PAGE 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
=========
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended.................September 30, 1996
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: 0-8641
SELECTIVE INSURANCE GROUP, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2168890
-------------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
40 Wantage Avenue, Branchville, New Jersey 07890
------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
201-948-3000
-------------------------------
(Registrant's telephone number,
including area code)
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 report), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common stock, par value $2 per share, outstanding as of October 31, 1996:
14,627,713
PAGE 2
PART I FINANCIAL INFORMATION
==============================
Item 1. Financial Statements.
- ------------------------------
SELECTIVE INSURANCE GROUP, INC.
-------------------------------
Consolidated Balance Sheets
-------------------------------
(dollars in thousands)
(unaudited)
ASSETS September 30 December 31
- ------ 1996 1995
Investments: ------------ ----------
Debt securities, held-to-maturity -
at amortized cost (fair value of
$448,362-1996; $460,444-1995)......... $ 437,423 439,585
Debt securities, available-for-sale -
at fair value (amortized cost of
$926,351-1996; $902,375-1995)......... 936,816 949,004
Equity securities, available-for-sale -
at fair value (cost of
$97,197-1996; $76,858-1995)........... 152,561 117,522
Short-term investments
(at cost which approximates fair value) 50,070 47,306
Other investments (at cost which approximates
fair value)........................... 10,596 10,721
--------- ---------
Total investments ...................... 1,587,466 1,564,138
Interest and dividends due or accrued ..... 22,950 23,619
Premiums and other receivables............. 176,629 165,194
Reinsurance recoverable on paid losses
and loss expenses..................... 9,191 5,169
Reinsurance recoverable on unpaid losses and
loss expenses......................... 130,024 121,369
Prepaid reinsurance premiums............... 31,078 39,952
Deferred Federal income tax................ 39,349 32,202
Real estate, furniture and equipment....... 48,632 49,373
Deferred policy acquisition costs.......... 88,500 82,200
Excess of cost over fair value of net
assets acquired....................... 10,011 10,362
Other assets............................... 21,639 19,499
--------- ---------
Total assets............................ $ 2,165,469 2,113,077
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- -----------
Reserve for losses......................... $ 994,987 953,251
Reserve for loss expenses.................. 174,030 166,801
Unearned premiums.......................... 355,125 343,887
Convertible subordinated debentures........ 6,912 7,292
Notes payable.............................. 104,000 104,000
Current Federal income tax................. 2,204 1,993
Other liabilities ......................... 76,231 99,104
--------- ---------
Total liabilities....................... 1,713,489 1,676,328
--------- ---------
See accompanying notes to unaudited consolidated financial statements.
PAGE 3
Stockholders' Equity:
- --------------------
Common stock of $2 par value per share:
Authorized shares-90,000,000
Issued: 17,879,448-1996; 17,647,178-1995 . 35,759 35,294
Additional paid-in capital................. 52,485 46,071
Net unrealized gains on available-for-sale
securities, net of deferred income
tax effect............................ 42,790 56,740
Retained earnings.......................... 371,816 347,318
Treasury stock - at cost
(shares: 3,251,995-1996; 3,247,189-1995) (46,590) (46,429)
Notes receivable from stock sales and deferred
compensation expense.................. (4,280) (2,245)
--------- ---------
Total stockholders' equity ............. 451,980 436,749
--------- ---------
Total liabilities and stockholders' equity $ 2,165,469 2,113,077
========= =========
See accompanying notes to unaudited consolidated financial statements.
PAGE 4
SELECTIVE INSURANCE GROUP, INC.
================================
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Quarter ended Nine months ended
September 30 September 30
1996 1995 1996 1995
------ ------ ------ ------
Revenues:
- --------
Net premiums written........... $ 196,765 215,178 544,979 600,171
Net increase in unearned
premiums and prepaid
reinsurance premiums ..... (24,659) (23,250) (20,112) (43,710)
------- ------- ------- -------
Net premiums earned ........... 172,106 191,928 524,867 556,461
Net investment income earned... 23,908 22,866 71,702 67,054
Net realized gains (losses) on
investments............... (35) 216 1,328 (184)
Other income................... 756 983 2,281 2,715
------- ------- ------- -------
Total revenues.............. 196,735 215,993 600,178 626,046
------- ------- ------- -------
Expenses:
- --------
Losses incurred ............... 104,445 118,428 325,240 337,106
Loss expenses incurred......... 18,418 19,375 57,262 60,361
Policy acquisition costs....... 53,896 56,014 159,115 165,146
Dividends to policyholders..... 1,164 1,699 3,909 5,332
Interest expense............... 2,299 2,323 6,945 6,972
Other expenses................. 1,641 1,281 3,447 4,126
------- ------- ------- -------
Total expenses.............. 181,863 199,120 555,918 579,043
------- ------- ------- -------
Income before Federal income tax 14,872 16,873 44,260 47,003
------- ------- ------- -------
Federal income tax expense (benefit):
Current........................ 2,547 4,408 7,183 11,740
Deferred....................... 73 (1,209) 365 (3,561)
------- ------- ------- -------
Total Federal income tax
expense................... 2,620 3,199 7,548 8,179
------- ------- ------- -------
Net income..................... $ 12,252 13,674 36,712 38,824
======= ======= ======= =======
Earnings per share:
- ------------------
Net income-primary.......... $ .84 .96 2.53 2.72
Net income-fully diluted ... $ .82 .93 2.46 2.65
Dividends to stockholders...... $ .28 .28 .84 .84
See accompanying notes to unaudited consolidated financial statements.
