PAGE
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 . . . . . . .June 30, 1999. . . . . . .
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 Identification No.)
of incorporation or organization)
40 Wantage Avenue, Branchville, New Jersey 07890
------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
973-948-3000
-------------------------------
(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 July 31, 1999:
27,760,952
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Item 1. Financial Statements.
- ------------------------------
SELECTIVE INSURANCE GROUP, INC.
-------------------------------
Consolidated Balance Sheets
-------------------------------
(dollars in thousands, except per share amounts)
(unaudited)
ASSETS June 30 December 31
- ------ 1999 1998
Investments: ------------ ----------
Debt securities, held-to-maturity -
at amortized cost (fair value of
$317,917-1999; $373,179-1998)......... $ 311,343 358,380
Debt securities, available-for-sale -
at fair value (amortized cost of
$1,142,424-1999; $1,033,628-1998)..... 1,144,361 1,075,276
Equity securities, available-for-sale -
at fair value (cost of
$116,030-1999; $135,758-1998)......... 239,272 269,991
Short-term investments -
at cost which approximates fair value 16,104 50,905
Other investments - at fair value.......... 16,508 16,087
--------- ---------
Total investments ...................... 1,727,588 1,770,639
Cash....................................... 9,496 7,931
Interest and dividends due or accrued ..... 23,450 22,537
Premiums and other receivables............. 276,982 240,125
Reinsurance recoverable on paid losses
and loss expenses..................... 11,498 11,495
Reinsurance recoverable on unpaid losses and
loss expenses......................... 148,629 140,453
Prepaid reinsurance premiums............... 30,324 31,685
Deferred Federal income tax................ 12,098 -
Real estate, furniture and equipment....... 51,192 50,950
Deferred policy acquisition costs.......... 117,835 109,774
Goodwill................................... 20,024 20,391
Other assets............................... 28,169 26,188
--------- ---------
Total assets............................ $ 2,457,285 2,432,168
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- -----------
Reserve for losses......................... $ 1,029,596 1,014,386
Reserve for loss expenses.................. 181,545 178,888
Unearned premiums.......................... 432,084 400,143
Convertible subordinated debentures........ 6,187 6,219
Short-term debt ........................... 31,752 28,287
Notes payable.............................. 82,572 82,572
Current Federal income tax................. 7,175 86
Deferred Federal income tax................ - 7,226
Other liabilities ......................... 95,158 106,778
--------- ---------
Total liabilities....................... 1,866,069 1,824,585
--------- ---------
Stockholders' Equity:
- --------------------
Common stock of $2 par value per share:
Authorized shares-180,000,000
Issued: 37,765,504-1999; 37,416,237-1998 75,531 74,833
Additional paid-in capital................. 50,821 45,449
Retained earnings.......................... 510,654 477,118
Accumulated other comprehensive income..... 81,366 114,323
Treasury stock - at cost
(shares: 10,014,389-1999; 8,892,335-1998) (119,292) (97,990)
Deferred compensation expense and notes
receivable from stock sales.......... (7,864) (6,150)
--------- ---------
Total stockholders' equity ............. 591,216 607,583
--------- ---------
Total liabilities and stockholders' equity $ 2,457,285 2,432,168
========= =========
See accompanying notes to unaudited consolidated financial statements.
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SELECTIVE INSURANCE GROUP, INC.
================================
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited) (unaudited)
Quarter ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
------ ------ ------ ------
Revenues:
- --------
Net premiums written.................$ 215,059 196,636 422,784 385,100
Net increase in unearned premiums
and prepaid reinsurance
premiums ....................... (18,605) (19,084) (33,302) (34,992)
------- ------- ------- -------
Net premiums earned ................. 196,454 177,552 389,482 350,108
Net investment income earned......... 23,455 24,080 46,928 49,188
Net realized gains .................. 23,604 1,798 32,201 2,879
Fee-for-service revenue.............. 7,613 3,271 16,495 6,281
Other income......................... 772 796 1,497 1,662
------- ------- ------- -------
Total revenues.................... 251,898 207,497 486,603 410,118
------- ------- ------- -------
Expenses:
- --------
Losses incurred ..................... 121,029 109,187 246,563 213,393
Loss expenses incurred............... 18,600 17,602 36,948 35,074
Policy acquisition costs............. 62,330 56,713 122,681 111,585
Dividends to policyholders........... 1,589 1,686 3,450 2,700
Interest expense..................... 2,155 2,290 4,317 4,566
Fee-for-service expenses............. 7,220 2,487 15,466 5,239
Other expenses....................... 1,021 896 2,550 985
------- ------- ------- -------
Total expenses.................... 213,944 190,861 431,975 373,542
------- ------- ------- -------
Income before Federal income tax .... 37,954 16,636 54,628 36,576
------- ------- ------- -------
Federal income tax expense (benefit):
Current.............................. 10,904 1,887 14,477 5,155
Deferred............................. (565) 1,139 (1,487) 1,855
------- ------- ------- -------
Total Federal income tax
expense......................... 10,339 3,026 12,990 7,010
------- ------- ------- -------
Net income...........................$ 27,615 13,610 41,638 29,566
======= ======= ======= =======
Earnings per share:
- ------------------
Basic.............................$ 1.00 0.47 1.49 1.02
Diluted ..........................$ 0.95 0.44 1.43 0.93
Dividends to stockholders............$ 0.15 0.14 0.29 0.28
See accompanying notes to unaudited consolidated financial statements.
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SELECTIVE INSURANCE GROUP, INC.
===============================
Consolidated Statements of Stockholders' Equity
(dollars in thousands, except per share amounts)
Unaudited Unaudited
June 30 June 30
1999 1998
-------- --------
Common stock:
Beginning of year....................... $ 74,833 $ 72,728
Dividend reinvestment plan
(shares: 32,131 - 1999; 21,301 - 1998).. 64 43
Convertible subordinated debentures
(shares: 4,518 - 1999; 4,235 - 1998).... 9 8
Stock purchase and compensation plans
(shares: 312,618 - 1999; 367,350 - 1998) 625 735
------ ------
End of period........................... 75,531 73,514
------ ------
Additional paid-in capital:
Beginning of year....................... 45,449 30,450
Dividend reinvestment plan.............. 534 526
Convertible subordinated debentures..... 14 21
Stock purchase and compensation plans... 4,824 5,305
------ ------
End of period........................... 50,821 36,302
------ ------
Retained earnings:
Beginning of year....................... 477,118 439,811
Net income.............................. 41,638 41,638 29,566 29,566
Cash dividends to stockholders
($.29 per share-1999;
$.28 per share-1998).................. (8,102) (8,261)
------- -------
End of period........................... 510,654 461,116
------- -------
Accumulated other comprehensive income:
Beginning of year....................... 114,323 89,051
Other comprehensive income-increase
(decrease) in net unrealized gains on
available-for-sale securities, net of
deferred income tax effect............ (32,957)(32,957) 14,837 14,837
------- ------ ------ ------
End of period........................... 81,366 103,888
Comprehensive income 8,681 44,403
===== ======
Treasury stock:
Beginning of year....................... (97,990) (59,785)
Acquisition of treasury stock
(shares: 1,122,054 - 1999;
448,213 - 1998)....................... (21,302) (11,470)
------- ------
End of period........................... (119,292) (71,255)
------- ------
Deferred compensation expense and notes
receivable from stock sales:
Beginning of year....................... (6,150) (6,939)
Deferred compensation expense........... (3,190) (2,053)
Amortization of deferred compensation
expense and amounts received on notes.. 1,476 817
------- ------
End of period........................... (7,864) (8,175)
------- ------
Total stockholders' equity
(per share: $21.30 - 1999; $20.38 - 1998.$ 591,216 595,390
======= =======
See accompanying notes to unaudited consolidated financial statements.
