<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended...March 31, 2000
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)
<TABLE>
<S> <C>
New Jersey 22-2168890
- ------------------------------------------------------- -----------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
40 Wantage Avenue
Branchville, New Jersey 07890
- ------------------------------------------------------- -----------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
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:
<TABLE>
<S> <C>
Common stock, par value $2 per share, outstanding as of April 28, 2000: 26,075,672
</TABLE>
1
<PAGE> 2
SELECTIVE INSURANCE GROUP, INC
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Unaudited
- ----------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
($ in thousands, except share amounts) 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS:
<S> <C> <C>
Debt securities, held-to-maturity - at amortized cost
(fair value: $256,380-2000; $271,604-1999) $ 256,014 271,384
Debt securities, available-for-sale - at fair value
(amortized cost: $1,176,237-2000; $1,141,167-1999) 1,158,603 1,122,786
Equity securities, available-for-sale - at fair value
(cost of: $120,462-2000; $115,626-1999) 253,026 251,998
Short-term investments - (at cost which approximates fair value) 19,067 48,807
Other investments 15,942 15,963
---------------- ----------------
Total investments 1,702,652 1,710,938
Cash 6,966 8,588
Interest and dividends due or accrued 21,820 23,545
Premiums receivables 260,074 248,910
Other trade receivables 16,061 15,488
Reinsurance recoverable on paid losses and loss expenses 13,426 9,797
Reinsurance recoverable on unpaid losses and loss expenses 177,123 192,044
Prepaid reinsurance premiums 31,312 32,531
Current Federal income tax 2,684 4,417
Deferred Federal income tax 17,909 16,129
Real estate, furniture, equipment, and software development 54,902 54,558
Deferred policy acquisition costs 112,271 109,095
Goodwill 51,676 52,001
Other assets 35,340 29,504
---------------- ----------------
Total assets $ 2,504,216 2,507,545
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Reserve for losses $ 1,075,302 1,092,026
Reserve for loss expenses 179,953 181,782
Unearned premiums 425,517 413,601
Convertible subordinated debentures 4,936 6,157
Short-term debt 66,352 51,302
Notes payable 75,428 75,428
Other liabilities 113,511 117,285
---------------- ----------------
Total liabilities 1,940,999 1,937,581
---------------- ----------------
STOCKHOLDERS' EQUITY:
Common stock of $2 par value per share:
Authorized shares: 180,000,000
Issued: 38,353,517-2000; 37,964,405-1999 76,707 75,929
Additional paid-in capital 57,036 53,470
Retained earnings 521,465 514,477
Accumulated other comprehensive income 73,427 76,694
Treasury stock - at cost (shares: 12,233,962-2000; 11,406,722-1999) (156,841) (143,875)
Deferred compensation expense and notes receivable from stock sales (8,577) (6,731)
---------------- ----------------
Total stockholders' equity 563,217 569,964
---------------- ----------------
Total liabilities and stockholders' equity $ 2,504,216 2,507,545
================ ================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 3
SELECTIVE INSURANCE GROUP, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Unaudited
Quarter ended
March 31
--------------------------------------
($ in thousands, except per share amounts) 2000 1999
- ---------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C>
Net premiums written $ 212,961 207,725
Net increase in unearned premiums and prepaid
reinsurance premiums (13,135) (14,697)
-------------- --------------
Net premiums earned 199,826 193,028
Net investment income earned 23,300 23,473
Net realized gains 2,273 8,597
Diversified insurance services revenue 17,668 8,882
Other income 780 725
-------------- --------------
Total revenues 243,847 234,705
-------------- --------------
Expenses:
Losses incurred 127,787 125,534
Loss expenses incurred 18,521 18,348
Policy acquisition costs 61,856 60,351
Dividends to policyholders 1,881 1,861
Interest expense 2,708 2,162
Diversified insurance services expenses 16,391 8,246
Other expenses 2,126 1,529
-------------- --------------
Total expenses 231,270 218,031
-------------- --------------
Income before Federal income tax 12,577 16,674
-------------- --------------
Federal income tax expense(benefit) :
Current 1,688 3,573
Deferred (21) (922)
-------------- --------------
Total Federal income tax expense 1,667 2,651
-------------- --------------
Net income $ 10,910 14,023
============== ==============
Earnings per share:
Basic $ 0.43 0.50
Diluted $ 0.40 0.48
Dividends to stockholders $ 0.15 0.14
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
SELECTIVE INSURANCE GROUP, INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Unaudited Unaudited
March 31 March 31
($ in thousands, except per share amounts) 2000 1999
---------------------------------------------------------------------------------------------------------------
Common stock:
<S> <C> <C> <C> <C>
Beginning of year $ 75,929 74,833
Dividend reinvestment plan
(shares: 19,128-2000; 15,690-1999) 38 31
Convertible subordinated debentures
(shares: : 172,451-2000; 3,954-1999) 345 8
Stock purchase and compensation plans
(shares: 197,533-2000; 238,607-1999) 395 477
-------------- --------------
End of period 76,707 75,349
-------------- --------------
Additional paid-in capital:
Beginning of year 53,470 45,449
Dividend reinvestment plan 255 258
Convertible subordinated debentures 864 11
Stock purchase and compensation plans 2,447 3,389
-------------- --------------
End of period 57,036 49,107
-------------- --------------
Retained Earnings:
Beginning of year 514,477 477,118
Net income 10,910 10,910 14,023 14,023
Cash dividends to stockholders ($.15
per share-2000; $.14 per share-1999) (3,922) (3,946)
-------------- --------------
End of period 521,465 487,195
-------------- --------------
Accumulated other comprehensive income:
Beginning of year 76,694 114,323
Other comprehensive income-decrease in net
Unrealized gains, net of deferred income tax effect (3,267) (3,267) (10,592) (10,592)
-------------- ------------- -------------- ------------
End of period 73,427 103,731
-------------- --------------
Comprehensive income 7,643 3,431
============= ============
Treasury stock:
Beginning of year (143,875) (97,990)
Acquisition of treasury stock
(shares: 827,240-2000; 693,915-1999) (12,966) (13,392)
-------------- --------------
End of period (156,841) (111,382)
-------------- --------------
Deferred compensation expense and notes receivable from
stock sales:
Beginning of year (6,731) (6,150)
Deferred compensation expense (2,531) (3,048)
Amortization of deferred compensation expense and
amounts received on notes 685 588
-------------- --------------
End of period (8,577) (8,610)
-------------- --------------
Total stockholders' equity $ 563,217 595,390
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
SELECTIVE INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Unaudited
($ in thousands) Three months ended March 31,
2000 1999
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 10,910 14,023
-------------- --------------
Adjustments to reconcile net income to net cash provided by operating activities:
(Decrease) increase in reserves for losses and loss expenses, net of
reinsurance recoverable on unpaid losses and loss expenses (3,632) 9,903
Net increase in unearned premiums and prepaid reinsurance premiums 13,135 14,698
Federal income tax 1,712 2,573
Depreciation and amortization 3,891 2,339
Increase in premiums receivables (11,164) (15,770)
Increase in other trade receivables (573) (946)
Increase in deferred policy acquisition costs (3,176) (4,380)
Decrease in interest and dividends due or accrued 1,725 371
Increase in reinsurance recoverable on paid losses and loss expenses (3,629) (1,857)
Net realized gains on investments (2,273) (8,597)
Other- net (6,058) (11,643)
-------------- --------------
Net adjustments (10,042) (13,309)
-------------- --------------
Net cash provided by operating activities 868 714
-------------- --------------
INVESTING ACTIVITIES
Purchase of debt securities, available-for-sale (64,606) (75,323)
Purchase of equity securities, available-for-sale (10,863) (2,840)
Purchase of other investments (38) (31)
Purchase adjustments of Selective HR Solutions, Inc. (5,816) -
Sale of debt securities, available-for-sale 11,030 22,026
Redemption and maturities of debt securities, held-to-maturity 15,354 29,685
Redemption and maturities of debt securities, available-for-sale 18,571 3,018
Sale of equity securities, available-for-sale 8,309 11,646
Proceeds from other investments 57 103
Decrease in net payable for security transactions (218) (11,279)
Net additions to real estate, furniture, equipment and software development (2,817) (1,841)
-------------- --------------
Net cash used in investing activities (31,037) (24,836)
-------------- --------------
FINANCING ACTIVITIES
Dividends to stockholders (3,922) (3,946)
Acquisition of treasury stock (12,966) (13,392)
Proceeds from short-term debt 15,050 1,505
Net proceeds from dividend reinvestment plan 293 289
Net proceeds from stock purchase and compensation plans 2,842 3,866
Increase in deferred compensation expense and amounts received on notes
receivable from stock sales (2,490) (2,996)
-------------- --------------
Net cash used in financing activities (1,193) (14,674)
-------------- --------------
Net decrease in short-term investments and cash (31,362) (38,796)
Short-term investments and cash at beginning of year 57,395 58,836
-------------- --------------
Short-term investments and cash at end of year $ 26,033 20,040
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the period
for:
Interest $ 3,479 3,028
Federal income tax - -
Supplemental schedule of non-cash financing activity:
Conversion of convertible subordinated debentures 1,221 28
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
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, 1999.
