SELECTIVE INSURANCE GROUP INC

We have identified the policies and estimates critical to our business operations and understanding of our results of operations. We consider the policies and estimates most critical to the preparation of the Financial Statements to be (i) reserve for loss and loss expense, (ii) investment valuation and the allowance for credit losses on available-for-sale ("AFS") fixed income securities, and (iii) reinsurance.

Reserve for Loss and Loss Expense

Significant time can elapse between the occurrence of an insured loss, the reporting of a claim to us, and the final claim settlement and payment. Insurers establish reserves as balance sheet liabilities to recognize liabilities for unpaid loss and loss expenses. The following tables provide case and incurred but not reported ("IBNR") reserves for loss and loss expenses and reinsurance recoverable on unpaid loss and loss expense as of December 31, 2024 and 2023:

1 Includes our flood loss exposure related to our participation in the NFIP's WYO program, to which we cede 100% of our WYO flood losses.

2 Includes general liability (97% of net reserves) and commercial auto liability coverages (3% of net reserves).

3 Includes commercial property (93% of net reserves) and commercial auto property coverages (7% of net reserves).

1 Includes our flood loss exposure relates to our participation in the NFIP's WYO program, to which we cede 100% of our flood losses.

2 Includes general liability (97% of net reserves) and commercial auto liability coverages (3% of net reserves).

3 Includes commercial property (90% of net reserves) and commercial auto property coverages (10% of net reserves).

The Insurance Subsidiaries' net loss and loss expense reserves duration was approximately 3.0 years at December 31, 2024 and 3.1 years at December 31, 2023.

How the reserve is established

Reserve for loss and loss expense include case reserves on reported claims and IBNR reserves. Case reserves are estimated for each individual claim based on facts and circumstances known at the time. Case reserves may be adjusted up or down as the claim's specific facts and circumstances change. IBNR reserves are established at more aggregated levels and include provisions for (i) claims not yet reported, (ii) future development on reported claims, (iii) closed claims that could reopen in the future, and (iv) anticipated salvage and subrogation recoveries.

We perform quarterly internal reserve reviews using our own loss experience, considering various internal and external factors. Changes in claim dynamics may inherently alter paid and reported development patterns. While the selections in our reserve analyses aim to account for these impacts, estimated reserves involve greater risk of variability. In addition to our internal reserve reviews, an external consulting actuary performs an independent semiannual reserve review. We do not rely on the external consulting actuary's report to determine our recorded reserves but we review and discuss our observations on trends, key assumptions, and actuarial methodologies with our consulting actuary. While not required, our independent consulting actuary issues the annual statutory Statements of Actuarial Opinion for our Insurance Subsidiaries. For additional information on our accounting policy for reserve for loss and loss expense, refer to Note. 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.

Range of Reasonable Reserve Estimates

We have estimated a range of reasonable reserve estimates for net loss and loss expense of $5,003 million to $6,114 million at December 31, 2024. This range reflects low and high reasonable reserve estimates determined after using judgment to adjust the methods, factors, and assumptions selected within the internal reserve review. This approach produces a range of reasonable reserve estimates but does not represent a distribution of all possible outcomes. Consequently, final outcomes may be greater or less than the estimates.

The range of reasonable reserve estimates increased as of December 31, 2024, relative to December 31, 2023. This increase was primarily related to reserve growth commensurate with (i) our net premiums earned ("NPE") growth and (ii) increased uncertainty in severity due to the impact of social inflation.

Changes in Reserve Estimates (Loss Development)

Our quarterly reserving process may lead to changes in the recorded reserves for prior accident years, referred to as favorable or unfavorable prior year loss and loss expense development. In 2024, we experienced net unfavorable prior year loss development of $285.3 million, compared to net unfavorable development of $10.0 million in 2023 and net favorable development of $78.9 million in 2022. The following table summarizes prior year development by line of business:

A detailed discussion of recent reserve development by line of business follows.

