SELECTIVE INSURANCE GROUP INC

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

The NPW growth of 16% in 2023 compared to 2022 reflected (i) overall renewal pure price increases, and (ii) higher direct new business, as shown in the following table:

Our NPW growth in 2023 also benefited from strong retention and exposure growth on renewal policies.

The increase in NPE in 2023 compared to 2022 resulted from the same impacts to NPW described above.

Loss and Loss Expenses

The loss and loss expense ratio increased 2.2 points in 2023 compared to 2022, primarily due to the following:

We had higher net catastrophe losses in 2023 compared to 2022. In 2023, 66 PCS named events impacted our footprint, compared to 56 in 2022. In 2023 and 2022, net catastrophe losses primarily impacted our commercial property and homeowners line of business, with 2023 events also impacting our E&S property lines.

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

In addition, the loss and loss expense ratio was impacted by a decrease in current year casualty loss costs of 0.8 points in 2023, compared to 2022, primarily due to the mix of business from the impact of premium growth in 2023 compared to 2022.

For additional qualitative discussion on prior year reserve development, current year casualty loss costs, and non-catastrophe property loss and loss expenses, refer to the insurance segment sections below.

Underwriting Expenses

The underwriting expense ratio decreased 0.9 points in 2023 compared to 2022, primarily due to premium growth outpacing the growth in underwriting expenses.

Standard Commercial Lines Segment

NPW growth of 13% in 2023 compared to 2022 reflected (i) renewal pure price increases, (ii) higher direct new business, and (iii) strong retention as shown in the table below. In addition, NPW growth in 2023 benefited from exposure growth on renewal policies.

The increase in NPE in 2023 compared to 2022 resulted from the same impacts to NPW described above.

The 1.0-point increase in the loss and loss expense ratio in 2023 compared to 2022 was primarily driven by the following:

Our loss and loss expenses in 2023 experienced elevated net catastrophe losses compared to 2022, as discussed in the "Insurance Operations" section above. Refer to the line of business sections below for qualitative discussion on the significant drivers of favorable prior year casualty reserve development and non-catastrophe property loss and loss expenses.

In addition, the loss and loss expense ratio was impacted by a decrease in current year casualty loss costs of 1.0 point in 2023 compared to 2022, primarily due to (i) the mix of business from the impact of premium growth in 2023, partially offset by (ii) an increase in current year casualty loss costs in our commercial automobile line of business. Refer to the "Commercial Automobile" section below for a qualitative discussion on these current year loss costs.

The underwriting expense ratio decreased 0.9 points in 2023 compared to 2022, primarily due to premium growth outpacing the growth in underwriting expenses.

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

NPW growth of 13% in 2023 compared to 2022 benefited from exposure growth on renewal policies, strong retention, renewal pure price increases, and higher direct new business.

The combined ratio increased 4.7 points in 2023 compared to 2022, primarily driven by unfavorable prior year casualty reserve development in 2023, as follows:

The unfavorable prior year casualty reserve development in 2023 was primarily driven by increased loss severities in accident years 2015 through 2020 attributable to social inflationary impacts. We see this as an industry dynamic with higher propensity for attorney representation and litigation, longer settlement times, and higher settlement values. The 2022 favorable prior year casualty reserve development was primarily attributable to favorable inception-to-date claim frequencies in accident years 2021 and 2020.

This line of business has experienced a long-term historical trend of meaningful severity increases, which have been largely offset by decreases in claim frequencies. In response to potential social inflationary impacts, we have been embedding higher severity assumptions in our initial loss ratio estimates in recent years, which are materializing in actual results. The trend of lower frequencies has continued, while prior year severities have developed adversely. Despite this, initial estimates for less mature accident years have remained stable. However, if the favorable frequency trend moderates and severities continue to emerge higher than expected, there could be impacts on ultimate loss estimates for this line.

The combined ratio was also impacted by a decrease in the underwriting expense ratio of 1.2 points in 2023 compared to 2022, primarily due to premium growth outpacing the growth in underwriting expenses.

NPW growth of 14% in 2023 compared to 2022 benefited from renewal pure price increases, higher direct new business, and strong retention. The higher new business and strong retention contributed to a 5% growth of in-force vehicle counts as of December 31, 2023, compared to December 31, 2022.

