========================
SCHEDULE 14A INFORMATION
========================
(Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934)
(Amendment No. )
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ x ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or
sec.240.14a-12
- - ---------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Selective Insurance Group, Inc.
======================================================================
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ x ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-
6(i)(2) or Item 22(a)(2) of Schedule A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________
3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
_____________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________
5) Total fee paid:
_____________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________
3) Filing Party:
___________________________________________________________
4) Date Filed:
___________________________________________________________
<PAGE>
SELECTIVE INSURANCE GROUP, INC.
[ L O G O ] 40 Wantage Avenue
Branchville, New Jersey 07890
973-948-3000
http://www.selectiveinsurance.com
James W. Entringer
Chairman, and
Chief Executive Officer
March 30, 1998
Dear Stockholder of Selective Insurance Group, Inc.:
It is a pleasure to invite you to your Company's 1998 Annual Meeting of
Stockholders to be held on Friday, May 1, 1998, at 11:00 a.m. in the
auditorium at the headquarters of the Company at 40 Wantage Avenue,
Branchville, New Jersey. The Annual Report, as well as formal Notice of the
Annual Meeting, together with the Proxy Statement and proxy, are enclosed
with this letter.
Whether you own a few or many shares of stock and whether you plan to attend
the meeting in person, it is important that your shares be represented and
voted. Please complete, date, sign, and return the enclosed proxy as soon as
possible.
Your continued support is appreciated. We look forward to seeing you at the
meeting.
Warmest regards,
/s/James W. Entringer
- - ---------------------
James W. Entringer
<PAGE>
SELECTIVE INSURANCE GROUP, INC.
[ L O G O ] 40 Wantage Avenue
Branchville, New Jersey 07890
973-948-3000
http://www.selectiveinsurance.com
===================================
NOTICE OF ANNUAL MEETING TO BE HELD
===================================
May 1, 1998
===========
TO OUR STOCKHOLDERS:
- - --------------------
Notice is hereby given that the Annual Meeting of Stockholders of Selective
Insurance Group, Inc. (the "Company") will be held on Friday, May 1, 1998,
at 11:00 a.m. in the auditorium at the headquarters of the Company at 40
Wantage Avenue, Branchville, New Jersey, for the following purposes:
1. To elect five directors for a term of three years each.
2. To transact such other and further business, if any, as properly may be
brought before the meeting.
Only stockholders of record on the books of the Company at the close of
business on March 13, 1998, shall be entitled to vote at the meeting.
If you do not expect to be present at the meeting, please complete, date,
and sign the enclosed proxy and return it in the accompanying postage-paid
envelope.
The giving of the proxy will not affect your right to vote in person, should
you attend the meeting.
By order of the Board of Directors,
/s/Susan R. Perretta
- - --------------------
Susan R. Perretta
Secretary
Dated: March 30, 1998
<PAGE> PAGE 1
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
March 30, 1998
===============
PROXY STATEMENT
===============
===============
General Matters
===============
This Proxy Statement is furnished in connection with a solicitation of
proxies by the Board of Directors of Selective Insurance Group, Inc. (the
"Company") for use at the Annual Meeting of Stockholders to be held on
Friday, May 1, 1998, at 11:00 a.m. in the auditorium at the headquarters of
the Company at 40 Wantage Avenue, Branchville, New Jersey, and at any
adjournment thereof.
The Company has retained Corporate Investor Communications, Inc. for a fee
of $4,500 to aid in solicitation of proxies by mail, telephone, and personal
contact. The costs of the solicitation will be borne by the Company.
In addition to solicitation by mail and by certain employees of the Company
(without additional compensation), arrangements have been made with
brokerage houses and other custodians, nominees, and fiduciaries to send
proxy material to their principals.
On March 13, 1998, which is the record date for stockholders entitled to
notice of and to vote at the Annual Meeting, there were outstanding and
entitled to vote 29,552,073 shares of common stock, $2.00 par value
("Common Stock"). This is the Company's only issued and outstanding class of
stock. This Proxy Statement and the accompanying proxy are being mailed
beginning on or about March 30, 1998, to all stockholders of record as of
the record date. Under New Jersey law and the Company's Bylaws, each share
of Common Stock outstanding as of the record date is entitled to one vote at
the Annual Meeting of Stockholders, and the presence in person or by proxy
of the holders of shares of Common Stock entitled to cast a majority of the
votes constitutes a quorum. Under New Jersey law, proxies submitted with
votes withheld for the election of directors and broker nonvotes are
included in determining whether a quorum is present. Under New Jersey law,
directors are elected by a plurality of votes cast. Votes withheld for the
election of any or all of the nominees have no impact on the election of
directors except to reduce the number of votes for the nominee(s) for which
votes are withheld. The affirmative votes of a majority of votes cast by
stockholders entitled to vote at the Annual Meeting is required to decide
any other item of business which may properly be brought before the Annual
Meeting. Abstentions and broker nonvotes are not counted in tabulating the
number of votes cast on such other items of business that may properly be
brought before the meeting.
There is no person or group known by the Company as of March 13, 1998, to be
the beneficial owner of more than 5% of the Company's outstanding Common
Stock.
PAGE 2
As of the date hereof, the Board of Directors knows of no other business
that will be presented for consideration at the meeting, except the matter
set forth in the Notice of Annual Meeting. If any such other business shall
properly come before the meeting, it is intended that votes will be cast,
pursuant to proxies solicited, in respect of any such other business in the
discretion of the persons acting under said proxies. Proxies that contain no
instructions to the contrary will be voted for the election as directors of
the five nominees named herein.
The Annual Report to Stockholders for the fiscal year ending December 31,
1997, has been provided to all stockholders of record as of the close of
business on March 13, 1998 together with this Proxy Statement.
=====================
REVOCABILITY OF PROXY
=====================
Any stockholder giving a proxy may revoke it by notifying the Secretary of
the Company, in writing, of such revocation at any time prior to its
exercise or by filing another proxy dated subsequent to the date thereof
with the Secretary of the Company.
========================
I. ELECTION OF DIRECTORS
========================
(Item 1 on Proxy)
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate''), and the Bylaws provide that the number of directors of the
Company shall not be less than seven nor more than twenty, such number
within the minimum and maximum limitations to be fixed from time to time by
a resolution approved by a majority of the whole Board of Directors. The
Certificate and Bylaws also provide for the Board of Directors to be divided
into three classes, equal or nearly as equal as possible, so that all
directors serve staggered three-year terms.
The Board has nominated James W. Entringer, C. Edward Herder, William M.
Rue, and Thomas D. Sayles for reelection as directors for three-year terms
expiring at the Annual Meeting of Stockholders in 2001. All such persons are
currently directors and were previously elected by stockholders. Gregory E.
Murphy, who is also nominated for election as director for a three-year term
expiring at the Annual Meeting of Stockholders in 2001, was elected to the
Board on June 9, 1997 and added to the class of directors whose terms expire
in 1998.
In the event any nominee shall be unable to serve as a director at the time
of the Annual Meeting of Stockholders, which the Board of Directors does not
presently expect, the proxies in favor of such unavailable nominee will be
voted for a consenting nominee selected by the Board of Directors. None of
the nominees for director is related to any executive officer or director of
the Company or another nominee by blood, marriage or adoption.
Directors shall be elected by a plurality of the votes cast.