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SELECTIVE INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows
Unaudited
Six months ended June 30
(dollars in thousands) 1999 1998
---- ----
Operating Activities
- --------------------
Net income $ 41,638 29,566
Adjustments to reconcile net income to
net cash provided by operating activities:
(Increase) decrease in interest and dividends
due or accrued (913) 723
Increase in premiums and other receivables (36,857) (40,553)
(Increase) decrease in reinsurance recoverable
on paid losses and loss expenses (3) 1,177
Increase (decrease) in reserves for losses and loss
expenses, net of reinsurance recoverable on
unpaid losses and loss expenses 9,691 (344)
Increase in unearned premiums, net of
prepaid reinsurance premiums 33,302 34,992
Decrease (increase) in net Federal income tax 5,511 (643)
Increase in deferred policy acquisition costs (8,061) (12,390)
Depreciation and amortization 5,626 4,270
Net realized gains on investments (32,201) (2,879)
Other - net (1,330) (9,330)
------ ------
Net adjustments (25,235) (24,977)
------ ------
Net cash provided by operating activities 16,403 4,589
------ ------
Investing Activities
- --------------------
Purchase of debt securities, held-to-maturity - (12,682)
Purchase of debt securities, available-for-sale (141,264) (57,813)
Purchase of equity securities, available-for-sale (5,589) (33,979)
Purchase of other investments (527) -
Sale of debt securities, available-for-sale 22,026 33,695
Redemption and maturities of debt securities,
held-to-maturities 47,058 27,306
Redemption and maturities of debt securities,
available-for-sale 10,319 38,139
Sale of equity securities, available-for-sale 57,484 5,524
Proceeds from other investments 106 25
(Decrease) in net payable from security
transactions (12,280) (5,170)
Net additions to real estate, furniture
and equipment (3,942) (6,277)
------ ------
Net cash used in investing activities $ (26,609) (11,232)
------ ------
Financing Activities
- --------------------
Dividends to stockholders $ (8,102) (8,261)
Acquisition of treasury stock (21,302) (11,470)
Proceeds from short-term debt 3,465 1,600
Net proceeds from dividend reinvestment plan 598 569
Net proceeds from stock purchase and
compensation plans 5,449 6,040
Increase in deferred compensation expense and
proceeds received on notes receivable
from stock sales (3,138) (2,001)
------ ------
Net cash used in financing activities (23,030) (13,523)
------ ------
Net decrease in short-term
investments and cash (33,236) (20,166)
Short-term investments and cash at
beginning of year 58,836 33,798
------ ------
Short-term investments and cash at
end of period $ 25,600 13,632
====== ======
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the period for:
Interest $ 4,729 4,652
Federal income tax 7,400 7,654
Supplemental schedule of
non-cash financing activity:
Conversion of convertible subordinated
debentures 32 30
See accompanying notes to unaudited consolidated financial statements.
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Notes to Unaudited 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 the Selective Insurance Group, Inc. and its
consolidated subsidiaries (collectively, the "Company") for the interim
periods presented. References herein to "Selective" are to Selective
Insurance Group, Inc. All such adjustments are of a normal recurring nature.
The results of operations for any interim period are not necessarily
indicative of results for a 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,
1998.
2. Reclassifications
-----------------
Certain amounts in the Company's prior year consolidated financial statements
have been reclassified to conform with the 1999 presentation. Such
reclassification had no effect on the Company's net income or stockholders'
equity.
3. Current Accounting Pronouncements
----------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FASB 133"). FASB 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement was previously effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Earlier application was encouraged, but
was permitted only as of the beginning of any fiscal quarter that begins
after issuance of financial statements of prior periods. In June 1999, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 137, which defers the effective date of FASB 133 to all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company does not
currently invest in derivative securities, therefore the adoption of this
statement is not expected to have a material effect on the Company's result
of operations or financial condition.
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4. Segment Information
The Company's insurance subsidiaries are primarily engaged in writing
property and casualty insurance. The Company has classified its business
into four segments which are commercial lines underwriting, personal
lines underwriting, investments, and fee-for-service operations. All
segments are evaluated based on their GAAP underwriting results, or
results of operations. The following summary presents revenues (net
investment income in the case of the investments segment) and pretax
income for the individual segments:
Quarter ended Quarter ended
(in thousands) June 30, 1999 June 30, 1998
- -----------------------------------------------------------------------
Income Income
Revenue (Loss) Revenue (Loss)
Commercial Lines
Underwriting $138,508 (5,309) 125,297 (8,169)
Personal Lines
Underwriting 57,946 (710) 52,255 1,079
Investments 23,455 23,455 24,080 24,080
Fee-for-service
Operations 7,613 393 3,271 784
------- ------ ------- ------
Totals $227,522 17,829 204,903 17,774
======= ====== ======= ======
Net realized on gains
on investments 23,604 (1) 1,798
Interest Expense (2,155) (2,290)
General corporate
(expense)/income (1,324) (646)
------ ------
Income before
Federal income tax $37,954 16,636
====== ======
Six months ended Six months ended
(in thousands) June 30, 1999 June 30, 1998
- -----------------------------------------------------------------------
Income Income
Revenue (Loss) Revenue (Loss)
Commercial Lines
Underwriting $275,280 (19,191) 244,132 (12,951)
Personal Lines
Underwriting 114,202 (67) 105,976 1,064
Investments 46,928 46,928 49,188 49,188
Fee-for-service
Operations 16,495 1,029 6,281 1,042
------- ------ ------- ------
Totals $452,905 28,699 405,577 38,343
======= ====== ======= ======
Net realized on gains
on investments 32,201 (1) 2,879
Interest Expense (4,317) (4,566)
General corporate
(expense)/income (1,955) (80)
------ ------
Income before
Federal income tax $54,628 36,576
====== ======
(1) Net Realized gains for the Second Quarter 1999 and Six Months 1999 were
impacted by the Company's desire to reduce its exposure in the equity market.
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5. Reinsurance
-----------
The following is a table of assumed and ceded amounts by income statement
caption:
Quarter ended Six months ended
June 30 June 30
------------- ----------------
(in thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------
Net premiums written:
Assumed $ 2,435 5,609 10,238 12,044
Ceded (19,579) (20,306) (37,783) (34,969)
Net premiums earned:
Assumed $ 4,428 7,159 11,087 12,633
Ceded (19,797) (21,080) (39,144) (41,507)
Losses incurred:
Assumed $ 2,860 5,431 7,280 10,257
Ceded (19,261) (12,363) (33,647) (28,331)
Loss expenses incurred:
Assumed $ 315 715 936 1,195
Ceded (1,124) (644) (1,169) (1,602)
6. Lines of Credit
---------------
At June 30, 1999 and June 30, 1998, there was $31.8 million and $19 million,
respectively, of short-term debt outstanding under the two lines of credit
that the company has available; the weighted average interest rate on these
borrowings was 5.3% and 6.0% for the respective periods.
Forward-looking statements
- --------------------------
This quarterly report on Form 10-Q contains certain statements that are not
historical facts and are considered "forward-looking statements" (as define
in the Private Securities Litigation Act of 1995), which can be identified by
terms such as "believes," "expects," "intends," "may," "will," "should,"
"anticipates," the negatives thereof, or by discussion of strategy, goals
and/or future expectations. Such forward-looking statements involve opinions
and predictions based on current information and assumptions, and no
assurance can be given that the future results will be achieved since events
or results may materially differ as the result of risks and uncertainties
facing the Company. These include, but are not limited to, economic, market
or regulatory conditions, competition, and investment risks, as well as risks
associated with the Company's entry into new markets, diversification and
catastrophic events.
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.
References herein to the "Company" or "Selective" are references to Selective
Insurance Group, Inc. and its consolidated subsidiaries.
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Results of Operations
- ---------------------
The following discussion is a comparison of the Quarter Ended June 30, 1999
("Second Quarter 1999"), and Six Months Ended June 30, 1999 ("Six Months
1999"), to the Quarter Ended June 30, 1998 ("Second Quarter 1998"), and Six
Months Ended June 30, 1998 ("Six Months 1998").
Revenues
For the Second Quarter 1999, net premiums written increased $18 million, or
10%, as compared to the Second Quarter 1998. Net premiums written increased
$38 million, or 10%, during the Six Months 1999 as compared to the same
period in 1998. These results reflect $60 million for Second Quarter 1999 and
$116 million in new business for Six Months 1999 compared to the same periods
in 1998, partially offset by premiums lost due to a highly competitive
commercial lines marketplace and premiums non-renewed as a result of the
Company's regular review of its business.
The trend of increasing net premiums written during both 1998 and 1999
resulted in higher net premiums earned. After an insurance policy is sold,
net premiums written are recorded for the sales transaction and then earned
over the life of the insurance policy (which is generally a one-year term).
The growth in the net premiums written resulted in an increase of 11%, or $39
million, for the Six Months 1999 and 11%, or $19 million in net premiums
earned for the Second Quarter 1999 compared to the same periods in 1998.
Operating Segments
- ------------------
The Company is primarily engaged in writing property and casualty insurance.
The Company has classified its business into four segments, each of which is
managed separately. The four segments are commercial lines underwriting,
personal lines underwriting, fee-for-service operations and investments. All
segments are evaluated based on their underwriting or operating results,
which are prepared in accordance with Generally Accepted Accounting
Principles ("GAAP"). For an additional description of these accounting
policies, refer to Note 1 to the Company's Consolidated Financial Statements
on pages 32, 33 and 34 of the 1998 Annual Report.
Commercial Lines
The Commercial Lines Underwriting segment consists of six Strategic Business
Units ("SBUs") which accounted for approximately 72% of net premiums written
during the Second Quarter 1999 and Six Months 1999. Net premiums written
increased $15 million, or 11% for the Second Quarter 1999, and $32 million,
or 12% for the Six Months 1999 compared to the same periods in 1998. These
increases were reflected in the performance of all commercial SBUs and
included $46 million in new business for the Second Quarter 1999 and $89
million in new business for the Six Months 1999. Our new business production
was partially offset by premiums lost due to a highly competitive commercial
lines marketplace and premiums non-renewed as a result of the Company's
regular review of its business. The development of new business is primarily
due to the Company's increase in the number of field underwriters (the key
contact between the independent agent and the Company), the Company's
expansion of its operations in Midwestern states and New England as well as
the Company's strengthening of agency relationships.