The combined ratio decreased 4.1 points in 2023 compared to 2022, primarily driven by the following:

Loss and loss expenses in 2023 compared to 2022 experienced (i) lower non-catastrophe property loss and loss expenses, as inflationary and supply chain impacts have moderated, partially offset by (ii) elevated net catastrophe losses, as discussed in the "Insurance Operations" section above.

The unfavorable prior year casualty reserve development in 2023 was primarily due to increased loss expenses in accident years 2022 and prior. The 2022 unfavorable prior year casualty reserve development was primarily due to increased severities in the 2021 accident year.

The combined ratio was also impacted by a decrease in the underwriting expense ratio of 1.0 point in 2023 compared to 2022, primarily due to premium growth outpacing the growth in underwriting expenses.

NPW growth of 21% in 2023 compared to 2022 benefited from renewal pure price increases, exposure growth on renewal policies, strong retention, and higher direct new business.

The combined ratio decreased 3.2 points in 2023 compared to 2022, primarily driven by the following:

The lower non-catastrophe property loss and loss expenses were primarily due to lower frequencies compared to 2022. We continue to manage our long-term profitability through (i) price increases and (ii) targeted underwriting actions, including an ongoing focus on appropriate policy terms and conditions and achieving accurate insurance-to-value ratios. The elevated net catastrophe losses are further discussed in the "Insurance Operations" section above.

The combined ratio was also impacted by a decrease in the underwriting expense ratio of 1.2 points in 2023 compared to 2022, primarily due to premium growth outpacing the growth in underwriting expenses.

NPW decreased 1% in 2023 compared to 2022 due to renewal pure price decreases and a slight decrease in retention.

The combined ratio decreased 1.5 points in 2023 compared to 2022, driven by higher favorable prior year casualty reserve development, as follows:

The favorable prior year casualty reserve development in 2023 was primarily due to improved loss severities driven by continued favorable medical cost trends in accident years 2021 and prior. The favorable prior year casualty reserve development in 2022 was primarily due to continued favorable medical trends in accident years 2020 and prior, and favorable inception-to-date claim frequencies in accident year 2020.

Standard Personal Lines Segment

NPW increased 30% in 2023 compared to 2022, primarily due to (i) higher direct new business, (ii) stronger retention, (iii) renewal pure price increases, (iv) higher homeowners coverage amounts due to inflation adjustments, and (v) higher average policy sizes from our mass affluent market strategy. In the third quarter of 2021, we transitioned our personal lines strategy to targeting customers in the mass affluent market, where we believe our strong coverage and servicing capabilities will be more competitive. Over 65% of new business in our homeowners line of business in 2023 had dwelling coverage values over $500,000.

1 Excludes our flood direct premiums written, which is 100% ceded to the NFIP and therefore, has no impact on our NPW.

The increase in NPE in 2023 compared to 2022 resulted from the same impacts on NPW discussed above.

The loss and loss expense ratio increased 19.5 points in 2023 compared to 2022, driven by the following:

Net catastrophe losses in both 2023 and 2022 exceeded our 10-year historical average, with 2023 being elevated over 2022, as discussed in the "Insurance Operations" section above.

We experienced elevated non-catastrophe property loss and loss expenses in 2023 compared to 2022, driven by higher personal automobile physical damage losses and homeowners property losses. The higher automobile damage losses resulted from increased claim frequencies, driven in part by increased miles driven. Higher homeowners property losses were attributable to elevated severities due to (i) higher construction costs impacted by economic inflation and (ii) increasing home values due to higher average policy sizes from our mass affluent market strategy.

The unfavorable prior year casualty reserve development in 2023 wasprimarily attributable to increased loss severities in accident year 2022. There was no prior year casualty reserve development in 2022.

In addition, the loss and loss expense ratio was impacted by a 6.4-point increase in current year casualty loss costs in 2023 compared to 2022 from (i) elevated prior year severities, which influenced our current year severity estimates, and (ii) increased claim frequencies in the current year.