PAGE 5
SELECTIVE INSURANCE GROUP, INC.
==============================
Consolidated Statements of Cash Flows
-------------------------------------
(unaudited)
Nine months ended September 30
(in thousands)
1996 1995
---- ----
Operating Activities
- --------------------
Net Income....................................$ 36,712 38,824
------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in reserves for losses and
loss expenses............................ 48,965 92,975
Increase in unearned premiums................. 11,238 49,894
Increase (decrease) in Federal income taxes... 576 (6,982)
Depreciation and amortization................. 3,680 4,133
Increase in premiums and other receivables.... (11,435) (38,516)
Increase in deferred policy acquisition costs. (6,300) (10,400)
Decrease (increase)in interest and dividends
due or accrued........................... 669 (1,251)
Increase in reinsurance recoverable on paid
losses and loss expenses................. (4,022) (1,978)
Increase in reinsurance recoverable on unpaid
losses and loss expenses................. (8,655) (7,225)
Decrease (increase)in prepaid reinsurance
premiums................................. 8,874 (6,184)
Net realized losses (gains) on investments.... (1,328) 184
Other - net................................... (24,228) 8,230
------- -------
Net adjustments............................... 18,034 82,880
------- -------
Net cash provided by operating activities..... 54,746 121,704
------- -------
Investing Activities
- --------------------
Purchase of debt securities, held-to-maturity. (56,968) (119,182)
Purchase of debt securities,
available-for-sale....................... (65,722) (80,111)
Purchase of equity securities,
available-for-sale....................... (24,295) (14,604)
Sale of debt securities, held-to-maturity..... - 2,000
Sale of debt securities, available-for-sale... 13,217 23,808
Redemption and maturities of debt securities,
held-to-maturity......................... 59,057 35,687
Redemption and maturities of debt securities,
available-for-sale....................... 29,264 16,822
Sale of equity securities, available-for-sale. 5,017 11,879
Proceeds of other investments................. 79 49
Increase in net payable from security
transactions not settled................. 49 14,345
Net additions to real estate, furniture and
equipment................................ (2,915) (2,335)
------- --------
Net cash used in investing activities......... (43,217) (111,642)
------- --------
See accompanying notes to unaudited consolidated financial statements.
PAGE 6
SELECTIVE INSURANCE GROUP, INC.
================================================
Consolidated Statements of Cash Flows, continued
------------------------------------------------
(unaudited)
Nine months ended September 30
(in thousands) 1996 1995
---- ----
Financing Activities
- --------------------
Dividends to stockholders..................... $ (12,214) (11,973)
Acquisition of treasury stock................. (161) (287)
Net proceeds from dividend reinvestment plan.. 901 876
Net proceeds from employee, agent and director
stock plans.............................. 5,598 3,840
Proceeds from notes receivable from stock sale
and additions to deferred compensation
expense.................................. (2,889) (665)
------ ------
Net cash used in financing activities......... (8,765) (8,209)
------ ------
Net increase in short-term investments........ 2,764 1,853
Short-term investments at beginning of year... 47,306 30,631
------ ------
Short-term investments at end of period....... $ 50,070 32,484
====== ======
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the period for:
Interest...................................... $ 7,333 7,196
Federal income tax ........................... 6,971 15,170
Supplemental schedule of non-cash financing activity:
Conversion of convertible subordinated
debentures............................... 380 86
See accompanying notes to unaudited consolidated financial statements.
PAGE 7
Notes to Consolidated Financial Statements
- ------------------------------------------
1. Basis of Presentation
---------------------
The interim financial statements are unaudited but reflect all adjustments
which, in the opinion of management, are necessary to provide a fair
statement of the results of Selective Insurance Group, Inc. and its
consolidated subsidiaries (collectively, the "Company") for the interim
periods presented. All such adjustments are of a normal recurring nature.
