UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SELECTIVE INSURANCE GROUP, INC.
(Name(Name of Registrant as Specified
in itsIn Its Charter)----------None
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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formForm orscheduleSchedule and the date of its filing.(1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed:[LOGO] SELECTIVE
(1)
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
March 28, 2006
NOTICE OF 2006 ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
April 26, 2006
Selective Insurance Group, Inc.
40 Wantage Avenue Branchville, New Jersey 07890 973-948-3000 http://www.selective.com Gregory E. Murphy Chairman, President, and Chief Executive Officer April 3, 2003 Dear Stockholder of Selective Insurance Group, Inc.: It is a pleasure to invite you to your Company's 2003’s (“Selective”) 2006 Annual Meeting of Stockholdersto be held on Wednesday, May 7, 2003, at 11:00 a.m. in the auditorium at the headquarters of the Company at 40 Wantage Avenue, Branchville, New Jersey. The Annual Report, as well as formal Notice of the Annual Meeting, together with the Proxy Statement and proxy, is enclosed with this letter. Whether you own a few or many shares of stock and whether or not you plan to attend the meeting in person, it is important that your shares be represented and voted. Please complete and file your proxy either by mail, electronically or by telephone as soon as possible. Your continued support is appreciated. We look forward to seeing you at the meeting. Warmest regards, /s/ Gregory E. Murphy Gregory E. Murphy[LOGO] SELECTIVE Selective Insurance Group, Inc. 40 Wantage Avenue Branchville, New Jersey 07890 973-948-3000 http://www.selective.com NOTICE OF ANNUAL MEETING TO BE HELD May 7, 2003 TO OUR STOCKHOLDERS: The Annual Meeting of Stockholders of Selective Insurance Group, Inc. (the "Company")will be heldon Wednesday, May 7, 2003,at 11:00a.m.AM on Wednesday, April 26, 2006, in theauditoriumAuditorium atthe headquarters of the CompanySelective’s principal offices at 40 Wantage Avenue, Branchville, New Jersey 07890.At the meeting, we will ask stockholders to:
1.
Elect directors as follows:
Four (4) Class II directors for
the following purposes: 1. To elect fiveterms expiring in 2009;Two (2) Class III directors for terms expiring in 2008;
One (1) Class I director for a term
of three years each; 2. To considerexpiring in 2007;
2.
Approve the Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies; and
3.
Ratify the appointment of KPMG LLP as independent public accountants for the fiscal year ending December 31, 2006.
We plan a brief business meeting focused on these items and
act upon a shareholder proposal; and 3. To transact suchwe will attend to any otherand furtherbusinessif any,as may properlymay be broughtcome before the meeting and at any adjournments or postponements of the meeting. The Board of Directorshas fixedrecommends that you vote in favor of Items 1, 2, and 3. These proposals are further described in the proxy statement.Also enclosed is Selective’s 2006 Annual Report to Stockholders. At the meeting, we will also be making a brief presentation on operations and we will offer time for your comments and questions.
Selective stockholders of record at the close of business on March
17, 2003, as the record date for the determination of stockholders10, 2006 are entitled to notice of and to vote at theAnnual Meeting. Once again, you may choose to vote your shares by usingmeeting and any adjournment of it. A quorum is atoll-free telephone number ormajority of outstanding shares. YOUR VOTE IS IMPORTANT. WE URGE YOU TO VOTE YOUR SHARES BY (1) CALLING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD; (2) ACCESSING THE INTERNET WEBSITE LISTED ON THE PROXY CARD; OR (3) COMPLETING, DATING, AND SIGNING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED AT THE 2006 ANNUAL MEETING.Very truly yours,
Gregory E. Murphy
Chairman of the
Internet, as described on the proxy card. You may also mark, sign, date,Board, President andmail your proxy in the envelope provided, which requires no postage if mailed in the United States. We encourage you to complete and file your proxy by accessing the World Wide Web or by using a touch-tone telephone if these options are available to you. The method by which you decide to vote will not limit your right to revoke your proxy or to vote in person at the Annual Meeting should you later decide to attend the Annual Meeting in person.Chief Executive OfficerBy
orderOrder of the Board ofDirectors, /s/ Michele Nieroda Schumacher Michele Nieroda SchumacherDirectors:
Michael H. Lanza
Senior Vice President,
Corporate SecretaryGeneral Counsel and CorporateGovernance Officer Dated: April 3, 2003Secretary TABLE OF CONTENTS
Proxy Statement
1
General Information about Selective’s Annual Meeting
1
Proposals For Stockholder Vote and Approval Requirements
2
Other Matters to Come before the Annual Meeting
3
Voting and Proxy Procedure
3
Security Ownership of Directors and Executive Officers and Certain Beneficial Owners and
Securities Authorized for Issuance under Equity Compensation Plans
5
Information about Proposal 1 – Election of Directors
7
Executive Officers
11
Certain Relationships and Related Transactions
11
Section 16(A) Beneficial Ownership Reporting Compliance
12
Code of Conduct
12
The Board of Directors and its Committees
13
Director Selection Process
16
Director Compensation
17
Executive Compensation
18
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
26
Report of the Salary and Employee Benefits Committee
27
Information about Proposal 2 – Approval of The Selective Insurance Group, Inc.
40 Wantage Avenue Branchville, New Jersey 07890Stock Purchase
Plan for Independent Insurance Agencies
30
Information about Proposal 3 – Ratification of Appointment of Independent Public Accountants
33
Audit Committee Report
33
Stockholder Proposals and Nominations
35
Stockholder Communication with the Board
36
Documents Incorporated by Reference
36
Appendix A – Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies
A-1
PROXY STATEMENT
General Matters This Proxy Statement is furnished in connection with a solicitation of proxies by the Board of Directors of Selective Insurance Group, Inc. (the "Company") for use at theFOR THE 2006 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 26, 2006
GENERAL INFORMATION ABOUT SELECTIVE’S ANNUAL MEETING
WHEN AND WHERE IS THE ANNUAL MEETING?
The 2006 Annual Meeting of Stockholders
to(the “Annual Meeting”) will be held on Wednesday,May 7, 2003,April 26, 2006, at 11:00a.m.AM in theauditoriumAuditorium atthe headquarters of the CompanySelective’s principal offices at 40 Wantage Avenue, Branchville, New Jersey 07890. Directions are on the back of the proxy statement.WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
Anyone who owned Selective common stock as of the close of business on March 10, 2006, is entitled to one vote per share owned. There were 27,510,071 shares outstanding at the close of business on that date.
WHO IS SOLICITING MY PROXY TO VOTE MY SHARES AND WHEN?
Selective’s Board of Directors (“Board of Directors” or the “Board”) is soliciting your “proxy,” or your authorization for our named proxies, Paul D. Bauer and
atJoan M. Lamm-Tennant, to vote your shares. Unless revoked by you, your proxy will be effective for the Annual Meeting and for anyadjournment thereof. The Companyadjournments or continuations of that meeting.WHAT IS THE COST OF SOLICITING PROXIES AND WHO IS PAYING FOR THE COST?
Selective is bearing the entire cost of soliciting proxies. Proxies will be solicited principally through the mail, but may also be solicited personally or by telephone, telegraph, or special letter by directors, officers, and regular Selective employees for no additional compensation. Selective has
retainedengaged Georgeson Shareholder Communications Inc.for(“Georgeson”), afee of $7,500, plus expenses,proxy solicitation firm, toaidassist in the solicitation of proxiesby mail, telephone,andpersonal contact. In addition to solicitation by mailthe distribution of proxy materials, including reviewing Selective’s proxy materials, disseminating broker search cards, soliciting a proxy service company, brokers, banks, andby certain employeesinstitutional holders, and delivering executed proxies. Georgeson will provide such services for an estimated fee ofthe Company (without additional compensation), arrangements have been made withapproximately $7,500 plus expenses. Selective will reimburse banks, brokeragehousesfirms, and other custodians, nominees, and fiduciaries for reasonable expenses incurred by them in sending proxy materials tosend proxy material totheir customers or principals who are the beneficialowners. The costsowners ofthe solicitation willshares of Selective common stock.WHAT ARE THE REQUIREMENTS FOR BUSINESS TO BE CONDUCTED AT THE ANNUAL MEETING?
For business to be
borne by the Company. On March 17, 2003, which is the record date for the determination of stockholders entitled to notice of, and to voteconducted at the Annual Meeting,there were outstanding and entitled to vote 26,891,464 sharesa quorum ofcommon stock, $2.00 par value ("Common Stock"). The Common Stock is13,755,036 Selective stockholders (a majority of theCompany's onlyissued and outstandingclassshares entitled to vote) must be in attendance or represented by proxy.Page 1
PROPOSALS FOR STOCKHOLDER VOTE AND APPROVAL REQUIREMENTS
Management is presenting three (3) proposals for a stockholder vote.
PROPOSAL 1.
ELECTION OF DIRECTORS
THE BOARD RECOMMENDS THAT YOU VOTE FOR:
THE FOUR NOMINATED CLASS II DIRECTORS: A. DAVID BROWN; WILLIAM M. KEARNS, JR.; S. GRIFFIN MCCLELLAN III; AND J. BRIAN THEBAULT;
THE TWO NOMINATED CLASS III DIRECTORS: JOHN C. BURVILLE AND JOHN F. ROCKART; AND
THE ONE NOMINATED CLASS I DIRECTOR: W. MARSTON BECKER.
You can find information about these nominees, as well as information about Selective’s Board of
voting stock. This Proxy StatementDirectors, its committees, compensation for directors, andthe accompanying proxy are being mailedother related matters beginning onor about April 3, 2003, to all stockholders of record as of the record date. Underpage 7.New Jersey law and Selective’s By-laws govern the
Company's By-Laws, each sharevote on Proposal 1, on which you may:Vote in favor of
Common Stock outstandingall the nominees;Withhold your votes as to all nominees; or
Withhold your votes as to specific nominees.
Assuming a quorum, to be elected, a candidate must receive a plurality of the
record date is entitled to one votevotes cast at the AnnualMeeting. The presenceMeeting in person or by proxyof the holders of a majority of the shares of Common Stock entitled to vote at the Annual Meeting constitutes a quorum. Under New Jersey law, proxies submitted with votes withheld for the election of directors, abstentionsStockholders may not cumulate their votes. Abstentions and broker non-votesare included in determining whether a quorum is present. Directors are elected by a plurality of votes cast, meaning that the five nominees receiving the greatest number of votes will be elected. Votes withheld for the election of any or all of the nominees have no impact on the election of directors except to reduce the number of votes for the nominee(s) for which votes are withheld. Approval of the shareholder proposal requires the affirmative vote of a majority of the votes cast on the proposal. Abstentions are counted as shares present at the meeting for purposes of determining a quorum. Similarly, shares which brokers do not have the authority to vote in the absence of timely instructions from beneficial owners ("broker nonvotes") are also counted at the meeting for purposes of determining a quorum. Abstentions and broker nonvotes are not considered votes cast and will not be counted either "for" or "against" the shareholder proposal and, accordingly,will have no effect on the outcome of the vote.
PROPOSAL 2.
APPROVAL OF THE SELECTIVE INSURANCE GROUP, INC. STOCK PURCHASE PLAN FOR INDEPENDENT INSURANCE AGENCIES (the “Agencies Stock Purchase Plan”)
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE AGENCIES STOCK PURCHASE PLAN.
You can find information about the Agencies Stock Purchase Plan beginning on page 30.
New Jersey law and Selective’s By-laws govern the vote on Proposal 2, on which you may:
Vote in favor of Proposal 2;
Vote against Proposal 2; or
Abstain from voting.
Assuming a quorum, the proposal will pass if approved by a majority of the stockholders present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions will have the same effect as votes against Proposal 2 and broker non-votes will have no effect on the outcome of the vote.
PROPOSAL 3.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
THE BOARD RECOMMENDS THAT YOU VOTE TO RATIFY THE APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2006.
You can find information about Selective’s relationship with KPMG LLP beginning on page 33.
New Jersey law and Selective’s By-laws govern the vote on Proposal 3, on which you may:
Vote in favor of Proposal 3;
Vote against Proposal 3; or
Abstain from voting.
Assuming a quorum, Proposal 3 will pass if approved by a majority of the stockholders present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions will have the same effect as votes against Proposal 3 and broker non-votes will have no effect on the outcome of the vote.