2. RECLASSIFICATIONS
Certain amounts in the Company's prior year consolidated financial
statements have been reclassified to conform with the 2000
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
anticipate the adoption of this statement to have a material effect
on the Company's result of operations or financial condition.
4. SEGMENT INFORMATION
The Company is primarily engaged in writing property and casualty
insurance. The Company has classified its business into three
segments which are Insurance Operations (commercial lines
underwriting, personal lines underwriting), Investments, investments
are evaluated based on after-tax investment returns, and Diversified
Insurance Services . The insurance segment is evaluated based on
GAAP underwriting results, and the diversified insurance operations
are evaluated based on results of operations in accordance with
Generally Accepted Accounting Principals ("GAAP"). The underwriting
results of the Insurance Operations segment are determined taking
into account net premiums earned, incurred losses and loss expenses,
policy acquisition costs and other underwriting expenses and
policyholders dividends. Similarly, management of the investment
portfolio is separate from the insurance underwriting segment and,
therefore, has been classified as a segment. The Diversified
Insurance Services business is managed independently from the other
segments and, therefore, has been classified separately. The
Diversified Insurance Services segment consists of medical managed
care operations, professional employer organization operations,
preferred provider organization operations, software development and
program administration operations, the flood business managed by the
Company for the National Flood Insurance Program and income from
alternative market affiliation programs. The segments' results are
determined taking into account the net revenues generated in each of
the businesses, less the costs of operation.
In computing the results of each segment, no adjustment is made for
interest expense, net general corporate expenses or federal income
taxes. The Company does not maintain separate investment portfolios
for the segments and, therefore, does not allocate assets to the
segments.
6
<PAGE> 7
The following summaries present revenues (net investment income and
net realized gains (losses) in the case of the investments segment)
and pre-tax income for the individual segments:
Revenue by segment
<TABLE>
<CAPTION>
Unaudited, Quarter ended
March 31,
- --------------------------------------------------------------------------------------------------
($ in thousands) 2000 1999
- --------------------------------------------------------------------------------------------------
INSURANCE OPERATIONS:
<S> <C> <C>
Commercial lines net premiums earned $ 145,879 136,772
Personal lines net premiums earned 53,947 56,256
----------- -----------
Total insurance operations revenues 199,826 193,028
INVESTMENTS:
Net investment income 23,300 23,473
Net realized gains on investments 2,273 8,597
----------- ------------
Total investment revenues 25,573 32,070
DIVERSIFIED INSURANCE SERVICES REVENUES 17,668 8,882
----------- ------------
TOTAL REVENUES ALL SEGMENTS $ 243,067 233,980
=========== ============
</TABLE>
Income or (loss) before Federal income tax by segment
<TABLE>
<CAPTION>
Unaudited, Quarter ended
March 31,
- ---------------------------------------------------------------------------------------------------
($ in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------
INSURANCE OPERATIONS:
<S> <C> <C>
Commercial lines underwriting $ (8,217) (13,882)
Personal lines underwriting (2,344) 643
------------ ------------
Underwriting loss, before Federal income tax (10,561) (13,239)
INVESTMENTS:
Net investment income 23,300 23,473
Net realized gains on investments 2,273 8,597
------------ ------------
Total investment income,before Federal income tax 25,573 32,070
DIVERSIFIED INSURANCE SERVICES:
Income before federal income tax 1,277 636
------------ ------------
Total all segments 16,289 19,467
Interest expense (2,708) (2,162)
General corporate expenses (1,004) (631)
------------ ------------
Income before Federal income tax $ 12,577 16,674
============ ============
</TABLE>
7
<PAGE> 8
5. REINSURANCE
The following is a table of assumed and ceded amounts by income
statement caption:
<TABLE>
<CAPTION>
Unaudited, Quarter ended March 31,
- ------------------------------------------------------------------------------------------------------
($ in thousands) 2000 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums written:
Assumed (1) $ 4,803 7,803
Ceded (21,272) (18,204)
Premiums earned:
Assumed(1) 3,438 6,659
Ceded (22,491) (19,347)
Losses incurred:
Assumed(1) 476 4,420
Ceded (18,039) (14,386)
Loss expenses incurred:
Assumed(1) 239 621
Ceded (576) (45)
</TABLE>
(1) Assumed business has declined when compared with the prior year
due to a decrease in involuntary commercial automobile plans.
FORWARD-LOOKING STATEMENTS
Some of the statements in this report are not historical facts and are
"forward-looking statements" (as defined in the Private Securities Litigation
Reform Act of 1995). These statements use words such as "believes," "expects,"
"intends," "may," "will," "should," "anticipates," and other similar words and,
among other things, describe our current strategies, opinions, expectations of
future results and other forward-looking information. We derive forward-looking
information from information which we currently have and numerous assumptions
which we make. We cannot assure that results which we anticipate will be
achieved, since results may differ materially because of both known and unknown
risks and uncertainties which we face. Factors which could cause actual results
to differ materially from our expectations include, but are not limited to: the
effects of economic conditions and conditions which affect the market for
property and casualty insurance; laws, rules and regulations which apply to
insurance companies, including the impact of personal automobile reform
legislation in New Jersey; the effects of competition from other insurers and
our diversified insurance services and banks, and the trend toward self-
insurance; risks we face in entering new markets and diversifying the products
and services we offer; weather-related events and other catastrophes affecting
our insureds, our ability to obtain rate increases and to retain business; the
performance of our independent insurance agencies; and other risks and
uncertainties we identify in filings with the Securities and Exchange
Commission, including, but not limited to the Annual Report on Form 10-K,
although we do not promise to update such forward-looking statements to reflect
actual results or changes in assumptions or other factors that could affect
these statements.
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
to the "Company" and to "Selective" mean Selective Insurance Group, Inc. and its
consolidated subsidiaries, collectively.
RESULTS OF OPERATIONS
The following discussion is a comparison of First Quarter Ended March 31, 2000
("First Quarter 2000") to First Quarter Ended March 31, 1999 ("First Quarter
1999").
OPERATING SEGMENTS
The Company is primarily engaged in writing property and casualty insurance. The
Company has classified its business into three segments, each of which is
managed separately. The three segments are Insurance Operations (commercial
lines underwriting and personal lines underwriting), Investments and Diversified
Insurance Services (formerly called Fee-For-Service Operations). 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
8
<PAGE> 9
Consolidated Financial Statements on pages 41 through 43 of the 1999 Annual
Report on Form 10-K for the year ended December 31, 1999. See note 4 to the
March 31, 2000 Unaudited Consolidated Financial Statements on page 6 of this
report on Form 10-Q for revenues and related income before Federal income taxes
for each individual segment discussed below.
Insurance Operations Segment
<TABLE>
<CAPTION>
Unaudited, Quarter ended
March 31, 2000
($ in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------
TOTAL INSURANCE OPERATIONS
<S> <C> <C>
Net premiums written $ 212,961 207,725
============= =============
Net premiums earned 199,826 193,028
Losses and loss expenses incurred 146,308 144,214
Net underwriting expenses incurred 62,198 60,192
Dividends to policyholders 1,881 1,861
------------- -------------
Underwriting loss $ (10,561) (13,239)
------------- -------------
GAAP RATIOS:
Loss and loss expense ratio 73.2% 74.7
Underwriting expense ratio 31.1% 31.2
Dividends to policyholders ratio 1.0% 1.0
------------- -------------
Combined ratio 105.3% 106.9
============= =============
</TABLE>
Net premiums written for First Quarter 2000 were up approximately $5 million, or
3% to $213 million, including $49 million in net new business, when compared to
the same period one year ago. The new business written was partially offset by;
i) a decrease in involuntary personal automobile premiums of $4 million
transferred to a servicing carrier and ii) a reduction in premiums of
approximately $4 million in New Jersey personal automobile due to the 15% rate
rollback mandated by the New Jersey Automobile Insurance Cost Reduction Act
(AICRA).
The combined ratio decreased 1.6 points to 105.3%, for First Quarter 2000. The
ratio of losses and loss expenses incurred to net premiums earned decreased 1.5
points for First Quarter 2000 to 73.2% compared to the same period one year ago.
In the First Quarter 2000 weather-related catastrophes added only 0.4 points to
the loss ratio compared with 2.2 points for the same period one year ago.
The underwriting expense ratio decreased to 31.1% for First Quarter 2000 when
compared to the same period one year ago. Overall, productivity in First Quarter
2000, as measured by fiscal year net premiums written per Insurance Operations
employee, was approximately $462,000, down slightly from $472,000 for First
Quarter 1999.