PAGE 3
==========
CANDIDATES
==========
The following information is set forth with respect to the five nominees for
election as directors at the Annual Meeting of Stockholders to serve
three-year terms expiring at the Annual Meeting of Stockholders in 2001.
Shares of Common Stock shown as beneficially owned give effect to the
Company's 2 for 1 stock split, which was effective on December 1, 1997:
Shares of
Common Stock
Beneficially
Names Positions and Offices Owned as of
of in Company and February 16,
Directors Business Experience 1998(1)
============================================================================
James W. Entringer Chairman, and Chief Executive 362,792(2)(3)
Age: 57 Officer of the Company since 1997;
Director since: 1992 Chairman and President, and Chief
Term to expire: 2001 Executive Officer of the Company
since 1993 to 1997;
President and Chief Operating
Officer of the Company,
1992; Senior Resident Vice
President, Merrill Lynch, Pierce,
Fenner & Smith, Inc. ("Merrill
Lynch"), 1991 to 1992; President,
Chief Executive Officer and Director,
Family Life Insurance Company, a
subsidiary of Merrill Lynch, 1986 to
1990; Branch Manager, Merrill Lynch,
1967 to 1992; Committees of the Company:
Chairman, Executive; and member, Finance.
- - ----------------------------------------------------------------------------
C. Edward Herder, CPCU President, Chester H. Herder & Son, 88,937(4)
Age: 62 Inc. since 1959; Chairman, Herder Tarricone
Director since: 1978 Associates,1994 to 1996; general insurance
Term to expire: 2001 agencies; Committees of the Company: Chairman,
Committee on Directors; member, Executive.
- - ----------------------------------------------------------------------------
Gregory E. Murphy President and Chief Operating Officer 122,193(5)
Age: 42 of the Company since 1997; Senior Vice
Director since: 1997 President and Chief Financial Officer
Term to expire: 2001 of the Company, 1995 to 1997; Senior
Vice President, Finance of the Company,
1994 to 1995; Vice President, Finance
of the Company, 1993 to 1994; Vice
President and Controller of the Company,
1987 to 1993; Committees of the Company:
member, Finance Committee.
- - ----------------------------------------------------------------------------
William M. Rue,CPCU President, Chas. E. Rue & Son, Inc. 256,347(6)
Age: 50 T/A Rue Insurance since 1987; Director,
Director since: 1977 First Constitution Bank; Committees of the
Term to expire: 2001 Company: member, Executive, Finance and
Committee on Directors.
Thomas D. Sayles, Jr. Retired; Director, Pillar Funds 55,896(7)
Age: 66 (Summit Bank Corp., Mutual funds);
Director since: 1988 Chairman, The Summit Bancorporation,
Term to expire: 2001 1995-1996; Chairman and Chief
Executive Officer, The Summit
Bancorporation, 1974 to 1994;
Committees of the Company: Chairman,
Salary and Employee Benefits; member,
Executive and Committee on Directors.
- - ----------------------------------------------------------------------------
PAGE 4
====================
CONTINUING DIRECTORS
====================
The following information is set forth with respect to the directors whose
terms of office will continue after the Annual Meeting.
Shares of
Common Stock
Beneficially
Names Positions and Offices Owned as of
of in Company and February 16,
Directors Business Experience 1998(1)
============================================================================
A. David Brown Managing Director, Pendelton James 7,736(8)
Age: 55 Associates, since 1997;
Director since: 1996 Managing Vice President, Korn/
Term to expire: 2000 Ferry International, executive
recruiting, 1994 to 1997;
served in various
executive positions with
R.H. Macy & Co., Inc., 1969 to 1994 and
was Senior Vice President, Human
Resources, 1983 to 1994 and Director,
1987-1992; Committees of the Company:
member, Audit and Salary and Employee
Benefits.
- - ---------------------------------------------------------------------------
William A. Dolan, II Attorney, Kelly, Gaus & Holub law 39,170(9)
Age: 66 firm since 1994; Partner, Kelly, Gaus,
Director since: 1988 Holub & Dolan, 1994;
Term to expire: 1999 Of Counsel, Kelly, Gaus &
Holub, 1994 to 1997;
President, Dolan and Dolan, P.A.,
law firm, 1992 to 1993; Director
since 1982 and Chairman of the Board,
1988 to 1996, High Point Financial
Corporation; Committees of the
Company: Chairman, Conflict of
Interest; member, Audit.
- - ----------------------------------------------------------------------------
William C. Gray, D.V.M. Retired; 47,516(10)
Age: 68 Veterinarian and President, Newton
Director since: 1992 Veterinary Hospital 1960 to 1997;
Term to expire: 1999 Director, Newton Financial Corp. Company;
and Newton Trust Committees of the Audit
Company: member, and Conflict of Interest.
- - ----------------------------------------------------------------------------
Frederick H. Jarvis Retired; Chairman and Chief Executive 38,676(11)
Age: 70 Officer of the Company, 1992 to 1993;
Director since: 1984 Chairman, President and Chief Executive
Term to expire: 1999 Officer of the Company, 1984 to 1992;
Committees of the Company: Chairman,
Finance; member, Executive and Committee
on Directors.
- - ----------------------------------------------------------------------------
William M. Kearns, Jr. President, W.M. Kearns & Co., Inc. 77,760(12)
Age: 62 a private investment company, since
Director since: 1975 1994; Director, Kuhlman Corporation,
Term to expire: 2000 Malibu Entertainment Worldwide Inc.;
Trustee of EQ Advisors Trust (Equitable
Life Assurance Society of the U.S.)
since 1997; Managing Director, Lehman
Brothers, Inc. and predecessor firms,
1969 to 1992; Advisory Director, Lehman
Brothers Ic., 1992 to 1994; Committees
of the Company: member, Finance and
Salary and Employee Benefits.
- - ----------------------------------------------------------------------------
Joan M. Lamm-Tennant,Ph.D Vice President, General Reinsurance/ 17,936(13)
Age: 45 New England Asset Management since 1996;
Director since: 1993 Professor of Finance, Villanova University
Term to expire: 1999 since 1988; Director, Focus Trust Fund,
a mutual fund; Committees of the Company:
member, Finance, and Salary and Employee
Benefits
- - ----------------------------------------------------------------------------
S.Griffin McClellan III Consultant since 1994; Chairman and 35,770(14)
Age 60 Chief Executive Officer, Crestmont
Director since: 1980 Savings and Loan Association, 1993 to
Term to expire: 2000 1994; President, Chief Executive Officer
and Director, Crestmont Federal Savings
and Loan Association, 1989 to 1991;
Committees of the Company: Chairman,
Audit; member, Executive and Salary and
Employee Benefits.
- - ----------------------------------------------------------------------------
J. Brian Thebault President and Chief Executive 11,713(15)
Age: 46 Officer, L.P. Thebault Company,
Director since: 1996 graphic communications, since
Term to expire: 2000 1985. Committees of the Company:
member, Audit and Finance.
- - -----------------------------------------------------------------------------
PAGE 5
=====================================================
NOTES TO TABLE OF CANDIDATES AND CONTINUING DIRECTORS
=====================================================
(1) The amount of shares beneficially owned by each of the above-named
directors, except Mr. Entringer, is less than 1% of the Common Stock
outstanding.
(2) Includes 209,430 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plans.