Page 2
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
The
only persons or groups that were known by the Company asBoard ofMarch 17, 2003,Directors is not aware of any other business to bethe beneficial owners of more than 5%presented for a vote of theCompany's outstanding Commonstockholders at the Annual Meeting. If any other matters are properly presented for a vote, the people named as proxies will have discretionary authority, to the extent permitted by applicable law and NASDAQ Stockare listed below:
Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of ClassDimensional Fund Advisors, Inc.(1) 1,684,800 6.3% 1299 Ocean Avenue, 11th floor Santa Monica, CA 90401 Commerce Insurance Company (2) 1,782,500 6.7 % 211 Main Street Webster, MA 01570(1) Dimensional Fund Advisors, Inc. ("Dimensional"Market (“NASDAQ”)a registered investment advisoranda Delaware corporation filed a Schedule 13G dated February 3, 2003, with the Securities and Exchange Commission. The Schedule 13G states that Dimensional is a registered investment advisor and furnishes investment advice to four registered investment companies and that it serves as investment manager to certain other commingled group trusts and separate accounts, and that in its capacity as investment advisor or manager that, at December 31, 2002, it had the power to vote and/or investment power over 1,684,800 shares. The Schedule 13G also indicates that Dimensional disclaims beneficial ownership of all such securities. (2) Commerce Insurance Company, a Massachusetts property and casualty insurance company, filed a Schedule l3G dated January 24, 2001, with theUnited States Securities and Exchange Commissionwhich states that at December 31, 2000, it had the power(“SEC”) rules and regulations, to vote1,782,500 shares.Ason such matters according to their best judgment.The Chairman of the
date hereof,Annual Meeting may refuse to allow presentation of a proposal or nominee for the Board of Directorsknows of no other business that will be presentedif the proposal or nominee is not properly submitted. The requirements forconsideration atsubmitting proposals and nominations for this year’s meeting were themeeting, except the matters set forth in the Notice of Annual Meeting. If any such other business shall properly come before the meeting, it is intended that votes will be cast, pursuant to proxies solicited, in respect of any such other business in the discretion of the persons acting under said proxies. Duly executed proxies that contain no instructions to the contrary will be voted FOR the election of the five nominees named hereinsame asdirectors of the Company, and AGAINST the shareholder proposal. The Annual Report to Stockholdersthose described on page 35 forthe fiscal year ending December 31, 2002, is being provided to all stockholders of record as of the close of business on March 17, 2003 together with this Proxy Statement.next year’s meeting.VOTING AND PROXY PROCEDURE
HOW
TO VOTE Stockholders of record (that is, stockholders who hold their shares in their own name)DO I VOTE?You can vote
any one of threefour (4) ways:1. By Mail: Sign, date and return
1.
BY MAIL. Mark your voting instructions on, then sign and date the proxy card. Then return the proxy card in the postage-paid envelope provided. If you mail your proxy card, we must receive it before the beginning of the meeting.
If we receive your signed proxy card,
in the enclosed postage-paid envelope. Ifbut yousign and return your proxy card butdo not give voting instructions, the named proxies will vote your sharesrepresented byFOR Items 1, 2, and 3. If any other matters arise during the meeting thatproxy will be voted as recommended by the Board of Directors. 2. By Telephone: Call the toll-free number on your proxy card torequire a vote,by phone. You will need to follow the instructions on your proxy card and the voice prompts. 3. By Internet: Go to the web site listed on your proxy card to vote through the Internet. You will need to follow the instructions on your proxy card and the web site. If you vote through the Internet, you may incur telephone and/or Internet access charges from your service providers. If you vote by telephone or the Internet, your electronic vote authorizesthe named proxies will exercise their discretion, tovote on your behalf inthesame manner as if you signed, datedextent permitted by applicable law andreturned your proxy card.NASDAQ and SEC rules and regulations.
2.
BY TELEPHONE. Call the toll-free number on your proxy card to vote by phone. Follow the instructions on your proxy card and the voice prompts. IF YOU VOTE BY TELEPHONE, YOU DO NOT NEED TO RETURN YOUR PROXY CARD.
3.
BY INTERNET. Go to the website listed on your proxy card to vote through the Internet. Follow the instructions on your proxy card and the website. If you vote through the Internet, you may incur telephone and/or Internet access charges from your service providers. IF YOU VOTE BY INTERNET, YOU DO NOT NEED TO RETURN YOUR PROXY CARD.
4.
IN PERSON. Attend the Annual Meeting, or send a personal representative with an appropriate proxy, in order to vote.
Page 3
HOW DO I REVOKE MY PROXY OR
THE INTERNET, YOU DO NOT NEED TO RETURN YOUR PROXY CARD. If your shares are held in the name of a bank, broker or other holder of record (that is, "street name"), you will receive instructions from the holder of record that you must follow in order for your shares to be voted. Telephone and Internet voting may be offered to stockholders whose shares are held by banks and brokers. CHANGING OR REVOKING YOUR VOTECHANGE MY VOTING INSTRUCTIONS?You may revoke your proxy by
giving proper written notice of revocationwriting to the Corporate Secretary, Michael H. Lanza, at the address in the meeting notice on the cover ofthe Company before yourthis proxyis exercised.statement. You may also change your voteat any timebefore the proxy isexercised.exercised by entering a new vote via the Internet, by telephone, or by returning a properly executed proxy bearing a later date. Any subsequent timely and valid vote by any means will change your prior vote. For example, if you voted by telephone, a subsequent Internet vote will change your vote. The last vote received beforemidnight easternnoon central time,May 6, 2003April 25, 2006 will be theonevote that is counted. You may also change your vote by voting in person at theannual meeting. Stockholders who holdAnnual Meeting.HOW WILL PROXIES BE VOTED IF I GIVE MY AUTHORIZATION?
If you properly execute your proxy on the accompanying form, return it to Selective, and do not subsequently revoke your proxy, your shares of common stock will be voted at the Annual Meeting in accordance with your instructions. In the absence of instructions, the named proxies will vote your shares “FOR” the election of each director nominee, “FOR” the approval of the Agencies Stock Purchase Plan, and “FOR” the ratification of the appointment of KPMG LLP as Selective’s independent public accountants. If other matters should properly come before the meeting, the named proxies will vote on such matters, to the extent permitted by applicable law and NASDAQ and SEC rules and regulations, in accordance with their best judgment.
HOW WILL VOTES BE COUNTED?
The inspector of elections appointed by the Board of Directors for the Annual Meeting will separately tabulate affirmative and negative votes, abstentions and “broker non-votes” (shares held by a broker, bank or other nominee that does not have authority, either express or discretionary, to vote on a particular matter). Shares represented by proxies that reflect abstentions and broker non-votes are counted for determining whether there is a quorum. Abstentions and broker non-votes will not be considered in determining whether director nominees have received the requisite number of affirmative votes. For each of the remaining proposals, approval will require the affirmative votes of the holders of a majority of the total number of the votes of the stockholders present at the Annual Meeting or represented by proxy and entitled to vote on the proposal. For each of these remaining proposals, abstentions will have the effect of a vote “Against” such proposal, and broker non-votes, although counted for purposes of determining the presence of a quorum, will have the effect of a vote neither for nor against such proposal.
WHAT IF MY SHARES ARE NOT REGISTERED IN MY NAME?
If you own your shares in
brokerage accounts, or "street name" stockholders, who wish to change their“street name,” meaning that your broker is actually the record owner, you should contact your broker. When a broker does not have voting instructions and withholds its voteprior toon one of these matters, it is called a “broker non-vote.” Broker non-votes count toward a quorum, but otherwise do not affect themeeting, will need to contact the institution that holds their shares. If you wish to change your vote at the meeting, you will need to obtain a legal proxy from the institution that holds your shares. I. ELECTIONoutcome of any proposal.Page 4
SECURITY OWNERSHIP OF DIRECTORS
(ItemAND EXECUTIVE OFFICERSAND CERTAIN BENEFICIAL OWNERS AND SECURITIES AUTHORIZED
FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
SECURITY OWNERSHIP OF MANAGEMENT
AS OF FEBRUARY 28, 2006
The following table shows:
How much Selective common stock each nominee for director, director, the Chairman of the Board, Chief Executive Officer and President (“CEO”), and the next four most highly compensated executive officers other than the CEO, own directly or beneficially.
How much Selective common stock the directors and executive officers of Selective own, directly or beneficially as a group.
NUMBER OF
NUMBER
SHARES
TOTAL
OF SHARES
REGARDING
SHARES
BENEFICIALLY
OPTIONS
BENEFICIALLY
PERCENT
NAME OF OWNER
OWNED
EXERCISABLE(1)
OWNED
OF CLASS
Bauer, Paul D.
13,991
21,000
34,991
*
Becker, W. Marston
103
0
103
*
Brown, A. David
15,232
21,000
36,232
*
Burville, John C.
119
0
119
*
Connell, Richard F.
37,719
5,000
42,719
*
Kearns, William M., Jr.
85,577
27,000
112,577
*
Lamm-Tennant, Joan M.
15,611
27,000
42,611
*
McClellan, S. Griffin, III
24,133
(2)
6,000
30,133
*
Murphy, Gregory E.
137,016
34,825
171,841
*
Ochiltree, Jamie, III
109,353
(3)
44,000
153,353
*
O’Kelley, Ronald L.
1,969
3,000
4,969
*
Rockart, John F.
3,530
9,000
12,530
*
Rue, William M.
207,193
(4)
27,000
234,193
*
Thatcher, Dale A.
38,038
5,000
43,038
*
Thebault, J. Brian
19,755
(5)
27,000
46,755
*
Zaleski, Ronald J.
40,734
16,996
57,730
*
All executive officers and directors as a group (20 persons)
841,512
329,783
1,171,295
4.24
*
(1)
(2)
(3)
(4)
(5)Less than 1% of the common stock outstanding.
Includes shares under options exercisable on February 28, 2006 or within 60 days thereafter.
Includes 2,000 shares held by Mr. McClellan’s wife, for which Mr. McClellan disclaims beneficial ownership.
Includes 30,434 shares held by Mr. Ochiltree’s wife, for which Mr. Ochiltree disclaims beneficial ownership.
Includes (i) 16,355 shares held by Chas. E. Rue & Sons, Inc. t/a Rue Insurance (“Rue Insurance”), a general insurance agency of which Mr. Rue is President and owner of more than a 5% equity interest (see page 11 of this proxy statement for more information); (ii) 990 shares held by Mr. Rue’s wife; and (iii) 9,310 shares held by a trust of which Mr. Rue is a co-trustee for the benefit of his son and daughter, of which Mr. Rue disclaims beneficial ownership.
Includes: (i) 102 shares held in custody for and 100 shares held by Mr. Thebault’s son; and (ii) 102 shares held in custody for Mr. Thebault’s daughter.Page 5
HOLDERS OF 5% OR MORE OF SELECTIVE SECURITIES
The following table lists the only person or group known to Selective to be the beneficial owner of more than 5% of any class of Selective’s voting securities as of December 31, 2005, based on a Schedule 13G filed by the beneficial owner on February 6, 2006 with the SEC.
Title of Class
Name & Address of Beneficial Owner
Amount & Nature
of Beneficial
OwnershipPercentage of Class
Common Stock
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
2,129,248 shares
of common stock
7.53%
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth certain information as of December 31, 2005,with respect to compensation plans under which shares of Selective’s common stock may be issued.(1)
Plan Category
(a)
Number of
securities to be
issued upon exercise
of outstanding
options,
warrants and rights
(b)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))Equity Compensation plans
approved by security holders789,523
$26.96
1,971,194
(2)
Equity Compensation plans not
approved by security holders—
—
561,502
(3)
Total
789,523
$26.96
2,532,696
(1)
Since December 31, 2005, Selective has issued 42,970 stock options and 136,985 restricted shares under the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan (the “Omnibus Stock Plan”).
(2)
Includes 223,903 shares available for issuance under Selective’s Employee Stock Purchase Plan; and 1,747,291 shares available for issuance under Selective’s Omnibus Stock Plan; which can be issued as stock options or in the form of restricted stock awards.
(3)
This is the number of shares available for issuance under Selective’s current Stock Purchase Plan for Independent Insurance Agents.
Page 6
Stock Purchase Plan for Independent Insurance Agents
History
Selective’s Board of Directors adopted the Selective Insurance Group Stock Purchase Plan for Independent Insurance Agents (the “Original Independent Agents Plan”) initially in May 1989 and most recently amended the Independent Agents Plan on July 24, 2000. At the Annual Meeting, the Board is seeking shareholder approval of a new Agencies Stock Purchase Plan, which, if approved, would replace the Original Independent Agents Plan. If the new Agencies Stock Purchase Plan is not approved by stockholders, the Original Independent Agents Plan will remain in effect. Please see Proposal 2 for information regarding the Agencies Stock Purchase Plan.
The Plan
Selective’s Board of Directors adopted the Original Independent Agents Plan to motivate persons performing independent insurance agency services for Selective by enabling them to participate in Selective’s long-term growth and success by purchasing shares of Selective’s common stock at a discounted price. The purchase price for shares offered under the Original Independent Agents Plan is the average of the high and low sale prices of Selective’s common stock quoted on NASDAQ on the date of purchase, less a discount of 10%.
