes	108,333		—	108,333	—
5.875% Senior Notes	176,860		176,860	—	—
1.61% Borrowings from FHLBNY	24,286		—	24,286	—
1.56% Borrowings from FHLBNY	24,219		—	24,219	—
3.03% Borrowings from FHLBI	59,313		—	59,313	—
Total long-term debt	$	449,159	176,860	272,299	—

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.

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The following table represents our total reinsurance balances segregated by reinsurer to depict our concentration of risk throughout our reinsurance portfolio:

	As of December 31, 2017					As of December 31, 2016
($ in thousands)	Reinsurance Balances			% of Reinsurance Balance		Reinsurance Balances			% of Reinsurance Balance
Total reinsurance recoverables	$	594,832				$	621,537
Total prepaid reinsurance premiums	153,493					146,282
Total reinsurance balance	748,325					767,819
Federal and state pools1:
NFIP	204,161			27	%	211,181			27	%
New Jersey Unsatisfied Claim Judgment Fund	62,947			9		65,574			9
Other	3,634			—		3,227			—
Total federal and state pools	270,742			36		279,982			36
Remaining reinsurance balance	$	477,583		64		$	487,837		64
Munich Re Group (A.M. Best rated "A+")	$	117,460		16		$	119,520		16
Hannover Ruckversicherungs AG (A.M. Best rated "A+")	101,652			14		106,298			13
AXIS Reinsurance Company (A.M. Best rated "A+")	62,396			8		59,737			8
Swiss Re Group (A.M. Best rated "A+")	40,772			5		50,494			7
Partner Reinsurance Company of the U.S. (A.M. Best rated “A”)	16,925			2		21,125			3
All other reinsurers	138,378			19		130,663			17
Total reinsurers	477,583			64	%	487,837			64	%
Less: collateral2	(122,413		)			(113,763		)
Reinsurers, net of collateral	$	355,170				$	374,074

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)	2017			2016		2015
Premiums written:
Direct	$	2,733,459		2,577,259		2,403,519
Assumed	26,685			28,779		23,848
Ceded	(389,503		)	(368,750	)	(357,463	)
Net	$	2,370,641		2,237,288		2,069,904
Premiums earned:
Direct	$	2,647,488		2,484,715		2,330,267
Assumed	25,831			28,214		23,209
Ceded	(382,292		)	(363,357	)	(363,567	)
Net	$	2,291,027		2,149,572		1,989,909
Loss and loss expense incurred:
Direct	$	1,570,678		1,560,356		1,274,872
Assumed	17,588			22,708		16,996
Ceded	(243,192		)	(348,267	)	(143,327	)
Net	$	1,345,074		1,234,797		1,148,541

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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)	2017			2016		2015
Ceded premiums written	$	(241,345	)	(232,245	)	(228,907	)
Ceded premiums earned	(235,088		)	(227,882	)	(233,940	)
Ceded loss and loss expense incurred	(160,922		)	(239,891	)	(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		3,517,728		3,477,870
Less: reinsurance recoverable on unpaid loss and loss expense, at beginning of year	611,200			551,019		571,978
Net reserves for loss and loss expense, at beginning of year	3,080,519			2,966,709		2,905,892
Incurred loss and loss expense for claims occurring in the:
Current year	1,384,266			1,300,565		1,217,550
Prior years	(39,192		)	(65,768	)	(69,009	)
Total incurred loss and loss expense	1,345,074			1,234,797		1,148,541
Paid loss and loss expense for claims occurring in the:
Current year	497,486			450,811		446,550
Prior years	742,722			670,176		641,174
Total paid loss and loss expense	1,240,208			1,120,987		1,087,724
Net reserves for loss and loss expense, at end of year	3,185,385			3,080,519		2,966,709
Add: Reinsurance recoverable on unpaid loss and loss expense, at end of year	585,855			611,200		551,019
Gross reserves for loss and loss expense at end of year	$	3,771,240		3,691,719		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)	2017			2016		2015
General Liability	$	(48.3	)	(45.0	)	(51.0	)
Commercial Automobile	35.6			25.3		2.4
Workers Compensation	(52.3		)	(56.0	)	(37.0	)
Businessowners' Policies	1.9			1.8		2.2
Commercial Property	8.7			0.3		(3.0	)
Homeowners	0.4			1.7		1.5
Personal Automobile	6.7			1.0		0.4
E&S Casualty Lines	10.0			6.0		16.0
Other	(1.9		)	(0.9	)	(0.5	)
Total	$	(39.2	)	(65.8	)	(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.

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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:

	2017
($ in millions)	Gross		Net
Asbestos	$	7.6	6.3
Landfill sites	12.4		7.7
Underground storage tanks	8.4		7.2
Total	$	28.4	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

37

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:

	2017					2016				2015
($ in thousands)	Gross			Net		Gross		Net		Gross		Net
Asbestos
Reserves for loss and loss expense at beginning of year	$	7,847		6,615		8,024		6,793		8,751		7,314
Incurred loss and loss expense	—			—		77		77		(428	)	(77	)
Less: loss and loss expense paid	(270		)	(269	)	(254	)	(255	)	(299	)	(444	)
Reserves for loss and loss expense at the end of year	$	7,577		6,346		7,847		6,615		8,024		6,793
Environmental
Reserves for loss and loss expense at beginning of year	$	22,115		16,101		22,387		16,368		21,902		15,680
Incurred loss and loss expense	126			—		1,406		1,303		3,396		3,397
Less: loss and loss expense paid	(1,403		)	(1,235	)	(1,678	)	(1,570	)	(2,911	)	(2,709	)
Reserves for loss and loss expense at the end of year	$	20,838		14,866		22,115		16,101		22,387		16,368
Total Asbestos and Environmental Claims
Reserves for loss and loss expense at beginning of year	$	29,962		22,716		30,411		23,161		30,653		22,994
Incurred loss and loss expense	126			—		1,483		1,380		2,968		3,320
Less: loss and loss expense paid	(1,673		)	(1,504	)	(1,932	)	(1,825	)	(3,210	)	(3,153	)
Reserves for loss and loss expense at the end of year	$	28,415		21,212		29,962		22,716		30,411		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												As of December 31, 2017
Accident Year	Unaudited											IBNR	Cumulative Number of Reported Claims
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	957,247	988,584	990,931	964,862	947,306	936,975	927,958	931,785	926,017	923,978	41,791	85,338
2009			920,143	941,972	916,691	883,590	870,057	869,927	857,960	853,401	848,413	41,937	85,575
2010				950,114	973,742	977,959	956,600	943,118	922,404	915,131	907,074	50,293	94,258
2011					1,042,576	1,061,667	1,062,233	1,056,107	1,033,518	1,023,726	1,019,351	63,891	104,500
2012						1,065,437	1,071,290	1,020,655	998,028	973,089	973,644	77,542	103,745
2013							1,044,142	1,062,045	1,047,230	1,021,007	1,002,316	116,449	90,755
2014								1,107,513	1,133,798	1,146,990	1,124,014	171,913	94,375
2015									1,114,081	1,130,513	1,144,830	256,758	92,891
2016										1,188,608	1,203,634	416,010	92,191
2017											1,270,110	634,863	88,941
										Total	10,417,364