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For the Second Quarter 1999 and Six Months 1999, respectively, the Commercial
Lines statutory combined ratio was 104.4% and 106.3%, down 1.9 points for the
Second Quarter 1999 and up 1.2 points for Six Months 1999 when compared to
the same periods in 1998. The decline for the Second Quarter 1999 reflects a
lower amount of catastrophe losses: however Six Months 1999 results compared
to the same period of 1998 results reflect an increase in severe property
losses of approximately $5 million, the majority of which occurred in the
quarter ended March 1999. These losses increased the Six Months 1999 ratio by
1.6 points over the same period in 1998.
Personal Lines
The Personal Lines Underwriting segment net premiums written increased $4
million, or 6.2%, for the Second Quarter 1999, and $6 million, or 5.3% for
Six Months 1999 when compared with the same periods in 1998. This increase
resulted from new business written of $14 million in the Second Quarter 1999
and $27 million in the Six Months 1999. New business in territories outside
of New Jersey amounts to $6 million and $11 million for Second Quarter 1999
and Six Months 1999, respectively. This new business reflects the expansion
efforts in Personal lines in states outside of New Jersey. Personal Lines
premium in New Jersey remained constant with 1998 for both the Second Quarter
1999 and Six Months 1999, with growth in Urban Enterprise Zone business (the
Urban Enterprise Zone Program requires New Jersey Auto insurers to write an
amount of urban auto insurance proportionate to their market share; the
Company has fully met its 1999 obligation to write this business as of Second
Quarter 1999) offsetting a decline in voluntary premium. The decline in
Voluntary New Jersey personal lines premium is attributable to approximately
$3 million of reduced premium on existing policies requested by insureds
pursuant to New Jersey Auto Reform Legislation effective April 1999, as well
as to the 15% rate reduction mandated by such law on renewals occurring in
the Second Quarter 1999 (projected to be approximately $24 million on an
annual basis). In the First Quarter of 1998, a change in the New Jersey
Homeowners Quota Share Reinsurance Program increased premiums by $4 million
due to a one-time buyout of unearned premium reserve; there was no
corresponding increase in 1999. Excluding this change to the New Jersey
Homeowners Quota Share Program, personal lines net premiums written increased
$11 million, or 10% compared to the same periods in 1998. For further
information about the New Jersey Auto Reform see "Expenses" in Item 2.
For the Second Quarter 1999 and Six Months 1999 the Personal Lines SBU
statutory combined ratio was 96.2% and 98.9% respectively, down 2.9 points
from the Second Quarter 1998 and 0.1 point from the Six Months 1998. The
statutory combined ratio for Six Months 1999 decreased 0.1 points to 98.9%
when compared to Six Months 1998. These decreases were due primarily to
decreasing loss adjustment expenses resulting from expense control
initiatives partially offset by an increase in expenses relating to the
expansion of personal lines in states outside New Jersey.
Investments
Net investment income earned for the Second Quarter 1999 and Six Months 1999
decreased 1.3% or $0.2 million and 2.8% or $1.1 million, respectively, when
compared to the same periods in 1998. These decreases resulted from: 1)
redemptions and maturities of higher yielding debt securities reinvested at
lower fixed income yields currently available in the marketplace; 2) a
decrease in available cash due to cash used for the Company's stock
repurchase program and 3) a decrease in cash flow due to acceleration of
claim settlements (which is having less of an impact on cash-flow in 1999
than in 1998 and 1997), and a shift by customers toward extended pay plans
for insurance premiums. However, cash flow for the Six Months 1999 was
increased $11 million compared to the same period in 1998.
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PAGE
Investment portfolio management strategies have allowed the Company to
maintain a 4.4% annualized after-tax investment yield for Second Quarter 1999
and Six Months 1999, a 0.1 point decrease from 4.5% for the same periods in
1998. Net Realized Gains (net of tax) increased $14.2 million to $15.3
million and $19.1 million to $20.9 million for the Second Quarter 1999 and
Six Months 1999. These gains were realized from the sale of equities as part
of the Company's effort to reduce its exposure in the equity market resulting
from the Company's regular review of the investment portfolio.
Fee-For-Service Operations
In addition to its risk-bearing insurance activities, the Company also
provides diversified insurance services designed to generate fee income. The
Company believes that leveraging its insurance knowledge to generate fee
income will allow it to further diversify its business, avail itself of
market opportunities created by the movement of insureds to alternative
market products, and reduce the impact on its business resulting from
underwriting cycles and weather-related catastrophe losses. The net revenues
and pre-tax income of the fee-for-service businesses are shown in the table
below.
During the Second Quarter 1999, the Company expanded its Flood operations to
all states during the Second Quarter 1999, and is internally developing its
own processing system to rate and issue policies over the Internet. The
system, which management expects to be complete later in 1999, will eliminate
the need to purchase support services from an outside vendor and result in an
estimated $1 million in annual cost savings. This system will also then be
made available to other companies through the marketing activities of PDA
Software Services, either on a processing fee basis or through a license
agreement. The Company has also appointed 1,200 new flood-only agents,
expanded its marketing program, and has begun placing representatives in the
field to work closely with our agents.
Alta Services manages workers' compensation and automobile medical claims on
a non-risk bearing basis for the underwriting subsidiaries of the Company,
for unrelated companies, and for self-insured businesses. Alta offers a full
array of medical management services and creates new products as
opportunities are presented, including, for example, medical pre-certifications
required under the new personal automobile law in New Jersey.
SelecTech provides third party administrative services to self-insured
accounts, and works closely with Alta Services to provide risk management
alternative solutions. SelecTech's financial results are combined with those
of Alta Services in the table below because the two groups are managed as one
entity.
PDA Software Services is a software developer which specializes in the
insurance industry, and which also provides processing services to public and
private sector organizations. The Company purchased PDA to serve as a
distribution and processing services platform in connection with its flood
and other system initiatives. Consequently, its net revenues and operating
results are not anticipated to reflect these new initiatives until after
1999. The pre-tax loss of PDA for the Second Quarter and Six Months 1999
reflected charges totaling $340,000 and $680,000, respectively, for goodwill
and retention bonuses intended to retain key PDA personnel. The retention
bonuses will continue as charges against income through 2002.
In July 1999, to continue to expand the Fee-For-Service Operations, the
Company purchased Modern Employers, Inc. ("MEI") a professional employer
organization ("PEO"). A PEO is a service organization that provides payroll
and human resource services to small businesses. The Company believes that
the acquisition provides an opportunity to cross-sell insurance and other
non-insurance products and
-11-
PAGE
services to the MEI customer base and to use the Company's existing
distribution system of independent agents to expand MEI's customer base. This
adds to the Company's ability to be a single source solution for the
independent agent. MEI was purchased for cash in an amount equal to 8.5 times
the 1999 Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"). Management expects the cost to range between $23 and $25 million.
Consumer Health Network, ("CHN") a nationally accredited preferred provider
organization ("PPO") was also purchased in July 1999. A PPO puts together a
network of physicians to provide services to managed care organizations at a
reduced cost. In exchange for decreased fees charged for these services the
managed care providers agree to direct patients through this network of
physicians. CHN's provider network, approximately 38,000 medical providers
in the tri-state area, is a critical part of Selective's current managed care
program and alternative market programs. CHN was purchased for approximately
$6 million in cash.
Quarter ended June 30, Quarter ended June 30,
(in thousands) 1999 1998
- --------------------------------------------------------------------------
Net Pre-tax Net Pre-tax
Revenue Profit(loss) Revenue Profit (loss)
------- ----------- ------- ------------
Flood $ 2,388 $ 458 $ 1,923 $ 506
Alta Services 1,484 198 1,348 278
PDA Software
Services 3,741 (263) - -
----- ---- ----- ---
Totals $ 7,613 $ 393 $ 3,271 $ 784
===== ==== ===== ===
Six months ended June 30, Six months ended June 30,
(in thousands) 1999 1998
- --------------------------------------------------------------------------
Net Pre-tax Net Pre-tax
Revenue Profit(loss) Revenue Profit (loss)
------- ----------- ------- ------------
Flood $ 4,315 $ 818 $ 3,608 $ 903
Alta Services 3,355 608 2,673 139
PDA Software
Services 8,825 (397) - -
----- ----- ----- -----
Totals $16,495 $ 1,029 $ 6,281 $ 1,042
====== ===== ===== =====
Expenses
The ratio of losses and loss expenses incurred to net premiums earned for the
Second Quarter and Six Months of 1999 was 71.4% and 73.1% respectively,
compared to 71.6% and 71.1% for the corresponding periods of 1998. Six Months
1999 loss and loss expenses included a $5 million increase in severe property
losses (before-tax), which increased the loss and loss expense ratio by 1.6
points.