We are aggressively managing this business by continuing to prioritize additional rate filings on a state-by-state basis to mitigate these inflationary impacts, and refining our pricing factors. These filed rate increases began to take effect early in 2023, increasing in number and magnitude throughout the year, and are expected to continue through 2024. We expect our overall written renewal rate to range from approximately 20% to 25%, subject to regulatory approvals. In addition, we are seeking to improve profitability within our homeowners' line of business by introducing new policy terms and conditions, including (i) coverage for older roofs based on a schedule of factors rather than replacement cost and (ii) implementing mandatory wind/hail deductibles in states exposed to severe convective storms, where allowed by law.

E&S Lines Segment

NPW growth of 24% in 2023 compared to 2022, reflected renewal pure price increases and higher direct new business as shown in the table below. NPW growth in 2023 also benefited from property and casualty exposure growth on renewal policies driven by higher rates associated with increased construction costs resulting from economic inflation.

The increase in NPE in 2023 compared to 2022 resulted from the same impacts to NPW discussed above.

The loss and loss expense ratio decreased 4.5 points in 2023 compared to 2022, primarily driven by a 4.6-point decrease in current year casualty loss costs in 2023 compared to 2022. Our E&S casualty lines results have improved over recent years, benefiting from several underwriting and claims initiatives and strong rate increases. The decrease in current year casualty loss costs reflects the impacts of these actions.

In addition, the loss and loss expense ratio was impacted by the following:

We experienced elevated net catastrophe losses in 2023 compared to 2022, as discussed in the "Insurance Operations" section above. The favorable prior year casualty reserve development in 2023 was primarily due to improved loss severities in accident years 2021 and prior. The favorable prior year casualty reserve development in 2022 was primarily attributable to favorable inception-to-date claim frequencies and lower loss severities in accident years 2021 and 2020.

Reinsurance

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

Reinsurance Pooling Agreement

The primary purposes of the Insurance Subsidiaries' reinsurance pooling agreement are to:

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

•Reduce administration expenses; and

•Permit all the Insurance Subsidiaries to obtain a uniform rating from AM Best Company ("AM Best").

The following illustrates the pooling percentages by Insurance Subsidiary as of December 31, 2023:

Reinsurance Treaties and Arrangements

By entering into reinsurance treaties and arrangements, we can increase our underwriting capacity, accepting larger individual risks and aggregations of risks without directly increasing our capital or statutory surplus. Under our reinsurance treaties, we cede to our reinsurers a portion of our incurred losses from an individual policy or group of policies in exchange for a portion of the premium on those policies. Amounts not reinsured below a specified dollar threshold are known as retention. Reinsurance does not legally discharge us from liability under the terms and limits of our policies, but it does make our reinsurers liable to us for the amount of liability we cede to them. Our reinsurers often rely on their own reinsurance programs, or retrocessions, to manage their large loss exposures. The size of the global reinsurance community is relatively small. If our reinsurers cannot collect on their retrocessional programs, it may impair their ability to pay us for the amounts we cede to them.

Consequently, our reinsurers present us with direct, indirect, and contingent counterparty credit risk. We attempt to mitigate this credit risk by (i) pursuing relationships with reinsurers rated “A-” or higher by AM Best and/or (ii) obtaining collateral to secure reinsurance obligations. Some of our reinsurance treaties permit us to terminate or commute them – or require the reinsurer to post collateral if the reinsurer's financial condition or rating deteriorates. We monitor our reinsurers' financial condition and review the quality of reinsurance recoverables and reserves for uncollectible reinsurance. For additional information regarding our reinsurance counterparty credit risk, see Note 9. "Reinsurance" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

We have reinsurance contracts that separately cover our property and casualty insurance business that can be categorized as follows:

•Property Reinsurance, which includes our (i) property excess of loss treaties purchased for protection against large individual property losses and (ii) property catastrophe treaties and a property catastrophe bond transaction to provide protection for the overall property portfolio against severe catastrophic events. We also purchase a limited amount of facultative reinsurance, primarily for large individual property risks greater than our property excess of loss treaty capacity.