Eligibility
Each independent insurance agency which is under contract with Selective’s insurance subsidiaries to promote and sell Selective insurance products is eligible to participate in the Original Independent Agents Plan and to purchase shares of Selective’s common stock under the plan. Also eligible to purchase shares under the Original Independent Agents Plan are: the principals of such agencies, general partners, officers and stockholders of eligible insurance agencies, key employees of eligible insurance agencies designated by the principals, general partners or officers of the agencies, their individual retirement plans, their Keogh plans, and employee benefit plans of eligible insurance agencies.
Restrictions on Shares Purchased under the Plan
Shares purchased under the Original Independent Agents Plan are restricted for a period of one year beginning on the date of the day after the purchase. During this one-year period, shares purchased under the Original Independent Agents Plan cannot be sold, transferred, pledged, assigned or disposed of in any way.
INFORMATION ABOUT PROPOSAL 1
on Proxy) The Company'sElection of Directors
Selective’s Board of Directors currently has twelve (12) directors, divided into three (3) classes designated Class I, Class II, and Class III. Pursuant to Selective’s Restated Certificate of Incorporation, as amended,
(the "Certificate"),and its By-laws, Selective may have a minimum of seven (7) and a maximum of twenty (20) directors. By majority vote, theBy-Laws provide thatBoard of Directors may set the number of directors within this range at any time.Under Selective’s By-laws, directors are elected at the Annual Meeting for terms of
the Company shall not be less than seven nor more than twenty,three (3) years, unless a director is being elected to fill a vacant, unexpired term. No family relationships exist between any of Selective’s current directors, executive officers, andsuch number within the minimum and maximum limitations shall be fixed from timepersons nominated by Selective totime bybecome aresolution approved by a majority of the whole Board of Directors. As provided in the Certificate,director. At present, the Boardof Directors is divided into three classes, equal or nearly as equal as possible, so that directors serve staggered three-year terms.has authorized twelve (12) directors.The Board nominated four (4) Class II directors to stand for election at the Annual Meeting for terms expiring at the 2009 Annual Meeting or when a successor has
nominatedbeen duly elected and qualified: A. DavidBrown,Brown; William M. Kearns, Jr.,; S. Griffin McClellanIII,III; and J. BrianThebaultThebault.The Board also nominated two (2) Class III directors to stand for
reelection as directors for three-year terms expiringelection at the Annual Meetingof Stockholders in 2006. All such persons are currently directors and were previously elected by stockholders. John F. Rockart, Ph.D., who is also nominated for election as directorfor athree-yearterm expiring at the 2008 Annual Meetingof Stockholders in 2006, was elected by the Board asor when adirector on July 1, 2002 and added to the Class of Directors whose terms expire in 2003. Mr. Thomas D. Sayles, Jr., whosuccessor has been duly elected and qualified: John C. Burville and John F. Rockart. Dr. Burville was recommended by adirector since 1988, retired fromthird party search firm and non-management directors of Selective and was appointed to the Board effective January15, 2003.1, 2006. Dr. Rockart is presently a Class II director whose term expires at the 2006 Annual Meeting.Page 7
The Board
reduced the number of directors from twelvealso nominated one (1) Class I director toeleven effectivestand for election at the Annual Meeting for a term expiring at the 2007 Annual Meeting or when a successor has been duly elected and qualified: W. Marston Becker. Mr. Becker was recommended by a third party search firm and non-management directors of Selective and was appointed to the Board effective February200313, 2006.All seven (7) nominees have consented to being named in this proxy statement and to serve if elected and the Board
Meeting. In the eventdoes not know of anynominee shallreason why any of these nominees would decline or be unable to serveasif elected. If adirector at the time ofnominee becomes unavailable or unable to serve before the Annual Meeting,of Stockholders, whichthe Boardof Directors does not presently expect,can either reduce its size or designate a substitute nominee. If the Board designates a substitute nominee, proxiesin favor of such unavailablethat would have been cast for the original nominee will bevotedcast fora consentingthe substitute nomineeselected by the Board of Directors. None of the nominees for directorunless instructions arerelated to any executive officer or director of the Company or another nominee by blood, marriage or adoption. Directors shall be elected by a plurality of the votes cast. 2NOMINEES The following information is set forth with respectgiven to thefive nominees for election as directors at the Annual Meeting of Stockholders to serve three-year terms expiring at the Annual Meeting of Stockholders in 2006.contrary.NOMINEES OF THE BOARD OF DIRECTORS
CLASS II – DIRECTORS CONTINUING IN OFFICE UNTIL THE 2009 ANNUAL MEETING OF STOCKHOLDERS
Name, Age, Year Elected To Board of Directors
Positions and Offices in Company and Business Experience - ----------------- --------------------------------------------------------Occupation And Background
A. David Brown,63
Independent Director, 1996
• Managing Partner, Bridge Partners, LLC, an executive recruiting firm, since October 2003.
• Partner, Whitehead Mann, executive
recruiting,recruiters, 1997 to 2003.• Director, Hanover Direct, since
1997; Managing Vice Age: 60 President, Korn/Ferry International, executive recruiting, 1994 to 1997; served2003.• Director,
since: 1996 in various executive positions with R.H. Macy & Co., Inc., 1968 to 1994; Term to expire: 2006 Director, theZale Corporation,since 1997;1997 to 2006.• Director, The Sports Authority, Inc.,
since 1998;1998 to 2003.• Trustee, Drew
University;University.• Trustee, Jackie Robinson Foundation.
• Trustee, Morristown Memorial Hospital Foundation.
• Graduate of Monmouth University (B.S.).
William M. Kearns, Jr., 70
Independent Director, 1975
• Chairman and Co-CEO and other executive positions of Keefe Managers, LLC, a money management firm, since 1998.
• President, W.M. Kearns & Co., Inc., a private investment company, since
1994; Age: 67 Chairman and Co-CEO, Keefe Managers, LLC, a money management firm, since 2002;1994.• Advisory Director,
since: 1975 Vice Chairman Keefe Managers, Inc., a money management firm, from 1998 to 2002; Term to expire: 2006 Director, Transitor Devices, Inc., since 1991; Director, United States Shipping, LLC, since 2002; Senior Advisor toProudfoot Consulting, PLC, since1996;1996.• Trustee of EQ Advisors Trust (Equitable Life Assurance Society of the U.S.), AXA Financial, since
1997;1997.• Trustee, AXA Enterprise Funds, since 2004.
• Director, Transitor Devices, Inc., since 1991.
• Advisory Director, Gridley and Company LLC, since
2001; Executive Vice President, Greater New York Council of Boy Scouts of America,2001.• Director, U. S. Shipping Partners L.P., since
1985; Trustee, Morristown Memorial Health Foundation,2002.• Advisory Director, Private Client Resources LLC, since
1999;2004.• Member, Executive Advisory Committee, William E. Simon School of Business Administration, University of Rochester, since 1986.
• Member, National Association of Securities Dealers.
• Trustee, Morristown Memorial Hospital Foundation.
• Honorary LLD, Gonzaga University.
• Graduate of the University of Maine (B.A.).
• Graduate of New York University (M.A.).
S. Griffin McClellan III, 68
Independent Director, 1980
•Retired
formerly ChairmanBanking Executive.• Self-employed Banking Consultant, 1994 to 2001.
• Graduate of
Crestmont Federal Savings and Loan Association. Age: 65 Director since: 1980 Term to expire: 2006 John F. Rockart, Ph.D. Senior Lecturer Emeritus, Massachusetts Institute of Technology ("MIT"Harvard University (B.A.), since Age: 71 July 2002; Schussel Distinguished Senior Lecturer of MIT, July 1999 to July Director since: 2002 2002; Senior Lecturer and Director, Center for Information Systems Research, Term to Expire: 2006 MIT, July 1982 to July 1999; Director, Keane, Inc., since 1968; Director, Comshare Inc., since 1988; Director, Tufts New England Medical Center, since 1981, and Vice Chairman, since 2001..Page 8
J. Brian Thebault,54
Independent Director, 1996
• Chairman and Chief Executive Officer, L.P. Thebault Company, a graphic
Age: 51communications concern, since1998; President and Chief Executive Officer, L.P. Thebault Director since: 1996 Company, 1985 to1998.Term to expire: 2006• Trustee, The Delbarton School, since 1990.
• Trustee, The Peck School, since 1994.
• Graduate of University of Southern California (B.S.).
3CONTINUING DIRECTORS The following information is set forth with respect to the directors whose terms of office will continue after the Annual Meeting.
CLASS III – DIRECTORS CONTINUING IN OFFICE UNTIL THE 2008 ANNUAL MEETING OF STOCKHOLDERS
Name, Age, Year Elected To Board of Directors
PositionsOccupation And Background
John C. Burville, 58
Independent Director, 2006
• Insurance Consultant to the Bermuda Government, since 2003.
• Bermuda Insurance Advisory Committee, since 1985.
• Chief Actuary and
OfficesSenior Rating Agency Manager of ACE Limited, 1992 to 2003.• Graduate of Leicester University in
Companythe United Kingdom (BSc andBusiness Experience - ----------------- --------------------------------------------------------Paul D. Bauer Retired, formerly Executive Vice President and Chief Financial OfficerPh.D.).John F. Rockart, 74
Independent Director, 2002
• Senior Lecturer Emeritus, Massachusetts Institute of
Tops Age: 59 Markets, Inc.;Technology, since 1982.• Director,
R P Adams Co., since 1996; Director, IMC, Inc., 1995 to Director since: 1998 2000; Vice-Chairman, Catholic Health Systems of Western New York, since 1998; Term to expire: 2005 Trustee, D'Youville College, since 1995; Board Member of the Buffalo Intercity Scholarship Opportunity Network; Director, Rosina HoldingsKeane, Inc., since2002. William A. Dolan, II Attorney, Of Counsel to Lucas and Gaus, Esq., since 2001; Attorney, Of Counsel Age: 71 to Michael C. Gaus, Esq.1968.• Director, Comshare, Inc., 1998 to
2001; Of Counsel, Kelly, Gaus2004.• Director, Oasis Semiconductor, Inc., 2004 to 2005.
• Member, Society Information Management, Association Information Systems.
• Trustee of New England Medical Center, since 1980.
• Graduate of Princeton University (A.B.).
• Graduate of Harvard Business School (M.B.A.).
• Graduate of Massachusetts Institute of Technology (Ph.D.).
CLASS I – DIRECTOR CONTINUING IN OFFICE UNTIL THE 2007 ANNUAL MEETING OF STOCKHOLDERS
Name, Age, Year Elected To Board of Directors
Occupation And Background
W. Marston Becker, 53
Independent Director, 2006
• Chairman &
Holub, 1994 to Director since: 1988 1998; Director,CEO of LaSalle Re Holdings Ltd., since1982, and2003.• Chairman of
the Board, 1988 to 1996, High Point Term to expire: 2005 Financial Corporation. C.Edward Herder, CPCU President, Chester H. Herder & Son, Inc., general insurance agency,West Virginia Media Holdings, since1959; Age: 67 Chairman, Herder Tarricone Associates, 1994 to 1996, general insurance agency;2001.• Director,
since: 1978 Trustee, Hunterdon Healthcare System, Inc.Max Re Capital, Ltd., since1983. Term to expire: 2004 Joan M. Lamm-Tennant, Ph.D. Senior Vice President, General Reinsurance Corporation, a reinsurance company, Age: 502004.• Director, West Virginia University, United Hospital System, since
1996; formerly Professor2004.• Director, Trenwick Group, Ltd., 1997-2003.
• Advisory Board Member, International Catastrophe Insurance Managers, LLC (ICAT), since 2005.
• Advisory Board Member, Conning Funds, since 1997.
• Advisory Board Member, American Securities Funds, since 1997.
• Graduate of
Finance, VillanovaWest Virginia University1988 to 2001; Director since: 1993 Thomas G. Labreque Endowed Chair in Business, Villanova(B.S.).• Graduate of West Virginia University
from 1999 to Term to expire: 2005 2001.(J.D.).Page 9
CONTINUING DIRECTORS
CLASS I – DIRECTORS CONTINUING IN OFFICE UNTIL THE 2007 ANNUAL MEETING OF STOCKHOLDERS
Name, Age, Year Elected To Board of Directors
Occupation And Background
Gregory E. Murphy,50
Employee Director, 1997• Chairman, President, and Chief Executive Officer of
the Company,Selective, since May2000; Age: 472000.• President and Chief Executive Officer of
the Company,Selective, May 1999 to May2000; Director since: 19972000.• President and Chief Operating Officer of
the Company,Selective, 1997 to May1999; Term to expire: 20041999.• Other senior executive, management, and operational positions at Selective, since 1980.
• Director, Newton Memorial Hospital Foundation, Inc., since
September 1999;1999.• Director, American Insurance Association (AIA), since 2002.
• Trustee, the American Institute for CPCU (AICPCU) and the Insurance Institute of America
(AIA)(IIA), since June 2001.• Graduate of Boston College (B.S.).
• Harvard University (Advanced Management Program).