Standard Market General Liability Line of Business

At December 31, 2024, our general liability line of business had recorded reserves, net of reinsurance, of $2.5 billion, representing 45% of our total net reserves. In 2024, this line experienced unfavorable reserve development of $316.0 million, primarily due to the impact of social inflation that increased loss severities in accident years 2020 and subsequent, with most of the actions for accident years 2022 and 2023. We attribute the increased severities to elevated social inflation, which we view as an industry dynamic characterized by higher claimant propensity for attorney representation and litigation, longer settlement times, and higher settlement values. Similarly, this line experienced unfavorable development in 2023 of $55.0 million, attributable to the impact of social inflation driving increased loss severities in accident years 2015 through 2020.

This general liability line of business has experienced a long-term historical trend of meaningful claim severity increases that have been partially offset by claim frequency decreases. In recent years, we have been embedding higher severity assumptions in our initial loss ratio estimates to address social inflation's increasing impacts. Although we planned for higher expected loss trends, 2024's claim emergence exceeded our expectations. If the favorable frequency trend moderates or severities continue to emerge higher than expected, this line's ultimate loss estimates could be adversely impacted.

The general liability line of business presents a diverse set of exposures. Various factors influence losses and loss trends, including legislative enactments, judicial decisions, and economic and social inflation. Economic inflation directly impacts our claims severities by increasing the costs of raw materials, medical procedures, and labor. Social inflation may impact both claim frequency and severity by affecting (i) claimant propensity to file a claim, (ii) the percentage of claimants who engage lawyers, and (iii) broader liability interpretations and the nature and amounts of judicial verdicts and associated awards, all influencing future settlement values. We monitor claim litigation rates regularly. We have observed the percentage of general liability claims with plaintiff attorney involvement increasing in recent periods. Other social inflationary factors, including the increased prevalence of third-party litigation funding, claimant willingness to undergo surgery, evolving plaintiff attorney strategies and tactics, and broadening liability definitions and interpretations are also impacting claims severities. These trends and post-pandemic court case scheduling continue to affect claim settlement times.

We have exposure to abuse or molestation claims, mainly through policies that we (i) underwrite through our Community and Public Services ("CAPS") strategic business unit and (ii) issue to schools, religious institutions, day-care facilities, and other social services. These CAPS business unit customers represented approximately 10% of our total Standard Commercial Lines NPW in 2024 and 2023. We continue to actively manage policy limits and monitor each jurisdiction's statute of limitations to ensure our rate level reflects increased exposure to the extent regulatorily possible. These underwriting and pricing actions have positioned the portfolio for future profitability but limited our CAPS growth in recent years.

Certain states have enacted state laws that extend the statute of limitations or permit windows for abuse or molestation claims and lawsuits that statutes of limitations previously barred. Consequently, we may receive claims decades after the alleged acts involving complex claims coverage determinations, potential litigation, higher defense costs, and the need to collect from reinsurers under older reinsurance agreements. Our claims and actuarial departments actively monitor these claims to identify changes in frequency or severity and any emerging or shifting trends.

Our active monitoring of claim patterns and emerging or shifting trends should help us better understand this rapidly evolving exposure. However, the ultimate impact of social, political, and legal trends remains highly uncertain and could substantially impact the ultimate settlement values for these claims.

In addition, over the last several years, we have implemented underwriting changes within this line of business that we believe will lead to improved profitability. These changes may impact portfolio composition and may affect paid and reported development patterns. While our reserve analyses incorporate methods that adjust for these changes, our estimated reserves have a greater risk of fluctuation.

Standard Market Workers Compensation Line of Business

At December 31, 2024, our workers compensation line of business had recorded reserves, net of reinsurance, of $797 million, representing 14% of our total net reserves. During 2024, this line experienced favorable reserve development of $45.0 million, primarily due to improved loss severities in accident years 2022 and prior. Similarly, this line experienced favorable reserve development during 2023 of $74.5 million, primarily due to improved loss severities in accident years 2021 and prior. During both 2024 and 2023, the lower-than-expected loss emergence was partly due to (i) lower than initially anticipated medical inflation and (ii) our various implemented claims initiatives. Because of the length of time injured workers can receive related medical treatment, decreases in medical inflation can cause favorable loss development over an extended number of accident years.