Commercial Lines Underwriting
<TABLE>
<CAPTION>
Unaudited, Quarter ended
COMMERCIAL LINES March 31, 2000
($ in thousands) 2000 1999
- -------------------------------------------------------------------------------------------------
GAAP INSURANCE OPERATION RESULTS
<S> <C> <C>
Net premiums written $ 162,064 149,063
============ ===========
Net premiums earned 145,879 136,772
Losses and loss expenses incurred 105,343 101,772
Net underwriting expenses incurred 46,872 47,021
Dividends to policyholders 1,881 1,861
------------ -----------
Underwriting loss $ (8,217) (13,882)
------------ -----------
GAAP RATIOS:
Loss and loss expense ratio 72.2 % 74.4
Underwriting expense ratio 32.1 % 34.4
Dividends to policyholders ratio 1.3 % 1.4
------------ -----------
Combined ratio 105.6 % 110.2
============ ===========
</TABLE>
9
<PAGE> 10
Commercial Lines Underwriting, which consists of six strategic business units
("SBUs"), accounted for approximately 76% of net premiums written during First
Quarter 2000. Net premiums written increased $13 million, or 9%, for First
Quarter 2000 compared to the same period in 1999. These increases were reflected
in the performance of all commercial SBUs and included $37 million in net new
business for First Quarter 2000, compared to $42 million for the same period one
year ago. The Company's ability to continue growing its book of business going
forward is affected by competitive forces in the marketplace as we implement
price increases on an account-by-account basis, with larger increases targeted
at under-performing business. The commercial lines pricing environment appears
to be improving as the market has stabilized and pricing is moving upward. In
the First Quarter of 2000, the Company increased its renewal premium year over
year approximately 8%, of which about 5 to 6 % represented pure price increases.
For the month of April our renewal premium increased about 12% of which 8% was
pure price increases. The Company expects to meet its preliminary goal of an 8%
pure price increase as we move into the second and third quarter of 2000. We
expect the benefit of price increases will begin impacting our results in the
second half of 2000 and continue into 2001.
For First Quarter 2000, the Commercial Lines combined ratio decreased 4.6 points
to 105.6% when compared to the same period one year ago. The lower combined
ratio reflects a decrease in the loss and loss expense ratio of 2.2 points due
primarily to lower weather-related catastrophe losses in the First Quarter 2000.
In the First Quarter 2000 weather-related catastrophes added only 0.4 points to
the loss ratio compared with 2.8 points for the same period one year ago.
The underwriting expense ratio decreased 2.3 points to 32.1% for First Quarter
2000. Lower expense levels for First Quarter 2000 reflected: i) decreases in
premium taxes and assessments of approximately 0.6 points primarily due to
non-recurring charges in the First Quarter 1999; ii) a net decrease in the
commission ratio of 0.3 points, due primarily to lower profit sensitive
commissions; and iii) other expenses increased at rates less than our 3% net
premiums written growth rate.
Personal Lines Underwriting
<TABLE>
<CAPTION>
Unaudited, Quarter ended
PERSONAL LINES March 31, 2000
($ in thousands) 2000 1999
- -------------------------------------------------------------------------------------------------
GAAP INSURANCE OPERATION RESULTS
<S> <C> <C>
Net premiums written $ 50,897 58,662
=========== ===========
Net premiums earned 53,947 56,256
Losses and loss expenses incurred 40,965 42,442
Net underwriting expenses incurred 15,326 13,171
Underwriting (loss) or gain (2,344) 643
----------- -----------
GAAP RATIOS:
Loss and loss expense ratio 75.9 % 75.4
Underwriting expense ratio 28.4 % 23.4
----------- -----------
Combined ratio 104.3 % 98.8
=========== ===========
</TABLE>
Personal Lines Underwriting net premiums written decreased $8 million, or 13 %,
for First Quarter 2000 when compared with the same period in 1999. Net premiums
written included net new business written of $12 million in First Quarter 2000
compared with $20 million one year ago. This new business reflects the expansion
efforts in Personal Lines in states outside of New Jersey offset by decreasing
new business within New Jersey. Premiums written in New Jersey, for the First
Quarter 2000, were reduced by approximately $4 million due to the 15% rate
rollback mandated by the New Jersey auto reform legislation effective March
1999. Premiums written declined by an additional $4 million due to outsourcing
New Jersey involuntary auto business to a third party carrier. In March 1999,
the New Jersey Automobile Insurance Cost Reduction Act (AICRA) became effective
and provided for a statewide average premium reduction of 15%. In September
1999, the Company's plan to reduce medical costs, as allowed under AICRA was
approved by the state. The Company currently estimates the cost savings from the
reform law to be in the 4 - 5% range which do not offset the mandatory 15%
reduction. The Company continues to expect the combined ratio for the New Jersey
Personal Automobile line of business to be in the range of 105 - 109% by the end
of 2000.
The Personal Lines SBU combined ratio was 104.3% for First Quarter, up 5.5
points from First Quarter 1999. This increase was primarily due to an increase
in the underwriting expense ratio for personal lines of 5 points. Underwriting
expenses are increasing while net premiums earned are decreasing, adversely
affecting this ratio. Underwriting expenses included an additional $0.4 million
of fees paid to the third party carrier for New Jersey involuntary automobile
premiums.
10
<PAGE> 11
The UEZ Program requires New Jersey auto insurers to write, at the Company's
voluntary rate levels, an amount of urban auto insurance proportionate to their
voluntary market share which is currently estimated at 3.1% for Selective. Net
premiums written under the involuntary UEZ program were $3 million for both
First Quarter 2000 and 1999. By June 1999, the Company had fully met its UEZ
obligation by writing approximately 7,000 policies. The Company is also required
to write "Liability-only" policies under the UEZ program and the Company's New
Jersey liability rates charged are not sufficient to offset the higher claim
frequency experienced by this business. Policies in the UEZ program tend to have
a higher proportion of liability only polices than the voluntary personal
automobile lines of business. The combined ratio for the involuntary business is
substantially worse than our voluntary lines of business. The Company does not
believe it will be assigned additional UEZ policies before 2001.
The excess profits law in New Jersey 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, 1999, the Company did not incur an obligation to make
an excess profit premium refund. The premium reductions imposed by the recently
required New Jersey AICRA, the apparent lack of equivalent cost savings in the
law, and the effect of policy assignments the Company was required to take
pursuant to the state's UEZ law, will diminish the likelihood of a future excess
profits refund. Nevertheless, due to the excess profits calculation formula, it
is possible the Company could incur a refund obligation for the period ending
December 31, 2000.
DIVERSIFIED INSURANCE SERVICES SEGMENT
<TABLE>
<CAPTION>
Unaudited, Quarter ended March
31, 2000
- ------------------------------------------------------------------------------------------------------
($ in thousands) 2000 1999
- ------------------------------------------------------------------------------------------------------
FLOOD INSURANCE
<S> <C> <C>
Net Revenue $ 2,597 1,927
Income Before Federal Income Tax 471 360
MEDICAL COST CONTAINMENT
Managed Care
Net Revenue 1,711 1,871
Income Before Federal Income Tax 397 410
Preferred Provider Organization
Net Revenue 1,389 N/A
Income Before Federal Income Tax 32 N/A
PROFESSIONAL EMPLOYER ORGANIZATION
Net Revenue 7,125 N/A
Income Before Federal Income Tax 298 N/A
SOFTWARE DEVELOPMENT AND PROGRAM ADMINISTRATION
Net Revenue 4,542 5,084
Loss Before Federal Income Tax (1) (134)
OTHER
Net Revenue 304 N/A
Income Before Federal Income Tax 80 N/A
TOTAL
Net Revenue 17,668 8,882
Income Before Federal Income Tax 1,277 636
Net Income 795 396
Return on Net Revenue 4.5 4.5
</TABLE>
Diversified Insurance Services businesses generated $17.7 million of revenue
and $0.8 million of net income for the First Quarter 2000, compared with
$8.9 million of revenue and $0.4 million of net income for the same period one
year earlier. The Company expects continued, revenue growth in this segment
(approximately $85 million for the year) and increased opportunities for these
businesses working together with the Insurance Operations. The segment
generated a return
11
<PAGE> 12
on net revenue of 4.5% for the quarter ended March 31, 2000, consistent with the
prior year, but still below our annual target of 5%.
We intend to continue to focus our Diversified Insurance Services businesses on
revenue growth, geographic expansion and inter-business marketing opportunities.
During the First Quarter of 2000, the Company began marketing, through
independent insurance agents, a product that combines Professional Employer
Organizational ("PEO") services and commercial lines insurance coverages. This
represents a unique way to address many risk management and human resources
issues that our small to mid-sized business customers face.
Flood Insurance
Selective is a servicing carrier for the National Flood Insurance Program. The
Company provides a market for flood insurance to its agents and also has
flood-only appointments with about 2,600 agents across the country. The premiums
collected by the Company are ceded 100% to the federal government. As a
servicing carrier, Selective bears no risk of policyholder loss. The Company
receives a servicing fee from which it pays agency commissions and other
related expenses. During the first quarter of 2000, the Company had direct
premiums written of $7.6 million, a 32.5% increase as compared to the same
period one year ago, which increased pre-tax net income $247,000. This
increase was partially offset by increased expenses due to start-up costs
associated with Flood Connect LLC. In addition to the underwriting fees, the
Company receives fees for handling claims. Together these fees generated $2.6
million of revenue and $0.5 million in pre-tax profit for this unit for the
First Quarter 2000.
During the fourth quarter of 1999 the Company established a separate entity,
FloodConnect,LLC, which was created to roll out nationally an internally
developed flood policy processing system during the fourth quarter of 2000. As
of the end of the first quarter, the scheduled roll out of this system remains
on target. The system will eliminate the need for the Company to purchase policy
support from an outside vendor, and it will also enable FloodConnect to provide
policy processing support for other Flood servicing carriers, thus creating an
opportunity for additional program administration revenues.