References herein to "Selective" are to the Parent Company, Selective
Insurance Group, Inc. The results of operations for any interim period are
not necessarily indicative of results for the full year. These financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
2. Reinsurance
-----------
The following is a table of assumed and ceded amounts by income statement
caption:
- -----------------------------------------------------------------------------
Quarter ended Nine months ended
September 30 September 30
------------- -----------------
(in thousands) 1996 1995 1996 1995
- -----------------------------------------------------------------------------
Net premiums written:
Assumed $ 7,559 19,719 22,206 32,725
Ceded (1) (17,356) (32,865) (64,809) (79,137)
Net premiums earned:
Assumed $ 7,292 19,041 23,927 40,394
Ceded (23,248) (24,079) (73,683) (72,953)
Losses incurred:
Assumed $ 8,361 13,043 15,837 31,626
Ceded (2) (17,016) (18,501) (58,181) (40,785)
Loss expenses incurred:
Assumed $ 589 559 1,628 1,650
Ceded (742) (503) (2,864) (1,557)
- -----------------------------------------------------------------------------
(1) The significant decrease in ceded premiums written reflected
the revision of certain reinsurance agreements, effective
July 1, 1996, which resulted in retention of a greater
portion of business written directly.
(2) The significant increase in ceded losses incurred for the
nine months ended September 30, 1996 reflected flood and
weather-related storm claims which generated reinsurance
loss recoveries of $17.9 million and $5.9 million, respectively.
The flood business is ceded 100% to the National Flood Insurance
Program and, therefore, the Company is a servicer and not an
underwriter of this type of insurance and bears no risk of
policyholder loss.
PAGE 8
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
The following discussion relates to the Company's results of operations,
financial condition and liquidity for the interim periods indicated.
Results of Operations
- ---------------------
Comparison of Third Quarter and Nine Months Ended September 30, 1996 to
- -----------------------------------------------------------------------
Third Quarter and Nine Months Ended September 30, 1995
- ------------------------------------------------------
Revenues
- --------
Net premiums written for the quarter and nine months ended September 30, 1996
decreased by 8.6%, or $18.4 million, and 9.2%, or $55.2 million,
respectively, compared to the same periods in 1995. Most of the premium
decline occurred in the Strategic Business Units ("SBUs") writing commercial
lines insurance, where net premiums written decreased by 11.3%, or $18.2
million, for the quarter, and 12.3%, or $53.5 million, for the nine months
ended September 30, 1996. The decrease in net premiums written for the
quarter and nine months ended September 30, 1996, translated into an overall
decrease in total net premiums earned of 10.3%, or $19.8 million, for the
quarter, and 5.7%, or $31.6 million, for the nine months ended September 30,
1996, compared to the same periods in 1995.
The personal lines SBU net premiums written reflected a slight decrease for
the quarter and nine months ended September 30, 1996, compared to the same
periods in 1995. Additional premiums generated from rate increases in New
Jersey personal automobile ($1.3 million for the quarter and $4.4 million for
the nine months ended September 30, 1996) were offset by a 3% reduction in
the number of policies in-force in the personal automobile line of insurance
for the nine months ended September 30, 1996.
Most commercial lines SBUs experienced a decline in net premiums written for
the quarter and nine months ended September 30, 1996, compared to the same
periods in 1995, primarily attributable to: (i) higher premiums recorded in
the corresponding 1995 periods due to the reduction in premium processing
backlog of approximately $6 million and $24 million, respectively; (ii) a
reduction in premium volume due to agency terminations of approximately $8
million and $19 million, respectively; (iii) a reduction in retention
business (renewals) attributable to a highly competitive commercial lines
marketplace as well as the Company's re-underwriting (re-evaluating) of
certain business classes, and/or risks, resulting in non-renewals; and (iv)
recent rate decreases, mainly in the workers' compensation line of insurance.
In addition, both commercial and personal lines SBUs net premiums written
were reduced by higher ceded premiums recorded for the New Jersey Unsatisfied
Claim and Judgment Fund for the quarter and nine months ended September 30,
1996 of $1.3 million and $3.3 million, respectively, over the same periods in
1995.
PAGE 9
The reduction in net premiums written in the commercial lines SBUs for the
quarter and nine months ended September 30, 1996, was partially offset by new
business issued and the Company's revision of certain reinsurance agreements.