A variety of issues can impact the workers compensation line of business, including:

Unexpected changes in medical cost inflation– The industry has experienced an extended period of lower medical claim cost inflation. Changes to our historical workers compensation medical costs and potential changes in future medical inflation could increase reserve variability;

Changes in statutory workers compensation benefits – Statutory benefit changes may affect all outstanding claims, including past and not-yet-settled claims. Depending on the social and political climate, these changes may either increase or decrease associated claim costs; and

Changes in utilization of the workers compensation system– These changes may be driven by economic, legislative, or other changes, like increased use of prescriptions for pharmaceuticals, more complex medical procedures, changes in permanently injured workers' life expectancy, and health insurance availability.

Standard Market Commercial Automobile Line of Business

At December 31, 2024, our commercial automobile line of business had recorded reserves, net of reinsurance, of $1.1 billion, representing 20% of our total net reserves. In 2024, this line experienced unfavorable prior year reserve development of $19.5 million, primarily due to increased severities in accident year 2023. In 2023, this line experienced unfavorable prior year reserve development of $8.0 million, driven by increased loss expenses in accident years 2022 and prior.

The commercial automobile line has experienced unfavorable trends in recent years that have negatively affected the industry's results and ours. During the pandemic, reduced frequencies were accompanied by significant severity increases, resulting from increased risky driving behaviors, such as speeding, distracted driving, and driving under the influence. Risky driving behaviors and the impacts of social inflation continue to pressure this line's claim severities. As of year-end 2024, frequencies remained somewhat below pre-pandemic levels due to changes in commuting patterns.

Increased property damage and physical damage severities relate to (i) elevated repair costs for increasingly complex vehicles that incorporate more technology, (ii) extended periods of rental reimbursement costs for claims, and (iii) inflationary impacts and disruptions to the supply chain, although these have moderated since their peak in 2022.

Over the last several years, we have implemented underwriting changes within this line of business that we believe will lead to improved profitability. These changes may impact portfolio composition and may affect paid and reported development patterns. While our reserve analyses incorporate methods that adjust for these changes, our estimated reserves have a greater risk of fluctuation.

Standard Market Personal Automobile Line of Business

At December 31, 2024, our personal automobile line of business had recorded reserves, net of reinsurance, of $158 million, representing 3% of our total net reserves. This line experienced unfavorable prior year reserve development of $11.1 million in 2024, primarily due to increased loss severities in accident years 2022 through 2023. This line experienced unfavorable prior year reserve development of $15.3 million in 2023, primarily due to increased loss severities in accident year 2022.

Some of the same issues affecting the commercial automobile line also impact this line. The COVID-19-related frequency reduction was even more pronounced for the personal automobile line. Frequencies rebounded after the pandemic and now are at pre-pandemic levels. In addition to the COVID-19-related temporary impacts, the underlying trends of increased vehicle repair costs are likely causes of rising severities, exacerbated by riskier driving behaviors, including distracted driving. We continue recalibrating our predictive models and refining our underwriting and pricing approaches, including prioritizing additional rate filings by state and further refining our pricing factors. These filed rate increases began to take effect early in 2023 and increased in volume and magnitude throughout 2023 and 2024. We expect them to remain above loss trends in 2025 but lower than the rate increases in 2023 and 2024. While we believe these underwriting and pricing changes will ultimately lead to improved profitability and greater stability, the resulting changes to our exposure profile may impact paid and reported development patterns, increasing reserve uncertainty in the near term.