Medical Cost Containment - Alta Services and Consumer Health Network
Alta Services, LLC ("Alta") manages workers' compensation and automobile medical
claims for the underwriting subsidiaries of the Company, for unrelated
companies, and for self-insured businesses and employer groups. Alta bears no
underwriting risk and offers a full array of medical cost containment services.
Alta provides a broad range of medical claims services to Selective's insurance
operations including first report of injury, referrals to medical providers,
comprehensive medical case management, as well as medical bill audits and
repricing. The goal of Alta's program is to return patients to their normal
routine, at work and at home, and ensure medical costs are delivered in the most
cost effective manner possible. In addition, Alta also provides medical services
to other insurers. Recently, Alta has become a leading medical claim management
vendor for medical programs under New Jersey's AICRA. During the first quarter
of 2000, Alta generated revenue of $1.7 million compared with $1.9 million in
the same period of 1999 which resulted in pre-tax net income of $0.4 million in
both the First Quarter 2000 and 1999.
Consumer Health Network ("CHN") is a preferred provider organization ("PPO"),
which develops networks of medical providers and leases these networks to
insurers, large employers, third party administrators, unions and other entities
that pay medical claims. In return for bringing the medical providers patients,
the PPO negotiates discounts for its customers. CHN has expanded its network
providers from 38,000 at acquisition to 43,500 locations as of the end of the
first quarter 2000 in its initial three key operating territories (New Jersey,
New York, and Connecticut). Network expansion will continue to be a major
initiative at CHN. The costs associated with these efforts have reduced return
on revenue margins in the first quarter of 2000. CHN generated $1.4 million in
revenue and $32,000 in pre-tax net income during the First Quarter 2000.
Going forward, both Alta and CHN will focus on expanding their businesses by
entering into new states where Selective has a major presence, starting with
Pennsylvania. Also, as Selective HR Solutions (see below) enters New Jersey and
other key Selective territories, both Alta and CHN will have new business
opportunities to manage the day-to-day medical needs of the employees of
Selective HR Solution's business customers. This is an example of the vertical
integration synergies made possible by Selective's business model.
Alta also oversees SelecTech, LLC ("SelecTech") which generates fees by
providing third party administrative services to self-insured accounts.
Self-insured businesses often need insurance services, such as managed care and
other claim handling programs, and loss control that would otherwise be provided
by an insurer.
Professional Employer Organization - Selective HR Solutions
The PEO provides human resource administration, including benefits, payroll and
employee management services, and risk and compliance management products and
services, including workers' compensation to small or mid-sized business. A PEO,
by the nature of its product package, provides a very high level of day-to-day
services to its customers, which the Company believes, will be attractive to
small business owners. The Company believes that small to mid-sized businesses
will begin demanding new and
12
<PAGE> 13
better solutions to many of their operational problems. The PEO concept provides
an answer to many problems employers face from hiring and retaining good
employees, to providing competitive benefits, to eliminating administrative and
compliance burdens that keep the business owners from focusing on their core
operations.
Selective HR Solutions provides the Company and its distribution force access to
a product line that complements Selective's traditional commercial insurance
package. As independent agents write insurance for about 70% of the small
business (those with 25 or less employees) insurance market, the Company
believes it can successfully market the PEO product in its operating territories
through its agents. The Company will steadily introduce the PEO product in its
operating territories throughout 2000 and 2001, building on existing
agent/business owner relationships. As stated above, introducing the PEO product
in New Jersey will also generate business opportunities for Alta and CHN.
Selective HR Solutions will also begin using an Internet-enabled payroll and
benefits management system in 2000, which is expected to further improve
efficiency and service levels. In the First Quarter of 2000, Selective HR
Solutions generated $7.1 million in revenue and $0.3 million in pre-tax net
income.
Software Development and Program Administration -- PDA Software Services, Inc.
Technology is driving efficiencies and new operational opportunities that the
insurance industry can benefit from by substantially reducing paper, excessive
processing, and transaction costs. Selective has already made a significant
resource commitment to technology, which was accentuated further by its
acquisition of PDA Software Services, Inc. ("PDA") in late 1998. PDA has
assisted in the development of the Company's automated claim and flood
processing systems. In addition, PDA is also the leading vendor of
administrative services to the federal government's Women, Infants and Children
("WIC") nutritional program administered by the states. Currently, PDA
administers the WIC program in 12 states.
PDA incurred a pre-tax loss of $1,000 in the First Quarter 2000, attributable to
the amortization of goodwill incurred at the acquisition of PDA and retention
bonuses as compared to a pre-tax loss of $134,000 during the same period a year
ago. The retention bonuses will continue as charges against income through
2002. Revenues for First Quarter 2000 were $4.5 million, compared with $5.1
million for First Quarter 1999.
Investments Segment
Net investment income earned after tax for First Quarter 2000 of $23 million,
decreased almost 1% or $0.2 million compared with First Quarter 1999. This
decrease resulted from: 1) redemptions and maturities of higher yielding debt
securities reinvested at lower fixed income yields currently available in the
marketplace; and 2) a decrease in available cash due to cash used for the
Company's stock repurchase program. The Company had a 4.4% annualized after-tax
investment yield for First Quarter 2000, consistent with the same period in
1999. Net realized gains for First Quarter 2000 decreased $6 million to $2.3
million. Realized investment gains and losses fluctuate based on investment
decisions regarding individual securities as well as tax planning
considerations.
Federal Income Taxes
Total Federal income tax expense decreased by $1 million to $2 million for First
Quarter 2000. The decrease reflects lower capital gains recognized for the
quarter. The Company's effective tax rate was 13.3% for First Quarter 2000,
compared with 15.9% for First Quarter 1999. The Company's effective tax rate
differs from the Federal corporate rate of 35% primarily as a result of
tax-exempt investment income.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Selective Insurance Group, Inc. ("The Parent") is an insurance holding company
whose principal assets are its investments in its insurance and diversified
insurance services subsidiaries. As an insurance holding company, The Parent
meets its cash requirements through dividends from its insurance subsidiaries,
the payments of which are subject to state regulatory requirements, and proceeds
from the sales of the Company's common stock and debt. The Parent's cash
requirements also include the cost of shares of common stock repurchased under
its common stock repurchase program. As of March 31, 2000, the Company had
repurchased a total of 5.7 million shares at a total cost of $109 million under
the program, of which 0.8 million shares were repurchased during First Quarter
2000 at a total cost of $13 million. The Company is continuing its stock
repurchase program, and from March 31, 2000 through May 2 repurchased 0.4
million shares at a total cost of $7 million. In total, since 1996, the Company
has repurchased 6.0 million shares for $116 million at an average price per
share of $19.16.
At March 31, 2000, there was $66 million of short-term debt outstanding under
the three lines of credit that the Company has available, compared with $51
million at December 31, 1999. The increase in the outstanding balance of $15
million was due to borrowings to fund the repurchase of our stock. The weighted
average interest rate on these borrowings was 6.4% and 5.3% for
13
<PAGE> 14
the respective periods. On May 4, 2000, the Company successfully completed a
private placement bond offering in the amount of $91.5 million. The offering
consisted of two tranches: a five year average life tranche of $30 million at
8.63%; and an eight year average life tranche of $61.5 million at 8.87%. The
proceeds were used to pay down the short-term debt and for general corporate
expenses.
For First Quarter 2000 and First Quarter 1999, cash provided by operating
activities was $0.9 million and $0.7 million respectively. 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 and principal payments on the senior notes and
dividends to policyholders and stockholders. The insurance subsidiaries satisfy
their obligations and cash outflow through premium collections, interest and
dividend income and maturities of investments.
Total assets declined 0.1%, or $3 million, from December 31, 1999 to March 31,
2000. The decrease was due to a reduction in reinsurance recoverable on unpaid
losses and loss expense of $15 million driven by a decrease in losses ceded to
the National Flood Insurance Program ("NFIP") of $21 million. (1999 reinsurance
recoverable on unpaid losses and loss expenses included $24 million of ceded
flood losses due to Hurricane Floyd ). This decrease was offset by increases in
total receivables of $12 million primarily due to the increased premium volume.
The increase in total liabilities of 0.2%, or $3 million, from December 31,
1999 to March 31, 2000 was mainly attributable to an increase in unearned
premium reserves of $12 million due primarily to the increase in premiums
written and the increase in short term debt of $15 million. These increases
were partially offset by a decrease of $20 million in reserves for loss and
loss expenses driven by the decrease in NFIP reserves for Flood noted above.
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 were not "Year 2000" ("Y2K") compliant may have 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.
Through May 2000, the Company did not experience Y2K related business
disruptions internally or as a result of its dealings with suppliers or service
providers.
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 policies issued do not
include coverage for 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 has used the Insurance Services Office Y2K exclusionary
endorsements on most 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 treaty covers any
Y2K claim that is asserted in the 36 month period beginning on July 1, 1998.
As of May 5, 2000, the Company has not received any Y2K claims.
RECENT LEGISLATION AND COMPETITION WITH BANKS
On November 4, 1999, the Financial Services Modernization Act of 1999 (the
"Act") was adopted and signed into law by the President on November 12, 1999.