During the third quarter of 1996, the Company realized a one-time increase in
net premiums written of approximately $8 million reflecting the Company's
buyout of certain ceded reinsurance unearned premium reserves at June 30,
1996. See Item 2. "Reinsurance."
The property and casualty industry is presently very competitive for
commercial lines business. In these current conditions, the Company's
position is to maintain its pricing discipline and commitment to long-term
profitability by rejecting underpriced risks without regard to premium volume
considerations. In addition, rate reductions have occurred in the workers'
compensation line of insurance principally due to state bureau or loss costs
filings that have indicated improving loss trends. The improvement in the
loss trends, for the most part, reflects: (i) legislative reforms; (ii)
introduction of managed care; as well as (iii) active return to work
programs. In total, the Company expects its annual workers' compensation
premiums, as a result of various rate reductions, to decline by approximately
$8 million. Mainly due to the competitive environment, other commercial
lines of insurance have experienced some modest reductions in premium pricing
that the Company expects to approximate $3 million on an annualized basis.
In addition to price competition, alternative self-insurance mechanisms have
become more prevalent which reduces the demand for traditional insurance, but
creates the opportunity to service self-insured entities. In 1993, the
Company organized Selective Technical Administrative Resources, Inc.
("SelecTech") to provide third-party administrative services for public
entities that self-insure. These services include claims administration,
loss control and risk management. In its third year of operation, SelecTech
continues to expand its operations in the self-insurance market in an effort
to attract customers that choose alternative methods of insurance.
Net investment income earned for the quarter and nine months ended September
30, 1996 increased 4.6%, or $1.0 million, and 6.9%, or $4.6 million,
respectively, over the same periods in 1995. The increases were due to the
income generated from investments acquired from cash provided by operating
activities during 1995 and 1996. The growth in investment income was
partially offset by redemptions and maturities during 1995 of higher yielding
debt securities reinvested at lower fixed income yields currently available
in the marketplace coupled with lower levels of cash provided by operating
activities. These factors, when combined with the increase in fair value of
both the available-for-sale debt and equity securities recognized during
1995, reduced the Company's overall annualized investment yield for the nine
month period to 6.1% for 1996, down from 6.4% for the same period one year
ago.
PAGE 10
Expenses
- --------
The ratio of losses and loss expenses incurred to net premiums earned for the
quarter ended September 30, 1996 was 71.4%, a decrease from 71.8% for the
same period in 1995. During the quarter ended September 30, 1996, the
Company incurred $6.4 million (net of 0.9 million of reinsurance) as a result
of weather-related claims, which increased the loss and loss expense ratio by
3.7 points. Absent these weather-related claims, the loss and loss expense
ratio improved by 4.1 points, which was reflected in the results of the
personal lines, habitational and recreational, mercantile and service as well
as public entities SBUs. In the habitational and recreational SBU, the
Company has been successfully re-underwriting (re-evaluating) certain
business classes and/or risks. In addition, as noted earlier, the improving
loss trend in the workers' compensation line of insurance has favorably
impacted most of the commercial lines SBUs. The personal lines SBU, for the
most part, reflected favorable experience in the automobile line of insurance
due to continued rate increases.
The ratio of losses and loss expenses incurred to net premiums earned for the
nine months ended September 30, 1996 was 72.9%, a decrease from 71.4% for the
same period in 1995. During the nine months ended September 30, 1996, the
Company incurred $17.0 million (net of 6.0 million of reinsurance) as a
result of weather-related claims, which increased the loss and loss expense
ratio by 3.2 points. Absent these weather-related claims, the loss and loss
expense ratio improved by 1.7 points. This reflected favorable loss
experience in the workers' compensation line of insurance that affected most
of our commercial lines SBUs that write this line of insurance. In addition,
improvements in the general liability line of insurance due in part to rate
increases obtained during 1995, have impacted the contractor, public entities
as well as habitational and recreational SBUs. In addition, the personal
lines SBU results for the nine months ended September 30, 1996, compared to
the same period in 1995, improved primarily due to better experience in the
homeowners line of insurance due to rate increases and lower reinsurance
costs.
The ratio of policy acquisition costs to net premiums earned for the quarter
ended September 30, 1996 was 31.3%, as compared to 29.2%, for the same period
in 1995, and for the nine months ended September 30, 1996 was 30.3%, as
compared to 29.7%, for the same period in 1995. The ratio reflected an
increase in the relationship of labor costs and other operating expenses
expressed as a percentage of net premiums earned, partially offset by the
reduction in the New Jersey Fair Automobile Insurance Reform Act ("FAIRA")
assessment. While the total dollar amount of labor costs and other operating
costs remained relatively stable, the lower levels of premiums earned
impacted this ratio.
PAGE 11
Income
- ------
The table below shows operating income, net realized gains (losses), and net
income, including per share amounts for the quarter and nine months ended
September 30, 1996.