E&S Casualty Lines of Business

At December 31, 2024, our E&S casualty lines of business had recorded reserves, net of reinsurance, of $617 million, representing 11% of our total net reserves. In 2024, this line experienced unfavorable prior year reserve development of $20.0 million, primarily due to increased loss severities in accident years 2023 and prior. In 2023, this line experienced favorable prior year reserve development of $5.0 million, primarily due to improved loss severities in accident years 2021 and prior.

Some of the risk factors for the general liability line also affect the E&S casualty lines. These include (i) economic inflation, such as materials and labor costs and (ii) social inflationary trends, such as increased attorney involvement, broader liability findings, and more generous settlement awards. In response to these social inflationary trends, we have been embedding higher severity assumptions in our initial loss ratio estimates, which materialized in 2024.

Over the past several years, we have made operational changes to improve E&S casualty claims processes:

•We created a dedicated E&S claims team, bringing greater expertise and consistency to E&S claims handling.

•We created separate specialized claims teams for "litigated," "non-litigated," and "high exposure" claims.

•We implemented legal operational and expense improvement initiatives, including (i) increasing the use of employed staff counsel lawyers to defend covered claims litigation and (ii) consistent with our duty to defend and manage litigation against our policyholders per the terms and conditions of our policies, we enhanced processes for legal budgeting, expense management, and selection and evaluation of outside policyholder defense counsel.

While we believe these claims operational changes are improving our results and customer experience, they have inherent risks. Changes in claims processes may affect paid and reported development patterns. Our reserve analyses incorporate methods that adjust for these changes, but our estimated reserves have a greater risk of fluctuation.

Other impacts that create additional loss and loss expense reserve uncertainty

Claims Initiative Impacts

Our Claims Department continually identifies areas for improvement and efficiency to increase our policyholder value proposition. These improvements may lead to changes in claims practice that affect average case reserve levels and claims settlement rates, which directly impact the data we use to project ultimate loss and loss expense. While these changes may increase uncertainty in our estimates in the short term, we expect refined claims process management to create longer-term benefits.

Our internal reserve analyses incorporate actuarial projection methods that make adjustments for changes in case reserve adequacy and claims settlement rates. These methods adjust our historical loss experience to the current case adequacy or settlement rate level, providing a more consistent basis for projecting future development patterns. Because these projection methods have their own assumptions and judgments, no single method can be considered definitive.

Unanticipated Changes in Economic Inflation

United States ("U.S.") fiscal and monetary policy and global economic conditions bring additional inflationary trend uncertainty. Changes in inflation affect the ultimate settlement costs for many of our lines of business, with the greatest reserve impact on the longer-tailed lines, such as general liability and workers compensation. Uncertainty about future inflation or deflation creates the potential for additional reserve variability in these lines of business.

Sensitivity analysis: Potential impact on reserve estimates due to changes in key assumptions

Our process to establish reserves includes a variety of key assumptions, such as:

•The selection of loss and loss expense development factors;

•The weight applied to each individual actuarial projection method;

•Projected future loss trends; and

•Expected claim frequencies, severities, and ultimate loss and loss expense ratios for the current accident year.

The importance of any single assumption depends on several considerations, such as line of business and accident year. If the actual experience emerges differently than the assumptions underlying the reserve process, possible changes in our reserve estimates could be material to the results of operations in future periods. We conduct sensitivity tests highlighting potential impacts to loss and loss expense reserves for the major casualty lines of business under different scenarios. These tests consider each assumption and line of business individually without considering correlation between lines of business and accident years. The results (i) do not constitute an actuarial range, (ii) show possible impacts from variations in certain key assumptions, and (iii) offer no assurance that future loss and loss expense emergence will be consistent with our current or alternative assumptions.

Changes in internal and external trends and operational changes may manifest as changes in loss and loss expense development patterns. These patterns are a key assumption in the reserving process, as are the current accident year expected loss and loss expense ratios. These ratios are developed through a rigorous process of projecting recent accident years' experience to an ultimate settlement basis. They then are adjusted to the current accident year's pricing and loss cost levels. The impact of underwriting portfolio and claims handling practice changes is also quantified and reflected where appropriate. Nonetheless, the ultimate loss and loss expense ratios may differ from current estimates.