The Act permits banks to engage in non-banking, financial service businesses,
including the sale and underwriting of insurance. The act repeals provisions of
federal law which historically prohibited banks from engaging in the insurance
business. The act also subjects banks' insurance activities to state insurance
regulation. While the impact on the Company of the Act is uncertain, we may face
additional insurance sales and underwriting competition from banks as a result
of the Act. The Company already faces potential competitive risks from banks,
because banks have acquired insurance agencies in states where we sell
insurance, including some important Selective agencies. We believe that some
banks could implement business strategies for operating their insurance agencies
that differ from strategies we think are critical to successful independent
agent distribution of insurance products . If those banks were to acquire
Selective agencies we may have to replace those insurance agencies. As a result
of the Act, banks will also be able to underwrite property and casualty
insurance and could compete directly
14
<PAGE> 15
with us by selling their insurance products directly through insurance agencies.
15
<PAGE> 16
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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Selective's Annual Meeting of Stockholders was held on May 5, 2000. At the
Annual Meeting, A. David Brown, William M. Kearns, Jr., S. Griffin McClellan
III and J. Brian Thebault were 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:
<TABLE>
<CAPTION>
Votes for Votes withheld
------------- ------------------
<S> <C> <C>
A. David Brown 20,371,512 1,158,941
William M. Kearns, Jr. 20,409,459 1,120,994
S. Griffin McClellan III 20,351,281 1,179,172
J. Brian Thebault 20,444,653 1,085,800
</TABLE>
The directors whose terms of office continued after the Annual meeting are: Paul
D. Bauer, William A. Dolan II, William C. Gray, C. Edward Herder, Joan M.
Lamm-Tennant, Gregory E. Murphy, William M. Rue and Thomas D. Savles.
At the Annual meeting amendments to the Company's Stock Compensation Plan for
Nonemployee Directors intended to (i) permit nonemployee directors to elect to
receive up to 50% of their compensation under the plan for services as a
director in cash for each calendar year, (ii) to eliminate from the plan the
requirement that all participants receive compensation only in shares of common
stock and (iii) to extend the term of the plan from December 31, 2007 to
December 31, 2010 were approved as follows:
<TABLE>
<CAPTION>
For Against Abstain
------ ----------- -----------
<S> <C> <C> <C>
Votes 17,446,309 5,823,821 260,323
</TABLE>
At the Annual meeting amendments to the Company's Stock Option Plan for
Directors intended to (i) extended the term of the plan for an additional ten
years and (ii) increase by 450,000 the number of shares of common stock reserved
for issuance under the plan to an aggregate of 850,000 shares were approved as
follows:
<TABLE>
<CAPTION>
For Against Abstain
------ ----------- -----------
<S> <C> <C> <C>
Votes 15,535,802 5,601,499 393,152
</TABLE>
No other matters were voted on at the Annual meeting.
ITEM 5. OTHER INFORMATION
Gregory E. Murphy, President and Chief Executive Officer, was named to the
additional post of Chairman of the Board at the organizational meeting that
immediately followed the Company's Annual meeting on May 5, 2000. Gregory E.
Murphy succeeds James W. Entringer, who after eight years of service has retired
from the Board of Directors of Selective Insurance.
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.
16
<PAGE> 17
SELECTIVE INSURANCE GROUP, INC.
INDEX TO EXHIBITS
Exhibit No.
- -----------
10.16ab Termination Agreement, dated March 1, 2000, between Selective
Insurance Company of America and Edward Pulkstenis, filed
herewith.
11 Statement Re: Computation of Per Share Earnings, filed herewith.
27 Financial Data Schedule, filed herewith.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
<TABLE>
<S> <C>
By: /s/ Dale A. Thatcher May 11, 2000
- ----------------------------------------------------------------------------------------------------------------
Dale A. Thatcher
Senior Vice President of Finance and Chief Financial Officer
By: /s/ Gregory E. Murphy May 11, 2000
- ----------------------------------------------------------------------------------------------------------------
Gregory E. Murphy
Chairman, President and Chief Executive Officer
</TABLE>
18
<PAGE> 1
TERMINATION AGREEMENT
TERMINATION AGREEMENT dated as of March 1, 2000, by and between
SELECTIVE INSURANCE COMPANY OF AMERICA (the "Company"), a New Jersey
corporation, having an office at 40 Wantage Avenue, Branchville, New Jersey
07826, and EDUARD PULKSTENIS, (the "Executive"), having an address at 9 DeJager
Dr., Augusta, New Jersey 07822.
W I T N E S S E T H:
WHEREAS, the Company recognizes the Executive to be a valuable
management employee of the Company; and
WHEREAS, the Company recognizes that a change in control of Selective
Insurance Group, Inc., the Company's parent corporation ("Selective"), could
occur in the future, and that it is of importance to the Company and to
Selective and its stockholders to provide for the continuity of management and
its uninterrupted attention and dedication to the business affairs of the
Company; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to encourage the continued
attention and dedication of principal members of the Company's management to
their assigned duties in circumstances arising from the possibility of a change
in control of Selective; and
WHEREAS, the Company has determined that an arrangement of the type set
forth herein will serve the purpose of attracting desirable persons for
executive positions with the Company, will induce the Executive to remain with
the Company, and will enhance the Executive's ability to assess and advise the
Board as to whether any proposal involving a change in the control would be in
<PAGE> 2
the best interests of the Company, Selective and its shareholders and to take
such other action regarding such proposal without being influenced by the
prospects of his own future employment with the Company; and
WHEREAS, the Company and the Executive wish to set forth their
agreements as to the subject and procedures contemplated hereunder
acknowledging, however, that this Agreement supplements any employment agreement
that may be in effect from time to time between the Executive and the Company
and sets forth the severance benefits which the Company agrees will be provided
to the Executive in the event the Executive's employment with the Company is
terminated subsequent to a change of control of Selective under the
circumstances hereinbelow described.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the Company and the Executive hereby agree as follows:
1. TERM OF AGREEMENT.
The term of this Agreement (the "Term") shall commence on the date
hereof and shall continue in effect until March 1,2001, provided, however, that
commencing on March 1, 2001, and each March 1 thereafter (each such March 1
being hereinafter referred to as an "Extension Date"), the Term shall
automatically be extended for one (1) additional year, unless at least twelve
(12) months prior to an Extension Date, the Company or the Executive shall have
given written notice in the manner hereinafter prescribed that the Term shall
not be extended as of the next Extension Date; and, provided further, that if a
"Change in Control" of Selective, as defined in Section 2 hereof, shall have
occurred during the term, as the same may be extended, this Agreement shall
terminate on the last day of the twelve (12) month period commencing on the date
that such Change in Control shall have occurred. Notwithstanding anything in
this Section 1 to the contrary, this Agreement shall terminate if the Executive
or the Company terminates the Executive's employment prior to the date on which
a Change in Control shall occur.
-2-
<PAGE> 3
2. CHANGE IN CONTROL.
(a) For the purposes of this Agreement, a "change in control of
Selective" (a "Change in Control") shall mean the occurrence of an event of a
nature that would be required to be reported in response to Item 1(a) of a
Current Report on Form 8-K, as in effect on the date hereof, pursuant to
Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") provided, however, that a Change in Control shall, in any event,
conclusively be deemed to have occurred upon the first to occur of any one of
the following events:
(i) The acquisition by any person or group,
including, without limitation, any current shareholder or
shareholders of Selective, of securities of Selective
resulting in such person's or group's owning of record or
beneficially twenty-five percent (25%) or more, of any class
of voting securities of Selective;
(ii) The acquisition by any person or group,
including, without limitation, any current shareholder or
shareholders of Selective, of securities of Selective
resulting in such person's or group's owning of record or
beneficially twenty percent (20%) or more, but less than
twenty-five percent (25%), of any class of voting securities
of Selective, if the Board adopts a resolution that such
acquisition constitutes a Change in Control;
(iii) The sale or disposition of all or substantially
all of the assets of Selective;
(iv) The reorganization, recapitalization, merger,
consolidation or other business combination involving
Selective the result of which is the
-3-
<PAGE> 4
ownership by the shareholders of Selective of less than eighty
percent (80%) of those voting securities of the resulting or
acquiring entity having the power to elect a majority of the
board of directors of such entity; or
(v) A change in the membership in the Board of
Directors of Selective (the "Selective Board") which, taken in
conjunction with any other prior or concurrent changes,
results in twenty percent (20%) or more of the Selective
Board's membership being persons not nominated by Selective's
management or Selective's Board as set forth in Selective's
then most recent proxy statement, excluding changes resulting
from substitutions by Selective's Board because of retirement
or death of a director or directors, removal of a director or
directors by Selective's Board or resignation of a director or
directors due to demonstrated disability or incapacity.
(b) Notwithstanding anything in the foregoing Section 2(a) to the
contrary, no Change in Control shall be deemed to have occurred for the purposes
of this Agreement by virtue of any transaction which results in the Executive,
or a group of persons which includes the Executive, acquiring, directly or
indirectly, voting securities of Selective.