-12-
PAGE
Overall, the commercial lines loss and loss expense ratio increased by 0.4
and 3.0 points for the Second Quarter and Six Months 1999, respectively, when
compared with the same periods in 1998. The majority of these large,
non-catastrophe property losses were on policies in force two years or more and
in the primary operating territories of New York, New Jersey, Pennsylvania,
North Carolina and Virginia.
The personal lines SBU loss and loss expense ratio decreased by 1.7 points
and 0.1 points to 74.1% and 74.9% for the Second Quarter and Six Months 1999,
respectively, when compared with 1998 due to increasing premiums with a
minimal increase in fixed costs.
There is an excess profits law in New Jersey, which sets a maximum profit
level on personal automobile insurance. Under New Jersey regulations, an
insurer's excess profits earned on direct insurance written in New Jersey on
private passenger automobiles, as determined pursuant to an actuarial formula
set forth in applicable regulations ("NJ Excess Profits"), are subject to
refund or credit to policyholders. A NJ Excess Profits calculation must be
made by an insurer for this purpose and submitted to the New Jersey
Department of Banking and Insurance each year for the three-year period
including the year for which the calculation is done and the two calendar
years immediately preceding such year.
For the period ended December 31, 1998, the Company did not incur an
obligation to make an excess profit premium refund. The premium reductions
imposed by the recently enacted NJ Auto Insurance Cost Reduction Act, and the
assignments the Company is required to take of Urban Enterprise Zone
business, will make the possibility of incurring this obligation less likely
in future years. However, if the Company's current profitability continues in
its New Jersey personal automobile business, it may be possible that it will
incur an excess profit premium refund obligation in the future. The Company
considers the potential effect of such excess profits in establishing its
accruals.
In March 1999, a new personal automobile insurance law in New Jersey (known
as The Automobile Cost Reduction Act) became effective which provides for a
statewide average premium reduction of 15%. Accordingly, on renewal an
insureds premium will be reduced by approximately 5%, and the Company
anticipates that annual premiums in this line will be reduced by
approximately $24 million. In addition, insureds holding current policies may
request an immediate premium reduction under the new law, and endorsements to
reduce premium have been processed for these insureds, which resulted in
lower premiums of approximately $3 million for the Six Months and Second
Quarter 1999. The financial impact of the new law is expected to be partially
offset by the Company's rate adequacy in its voluntary market business,
potential cost reductions through the use of medical protocols, anti-fraud
provisions and other procedures provided for in the law. Taking these factors
into account, as well as a reduction in variable costs and taxes, it is
currently anticipated that annual earnings may be reduced by approximately $3
million. The impact on the Company's earnings will not be fully reflected in
1999, due to the April 1999 effective date of the rollback. The profitability
of this line of business will also be impacted going forward by the ongoing
performance of the Urban Enterprise Zone business required to be written by
the Company, the continuing rate adequacy of the voluntary market business,
loss trend developments, and the level of the overall savings to be achieved
through the use of medical protocols under the new law. The medical cost
savings provisions of the law, implemented through regulations promulgated by
the New Jersey Department of Banking and Insurance, became effective in March
1999. However, actions by the Department delayed the implementation of the
provisions and the realization of these cost savings by requiring approval of
each Company's "Pre-certification" and/or "Decision Point Review" plan.
Selective will use Alta Services pre-certification plan which was approved
August 4, 1999, allowing the Company to begin realizing some medical cost
savings. The delay in approval will not have a material impact on medical
cost savings expected.
-13-
PAGE
Productivity in the Second Quarter 1999, as measured by fiscal year net
premiums written per employee, was approximately $466,000, up from $432,000
for the Second Quarter 1998. The increase is due primarily to growth in net
premiums written in 1999 without a corresponding increase in staffing.
The underwriting expense ratio of policy acquisition costs to net premiums
earned for the Second Quarter and Six Months 1999 decreased 1.5 points and
1.2 points to 30.0% and 30.3%, respectively. The lower expense ratio
primarily reflects a 0.4 point decrease in the commissions incurred due to
decreasing commission incentives to agents and an increase in ceding flood
commissions received by the Company, a 0.3 point decrease attributed to a
lower accrual of the annual cash incentive award for all employees, and a 0.6
point decrease due to timing differences in expense accruals.
Total Federal income tax expense increased by $7 million to $10 million and
by $6 million to $13 million for Second Quarter and Six Months 1999 when
compared to the same periods in 1998. The Company's effective tax rate was
27.2% and 23.8% for the Second Quarter and Six Months 1999, compared with
18.2% and 19.2% for the Second Quarter and Six Months 1998. The Company's
effective tax rate differs from the Federal corporate rate of 35% primarily
as a result of the tax-exempt investment income. The effective tax rate for
the Second Quarter 1999 and Six Months 1999 was higher than the rate for
corresponding periods in 1998, mainly due to an increase in realized gains of
$ 22 million and $ 29 million for the Second Quarter and Six Months 1999 when
compared to the same periods in 1998.
Income
- ------
The table below shows operating income, net realized gains, and net income,
including per diluted share amounts for the quarters and six months ended
June 30, 1999 and 1998.
- --------------------------------------------------------------------------
(dollars in thousands, Quarter ended June Six months ended June
except for per share data) 1999 1998 1999 1998
- ---------------------------------------------------------------------------
Operating income, excluding
net realized gains
(net of tax) $12,272 12,442 20,707 27,695
Net realized gain,
net of tax 15,343 1,168 20,931 1,871
Net income 27,615 13,610 41,638 29,566
Per diluted share:
Operating income (1) .43 .40 .71 .87
Net realized gain .52 .04 .72 .06
Net income (1) .95 .44 1.43 .93
(1) Operating and Net Income for the Second Quarter 1999 and Six Months 1999,
include weather-related storm losses of $1 million, or $.03 per diluted
share, and $5 million, or $.12 per diluted share, respectively.
-14-
PAGE
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 sales of the
Company's common stock and dividends from its insurance subsidiaries, the
payments of which are subject to state regulatory requirements. Short-term
cash requirements are funded through two lines of credit available to the
Company.
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, dividends to policyholders and stockholders,
and common stock repurchased under its repurchase program. The insurance
subsidiaries satisfy their obligations and cash outflow through premium
collections, interest and dividend income and maturities of investments.
On May 7, 1999, the Company's Board of Directors (the "Board") authorized
management to repurchase an additional one million shares of its common stock
under the repurchase program, bringing the overall number of authorized
shares to 5 million. The stock may be repurchased from time to time in the
open market or in privately negotiated transactions. The determination to
make such purchases is made based on market conditions, available cash and
alternative investment opportunities. As of June 30, 1999, the Company had
repurchased a total of 3.5 million shares at a total cost of $72 million
under the program, of which 1.1 million shares were repurchased from January
1, 1999 through June 30, 1999 at a total cost of $21 million.
For the Six Months 1999 and 1998, cash provided by operating activities was
$16 million and $5 million respectively. This increase was mainly due to
the higher levels of net premiums written during 1999. The higher levels of
net premiums written during 1999 were partially offset by an increase in
claims paid, including a portion of the previously noted weather-related
catastrophe and increased large commercial property losses increased due to
higher premium volume. The rate at which outstanding claims are being paid
and closed has increased due to the implementation of claims management
specialists ("CMSs") in the field and improved litigation management,
however, the impact of this trend is approaching a steady state and is not
anticipated to have as much of an impact on cash-flow after the Second
Quarter 1999. The Company believes that the deployment of the CMSs and the
enhanced litigation programs will result, over the long-term, in more
favorable claim settlements. Also a trend toward installment plans for
premium collections has had a negative impact on cash inflow for Second
Quarter 1999. The Company expects to generate cash from operations over the
balance of the year.
Total assets increased 1%, or $25 million, from December 31, 1998 to June 30,
1999. This was principally due to: (i) an increase in premiums and other
receivables of $37 million due to higher premium levels as well as the
previously mentioned trend toward installment plans; (ii) deferred policy
acquisition costs (policy acquisition costs which are deferred and amortized
over the life of the policy period) and reinsurance recoverables of $8
million each primarily due to the increased premium volume; and (iii) a $12
million increase in deferred federal income tax recoverable. These increases
were partially offset by a decrease in investments of $43 million, which
reflected: (i) a decrease in unrealized gains of $51 million (before
deferred tax benefit) partially offset by an increase in cash and investments
due to increased realized gains of $29 million; and (ii) a $21 million
decrease reflecting funds used to purchase Selective stock under the
Company's repurchase program.