38

All Lines (in thousands)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	286,314	489,633	609,851	690,016	764,196	798,996	819,280	839,392	853,769	860,745
2009			277,275	442,417	540,982	634,902	695,249	736,100	760,589	775,885	784,713
2010				328,826	509,910	625,229	704,895	773,536	803,773	823,770	835,532
2011					391,944	585,867	692,730	782,655	852,202	901,801	924,111
2012						378,067	555,819	651,544	743,742	810,135	856,195
2013							335,956	518,872	644,475	748,758	833,823
2014								405,898	614,075	736,154	855,959
2015									376,641	581,203	725,385
2016										387,272	617,958
2017											433,440
										Total	7,727,861
						All outstanding liabilities before 2008, net of reinsurance					352,192
					Liabilities for loss and loss adjustment expenses, net of reinsurance						3,041,694

General Liability (in thousands, except for claim counts)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance												As of December 31, 2017
Accident Year	Unaudited											IBNR	Cumulative Number of Reported Claims
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	250,239	243,755	243,536	234,770	233,712	224,236	219,551	221,640	221,203	219,617	14,326	13,769
2009			237,913	241,625	233,530	223,146	212,947	211,243	206,387	205,741	201,568	17,629	13,841
2010				215,208	228,680	242,499	237,154	222,328	211,619	208,968	202,394	18,403	12,672
2011					227,769	228,720	239,480	230,785	217,256	211,196	212,011	25,729	11,579
2012						238,979	245,561	215,083	194,144	175,305	175,268	27,702	9,922
2013							250,609	251,421	239,776	225,709	210,785	53,014	10,226
2014								244,312	249,946	257,132	239,333	80,168	10,391
2015									254,720	245,710	246,990	124,639	9,987
2016										277,214	272,048	178,904	9,617
2017											293,747	249,085	8,194
										Total	2,273,761

General Liability (in thousands)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	16,397	45,595	82,421	113,088	151,055	166,394	176,873	186,896	194,257	198,360
2009			14,346	37,143	64,970	103,213	130,554	151,920	166,767	176,316	180,621
2010				15,726	46,201	80,018	113,050	143,360	161,487	172,394	178,179
2011					13,924	42,692	73,643	102,978	135,377	159,768	170,525
2012						13,030	35,241	56,580	89,008	109,448	130,866
2013							12,789	35,113	72,127	104,587	139,114
2014								14,901	46,825	79,972	121,969
2015									14,665	39,978	78,668
2016										15,684	46,549
2017											17,366
										Total	1,262,217
						All outstanding liabilities before 2008, net of reinsurance					80,514
					Liabilities for loss and loss adjustment expenses, net of reinsurance						1,092,058

39

Workers Compensation (in thousands, except for claim counts)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance												As of December 31, 2017
Accident Year	Unaudited											IBNR	Cumulative Number of Reported Claims
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	219,616	243,186	255,810	250,423	241,921	245,993	244,100	243,512	238,836	238,218	25,993	14,401
2009			197,504	215,946	213,036	210,109	210,756	216,992	212,536	208,611	208,142	22,575	12,217
2010				198,371	214,469	212,815	211,030	214,916	212,448	208,155	204,423	28,964	12,184
2011					205,238	218,973	214,743	215,114	210,591	205,708	200,674	32,881	11,845
2012						203,864	208,036	199,360	195,197	188,596	187,359	36,233	11,605
2013							199,794	194,318	187,658	173,160	166,662	34,776	11,366
2014								199,346	187,065	182,579	172,515	42,869	10,482
2015									193,729	194,639	183,604	42,287	10,530
2016										196,774	184,946	70,424	10,509
2017											195,202	112,086	10,182
										Total	1,941,745

Workers Compensation (in thousands)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	39,628	100,678	139,144	158,083	171,403	180,556	188,206	191,265	195,962	198,512
2009			37,885	87,299	117,019	133,116	145,417	154,726	160,529	164,336	167,894
2010				46,795	93,281	122,442	137,184	149,086	153,795	158,078	162,796
2011					42,941	90,836	118,847	134,646	139,232	149,269	154,320
2012						40,911	86,909	108,211	122,755	132,052	139,477
2013							36,829	74,568	96,376	109,739	118,669
2014								35,924	78,944	100,876	113,626
2015									33,857	77,320	98,195
2016										34,525	78,531
2017											40,375
										Total	1,272,395
						All outstanding liabilities before 2008, net of reinsurance					247,121
					Liabilities for loss and loss adjustment expenses, net of reinsurance						916,471

Commercial Automobile (in thousands, except for claim counts)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance												As of December 31, 2017
Accident Year	Unaudited											IBNR	Cumulative Number of Reported Claims
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	196,370	195,823	190,349	187,100	187,417	182,785	180,902	183,736	183,618	183,151	736	24,129
2009			199,541	191,079	182,724	169,858	166,682	162,911	161,251	161,923	161,300	897	24,652
2010				187,562	189,305	187,778	181,923	179,854	172,969	173,157	173,471	1,491	25,301
2011					174,006	183,044	182,325	178,421	172,617	174,882	174,514	2,937	25,272
2012						179,551	191,947	183,527	184,289	184,367	186,128	3,880	23,889
2013							188,289	205,282	209,197	207,994	210,410	8,258	25,392
2014								200,534	212,725	216,824	219,925	19,053	27,338
2015									220,994	240,958	253,074	36,137	28,818
2016										255,187	274,367	71,303	30,480
2017											301,274	132,814	30,187
										Total	2,137,614

40

Commercial Automobile (in thousands)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	69,053	104,711	130,857	151,741	166,487	173,795	175,244	180,779	181,779	181,979
2009			63,126	94,406	113,697	137,564	149,949	155,560	158,303	159,723	160,013
2010				68,098	99,254	128,015	146,913	163,513	167,227	169,100	169,793
2011					69,849	99,196	121,576	142,507	157,291	166,082	170,000
2012						73,316	105,371	127,235	148,669	168,114	176,656
2013							76,469	109,893	140,015	169,850	189,626
2014								80,810	117,169	148,884	180,701
2015									91,347	132,260	175,866
2016										106,022	155,720
2017											117,287
										Total	1,677,641
						All outstanding liabilities before 2008, net of reinsurance					4,158
					Liabilities for loss and loss adjustment expenses, net of reinsurance						464,131

