New commercial lines business, as well as increases in manufacturing and specialty insurance business, helped Selective Insurance Group’s second quarter earnings, even though it reported that net income dropping 45%, to $15.7 million.

The Branchville, N.J.-based holding company for seven property-casualty insurance companies said its second quarter, ending June 30, showed a net investment income loss, after taxes, of 27% or $21.9 million, compared to the same quarter last year. The insurer blamed alternative investment losses.

Gregory E. Murphy

“We are posting solid results this quarter due to continued strong insurance operations,” said Selective Chairman, President and CEO Gregory E. Murphy, adding that the company posted “solid results” because of “continued strong insurance operations.”

The company works with 940 independent agents in 22 primary eastern and Midwestern states. The company has offices in Florida, Maryland, New Jersey, New York, North Carolina, Pennsylvania and Virginia.

The company’s statutory combined ratio of 98.8% was “the culmination of excellent commercial lines property results and favorable casualty reserve development, Murphy said in a statement.

“Gains in commercial lines new business of 12% are partially the result of our increased underwriting diversification,” Murphy said. “New business in our non-contractor segments has grown, including manufacturing which was up 50% and specialty which was up 40% over the first six months last year.”

Murphy called “most notable” the company’s positive renewal rate movement of 0.6% in commercial lines, which he said beat the company’s expectations.

“This is the first quarterly increase in commercial lines renewal pure pricing since the first quarter of 2005,” he said. “Our commercial lines pricing power is a key driver to overall underwriting improvements in profitability.”

Murphy said the commercial lines marketplace remains “very competitive” and the company is focusing on “the factors we can control.” He said the company is using predictive modeling on all lines of business, leveraging agency relationships, proactively managing expenses, increasing personal lines rates and reducing loss costs in claims.

“As the economy stabilizes, the drag from return audit and endorsement premium will be mitigated,” Murphy predicted. “This, combined with a stronger pricing environment, should contribute to overall premium growth.”

Selective’s alternative investment portfolio incurred losses during the second quarter of about $5.8 million, after tax, compared to a gain of $200,000, after tax, during the same period in 2008.  These results typically lag a quarter behind.

Selective’s investments were down about 6% pre-tax. Officials pointed out that the portfolio “significantly outperformed” the first quarter results of the S&P 500 Index, which declined about 11%.