- -----------------------------------------------------------------------------
Quarter ended Nine months ended
($ in thousands, September 30 September 30
except for per share data) 1996 1995 1996 1995
- -----------------------------------------------------------------------------
Operating income, excluding
net realized gains
(net of tax) (1) $ 12,275 13,534 35,849 38,944
Net realized gain (loss),
net of tax (23) 140 863 (120)
Net income (1) 12,252 13,674 36,712 38,824
Per primary share:
Operating income (1) .84 .95 2.47 2.73
Net realized gain (loss) - .01 .06 (.01)
Net income (1) .84 .96 2.53 2.72
- ----------------------------------------------------------------------------
(1) Operating and net income for the quarter and nine months ended
September 30, 1996, include weather-related storm losses
of $4.2 million, or $.28 per primary share, and $11.1 million,
or $.76 per primary share, respectively.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
Selective is an insurance holding company whose principal assets are its
investments in its insurance subsidiaries. As an insurance holding company,
Selective meets its cash requirements through proceeds from the sale of
Selective's common stock and dividends from its insurance subsidiaries, the
payments of which are governed by state regulatory requirements.
Total assets increased 2.5%, or $52.4 million from December 31, 1995 to
September 30, 1996. The growth in assets was primarily due to: (i) an
increase in total investments of $23.3 million, which included cash provided
by operating activities of $54.7 million partially offset by a decrease in
net unrealized gains of $21.5 million on available-for-sale securities; (ii)
an increase in premiums and other receivables of $11.4 million; (iii) an
increase in reinsurance recoverable on unpaid losses and loss expenses of
$8.7 million and an increase of $4.0 million in reinsurance recoverable on
paid losses and loss expenses due, in part, to flood claims as well as
weather-related storms during the nine months ended September 30, 1996; and
(iv) an increase in deferred Federal income taxes of $7.1 million mainly due
to deferred tax benefits related to the decrease in unrealized gains
recognized on the available-for-sale securities.
PAGE 12
The rise in total liabilities of 2.2%, or $37.2 million, from December 31,
1995 to September 30, 1996 was mainly composed of increases in reserves for
losses and loss expenses of $49.0 million and growth in unearned premiums of
$11.2 million. These increases were partially offset by a $22.9 million
decrease in other liabilities, which mainly reflected the payment of the 1996
FAIRA assessment and 1995 profit sharing incentives.
The overall obligations and cash outflow of the Company include: claim
settlements; commissions; labor costs; premium taxes; general and
administrative expenses; investment purchases; interest expenses; capital
expenditures with respect to the Company's automation program; principal
payments on the senior notes; and dividends to policyholders and Selective's
stockholders. The insurance subsidiaries satisfy their obligations and cash
outflow through premium collections, interest and dividend income and debt
securities maturities. The Company has authorized a share repurchase program
under which Selective may repurchase up to one million shares of its common
stock, depending on market conditions, through available cash and a $10
million line of credit. For the nine months ended September 30, 1996 and
1995, cash provided by operating activities amounted to $54.7 million and
$121.7 million, respectively. The decrease in cash provided by operating
activities for the first nine months of 1996 was in part due to: (i)
increased loss and loss expenses paid of approximately $32 million, which
includes $12.4 million due to the weather-related storm claims; (ii) an
increase in the 1996 UCJF assessment payment of approximately $5 million;
(iii) an increase in 1995 incentives and profit sharing amounts totaling
approximately $4 million paid during the nine months ended September 30,
1996; and (iv) lower levels of premiums. The Company expects to continue to
generate cash from operations over the balance of the year.
Reinsurance
- -----------
Effective July 1, 1996, the Company revised certain reinsurance agreements
from a surplus share and facultative arrangement to a treaty excess of loss
arrangement. Under the new arrangement, property lines are reinsured for
each occurrence in excess of $0.4 million up to $10.0 million. In certain
instances where greater capacity is needed for larger property risks,
facultative reinsurance will be purchased. There was no change to the
current property catastrophe reinsurance agreement. Casualty lines are
reinsured for each occurrence in excess of $1.0 million up to $50.0 million
except commercial umbrella which is reinsured for each occurrence up to $10.0
million. Facultative reinsurance is purchased for any casualty risks
requiring greater capacity.
The revised reinsurance agreements will result in the Company retaining
approximately $15 million of additional annual net premiums written and the
related loss exposure. During the third quarter of 1996, the Company
realized a one-time increase in net premiums written of approximately $8
million which is represented by the Company's buyout of the June 30, 1996
surplus reinsurance unearned premium reserve.
PAGE 13
Part II OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Exhibits
Exhibit
Number
- -------
10.1 Cover Page
Amendment No. 2, dated as of September 1, 1996, between
Selective and Dominic J. Addesso
10.2 Cover Page
Amendment No. 2, dated as of September 1, 1996, between
Selective and James W. Entringer
10.3 Cover Page
Amendment No. 2, dated as of September 1, 1996, between
Selective and Thornton R. Land
11 Statement Re Computation of Per Share Earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
PAGE 14
SIGNATURES
----------
Pursuant to the requirements 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.