(3) The number of shares beneficially owned by Mr. Entringer is equal to
1.2% of the Common Stock outstanding.
(4) Includes 24,000 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plan for Directors.
(5) Includes 62,200 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plans.
(6) Includes 24,000 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plan for Directors.
(7) Includes 24,000 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plan for Directors.
(8) Includes 6,000 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plan for Directors.
(9) Includes 24,000 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plan for Directors. Includes 2,100 shares held by Mr. Dolan's
wife, of which Mr. Dolan disclaims beneficial ownership.
(10) Includes 18,000 shares that may be acquired upon the exercise of
options granted and presently excercisable under the Company's Stock
Option Plan for Directors.
(11) Includes 12,000 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plan for Directors.
(12) Includes 24,000 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plan for Directors.
(13) Includes 12,000 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plan for Directors.
(14) Includes 15,000 shares that may be acquired upon the exercise of
options granted and presently exercisable under the Company's Stock
Option Plan for Directors. Includes 2,000 shares held by Mr.
McClellan's wife, of which Mr. McClellan disclaims beneficial
ownership.
(15) Includes 6,000 shares that may be acquired upon the exercise of options
granted and presently exercisable under the Company's Stock Option Plan
for Directors.
The number of shares of Common Stock beneficially owned by Mr. Entringer and
Mr. Murphy, as of February 16, 1998, are set forth in the table on page 3.
The number of shares of Common Stock beneficially owned as of February 16,
1998, by the other executive officers named in the Summary Compensation
Table set forth on page 9 are as follows: Mr. Coleman, 57,365 (including
36,800 shares that may be acquired upon the exercise of stock options
granted and presently exercisable under the Company's stock option plans);
Mr. Land, 200,762 (including 109,000 shares that may be acquired upon the
exercise of stock options granted and presently exercisable under the
Company's stock option plans); and Mr. Ochiltree, 100,235 (including 51,200
shares that may be acquired upon the exercise of stock options granted and
presently exercisable under the Company's stock option plans). The number of
shares beneficially owned by each of the above-named executive officers is
less than 1% of the Common Stock outstanding. The number of shares of
Common Stock beneficially owned by all current directors and executive
officers of the Company as a group as of February 16, 1998, was 1,512,980,
representing 5.0% of the outstanding shares of Common Stock on that date.
Such number includes shares that may be acquired within 60 days of such date
upon the exercise of outstanding stock options granted under the Company's
stock option plans and Stock Option Plans.
Page 6
=========================
COMPENSATION OF DIRECTORS
=========================
During 1997, nonemployee directors, consisting of all directors other than
Messrs. Entringer and Murphy, received directors' fees in shares of Common
Stock pursuant to the Stock Compensation Plan for Nonemployee Directors.
Under this Plan, each nonemployee director annually receives Common Stock
having a fair market value equal to an amount of compensation fixed annually
by the Board of Directors. Shares are issued quarterly on January 1, April
1, July 1 and October 1 of each year. For 1997, such annual compensation
was fixed at $31,000, and each nonemployee director who did not elect to
defer his or her compensation was issued a total of 1,404 shares of Common
Stock pursuant to the Plan. Under the Plan, each nonemployee director may
elect on or before December 20 of each year to defer the receipt of shares
of Common Stock, and any dividends accrued with interest thereon, to a
specified future year, the attainment of age 70 or termination of services
as a director. Messrs. McClellan, Sayles, Thebault and Ms. Lamm-Tennant
elected to defer their 1997 compensation under the Plan.
Effective December 31, 1997, the Company terminated the Directors' Plan
pursuant to which directors who were never employees of the Company or its
subsidiaries and who were members of the Board of Directors for at least
five calendar years were entitled to certain retirement benefits. Under
the terms of the Directors' Plan, participants were entitled to receive
annual retirement or disability benefits equal to 100% of the annual
directors' retainer fee or such other annual amount as fixed by the Board
from time to time. The benefit was payable for a period equal to the
participant's years of service on the Board, up to a maximum of 15 years.
In the event of a participant's death prior to or after the commencement of
benefits, the participant's surviving spouse was entitled to receive the
benefits. Benefits were payable to the eligible director in the event of a
director's disability resulting in termination of service as director. The
Directors' Plan provided for acceleration of accrued and unpaid benefits in
the event of a "change of control" of the Company, as defined in the
Directors' Plan.
In connection with the termination of the Directors' Plan, the present value
of the future benefits of each eligible nonemployee director was fully
vested under the Directors' Plan as of December 31, 1997. Such benefits
were converted into units, with each such unit having a value equal to the
fair market value of a share of Common Stock on December 31, 1997. Each
unit will accrue an amount equal to the dividends on a share of Common
Stock, as and when declared by the Board of Directors and paid by the
Company, which amount will be deemed reinvested in additional units in the
same manner as dividends are reinvested in shares of Common Stock under the
Company's dividend reinvestment plan for stockholders, based on the fair
market value of a share of Common Stock on the applicable dividend
reinvestment date. The value of each unit will fluctuate with the value of
the Company's Common Stock. Each participating director will become entitled
to receive the value of his or her units in cash, either in a lump sum or in
installments over 15 years, upon termination of his or her service as a
director. In the event of a director's termination of service as a director
following a "change in control" of the Company, (as defined in Board
resolutions terminating the Directors' Plan) the director will be
immediately entitled to receive the value of his or her units in cash,
either in a lump sum or in installments over a period of five years. Any
units which are unpaid at the time of the director's death shall be payable
in cash to a surviving spouse or estate, as the case may be. Retired
Directors or their surviving spouses who were receiving benefits under the
Directors' Plan at the time of its termination will continue to receive
benefits in accordance with the terms of the Directors' Plan as in effect at
the time the benefits commenced.
The Company has a Stock Option Plan for Directors for nonemployee
directors. Under such plan, each eligible director automatically receives
an option to purchase 3,000 shares of Common Stock on March 1 of each year.
Subject to certain adjustments, the maximum number of shares of Common Stock
that may be issued under such options is 400,000, which may be authorized
but unissued shares or treasury shares. The exercise price for each share
of Common Stock subject to an option granted is the fair market value of a
share of Common Stock on the date such option is granted and is payable in
cash. Any option granted under the Plan becomes exercisable on the first
anniversary of the date it was granted. No option is exercisable after the
tenth anniversary of the grant. Options granted under the plan are
nontransferable, except by will or by laws of descent and distribution.
In the event of an optionee's death or disability, an option may be
exercised, in whole or in part, by the optionee's executor, administrator,
guardian, or legal representative in accordance with the terms of such
option. On March 1, 1997, options to purchase 1,500 shares of Common Stock
were granted to each eligible director at an exercise price of $41.625 per
share. As a result of the stock split of December 1, 1997, each such grant
was converted into an option to purchase 3,000 shares at $20.8125 per
share.
Page 7
====================================
COMMITTEES OF THE BOARD OF DIRECTORS
====================================
The Company's Audit Committee, the membership of which is the same as the
Audit Committee of the Company's subsidiaries, Selective Insurance Company
of America, Selective Way Insurance Company, Selective Insurance Company of
the Southeast and Selective Insurance Company of South Carolina, is
comprised of S. Griffin McClellan III, Chairman, A. David Brown, William A.