Businessowners' Policies (in thousands, except for claim counts)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance												As of December 31, 2017
Accident Year	Unaudited											IBNR	Cumulative Number of Reported Claims
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	39,660	38,986	39,334	32,974	30,250	29,793	31,066	31,340	30,967	31,065	192	3,258
2009			48,535	51,762	46,645	43,828	43,553	44,938	44,299	44,273	43,933	272	3,474
2010				53,669	49,285	42,408	39,915	40,899	40,581	41,239	41,197	697	3,917
2011					54,469	57,083	51,047	58,242	59,256	58,966	58,456	1,080	4,959
2012						54,342	48,029	46,303	44,172	44,077	43,747	756	5,540
2013							49,617	42,618	41,005	40,624	41,369	3,192	3,479
2014								55,962	60,949	62,548	59,806	5,952	4,054
2015									52,871	53,768	57,245	10,256	3,913
2016										52,335	53,792	11,938	3,757
2017											46,624	15,252	3,462
										Total	477,234

Businessowners' Policies (in thousands)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	15,019	21,765	24,449	25,738	28,026	28,660	28,589	29,778	30,873	30,873
2009			18,915	29,612	32,689	36,073	40,052	42,895	43,358	43,448	43,547
2010				20,821	28,131	31,027	34,705	37,819	38,900	40,279	40,395
2011					27,884	37,362	41,011	46,444	52,114	55,856	57,045
2012						22,199	31,833	35,089	37,215	38,766	40,627
2013							17,412	26,592	30,845	34,760	37,993
2014								28,914	40,584	44,911	49,460
2015									24,189	36,014	42,710
2016										24,655	36,848
2017											21,865
										Total	401,363
						All outstanding liabilities before 2008, net of reinsurance					7,292
					Liabilities for loss and loss adjustment expenses, net of reinsurance						83,163

41

Commercial Property (in thousands, except for claim counts)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance												As of December 31, 2017
Accident Year	Unaudited											IBNR	Cumulative Number of Reported Claims
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	97,578	102,860	101,436	101,470	101,265	101,702	101,043	100,881	101,043	101,054	2	7,604
2009			82,619	82,124	82,025	82,014	80,774	80,455	80,558	80,545	80,416	4	7,009
2010				105,647	96,851	97,386	96,127	95,530	95,363	95,178	95,155	5	7,667
2011					136,954	131,667	130,942	131,282	131,353	131,113	131,049	4	9,036
2012						118,464	114,224	115,375	116,658	117,102	117,170	24	8,514
2013							88,101	90,639	90,103	90,005	90,436	42	5,709
2014								141,192	136,249	136,820	138,751	126	6,512
2015									110,270	109,513	111,750	261	6,398
2016										121,927	126,185	804	6,686
2017											138,773	8,794	6,358
										Total	1,130,739

Commercial Property (in thousands)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	68,211	98,921	100,465	99,288	100,213	100,752	100,908	100,868	101,034	101,032
2009			59,933	78,695	80,433	80,894	80,251	80,352	80,529	80,509	80,405
2010				69,543	91,918	94,602	95,111	95,270	95,147	95,156	95,150
2011					94,538	127,580	129,579	130,681	131,060	131,115	131,089
2012						81,528	108,834	111,503	114,699	116,291	116,625
2013							60,244	87,874	90,446	90,350	90,840
2014								101,131	132,909	136,634	137,883
2015									79,048	106,182	109,829
2016										83,966	118,789
2017											99,047
										Total	1,080,689
						All outstanding liabilities before 2008, net of reinsurance					250
					Liabilities for loss and loss adjustment expenses, net of reinsurance						50,300

Personal Automobile (in thousands, except for claim counts)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance												As of December 31, 2017
Accident Year	Unaudited											IBNR	Cumulative Number of Reported Claims
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	100,311	106,999	106,842	103,934	100,213	99,912	99,686	99,255	99,116	99,270	191	16,042
2009			93,808	103,319	105,033	103,908	104,734	103,866	103,393	103,412	103,348	191	17,346
2010				103,340	110,075	112,346	109,515	107,490	107,405	107,224	107,054	222	20,822
2011					113,232	116,164	113,686	112,993	114,241	113,830	113,988	284	22,700
2012						113,771	114,921	109,832	109,324	110,294	110,300	728	22,332
2013							108,417	109,620	106,225	106,703	107,759	851	22,371
2014								102,250	109,325	106,757	107,452	2,554	22,499
2015									96,387	99,698	100,214	6,541	20,840
2016										92,727	98,032	11,651	19,747
2017											101,880	22,284	19,818
										Total	1,049,297

42

Personal Automobile (in thousands)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	50,396	73,194	84,715	91,834	95,932	97,723	98,174	98,604	98,668	98,810
2009			51,039	71,911	86,431	96,229	100,566	102,187	102,322	102,437	103,009
2010				58,786	82,490	95,300	101,540	104,061	105,849	106,453	106,733
2011					61,323	82,102	93,878	105,068	111,085	112,732	113,551
2012						63,704	82,729	94,842	102,977	107,890	109,355
2013							61,384	80,861	92,637	100,528	105,131
2014								62,519	83,739	92,589	99,173
2015									58,725	76,470	87,163
2016										57,961	76,823
2017											62,854
										Total	962,602
						All outstanding liabilities before 2008, net of reinsurance					5,862
					Liabilities for loss and loss adjustment expenses, net of reinsurance						92,557

Homeowners (in thousands, except for claim counts)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance												As of December 31, 2017
Accident Year	Unaudited											IBNR	Cumulative Number of Reported Claims
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	41,224	41,747	39,342	39,203	38,062	38,410	38,111	38,042	38,045	38,038	56	5,139
2009			47,636	44,511	42,609	40,313	61,927	40,400	40,465	40,457	40,451	73	5,633
2010				68,373	67,525	63,285	97,761	62,462	62,402	62,339	62,392	84	9,131
2011					103,804	98,211	82,744	94,167	94,543	94,183	94,378	159	15,106
2012						87,260	82,745	86,560	86,667	86,271	86,330	180	16,936
2013							73,670	72,528	71,494	72,145	71,714	284	7,747
2014								80,111	82,461	83,637	83,844	1,146	8,762
2015									76,637	76,400	76,559	2,744	7,724
2016										60,105	60,931	2,067	6,820
2017											59,167	5,315	6,651
										Total	673,804

Homeowners (in thousands)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
	2008		2009	2010	2011	2012	2013	2014	2015	2016	2017
2008	$	21,277	33,535	36,271	37,086	37,763	37,837	37,933	37,939	37,930	37,928
2009			28,299	36,965	38,078	39,342	39,731	39,819	39,907	40,189	40,269
2010				43,699	58,638	60,295	61,106	62,155	62,227	62,241	62,272
2011					71,668	89,963	91,718	92,185	93,312	93,720	94,007
2012						69,056	79,584	82,720	84,250	85,196	85,562
2013							50,664	65,528	67,838	69,775	71,776
2014								61,561	76,007	79,751	81,664
2015									52,589	70,078	72,202
2016										42,252	57,333
2017											45,466
										Total	648,479
						All outstanding liabilities before 2008, net of reinsurance					5,403
					Liabilities for loss and loss adjustment expenses, net of reinsurance						30,728