-15-
PAGE
The rise in total liabilities of 2.3%, or $41 million, from December 31, 1998
to June 30, 1999 was mainly attributable to increases of $32 million and $18
million in unearned premiums and reserves for losses and loss expenses,
respectively. These increases are driven by the 11% increase in net premiums
earned. The increase in reserves for loss and loss expenses also reflects
$2 million of the $7 million in weather-related catastrophe losses and
increased large property claims experienced in the first quarter. These
increases were partially offset by a $12 million decrease in other
liabilities primarily as a result of the decrease in securities payable.
Year 2000
- ---------
Many currently installed computer systems and software products use only two
digits to identify a year in the date field with the assumption that the
first two digits of the year are always "19." Consequently, on January 1,
2000, computers that are not "Year 2000" compliant may read the year as 1900.
Systems that calculate, compare or sort using the incorrect date may
malfunction. As a result, prior to the end of 1999, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effect associated with such compliance.
The Company is preparing for potential Year 2000 issues (the "Y2K" issue)
that could affect its information systems, mainframe applications, personal
computers (PCS), communications systems, and non-information systems of the
Company's suppliers and independent insurance agents are also being
addressed. The Company's preparations include modification, replacement and
testing of hardware and software, development of contingency plans, and
efforts to identify and address Y2K issues associated with third parties who
are material to the Company's operations.
The Company has a number of critical business systems, including, policy
underwriting, billing, decision support, claims and financial reporting
systems. Remediation efforts commenced in 1997 and were completed for all
major systems in June 1999. In connection with hardware issues, a mainframe
(enterprise server) upgrade was completed in August 1998, and an inventory of
all Personal Computers (PCs) and network equipment was completed at that
time. Necessary upgrading or replacement of network equipment is complete
and all critical PCs have been upgraded.
A series of global system integration tests are being run to test Y2K
readiness, and are intended to synchronize all systems, and to ensure that
routine maintenance remains Y2K compatible. Two of these tests were
successfully completed in 1998. The 1998 tests, which included testing by
programmers and business users, identified minimal necessary changes to
program code. Required changes were completed at the time of identification.
The Company began the most comprehensive test to date in July 1999. This test
will include the remediated claims system as well as a new financial
reporting system, which became operational after the 1998 tests were
completed. A separate system environment is being used to mimic the
production environment for this test which is expected to run until October
1999. A Y2K code audit performed using an automated tool to identify and
correct potential Y2K coding issues is complete and issues identified have
been corrected. Programming teams will continue to monitor all code
introduced to major systems on a monthly basis to ensure the new code does
not cause a new Y2K problem.
The Company anticipates Y2K readiness in all critical areas, and estimates it
is 90% complete in its preparation. The Company has adopted a contingency
planning strategy that addresses mission critical and non-mission critical
business processes. The Company has a Disaster Recovery Plan for the
Information Systems Department, providing for the continuation of data
processing operations at an off-site disaster recovery facility.
-16-
PAGE
The Company's Y2K awareness initiative addresses its interaction with its
independent agents, suppliers and customers. The Company's main business
customers are independent insurance agents. The Company has provided Y2K
information to all of its independent agents, its representatives have spoken
at agency functions, and it has conducted an agent's technology fair, all
intended to provide as much Y2K information as possible to help our agents
address the issue in their businesses. In addition, the Company has
established a Y2K hotline for questions. An agency Y2K systems readiness
survey is complete which has identified agents who may not be Y2K compliant.
The Company's regional offices are developing contingency plans to allow them
to work with the small percentage of agents who may not be Y2K compliant.
The Company's suppliers include software vendors, service providers and
material suppliers. Each of the vendors has been contacted by the Company to
obtain written confirmation on the status of their Y2K readiness. All
critical vendors have indicated readiness and are currently being tested.
The Company believes that most significant Y2K insurance claims are likely to
occur in the information technology business sector, and under errors and
omissions (E&O) and directors and officers liability (D&O) insurance
coverages. The Company has not significantly participated in the technology
business sector, nor has it significantly written E&O and D&O coverage types.
The Company has also communicated to agents and policyholders that it will
not cover Y2K losses, with the possible exception of certain losses involving
property damage or bodily injury which can not be quantified at this time.
The Company is using the Insurance Services Office Y2K exclusionary
endorsements on most new and renewal commercial lines policies. In addition,
the Company's casualty excess of loss treaty was amended, effective July 1,
1998, to include as covered losses all Y2K losses aggregated as a single
event, with protection totaling $38 million in excess of $12 million
retention. The coverage protects against any Y2K claim which is asserted in
the 36 month period beginning on July 1, 1998.
The Company has projected what it believes to be the most reasonably likely
worst case scenarios related to potential Y2K failures and disruptions.
These scenarios include computer system failures occurring within its
independent agency distribution system and the Company's out-sourced
processing of premium remittances. Contingency plans continue to be refined
to allow the Company to carry on operations if such scenarios were to occur.
The contingency plans include provisions to undertake manual processing in
situation where business partner computer systems are not functioning
normally. Manual processing would reduce the Company's overall efficiency,
however, it would not materially impact the Company's ability to operate.
Each mission critical business department has a plan for resumption of
business in which the functions to be restored are prioritized by critical
time frames. These plans will enable processing of core business to continue
for a limited time while adjustments are being made.
The failure to correct a material Y2K problem could result in interruption to
normal business activities operations, such as policy underwriting and claims
payment. Such failure could materially and adversely affect the Company's
operations, liquidity and financial condition. The Company's Y2K project is
expected to significantly reduce the Company's level of uncertainty about the
potential problem. The Company believes its internal information systems
will have been adequately modified and safeguarded to protect from such
failures.
Due to the general uncertainty inherent in the Y2K problem, resulting in part
from third-party suppliers and customers, the Company is unable to determine
at this time whether, or to what extent, a Y2K failure could occur. A Y2K
failure could have a material adverse impact on the Company's operations,
liquidity or financial condition.
-17-
PAGE
The Company acquired PDA Software Services, Inc. (PDA), in December 1998. As
part of an extensive due diligence process, the Y2K exposures of PDA were
evaluated, and it was concluded that no material exposure to Y2K claims was
present. Additionally, a technology errors and omission insurance policy was
purchased which provides $10 million coverage for any Y2K claim resulting
from any work performed by PDA after January 1, 1998.
The Company does not presently anticipate that costs incurred for the Y2K
project will be material. Current estimates of the compliance costs which
will be incurred to ensure Y2K readiness are $2.3 million, and as of June 30,
1999, the Company has incurred approximately $2 million of that amount. The
estimated amount includes both modification costs, which are expensed as
incurred, and certain system replacement costs, some of which are capitalized
and amortized. Modification costs which have been charged to earnings in
1999, 1998, 1997 and 1996 are approximately $260,000, $500,000, $700,000, and
$100,000, respectively. The remaining $500,000 expended has been
capitalized.
The Company does not presently anticipate that costs for the "Year 2000" will
be significant or that "Year 2000" issues will have a material impact on its
results of operations or financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
There have been no material changes in the information about market risk set
forth in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Selective's Annual Meeting of Stockholders was held on May 7, 1999. At the
Annual Meeting, Paul D. Bauer, William A. Dolan, II, William C. Gray and Joan
M. Lamm-Tennant were elected as directors to serve for a term of three years
and until their successors are elected and qualified. Votes cast and
withheld for the election of directors were as follows:
Votes For Votes Withheld
--------- ---------------
Paul D. Bauer 21,920,425 950,705
William A. Dolan, II 21,956,991 914,139
William C. Gray 21,959,538 911,592
Joan M. Lamm-Tennant 21,966,122 905,008
The directors whose terms of office continued after the Annual Meeting are A.
David Brown, James W. Entringer, C. Edward Herder, William M. Kearns, Jr., S.
Griffin McClellan, III, Gregory E. Murphy, William M. Rue, Thomas D. Sayles,
Jr. and J. Brian Thebault.
No other matters were voted on at the Annual Meeting.
-18-
PAGE
Part II Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
The exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index, which immediately precedes the exhibits filed with this
Form 10-Q.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the period covered by
this report.
-19-
PAGE
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: August 16, 1999
By: /s/Gregory E. Murphy
--------------------
Gregory E. Murphy,
President and
Chief Operating Officer
Date: August 16, 1999
By: /s/ David B. Merclean
----------------------
David B. Merclean
Senior Vice President and
Chief Financial Officer
-20-
PAGE
SELECTIVE INSURANCE GROUP, INC.
INDEX TO EXHIBITS
Exhibit No.
10.1 Amendment, dated May 31, 1999, to the Commercial Loan Note of
$25,000,000 Line of Credit with Summit Bank as amended through
July 31, 2000.
10.2 Amendment, dated June 17, 1999, to the Promissory Note of
$25,000,000 Revolving Line of Credit with State Street Bank and
Trust Company as amended through June 30, 2000.