Dolan, II, William C. Gray, and J. Brian Thebault. In 1997, the Committee
met four times. The functions of the Committee are to receive and examine
the Auditors' Report, meet with the auditors, access the books and vouchers
of the Company, as necessary, consider the adequacy of internal controls,
confer with the officers of the Company, and report to the Board on its
findings.
The Company's Salary and Employee Benefits Committee, the membership of
which is the same as the Salary and Employee Benefits Committee of the
Company's subsidiaries, Selective Insurance Company of America, Selective
Way Insurance Company, Selective Insurance Company of the Southeast and
Selective Insurance Company of South Carolina, is comprised of Thomas D.
Sayles, Jr., Chairman, A. David Brown, William M. Kearns, Jr., Joan M.
Lamm-Tennant, Ph.D, and S. Griffin McClellan III. In 1997, the Committee met
seven times. The functions of the Committee are to evaluate the performance
of certain officers of the Company and its subsidiaries and to make
recommendations to the Board as to salary adjustments. This Committee also
continuously evaluates employee benefits and makes recommendations to the
Board in connection therewith. This Committee also functions as the
Compensation Committee, which administers the Company's stock option plans,
and as the Trustees of the Retirement Savings Plan and the Retirement Income
Plan.
The Company's Committee on Directors, the membership of which is the same as
the Committee on Directors of the Company's subsidiaries, Selective
Insurance Company of America, Selective Way Insurance Company, Selective
Insurance Company of the Southeast and Selective Insurance Company of South
Carolina, is comprised of C. Edward Herder, Chairman, Frederick H. Jarvis,
William M. Rue and Thomas D. Sayles, Jr. In 1997, the Committee met three
times. The primary function of the Committee is to seek and review qualified
candidates for directorships and to make recommendations to the Board as to
nominees for election as directors. This Committee will consider nominees
recommended by stockholders for election as directors at an Annual Meeting
of Stockholders but does not solicit such recommendations. In order to
receive consideration, all such recommendations must be in writing addressed
to the Chairman of the Committee on Directors, c/o the Secretary of the
Company, 40 Wantage Avenue, Branchville, New Jersey 07890. Such
recommendations must include a reasonable amount of biographical information
about the person recommended, contain a statement as to why the stockholder
believes such person to be well qualified to serve as a director, contain
the written consent of the proposed nominee to the submission of such
information and such recommendation, and be received by the Secretary no
later than January 1 preceding the Annual Meeting of Stockholders for which
such person's election is recommended.
ATTENDANCE OF BOARD MEMBERS AT MEETINGS
During the past year, there were five meetings of the Board. No Board member
attended fewer than 75% of the aggregate number of meetings of the Board and
of the meetings of Committees on which he or she served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Salary and Employee Benefits Committee are
Thomas D. Sayles, Jr., A. David Brown, William M. Kearns, Jr., Joan M.
Lamm-Tennant, Ph.D. and S. Griffin McClellan III, each of whom is a director
but not a current or former employee of the Company, or any of its
subsidiaries. During the last fiscal year, no executive officer of the
Company served on the compensation committee of another entity or as a
director of another entity, one of whose executive officers served on the
Salary and Employee Benefits Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's review of Forms 3, 4 and 5 and written
representations submitted to the Company during and with respect to the
fiscal year ended December 31, 1997, all statements of beneficial ownership
required to be filed with the Securities and Exchange Commission were timely
filed.
Page 8
============================================
EXECUTIVE COMPENSATION AND OTHER INFORMATION
============================================
EXECUTIVE OFFICERS OF THE COMPANY
=================================
As of March 13, 1998, the executive officers of the Company were:
============================================================================
James W. Entringer age 57 Chairman and Chief Executive Officer, since
1997; Chairman, President and Chief
Executive Officer of the Company, 1993 to
1997; President and Chief Operating
Officer, 1992.*
- - ----------------------------------------------------------------------------
Gregory E. Murphy age 42 President and Chief Operating Officer since
1997; Senior Vice President and Chief
Financial Officer, 1995 to 1997; Senior
Vice President, Finance, 1994 to 1995; Vice
President, Finance, 1993 to 1994; Vice
President and Controller, 1987 to 1993.*
- - ----------------------------------------------------------------------------
James W. Coleman, Jr. age 39 Senior Vice President, Strategic Business
Units since May 1996; Vice President,
Personal Lines Strategic Business Unit,
May 1994 to May 1996; Assistant Vice
President, Claims, Field Operations, May
1993 to May 1994.
- - ----------------------------------------------------------------------------
Thornton R. Land age 55 Executive Vice President, Administration,
and General Counsel, responsible for
corporate legal, staff claims counsel,
government affairs, administrative services
and human resources, since May 1993; Senior
Vice President and General Counsel from
1988 to 1993.
- - ----------------------------------------------------------------------------
David B. Merclean age 47 Senior Vice President and Chief Financial
Officer since August 1997. Senior Vice
President and Treasurer, Sun Alliance USA,
Inc., 1995 to 1997; Partner, KPMG Peat
Marwick LLP, 1987 to 1995.
- - ----------------------------------------------------------------------------
Jamie Ochiltree,III age 45 Executive Vice President, Branch and Field
Operations since 1997; Senior Vice
President, Branch and Field Operations,
1994-1996; Vice President, Market
Development from April 1994 to September
1994; Vice President, Sales and Marketing,
Cincinnati Financial Corp., May 1988 to
December 1993.
- - ----------------------------------------------------------------------------
Robert P. Rank age 56 Senior Vice President, Investments since
December 1993; Senior Vice President,
Investments, American Express Company, 1987
to 1993.
- - ----------------------------------------------------------------------------
Donald E. Williams age 53 Senior Vice President and Chief Information
Officer, since June 1997; Senior Vice
President, Information Systems, 1992-1997;
Vice President 1989-1992.
- - ----------------------------------------------------------------------------
All terms of office are for a one-year period.
*See additional information about Mr. Entringer and Mr. Murphy on page 3.
PAGE 9
==========================
SUMMARY COMPENSATION TABLE
==========================
The following table shows, for the fiscal years ending December 31, 1997,
1996, and 1995, the compensation, paid or accrued for those years, to the
Chairman and Chief Executive Officer, and each of the four most highly
compensated executive officers of the Company who served as executive
officers during fiscal year 1997. (See footnote 1.)
Long-Term Compensation
|------Awards------|
Annual Compensation Securities
Under- All
Name Restricted lying Other
and Stock Options/ Compen-
Principal ($)(1) ($)(2) Awards SARs sation
Position Year Salary Bonus ($)(3) (#) (5)($)
============================================================================
James W. 1997 440,337 300,000 296,000 8,600 4,750
Entringer(6,7) 15,000(4)
Chairman and 1996 426,923 225,000 302,000 - 4,750
Chief Executive 1995 410,000 300,000 657,145 80,000 9,000
Officer
- - ----------------------------------------------------------------------------
Gregory E. 1997 222,385 200,000 185,000 3,200 9,582
Murphy(6,7) 10,000(4)
President and 1996 139,552 60,000 169,875 15,000 10,204
Chief Operating 1995 130,000 85,000 52,125 15,000 12,518
Officer
- - ----------------------------------------------------------------------------
Thornton R. 1997 199,688 100,000 166,500 4,000 4,750
Land(6,7) 5,000(4)
Executive Vice 1996 193,896 60,000 169,875 - 4,750
President and 1995 187,824 90,000 78,188 - 9,000
General Counsel
- - ----------------------------------------------------------------------------
Jamie 1997 176,154 100,000 185,000 3,200 13,782
Ochiltree,III 7,500(4)
(6,7) 1996 157,319 60,000 169,875 15,000 15,669
Senior Vice 1995 150,000 90,000 52,125 15,000 14,762
President
- - ----------------------------------------------------------------------------
James W. 1997 147,019 100,000 185,000 2,800 3,866
Coleman, Jr. 7,500(4)
(6,7) 1996 124,015 60,000 37,750 15,000 -
Senior Vice 1995 85,300 31,200 - 6,000 -
President
- - ----------------------------------------------------------------------------
=======================================
FOOTNOTES TO SUMMARY COMPENSATION TABLE
=======================================
1. The executive officers received cash compensation only from the Company's
subsidiary, Selective Insurance Company of America ("SICA"), which
company also provides the employee benefit plans in which such executive
officers participate.