43

E&S Casualty Lines (in thousands, except for claim counts)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance										As of December 31, 2017
Accident Year	Unaudited									IBNR	Cumulative Number of Reported Claims
	2011		2012	2013	2014	2015	2016		2017
2008	$	92	169	146	119	52	(162	)	119	—	35
2009	885		1,053	938	728	710	96		737	—	274
2010	3,294		4,106	3,369	4,299	3,831	3,055		4,932	—	804
2011	8,127		7,102	9,853	12,207	10,273	9,652		10,228	361	1,316
2012			42,367	42,621	43,175	46,149	46,165		45,988	7,313	2,006
2013				55,468	60,309	67,099	69,112		67,647	15,326	2,219
2014					55,316	63,505	69,929		71,719	18,224	1,987
2015						75,498	76,432		82,404	32,909	2,606
2016							94,451		96,416	65,489	2,454
2017									91,438	79,354	1,760
							Total		471,628

E&S Casualty Lines (in thousands)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	Unaudited
	2011		2012	2013	2014	2015	2016	2017
2008	$	—	24	70	80	79	92	97
2009	—		198	431	605	626	709	737
2010	—		1,218	2,570	3,574	4,078	4,513	4,610
2011	—		806	3,200	6,445	9,954	9,912	10,256
2012			3,722	7,914	16,430	25,064	32,343	36,278
2013				2,715	9,470	21,980	35,200	46,108
2014					2,353	12,234	25,571	43,877
2015						3,036	13,057	29,389
2016							3,720	16,195
2017								5,057
							Total	192,604
			All outstanding liabilities before 2008, net of reinsurance					—
			Liabilities for loss and loss adjustment expenses, net of reinsurance					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.

44

(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)	December 31, 2017
Net outstanding liabilities:
Standard Commercial Lines
General liability	1,092,058
Workers compensation	916,471
Commercial automobile	464,131
Businessowners' policies	83,163
Commercial property	50,300
Other Standard Commercial Lines	10,560
Total Standard Commercial Lines net outstanding liabilities	2,616,683
Standard Personal Lines
Personal automobile	92,557
Homeowners	30,728
Other Standard Personal Lines	9,184
Total Standard Personal Lines net outstanding liabilities	132,469
E&S Lines
Casualty lines	279,023
Property lines	13,519
Total E&S Lines net outstanding liabilities	292,542
Total liabilities for unpaid loss and loss adjustment expenses, net of reinsurance	3,041,694
Reinsurance recoverable on unpaid claims:
Standard Commercial Lines
General liability	175,276
Workers compensation	218,024
Commercial automobile	16,745
Businessowners' policies	3,926
Commercial property	24,387
Other Standard Commercial Lines	2,287
Total Standard Commercial Lines reinsurance recoverable on unpaid loss	440,645
Standard Personal Lines
Personal automobile	53,129
Homeowners	999
Other Standard Personal Lines	69,333
Total Standard Personal Lines reinsurance recoverable on unpaid loss	123,461
E&S Lines
Casualty lines	21,360
Property lines	389
Total E&S Lines reinsurance recoverable on unpaid loss	21,749
Total reinsurance recoverable on unpaid loss	585,855
Unallocated loss adjustment expenses	143,691
Total gross liability for unpaid loss and loss adjustment expenses	3,771,240

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(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	1	2	3	4	5	6	7	8	9	10
General liability	6.6%	12.5	15.4	16.7	14.9	10.1	6.0	4.6	2.2	1.3
Workers compensation	20.2	23.9	13.6	8.3	5.0	3.9	2.8	2.0	1.8	1.9
Commercial automobile	38.2	17.4	14.0	12.8	9.0	4.1	1.6	1.4	0.7	0.1
Businessowners’ policies	46.6	20.8	8.1	7.5	7.5	4.1	2.0	1.6	0.1	1.1
Commercial property	70.5	25.6	2.7	0.7	0.4	0.1	—	—	—	—
Personal automobile	56.1	18.9	10.7	7.4	4.2	1.5	0.4	0.1	0.2	—
Homeowners	71.1	21.0	3.3	2.1	1.6	0.1	—	0.2	0.2	0.1
E&S Lines - casualty	4.5	12.5	18.2	20.4	15.5	8.3	4.0

Note 10. Indebtedness

The table below provides a summary of our outstanding debt at December 31, 2017 and 2016:

Outstanding Debt							2017		Carry Value
($ in thousands)	Issuance Date	Maturity Date	Interest Rate		Original Amount		Debt Discount and Unamortized Issuance Costs		December 31, 2017	December 31, 2016
Description
Long-term:
(1) FHLBI	12/16/2016	12/16/2026	3.03	%	$	60,000	—		60,000	60,000
(2) FHLBNY	8/15/2016	8/16/2021	1.56	%	25,000		—		25,000	25,000
(2) FHLBNY	7/21/2016	7/21/2021	1.61	%	25,000		—		25,000	25,000
(3) Senior Notes	2/8/2013	2/9/2043	5.875	%	185,000		(4,570	)	180,430	180,068
(4) Senior Notes	11/3/2005	11/1/2035	6.70	%	100,000		(989	)	99,011	98,952
(5) Senior Notes	11/16/2004	11/15/2034	7.25	%	50,000		(325	)	49,675	49,647
Total long-term debt					$	445,000	(5,884	)	439,116	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:

	Required as of	Actual as of
	December 31, 2017	December 31, 2017
Consolidated net worth	Not less than $1.2 billion	$1.7 billion
Statutory surplus	Not less than $750 million	$1.7 billion
Debt-to-capitalization ratio1	Not to exceed 35%	20.5%
A.M. Best financial strength rating	Minimum of A-	A

¹ Calculated in accordance with the Line of Credit agreement.

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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.

