SELECTIVE INSURANCE GROUP INC

Insurance Operations

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

The NPW growth of 16% in First Quarter 2024 compared to First Quarter 2023 reflected (i) overall renewal pure price increases, and (ii) higher direct new business, as shown in the following table:

Our NPW growth in First Quarter 2024 also benefited from stable retention and exposure growth on renewal policies.

Loss and Loss Expenses

The loss and loss expense ratio increased 4.1 points in First Quarter 2024 compared to First Quarter 2023, primarily due to the following:

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

Prior year casualty reserve development in First Quarter 2024 was an unfavorable $35.0 million, or 3.3 points, compared to $13.0 million, or 1.4 points, of favorable development in First Quarter 2023. This quarter's unfavorable development of $50.0 million in our general liability line of business was driven by increased severities in accident years 2020 through 2023, and was partially offset by favorable workers compensation development of $15.0 million. For additional qualitative discussion on prior year casualty reserve development, refer to the insurance segment sections below.

Net catastrophe losses were lower in First Quarter 2024 compared to First Quarter 2023, despite experiencing slightly more Property Claim Services named events in First Quarter 2024 that impacted our footprint. Net catastrophe losses in both periods primarily impacted our commercial property and homeowners lines of businesses, resulting from winter storms and wind and thunderstorm events.

Underwriting Expenses

The underwriting expense ratio decreased 1.7 points in First Quarter 2024 compared to First Quarter 2023, primarily due to premium growth outpacing the growth in underwriting expenses.

Standard Commercial Lines Segment

NPW growth of 15% in First Quarter 2024 compared to First Quarter 2023 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 benefited from strong exposure growth on renewal policies.

The increase in NPE in First Quarter 2024 compared to the First Quarter 2023 resulted from the same impacts to NPW described above.

The loss and loss expense ratio increased 5.5 points in First Quarter 2024 compared to First Quarter 2023, primarily driven by the following:

Prior year casualty reserve development in First Quarter 2024 was unfavorable by $35.0 million, or 4.2 points, compared to $10.0 million, or 1.4 points, of favorable development in First Quarter 2023. Despite increasing our overall expected loss trend in recent years, paid loss severities emerged more significantly than expected in First Quarter 2024. As a result, we recorded $50.0 million unfavorable prior year casualty reserve development in our general liability line of business, primarily driven by increased severities in accident years 2020 through 2023. This unfavorable development was partially offset by favorable workers compensation development of $15.0 million.

In addition, the loss and loss expense ratio was impacted by an increase in current year casualty loss costs of 0.7 points in First Quarter 2024 compared to First Quarter 2023, primarily due to increased loss trend expectations in response to social inflationary impacts. Refer to the line of business sections below for qualitative discussion on the significant drivers of unfavorable prior year casualty reserve development and current year loss costs.

The underwriting expense ratio decreased 1.6 points in First Quarter 2024 compared to First Quarter 2023, primarily due to premium growth outpacing the growth in underwriting expenses in First Quarter 2024 compared to First Quarter 2023.

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

NPW grew 13% in First Quarter 2024 compared to First Quarter 2023, benefiting from exposure growth on renewal policies, strong retention, renewal pure price increases, and higher direct new business.

The combined ratio increased 21.9 points in First Quarter 2024 compared to First Quarter 2023, primarily driven by unfavorable prior year casualty reserve development as follows:

This line of business has experienced a long-term historical trend of meaningful severity increases, which have been partially offset by decreases in claim frequencies. The trend of lower frequencies has continued, while prior year severities have developed adversely, previously impacting the pre-pandemic period but now extending into the more recent accident years. We attribute the increased severities to elevated social inflation, which we see as an industry dynamic characterized by higher propensity for attorney representation and litigation, longer settlement times, and higher settlement values. Certain jurisdictions with expanded liability theories and higher damage awards pose heightened challenges. We are closely monitoring these jurisdictions and the broader trends across our business.

The unfavorable prior year casualty reserve development in First Quarter 2024 was primarily due to these social inflationary impacts. In response to social inflationary impacts, we have been embedding higher severity assumptions in our initial loss ratio estimates in recent years, which more recently are materializing in actual paid results. Despite planning for higher expected loss trends, claim emergence on paid losses in First Quarter 2024 exceeded our expectations and drove the unfavorable prior year development of $50.0 million, primarily in accident years 2020 through 2023. There was no prior year casualty reserve development in First Quarter 2023.