William M. Rue,
CPCU58Non-Independent Director, 1977
• President,
Chas. E. Rue & Son, Inc. t/aRue Insurance, general insurance agency,Age: 55since1987;1969.• President, Rue Financial Services, Inc., since 2002.
• Director, 1st Constitution Bank, since
1989;1989.• Director, Robert Wood
Director since: 1977Johnson University Hospital at Hamilton, since1993;1993.• Trustee, Rider University,
Term to expire: 2004since1993;1993.• Director, Robert Wood Johnson University Hospital Foundation, since 1999.
4EXECUTIVE OFFICERS OF THE COMPANY As of March 17, 2003, the executive officers of the Company were:
Gregory E. Murphy age 47 Chairman, President and Chief Executive Officer. * Richard W. Berstein age 51 Executive Vice President and General Counsel, since December 2002; Executive Vice President from November 2002 to December 2002; from February 1990 to October 2002, Vice President, General Counsel and Secretary, MetLife Auto• Member, National Association of Securities Dealers.
• Member, Council of Insurance Agents &
Home, a property and casualty insurance company and a subsidiaryBrokers.• Member, Society of
MetLife. Debra P. Carter age 46 Senior Vice President andCPCU.• Member, Professional Insurance Agents Association.
• Graduate of Rider College (B.A.).
CLASS III – DIRECTORS CONTINUING IN OFFICE UNTIL THE 2008 ANNUAL MEETING OF STOCKHOLDERS
Name, Age, Year Elected To Board of Directors
Occupation And Background
Paul D. Bauer, 62
Independent Director, 1998
• Designated by the Board of
Human Resources, since February 2003; Vice President and Director of Human Resources, November 1992 to February 2003. James W. Coleman, Jr. age 44 Executive Vice President, Diversified Insurance Services, since July 1999; Senior Vice President, Strategic Business Units, May 1996 to July 1999. Richard F. Connell age 57Directors as an audit committee financial expert.• Retired Financial Executive.
• Executive Vice President and Chief
InformationFinancial Officer of Tops Markets, Inc., a grocery concern, 1970 to 1993.• Director, R.P. Adams Co., 1991 to 2004.
• Director, Rosina Holdings Inc., since
August 2000; from 19962002.• Director, IMC, Inc., 1995 to
August 2000, Vice President and Chief Technology Officer, Liberty Mutual Insurance Company, an insurance company that provides life and property & casualty insurance. Sharon R. Cooper age 412000.• Director, Catholic Health System of Western New York, since 1998.
• Trustee, D’Youville College, since 1995.
• Graduate of Boston College (B.S. in Accounting).
Page 10
Joan M. Lamm-Tennant, 53
Independent Director, 1993
• Senior Vice President, General Reinsurance Corporation, since 1997.
• Professor of Finance, Villanova University, 1988 to 2000.
• Member, American Risk and Insurance Association.
• Member, International Insurance Society.
• Member, Association for Investment Management and Research.
• Graduate of St. Mary’s University (B.B.A. and M.B.A.).
• Graduate of the University of Texas (Ph.D.).
Ronald L. O’Kelley, 61
Independent Director,of Communications,2005• Chairman and CEO, Atlantic Coast Venture Investments Inc., a private investment company, since
February 2003; Vice President and Director of Communication, December 2000 to February 2003; from December 1996 to December 2000, Director of Media Relations, Allstate Insurance, a personal lines insurance company. Kerry A. Guthrie age 45 Senior Vice President and Chief Investment Officer, since August 2002; Vice President and Senior Investment Officer, February 2002 to August 2002; Vice President, Investments, February 1996 to February 2002. Jamie Ochiltree III age 502003.• Executive Vice President,
Insurance Operations, since July 1999; Executive Vice President, Branch and Field Operations, 1997 to July 1999. Dale A. Thatcher age 41 Executive Vice President, Chief Financial OfficerCFO and Treasurer, State Street Corporation, 1995-2002.• Director, U. S. Shipping Partners L.P., since
February 2003; Senior Vice President, Chief Financial Officer and Treasurer, April 2000 to February 2003; from May 1989 to April 2000, Chief Accounting Officer and Assistant Controller, Ohio Casualty Insurance Group, a property and casualty insurance company. Ronald J. Zaleski age 48 Executive Vice President and Chief Actuary,2004.• Director, Refco Inc., 2005 – 2006.
• Advisory Director, Donald H. Jones Center for Entrepreneurship, Tepper School of Business, Carnegie Mellon University, since
February 2003; Senior Vice President and Chief Actuary, February 2000 to February 2003; Vice President and Chief Actuary, September 1999 to February 2000; from June 1998 to September 1999, Vice President and Chief Actuary, TIG Insurance Company, a property and casualty specialty company; from June 1976 to March 1997, Senior Vice President and Chief Actuary, Zurich Personal Insurance, a property and casualty insurance company.2003.• Graduate of Duke University (A.B.).
• Graduate of Carnegie-Mellon University (M.B.A.).
All termsThe Board of
office areDirectors has determined that all directors, except fora one-year period. *See additional information aboutMr. Murphy and Mr. Rue, are independent as defined by the applicable NASDAQ and SEC rules and regulations. See the section entitled Certain Relationships and Related Transactions below for further information concerning Mr. Rue.EXECUTIVE OFFICERS
Information regarding Executive Officers is incorporated by reference to Selective’s Annual Report on
page 4. 5STOCK OWNERSHIP OF DIRECTORS AND OFFICERS The following table sets forth, as of February 18, 2003, certain information with respect to shares of Common Stock beneficially owned by (i) each director; (ii) eachForm 10-K in the item in Part I captioned “Executive Officers of theexecutive officers named in the Summary Compensation Table below;Registrant.”CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and
(iii) all of the Company's directors and executive officers asOthers/Certain Business RelationshipsWilliam M. Rue, a
group:
Number of Shares Beneficially Owned Options Total Shares Name (Excluding options) Exercisable (1) Beneficially Owned* - ---- ------------------- --------------- -------------------Paul D. Bauer 10,611 12,000 22,611 A. David Brown 11,852 21,000 35,852 James W. Coleman, Jr. 53,258 66,300 119,558 Richard F. Connell 20,000 19,000 39,000 William A Dolan, II 37,196(2) 21,000 58,196 C. Edward Herder, CPCU 85,675(3) 27,000 112,675 William M. Kearns, Jr. 76,640 27,000 103,640 Joan M. Lamm-Tennant, Ph.D. 12,231 27,000 39,231 S. Griffin McClellan III 27,399(4) 27,000 54,399 Gregory E. Murphy 153,037(5) 51,616 204,653 Jamie Ochiltree III 86,972 80,936 167,908 John F. Rockart, Ph.D. 1,161 0 1,161 William M. Rue, CPCU 245,059(6) 27,000 272,059** J. Brian Thebault 16,107(7) 21,000 37,107 Ronald J. Zaleski 25,500 25,000 50,500 All directors and executive officers as a group (20 persons) 952,763 554,202 1,506,965**** The amount of shares beneficially owned by each of the above-named directors and officers, except Mr. Rue, is less than 1% of the Common Stock outstanding. ** The total number of shares of beneficially owned by Mr. Rue represents 1.0% of the Common Stock outstanding. *** The total number of shares of Common Stock beneficially owned by the directors and executive officers as a group represents 5.6% of the Common Stock outstanding. (1) Includes shares which could be purchased under options exercisable on February 18, 2003, and options which become exercisable within 60 days thereafter. (2) Includes 2,100 shares held by wife, of which Mr. Dolan disclaims beneficial ownership. (3) Includes the following: (a) 13,495 shares held by wife. (b) 4,800 shares held by The Hand Income Trust. Mr. Herder and his wife are the co-trustees of the Trust and disclaim beneficial ownership of these shares. (4) Includes 2,000 shares held by wife, of which Mr. McClellan disclaims beneficial ownership. (5) Includes 1,393 and 917 held in custody for daughter and son, respectively. (6) Includes the following: (a) 16,292 shares held by Chas. E. Rue & Sons, Inc., a general insurance agency of which Mr. RueSelective director, is President, andowner ofowns more than 10% of the equity, of Rue Insurance, a5% equity interest (See page 21general independent insurance agency. Rue Insurance is an appointed independent agent ofthis proxy statement) (b) 12,928Selective’s insurance subsidiaries and12,796 shares heldSelective HR Solutions, Inc., Selective’s human resources administration subsidiary (together with its subsidiaries, “Selective HR Solutions”), on terms and conditions similar to those of other Selective agents, including the right to participate intrustthe Original Independent Agents Plan and the Agencies Stock Purchase Plan, if approved. Rue Insurance also places insurance fordaughterSelective’s business operations. Selective’s relationship with Rue Insurance has existed since 1928 andson, respectively. (c) 990 shares held by wife,Selective expects that its relationship with Rue Insurance will continue in 2006. In 2005:Rue Insurance wrote insurance policies accounting for $10.2 million in direct written premiums with Selective’s insurance subsidiaries and Selective’s insurance subsidiaries paid Rue Insurance $1.9 million in commissions.
Rue Insurance wrote contracts accounting for $64,000 in fees with Selective HR Solutions and Selective HR Solutions paid Rue Insurance $15,000 in commissions.
Selective paid $0.2 million in reinsurance commissions to P.L. Services, LLC t/a Public Alliance Group Administrative Services, an insurance fund administrator of which Rue Insurance owns 20% and which places reinsurance through Selective Insurance Company of America (“SICA”), a Selective insurance subsidiary.
Selective paid $0.6 million in premiums for insurance coverages that Rue Insurance wrote with non-Selective insurance companies for Selective’s own operations, for which Rue Insurance was paid commission pursuant to its agreements with those carriers.
Page 11
The son of S. Griffin McClellan III, a Selective director, S. Griffin McClellan IV, is an Assistant Vice President of Selective’s subsidiary, SICA. In 2005, Mr.