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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	Years ended December 31,
($ in thousands)	2017		2016		2015
Standard Commercial Lines:
Net premiums earned:
Commercial automobile	$	442,818	398,942		358,909
Workers compensation	317,982		308,233		290,075
General liability	569,217		527,859		483,291
Commercial property	311,932		293,438		269,022
Businessowners’ policies	100,266		97,754		93,428
Bonds	29,086		23,227		20,350
Other	17,198		16,030		14,367
Miscellaneous income	9,488		7,782		6,343
Total Standard Commercial Lines revenue	1,797,987		1,673,265		1,535,785
Standard Personal Lines:
Net premiums earned:
Personal automobile	153,147		142,876		146,784
Homeowners	129,699		130,973		134,382
Other	6,855		6,758		6,968
Miscellaneous income	1,228		1,098		1,113
Total Standard Personal Lines revenue	290,929		281,705		289,247
E&S Lines:
Net premiums earned:
Casualty lines	157,366		151,638		126,064
Property lines	55,461		51,844		46,269
Miscellaneous income	—		1		—
Total E&S Lines revenue	212,827		203,483		172,333
Investments:
Net investment income	161,882		130,754		121,316
Net realized investment gains (losses)	6,359		(4,937	)	13,171
Total Investments revenues	168,241		125,817		134,487
Total revenues	$	2,469,984	2,284,270		2,131,852

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Income Before Federal Income Tax	Years ended December 31,
($ in thousands)	2017			2016		2015
Standard Commercial Lines:
Underwriting gain, before federal income tax	$	149,514		146,435		164,496
Underwriting gain, after federal income tax	97,184			95,183		106,923
Combined ratio	91.6		%	91.2	%	89.2	%
Standard Personal Lines:
Underwriting gain, before federal income tax	11,104			12,419		1,336
Underwriting gain, after federal income tax	7,217			8,072		868
Combined ratio	96.2		%	95.6	%	99.5	%
E&S Lines:
Underwriting loss, before federal income tax	(6,282		)	(6,921	)	(16,803	)
Underwriting loss, after federal income tax	(4,083		)	(4,499	)	(10,922	)
Combined ratio	103.0		%	103.4	%	109.8	%
Investments:
Net investment income	$	161,882		130,754		121,316
Net realized investment gains (losses)	6,359			(4,937	)	13,171
Total investment income, before federal income tax	168,241			125,817		134,487
Tax on investment income	45,588			30,621		32,090
Total investment income, after federal income tax	$	122,653		95,196		102,397

Reconciliation of Segment Results to Income Before Federal Income Tax	Years ended December 31,
($ in thousands)	2017			2016		2015
Underwriting gain (loss)
Standard Commercial Lines	$	149,514		146,435		164,496
Standard Personal Lines	11,104			12,419		1,336
E&S Lines	(6,282		)	(6,921	)	(16,803	)
Investment income	168,241			125,817		134,487
Total all segments	322,577			277,750		283,516
Interest expense	(24,354		)	(22,771	)	(22,428	)
Corporate expenses	(36,255		)	(35,024	)	(28,396	)
Income, before federal income tax	$	261,968		219,955		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	Income		Shares	Per Share
($ in thousands, except per share amounts)	(Numerator)		(Denominator)	Amount
Basic EPS:
Net income available to common stockholders	$	168,826	58,458	$	2.89
Effect of dilutive securities:
Stock compensation plans	—		899
Diluted EPS:
Net income available to common stockholders	$	168,826	59,357	$	2.84

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2016	Income		Shares	Per Share
($ in thousands, except per share amounts)	(Numerator)		(Denominator)	Amount
Basic EPS:
Net income available to common stockholders	$	158,495	57,889	$	2.74
Effect of dilutive securities:
Stock compensation plans	—		858
Diluted EPS:
Net income available to common stockholders	$	158,495	58,747	$	2.70

2015	Income		Shares	Per Share
($ in thousands, except per share amounts)	(Numerator)		(Denominator)	Amount
Basic EPS:
Net income available to common stockholders	$	165,861	57,212	$	2.90
Effect of dilutive securities:
Stock compensation plans	—		944
Diluted EPS:
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)	2017			2016		2015
Tax at statutory rate of 35%	$	91,689		76,984		81,442
Tax-advantaged interest	(11,510		)	(12,126	)	(13,164	)
Dividends received deduction	(1,961		)	(1,114	)	(1,817	)
Stock based compensation	(4,281		)	—		—
Tax reform rate change	20,205			—		—
Other	(1,000		)	(2,284	)	370
Federal income tax expense from continuing operations	$	93,142		61,460		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.

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(c) The tax effects of the significant temporary differences that gave rise to deferred tax assets and liabilities were as follows:

($ in thousands)	2017		2016
Deferred tax assets:
Net loss reserve discounting	$	38,771	70,065
Net unearned premiums	50,267		78,201
Employee benefits	8,606		17,881
Long-term incentive compensation plans	12,221		17,750
Temporary investment write-downs	1,044		2,475
Other investment related items, net	—		1,484
Net operating loss	54		771
Other	5,784		8,344
Total deferred tax assets	116,747		196,971
Deferred tax liabilities:
Deferred policy acquisition costs	47,484		75,310
Unrealized gains on investment securities	26,183		22,681
Other investment-related items, net	2,500		—
Accelerated depreciation and amortization	8,590		14,140
Total deferred tax liabilities	84,757		112,131
Net deferred federal income tax asset	$	31,990	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.

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(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,	Pension Plan
($ in thousands)	2017			2016
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	330,588		310,308
Service cost	—			1,647
Interest cost	12,490			12,336
Actuarial losses	31,158			15,086
Benefits paid	(9,825		)	(8,789	)
Benefit obligation, end of year	$	364,411		330,588
Change in Fair Value of Assets:
Fair value of assets, beginning of year	$	316,515		249,700
Actual return on plan assets, net of expenses	46,983			21,079
Contributions by the employer to funded plans	10,000			54,525
Benefits paid	(9,825		)	(8,789	)
Fair value of assets, end of year	$	363,673		316,515
Funded status	$	(738	)	(14,073	)

Amounts Recognized in the Consolidated Balance Sheet:
Liabilities	$	(738	)	(14,073	)
Net pension liability, end of year	$	(738	)	(14,073	)

Amounts Recognized in AOCI:
Net actuarial loss	$	87,438	85,845
Total	$	87,438	85,845

Other Information as of December 31:
Accumulated benefit obligation	$	364,411	330,588

Weighted-Average Liability Assumptions as of December 31:
Discount rate	3.78	%	4.41

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	Pension Plan
($ in thousands)	2017			2016		2015
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income:
Net Periodic Benefit Cost:
Service cost	$	—		1,647		7,215
Interest cost	12,490			12,336		13,668
Expected return on plan assets	(19,419		)	(17,309	)	(15,969	)
Amortization of unrecognized actuarial loss	2,001			6,299		6,831
Total net periodic cost	$	(4,928	)	2,973		11,745
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Net actuarial loss (gain)	$	3,594		11,316		(1,425	)
Reversal of amortization of net actuarial loss	(2,001		)	(6,299	)	(6,831	)
Total recognized in other comprehensive income	$	1,593		5,017		(8,256	)
Total recognized in net periodic benefit cost and other comprehensive income	$	(3,335	)	7,990		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.