(c) For the purpose of Section 2(a) the following definitions
shall apply:
(i) the terms "person" and "beneficial owner" shall
have the meanings set forth in Regulation 13D under the
Exchange Act, as such Regulation exists on the date hereof;
-4-
<PAGE> 5
(ii) the term "voting security" shall include any
security that has, or may have upon an event of default or in
respect to any transaction, a right to vote on any matter upon
which the holder of any class of common stock of Selective
would have a right to vote;
(iii) the term "group" shall have the meaning set
forth in Section 13(d)(3) of the Exchange Act; and
(iv) the term "substantially all of the assets of
Selective" shall mean more than fifty percent (50%) of
Selective's assets on a consolidated basis, as shown in
Selective's most recent audited balance sheet.
3. CONTINUATION OF EMPLOYMENT.
Notwithstanding any termination date as may be specified in any
employment agreement in effect from time to time between the Company and the
Executive, in the event of a Change in Control, the Company agrees to continue
to employ the Executive, and, subject to the provisions of Section 4 hereof, the
Executive agrees to continue in the employ of the Company, in the capacity in
which the Executive was serving, and with the duties, responsibilities and
status of the Executive immediately prior to such Change in Control or in such
other capacity as shall be agreeable to the Executive, for a term commencing on
the date on which the Change in Control shall have occurred and ending three (3)
years after the date on which the Change in Control shall have occurred.
Commencing on the date three (3) years after the date on which the Change in
Control shall have occurred and each anniversary date of the Change in Control
thereafter (each such date being hereinafter referred to as a "Renewal Date"),
the term of the Executive's employment shall automatically be renewed for one
(1) additional year unless at least twelve (12) months prior to a Renewal Date
the Company or the Executive shall have given
-5-
<PAGE> 6
written notice in the manner hereinafter prescribed that such employment shall
not be renewed as of such Renewal Date. The provisions of this Section 3 shall
survive any termination of this Agreement pursuant to Section 1 hereof after a
Change in Control and shall continue in full force and effect.
4. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL.
The Executive shall be entitled to the benefits provided in
Section 5 hereof upon the termination of his employment during the term of this
Agreement, as the same may be extended, after a Change in Control has occurred,
unless such termination is: (a) due to the Executive's death or Retirement, (b)
by the Company for Cause or Disability, or (c) by the Executive other than for
Good Reason (as such foregoing capitalized terms are hereinafter defined).
(i) Termination by the Executive or by the Company of
the Executive's employment based on "Retirement" shall mean
termination: (A) at such age as shall be established by the
Board prior to a Change in Control for mandatory or normal
retirement of Company executives in general, which shall not
be less than age 65, or (B) at any other retirement age set by
mutual agreement of the Company and the Executive and approved
by the Board.
(ii) Termination by the Company of the Executive's
employment based on "Disability" shall mean termination
because of the Executive's physical injury or physical or
mental illness which causes him to be absent from his duties
with the Company on a full-time basis for a continuous period
in excess of the greater of: (A) the period of disability
constituting permanent disability as specified under the
Company's long-term
-6-
<PAGE> 7
disability insurance coverage applicable to the Executive
prior to a Change in Control or (B) six (6) calendar months,
unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is thereafter given the Executive shall
have returned to the full-time performance of his duties.
(iii) Termination by the Company of the Executive's
employment based on "Cause" shall mean termination upon: (A)
the Executive's conviction of a felony (as evidenced by a
binding and final judgment, order or decree of a court of
competent jurisdiction, in effect after exhaustion or lapse of
all rights of appeal), (B) the continued willful failure by
the Executive to perform substantially his duties with the
Company (other than any such failure resulting from his
incapacity due to physical injury or physical or mental
illness) for a period of thirty (30) days after a demand for
substantial performance is delivered to the Executive by the
Board of Directors of the Company which specifically
identifies the manner in which the Board of Directors believes
that the Executive has not substantially performed his duties,
or (C) willful misconduct in the performance of the
Executive's duties and obligations to the Company which
constitute common law fraud or other gross malfeasance of
duty; provided, however, that no termination for Cause
pursuant to clauses (B) or (C) shall occur unless and until
there shall have been delivered to the Executive a copy of a
-7-
<PAGE> 8
resolution duly adopted by the affirmative vote of not less
than sixty-six and two thirds percent (66 2/3%) of the entire
membership of the Board, excluding the Executive, at a meeting
of the Board called and held for the purpose (after reasonable
notice to the Executive and an opportunity for the Executive,
together with his counsel, to be heard before the Board),
finding that in good faith opinion of the Board the Executive
was guilty of the conduct set forth in such clause (B) or (C)
and specifying the particulars thereof in reasonable detail.
For purposes of this clause (iii), no act, or failure to act,
on the part of the Executive shall be considered "willful"
unless done or omitted to be done by the Executive in bad
faith and without reasonable belief that his action or
omission was in, or not opposed to, the best interests of the
Company. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be
conclusively presumed to have been done or omitted to have
been done by the Executive in good faith and in the best
interests of the Company.
(iv) Termination by the Executive of his employment
for "Good Reason" shall mean (A) termination by the Executive
based on: (1) any reduction in his base salary below the
annualized rate in effect on the date preceding the date on
which a Change in Control shall have occurred or the Company's
failure to increase (within 12 months of the
-8-
<PAGE> 9
Executive's last increase in base salary) the Executive's base
salary after a Change in Control in an amount which at least
equals, on a percentage basis, changes in the Consumer Price
Index, all items, for New Jersey in the preceding twelve (12)
months; or (2) a failure by the Company to continue in effect,
or the material reduction of any of Executive's benefits
under, any Plan (as hereinafter defined) in which the
Executive was participating on the date preceding the date on
which a Change in Control shall have occurred (or Plans
providing the Executive with at least substantially similar
benefits) other than as a result of the normal expiration of
any such Plan in accordance with its terms as in effect on the
date preceding the date on which a Change in Control shall
have occurred, or the taking of any action, or the failure to
act, by the Company which would adversely affect the
Executive's continued participation in any of such Plans on at
least as favorable a basis to him as was the case on the date
preceding the date on which a Change in Control shall have
occurred or which would materially reduce the Executive's
benefits in the future under any such Plans or deprive the
Executive of any material benefit enjoyed by him at the time
of the Change in Control; or (3) without the Executive's
express prior written consent, the assignment to the Executive
of any duties inconsistent with his positions, duties,
responsibilities and status with the Company immediately prior
to a Change in
-9-
<PAGE> 10
Control, or any diminution in the Executive's responsibilities
as an executive of the Company as compared with those he had
as an executive of the Company immediately prior to a Change
in Control, or any change in the Executive's titles or office
as in effect immediately prior to a Change in Control, or any
removal of the Executive from, or failure to re-elect him to,
any of such positions, except in connection with the
termination of the Executive's employment for Cause,
Disability or Retirement or as a result of the Executive's
death or by his termination of his employment other than for
Good Reason; or (4) without the Executive's express prior
written consent, the imposition of a requirement by the
Company that the Executive be based anywhere other than where
the Executive's office is located on the date preceding the
date on which a Change in Control shall have occurred; or (5)
without the Executive's express prior written consent, any
reduction in the number of paid vacation days to which the
Executive was entitled as of the date preceding the date on
which a Change in Control shall have occurred; or (6) a
failure by the Company to provide the Executive with office,
secretarial, computer and other support services and
facilities consistent with his position in the Company and
substantially equivalent to those available to the Executive
on the date preceding the date on which a Change in Control
shall have occurred; or (7) the failure by the Company
-10-
<PAGE> 11
to obtain from any successor to the business of the Company,
as set forth in Section 13, the assent to this Agreement, as
described in such Section 13; or (8) subsequent to a Change in
Control, any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination (as hereinafter defined) satisfying the
requirements of Section 4(v) (and, if applicable, Section
4(iii)), and for purposes of this Agreement no such purported
termination shall be effective; or (9) any breach by the
Company of any of the terms and conditions of any employment
agreement between the Company and the Executive or any
agreement between the Company and the Executive providing for
incentive compensation, stock options, stock appreciation
rights, stock bonuses, pension benefits, group insurance or
any similar benefits; or (10) any requirement by the Company
that the Executive be absent from Executive's office on
business travel or otherwise more than forty-five (45) days in
any calendar year or for more than fourteen (14) consecutive
days at any time, or (B) a voluntary termination by the
Executive upon Notice of Termination given by the Executive to
the Company no later than six (6) months after the occurrence
of a Change in Control, provided that Executive shall not
thereafter violate the provisions of any agreement between the
Executive and the Company relating to nondisclosure of
confidential information or noncompetition with the
-11-
<PAGE> 12
Company. For purposes of this Agreement, a "Plan" shall mean
any plan, contract, authorization or arrangement, whether or
not set forth in any formal written documents, providing for
compensation, incentive compensation, non-qualified
supplemental retirement benefits, stock options (whether or
not in tandem with stock appreciation rights), stock
appreciation rights, long-term incentives, stock bonuses or
restricted stock grants or any employee benefit plan such as a
pension, retirement, profit sharing, medical, disability,
accident, life insurance plan or a relocation plan or policy
or any other plan, program, policy or arrangement of the
Company intended to benefit the Executive or employees of the
Company generally.
(v) Any termination of the Executive's employment by
the Company or by the Executive shall be communicated by a
Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a
written notice given in the manner hereinafter prescribed
which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the
provision so indicated and shall specify the date of
termination in accordance with this Agreement.