2. Effective for the fiscal year 1994, the Company adopted a Rewards Program
by which employees may receive a stated percentage of salary as Annual
Cash Incentive Payments if they achieve specified personal goals and the
Company achieves stated corporate performance goals. The "Bonus" amounts
for 1995, 1996 and 1997 indicate the amounts awarded to the named
executive officers as Annual Cash Incentive Payments. See the Report of
the Company's Salary and Employee Benefits Committee set forth in this
Proxy Statement.
3. The aggregate value of restricted stock awards at the end of 1997 was
$1,321,164 for Mr. Entringer, $648,000 for Mr. Land, $324,000 for Mr.
Coleman, and $621,000 for each of Messrs. Murphy and Ochiltree. At the
end of 1997, the aggregate number of restricted shares held by Mr.
Entringer was 48,932; by Mr. Land, 24,000; by Mr. Coleman, 12,000 and by
each of Messrs. Murphy and Ochiltree, 23,000. The restricted stock awards
to Messrs. Coleman, Land, Murphy and Ochiltree and awards of 42,000
shares of Mr. Entringer's restricted stock were made under the Company's
Stock Option Plan II under which such shares and accrued dividends vest
after four years from the date of grant depending upon the achievement of
predetermined performance goals. Pursuant to an award Mr. Entringer
received outside of the plan, on November 1, 1995, 6,932 shares vested to
Mr. Entringer on each of November 1, 1995, on November 1, 1996 and on
November 1, 1997. An equal number will vest on November 1, 1998. Mr.
Entringer has received dividends on all shares from this grant since
November 1, 1995. The value of the restricted stock awards shown in this
footnote is based on the closing market price of Common Stock on December
31, 1997.
PAGE 10
4. This qualified option was granted under Stock Option Plan II effective
December 2, 1997 and will vest 25% per year each year through December
2, 2001 when it will become fully vested.
5. The amounts in "All Other Compensation" include Company contributions
under the Company's Retirement Savings Plan for the fiscal years ended
December 31, 1997, December 31, 1996 and December 31, 1995. This Plan is
a defined contribution plan available to substantially all employees.
Company contributions are 30% vested after two years of service and
become 100% vested after six years of service. The Company contributions
reflected in the table above are $4,750 for Messrs. Entringer, Murphy,
Land and Ochiltree and $3,866 for Mr. Coleman. In addition, for Messrs.
Murphy and Ochiltree, the amounts for 1997 in the "All Other
Compensation" column also include $4,832 and $9,032, respectively,
representing the difference between the market rate of interest and the
actual rate of interest on indebtedness of such executive officer to the
Company. For additional information relating to such indebtedness, see
"Interest of Management and Others in Certain Transactions."
6. Under employment agreements with SICA effective September 1, 1996 to
September 1, 1999, Messrs. Entringer and Land receive annual base
salaries of not less than the following amounts: Mr. Entringer, $430,000
and Mr. Land, $195,000. Under an employment agreement with SICA effective
August 1, 1995, Mr. Murphy receives an annual base salary of not less
than $130,000 through August 1, 1998. Under an employment agreement with
SICA effective October 31, 1995 through October 31, 1998, Mr. Ochiltree
receives an annual base salary of not less than $150,000 through October
31, 1998. Under an employment agreement with SICA effective May 2, 1997
through May 2, 2000, Mr. Coleman receives an annual base salary of not
less than $135,000. If any of these executive officers is not reelected
to his current position, or if he is terminated without cause, he will be
entitled to receive severance pay equal to his salary and certain
benefits in effect at the time of his termination of employment for a
period of two years after the date of such termination, payable in
monthly installments. If he is terminated for cause, he is entitled to
receive that portion of his salary earned to the date of his termination
and the benefits accrued to him under certain employee benefit plans to
the date of such termination, to the extent that such benefits may be
payable to him under the provisions of such plans in effect on the date
of the termination of his employment. The Company has guaranteed SICA's
performance of all its obligations under the employment agreements.
7. Messrs. Entringer, Coleman, Land, Murphy and Ochiltree have termination
agreements with SICA pursuant to which payments will be made under
certain circumstances following a Change in Control of the Company, as
defined in the agreements. The agreements for Messrs. Entringer and Land
are automatically renewable for successive one-year terms each September
1 unless prior written notice of nonrenewal is given. Mr. Murphy's
agreement is effective from August 1, 1995 through August 1, 1998 and is
automatically renewable for successive one-year terms each August 1
unless prior written notice of nonrenewal is given. Mr. Ochiltree's
agreement is effective from October 31, 1995 through October 31, 1998 and
is automatically renewable for successive one-year terms each October 31
unless prior written notice of nonrenewal is given. Mr. Coleman's
agreement is effective May 2, 1997 through May 2, 2000 and is
automatically renewable for successive one-year terms each May 2 unless
prior written notice of nonrenewal is given. Each agreement provides
that, in the event of a Change in Control of the Company, SICA shall
continue to employ the executive officer in the capacities in which he
was serving immediately prior to the Change in Control for a period of
three years, commencing on the date on which the Change in Control shall
have occurred, which term will be automatically renewed for successive
one-year periods unless prior written notice is given. Each agreement
provides that if the executive officer's employment is terminated (as
defined in the agreement) after a Change in Control occurs, other than
(i) due to the executive officer's death or retirement, (ii) by SICA for
Cause or Disability, or (iii) by the executive officer other than for
Good Reason (as such foregoing capitalized terms are defined in the
agreement), the executive officer will be entitled to receive earned but
unpaid base salary through the date of termination, as well as any
incentive compensation benefits or awards that have been accrued, earned,
or become payable but which have not been paid, and as severance pay in
lieu of any further salary for periods subsequent to the date of
termination, an amount in cash equal to his "annualized includible
compensation for the base period" (as defined in Section 280G(d)(1) of
the Internal Revenue Code of 1986, as amended (the "Code"), multiplied by
a factor of 2.99, provided that if any of the payments or benefits
provided for in the agreement, together with any other payments or
benefits that the executive officer has the right to receive, would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Code), the payments and benefits due to the executive officer will be
reduced in the order of priority and amount as the executive officer
shall elect, to the largest amount as will result in no portion of such
payments being subject to the excise tax imposed by Section 4999 of the
Code. The Company has guaranteed SICA's performance of all its
obligations under the termination agreements.