10.3 Amended Stock Option Plan for Directors
11 Statement Re Computation of Per Share Earnings, filed herewith.
27 Financial Data Schedule, filed herewith.
Exhibit 10.1
as of May 31, 1999
Selective Insurance Company of America
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890-1000
Re: Letter Loan Agreement dated June 30,1997 as heretofore
modified an extended (the "Loan Agreement")
Gentlemen:
This is to confirm our approval of your request for an
extension through July 31,2000 of the expiration date of the
$25,000,000.00 Revolving Line of Credit provided for in the Loan
Agreement. Accordingly, we have agreed to modify the definition
of Revolving Maturity Date to provide that July 31, 2000 is the
Revolving Maturity Date. Our approval is subject to your
agreement that paragraph 4 of the Loan Agreement be modified, and
by your execution hereof you agree it is so modified, to read as
follows:
4. Interest Rate. Principal on each outstanding Revolving
Loan shall bear interest as selected by the applicable Borrower
at a floating rate equal to the Adjusted Libor Rate plus 60 basis
points per annum. Revolving Loans may be made for interest
periods of 1 or 3 months, the foregoing interest periods shall be
acceptable to the Bank and adjusted for month-end, weekend and
holiday periods. An interest period shall commence on the first
day of each month and end one (1) or three (3) months thereafter
as selected by the Borrower. All borrowings hereunder during each
interest periods shall be at the Adjusted Libor Rate as
determined at the beginning of the Interest Period, plus 60 basis
point. Interest on each Revolving Loan shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
Interest shall be payable monthly in arrears on the first day of
each month. All accrued and unpaid interest on all Revolving
Loans shall be due and payable on the same day when principal is
payable, whether upon acceleration following an Event of Default
as defined herein or on the Revolving Maturity Date. Revolving
Loans may be prepaid without penalty. Revolving Loans which are
repaid may be reborrowed subject to the terms hereof.
Our approval shall not constitute a waiver of any Events of
Default, if any so exist, or any future violation of any
provisions of the Loan Agreement or any other Loan Documents.
Capitalized terms not defined herein but in the Loan
Agreement shall have the same meaning ascribed to such terms in
the Loan Agreement. Your execution shall also act as your
representation that the execution of this letter agreement has
been authorized by all required corporate action, that this
letter agreement constitutes the valid and binding obligation of
the Borrower, is enforceable in accordance with its terms, that
no Event of Default exists and that no material adverse change of
the Borrower has occurred.
Except as herein set forth, the Loan Agreement and all other
Loan Documents shall remain in force and effect. Our agreement as
aforesaid is subject to your written agreement with the terms
hereof by signing and returning a copy hereof where so indicated
below, along with the enclosed replacement revolving credit
master promissory notes, where so indicated below.
Summit Bank
By: /s/ Richard P. Neale
------------------------
Name: Richard P. Neale
Title:VP & Manager
Agreed to:
Selective Insurance Company of America
By: /s/ David B. Merclean
-------------------------
Name: David B. Merclean
Title: Sr. VP & CFO
Selective Insurance Company of America
By: /s/ Robert P. Rank
---------------------
Name: Robert P. Rank
Title: Sr. VP & CIO
Selective Insurance Group, Inc.
By: /s/ David B. Merclean
--------------------------
Name: David B. Merclean
Title: Sr. VP & CFO
Selective Insurance Group, Inc.
By: /s/ Robert P. Rank
-------------------------
Name: Robert P. Rank
Title: Sr. VP & CIO
REPLACEMENT
REVOLVING CREDIT MASTER
PROMISSORY NOTE
$25,000,000.00 Cranford, New Jersey
as of May 31, 1999
FOR VALUE RECEIVED, the undersigned SELECTIVE INSURANCE
COMPANY OF AMERICA (the "Borrower") promises to pay to the order
of SUMMIT BANK (herein called "Bank") at 750 Walnut Street,
Cranford, NJ 07016, such sum up to Twenty Five Million and 00/100
Dollars ($25,000,000.00), together with interest as hereinafter
provided, as may be outstanding on loans by Bank to Borrower
under a letter agreement referred to below. The principal amount
owing hereunder shall be paid to the Bank on July 31, 2000 (the
"Maturity Date") or as may otherwise be provided for in the
letter agreement.
Interest on portions of the daily unpaid principal
amount from time to time outstanding hereunder shall be payable
monthly on the first day of each month during the term hereof and
on the Maturity Date, at a fluctuating interest rate per annum of
the Adjusted Libor Rate plus sixty (60) basis points if, in
accordance with the terms of the Loan Agreement, interest on such
portion is calculated based on the Adjusted Libor Rate.
This Note is issued in accordance with that certain
letter agreement dated June 30, 1997 between Borrower, Selective
Insurance Group, Inc. and Bank (said letter agreement as amended
or modified from time to time the "Letter Agreement"). Any
capitalized term used herein without definition shall have the
definition contained in the Loan Agreement. All the terms and
conditions of the Letter Agreement are incorporated herein as
though fully set forth and the Borrower acknowledges the reading
and execution of said Letter Agreement.
In addition to all remedies provided by law upon
default on payment of this Note or any installment thereof, or
upon an Event or Default under the terms of the Letter Agreement
or of any obligation heretofore or hereafter incurred by the
Borrower to Bank, Bank may, at its option:
(1) Declare this note and all other loans and
Obligations owing Bank from the Borrower to be forthwith due and
payable.
(2) Collect interest on the principal balance owing
hereon at a rate of two (2%) in excess of the rate provided for
above, and if this Note is referred to an attorney for
collection, collect reasonable attorneys' fees;
-1-
(3) Set off the amount owing hereunder against any
money owed by Bank in any capacity to the Borrower, whether due
or not, and Bank shall be deemed to have exercised such right of
set off, and to have made a charge against any such money
immediately upon the occurrence of any default, even though the
actual book entries may be made at some time subsequent thereto;
and
(4) Exercise any and all remedies provided for in the
Letter Agreement or otherwise available by applicable law.
Bank shall not, by any act, delay, omission or
otherwise be deemed to have waived any of its right or remedies
hereunder shall valid against Bank unless in writing, signed by a
duly authorized officer of Bank, and then only to the extent
therein set forth. The waiver by Bank of any right or remedy
hereunder upon any one occasion shall not be construed as a bar
to any right or remedy which it would otherwise have had on any
future occasion.
If any payment required hereunder is not paid within 15
days of the date due, the Borrower shall pay to Bank a late fee
of 5% of the past due amount.
The Borrower shall have the right to make prepayment of
this Note, in whole or in part, without premium or penalty. The
Borrower hereby waives presentment for payment, protest and
notice of protest for nonpayment of this notice.
This note replaces that certain Revolving Credit Master
Promissory Note of Borrower to Bank in the principal sum of
$25,000,000.00 dated June 30, 1997 and is not intended to be a
novation of said not or the loans evidenced thereby.
BORROWER WAIVES TRIAL BY JURY IN ANY ACTION UNDER
RELATING TO THIS NOTE AND THE LOANS EVIDENCED HEREBY.
SELECTIVE INSURANCE COMPANY OF AMERICA
By: /s/ David B. Merclean
---------------------
name: David B. Merclean
title: Sr. VP & CFO
SELECTIVE INSURANCE COMPANY OF AMERICA
By: /s/ Robert P. Rank
-------------------
name: Robert P. Rank
title: Sr. VP & CIO
-2-
REPLACEMENT
REVOLVING CREDIT MASTER
PROMISSORY NOTE
$25,000,000.00 Cranford, New Jersey
as of May 31, 1999
FOR VALUE RECEIVED, the undersigned SELECTIVE INSURANCE
GROUP, INC. (the "Borrower") promises to pay to the order of
SUMMIT BANK (herein called "Bank") at 750 Walnut Street,
Cranford, NJ 07016, such sum up to Twenty Five Million and 00/100
Dollars ($25,000,000.00), together with interest as hereinafter
provided, as may be outstanding on loans by Bank to Borrower
under a letter agreement referred to below. The principal amount
owing hereunder shall be paid to the Bank on July 31, 2000 (the
"Maturity Date") or as may otherwise be provided for in the
letter agreement.
Interest on portions of the daily unpaid principal
amount from time to time outstanding hereunder shall be payable
monthly on the first day of each month during the term hereof and
on the Maturity Date, at a fluctuating interest rate per annum of
the Adjusted Libor Rate plus sixty (60) basis points if, in
accordance with the terms of the Loan Agreement, interest on such
portion is calculated based on the Adjusted Libor Rate.
This Note is issued in accordance with that certain
letter agreement dated June 30, 1997 between Borrower, Selective
Insurance Group, Inc. and Bank (said letter agreement as amended
or modified from time to time the "Letter Agreement"). Any
capitalized term used herein without definition shall have the
definition contained in the Loan Agreement. All the terms and
conditions of the Letter Agreement are incorporated herein as
though fully set forth and the Borrower acknowledges the reading
and execution of said Letter Agreement.