•Casualty Reinsurance, which provides protection for both individual large casualty losses and catastrophic casualty losses involving multiple claimants or insureds. We also may use (i) facultative reinsurance, primarily for large individual casualty risks in excess of our treaty capacity and (ii) quota share capacity for certain new or higher severity casualty lines of business.

•Terrorism Reinsurance, which provides a federal reinsurance backstop, behind the protection built into our property and casualty reinsurance treaties, for terrorism losses covered under the Terrorism Risk Insurance Program Reauthorization Act (“TRIPRA”). For further information about TRIPRA, see Item 1A. “Risk Factors.” of this Form 10-K.

•Flood Reinsurance, for which all of the premiums and losses related to our participation in the WYO (for which we also receive a servicing fee) are 100% ceded to the federal government.

Property Reinsurance

Property Catastrophe Reinsurance Program

Our 2024 property catastrophe reinsurance program includes an excess of loss treaty and an indemnity reinsurance agreement with a special purpose insurer that issued a catastrophe bond (discussed more fully below). This program provides coverage of

$1.1 billion in excess of a $100 million retention. Compared to our expiring program, we extended the exhaustion limit by $290 million and increased our retention by $40 million to respond to our growing property portfolio. In addition, we eliminated co-participations throughout the program. The overall net purchased limits increased to $1.1 billion, from $810 million in the expiring treaty.

We renewed our property catastrophe treaty, which covers our standard market and E&S business, effective January 1, 2024. The highest layer of the treaty provides 35% coverage of the $500 million in excess of $700 million layer. The property catastrophe treaty excludes coverage for communicable disease but retains (i) coverage for strike, riot, civil unrest, severe convective storms, and other traditionally-covered property perils, (ii) coverage for conventional terrorism losses in most geographic areas, and (iii) limited coverage for cybersecurity risks.

To provide additional, fully collateralized coverage at the top end of our property catastrophe reinsurance program, we secured property catastrophe protection through a per occurrence excess of loss indemnity reinsurance agreement effective December 9, 2023, with High Point Re Ltd. ("High Point Re"), an independent Bermuda special purpose insurer. The reinsurance agreement meets the accounting guidance requirements to be accounted for as reinsurance. In connection with the reinsurance agreement, High Point Re issued Series 2023-1, Class A Principal-at-Risk Variable Rates Notes to unrelated investors totaling $325 million, consistent with the coverage provided under the reinsurance agreement. The proceeds were deposited in a reinsurance trust account. The reinsurance agreement provides us with coverage of up to $325 million for the three-year period from December 9, 2023, through December 31, 2026, for property catastrophe losses from named storms, earthquakes, severe thunderstorms, winter storms, wildfires, meteorite impacts, and volcanic eruptions in all states except California, Florida, Texas, and Louisiana. The reinsurance agreement's attachment point and exhaustion limit may be reset annually to adjust the expected loss of the layer within a predetermined range. For the 2024 treaty year, this reinsurance agreement provides us with coverage for 65% of losses in the $500 million in excess of $700 million layer. The reinsurance agreement is collateralized, which is provided by High Point Re using proceeds from the issuance of the Series 2023-1 Notes.

Reinsurance agreements have credit risk associated with collecting amounts due from reinsurers. With High Point Re, that risk is reduced because the collateralized reinsurance trust account is funded with money market funds domiciled in the U.S. The money market funds invest solely in cash or high-quality direct obligations of the U.S. government, such as U.S. treasury bills and other short-term securities backed by the U.S. government.

In addition to the fully collateralized catastrophe bond, we seek to minimize reinsurance credit risk by transacting with highly-rated reinsurance partners and purchasing collateralized reinsurance products, particularly for high-severity, low-probability events, if feasible. Our current reinsurance program includes $417.5 million in collateralized limit of the total $500 million for that layer of the catastrophe program, including the $325 million secured through High Point Re, compared to $216 million in collateralized limit under the prior year's reinsurance program.

Overall, ceded premium for our property catastrophe reinsurance program will increase considerably in 2024 due to three factors: (i) increases in underlying property exposures in line with our growing property insurance portfolio; (ii) the addition of $290 million of net limit coverage, which improved our net risk profile; and (iii) moderate-risk adjusted price increases from our reinsurers.