------------------------------
Registrant
Date: November 13, 1996
/s/James W. Entringer
-------------------
James W. Entringer
President, Chairman and Chief
Executive Officer
Date: November 13, 1996
/s/Gregory E. Murphy
-----------------
Gregory E. Murphy
Senior Vice President and
Chief Financial Officer
PAGE 15
SELECTIVE INSURANCE GROUP, INC.
------------------------------
INDEX TO EXHIBITS
-----------------
Form
10-Q
Exhibit No. Page
- ---------- ----
10.1 Cover Page 16
Amendment No. 2, dated as of September 1, 1996, between 17
Selective Insurance Company of America and
Dominic J. Addesso.
10.2 Cover Page 18
Amendment No. 2, dated as of September 1, 1996, between 19
Selective Insurance Company of America and
James W. Entringer.
10.3 Cover Page 20
Amendment No. 2, dated as of September 1, 1996, between 21
Selective Insurance Company of America and
Thornton R. Land.
11 Statement Re Computation of Per Share Earnings. 22
27 Financial Data Schedule 23
PAGE 16
EXHIBIT 10.1 - COVER LETTER
- ---------------------------
November 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Selective Insurance Group, Inc. Form 10Q for the period ending
September 30, 1996
Ladies and Gentlemen:
Accompanying this letter for filing pursuant to the Securities Act of 1933, are
amendments to employment agreements for Dominic J. Addesso, James W. Entringer,
and Thornton R. Land. The agreements were initially filed as exhibits with the
Form 10K for the period ending December 31, 1993.
Very truly yours,
/s/ Marie A. Yorke
Marie A. Yorke
Administrative Assistant
/MAY
Enclosures
PAGE 17
EXHIBIT 10.1
- ------------
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
---------------------------------------
AMENDMENT NO. 2, dated as of June 6, 1996 among SELECTIVE INSURANCE GROUP, INC.,
a New Jersey corporation ("Selective"), having an office at Wantage Avenue,
Branchville, New Jersey 07826, SELECTIVE INSURANCE COMPANY OF AMERICA, a New
Jersey corporation ("SICA"), having an office at Wantage Avenue, Branchville,
New Jersey 07826, and DOMINIC J. ADDESSO having an address at 43 Newton Avenue,
Branchville, New Jersey 07826 (the "Executive"), to Employment Agreement dated
as of September 1, 1993 among Selective, SICA and the Executive as heretofore
amended by Amendment No. 1 thereto dated as of January 31, 1994 (as so amended,
the "Employment Agreement").
WHEREAS, Selective, SICA and the Executive have executed and delivered the
Employment Agreement and Selective has guaranteed all of the obligations of SICA
as the Employer under the Employment Agreement; and
WHEREAS, the parties hereto desire to further amend the Employment Agreement to
extend the term thereof and to modify the Salary (as defined in Section 3 of the
Employment Agreement) provided for therein.
THEREFORE, in consideration of the premises and the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. The term of employment under the Employment Agreement is hereby extended for
a period of three (3) years commencing September 1, 1996 (the "Renewal Term"),
and all references in the Agreement to the term thereof or the Executive's term
of employment thereunder shall include the Renewal Term.
2. The Salary, as defined and provided for in Section 3 of the Employment
Agreement, shall be paid to the Executive at a rate of not less than Two Hundred
Four Thousand Dollars and Sixteen Cents ($204,000.16) per year during the
Renewal Term.
3. Selective reaffirms that it guarantees to the Executive the full performance
by SICA of all of its obligations under the Employment Agreement as amended
herein.
4. Except as amended herein, the Employment Agreement shall continue in full
force and effect on and after the date hereof.
IN WITNESS WHEREOF, this Amendment has been duly executed by the Executive and
on behalf of Selective and SICA by their duly authorized officers, as of the
date and year first above written.
SELECTIVE INSURANCE GROUP, INC.
/s/ James W. Entringer
- ---------------------------
Name: James W. Entringer
Title:Chairman of the Board,
President, and Chief
Executive Officer
SELECTIVE INSURANCE COMPANY
OF AMERICA
/s/ James W. Entringer
- ------------------------
Name: James W. Entringer
Title:Chairman of the Board,
President, and Chief
Executive Officer
/S/ Dominic J. Addesso
- -------------------------
Executive
PAGE 18
EXHIBIT 10.2 - COVER LETTER
- ---------------------------
November 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Selective Insurance Group, Inc. Form 10Q for the period ending
September 30, 1996
Ladies and Gentlemen:
Accompanying this letter for filing pursuant to the Securities Act of 1933, are
amendments to employment agreements for Dominic J. Addesso, James W. Entringer,
and Thornton R. Land. The agreements were initially filed as exhibits with the
Form 10K for the period ending December 31, 1993.