	Pension Plan
	2017		2016	2015
Weighted-Average Expense Assumptions for the years ended December 31:
Discount rate	4.41	%	4.69	4.29
Expected return on plan assets	6.24		6.37	6.27
Rate of compensation increase1	—		—	4.00

¹This assumption was 4.00% through March 31, 2016, the date after which benefits ceased accruing for all participants of the Pension Plan.

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.

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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: 

	2017				2016
	Target Percentage2		Actual Percentage		Actual Percentage
Return seeking assets1	20% - 60%		58	%	50	%
Liability hedging assets	40% - 80%		42	%	50	%
Total	100	%	100	%	100	%

¹Includes limited partnerships.

²Target percent allocations may change over time based on the funded status of the plan and market return expectations.

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.

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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)	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)
Description
Return seeking assets:
Long-duration fixed income:
Global asset allocation fund	$	41,309	41,309		—		—
Global equity:
Non-U.S. equity	67,989		67,989		—		—
U.S. equity	66,353		66,353		—		—
Total global equity	134,342		134,342		—		—
Private assets:
Limited partnerships (at net asset value)1:
Real assets	16,305		—		—		—
Private equity	1,096		—		—		—
Private credit	460		—		—		—
Hedge fund	15,192		—		—		—
Total limited partnerships	33,053		—		—		—
Other private assets	980		—		—		980
Total private assets	34,033		—		—		980
Total return seeking assets	209,684		175,651		—		980
Liability hedging assets:
Long-duration fixed income:
Extended duration fixed income	146,837		146,837		—		—
Cash and short-term investments:
Short-term investments	4,939		4,939		—		—
Deposit administration contracts	1,615		—		1,615		—
Total cash and short-term investments	6,554		4,939		1,615		—
Total liability hedging assets	153,391		151,776		1,615		—
Total invested assets	$	363,075	$	327,427	$	1,615	$	980

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December 31, 2016			Fair Value Measurements at 12/31/16 Using
($ in thousands)	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)
Description
Return seeking assets:
Long-duration fixed income:
Global asset allocation fund	$	37,878	37,878		—		—
Global equity:
Non-U.S. equity	48,836		48,836		—		—
U.S. equity	55,073		55,073		—		—
Total global equity	103,909		103,909		—		—
Private assets (limited partnerships, at net asset value)1:
Real assets	15,466		—		—		—
Private equity	1,615		—		—		—
Private credit	1,108		—		—		—
Total private assets	18,189		—		—		—
Total return seeking assets	159,976		141,787		—		—
Liability hedging assets:
Long-duration fixed income:
Extended duration fixed income	131,457		131,457		—		—
Cash and short-term investments:
Short-term investments	23,722		23,722		—		—
Deposit administration contracts	1,832		—		1,832		—
Total cash and short-term investments	25,554		23,722		1,832		—
Total liability hedging assets	157,011		155,179		1,832		—
Total invested assets	$	316,987	$	296,966	$	1,832	$	—

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.

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)	Pension Plan
Benefits Expected to be Paid in Future
Fiscal Years:
2018	$	12,913
2019	12,936
2020	13,987
2021	15,093
2022	16,128
2023-2027	94,542

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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	Approvals
Stock Plan	Approved effective as of May 1, 2014 by stockholders on April 23, 2014.
Cash Plan	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.
ESPP	Approved by stockholders on April 29, 2009 effective July 1, 2009.
Agent Plan	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	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 Plan	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.
ESPP	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.
Agent Plan	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	3,500,000	2,516,871	882,490
ESPP	1,500,000	499,629	—
Agent Plan	3,000,000	1,817,493	—

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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:

December 31, 2017	Types of Share-Based Payments Issued	Reserve Shares	Awards Outstanding1
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.	2,202,532	277,132
Parent's Stock Compensation Plan for Non-employee Directors ("Directors Stock Compensation Plan")	Directors could elect to receive a portion of their annual compensation in shares of the Parent's common stock.	66,506	66,506

¹ Awards outstanding under the 2005 Stock Plan consisted of 47,268 RSUs and 229,864 stock options.

RSU Transactions

A summary of the RSU transactions under our share-based payment plans is as follows:

	Number of Shares		Weighted Average Grant Date Fair Value
Unvested RSU awards at December 31, 2016	916,640		$	26.20
Granted in 2017	321,928		42.66
Vested in 2017	(360,702	)	22.78
Forfeited in 2017	(12,279	)	32.09
Unvested RSU awards at December 31, 2017	865,587		$	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:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value ($ in thousands)
Outstanding at December 31, 2016	355,391		$	16.87
Granted in 2017	—		—
Exercised in 2017	(120,496	)	19.39
Forfeited or expired in 2017	(5,031	)	24.54
Outstanding at December 31, 2017	229,864		$	15.38	1.50	$	9,958
Exercisable at December 31, 2017	229,864		$	15.38	1.50	$	9,958

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.  

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ESPP and Agent Plan Transactions

A summary of ESPP and Agent Plan share issuances is as follows:

	2017	2016	2015
ESPP Issuances	75,093	88,432	100,944
Agent Plan Issuances	49,794	69,867	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:

	ESPP
	2017		2016	2015
Risk-free interest rate	1.07	%	0.47	0.10
Expected term	6 months		6 months	6 months
Dividend yield	1.3	%	1.7	2.0
Expected volatility	24	%	31	20

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:

	2017		2016	2015
RSUs	$	42.66	32.53	25.22
ESPP:
Six month option	2.73		2.63	1.26
Discount of grant date market value	7.06		5.23	4.16
Total ESPP	9.79		7.86	5.42
Agent Plan:
Discount of grant date market value	5.04		3.79	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)	2017			2016		2015
Share-based compensation expense, pre-tax	$	31.2		30.3		23.8
Income tax benefit, including the benefit related to stock grants that have vested during the year	(15.0		)	(10.3	)	(8.0	)
Share-based compensation expense, after-tax	$	16.2		20.0		15.8

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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.

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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	$	2.3	10.0	12.3
2019	0.1		7.5	7.6
2020	—		6.0	6.0
2021	—		3.7	3.7
2022	—		2.1	2.1
After 2022	—		2.6	2.6
Total minimum payment required	$	2.4	31.9	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.

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 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.