Rue disclaims beneficial ownership. (d) 27,124S. Griffin McClellan IV received $140,229 in cash compensation, primarily comprised of salary, bonus and tuition reimbursement, and a grant of 962 sharesheld by a trust for the benefitofson and daughter, of whichrestricted Selective common stock. Mr.Rue is a co-trustee. (7) Includes 100 shares held in custody for son. 6COMPENSATION OF DIRECTORS During 2002, nonemployee directors, consisting of all directors other than Mr. Murphy, received Directors' fees, which are fixed annually,S. Griffin McClellan IV’s compensation was determined in accordance withthe termsSICA’s standard employee compensation practices. Mr. S. Griffin McClellan III was a member of theStock Compensation Plan for Nonemployee Directors (the "Stock Plan"). Under the Stock Plan, the Director receives his or her annual fees for services as a DirectorAudit Committee in(i) shares of Common Stock or (ii) in cash and shares of Common Stock, at the election2005. As of theDirector, provided2006 Annual Meeting, he will no longer serve on thatno more than 50%committee.Indebtedness of Management
Certain loans were previously made by Selective to executives that are grandfathered under the
compensation is paid in cash. The annual fees are fixed annuallySarbanes-Oxley Act of 2002 and were authorized by the Board of Directors to encourage Selective stock ownership. On December 16, 1994, Selective made a loan to Jamie Ochiltree, III, now Selective’s Senior Executive Vice President, Insurance Operations, in the original principal amount of $197,000 at an annual interest rate of zero percent andarea maturity date in 2005 to finance the exercise of non-qualified stock options to purchase Selective common stock granted on the same date. On August 7, 1998, Selective made a loan to Mr. Ochiltree in the original principal amount of $98,799 at an annual interest rate of 2.5% and a maturity date in 2009 to finance the purchase of Selective common stock in the open market. The largest aggregate amount of such indebtedness outstanding at any time during the fiscal year 2005 was $116,403. Mr. Ochiltree paidquarterly on January 1, April 1, July 1, and October 1the 1994 loan in full as ofeach year. The numberFebruary 2005. As ofshares of Common Stock to be issued to each director on each payment date is determined by dividing one-fourthMarch 10, 2006, the outstanding principal amount under the 1998 loan was $43,471.SECTION16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the
amountSecurities Exchange Act ofannual fees1934, as amended (the “Exchange Act”), requires Selective’s directors and executive officers, and persons who own more than 10% of a registered class of Selective’s equity securities, tobe paidfile with the SEC initial reports of ownership and reports of changes inCommon Stockownership of Selective’s equity securities. Such executive officers, directors, and greater than 10% stockholders are required bythe fair market value (the averageSEC regulation to furnish Selective with copies of all of thehighSection 16(a) Exchange Act reports that they file. Based solely on its review of the copies of Forms 3, 4, andlow sale price5 or written representations from certain reporting persons that no Forms 5 were required for those persons, Selective believes that all reporting requirements under Section 16(a) for the fiscal year ended December 31, 2005, were met in a timely manner by its directors, executive officers, and greater than 10% beneficial owners.CODE OF CONDUCT
Selective has adopted a Code of
a shareConduct which sets forth the guiding principles ofCommon Stock as reported on the NASDAQ National Market)business ethics for all Selective personnel, including executive officers. The Code ofa share of Common Stock on such payment date. For 2002, the annual fees were fixed at $38,000. At the November 2002 Board Meeting, the Board fixed the annual fees for 2003 at $38,000. In addition to the annual fees receivedConduct can be found under theStock Plan, effective January 1, 2003,Corporate Governance section of Selective’s website, www.selective.com. Any amendment to or waiver from theBoard approved committee fees as follows: $1,500 for each in-person meeting attended, and $1,000 for each telephonic meeting attended. These committee fees are paid in cash. On or before December 20provisions ofeach year,thedirectors must electCode of Conduct that applies toreceive upSelective’s senior executive officers will be posted to50% of their annual fees in cash. Messrs. Herder and McClellan elected to receive 50% of their annual fees for the year 2002 in cash. In addition, each nonemployee director may also elect on or before December 20 of each year to defer the receipt of their annual fees under the Stock Plan, and any dividends accrued with interest thereon, to a specified future year, the attainment of age 70 or termination of services as a director. Messrs. Bauer, Brown, Dolan, Thebault and Ms. Lamm-Tennant elected to defer their 2002 annual fees under the Stock Plan. Of the directors who did not defer their annual fees, Messrs. Kearns and Rue each received 1,573 shares, Messrs. Herder and McClellan each received 787 shares and Mr. Rockart received 785 shares.Selective’s website, www.selective.com.Page 12
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors
terminated the Directors' Plan (the retirement plan for directors) on December 31, 1997. In connection therewith, the present value of the future benefits of each eligible nonemployee director was determined to be fully vested as of December 31, 1997.held seven (7) meetings in 2005.The
Company converted those benefits into units, with each such unit having a value equal to the fair market value of a share of Common Stock on December 31, 1997. Each unit accrued an amount equal to the dividends declaredBoard has five (5) standing committees: Audit, Corporate Governance andpaid on a share of Common Stock. Dividends accrued on units were reinvested in additional units in the same manner as dividends are reinvested in shares of Common Stock under the Company's dividend reinvestment plan for stockholders. On May 8, 2002, following approval by stockholders, the Company converted the units into a fixed number of shares of Common Stock. Those shares of Common Stock were credited to an account established for each participant. Each participant has made an irrevocable election to defer receipt of the shares until termination of service as a director or to receive the shares in installments over not more than a five year period beginning as of the January 1 following termination of service as a director. Cash dividends declaredNominating, Executive, Finance, andpaid on the shares of Common Stock are credited to the director's account.Salary and Employee Benefits. Thecash portion of the account is credited with interest at the end of each year at the annual rate equal to the average two-year United States Treasury Bill rate for that year. If distributions are made prior to the end of any year, interest will be paid on the cash portion being distributed at an annual rate equal to the average two-year United States Treasury Bill rate from the beginning of that year to the date of distribution. The cash portion of the account will be distributed to the director on the date(s) the shares are distributed. In the event of a "Change in Control" of the Company which results in the termination of a director's service as a director of the Company, the shares of Common StockAudit, Corporate Governance andcash in the director's account will be distributed to the director on the first day of the month following the termination of service as a director. For purposes of that distribution, "Change of Control" means: (i) an acquisition of a controlling interest in the Company's voting securities; (ii) an election contest; (iii) a successful tender or exchange offer by a person other than the Company or an affiliate of the Company; (iv) a merger; or (v) a consolidation or other business combination, anyNominating, Finance, and Salary and Employee Benefits Committees have written charters, all of whichresult in directors constituting a majority of the Board nominated by management of the Company immediately prior to such event ceasing tocan bedirectors after the event. The Company also has a Stock Option Plan for Directors (the "Option Plan"), which applies only to nonemployee directors. Under the Option Plan, each eligible director automatically receives an option to purchase 3,000 shares of Common Stock on March 1 of each year. Subject to certain adjustments, the maximum number of shares of Common Stock that may be issuedfound underoptions granted pursuant to the Option Plan is 850,000, which may be authorized but unissued shares or treasury shares. The exercise price for each share of Common Stock subject to an option granted is the fair market value of a share of Common Stock on the date such option is granted. The exercise price is payable in cash or in Common Stock of the Company. Any option granted under the Plan becomes exercisable on the first anniversary of the date it was granted. No option is exercisable after the tenth anniversary of the grant. In the event of an optionee's death or disability, an option may be exercised, in whole or in part, by the optionee's executor, administrator, guardian or legal representative in accordance with the terms of such option. On March 1, 2002, options to purchase 3,000 shares of Common Stock were granted to each eligible director at an exercise price of $22.68 per share, the fair market value on that date. 7COMMITTEES OF THE BOARD OF DIRECTORS
Corporate Salary & Board Member Audit Governance (1) Benefits Finance Executive - ------------ ----- -------------- -------- ------- ---------Paul D. Bauer X X - ----------------------------------------------------------------------------------------- A. David Brown X C X - ----------------------------------------------------------------------------------------- William H. Dolan, II X X - ----------------------------------------------------------------------------------------- C. Edward Herder, CPCU X X - ----------------------------------------------------------------------------------------- William M. Kearns, Jr. C X X - ----------------------------------------------------------------------------------------- Joan M. Lamm-Tennant, PhD. C X X - ----------------------------------------------------------------------------------------- S. Griffin McClellan III X C X - ----------------------------------------------------------------------------------------- Gregory E. Murphy * X C - ----------------------------------------------------------------------------------------- John F. Rockart, Ph D. X X - ----------------------------------------------------------------------------------------- William M. Rue, CPCU X - ----------------------------------------------------------------------------------------- J. Brian Thebault X X - ----------------------------------------------------------------------------------------- Total meetings held in 2002 5 2 6 4 0Total number of Board meetings during 2002: 8 * Chairman of the Board C= Chairperson X=Member (1) At the May 8, 2002 Organizational Meeting, the Committee on Directors and the Conflict of Interest Committees were combined to formthe Corporate GovernanceCommittee. Prior to May 8, 2002,section of Selective’s website, www.selective.com.All of the members of the Audit Committee,
on Directors met two timesthe Corporate Governance and Nominating Committee, and theConflict of InterestSalary and Employee Benefits Committeemet one time. - -------------------------------------------------------------------------------- Audit Committee: The Audit Committee, consisting of allare independent directorsoverseesas defined by NASDAQ and SEC rules and regulations.All directors attended 75% or more of the
Company's financial reporting process and internal controls on behalfmeetings of the Board ofDirectors.Directors and the committees of which they are members in 2005.It is Selective’s policy that all directors are expected to attend the Annual Meeting. All directors attended the 2005 Annual Meeting.
Page 13
The
Audit Committee also supervisesfollowing table lists for each of these committees, its membership, a summary of its responsibilities, and therelationship between the Company and its independent auditors, including making decisions with respect to appointment, retention (or removal), reviewing the scopenumber ofaudit services, approving significant non-audit services and confirming independence. Corporate Governance:meetings it held in 2005:
COMMITTEE NAME AND MEMBERSHIP
COMMITTEE RESPONSIBILITIES
2005 MEETINGS
Audit
Paul D. Bauer, Chairperson(1)
Joan M. Lamm-Tennant(2)
S. Griffin McClellan III(3)
John F. Rockart
J. Brian Thebault
(1) Designated by the Board of Directors as an audit committee financial expert in accordance with SEC rules and regulations. Became Chairperson on April 27, 2005.
(2) Served as Chairperson until April 26, 2005.
(3) As of the 2006 Annual Meeting, Mr. McClellan will no longer serve on this committee.
• Oversee the accounting and financial reporting processes and the audits of the financial statements.
• Review and discuss with Selective’s management and independent auditors Selective’s financial reports and other financial information provided to the public and filed with the SEC.
• Monitor the internal audit department and the appointment or replacement of the Director of Internal Audit.
• Monitor Selective’s internal controls regarding finance, accounting and legal compliance.
• Appoint Selective’s independent auditors and supervise the relationship between Selective and its independent auditors, including reviewing their performance, making decisions with respect to their compensation, retention and removal, reviewing and approving in advance their audit services and permitted non-audit services, and confirming the independence of the independent auditors.
8
Corporate Governance and Nominating
William M. Kearns, Jr.,
ChairpersonA. David Brown(1)
Ronald L. O’Kelley
John F. Rockart
(1) The Board appointed Mr. Brown to the Corporate Governance and Nominating Committee effective April 27, 2005.
• Establish criteria for the selection of directors and identify and recommend to the Board the nominees for director.
• Review and assess Selective’s Corporate Governance Guidelines and recommend any changes to the Board.
• Recommend to the Board the Board members to serve on the various Board committees and as chairpersons.
• Advise the Board with respect to Board composition, procedures and committees.
• Review and approve compensation for non-employee directors.
• Review and update Selective’s Code of Conduct and review conflicts of interest or other issues that may arise under the Code of Conduct involving Selective’s officers or directors.
• Oversee the self-evaluations of the Board and each committee of the Board.
5
Page 14
Executive
Gregory E. Murphy,
Chairperson
Paul D. Bauer(1)
A. David Brown
William M. Kearns, Jr.
William M. Rue
(1) The Board appointed Mr. Bauer to the Executive Committee effective April 27, 2005.
• Authorized to exercise the Board of Directors’ powers and authority in the management of Selective’s business and affairs between Board meetings.
• Has the right and authority to exercise all the powers of the Board of Directors on all matters brought before itexcept matters concerning Selective’s investments.
1
Finance
William M. Rue,
Chairperson
John C. Burville(1)
William M. Kearns, Jr.
Joan M. Lamm-Tennant
S. Griffin McClellan III
Gregory E. Murphy
Ronald L. O’Kelley
(1) The Board appointed Dr. Burville to the Finance Committee effective January 1, 2006.
• Review and approve changes to Selective’s investment policies, strategies, and programs.
• Review investment transactions made on behalf of Selective and review the performance of Selective’s investment portfolio.
• Appoint members of Selective’s Management Investment Committee.
• Review and make recommendations to the Board regarding payment of dividends.
• Review Selective’s capital structure and provide recommendations to the Board regarding financial policies and matters of corporate finance.
4
Salary & Employee Benefits
A. David Brown,
Chairperson
Paul D. Bauer
John C. Burville(1)
J. Brian Thebault
(1) The Board appointed Dr. Burville to the Salary and Employee Benefits Committee effective January 1, 2006.
• Oversee, review, and administer all compensation, equity, and employee benefit plans and programs related to Selective’s and its subsidiaries’ employees and management.
• Review annually and approve corporate goals and objectives relevant to executive compensation and evaluate performance in light of those goals.
• Review annually and approve Selective’s compensation strategy for employees.
• Review annually and determine the individual elements of total compensation of the CEO and other members of Senior Management.
6
Page 15
DIRECTOR SELECTION PROCESS
The Corporate Governance and Nominating Committee
consistingis responsible for reviewing candidates for election to Selective’s Board ofall independent directors, has responsibilityDirectors that are identified by Board members, management, and/or third party search firms and selecting nominees for approval by thedevelopmentstockholders. In making selections, the Corporate Governance andadoptionNominating Committee reviews the attributes and criteria required in light ofcorporate governance guidelines, appointmentcurrent Board membership, including experience, skills, expertise, diversity, character, business judgment, time availability in light ofBoard committee members and chairpersons, appointment of new Board directors and nomination of continuing directors. The committee also develops and adopts guidelines for corporate charitable contributions and oversees the Company's conflictother commitments, dedication, conflicts of interestpolicy. This committeeand other relevant factors that the Corporate Governance and Nominating Committee consider appropriate. Candidates for election should be willing to devote sufficient time to carry out their duties and responsibilities effectively, and should possess the highest personal and professional ethics, integrity, and values. Candidates must be committed to representing the long-term interests of Selective and its stockholders. The Corporate Governance and Nominating Committee will consider nominees recommended by stockholders for election as directors at an Annual Meeting of Stockholders but does not solicit such recommendations.ShareholdersThe Corporate Governance and Nominating Committee applies the same standards in considering candidates submitted by stockholders as it does in evaluating candidates identified by other sources. Stockholders who wish to propose a nominee forelectionconsideration by the Corporate Governance and Nominating Committee must do so in writing addressed to the Chairman of the Corporate Governance and Nominating Committee, c/o the Corporate Secretary ofthe Company,Selective, 40 Wantage Avenue, Branchville, NJ 07890. Theproceduresnotification must contain all information relating to each person whom the stockholder proposes that the Corporate Governance and Nominating Committee consider formaking such recommendations cannomination as a director as would befound in "Shareholder Proposals" on page 22 of the Proxy Statement. Salary and Employee Benefits Committee: The Salary and Employee Benefits Committee, consisting of all independent directors, is responsible for setting the executive compensation policies of the Company and evaluating the performance and level of compensation of the executive officers of the Company and its subsidiaries. The Committee continuously evaluates employee benefits and makes recommendations to the Board in connection with these benefits. The Committee also administers the Company's stock option plans and is the Trustee of the Retirement Savings Plan and the Retirement Income Plan. Finance Committee: The Finance Committee establishes overall investment policies and guidelines of the Company and reviews and approves investments made by the Company. Executive Committee: The Executive Committee meets, as may be required, when the Board of Directors is not in session and has the right and authority to exercise all the powers of the Board of Directors on all matters brought before it, except matters concerning the Company's investments. ATTENDANCE OF BOARD MEMBERS AT MEETINGS During 2002, all Board members attended 75% or more of the aggregate number of meetings of the Board and of the meetings of Committees on which they served, except for Ms. Lamm-Tennant who attended 71% of the aggregate number of meetings of the Board and of the meetings of Committees on which she served. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based on the Company's review of Forms 3, 4, and 5 and written representations submitted to the Company during and with respect to the fiscal year ended December 31, 2002, the Company believes that all statements of transactions of beneficial ownershiprequired to befiled by directors and officersdisclosed in a solicitation ofthe Company with the Securities and Exchange Commission were timely filed. 8EXECUTIVE COMPENSATION AND OTHER INFORMATION SUMMARY COMPENSATION TABLE The following table shows,proxies for thefiscal years ended December 31, 2002, 2001election of such person as a director pursuant to Regulation 14A under the Exchange Act.Page 16
DIRECTOR COMPENSATION
Compensation for non-employee directors in 2004 and
2000,2005 is shown on the table below. Employee directors do not receive compensationpaid or accruedforthose years, toserving on theChairman, President and Chief Executive Officer,Board.