PAGE 11
==========================================
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
===========================================
The following table contains information concerning the grant of stock
options and tandem stock appreciation rights ("SARs") under the Company's
Stock Option Plan II ("Plan") to the Chairman, President and Chief Executive
Officer, and each of the other executive officers named in the Summary
Compensation Table.
=====================================
OPTION/SAR GRANTS IN LAST FISCAL YEAR
=====================================
|----------Individual Grants------------| Grant Date Value
% of
Number of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base Expira-
Granted(1) in Fiscal Price tion Grant Date
Name (#) Year ($/Sh) Date Present Value ($)(2)
============================================================================
James W. 8,600(3) 3.10% $18.4375 01/24/07 $50,826
Entringer 15,000(4) 5.41% 25.375 12/02/07 114,450
Gregory E. 3,200(3) 1.15% 18.4375 01/24/07 18,912
Murphy 10,000(4) 3.60 25.375 12/02/07 76,300
Thornton R. 4,000(3) 1.44 18.4375 01/24/07 23,640
Land 5,000(4) 1.80 25.375 12/02/07 38,150
Jamie 3,200(3) 1.15% 18.4375 01/24/07 18,912
Ochiltree,III 7,500(4) 2.70 25.375 12/02/07 57,225
James W. 2,800(3) 1.01% 18.4375 01/24/07 16,548
Coleman 7,500(4) 2.70 25.375 12/02/07 57,225
- - ----------------------------------------------------------------------------
1. The Plan permits the granting of options to all employees and permits
the granting of SARs in tandem with any or all stock options. If an SAR
is exercised, the employee must surrender the related stock option or
portion thereof. Upon exercise of an SAR, payment will be made by the
Company in stock, cash, or some combination thereof, as a committee
appointed by the Board of Directors shall determine at the time of
exercise. None of the options granted to the named executive officers in
1997 has SARs attached. Under the terms of the Plan, options or any
related SARs, may be granted at no less than fair market value as of the
date of grant. They must be exercised within ten years from the date of
grant. In the event of any change in the number of outstanding shares of
the Common Stock of the Company as a result of a stock dividend, stock
split, or other readjustments, the committee appointed by the Board of
Directors shall make an appropriate adjustment in the aggregate number of
shares which may be subject to stock options granted under the Plan and
in the number of shares subject to and the option price of each then
outstanding option.
2. The Black-Scholes option pricing method has been used to calculate the
present value as of the date of grant, January 24, 1997 ($18.4375) and
December 2, 1997 ($23.375). The present value as of the date of the
grant, calculated using the Black-Scholes method, is based on assumptions
about future interest rates, expected life of the options, dividend yield
and stock price volatility. The risk free interest rate is based on a
zero coupon US Government Issue with the same terms and issue date as the
specified option grant. The volatility is based on an estimate of the
future price variability of Selective Insurance Group, Inc. (SIGI) stock
for a term commensurate with the expected life of the option. There is no
assurance that these assumptions will prove to be true in the future.
Listed below are the various assumptions that were made with regard to
the two grants:
Exercise Price $18.438 $23.375
-------------- ------- -------
Risk Free Interest Rate 6.37% 5.85%
Expected Life of Option 9 Years 9 Years
Dividend Yield 2.4% 2.4%
Expected Volatility 21% 21%
3. Options granted on January 24, 1997 became exercisable on October 1,
1997.
4. Options granted on December 2, 1997 will vest 25% each year through
December 2, 2001 when the options will become fully vested.
PAGE 12
=====================================
OPTION AND SAR EXERCISES AND HOLDINGS
=====================================
The following table sets forth information with respect to the Chairman and
Chief Executive Officer, and each of the other executive officers named in
the Summary Compensation Table concerning the exercise of options and/or
SARs during the last fiscal year and unexercised options and SARs held as of
the end of the last fiscal year:
===================================================
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
===================================================
Value of
Number of Unexercised
Securities Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at at Fiscal
Shares Fiscal Year-End(#)(1); Year-End($)(2);
Acquired ********************** **************
on Value Exercisable/ Exercisable/
Name Exercise(#) realized($) Unexercisable Unexercisable
============================================================================
James W. - - 209,430/ $2,368,092/
Entringer 32,600 282,875
Gregory E. 968 $12,345 62,200/ 743,212/
Murphy 10,000 16,250
Thornton R. 4,000 $46,250 109,000/ 1,438,437/
Land 25,000 301,875
Jamie - - 51,200/ 565,525/
Ochiltree,III 7,500 12,188
James W. - - 36,800/ 399,100/
Coleman 7,500 12,188
- - ----------------------------------------------------------------------------
1. The number of securities underlying unexercised options at the end of
1997 included options with tandem SARs granted under the Company's former
stock option plan for employees which expired November 5, 1992. This plan
had 1,200,000 shares reserved for issuance and was, for the most part,
identical to the Company's Stock Option Plan II.
2. The value of unexercised in-the-money options is based on the closing
market price per share of Common Stock on December 31, 1997 of $27.00,
less the option exercise price per share.
PAGE 13
=============
PENSION PLANS
=============
The following table illustrates annual pension benefits, including
supplemental benefits, at normal retirement (age 65) for various years of
credited service in the form of a single life annuity and prior to any
offset for Social Security benefits. As of December 31, 1997 the Chairman
and Chief Executive Officer and the other executive officers named in the
Summary Compensation Table had the following credited years of service under
the pension plans: Mr. Entringer, 4 years; Mr. Coleman, 14 years; Mr. Land,
11 years; Mr. Murphy, 16 years and Mr. Ochiltree, 2 years.
====================
PENSION PLAN TABLE(1)
====================
============================================================================
Years of Service
----------------------------------------------------------
Remuneration 5 15 20 25 30 35
============================================================================
125,000 12,500 37,500 50,000 62,500 75,000 87,500
150,000 15,000 45,000 60,000 75,000 90,000 105,000
175,000 17,500 52,500 70,000 87,500 105,000 122,500
200,000 20,000 60,000 80,000 100,000 120,000 140,000
225,000 22,500 67,500 90,000 112,500 135,000 157,500
250,000 25,000 75,000 100,000 125,000 150,000 175,000
300,000 30,000 90,000 120,000 150,000 180,000 210,000
400,000 40,000 120,000 160,000 200,000 240,000 280,000
450,000 45,000 135,000 180,000 225,000 270,000 315,000
500,000 50,000 150,000 200,000 250,000 300,000 350,000
- - -------------------------------------------------------------------------
1. The Company maintains a noncontributory Retirement Income Plan integrated
with Social Security benefits. This pension plan covers substantially all
employees, including officers. Compensation covered under the plan
consists only of basic wages and salaries, not including overtime and
bonuses, i.e. only the "Salary" column of the Summary Compensation Table.
Monthly plan benefits are computed at the rate of 2% of average monthly
compensation for the 60 months out of the most recent 120 months of
employment for which the employee's compensation is the highest
multiplied by the number of years of credited service, less an offset
for Social Security benefits, calculated as 1 3/7% of the participant's
Social Security income in effect on January 1 of the year of retirement
multiplied by the number of years of credited service. If the employee is
married, the normal form of benefit is a joint and survivor annuity for
the employee and spouse. If the employee elects against such annuity with
the spouse's consent, a single life annuity may be paid. The Company has
a nonqualified supplemental pension plan to provide benefits that would
have been paid by the qualified plan, but for the limitations imposed by
the Internal Revenue Code on the maximum benefits payable and the
compensation upon which qualified plan benefits may be calculated.