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

There is some overlap between the impacts shown in the tables. For example, increases in the calendar year development would ultimately impact our view of the current accident year's loss and loss expense ratios. However, these tables provide perspective on the sensitivity of each key assumption. While the changes represent outcomes based on reasonably likely changes to our underlying reserving assumptions, they do not represent a range of possible outcomes and our reserves could increase or decrease significantly differently.

Asbestos and Environmental Reserves

Our general liability, businessowners' policies, and homeowners reserves include exposure to asbestos and environmental claims. The emergence of these claims occurs over an extended period and can be unpredictable. The total recorded net loss and loss expense reserves for these claims were $27.4 million as of December 31, 2024, and $19.1 million as of December 31, 2023, with asbestos claims constituting approximately 44% of these reserves in 2024 and 18% in 2023.

Environmental claims have arisen primarily from Standard Commercial Lines policies issued to municipal governments and small non-manufacturing commercial customers for landfill exposures, and Standard Personal Lines homeowners policies related to leaking underground storage tanks. Asbestos claims have arisen primarily from Standard Commercial Lines policies issued to (i) various distributors of asbestos-containing products, such as electrical and plumbing materials and (ii) contractors exposed to or handling asbestos-containing products, such as heating, ventilation, and air conditioning contractors. These claims are handled in a centralized and specialized asbestos and environmental claim unit that establishes case reserves based on each claim's then-known facts and circumstances, which IBNR reserves supplement.

Estimating IBNR reserves for asbestos and environmental claims is difficult because these claims have delayed and inconsistent reporting patterns. Significant uncertainties are associated with estimating critical reserve 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.

Other Latent Exposures

We have other latent and continuous trigger exposures in our ongoing portfolio. Examples include claims for construction defect and abuse or molestation, including in states that have increased and expanded the statute of limitations. We manage our exposure to these liabilities through our underwriting and claims practices, which includes a dedicated claims unit, like we do for asbestos and environmental claims. The impact of social, political, and legal trends on these claims remains highly uncertain, so the development and adequacy of our related loss and loss expense reserves remain highly uncertain. Some of these exposures remain in our ongoing portfolio and are reserved in aggregate, with other exposures within the line of business reserves. We remove other unusual and highly uncertain exposures, like toxic product claims involving diacetyl, lead paint, and silica, from our traditional reserve analysis and undertake a separate review for them.

Investment Valuation and the Allowance for Credit Losses on AFS Fixed Income Securities

Investment Valuation

Accounting guidance defines the fair value of our investment portfolio as the exit price or amount that would be (i) received to sell an asset or (ii) paid to transfer a liability in an orderly transaction between market participants. When determining an exit price, we must rely on observable market data, if available. Most securities in our equity portfolio have readily determinable fair values and are recorded at fair value with changes in unrealized gains or losses recognized through income. Our AFS fixed income securities portfolio is recorded at fair value, and the related unrealized gains or losses are reflected in stockholders' equity, net of tax. For our AFS fixed income securities portfolios, fair value is a key factor in the measurement of (i) losses on securities for which we have the intent to sell and (ii) changes in the allowance for credit losses.

The fair value of approximately 91% of our investments measured at fair value are classified as either Level 1 or Level 2 in the fair value hierarchy and are priced using observable inputs for identical or similar assets. About 9% are classified as either (i) Level 3 and are based on unobservable market inputs because the related securities are not traded on a public market, or (ii) not leveled because the related securities are measured at fair value using net asset value per share (or its practical expedient). For additional information, refer to the following sections within Item 8. "Financial Statements and Supplementary Data." of this Form 10-K: (i) item (d) of Note 2. "Summary of Significant Accounting Policies" for descriptions of the levels within the fair value hierarchy and the valuation techniques used for our Level 3 securities, and (ii) Note 7. "Fair Value Measurements" for quantitative information on the unobservable inputs in our securities measured using Level 3 inputs.