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The following table provides statutory data for each of our Insurance Subsidiaries:

	State of Domicile	Unassigned Surplus			Statutory Surplus		Statutory Net Income
($ in millions)		2017		2016	2017	2016	2017	2016	2015
SICA	New Jersey	$	455.5	414.4	609.7	568.6	84.6	72.2	69.6
Selective Way Insurance Company ("SWIC")	New Jersey	276.1		260.5	325.1	309.5	43.6	41.2	42.3
SICSC	Indiana	112.9		110.6	144.1	141.9	17.9	17.4	15.9
SICSE	Indiana	86.2		83.5	111.8	109.1	14.7	13.4	12.1
SICNY	New York	78.8		74.1	106.5	101.8	13.4	12.9	12.7
Selective Insurance Company of New England ("SICNE")	New Jersey	16.1		13.6	46.3	43.7	6.3	5.9	5.5
Selective Auto Insurance Company of New Jersey ("SAICNJ")	New Jersey	42.1		36.9	84.9	79.8	11.4	11.5	10.8
MUSIC	New Jersey	21.4		16.7	89.9	85.2	10.3	9.7	9.5
Selective Casualty Insurance Company ("SCIC")	New Jersey	34.5		26.6	109.0	101.0	13.4	12.6	12.1
Selective Fire and Casualty Insurance Company ("SFCIC")	New Jersey	13.7		11.3	45.6	43.2	5.6	5.5	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 precedingDecember 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

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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:

Dividends		Twelve Months ended December 31, 2017
($ in millions)	State of Domicile	Ordinary Dividends Paid
SICA	New Jersey	$	28.0
SWIC	New Jersey	19.0
SICSC	Indiana	10.0
SICSE	Indiana	7.5
SICNY	New York	4.5
SICNE	New Jersey	2.0
SAICNJ	New Jersey	2.5
MUSIC	New Jersey	2.1
SCIC	New Jersey	3.0
SFCIC	New Jersey	1.5
Total		$	80.1

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:

		2018
($ in millions)	State of Domicile	Maximum Ordinary Dividends
SICA	New Jersey	$	77.6
SWIC	New Jersey	43.3
SICSC	Indiana	17.9
SICSE	Indiana	14.7
SICNY	New York	10.7
SICNE	New Jersey	6.2
SAICNJ	New Jersey	11.3
MUSIC	New Jersey	10.3
SCIC	New Jersey	13.4
SFCIC	New Jersey	5.6
Total		$	211.0

Note 20. Quarterly Financial Information

(unaudited, $ in thousands,	First Quarter					Second Quarter		Third Quarter		Fourth Quarter
except per share data)	2017			2016		2017	2016	2017	2016	2017 1		2016
Net premiums earned	$	560,854		522,458		568,030	531,932	572,055	542,429	590,088		552,753
Net investment income earned	37,419			30,769		41,430	31,182	40,446	33,375	42,587		35,428
Net realized (losses) gains	(1,045		)	(2,704	)	1,734	1,765	6,798	3,688	(1,128	)	(7,686	)
Other income	3,241			951		3,291	3,868	1,994	2,199	2,190		1,863
Total revenues	600,469			551,474		614,485	568,747	621,293	581,691	633,737		582,358
Income before federal income taxes	67,574			51,875		58,929	62,311	67,315	55,443	68,150		50,326
Net income	50,440			37,032		41,426	43,601	46,718	38,502	30,242		39,360
Net income per share:
Basic	0.87			0.64		0.71	0.75	0.80	0.66	0.52		0.68
Diluted	0.85			0.63		0.70	0.74	0.79	0.66	0.51		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.

The addition of all quarters may not agree to annual amounts on the Financial Statements due to rounding.

63

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.

64

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.

65

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.

/s/ KPMG LLP

New York, New York

February 19, 2018

66

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."

	Page
Consolidated Balance Sheets as of December 31, 2017 and 2016	6
Consolidated Statements of Income for the Years Ended December 31, 2017, 2016, and 2015	7
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015	8
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2017, 2016, and 2015	9
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015	10
Notes to Consolidated Financial Statements, December 31, 2017, 2016, and 2015	11

(2) Financial Statement Schedules:

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.

		Page
Schedule I	Summary of Investments – Other than Investments in Related Parties at December 31, 2017	68
Schedule II	Condensed Financial Information of Registrant at December 31, 2017 and 2016 and for the Years Ended December 31, 2017, 2016, and 2015	69
Schedule III	Supplementary Insurance Information for the Years Ended December 31, 2017, 2016, and 2015	72
Schedule IV	Reinsurance for the Years Ended December 31, 2017, 2016, and 2015	74
Schedule V	Allowance for Uncollectible Premiums and Other Receivables for the Years Ended December 31, 2017, 2016, and 2015	74

(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/A.

67

SCHEDULE I

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES

December 31, 2017

Types of investment
($ in thousands)	Amortized Cost or Cost		Fair Value	Carrying Amount
Fixed income securities:
Held-to-maturity:
Obligations of states and political subdivisions	$	25,154	26,261	25,238
Public utilities	7,466		7,956	7,443
All other corporate securities	9,530		9,883	9,448
Total fixed income securities, held-to-maturity	42,150		44,100	42,129
Available-for-sale:
U.S. government and government agencies	49,326		49,740	49,740
Foreign government	18,040		18,555	18,555
Obligations of states and political subdivisions	1,539,307		1,582,970	1,582,970
Public utilities	50,071		51,035	51,035
All other corporate securities	1,538,268		1,566,433	1,566,433
Collateralized loan obligation securities and other asset-backed securities	789,152		795,458	795,458
Commercial mortgage-backed securities	382,727		383,449	383,449
Residential mortgage-backed securities	709,825		714,882	714,882
Total fixed income securities, available-for-sale	5,076,716		5,162,522	5,162,522
Equity securities:
Common stock:
Public utilities	5,957		6,156	6,156
Banks, trusts and insurance companies	34,301		40,510	40,510
Industrial, miscellaneous and all other	89,438		121,091	121,091
Total common stock, available-for-sale	129,696		167,757	167,757
Preferred stock:
Banks, trusts and insurance companies	14,115		14,948	14,948
Total preferred stock, available-for-sale	14,115		14,948	14,948
Total equity securities, available-for-sale	143,811		182,705	182,705
Short-term investments	165,555		165,555	165,555
Other investments	132,268			132,268
Total investments	$	5,560,500		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.

68

SCHEDULE II

SELECTIVE INSURANCE GROUP, INC.

(Parent Corporation)

Balance Sheets

	December 31,
($ in thousands, except share amounts)	2017			2016
Assets:
Fixed income securities, available-for-sale – at fair value (amortized cost: $89,799 – 2017; $73,471 – 2016)	$	89,872		73,509
Short-term investments	24,080			17,777
Cash	534			458
Investment in subsidiaries	2,013,304			1,845,410
Current federal income tax	22,266			19,766
Deferred federal income tax	13,239			19,562
Other assets	871			840
Total assets	$	2,164,166		1,977,322
Liabilities:
Long-term debt	$	329,116		328,667
Intercompany notes payable	78,443			79,324
Accrued long-term stock compensation	37,017			32,029
Other liabilities	6,633			5,932
Total liabilities	$	451,209		445,952
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	204,569			203,241
Additional paid-in capital	367,717			347,295
Retained earnings	1,698,613			1,568,881
Accumulated other comprehensive income (loss)	20,170			(15,950	)
Treasury stock – at cost (shares: 43,789,442 – 2017; 43,653,237 – 2016)	(578,112		)	(572,097	)
Total stockholders’ equity	1,712,957			1,531,370
Total liabilities and stockholders’ equity	$	2,164,166		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.