We model various catastrophic perils, and hurricane risk remains our portfolio's most significant natural catastrophe peril because of the geographic location of the risks we insure. The table below illustrates the impact of the five largest hurricane losses we have experienced in the last 35 years:

1 This amount represents reported and unreported gross losses estimated as of December 31, 2023.

2 Net loss does not include reinstatement premiums, taxes, or flood claims handling fees.

We review our exposure to hurricane risk by examining third-party vendor models and conducting our proprietary analysis. The third-party vendor models provide a long-term view that closely relates modeled event frequency to historical hurricane activity, adjusting to reflect certain non-modeled cost assumptions, such as the impact of loss expenses, residual market assessments, and automobile-related losses. We believe that modeled estimates provide a range of potential outcomes, and we review multiple estimates to understand our catastrophic risk.

Our established catastrophic risk tolerance requires that no more than 10% of stockholders’ equity is exposed to a loss from a hurricane event at a 99.6% confidence level (1-in-250-year event or 0.4% probability) on a net of reinsurance and after-tax basis. Our property catastrophe reinsurance program limits our net after-tax impact of a 1-in-250-year event to about 4% of our GAAP equity. In addition to the 1-in-250-year modeled event, we evaluate the impact of a number of other scenarios on stockholders’ equity.

The table below shows the gross and net losses modeled results for (i) hurricane peril in our underwriting property portfolio and (ii) the gross and net of reinsurance hurricane losses from the following scenarios:

•Recasts of two large hurricanes that impacted our geographic footprint:

◦1938 New England Hurricane, one of the largest hurricanes to impact the Northeast U.S.; and

◦Hurricane Hazel, a Category 4 storm that made landfall near the border between North Carolina and South Carolina in 1954; and

•Realistic disaster scenarios (“RDS”) for significant potential storms in the Northeast and the Carolinas based on Lloyds of London methodology.

1 Gross losses include uncertainty associated with damage/loss estimation, demand and storm surge, and assumptions for certain un-modeled costs, such as the impact of loss expenses, residual market assessments, and automobile-related losses, which collectively increase our gross losses by approximately 13%.

2 Net losses are after-tax losses net of catastrophe reinsurance including reinstatement premiums based on the program structure effective January 1, 2024.

3 GAAP stockholders' equity as of December 31, 2023.

As the table above reflects, we are well within our established tolerance for catastrophic risk. Based on a multi-model view of hurricane risk, our current catastrophe reinsurance program exhausts at an approximately 1-in-260-year return period, or events with 0.4% probability. Our actual gross and net losses incurred from hurricanes making U.S. landfall will vary, perhaps materially, from our estimated modeled losses.

In addition to hurricane peril, the table below shows gross and net losses modeled by other wind and earthquake perils in our underwriting property portfolio. Other wind perils include the sub-perils of hail, straight-line wind, and tornado.

1 Gross losses include uncertainty associated with damage/loss estimation, demand and storm surge, and assumptions for certain un-modeled costs, such as the impact of loss expenses, residual market assessments, and automobile-related losses, which collectively increase our gross losses by approximately 13%.

2 Net losses are after-tax losses net of catastrophe reinsurance including reinstatement premiums based on the program structure effective January 1, 2024.

3 GAAP stockholders' equity as of December 31, 2023.

We currently do not write crop insurance, have minimal exposure to private flood, and have a small geographic footprint in the Western U.S., so our exposures to perils such as droughts, wildfires, and flooding, tend to be relatively modest. However, as our geographic expansion progresses, we continually evaluate how we consider physical risks from these perils and others in our strategic decision making.

While we regularly experience property losses from winter storms and use third-party vendor models to help us model and manage our exposure to this peril, we also evaluate our winter storm exposure based on our own historical experience, as winter storm third-party vendor models are currently less mature.

Property Excess of Loss Treaty

We renewed the property excess of loss treaty, which covers our standard market and E&S business, on July 1, 2023, with a $2 million increase on our retention for total coverage of $65 million in excess of a $5 million retention. The remaining terms are substantially the same as the treaty that expired on June 30, 2023.