Additionally, the combined ratio was impacted by an increase in current year casualty loss costs of 4.5 points in First Quarter 2024 compared to First Quarter 2023, primarily driven by an increase to our loss trend expectations in response to increases in social inflationary impacts.

We believe that social inflation and elevated loss trends are an industry dynamic, and may lead to an acceleration of rate increases in this line of business. During First Quarter 2024, our renewal pure price increase in this line of business was 6.5%, up from 5.7% last quarter, and 5.4% for full-year 2023. We expect increases in our general liability pricing to accelerate in the coming months.

NPW grew 19% in First Quarter 2024 compared to First Quarter 2023, benefiting from renewal pure price increases, higher direct new business, and strong retention. This higher new business and strong retention contributed to an 8% growth of in-force vehicle counts as of March 31, 2024 compared to March 31, 2023.

The combined ratio decreased 5.5 points in First Quarter 2024 compared to First Quarter 2023, primarily driven by the following:

First Quarter 2024 experienced lower non-catastrophe property loss and loss expenses than First Quarter 2023, primarily due to lower claim frequencies.

The combined ratio decrease in First Quarter 2024 also reflected a decrease in current year casualty loss costs of 1.3 points, primarily driven by the earned impact of higher renewal pure price increases highlighted above.

In addition, the combined ratio benefited from a 1.1-point decrease in the underwriting expense ratio in First Quarter 2024 compared to First Quarter 2023, primarily due to premium growth outpacing the growth in underwriting expenses.

1 includes Inland Marine.

2 n/a: not applicable.

NPW grew 15% in First Quarter 2024 compared to First Quarter 2023, benefiting from renewal pure price increases, strong retention, exposure growth on renewal policies, and higher direct new business.

The combined ratio increased 1.5 points in First Quarter 2024 compared to First Quarter 2023, primarily driven by the following:

We experienced higher non-catastrophe property loss and loss expense ratios in First Quarter 2024 compared to First Quarter 2023. This change continues to reflect the variability from period to period that is normally associated with the commercial property line of business. We continue to manage our long-term profitability through (i) price increases, and (ii) targeted underwriting actions, including an ongoing focus on appropriate policy terms and conditions and achieving accurate insurance to value ratios.

The combined ratio was also impacted by a decrease in the underwriting expense ratio of 2.7 points in First Quarter 2024 compared to First Quarter 2023, primarily due to premium growth outpacing the growth in underwriting expenses.

NPW increased 6% in First Quarter 2024 compared to First Quarter 2023, primarily due to higher direct new business, strong retention, and exposure growth on renewal policies.

The combined ratio decreased 3.4 points in First Quarter 2024 compared to First Quarter 2023, primarily driven by favorable prior year casualty reserve development as follows:

The favorable prior year casualty reserve development in First Quarter 2024 was primarily due to lower loss severities in accident years 2021 and prior. The favorable prior year casualty reserve development in First Quarter 2023 was primarily due to improved loss severities in accident years 2020 and prior.

In addition, the combined ratio benefited from a decrease in the underwriting expense ratio of 1.2 points in First Quarter 2024, compared to First Quarter 2023, primarily due to premium growth outpacing the growth in underwriting expenses.

Offsetting the combined ratio decreases mentioned above, the First Quarter 2024 combined ratio was adversely impacted by an increase in current year casualty loss costs of 3.5 points, primarily driven by the negative rate environment that has been impacting this line for several years.

Standard Personal Lines Segment

NPW increased 17% in First Quarter 2024 compared to First Quarter 2023, due to renewal pure price increases, exposure growth on renewal policies, and higher average policy sizes from our mass affluent market strategy, partially offset by reductions in direct new business and retention. New policy counts were down 37% in First Quarter 2024 compared to First Quarter 2023 These reductions were anticipated given the level of rate increases we are implementing as part of our overall profit improvement plan.

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

We are taking aggressive actions to improve the profitability of this business by continuing to prioritize additional rate filings on a state-by-state basis to mitigate 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, have continued into 2024, and are expected to continue throughout the year. Our 14.3% renewal pure price increase achieved in First Quarter 2024 met our expectations, and keeps us on track to achieve an increase in excess of 20% for the full year. 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.