COMPENSATION
2005
2004
Annual Retainer Fee (1)
$43,000
$43,000
Annual Option Grant (in shares) (2)
$3,000
$3,000
Board Meeting Attendance
$0
$0
Committee Attendance Fee (3)
In person
By telephone
$1,500
$1,000
$1,500
$1,000
Annual Chairperson Fee(4)
Audit Committee
Salary & Employee Benefits Committee
$10,000
$10,000
$10,000
$10,000
Lead Director Fee(5)
$10,000
$0
Expenses
Reasonable
Reasonable
(1)
The Annual Retainer Fee is set annually by the Corporate Governance and Nominating Committee. Pursuant to the Stock Compensation Plan for Nonemployee Directors (the “Directors Stock Plan”) prior to April 26, 2005 and the Omnibus Stock Plan thereafter, directors, by December 20 of the prior year, must elect to receive the Annual Retainer Fee either (i) entirely in shares of common stock or (ii) in a combination of shares of common stock and cash, which must be 50% or less of the Annual Retainer Fee. The Annual Retainer Fee is paid in equal quarterly installments on the first (1st) day of January, April, July, and October. The number of shares of common stock issued in each quarterly installment is determined by multiplying the amount of Annual Retainer Fee to be paid in stock by one-quarter (0.25) and dividing that product by the average of the high and low sale price of Selective’s common stock as quoted on NASDAQ on the payment date (“Fair Market Value”). By December 20 of the prior year, directors may also elect to defer the receipt of the Annual Retainer Fee and any dividends and accrued interest to a specified future year, the attainment of age 70, or termination of services as a director. On January 31, 2006, the Corporate Governance and Nominating Committee increased the Annual Retainer Fee for each non-employee Director to $50,000, with at least 50% still provided through Selective’s common stock.
(2)
Under the Stock Option Plan for Directors (the “Directors Option Plan”) prior to April 26, 2005 and the Omnibus Stock Plan thereafter, each director automatically receives an option to purchase 3,000 shares of common stock on March 1 or the following business day if March 1 is on a weekend (“Automatic Director Option”). The exercise price for each option is the Fair Market Value and is payable in cash or in common stock. Each option vests on the first anniversary of its grant and has a term of ten (10) years. In the event of a director’s death or disability, an option may be exercised, in whole or in part, by the director’s executor, administrator, guardian or legal representative in accordance with the terms of such option. On January 31, 2006, the Corporate Governance and Nominating Committee decided to amend Selective’s non-employee director compensation program so that each non-employee director annually receives equity awards of $32,500 in restricted shares of Selective’s common stock and $32,500 in options under the Omnibus Stock Plan. Upon the Corporate Governance and Nominating Committee’s recommendation, effective February 28, 2006, the Board amended the Omnibus Stock Plan to eliminate Automatic Director Option grants and make other conforming changes.
(3)
Committee Attendance Fees are paid in cash. Directors may also elect to defer the receipt of their Committee Attendance Fees and any interest thereon, to a specified future year, the attainment of age 70, or termination of services as a director.
(4)
Annual Chairman Fees are paid quarterly in cash. Directors may also elect to defer the receipt of their Annual Chairman Fee and any interest thereon, to a specified future year, the attainment of age 70, or termination of service as a director. On January 31, 2006, the Corporate Governance and Nominating Committee increased the Annual Chairperson Fee for the Audit Committee and the Salary and Employee Benefits Committee to $12,500. Also at that time, the Corporate Governance and Nominating Committee adopted an Annual Chairperson Fee for each of the Corporate Governance and Nominating Committee and the Finance Committee of $7,500.
(5)
The Corporate Governance and Nominating Committee set an annual fee of $10,000 to be paid quarterly in cash to the Lead Director, effective January 1, 2005 and, on January 31, 2006, increased the Lead Director Fee to $15,000.
Page 17
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows how much compensation Selective’s CEO and the next four most highly compensated executive officers other than the CEO earned over the past three (3) fiscal years (these executives are referred to as our “named executive officers”). Other tables that follow provide more detail about the specific types of
the Company who served as executive officers at the end of fiscal year 2002. (See footnote 1 below)compensation.
Long-Term CompensationAnnual Compensation(1)
Long-Term
Compensation Awards----------------------------------------- -------------------------Name
and
Principal Position
Year
Salary($)
Bonus
($)(2)
Other
Annual
Compen-sation
($)(3)Restricted
Stock
Awards
($)(4)Securities
Underlying
Options/
Warrants
(#)All Other
Other Restricted Underlying Compen- Name and Annual Stock Options/ sation Principle Position Year Salary($)(1) Bonus($)(2) Compensation Awards($)(3) SARs(#)
Compen-sation($)
(4) - ------------------ ---- ----------- ---------- ------------ ----------- ---------- ---------(5) Gregory E. Murphy
2002 582,308 197,438 -- 210,500 10,000 24,304Chairman, President &
2001 544,231 66,000 -- 567,188 15,000 12,510Chief Executive Officer2000 471,154 -- -- 229,6882005
2004
2003
746,154
695,385
635,769
1,500,000
1,000,000
621,600
0
0
0
1,126,250
870,500
466,400
5,000
5,000
10,000
13,5698,721
7,832
34,296
Jamie Ochiltree, III
2002 308,462 69,750 -- 105,250 5,000 18,491Senior Executive Vice President,
2001 288,077 35,000 -- 158,813Insurance Operations2005
2004
2003
388,769
371,385
337,662
540,000
330,000
190,400
0
0
0
405,450
313,380
186,560
5,000
5,000
7,000
13,577 2000 262,346 -- -- 114,844 7,500 14,64919,576
22,248
22,480
Richard F. Connell
2002 283,462 64,125 -- 105,250 5,000 10,214Senior Executive Vice President &
2001 263,846 35,000 47,145(5) 90,750 2,000 5,250Chief Information Officer2000 100,961(6) 50,000 61,025(7) 53,0632005
2004
2003
348,462
327,693
298,846
425,000
240,000
168,000
0
0
0
405,450
313,380
186,560
5,000
2,019 James W. Coleman, Jr. 2002 278,462 63,000 55,456(8) 105,2505,000
11,9867,000
15,722
14,910
13,597
Dale A. Thatcher
Executive Vice President,
2001 257,692 35,000 80,272(9) 158,813Chief Financial Officer and Treasurer2005
2004
2003
298,616
278,385
233,846
400,000
200,000
131,600
0
0
0
405,450
313,380
186,560
5,000
5,000
7,000
7,455 2000 227,923 -- -- 114,844 7,500 7,64313,256
13,339
11,188
Ronald J. Zaleski
2002 271,615 61,425 -- 105,250 5,000 9,786Executive Vice President
2001 253,077 35,000 60,000(10) 158,813 7,000 5,250& Chief Actuary2000 228,846 -- 65,029(11) 45,938 3,000 5,2502005
2004
2003
331,923
316,769
288,692
375,000
205,000
162,400
0
0
0
405,450
313,380
186,560
5,000
5,000
7,000
6,844
14,413
13,135
FOOTNOTES TO SUMMARY COMPENSATION TABLE (1) The executive officers received cash compensation only from the Company's subsidiary, Selective Insurance Company of America ("SICA"). SICA also provides the employee benefit plans in which such executive officers participate. (2) Effective for the fiscal year 1994, the Company adopted a Rewards Program by which employees may receive a stated percentage of salary as Annual Cash Incentive Payments if they achieve specified personal goals and the Company achieves stated corporate performance goals. The amounts for 2001 and 2002 indicate the amounts awarded to Messrs. Murphy, Ochiltree, Connell, Coleman, and Zaleski. There were no Annual Cash Incentive Payments made for 2000. See the "Report of the Company's Salary and Employee Benefits Committee" set forth in this Proxy Statement. The amount for 2000 for Mr. Connell indicates the amount paid to him as a condition of accepting employment with the Company. (3) The aggregate value of restricted stock awards at the end of 2002 was $1,485,620 for Mr. Murphy, $642,090 for Mr. Ochiltree, $302,160 for Mr. Connell, $642,090 for Mr. Coleman, and $440,650 for Mr. Zaleski. At the end of 2002, the aggregate number of restricted shares held by Mr. Murphy, 59,000; by Mr. Ochiltree, 25,500; by Mr. Connell, 12,000; by Mr. Coleman, 25,500; and by Mr. Zaleski 17,500. The restricted stock awards were made under the Company's Stock Option Plan II under which such shares and accrued dividends vest after four years from the date of grant depending upon the achievement of predetermined performance goals. The value of the restricted stock awards shown in this footnote is based on the closing market price per share of Common Stock on December 31, 2002, of $25.18. The values set forth in the table for Messrs. Murphy, Ochiltree, Coleman, and Zaleski are based on the closing price on the date of each of the grants, which were $15.3125, $22.6875, and $21.05 on February 3, 2000, February 6, 2001, and February 5, 2002, respectively. The values set forth in the table for Mr. Connell are based on the closing price on the date of each of the grants, which were $17.6875, $22.6875, and $21.05 on August 8, 2000, February 6, 2001, and February 5, 2002, respectively. (4) The amounts in "All Other Compensation" include Company contributions under the Company's Retirement Savings Plan for the fiscal years ended December 31, 2002, December 31, 2001 and December 31, 2000. This Plan is a defined contribution plan available to substantially all employees. Company contributions are 30% vested after two years of service and become 100% vested after six years of service. The Company contributions reflected in the table above for 2002 are $5,500 for Mr. Murphy, $4,604 for Mr. Ochiltree, $4,229 for Mr. Connell, $4,154 for Mr. Coleman, and $4,053 for Mr. Zaleski. The amounts also include Company contributions under SICA's Deferred Compensation Plan to the extent a participant did not receive the maximum matching contribution permissible under the Company's Retirement Savings Plan due to limitations under the Internal Revenue Code. This plan provides a select group of management or highly compensated employees of SICA and its subsidiaries and certain affiliated entities with the opportunity to elect to defer receipt of specified portions of compensation and to have such deferred amounts treated as if invested in specified investment options. The Company contributions reflected in the table for 2002 9are $12,285 for Mr. Murphy, $6,510 for Mr. Ochiltree, $5,985 for Mr. Connell, $5,880 for Mr. Coleman, and $5,733 for Mr. Zaleski. In addition, the amounts for 2002 for Messrs. Murphy, Ochiltree and Coleman in the "All Other Compensation" column also include $6,519, $7,377 and $1,952 respectively, representing the difference between the market rate of interest and the actual rate of interest on indebtedness of such executive officer to the Company. For additional information relating to such indebtedness, see "Interest of Management and Others in Certain Transactions" set forth on page 21 in this Proxy Statement. (5) Mr. Connell received this amount for the tax gross up for relocation expenses reimbursed in 2000 and included in his taxable income for 2000. (6) This amount represents Mr. Connell's compensation from August 7, 2000, which is the date he commenced employment with the Company, through the end of 2000. (7) Mr. Connell received this amount from the Company for relocation expenses. (8) Mr. Coleman received this amount for the tax gross up for relocation expenses reimbursed in 2001 and included in his taxable income for 2001. (9) Mr. Coleman received this amount from the Company for relocation expenses. (10) Mr. Zaleski received this amount for the tax gross up for relocation expenses reimbursed in 2000 and included his taxable income for 2000. (11) Mr. Zaleski received this amount from the Company for relocation expenses. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS The following table contains information concerning stock options granted in 2002 to each of the executive officers named in the Summary Compensation Table.