(vi) "Date of Termination" following a Change in
Control shall mean: (A) if the employment is to be terminated
by the Company
-12-
<PAGE> 13
for Disability, thirty (30) days after Notice of Termination
is given (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time
basis during such thirty (30) day period), or (B) if the
employment is to be terminated by either party for any other
reason, the date on which Notice of Termination is given.
(vii) In the event of dispute as to the Executive's
termination under Section 4(iv) the matter shall be forthwith
submitted to binding arbitration as hereinafter provided.
5. PAYMENT OF BENEFITS.
(a) If an event has occurred pursuant to Section 4 hereof which
entitles the Executive to the benefits and rights set forth in this Section 5,
the Executive shall receive from the Company, or from the Escrow Agent (as
hereinafter defined), as the case may be, within five (5) days following the
Date of Termination (except as otherwise provided) all of the following
benefits, other than those benefits which he specifically elects by written
notice to the Company or to the Escrow Agent, as the case may be, not to
receive:
(i) earned but unpaid base salary through the Date of
Termination at the rate in effect immediately prior to the
time a Notice of Termination is given plus any incentive
compensation, benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans
have been accrued, earned or have become payable, but which
have not yet been paid to the Executive (including any amounts
which previously had been deferred at the Executive's
request); and
-13-
<PAGE> 14
(ii) as severance pay and in lieu of any further
salary for periods subsequent to the Date of Termination
(including any payments of salary provided for by any
employment agreement with the Company), an amount in cash
equal to the Executive's "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.
(b) If an event has occurred pursuant to Section 4 hereof which
entitles the Executive to the benefits and rights set forth in this Section 5,
the Executive shall be entitled to the benefits of any stock options, stock
appreciation rights, restricted stock grants, stock bonuses or other benefits
theretofore granted by the Company to the Executive under any Plan, whether or
not provided for in any agreement with the Company, provided, however, that,
except to the extent requiring approval of Selective's stockholders, (i) all
unvested stock options, stock appreciation rights, restricted stock grants,
stock bonuses, long-term incentives and similar benefits shall be deemed to be
vested in full on the Date of Termination, notwithstanding any provision to the
contrary or any provision requiring any act or acts by the Executive in any
agreement with the Company or Selective or any Plan, and (ii) to the extent that
any such stock options, stock appreciation rights, restricted stock grants,
stock bonuses, long-term incentives or similar benefits shall require by its
terms the exercise thereof by the Executive, the last date to exercise the same
shall, notwithstanding any provision to the contrary in any agreement or any
Plan, shall be the later to occur of (A) the last date provided for such
exercise in any agreement or Plan evidencing any such stock options, stock
appreciation rights, restricted stock grants, stock bonuses, long-term
incentives or similar benefits or (B) the close of business on the date which
shall be one hundred twenty (120) days after the Date of
-14-
<PAGE> 15
Termination and (iii) if the vesting pursuant hereto of any such stock options,
stock appreciation rights, restricted stock grants, stock bonuses, long-term
incentives or similar benefits shall have the effect of subjecting the Executive
to liability under Section 16(b) of the Exchange Act or any similar provision of
law, the vesting date thereof shall be deemed to be the first day after the
Termination Date on which such vesting may occur without subjecting the
Executive to such liability.
(c) If an event has occurred pursuant to Section 4 hereof which
entitles the Executive to the benefits and rights set forth in this Section 5,
the Company shall maintain in full force and effect, for the continued benefit
of the Executive and his dependents for a period terminating on the earliest of:
(i) one (1) year after the Date of Termination or (ii) the commencement date of
equivalent benefits from a new employer, all insured and self-insured employee
welfare benefit Plans in which the Executive was entitled to participate
immediately prior to the Date of Termination, provided that the Executive's
continued participation is not barred under the general terms and provisions of
such Plans. In the event that the Executive's participation in any such Plan is
barred by its terms, the Company, at its sole cost and expense, shall arrange to
have issued for the benefit of the Executive and his dependents individual
policies of insurance providing benefits substantially similar (on an after-tax
basis) to those which the Executive otherwise would have been entitled to
receive under such Plans pursuant to this Section 5(c). If, at the end of one
(1) year after the Termination Date, the Executive has not previously received
or is not receiving equivalent benefits from a new employer, or is not otherwise
receiving such benefits, the Company shall arrange, at its sole cost and
expense, to enable him to convert his and his dependents' coverage under such
Plans to individual policies or programs upon the same terms as employees of the
Company may apply for such conversions upon termination of employment.
-15-
<PAGE> 16
(d) Except as specifically provided in Section 5(c) above, the
amount of any payment provided for in this Section 5 shall not be reduced,
offset or subject to recovery by the Company by reason of any compensation
earned by the Executive as the result of employment by another employer after
the Date of Termination, or otherwise. The Executive shall not be required to
mitigate any amounts payable or benefits provided under this Agreement by
seeking or accepting other employment.
(e) The rights and benefits provided herein shall be in addition
to, and not (except as provided in this Agreement) to the exclusion of, any
other rights and benefits that may be available to the Executive in regard to or
arising out of the termination of the Executive's employment, including claims
for breach of contract or for violation of relevant employment, worker's
compensation or employee benefits laws. The prosecution or enforcement of rights
granted by this Agreement or the election to take benefits under this Agreement
shall in no manner constitute an election of rights or remedies by the Executive
other than in respect of this Agreement.
(f) Notwithstanding anything in this Agreement to the contrary, if
any of the payments or benefits provided for in this Agreement, together with
any other payments or benefits which the Executive has the right to receive from
the Company (including, without limitation, any amounts payable under any
employment contract with the Company), would constitute a "parachute payment"
(as defined in Section 280G(b)(2) of the Code), the payments and benefits due to
the Executive shall be reduced, in such order of priority and amount as the
Executive 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. Notwithstanding anything in the foregoing to the contrary, any dispute or
controversy regarding whether any payments under this Agreement must be reduced
pursuant to this Section 5(f) shall be conclusively settled by an independent
accounting firm acceptable to each of the parties hereto, or, if no firm is
acceptable to
-16-
<PAGE> 17
both parties hereto, each of the Executive and the Company shall select an
accounting firm acceptable to it, and such accounting firms shall together
designate an independent accounting firm to settle such dispute or controversy,
and such settlement shall be binding upon both parties, provided, however, that
any accounting firm designated to settle any dispute or controversy hereunder
shall not have been previously retained by either party for a period of a least
two (2) years subsequent to the date of this settlement of such dispute or
controversy. The Company or the Escrow Agent, as the case may be, may withhold
from any benefits payable under this Agreement all federal, state, city or other
taxes as shall be required pursuant to any law or governmental regulation or
ruling.
(g) In the event that a court of competent jurisdiction shall
determine that any portion of the payment and benefits paid to the Executive
pursuant to this Agreement shall have constituted a "parachute payment" (as
defined in Section 280G(b)(2) of the Code) and subject to an excise tax under
Section 4999(a) of the Code, the Company shall pay to the Executive in cash such
additional amount as is necessary so that the total amount received by the
Executive under this Agreement, after payment of any applicable taxes on such
total amount (including, without limitation, federal, state or local income
taxes, any taxes imposed by Section 4999(a) of the Code and any taxes in respect
of any amount payable to the Executive under this Section 5(g)) shall not be
less than the net after tax amount that the Executive would have been entitled
to receive under this Agreement had such excise tax under Section 4999(a) not
been imposed. The Company shall pay such additional amount to the Executive
within thirty (30) days after the Executive gives written notice to the Company
that such determination has been made by a court of competent jurisdiction.
6. ESCROW OF BENEFITS.
(a) At any time after the occurrence of a Change in Control, the
Company shall, upon the written request of the
-17-
<PAGE> 18
Executive, promptly deliver to a bank or other institution acceptable to the
Executive, as escrow agent (the "Escrow Agent"), an amount of cash or
certificates of deposit, treasury bills or irrevocable letters of credit
adequate to fully fund the obligations of the Company under this Agreement.
(b) The escrow agreement or arrangement between the Company and
the Escrow Agent shall provide that amounts payable to the Executive under this
Agreement shall be paid by the Escrow Agent to the Executive five (5) days after
written demand therefore by the Executive to the Escrow Agent, with a copy to
the Company, certifying that such amounts are due and payable under this
Agreement because of the occurrence of an event specified under Section 4
hereof. Such escrow agreement or arrangements shall also provide that if the
Company shall, prior to payment by the Escrow Agent, object in writing to the
Escrow Agent, with a copy to the Executive, as to the payment of any amounts
demanded by the Executive under this Agreement, certifying that such amounts are
not due and payable to the Executive because an event specified in Section 4
hereof has not occurred, such dispute shall be resolved by binding arbitration
as hereinafter set forth.
(c) Such escrow agreement or arrangements shall further provide
that any dispute described in Section 6(b) hereof shall be forthwith submitted
to binding arbitration as hereinafter provided.