The following table summarizes of our property reinsurance treaties and arrangements covering our Insurance Subsidiaries:

Casualty Reinsurance

We renewed the casualty excess of loss treaty, which covers our standard market and E&S Lines business, on July 1, 2023, on substantially the same terms as the treaty expiring June 30, 2023.

The following table summarizes our casualty reinsurance treaties and arrangements covering our Insurance Subsidiaries:

To complement our key reinsurance programs and provide reinsurance protection on specific coverages or programs, we have other reinsurance treaties, such as our (i) Surety and Fidelity Excess of Loss Reinsurance Treaty, (ii) National Workers Compensation Reinsurance Pool Quota Share, which covers business assumed from the involuntary workers compensation pool, (iii) Endurance Specialty Quota share and Loss Development Cover, which protects against losses on policies written before the acquisition and any development on reserves established by MUSIC as of the date of acquisition, (iv) Equipment Breakdown Coverage Reinsurance Treaty, (v) Multi-line Quota Share, which covers additional personal lines coverages, such as personal cyber and home systems protection, (vi) Cyber Liability Quota Share, and (vii) Excess Liability Quota Share, which covers MUSIC's excess liability business.

We regularly evaluate our overall reinsurance program and try to develop effective ways to manage the transfer of risk. We base our analysis on a comprehensive process that includes periodic analysis of modeling results, our own loss experience, aggregation of exposures, exposure growth, diversification of risks, limits written, projected reinsurance costs, reinsurer financial strength, and projected impact on earnings, equity, and statutory surplus. We strive to balance reinsurer credit quality, price, terms, and our appetite to retain a certain level of risk.

Investments Segment

Our investment portfolio's objectives are to maximize after-tax net investment income and generate long-term growth in book value per share by maximizing the overall total return of the portfolio by investing the premiums we receive from our insurance operations and the amounts generated through our capital management strategies, which may include debt and equity security issuances. We balance those objectives against prevailing market conditions, capital preservation considerations, and our enterprise risk-taking appetite. We maintain (i) a well-diversified portfolio across issuers, sectors, and asset classes and (ii) a high credit quality fixed income securities portfolio with a duration and maturity profile at an acceptable risk level that provides ample liquidity.

The effective duration of the fixed income securities portfolio, including short-term investments, was 4.0 years as of December 31, 2023. The effective duration is monitored and managed to maximize yield while managing interest rate risk at an acceptable level. Purchases and sales are made with the intent to maximize investment returns in the current market environment while balancing capital preservation.

Our fixed income and short-term investments (i) represented 92% of our invested assets, (ii) had a weighted average credit rating of "AA-", and (iii) had investment grade holdings representing 96% of the total portfolio at both December 31, 2023, and December 31, 2022.

For further details on the composition, credit quality, and the various risks to which our portfolio is subject, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." of this Form 10-K.

Total Invested Assets

Invested assets increased by $856.3 million as of December 31, 2023, compared to December 31, 2022, reflecting (i) our active investment of operating and investing cash flows in 2023 and (ii) a $184.1 million decrease in pre-tax unrealized losses during 2023. Operating cash flows during 2023 were 18% of NPW. The decrease in pre-tax unrealized losses was primarily driven by a decrease in benchmark U.S. Treasury rates and, to a lesser extent, a tightening of credit spreads.

Net Investment Income

The components of net investment income earned were as follows:

After-tax net investment income earned increased 33% in 2023, compared to 2022, primarily driven by higher interest rates, active portfolio management, and operating and investing cash flow deployment.

Realized and Unrealized Investment Gains and Losses

When evaluating securities for sale, our general philosophy is to reduce our exposure to securities and sectors based on economic evaluations of whether (i) the fundamentals for that security or sector have deteriorated or (ii) the timing is appropriate to opportunistically trade for other securities with better economic-return characteristics. Net realized and unrealized gains and losses for the indicated periods were as follows:

The credit loss benefit in 2023 shown in the table above reflected the decrease in benchmark U.S. Treasury rates and a tightening of credit spreads, with the decrease in interest rates having the most significant impact.

For additional information regarding our losses on securities we intend to sell and our methodology for estimating the allowance for credit losses, see Note 2. "Summary of Significant Accounting Policies" and Note 5. "Investments" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.