Very truly yours,
/s/ Marie A. Yorke
Marie A. Yorke
Administrative Assistant
/MAY
Enclosures
PAGE 19
EXHIBIT 10.2
- ------------
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
---------------------------------------
AMENDMENT NO. 2, dated as of June 6, 1996 among SELECTIVE INSURANCE GROUP, INC.,
a New Jersey corporation ("Selective"), having an office at Wantage Avenue,
Branchville, New Jersey 07826, SELECTIVE INSURANCE COMPANY OF AMERICA, a New
Jersey corporation ("SICA"), having an office at Wantage Avenue, Branchville,
New Jersey 07826, and JAMES W. ENTRINGER having an address at P.O. Box 2812,
Branchville, New Jersey 07826 (the "Executive"), to Employment Agreement dated
as of September 1, 1993 among Selective, SICA and the Executive as heretofore
amended by Amendment No. 1 thereto dated as of January 31, 1994 (as so amended,
the "Employment Agreement").
WHEREAS, Selective, SICA and the Executive have executed and delivered the
Employment Agreement and Selective has guaranteed all of the obligations of SICA
as the Employer under the Employment Agreement; and
WHEREAS, the parties hereto desire to further amend the Employment Agreement to
extend the term thereof and to modify the Salary (as defined in Section 3 of the
Employment Agreement) provided for therein.
THEREFORE, in consideration of the premises and the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. The term of employment under the Employment Agreement is hereby extended for
a period of three (3) years commencing September 1, 1996 (the "Renewal Term"),
and all references in the Agreement to the term thereof or the Executive's term
of employment thereunder shall include the Renewal Term.
2. The Salary, as defined and provided for in Section 3 of the Employment
Agreement, shall be paid to the Executive at a rate of not less than Four
Hundred Thirty Thousand Dollars and Twenty-Two Cents ($430,000.22) per year
during the Renewal Term.
3. Selective reaffirms that it guarantees to the Executive the full performance
by SICA of all of its obligations under the Employment Agreement as amended
herein.
4. Except as amended herein, the Employment Agreement shall continue in full
force and effect on and after the date hereof.
IN WITNESS WHEREOF, this Amendment has been duly executed by the Executive and
on behalf of Selective and SICA by their duly authorized officers, as of the
date and year first above written.
SELECTIVE INSURANCE GROUP, INC.
/s/ Thornton R. Land
- ---------------------------
Name: Thornton R. Land
Title: Executive Vice President,
Administration and
General Council
SELECTIVE INSURANCE COMPANY
OF AMERICA
/s/ Thornton R. Land
- ---------------------------
Name: Thornton R. Land
Title:Executive Vice President,
Administration and
General Council
/s/ James W. Entringer
- --------------------------
Executive
PAGE 20
EXHIBIT 10.3 - COVER LETTER
- ---------------------------
November 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Selective Insurance Group, Inc. Form 10Q for the period ending
September 30, 1996
Ladies and Gentlemen:
Accompanying this letter for filing pursuant to the Securities Act of 1933, are
amendments to employment agreements for Dominic J. Addesso, James W. Entringer,
and Thornton R. Land. The agreements were initially filed as exhibits with the
Form 10K for the period ending December 31, 1993.
Very truly yours,
/s/ Marie A. Yorke
Marie A. Yorke
Administrative Assistant
/MAY
Enclosures
PAGE 21
EXHIBIT 10.3
- ------------
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
---------------------------------------
AMENDMENT NO. 2, dated as of June 6, 1996 among SELECTIVE INSURANCE GROUP, INC.,
a New Jersey corporation ("Selective"), having an office at Wantage Avenue,
Branchville, New Jersey 07826, SELECTIVE INSURANCE COMPANY OF AMERICA, a New
Jersey corporation ("SICA"), having an office at Wantage Avenue, Branchville,
New Jersey 07826, and THORNTON R. LAND, having an address at 78 Onderdonk Road,
Warwick, New York 10990 (the "Executive"), to Employment Agreement dated as of
September 1, 1993 among Selective, SICA and the Executive as heretofore amended
by Amendment No. 1 thereto dated as of January 31, 1994 (as so amended, the
"Employment Agreement").
WHEREAS, Selective, SICA and the Executive have executed and delivered the
Employment Agreement and Selective has guaranteed all of the obligations of SICA
as the Employer under the Employment Agreement; and
WHEREAS, the parties hereto desire to further amend the Employment Agreement to
extend the term thereof and to modify the Salary (as defined in Section 3 of the
Employment Agreement) provided for therein.