Allowance for Credit Losses on AFS Fixed Income Securities

When fixed income securities are in an unrealized loss position and we do not intend to sell them, we record an allowance for credit losses for the portion of the unrealized loss related to an expected credit loss. We estimate expected credit losses on these securities by performing a risk-adjusted discounted cash flow ("DCF"). The allowance for credit losses is the excess of amortized cost over the greater of (i) our estimate of the present value of expected future cash flows or (ii) fair value. The allowance for credit losses cannot exceed the unrealized loss, and therefore it may fluctuate with changes in the security's fair value. We also consider the need to record losses on securities in an unrealized loss position for which we have the intent to sell. If we determine that we have the intent or likely requirement to sell the security, we write down its amortized cost to its fair value.

We analyze unrealized losses for credit loss in accordance with our existing accounting policy, which includes performing DCF analyses on securities at the lot level and analyzing these DCFs using various economic scenarios. In performing these DCF analyses, we calculate the present value of future cash flows using various models specific to the major security types in our portfolio. These models use security-specific information and forecasted macroeconomic data to determine possible expected credit loss scenarios based on projected economic changes. The forecasted economic data incorporated into the models is based on the Federal Reserve Board’s annual supervisory stress test review on certain large banks and financial institutions.

We also can incorporate internally-developed forecast information into the models as we deem appropriate. In developing our best estimate of the allowance for credit losses, we consider our outlook on the probability of the various scenarios occurring.

Based on these analyses, we recorded an allowance for credit losses on our AFS fixed income securities portfolio of $31.9 million at December 31, 2024, and $28.2 million at December 31, 2023. If the security-specific and macroeconomic assumptions in our DCF analyses or our outlook on the occurrence probability of our DCF model scenarios were to change, our allowance for credit losses and the resulting credit loss expense or benefit will negatively or positively impact our results of operations. Factors considered in determining the allowance for credit losses require significant judgment, including our evaluation of the security's projected cash flow stream.

For additional information regarding our allowance for credit losses on AFS fixed income securities, see item (c) of Note 2. "Summary of Significant Accounting Policies" and item (i) of Note 5. "Investments" within Item 8. "Financial Statements and Supplementary Data." of this Form 10-K, respectively.

Reinsurance

Reinsurance recoverables on paid and unpaid loss and loss expense represent our estimates of the amounts we will recover from reinsurers. Each reinsurance contract is analyzed to ensure sufficient risk is transferred to record the transactions appropriately as reinsurance in the Financial Statements. Amounts recovered from reinsurers are recognized as assets contemporaneously and in a manner consistent with the paid and unpaid losses associated with the underlying policies. An allowance for credit losses on our reinsurance recoverable balance is recorded based on an evaluation of balances due from reinsurers and other available information, including collateral we hold under the terms and conditions of the underlying agreements. Reinsurers often purchase and rely on their retrocessional reinsurance programs to manage their capital position and improve their financial strength ratings. Details about retrocessional reinsurance programs are not always transparent, making it difficult to assess our reinsurers' exposure to counterparty credit risk. Other factors impact our reinsurer's credit quality, such as their reserve adequacy, investment portfolio, regulatory capital position, catastrophe aggregations, and risk management practices. In addition, contractual language interpretations and willingness to pay valid claims can impact our allowance for estimated uncollectible reinsurance. Our allowance for estimated uncollectible reinsurance was $2.0 million at December 31, 2024, and $1.7 million at December 31, 2023. We continually monitor developments that may impact recoverability from our reinsurers, for which we have contractual remedies, if necessary. For further information regarding reinsurance, see the "Reinsurance" section below in "Results of Operations and Related Information by Segment" and Note 9. "Reinsurance" in Item 8. "Financial Statements and Supplementary Data." of this Form 10-K.