In addition to all remedies provided by law upon
default on payment of this Note or any installment thereof, or
upon an Event or Default under the terms of the Letter Agreement
or of any obligation heretofore or hereafter incurred by the
Borrower to Bank, Bank may, at its option:
(1) Declare this note and all other loans and
Obligations owing Bank from the Borrower to be forthwith due and
payable.
(2) Collect interest on the principal balance owing
hereon at a rate of two (2%) in excess of the rate provided for
above, and if this Note is referred to an attorney for
collection, collect reasonable attorneys' fees;
-1-
(3) Set off the amount owing hereunder against any
money owed by Bank in any capacity to the Borrower, whether due
or not, and Bank shall be deemed to have exercised such right of
set off, and to have made a charge against any such money
immediately upon the occurrence of any default, even though the
actual book entries may be made at some time subsequent thereto;
and
(4) Exercise any and all remedies provided for in the
Letter Agreement or otherwise available by applicable law.
Bank shall not, by any act, delay, omission or
otherwise be deemed to have waived any of its right or remedies
hereunder shall valid against Bank unless in writing, signed by a
duly authorized officer of Bank, and then only to the extent
therein set forth. The waiver by Bank of any right or remedy
hereunder upon any one occasion shall not be construed as a bar
to any right or remedy which it would otherwise have had on any
future occasion.
If any payment required hereunder is not paid within 15
days of the date due, the Borrower shall pay to Bank a late fee
of 5% of the past due amount.
The Borrower shall have the right to make prepayment of
this Note, in whole or in part, without premium or penalty. The
Borrower hereby waives presentment for payment, protest and
notice of protest for nonpayment of this notice.
This note replaces that certain Revolving Credit Master
Promissory Note of Borrower to Bank in the principal sum of
$25,000,000.00 dated June 30, 1997 and is not intended to be a
novation of said not or the loans evidenced thereby.
BORROWER WAIVES TRIAL BY JURY IN ANY ACTION UNDER
RELATING TO THIS NOTE AND THE LOANS EVIDENCED HEREBY.
SELECTIVE INSURANCE COMPANY OF AMERICA
By: /s/ David B. Merclean
---------------------
name: David B. Merclean
title: Sr. VP & CFO
SELECTIVE INSURANCE COMPANY OF AMERICA
By: /s/ Robert P. Rank
-------------------
name: Robert P. Rank
title: Sr. VP & CIO
-2-
Exhibit 10.2
June 17, 1999
Selective Insurance Company of America
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, NJ 07890-1000
RE: Loan Facility
Ladies and Gentlemen:
State Street Bank and Trust Company (the "Bank") has made
available to Selective Insurance Company of America, a
corporation organized under the laws of New Jersey (the
"Company") and Selective Insurance Group, Inc., a
corporation organized under the laws of new Jersey (the
"Parent")(collectively, the Company and the Parent are
hereinafter referred to as the "Borrower") an aggregate
$25,000,000 revolving line of credit (as increased, the
"Line of Credit") as described in a letter agreement dated
March 3, 1997 (as amended, the "Letter Agreement"). All
obligations of the Borrower arising under the Line of Credit
are evidenced by promissory note in the original principal
amount of $25,000,000 dated March 3, 1997 made by the
Borrower to the order of the Bank (as amended, the "Note").
The Borrower has requested, and the Bank has agreed pursuant
to the terms hereof, to increase the line of credit, to
extend the Revolving Maturity Date as defined in the Letter
Agreement, and to make such other changes to the Letter
Agreement as set forth herein. Therefore, for good and
valuable consideration, the receipt of which is hereby
acknowledged, the Borrower and the Bank hereby agree as
follows:
Amendments of Letter Agreement
Paragraph 1 of the Letter Agreement is hereby amended by
deleting the following therefrom: "June 30, 1999" and
substituting the following therefore: "June 30, 2000".
All references to "Revolving Maturity Date" in the
Letter Agreement or any related document shall be
deemed to refer to June 30, 2000.
The Letter Agreement is hereby amended by deleting the
following wherever it may appear "$25,000,000" and
substituting, in each instance, the following therefor:
"$40,000,000".
Selective Insurance Company of America
Selective Insurance Group, Inc.
June 17, 1999
Page 2
Paragraph 4 of the Letter Agreement is hereby amended by
deleting the following therefrom: "Adjusted Libor Rate
plus 28 basis points" and substituting the following
therefor: "Adjusted Libor Rate plus 40 basis points".
Amendments to Note
The Note is hereby amended by deleting the following
therefrom: "$25,000,000" and "Twenty Five Million Dollars
($25,000,000)" and substituting the following, respectively,
therefor: "$40,000,000" and "Forty Million Dollars
($40,000,000)".
Miscellaneous
As amended hereby, all terms and conditions of the Letter
Agreement and Note remain in full force and effect and
are ratified and affirmed as of the date hereof and
extended to give effect to the terms hereof.
The Borrower represents to the Bank that no default or Event
of Default has occurred under the Letter Agreement or
Note, and further that if the proceeds of any Revolving
Loan are utilized to finance the purchase of the stock
of the Parent, such use will be in compliance with
Regulations U and X of the Board of Governors of the
Federal Reserve System.
This letter agreement shall constitute an agreement executed
under seal to be governed by the laws of The
commonwealth of Massachusetts.
Sincerely,
STATE STREET BANK AND
TRUST COMPANY
By: /s/ Edward M. Anderson
----------------------
Title: Vice President
Selective Insurance Company of America
Selective Insurance Group, Inc.
June 17, 1999
Page 3
Acknowledged and accepted:
SELECTIVE INSURANCE COMPANY OF AMERICA
By: /s/ David B. Merclean
----------------------
Title: SVP & CFO
By: /s/ Robert P. Rank
----------------------
Title: SVP & CIO
SELECTIVE INSURANCE GROUP, INC.
By: /s/ David B. Merclean
----------------------
Title: SVP & CFO
By: /s/ Robert P. Rank
----------------------
Title: SVP & CIO
Exhibit 10.3
SELECTIVE INSURANCE GROUP, INC.
STOCK OPTION PLAN FOR DIRECTORS
I. PURPOSE
The purpose of this Stock Option Plan for Directors (the "Plan")
of Selective Insurance Group, Inc. (the "Company") is to
encourage ownership of the Company's common stock, $2.00 par
value ("Common Stock"), by outside directors of the Company,
whose services are considered essential to the Company's
progress, and to thereby provide them with a further incentive to
continue as directors of the Company.
II. PARTICIPATION IN THE PLAN
All directors of the Company who are not full-time employees of
the Company or any subsidiary of the Company ("Director(s)")
shall participate in the Plan except for any Director who shall
elect in a written notice to the Secretary of the Company not to
participate in the Plan.
III. COMMON STOCK SUBJECT TO THE PLAN
The maximum number of shares of Common Stock available for the
exercise of options granted under the Plan ("Option(s)") shall be
two hundred thousand (200,000) shares. Such number of shares of
Common Stock shall be subject to adjustment as provided in
Section VIII of the Plan. If any outstanding Option expires or
is terminated for any reason without having been exercised in
full, the shares of Common Stock covered by the unexercised
portion of such Option shall again become available for the grant
of Options.
IV. NONSTATUTORY STOCK OPTIONS
All Options shall be nonqualified Options and shall not be
entitled to tax treatment under Section 422A of the Internal
Revenue Code of 1986, as amended to date, and as may be amended
from time to time (the "Code").
V. TERMS, CONDITIONS AND FORM OF OPTIONS
(a) Option Agreements. Each Option granted under the Plan shall
be evidenced by a written agreement in the form annexed
hereto as Exhibit A-1.
(b) Grant of Options. An Option to purchase one thousand five
hundred (1,500) shares of Common Stock shall be granted
automatically to each Director on March 1 or, if March 1 is
not a business day, on the next succeeding business day of
each year, commencing March 1, 1990, during the term of the
Plan.
(c) Options Not Transferable. Except as otherwise expressly
provided in Section V(d) of the Plan, each Option shall not
be transferable by the optionee, except by will or by the
laws of descent and distribution and shall be exercised
during the lifetime of the optionee only by the optionee or
the optionee's guardian or legal representative. Except as
otherwise expressly provided in Section V(d) of the Plan, no
Option or interest therein may be transferred, assigned,
pledged or hypothecated by the optionee, whether by
operation of law or otherwise, or be made subject to
execution, attachment or similar process.