PAGE 14
============================================
REPORT OF THE SELECTIVE INSURANCE GROUP, INC.
SALARY AND EMPLOYEE BENEFITS COMMITTEE
============================================
The Salary and Employee Benefits Committee (the "Committee") of the Board of
Directors is responsible for setting the executive compensation policies of
the Company and evaluating the level of compensation of the executive
officers of the Company and its subsidiaries relative to the positions and
performances of the executive officers. The Committee's decisions on
executive compensation are subject to the approval of the Board of
Directors, except for grants under certain of the Company's employee benefit
plans, which are made solely by the Committee in order for such plans to
satisfy 162(m) of the Internal Revenue Code. The Committee consists of
Messrs. Sayles (Chairman), Brown, Kearns, McClellan and Ms. Lamm-Tennant,
all of whom are "outside directors" within the meaning of Section 162(m).
For purposes of this report, the term "Company" means Selective Insurance
Group, Inc. and its subsidiaries unless the context otherwise requires.
The Committee's executive compensation policies are intended to enable the
Company to attract and retain qualified executives by combining a base
salary component with annual bonus and long-term incentive components.
The levels of annual total compensation for executive officers (including
the executive officers named in the foregoing tables) are generally intended
to be comparable to the levels of annual total compensation paid to
executives with comparable responsibilities in a group of other companies
in the insurance industry, identified by the Company using external surveys
as being similar in size and scope to the Company, while providing for
annual and long-term incentives which are subject to the achievement of
performance-related goals. This comparison group of companies in the
insurance industry is smaller and more diverse than the group comprising
the Company's peer group for purposes of the performance graph set forth on
page 16 in this Proxy Statement.
After determining the level of compensation for each executive officer as
compared with his counterparts in the identified industry group, the
Committee weighs the executive officer's performance and level of
responsibility and considers such executive officer's contribution to the
financial and other goals of the Company. The goals and objectives are
established in advance and may relate to the executive officer's
performance, the Company's performance, or both. Among the criteria used in
determining base salaries are: (i) the Company's financial performance
compared to its performance in the prior year, including the Company's
combined ratio (both overall and by lines of insurance), return on equity,
results of operations and overall financial condition; (ii) the managerial
ability of such executive officer as evaluated by the Committee, taking into
account the evaluation of such person by the Chairman and President; and
(iii) such officer's ability to develop personnel within the areas of his
responsibility for the future operation of the Company. These criteria are
the more significant factors used by the Committee in reaching its decisions
on executive compensation. As a result of the individual evaluations, for
any particular year the compensation level of each executive officer may be
higher or lower than that of comparable executives in the comparison group
and may vary each year depending upon the achievement of the individual.
The Committee meets approximately four times a year. Changes in the base
salary component of executive compensation do not necessarily occur
annually, but may occur after a longer period of time.
In addition to the base salary component of executive officers'
compensation, cash payments under the Company's Annual Cash Incentive Plan
may be earned. Specific performance-related goals are established for each
executive officer at the beginning of the fiscal year after discussions
between such executive officer and the Chairman and President(and with
respect to the Chairman between the Chairman and the Committee) to determine
the nature and extent of such goals. These individual goals relate to
specific business, departmental or management objectives that support
specific corporate goals established for the fiscal year. In 1997, corporate
goals included improving the combined ratio and increasing diversification
of geographic premium distribution. If individual and corporate goals are
achieved for the year, the executive officer may earn an annual cash
incentive pursuant to guidelines established in the Annual Cash Incentive
Plan expressed as a range of percentages of salary.
In February 1998, the Committee reviewed each executive officer's
performance evaluation, the recommendations of the Chairman and President as
to the achievement of the individual performance-related goals and the
Company's performance for 1997 using the criteria described above. Based
upon such criteria and the Annual Cash Incentive Plan percentage guidelines,
the Committee determined the annual cash incentives to be awarded to the
Company's executive officers for the year ended December 31, 1997.
The two forms of executive officers' long-term incentive compensation are
stock options (with or without tandem stock appreciation rights) and stock
grants under the Company's Stock Option Plan II (the "Plan"). The Plan is
effective through September 1, 2002. The Committee believes that stock
ownership by management encourages management to enhance stockholder value.
Stock options (with or without tandem stock appreciation rights) granted to
executive officers and other
PAGE 15
employees give optionees the right to purchase shares of the Company's
Common Stock at the fair market value per share on the date of grant.
Generally, the Committee grants options to executive officers based on the
Committee's assessment of individual merit, taking into account, among other
things, the performance evaluations of such executive officers by the
Chairman and President. The number of options granted at any given time is
also determined, in part, by the executive officer's level of
responsibility, i.e., more options are given to employees and executives in
positions of greater responsibility, and the date of the last option grant
to such person. In recent years, the Company has generally granted options
on an annual basis, but options will not necessarily be granted annually to
each executive officer. Prior to 1997, stock options (and any tandem stock
appreciation rights) that were granted to executive officers were generally
exercisable immediately upon grant. However, in 1997 the Committee granted
options subject to a four-year vesting schedule. Grants of stock also
provide incentive to the executive officers to enhance stockholder value.
Under the Plan, the Committee, in its discretion, may make restricted or
unrestricted grants of Common Stock, or grant rights to receive Common
Stock, to executive officers and other employees in addition to or in
substitution for options or stock appreciation rights. Grants to the
executive officers are subject to the attainment of one or more
performance-related objectives and other terms and conditions as may be
determined by the Committee in its discretion. Grants of restricted stock
under the Plan were made to all executive officers in 1997. All restricted
stock grants to executive officers are subject to a four-year vesting period
and the attainment of various predetermined corporate financial goals, such
as return on equity or cumulative earnings, during the vesting period.
The Company intends, to the extent practicable, to preserve deductibility
under the Internal Revenue Code for compensation paid to its executive
officers while maintaining compensation programs to attract and retain
highly qualified executives in a competitive environment.
The Committee's bases for determining the compensation of Mr. Entringer have
been substantially the same as those referred to above with respect to the
Company's executive officers. The Committee seeks to maintain the base
salary of the Chief Executive Officer at a level competitive with the
mid-range of the base salaries of the chief executive officers of other
insurance companies in the Company's identified comparison group, but Mr.
Entringer's base salary and incentive compensation for 1997 were
significantly affected by his performance and the Company's performance as
compared to the peer group, as described below. Mr. Entringer is eligible to
participate in the same employee benefit plans available to the other
executive officers of the Company.
On January 24, 1997, the Committee granted Mr. Entringer 16,000 restricted
shares of the Company's Common Stock under Stock Option Plan II. The grant
is subject to a four-year vesting period and the achievement of
predetermined corporate performance goals, including fiscal year return on
average equity during the vesting period. On the same date, the Committee
granted Mr. Entringer a nonqualified option to purchase 8,600 shares of the
Company's common stock at $18.4375 per share. The grant was subject to a
one-year vesting period and the attainment of certain financial objectives
that were achieved by the Company. On October 1, 1997, the Committee waived
the balance of the one-year vesting period, and the grant became fully
vested. On December 2, 1997, the Committee granted Mr. Entringer a qualified
option under Stock Option Plan II to purchase 15,000 shares of the Company's
common stock at $25.375. The grant will vest 25% per year each year through
December 2, 2001, when it will become fully vested.