69

SCHEDULE II (continued)

SELECTIVE INSURANCE GROUP, INC.

(Parent Corporation)

Statements of Income

	Year ended December 31,
($ in thousands)	2017			2016		2015
Revenues:
Dividends from subsidiaries	$	80,096		61,014		57,752
Net investment income earned	2,044			1,259		852
Net realized losses	(15		)	(220	)	—
Total revenues	82,125			62,053		58,604
Expenses:
Interest expense	24,721			24,030		24,057
Other expenses	36,251			35,020		28,393
Total expenses	60,972			59,050		52,450
Income before federal income tax	21,153			3,003		6,154
Federal income tax (benefit) expense:
Current	(22,187		)	(17,924	)	(16,609	)
Deferred	6,311			(2,143	)	(1,603	)
Total federal income tax benefit	(15,876		)	(20,067	)	(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

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.

70

SCHEDULE II (continued)

SELECTIVE INSURANCE GROUP, INC.

(Parent Corporation)

Statements of Cash Flows

	Year ended December 31,
($ in thousands)	2017			2016		2015
Operating Activities:
Net income	$	168,826		158,495		165,861
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiaries, net of tax	(131,797		)	(135,425	)	(141,495	)
Stock-based compensation expense	12,089			10,449		8,973
Net realized losses	15			220		—
Amortization – other	678			648		740
Changes in assets and liabilities:
Increase in accrued long-term stock compensation	4,988			5,564		4,575
Decrease (increase) in net federal income taxes	3,811			(3,612	)	(3,052	)
Decrease in other assets	(60		)	(202	)	(12	)
Increase (decrease) in other liabilities	714			80		(202	)
Net cash provided by operating activities	59,264			36,217		35,388
Investing Activities:
Purchase of fixed income securities, available-for-sale	(58,832		)	(45,789	)	(33,717	)
Redemption and maturities of fixed income securities, available-for-sale	10,465			14,983		21,578
Sale of fixed income securities, available-for-sale	31,819			18,768		—
Purchase of short-term investments	(185,590		)	(119,501	)	(106,933	)
Sale of short-term investments	179,292			130,841		94,422
Net cash used in investing activities	(22,846		)	(698	)	(24,650	)
Financing Activities:
Dividends to stockholders	(37,045		)	(33,758	)	(31,052	)
Acquisition of treasury stock	(6,015		)	(4,992	)	(4,182	)
Net proceeds from stock purchase and compensation plans	7,599			7,811		10,089
Excess tax benefits from share-based payment arrangements	—			1,819		1,736
Principal payment on borrowings from subsidiaries	(881		)	(6,839	)	(2,798	)
Net cash used in financing activities	(36,342		)	(35,959	)	(26,207	)
Net increase (decrease) in cash	76			(440	)	(15,469	)
Cash, beginning of year	458			898		16,367
Cash, end of year	$	534		458		898

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.

71

SCHEDULE III

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION

Year ended December 31, 2017

($ in thousands)	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
Standard Commercial Lines Segment	$	193,408	3,165,217	956,173	1,788,499	—	1,008,150	387,552	243,283	1,858,735
Standard Personal Lines Segment	16,952		263,166	295,435	289,701	—	189,294	32,542	56,761	296,775
E&S Lines Segment	24,695		342,857	98,036	212,827	—	147,630	49,142	22,337	215,131
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	$	333,097
Other income	(10,716		)
Total	$	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

($ in thousands)	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
Standard Commercial Lines Segment	$	181,193	3,098,554	884,976	1,665,483	—	913,506	367,813	237,729	1,745,782
Standard Personal Lines Segment	16,664		286,081	282,111	280,607	—	177,749	34,105	56,334	281,822
E&S Lines Segment	24,707		307,084	95,732	203,482	—	143,542	48,410	18,451	209,684
Investments Segment	—		—	—	—	125,817	—	—	—	—
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	$	321,395
Other income	(8,881		)
Total	$	312,514

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

72

SCHEDULE III (continued)

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION

Year ended December 31, 2015

($ in thousands)	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
Standard Commercial Lines Segment	$	171,476	2,998,749	803,648	1,529,442	—	819,573	323,754	221,619	1,596,965
Standard Personal Lines Segment	17,258		265,054	276,533	288,134	—	200,237	33,638	52,923	283,926
E&S Lines Segment	24,425		253,925	89,529	172,333	—	128,731	42,044	18,361	189,013
Investments Segment	—		—	—	—	134,487	—	—	—	—
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	$	300,359
Other income	(7,456		)
Total	$	292,903

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

73

SCHEDULE IV

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

REINSURANCE

Years ended December 31, 2017, 2016, and 2015

($ thousands)	Direct Amount		Assumed from Other Companies	Ceded to Other Companies	Net Amount	% of Amount Assumed to Net
2017
Premiums earned:
Accident and health insurance	$	24	—	24	—	—
Property and liability insurance	2,647,464		25,831	382,268	2,291,027	1	%
Total premiums earned	2,647,488		25,831	382,292	2,291,027	1	%
2016
Premiums earned:
Accident and health insurance	$	32	—	—	32	—
Property and liability insurance	2,484,683		28,214	363,357	2,149,540	1	%
Total premiums earned	2,484,715		28,214	363,357	2,149,572	1	%
2015
Premiums earned:
Accident and health insurance	$	37	—	37	—	—
Property and liability insurance	2,330,230		23,209	363,530	1,989,909	1	%
Total premiums earned	2,330,267		23,209	363,567	1,989,909	1	%

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

SCHEDULE V

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

ALLOWANCE FOR UNCOLLECTIBLE PREMIUMS AND OTHER RECEIVABLES

Years ended December 31, 2017, 2016, and 2015

($ in thousands)	2017			2016		2015
Balance, January 1	$	11,480		10,122		11,037
Additions	6,414			4,669		3,604
Deductions	(3,294		)	(3,311	)	(4,519	)
Balance, December 31	$	14,600		11,480		10,122

See accompanying Report of Independent Registered Public Accounting Firm in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

74

EXHIBIT INDEX

Exhibit
Number
*23.1	Consent of KPMG LLP.
*31.1	Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
**32.1	Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
**32.2	Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
*99.1	Glossary of Terms.

* 101.INS	XBRL Instance Document.
* 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.

75

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	February 23, 2018
Gregory E. Murphy
Chairman of the Board and Chief Executive Officer
By: /s/ Mark A. Wilcox	February 23, 2018
Mark A. Wilcox
Executive Vice President and Chief Financial Officer
(principal financial officer)
By: /s/ Anthony D. Harnett	February 23, 2018
Anthony D. Harnett
Senior Vice President and Chief Accounting Officer
(principal accounting officer)

76