THEREFORE, in consideration of the premises and the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. The term of employment under the Employment Agreement is hereby extended for
a period of three (3) years commencing September 1, 1996 (the "Renewal Term"),
and all references in the Agreement to the term thereof or the Executive's term
of employment thereunder shall include the Renewal Term.
2. The Salary, as defined and provided for in Section 3 of the Employment
Agreement, shall be paid to the Executive at a rate of not less than One Hundred
Ninety Five Thousand Dollars ($195,000.00) per year during the Renewal Term.
3. Selective reaffirms that it guarantees to the Executive the full performance
by SICA of all of its obligations under the Employment Agreement as amended
herein.
4. Except as amended herein, the Employment Agreement shall continue in full
force and effect on and after the date hereof.
IN WITNESS WHEREOF, this Amendment has been duly executed by the Executive and
on behalf of Selective and SICA by their duly authorized officers, as of the
date and year first above written.
SELECTIVE INSURANCE GROUP, INC.
/S/ James w. Entringer
- ---------------------------
Name: James W. Entringer
Title:Chairman of the Board,
President, and Chief
Executive Officer
SELECTIVE INSURANCE COMPANY OF
AMERICA
/S/ James W. Entringer
- ---------------------------
Name: James W. Entringer
Title:Chairman of the Board,
President, and Chief
Executive Officer
/S/ Thornton R. Land
- ---------------------------
Executive
PAGE 22
EXHIBIT 11
- ----------
SELECTIVE INSURANCE GROUP, INC.
------------------------------
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
----------------------------------------------
- ----------------------------------------------------------------------------
Quarter ended Nine months ended
September 30 September 30
($ in thousands,
except per share data) 1996 1995 1996 1995
- -----------------------------------------------------------------------------
Primary earnings per share:
Net income ............... $ 12,252 13,674 36,712 38,824
Weighted average number of
shares of common stock
outstanding ............ 14,610,404 14,315,566 14,534,563 14,259,269
Net income per share of
common stock ........... $ .84 .96 2.53 2.72
Fully diluted earnings
per share:
Income applicable to common
stock on a fully diluted basis:
Net income ............... $ 12,252 13,674 36,712 38,824
Interest on convertible
debentures ............. 135 159 453 480
Amortization of other
debt expenses .......... 2 2 6 6
Tax effect on interest and
debt expenses .......... (48) (57) (161) (170)
---------- ---------- ---------- ----------
$ 12,341 13,778 37,010 39,140
========== ========== ========== ==========
Weighted average number of shares
outstanding on a fully diluted basis:
Weighted average number of
common shares outstanding 14,610,404 14,315,566 14,534,563 14,259,269
Additional shares assuming
conversion of debentures. 489,207 517,345 505,676 518,312
---------- ---------- ---------- ----------
15,099,611 14,832,911 15,040,239 14,777,581
========== ========== ========== ==========
Fully diluted income per
share of common stock $ .82 .93 2.46 2.65
========== ========== ========== ==========
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1996 10Q and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000230557
<NAME> SELECTIVE INS. GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 936,816
<DEBT-CARRYING-VALUE> 437,423
<DEBT-MARKET-VALUE> 448,362
<EQUITIES> 152,561
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,587,466
<CASH> 50,070
<RECOVER-REINSURE> 9,191
<DEFERRED-ACQUISITION> 88,500
<TOTAL-ASSETS> 2,165,469
<POLICY-LOSSES> 1,169,017<F1>
<UNEARNED-PREMIUMS> 355,125
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 110,912<F2>
0
0
<COMMON> 35,759
<OTHER-SE> 416,221
<TOTAL-LIABILITY-AND-EQUITY> 2,165,469
524,867
<INVESTMENT-INCOME> 71,702
<INVESTMENT-GAINS> 1,328
<OTHER-INCOME> 2,281
<BENEFITS> 382,502<F3>
<UNDERWRITING-AMORTIZATION> 159,115
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 44,260
<INCOME-TAX> 7,548
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,712
<EPS-PRIMARY> 2.53
<EPS-DILUTED> 2.46
<RESERVE-OPEN> 1,120,052<F4>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 1,169,017<F5>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Equals the sum of Reserve for losses and the Reserve for loss expenses.
<F2>Equals the sum of Notes payable and Convertible subordinated debentures.
<F3>Equals the sum of Losses incurred and Loss expenses incurred.
<F4>Equals the sum of Reserve for losses and Reserve for loss expenses at the
beginning of the year.
<F5>Equals the sum of Reserve for losses and Reserve for loss expenses at the
end of the period.
</FN>
</TABLE>