In determining Mr. Entringer's award under the Annual Cash Incentive Plan
for 1997, the Committee considered the extent to which Mr. Entringer had met
certain predetermined financial and operational goals, and how well he had
implemented initiatives scheduled for 1997, including increased earnings and
positioning the Company for future growth. The Committee also considered the
increase in the market value of the Company's Common Stock. In considering
the Annual Cash Incentive award and the stock grant, the Committee also
reviewed the Company's combined ratio, expense reduction, and capital
strategies and Mr. Entringer's achievements in productivity, premium
diversification, employee development, corporate restructuring and
technological development, in addition to those factors used in determining
the awards of the other executive officers.
Submitted by the Salary and Employee Benefits Committee of the Company's
Board of Directors: Thomas D. Sayles, Jr. (Chairman), A. David Brown,
William M. Kearns, Jr., Joan M. Lamm-Tennant, Ph.D and S. Griffin McClellan
III.
No Compensation Committee interlocks or insider participation in
compensation decisions occurred during the fiscal year ended December 31,
1997.
PAGE 16
================================================
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
================================================
The following graph demonstrates a five-year comparison of cumulative total
returns for the Company, the Nasdaq Stock Market (U.S. companies), and the
Fire, Marine and Casualty insurers (Nasdaq Market).
=============================
(CORPORATE PERFORMANCE GRAPH)
=============================
============================================================================
|-------------------As of---------------------|
INDEX 12/31 12/31 12/31 12/30 12/29 12/31
DESCRIPTION 1992 1993 1994 1995 1996 1997
- - ----------------------------------------------------------------------------
Selective Insurance Group, 100.0 144.7 124.9 182.0 201.3 292.8
Inc.
Nasdaq Stock Market (US 100.0 114.8 112.2 158.7 195.2 239.5
Companies)
NASDAQ Stocks (SIC 6330- 100.0 103.4 99.6 139.5 152.9 231.3
6339 US + Foreign Fire,
Marine, and Casualty
Insurance Peer Group(1))
- - ----------------------------------------------------------------------------
1. The members of the Peer Group include Fire, Marine and Casualty insurers
that are traded on the Nasdaq Stock Market and have the same Standard
Industry Classification (SIC) number as the Company. The Peer Group
members are as follows: Allied Group, Inc.; Allmerica Property & Casualty
Companies, Inc; American Bankers Insurance Group, Inc.; American
Indemnity Financial Corporation; American Integrity Corporation; Argonaut
Group, Inc.; Baldwin & Lyons, Inc.; Bancinsurance Corporation; W. R.
Berkley Corporation; Chandler Insurance Company, Ltd.; Cincinnati
Financial Corporation; Citizens Security Group, Inc.; Condor Services,
Inc.; Donegal Group, Inc.; Equitable of Iowa Companies; Exstar Financial
Corporation; Financial Institutions Insurance Group, Ltd.; Foremost
Corporation America; Fremont General Corporation; Goran Capital, Inc.;
Gryphon Holdings, Inc.; HCC Insurance Holdings, Inc.; Harleysville Group
Inc.; Home State Holdings, Inc.; Intercargo Corporation; Kaye Group,
Inc.; MAIC Holdings, Inc.; Markel Corp.; Mercury General Corporation;
Meridian Insurance Group, Inc.; Mid Ocean, Ltd.; Midland Financial Group,
Inc.; Milwaukee Insurance Group Inc.; Mobile America Corporation; Motor
Club of America; Mutual Assurance, Inc.; NAC Re Corporation; Navigators
Group, Inc.; Nobel Insurance, Ltd.; North East Insurance Company; Ohio
Casualty Corporation; Old Guard Group, Inc.; Old Lyme Holding Corp.; Omni
Insurance Group, Inc.; PXRE Corp.; PAC RIM Holding Corporation; PAN
Atlantic Inc.; Paula Financial; Pembridge Inc.; Phoenix Re Corporation;
Piedmont Management, Inc.; Professionals Insurance Company Management;
RTW, Inc.; Rescorp, Inc.; Risk Capital Holdings, Inc.; SAFECO
Corporation; Selective Insurance Group, Inc.; State Auto Financial
Corporation; Symons International Corporation; Titan Holdings, Inc.;
Tokio Marine & Fire Insurance, Ltd.; Trenwick Group, Inc.; U.S. Capital
Group, Inc.; Unico American Corporation; United Coasts Corporation;
United Fire & Casualty Company; United States Facilities Corporation;
Walshire Assurance Company.
PAGE 17
=========================================================
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
=========================================================
William M. Rue, a director of the Company, is President and owner of more
than a 5% equity interest in Rue Insurance, a general insurance agency,
which received $1,036,418 in commissions during 1997 for insurance policies
placed with the Company's subsidiaries. During 1997, the Company's insurance
subsidiaries purchased insurance coverages with premiums of $829,077 through
the agency. J. Brian Thebault, a director of the Company, is President and
Chief Executive Officer of L.P. Thebault Company, Inc., graphic
communications, which received $67,483 during 1997 for services performed
for the Company and its subsidiaries. The foregoing relationships have
existed during the past fiscal year, and the Company intends to continue its
relationship with Rue Insurance and L.P. Thebault Company, Inc. in the
current year.
On December 16, 1994, Messrs. Murphy and Ochiltree, each of whom is an
executive officer of the Company, incurred certain indebtedness to the
Company in connection with their respective exercises of nonqualified stock
options granted on such date under the Company's Stock Option Plan II. Such
loans were made by the Company to such officers and certain other employees
in order to encourage such employees to exercise their options and thus to
align further their interests with those of the stockholders through greater
stock ownership. The principal amounts of such loans to Messrs. Murphy and
Ochiltree were $105,395 and $197,000, respectively. These loans bear no
interest and are due in 2005. Principal amounts outstanding as of March 5,
1998 were $75,883 and $141,840 for Messrs. Murphy and Ochiltree,
respectively.
===================
DATE FOR SUBMISSION
OF STOCKHOLDER PROPOSALS
========================
Any stockholder desiring to submit a proposal for inclusion in the Proxy
Statement relating to the 1999 Annual Meeting of Stockholders (to be held
on or about May 7, 1999) must submit the same in time to be received at the
Company's head-quarters at Branchville, New Jersey, on or before December 1,
1998, for determination of eligibility in accordance with law.
====================
FINANCIAL STATEMENTS
AND OTHER INFORMATION
=====================
Consolidated financial statements for the Company and its subsidiaries and
the report thereon of KPMG Peat Marwick LLP are included in the 1997 Annual
Report to Stockholders. A copy of the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission, excluding exhibits, will be provided without charge to
stockholders upon written request to the Senior Vice President, and Chief
Financial Officer, Selective Insurance Group, Inc., 40 Wantage Avenue,
Branchville, New Jersey 07890. The Form 10-K provided to stockholders will
include only a list of exhibits to the Form 10-K. Exhibits will be furnished
to stockholders upon request and upon payment of reproduction and mailing
expenses.
===========
ACCOUNTANTS
===========
For many years, the Company has engaged the services of KPMG Peat Marwick
LLP as its principal accountants. The Company anticipates making no change
in its selection and a representative of that firm is expected to be
available at the Annual Meeting of Stockholders to respond to appropriate
questions and to make a statement if such representative so desires.