7. ARBITRATION.
Any disputes arising under Section 4(iv) or Section 6(b) hereof shall
be forthwith submitted to binding arbitration by three (3) arbitrators in
Newark, New Jersey, under the expedited rules of the American Arbitration
Association then obtaining. One such arbitrator shall be selected by each of the
Company and the Executive, and the two arbitrators so selected shall select the
third arbitrator. Selection of all three arbitrators shall be made within thirty
(30) days after the date the dispute arose. Such arbitration shall be limited
solely to a determination of whether or not an event has occurred pursuant to
Section 4 of this
-18-
<PAGE> 19
Agreement which entitles the Executive to the benefits and rights set forth in
Section 5 of this Agreement. The written decision of the arbitrators shall be
rendered within ninety (90) days after selection of the third arbitrator. The
decision of the arbitrators shall be final and binding on the Company and the
Executive and may be entered by either party in any court having jurisdiction.
8. ENFORCEMENT OF RIGHTS.
The Company, and any survivor of any business combination with the
Company causing rights to accrue to the Executive under this Agreement, shall
pay all the Executive's legal, accounting and arbitration fees and expenses and
costs as they become due, which the Executive may become obligated to pay in
obtaining, enforcing, retaining or defending any right or benefit provided by
this Agreement, whether in respect of any enforcement undertaken or demand made
by the Executive that is successful or in respect of any enforcement undertaken
or demand made in good faith by the Executive that is not successful. If
judgment is rendered against any of such persons, it will pay the Executive,
unless expressly included in the judgment, prejudgment interest from the date of
the Notice of Termination at the prime rate being charged by Midlantic National
Bank on the date of the Notice of Termination.
9. EXECUTIVE'S COMMITMENT.
The Executive agrees that subsequent to his period of employment with
the Company, he will not at any time communicate or disclose to any unauthorized
person, without the written consent of the Company, any proprietary or
confidential information concerning the business affairs, products or customers
of the Company which, if disclosed, would have a material adverse effect upon
the business or operations of the Company and its subsidiaries, taken as a
whole; it being understood, however, that the obligations of this Section 9
shall not apply to the extent that the aforesaid matters: (a) are disclosed in
circumstances where the Executive is legally required to do so or (b) become
-19-
<PAGE> 20
generally known to and available for use by the public otherwise than by the
Executive's wrongful act or omission.
10. SEVERABILITY.
If any one or more of the provisions (or any part thereof) of this
Agreement would be, invalid, illegal or unenforceable in any respect under
applicable law, then such provision (or any part thereof) shall be deemed
modified to the extent necessary to render it valid while most nearly preserving
its original intent; no provision (or any part thereof) of this Agreement shall
be affected by another provision (or any part thereof) of this Agreement being
held invalid.
11. NOTICE.
For the purposes of this Agreement, notices, requests, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given: (i) when delivered personally, or (ii)
three (3) days after having been mailed by registered or certified mail, return
receipt requested, or (iii) one (1) day after having been sent by telegraph or
mailed by express mail or other overnight courier service, postage, telegraph,
courier and registry fees, as the case may be, prepaid and addressed to the
addresses set forth in the first paragraph of this Agreement or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt. All notices to the Company shall be directed to the attention of the
President of the Company.
12. MERGER; AMENDMENT; WAIVER.
(a) This Agreement supersedes all other agreements, arrangements
and understandings, and merges all negotiations and discussions, with respect to
the subject matter hereof; provided, however, that this Agreement shall not,
except to the extent specifically provided herein, supersede or limit the
rights, duties or obligations that the Executive may have under any written
employment agreement with the Company.
-20-
<PAGE> 21
(b) This Agreement may be amended or modified only by a writing
signed by both parties. No further agreement between the parties shall be deemed
to supersede, amend or modify this Agreement unless a statement to that effect
is made in such future agreement or the enforcement of such agreement would give
rise to conflicting obligations between the Executive on the one hand and the
Company, its successor or other bound party on the other hand; in the latter
case, however, this Agreement shall be deemed to be superseded, amended or
modified only to the extent necessary to avoid such conflict.
(c) The waiver of the non-performance of any obligation under this
Agreement shall apply to that non-performance only and shall not constitute a
waiver, modification or amendment of this provision giving rise to such
obligation.
13. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by merger, consolidation or other combination other than a sale of
assets) to the business of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall constitute Good Reason for termination by the Executive of his
employment, and, if a Change in Control shall have occurred, the Executive shall
be entitled to the benefits set forth in Section 5 of this Agreement, except
that for purposes of implementing the foregoing, the date. On which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, the "Company" shall mean the Company as hereinbefore defined,
and any successor and assign to its business as aforesaid which executes and
delivers the agreement provided for in this Section 13 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
-21-
<PAGE> 22
(b) This Agreement shall inure to the benefit of and be
enforceable by the personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees of the Executive. If the
Executive should die while any amount would still be payable to him hereunder if
he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee or other designee or, if there be no such designee, to his
estate.
14. GOVERNING LAW.
This Agreement is being made in the State of New Jersey and shall be
governed by, and interpreted and construed with reference to, the laws of New
Jersey.
15. HEADINGS.
Headings in this Agreement are for convenience of reference only and
shall not be used to construe or interpret this Agreement.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereunder have executed this Agreement
as of the date first above written.
SELECTIVE INSURANCE COMPANY OF AMERICA
BY:
-------------------------
GREGORY E. MURPHY,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
-------------------------
EDUARD PULKSTENIS
-22-
<PAGE> 23
In consideration of the covenants of the Executive hereinabove set
forth, Selective hereby guarantees to the Executive the full performance by the
Company of all of its obligations under the foregoing Termination Agreement.
SELECTIVE INSURANCE GROUP, INC.
BY:
-------------------------
GREGORY E. MURPHY,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
-23-
<PAGE> 1
EXHIBIT 11
SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
THREE-MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
Income Shares Per Share
($ in thousands, except per share amounts) (Numerator) (Denominator) Amount
- ------------------------------------------------------------- ------------------------- -------------------------- ----------------
2000
- ----
<S> <C> <C> <C>
BASIC EPS:
Net Income available to common stockholders 10,910 25,529 0.43
=========
EFFECT OF DILUTIVE SECURITIES
Restricted stock -- 744
8.75% convertible subordinated debentures 71 788
Stock options (3) 127
-------------- --------------
DILUTED EPS
Income available to common stockholders and assumed
conversions 10,978 27,188 0.40
============== ============== =========
1999
- ----
BASIC EPS:
Net Income available to common stockholders 14,023 28,124 0.50
=========
EFFECT OF DILUTIVE SECURITIES
Restricted stock -- 218
8.75% convertible subordinated debentures 89 878
Stock options (71) 221
-------------- --------------
DILUTED EPS
Income available to common stockholders and assumed
conversions 14,041 29,441 0.48
============== ============== =========
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE DECEMBER 31, 1999 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 1,158,603
<DEBT-CARRYING-VALUE> 256,014
<DEBT-MARKET-VALUE> 256,380
<EQUITIES> 253,026
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,702,652
<CASH> 26,033<F1>
<RECOVER-REINSURE> 13,426
<DEFERRED-ACQUISITION> 112,271
<TOTAL-ASSETS> 2,504,216
<POLICY-LOSSES> 1,255,255<F2>
<UNEARNED-PREMIUMS> 425,517
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 146,716<F3>
0
0
<COMMON> 76,707
<OTHER-SE> 486,510
<TOTAL-LIABILITY-AND-EQUITY> 2,504,216
212,961
<INVESTMENT-INCOME> 23,300
<INVESTMENT-GAINS> 2,273
<OTHER-INCOME> 18,448
<BENEFITS> 146,308<F4>
<UNDERWRITING-AMORTIZATION> 61,856
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 12,577
<INCOME-TAX> 1,667
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,910
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.40
<RESERVE-OPEN> 1,273,808<F5>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 1,255,255
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Equals the sum of short-term investment and cash.
<F2>Equals the sum of reserve for losses and the reserve for loss expenses.
<F3>Equals the sum of notes payable, short-term debt and convertible subordinated
debentures.
<F4>Equals the sum of losses incurred and loss expenses incurred.
<F5>Equals the sum of reserve for losses and reserve for loss expenses at the
beginning of the year.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1999 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 1,113,142
<DEBT-CARRYING-VALUE> 328,699
<DEBT-MARKET-VALUE> 341,192
<EQUITIES> 265,847
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,736,789
<CASH> 20,040<F1>
<RECOVER-REINSURE> 13,352
<DEFERRED-ACQUISITION> 114,154
<TOTAL-ASSETS> 2,428,997
<POLICY-LOSSES> 1,201,695<F2>
<UNEARNED-PREMIUMS> 413,697
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 118,555<F3>
0
0
<COMMON> 75,349
<OTHER-SE> 520,041
<TOTAL-LIABILITY-AND-EQUITY> 2,428,997
193,028
<INVESTMENT-INCOME> 23,473
<INVESTMENT-GAINS> 8,597
<OTHER-INCOME> 9,607
<BENEFITS> 143,882<F4>
<UNDERWRITING-AMORTIZATION> 60,351
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 16,674
<INCOME-TAX> 2,651
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,023
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.48
<RESERVE-OPEN> 1,193,274<F5>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 1,201,695
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Equals the sum of short-term investment and cash.
<F2>Equals the sum of reserve for losses and the reserve for loss expenses.
<F3>Equals the sum of notes payable, short-term debt and convertible subordinated
debentures.
<F4>Equals the sum of losses incurred and loss expenses incurred.
<F5>Equals the sum of reserve for losses and reserve for loss expenses at the
beginning of the year.
</FN>
</TABLE>