(d) Transfer of Options. Notwithstanding anything in the Plan
to the contrary, each Option granted or to be granted to any
optionee under the Plan shall be transferable by such
optionee, by gift or pursuant to a domestic relations order,
to any (i) child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law, including adoptive
relationships, (collectively "Family Members"), (ii) any
trust or trusts in which any Family Members have more than
fifty percent (50%) of the beneficial interest, (iii) any
foundation in which the optionee or any Family Members
control the management of assets and/or (iv) any other
entity in which the optionee or any Family Members own more
than fifty percent (50%) of the voting interests, provided
that (x) the agreement or assignment pursuant to which such
Options are transferred must provide for such
transferability only in a manner consistent with the
provisions of the Plan, (y) subsequent transfers of
transferred Options shall be prohibited except in accordance
with Section V(c) of the Plan and (z) any transfer of
Options not in compliance with this Section V(d) shall be
void and of no effect. Following the transfer of any
Options, the transferred Options shall continue to be
subject to the same terms and conditions as were applicable
immediately prior to such transfer, and the provisions of
the Plan shall continue to apply to such transferred
Options; and it is further
(e) Exercise of Option. Each Option shall become exercisable on
the first anniversary of the date upon which it was granted;
provided, however, that any outstanding Option that is not
yet exercisable shall become exercisable in full (i) upon
the retirement of the optionee because of total and
permanent disability or upon the death of the optionee, as
hereinafter provided or (ii) six months after the retirement
of the optionee for any other reason. No Option shall be
exercisable after the expiration of ten (10) years from the
date upon which such Option is granted.
(f) Exercise by Representative Following Death or Disability of
Director. In the event of the death or disability of an
optionee, any Option outstanding as of the date of death or
disability 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.
(g) Exercise of Options. Options may be exercised by written
notice to the Company addressed to the office of the
Secretary of the Company and accompanied by payment in cash
or in shares of Common Stock of the Company for the full
exercise price for the shares as to which they are
exercised.
VI. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
No Option shall be extended or renewed, and no Option shall be
granted in substitution for any Option granted. No Option
shall be modified oar amended without the consent of the optionee
or the optionee's executor, administrator, guardian or legal
representative.
VII. OPTION EXERCISE PRICE
The exercise price for each share of Common Stock covered by an
Option shall be equal to the Fair Market Value of a share of
Common Stock on the date of grant of such Option and shall be
payable in cash. For the purposes of the Plan, the term "Fair
Market Value" shall mean the average of the highest and lowest
quoted selling prices for a share of Common Stock on the date of
grant of an Option, or, if the date of grant of the Option is not
a business day, on the next succeeding business day, as reported
on the NASDAQ National Market System. If there is no sale of
Common Stock reported on such date, "Fair Market Value" shall
mean the average of the highest asked and lowest bid prices for a
share of common Stock on such date as reported on the NASDAQ
National Market System.
VIII. GENERAL PROVISIONS
(a) Assignments. The rights and benefits under this Plan may
not be assigned except as provided in Section V hereof.
(b) Term of the Plan. No Options shall be granted more than ten
(10) years after the effective date of this Plan.
(c) Limitation of Rights. Neither the Plan, nor the granting of
an Option, nor any other action taken pursuant to the
Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will
retain a Director for any period of time or at any
particular rate of compensation. An optionee shall have no
rights as a stockholder with respect to the shares covered
by such optionee's Options until the date of the issuance to
such optionee of a stock certificate therefor, and no
adjustment will be made for dividends or other rights for
which the record date precedes the date such certificate is
issued.
(d) Adjustments. In the event of any merger, consolidation,
reorganization, recapitalization, stock dividend, stock
split, or other changes in the corporate structure or
capitalization affecting Common Stock, adjustments shall be
made in the number (including the aggregate numbers
specified in Section III) and kind of shares which are or
may become subject to Options granted or to be granted
hereunder.
(e) Effective Date. This Plan shall take effect on and as of
March 1, 1990, upon approval of the Plan by the stockholders
or the Company. In no event shall any Option become
exercisable until twenty (20) days after the filing with the
Securities and Exchange Commission of a registration
statement on Form S-8, or such other form of registration
statement, if any, as shall be required.
(f) Amendment. The Board of Directors of the Company may
suspend or discontinue the Plan at any time. The Plan may
be amended by the Board of Directors but may not be amended
more than once every six (6) months so as to: (i) change the
class of persons eligible to receive Options; (ii) change
the timing of grants of Options; or (iii) change the amount
of Options to be granted to Directors under the Plan, other
than amendments made to comport with changes in the Code or
rules thereunder.
(g) Administrative Discretion. No discretion concerning
decisions regarding the Plan shall be afforded to any person
who is not a "disinterested person," as defined in Rule 16b-3 under
the Securities Exchange Act of 1934, or any
successor rule, as in effect from time to time.
(h) Notice. Any written notice to the Company required by any
of the provisions of this Plan or the Option Agreement under
the Plan shall be addressed to the Secretary of the Company
and shall become effective when it is received.
IX. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant
hereto shall be governed by the law of the State of New Jersey
and construed accordingly.
Revised: 05-07-99
PAGE
EXHIBIT 11
SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the six-months ended June 30, 1999 and 1998
(in thousands, except per Income Shares Per Share
share amounts) (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------
1999
- ----
Basic EPS
Net Income available
to common stockholders $ 41,638 27,905 $ 1.49
====
Effect of Dilutive Securities
Restricted stock - 249
8.75% convertible
subordinated debentures 178 875
Stock Options (43) 251
------ ------
Diluted EPS
Income available to common
stockholders + assumed
conversions $ 41,773 29,280 $ 1.43
====== ====== ====
- ------------------------------------------------------------------------
1998
- ----
Basic EPS
Net Income available
to common stockholders $ 29,566 28,923 $ 1.02
====
Effect of Dilutive Securities
Restricted stock - 522
8.75% convertible
subordinated debentures 196 963
Stock Options (741) 662
------ ------
Diluted EPS
Income available to common
stockholders + assumed
conversions $ 29,021 31,070 $ 0.93
====== ====== ====
-1-
Page
SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the quarter ended June 30,1999 and 1998
(in thousands, except per Income Shares Per Share
share amounts) (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------
1999
- ----
Basic EPS
Net Income available
to common stockholders $ 27,615 27,687 $ 1.00
====
Effect of Dilutive Securities
Restricted stock - 279
8.75% convertible
subordinated debentures 89 874
Stock Options 28 281
------ ------
Diluted EPS
Income available to common
stockholders + assumed
conversions $ 27,732 29,121 $ 0.95
====== ====== ====
- ------------------------------------------------------------------------
1998
- ----
Basic EPS
Net Income available
to common stockholders $ 13,610 28,890 $ 0.47
====
Effect of Dilutive Securities
Restricted stock - 550
8.75% convertible
subordinated debentures 98 962
Stock Options (169) 618
------ ------
Diluted EPS
Income available to common
stockholders + assumed
conversions $ 13,539 31,020 $ 0.44
====== ====== ====
-2-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
June 30, 1999 10Q and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000230557
<NAME> SELECTIVE INSURANCE GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 1,144,361
<DEBT-CARRYING-VALUE> 311,343
<DEBT-MARKET-VALUE> 317,917
<EQUITIES> 239,272
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,727,588
<CASH> 9,496
<RECOVER-REINSURE> 11,498
<DEFERRED-ACQUISITION> 117,835
<TOTAL-ASSETS> 2,457,285
<POLICY-LOSSES> 1,211,141<F1>
<UNEARNED-PREMIUMS> 432,084
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 120,511<F2>
0
0
<COMMON> 75,531
<OTHER-SE> 515,685
<TOTAL-LIABILITY-AND-EQUITY> 2,457,285
389,482
<INVESTMENT-INCOME> 46,928
<INVESTMENT-GAINS> 32,201
<OTHER-INCOME> 17,992
<BENEFITS> 283,511<F3>
<UNDERWRITING-AMORTIZATION> 122,681
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 54,628
<INCOME-TAX> 12,990
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,638
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.43
<RESERVE-OPEN> 1,193,274<F4>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 1,211,141<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, Short-term debt, 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>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains restated summary financial information extracted
from the June 30, 1998 10Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000230557
<NAME> SELECTIVE INSURANCE GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 1,032,763
<DEBT-CARRYING-VALUE> 395,537
<DEBT-MARKET-VALUE> 409,370
<EQUITIES> 274,239
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,730,792
<CASH> 6,432
<RECOVER-REINSURE> 9,911
<DEFERRED-ACQUISITION> 110,500
<TOTAL-ASSETS> 2,384,454
<POLICY-LOSSES> 1,172,323<F1>
<UNEARNED-PREMIUMS> 402,219
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 115,529<F2>
0
0
<COMMON> 73,514
<OTHER-SE> 521,876
<TOTAL-LIABILITY-AND-EQUITY> 2,384,454
350,108
<INVESTMENT-INCOME> 49,188
<INVESTMENT-GAINS> 2,879
<OTHER-INCOME> 7,943
<BENEFITS> 248,467<F3>
<UNDERWRITING-AMORTIZATION> 111,585
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 36,576
<INCOME-TAX> 7,010
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,566
<EPS-BASIC> 1.02
<EPS-DILUTED> .93
<RESERVE-OPEN> 1,161,169<F4>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 1,172,323<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, Short-term debt, 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>