The loss and loss expense ratio decreased 8.2 points in First Quarter 2024 compared to First Quarter 2023, driven by the following:

The decrease in net catastrophe losses in First Quarter 2024 compared to First Quarter 2023, was primarily due to two large wind and thunderstorm events in First Quarter 2023 that primarily impacted our homeowners line of business.

We experienced $5.0 million of favorable prior year casualty reserve development on our homeowners line of business in First Quarter 2024, primarily due to lower loss severities in accident years 2021 and prior. This favorable development was offset by $5.0 million of unfavorable prior year casualty reserve development on our personal automobile line of business in First Quarter 2024, primarily driven by increased loss severities in accident years 2021 through 2023. The unfavorable prior year casualty reserve development in First Quarter 2023 was primarily due to increased loss severities in accident year 2022 on our personal automobile line of business.

In addition, the loss and loss expense ratio was adversely impacted by an increase in current year casualty loss costs of 1.8 points in First Quarter 2024 compared to First Quarter 2023, primarily due to an expected increase in claim frequencies in the current year.

The underwriting expense ratio decreased 2.7 points in First Quarter 2024 compared to First Quarter 2023, primarily due to premium growth outpacing the growth in underwriting expenses.

E&S Lines Segment

NPW grew 24% in First Quarter 2024 compared to First Quarter 2023, reflecting renewal pure price increases and higher direct new business as shown in the table below. In addition, NPW growth in First Quarter 2024 benefited from both property and casualty exposure growth on renewal policies, driven by increased property values, as well as higher rate per exposure.

The loss and loss expense ratio increased 3.9 points in First Quarter 2024 compared to First Quarter 2023, primarily driven by the following:

While the frequency of wind and thunderstorm events remained largely consistent, the severity of these events was lower in First Quarter 2024 compared to First Quarter 2023, resulting in a decrease in net catastrophe losses.

We experienced higher non-catastrophe property loss and loss expenses in First Quarter 2024 compared to First Quarter 2023, primarily due to several large fires, reflecting the continued variability from period to period that is normally associated with our E&S property line of business.

There was no prior year casualty reserve development in First Quarter 2024. The favorable prior year casualty reserve development in First Quarter 2023 was primarily due to lower severities in accident years 2021 and prior.

In addition, the loss and loss expense ratio was favorably impacted by a decrease in current year casualty loss costs of 2.3 points in First Quarter 2024 compared to First Quarter 2023, primarily due to the mix of business between our property and casualty lines of business. Our E&S property line of business, which has a lower loss ratio compared to our E&S casualty line of business, represented a larger portion of this segment in First Quarter 2024 compared to First Quarter 2023, resulting in a lower blended current year loss cost in First Quarter 2024.

The 1.3-point decrease in the underwriting expense ratio in First Quarter 2024 compared to First Quarter 2023, was primarily due to premium growth outpacing the growth in underwriting expenses.

Investments

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 our fixed income and short-term investments was 4.0 years as of March 31, 2024. 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 of maximizing investment returns in the current market environment, while balancing capital preservation.

Our fixed income and short-term investments represented 92% of our invested assets and had investment grade holdings representing 96% of the total debt portfolio as of March 31, 2024 and December 31, 2023. Our fixed income and short-term investments portfolio had a weighted average credit rating of "A+" as of March 31, 2024 and "AA-" as of December 31, 2023.

For further details on the composition, credit quality, and various risks to which our portfolio is subject, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” of our 2023 Annual Report.

Invested assets increased $52.0 million at March 31, 2024, compared to December 31, 2023, reflecting our active investment of operating and investing cash flows. Operating cash flows during First Quarter 2024 were 10% of NPW.

Net Investment Income

The components of net investment income earned were as follows:

After-tax net investment income earned increased 17% in First Quarter 2024 compared to First Quarter 2023, primarily driven by active portfolio management and the reinvestment of cash flows in a higher interest rate environment, which provided the opportunity to increase the embedded pre-tax book yield by 60 basis points over the course of 2023. During First Quarter 2024, our pre-tax book yield improved an additional six basis points, bringing our pre-tax book yield to 4.8% as of March 31, 2024.

Realized and Unrealized Gains and Losses

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