(1)
Annual Compensation is paid by SICA, which also sponsors the employee benefit plans in which such executive officers participate.
(2)
Bonus payments in 2003 and 2004 were made pursuant to Selective’s Annual Cash Incentive Plan. Bonus payments for 2005 were made pursuant to the Selective Insurance Group, Inc. Cash Incentive Plan (“Cash Incentive Plan”), approved by Selective’s shareholders on April 26, 2005, as well as other awards granted by the Salary and Employee Benefits Committee to certain executive officers for personal achievement, which include $251,250 to Mr. Murphy, $36,500 to Mr. Connell, $107,100 to Mr. Ochiltree, $67,000 to Mr. Thatcher, and $5,370 to Mr. Zaleski. Under the Cash Incentive Plan, employees receive a percentage of salary as Annual Cash Incentive Payments if they achieved specified personal goals and Selective achieves stated corporate performance goals. The amounts contained in this column reflect the amounts earned for the applicable fiscal year.
(3)
SEC rules do not require the reporting of perquisites and other personal benefits to the extent that the aggregate amount of such compensation is the lesser of either $50,000 or 10% of the total annual salary and bonus reported for each named executive officer.
(4)
All amounts represent the dollar amount of the restricted stock on the date granted. Grants were made pursuant to the Selective Insurance Group, Inc. Stock Option Plan III (“Plan III”), under which such shares and their accumulated dividends cliff-vest four years from the date granted depending upon achievement of predetermined performance goals. The grants are subject to forfeiture should the named executive resign or be terminated for cause prior to vesting. The aggregate value of restricted stock awards at the end of 2005 was $4,248,000 for Mr. Murphy, $1,646,100 for Mr. Ochiltree, $1,646,100 for Mr. Connell, $1,646,100 for Mr. Thatcher, and $1,646,100 for Mr. Zaleski. The aggregate number of restricted shares held at the end of 2005 was 80,000 by Mr. Murphy, 31,000 by Mr. Ochiltree, 31,000 by Mr. Connell, 31,000 by Mr. Mr. Thatcher, and 31,000 by Mr. Zaleski.
(5)
The amounts represent Selective’s annual matching contribution on behalf of the named executive to Selective’s Deferred Compensation Plan and to the Selective Insurance Company of America Retirement Savings Plan. The contributions to Selective’s Deferred Compensation Plan reflected in the table for 2005 are $17,035 for Mr. Ochiltree, $15,278 for Mr. Connell, $9,353 for Mr. Thatcher, and $6,485 for Mr. Zaleski. The contributions to the Selective Insurance Company of America Retirement Savings Plan reflected in the table for 2005 are $8,721 for Mr. Murphy, $505 for Mr. Ochiltree, $445 for Mr. Connell, $3,903 for Mr. Thatcher and $359 for Mr. Zaleski. In addition, the amounts for Mr. Ochiltree also include $2,037, which represents the difference between the market rate of interest and the actual rate of interest on indebtedness of such executive officer to Selective.
Page 18
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants Grant Date Value - ------------------------------------------------------------------------------------------ ---------------- Number of % of Securities Total Options/ Underlying SARs Granted to Exercise or Options/SARs Employees in Base Price Grant Date Name Granted (1) (#) Fiscal Year ($/Sh) (2) Expiration Date Present Value ($) (3) - ---- --------------- ----------- ---------- --------------- ---------------------Gregory E. Murphy 10,000 6.59 20.75 02/05/12 54,850 Jamie Ochiltree III 5,000 3.29 20.75 02/05/12 27,425 Richard F. Connell 5,000 3.29 20.75 02/05/12 27,425 James W. Coleman, Jr. 5,000 3.29 20.75 02/05/12 27,425 Ronald J. Zaleski 5,000 3.29 20.75 02/05/12 27,425(1) The stock options were granted under the Company's Stock Option Plan II and Stock Option Plan III ("the Plans"). The Plans permit the granting of options to all employees and permits the granting of SARs in tandem with any or all stock options. If a SAR is exercised, the employee must surrender the related stock option or portion thereof. Upon exercise of a SAR, payment will be made by the Company in stock, cash, or some combination thereof as a committee appointed by the Board of Directors shall determine at the time of exercise. None of the options granted to the named executive officers in 2002 has SARs attached. Under the terms of the Plans, options or any related SARs, may be granted at no less than fair market value as of the date of grant. They must be exercised within ten years from the date of grant. In the event of any change in the number of outstanding shares of the Common Stock of the Company as a result of a stock dividend, stock split, or other readjustments, the committee appointed by the Board of Directors shall make an appropriate adjustment in the aggregate number of shares which may be subject to stock options granted under the Plans and in the number of shares subject to and the option price of each then outstanding option. The Company's Stock Option Plan II expired on September 1, 2002 and was replaced by Stock Option Plan III, which was approved at the Annual Meeting of Shareholders on May 8, 2002. All of the options granted to the named executives in 2002 were granted under Stock Option Plan II. (2) The options set forth in the table above were granted on February 5, 2002 at an exercise price equal to the fair market value of a share of Common Stock at such date and were immediately exercisable. (3) The Black-Scholes option pricing method has been used to calculate the present value as of the date of grant and it is not intended to forecast appreciation, if any, of the Company's stock price. The present value as of the date of the grant, calculated using the Black-Scholes method, is based on assumptions about future interest rates, expected life of the options, dividend yield and stock price volatility. The risk free interest rate is based on a zero coupon US Government Issue with the same terms and maturity date as the specified option grant. The volatility is based on an estimate of the future price variability of Selective Insurance Group, Inc. (SIGI) stock for a term commensurate with the expected life of the option. There is no assurance that these assumptions will prove to be true in the future. Listed below are the various assumptions that were made with regard to the grants: ------------------------------------------- Exercise Price $20.75 ------------------------------------------- Risk Free Interest Rate 4.7% ------------------------------------------- Expected Life of Option 7 Years ------------------------------------------- Dividend Yield 2.4% ------------------------------------------- Expected Volatility 24% ------------------------------------------- 10OPTION AND SAR EXERCISES AND HOLDINGSThe following table sets forth information
with respectconcerning stock option grants in 2005 to each of the named executive officersnamedin the Summary CompensationTable concerning the exercise of options and/or SARs during the last fiscal year and unexercised options and SARs held as of the end of the last fiscal year.Table. No stock appreciation rights (“SARs”) were granted in 2005.
Individual Grants
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for Option Term(1)Named Executive
OfficerNumber of
Securities Underlying
Options/SARs
Granted (#)(2)% of Total
Options/SARs
Granted to
Employees in
Fiscal YearExercise
or Base
Price
($/Sh) (3)Expiration
Date(4)
5%
($)
10%
($)
Gregory E. Murphy
5,000
4.62
44.05
2/1/2015
11,013
22,025
Jamie Ochiltree, III
5,000
4.62
44.05
2/1/2015
11,013
22,025
Richard F. Connell
5,000
4.62
44.05
2/1/2015
11,013
22,025
Dale A. Thatcher
5,000
4.62
44.05
2/1/2015
11,013
22,025
Ronald J. Zaleski
5,000
4.62
44.05
2/1/2015
11,013
22,025
(1)
There can be no assurance provided to any executive officer or any other holder of Selective’s securities that the actual stock price appreciation over the (ten) 10-year option term will be at the assumed 5% and 10% compounded annual rates or at any other defined level. Unless the market price of the common stock appreciates over the option term, no value will be realized from the option grants made to the named executive officers.
(2)
The stock options were granted under Plan III. Plan III permits the granting of options to all employees and permits the granting of SARs in tandem with any or all stock options. If a SAR is exercised, the employee must surrender the related stock option or portion thereof. Upon exercise of a SAR, payment will be made by Selective in stock, cash, or some combination thereof as a committee appointed by the Board of Directors shall determine at the time of exercise. None of the options granted to the named executive officers in 2004 have SARs attached. Under the terms of Plan III, options or any related SARs, may be granted at no less than fair market value as of the date of grant. Options or any related SARs must be exercised within ten (10) years from the date of grant. In the event of any change in the number of outstanding shares of Selective’s common stock as a result of a stock dividend, stock split, or other readjustments, the committee appointed by the Board of Directors shall make an appropriate adjustment in the aggregate number of shares which may be subject to stock options granted under Plan III and in the number of shares subject to and the option price of each then outstanding option.
(3)
The exercise price is equal to the fair market value of the common stock on the date of grant.
(4)
The options may be exercised beginning on February 1, 2006.
Page 19
AGGREGATED
OPTION/SAROPTION EXERCISES IN LAST FISCAL YEARAND FISCAL YEAR-END
OPTION/SAROPTION VALUESThe following table sets forth information concerning stock option exercises in 2005 to each of the named executive officers in the Summary Compensation Table. No SARs were exercised in 2005, and none of these named executive officers had any unexercised SARs outstanding as of December 31, 2005.
Number of Securities
Underlying Unexercised
Options at Fiscal Year End (#)Value of Unexercised
In-The-Money Options
At Fiscal Year End ($) (1)Name
Shares
Acquiredon Exercise
(#)Value
Realized
($)(2)Exercisable
Unexercisable
Exercisable
Unexercisable
Gregory E. Murphy
13,200
349,032
29,825
5,000
882,369
45,250
Jamie Ochiltree, III
7,932
207,453
39,000
5,000
1,179,258
45,250
Richard F. Connell
5,000
112,975
0
5,000
0
45,250
Dale A. Thatcher
24,000
570,150
0
5,000
0
45,250
Ronald J. Zaleski
18,004
458,342
11,996
5,000
337,027
45,250
Value(1)
Calculated by multiplying the number of
Numberunderlying shares ofUnexercised Securities Underlying In-the-Money Unexercised Options/ SARs Options/ SARs at at Fiscal Fiscal Year-End (#) Year-End ($)common stock by the difference between the fair market value of the common stock as of December 31, 2005 and the exercise price of the option.
(2)
************ ************ Shares Acquired Vlue Exercisable/ Exercisable/ NameCalculated by multiplying the number of shares acquired on
Exercise (#) realized ($) (1) Unexercisable Unexercisable - ---- --------------- ---------------- ------------- -------------Gregory E. Murphy 61,804 $627,183 41,616/ 142,083/ 0 0 Jamie Ochiltree III 3,940 $39,664 73,936/ 491,891/ 0 0 Richard F. Connell -- -- 12,000/ 65,065/ 0 0 James W. Coleman, Jr. 3,213 $32,684 61,300/ 368,899/ 0 0 Ronald J. Zaleski -- -- 18,000/ 94,613/ 0 0exercise by the difference between the fair market value of the shares on the date of exercise and the exercise price.(1) Value realized representsPage 20
DEFINED BENEFIT PENSION PROGRAM
Selective maintains a non-contributory retirement income plan (the “Pension Plan”) that benefits most employees whose employment with Selective commenced on or before December 31, 2005, including the
market pricenamed executive officers. Selective also maintains an unfunded supplemental benefit plan, as permitted under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to provide payments to Pension Plan participants equal to the difference between (i) the benefit payable to a participant under the Pension Plan calculated without regard to ERISA and Internal Revenue Code limitations on annual amounts payable under the Pension Plan, and (ii) the benefit payable to the participant pursuant to such limitations. The Pension Plan was amended as of July 1, 2002, to provide for different calculations based on service with Selective as of that date.PENSION PLAN TABLE I
(EMPLOYEES WITH FIVE YEARS OF VESTING AS OF JULY 1, 2002
WHOSE AGE + YEARS OF VESTING SERVICE EQUALED OR EXCEEDED 55)
Years of Service
Remuneration
5
10
15
20
25
30
35
200,000
14,400
34,400
54,400
74,400
94,400
114,400
134,400
225,000
16,200
38,700
61,200
83,700
106,200
128,700
151,200
250,000
18,000
43,000
68,000
93,000
118,000
143,000
168,000
275,000
19,800
47,300
74,800
102,300
129,800
157,300
184,800
300,000
21,600
51,600
81,600
111,600
141,600
171,600
201,600
325,000
23,400
55,900
88,400
120,900
153,400
185,900
218,400
350,000
25,200
60,200
95,200
130,200
165,200
200,200
235,200
375,000
27,000
64,500
102,000
139,500
177,000
214,500
252,000
400,000
28,800
68,800
108,800
148,800
188,800
228,800
268,800
425,000
30,600
73,100
115,600
158,100
200,600
243,100
285,600
450,000
32,400
77,400
122,400
167,400
212,400
257,400
302,400
475,000
34,200
81,700
129,200
176,700
224,200
271,700
319,200
500,000
36,000
86,000
136,000
186,000
236,000
286,000
336,000
525,000
37,800
90,300
142,800
195,300
247,800
300,300
352,800
550,000
39,600
94,600
149,600
204,600
259,600
314,600
369,600
575,000
41,400
98,900
156,400
213,900
271,400
328,900
386,400
600,000
43,200
103,200
163,200
223,200
283,200
343,200
403,200
625,000
45,000
107,500
170,000
232,500
295,000
357,500
420,000
650,000
46,800
111,800
176,800
241,800
306,800
371,800
436,800
675,000
48,600
116,100
183,600
251,100
318,600
386,100
453,600
700,000
50,400
120,400
190,400
260,400
330,400
400,400
470,400
725,000
52,200
124,700
197,200
269,700
342,200
414,700
487,200
750,000
54,000
129,000
204,000
279,000
354,000
429,000
504,000
775,000
55,800
133,300
210,800
288,300
365,800
443,300
520,800
800,000
57,600
137,600
217,600
297,600
377,600
457,600
537,600
825,000
59,400
141,900
224,400
306,900
389,400
471,900
554,400
850,000
61,200
146,200
231,200
316,200
401,200
486,200
571,200
875,000
63,000
150,500
238,000
325,500
413,000
500,500
588,000
900,000
64,800
154,800
244,800
334,800
424,800
514,800
604,800
925,000
66,600
159,100
251,600
344,100
436,600
529,100
621,600
950,000
68,400
163,400
258,400
353,400
448,400
543,400
638,400
975,000
70,200
167,700
265,200
362,700
460,200
557,700
655,200
1,000,000
72,000
172,000
272,000
372,000
472,000
572,000
672,000
1,025,000
73,800
176,300
278,800
381,300
483,800
586,300
688,800
1,050,000
75,600
180,600
285,600
390,600
495,600
600,600
705,600
1,075,000
77,400
184,900
292,400
399,900
507,400
614,900
722,400
1,100,000
79,200
189,200
299,200
409,200
519,200
629,200
739,200
Page 21
Pension Plan Table I illustrates annual pension benefits, including supplemental benefits, at normal retirement (age 65) for various years of credited service in the form of a single life annuity and prior to any offset for Social Security benefits for participants. As shown on the
dateSummary Compensation Table on page 18, Salary is the only compensation covered by the Pension Plan; Bonus and Other Annual Compensation is not covered by the Pension Program.The following table lists the estimated credited years of
exercise, lessservice for theoption exercise price. (2)named executive officers that qualify for the pension benefits depicted on Pension Plan Table I:
Named Executive Officer
Average Monthly
Compensation as of
December 31, 2005Years of Service as of
December 31, 2005Gregory E. Murphy
53,432.69
24
Jamie Ochiltree, III
28,255.77
10
Monthly Pension Program benefits at normal retirement age are computed by adding two calculations. The
valuefirst is the former plan calculation which provides for 2% ofunexercised in-the-money options is based“average monthly compensation” (based on theclosing market price per sharemonthly average ofCommon Stockthe member’s compensation for the 60 months out of the most recent 120 months of employment preceding the member’s termination of employment for which the employee’s compensation is the highest) less 1 3/7% of a Social Security benefit multiplied by the number of years of benefit service through June 30, 2002 (up to a maximum of 35 years). The second calculation provides for 1.2% of average monthly compensation (as defined herein) multiplied by the number of years of benefit service after June 30, 2002.Page 22
PENSION PLAN TABLE II
(EMPLOYEES HIRED BEFORE JULY 1, 2001 WHO, AS OF JULY 1, 2002,
NEITHER (I) WERE AGE 50 AND HAD 5 YEARS OF VESTING SERVICE,
NOR (II) HAD 25 YEARS OF VESTING SERVICE)
Years of Service
Remuneration
5
10
15
20
25
30
35
200,000
12,000
26,000
46,000
66,000
86,000
106,000
126,000
225,000
13,500
29,250
51,750
74,250
96,750
119,250
141,750
250,000
15,000
32,500
57,500
82,500
107,500
132,500
157,500
275,000
16,500
35,750
63,250
90,750
118,250
145,750
173,250
300,000
18,000
39,000
69,000
99,000
129,000
159,000
189,000
325,000
19,500
42,250
74,750
107,250
139,750
172,250
204,750
350,000
21,000
45,500
80,500
115,500
150,500
185,500
220,500
375,000
22,500
48,750
86,250
123,750
161,250
198,750
236,250
400,000
24,000
52,000
92,000
132,000
172,000
212,000
252,000
425,000
25,500
55,250
97,750
140,250
182,750
225,250
267,750
450,000
27,000
58,500
103,500
148,500
193,500
238,500
283,500
475,000
28,500
61,750
109,250
156,750
204,250
251,750
299,250
500,000
30,000
65,000
115,000
165,000
215,000
265,000
315,000
525,000
31,500
68,250
120,750
173,250
225,750
278,250
330,750
550,000
33,000
71,500
126,500
181,500
236,500
291,500
346,500
575,000
34,500
74,750
132,250
189,750
247,250
304,750
362,250
600,000
36,000
78,000
138,000
198,000
258,000
318,000
378,000
625,000
37,500
81,250
143,750
206,250
268,750
331,250
393,750
650,000
39,000
84,500
149,500
214,500
279,500
344,500
409,500
675,000
40,500
87,750
155,250
222,750
290,250
357,750
425,250
700,000
42,000
91,000
161,000
231,000
301,000
371,000
441,000
725,000
43,500
94,250
166,750
239,250
311,750
384,250
456,750
750,000
45,000
97,500
172,500
247,500
322,500
397,500
472,500
775,000
46,500
100,750
178,250
255,750
333,250
410,750
488,250
800,000
48,000
104,000
184,000
264,000
344,000
424,000
504,000
825,000
49,500
107,250
189,750
272,250
354,750
437,250
519,750
850,000
51,000
110,500
195,500
280,500
365,500
450,500
535,500
875,000
52,500
113,750
201,250
288,750
376,250
463,750
551,250
900,000
54,000
117,000
207,000
297,000
387,000
477,000
567,000
925,000
55,500
120,250
212,750
305,250
397,750
490,250
582,750
950,000
57,000
123,500
218,500
313,500
408,500
503,500
598,500
975,000
58,500
126,750
224,250
321,750
419,250
516,750
614,250
1,000,000
60,000
130,000
230,000
330,000
430,000
530,000
630,000
1,025,000
61,500
133,250
235,750
338,250
440,750
543,250
645,750
1,050,000
63,000
136,500
241,500
346,500
451,500
556,500
661,500
1,075,000
64,500
139,750
247,250
354,750
462,250
569,750
677,250
1,100,000
66,000
143,000
253,000
363,000
473,000
583,000
693,000
Pension Plan Table II illustrates annual pension benefits, including supplemental benefits, at normal retirement (age 65) for various years of credited service in the form of a single life annuity and prior to any offset for Social Security benefits for participants. As shown on the Summary Compensation Table on page 18, Salary is the only compensation covered by the Pension Program; Bonus and Other Annual Compensation is not covered by the Pension Plan.
Page 23
The following table lists the estimated credited years of service for the named executive officers that qualify for the pension benefits depicted on Pension Plan Table II:
Named Executive Officer
Average Monthly
Compensation as of
December 31, 2005Years of Service as of
December 31, 2005Richard F. Connell
25,387.82
4
Dale A. Thatcher
20,579.81
4
Ronald J. Zaleski
24,381.73
5
Monthly Pension Plan benefits at normal retirement age are computed by comparing two calculations and providing the benefit which is the greater of the two. The first is the former plan calculation which provides for 2% of “average monthly compensation” (based on the monthly average of the member’s compensation for the 60 months out of the most recent 120 months of employment preceding the member’s termination of employment for which the employee’s compensation is the highest) less 1 3/7% of a Social Security benefit multiplied by the number of years of benefit service through June 30, 2002 (up to a maximum of 35 years). The second calculation provides for 1.2% of average monthly compensation (as defined herein) multiplied by all years of benefit service.
Effective January 1, 2006, the Pension Plan closed to employees hired after December 31,
2002, of $25.18, less the option exercise price per share. 112005. Page 24
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT,
AND CHANGE-IN-CONTROL AGREEMENTS
EMPLOYMENT AGREEMENTS
Under anMessrs. Murphy, Ochiltree, Connell, and Thatcher have employment agreements with SICA, which contain similar terms and conditions. The agreement
with Selective Insurance Company of America ("SICA") effectiveentered into between Mr. Murphy and SICA on August 1, 1995 was most recently amended on May 1,1998, May 2, 2000 and August 1, 2001 and in effect through August 1, 2004,2004. Pursuant to the terms of the agreement, Mr. Murphy receives an annualbasesalary of not less than$550,000 through August$700,000. The agreement entered into between Mr. Ochiltree and SICA on October 21, 1995 was most recently amended on May 1, 2004.The Board has set Mr. Murphy's annual base salary for 2003 at $640,000. Under an employmentPursuant to the terms of the agreement,with SICA effective October 31, 1995, amended October 31, 1998, May 2, 2000 and October 31, 2001, and in effect through October 31, 2004,Mr. Ochiltree receives an annualbasesalary of not less than$290,000 through October 31, 2004.$374,000. TheBoard has setagreement entered into between Mr.Ochiltree's annual base salary for 2003 at $340,000. Under an employment agreement withConnell and SICAeffectiveon August 8, 2000andwas most recently amended on March 1,2003,2003. Pursuant to the terms of the agreement, Mr. Connell receives an annualbasesalary of not less than$300,000 through$300,000. The agreement entered into between Mr. Thatcher and SICA on May 5, 2000, was most recently amended on March 1,2006. The Board has set2003. Pursuant to the terms of the agreement, Mr.Connell's annual base salary for 2003 at $300,000. Under an employment agreement with SICA dated May 2, 1997, amended May 2, 2000 and March 1, 2003, Mr. ColemanThatcher receives an annualbasesalary of not less than$294,000 through March 1, 2006. The Board has set Mr. Coleman's annual base salary for 2003 at $294,000.$235,000. If any of these executive officersisare notreelectedre-elected tohistheir current position, orif he isare terminated without cause, he will be entitled to receive severance pay equal to his salary and certain benefits in effect at the time of his termination of employment for a period of two (2) years after the date of such termination, payable in monthly installments. Ifheany of these executive officers is terminated for cause, he is entitled to receive that portion of his salary earned to the date of his termination and the benefits accrued to him under certain employee benefit plans to the date of such termination, to the extent that such benefits may be payable to him under the provisions of such plans in effect on the date of the termination of his employment.The CompanySelective has guaranteedSICA'sSICA’s performance of all its obligations under the employment agreements.TERMINATION AGREEMENTS
Messrs. Murphy, Ochiltree, Connell,
Coleman,Thatcher, and Zaleski have termination agreements with SICA pursuant to which payments will be made under certain circumstances following a Change in Controlof the Company, as(as defined in theagreements. Mr. Murphy's agreementagreements) of Selective. Each of these agreements is automatically renewable for successive one-year terms,each August, unless prior written notice of non-renewal is given. Mr. Ochiltree's agreement is automatically renewable for successive one-year terms each October unless prior written notice of non-renewal is given. Mr. Connell's agreement is effective August 8, 2000 through August 8, 2003, and is thereafter automatically renewable for successive one-year terms each August unless prior written notice of non-renewal is given. Mr. Coleman's agreement is automatically renewable for successive one-year terms each May unless prior written notice of non-renewal is given. The agreement for Mr. Zaleski is automatically renewable for successive one-year terms each Septemberunless prior written notice of non-renewal is given. Each agreement provides that, in the event of a Change in Control ofthe Company,Selective, SICAshallwill continue to employ the executive officer in the capacities in which he was serving immediately prior to the Change in Control for a period of three (3) years, commencing on the date on which the Change in Control shall have occurred, which term will be automatically renewed for successive one-year periods unless prior written notice is given. Each agreement provides that if the executiveofficer'sofficer’s employment is terminated(as definedas set forth in theagreement)agreement after a Change in Control occurs, other than (i) due to the executiveofficer'sofficer’s death or retirement, (ii) by SICA for Cause or Disability (as defined in the agreement), or (iii) by the executive officer other than for Good Reason (assuch foregoing capitalized terms aredefined in the agreement), the executive officer will be entitled to receive earned but unpaid base salary through the date of termination, as well as any incentive compensation benefits or awards that have been accrued, earned, or become payable but which have not been paid, and as severance pay in lieu of any further salary for periods subsequent to the date of termination, an amount in cash equal to his"annualized“annualized includible compensation for the baseperiod"period” (as defined in Section 280G(d)(1) of the Internal Revenue Code,of 1986, as amended (the "Code"),multiplied by a factor of 2.99, provided that if any of the payments or benefits provided for in the agreement, together with any other payments or benefits that the executive officer has the right to receive would constitute a"parachute payment"“parachute payment” (as defined in Section 280G(b) of the Internal Revenue Code),the Company shallSelective will pay to the executive officer on a net after-tax basis the greater of(1)(i) the payments and benefits due to the executive officer reduced in order of priority and amount as executive officer shall elect, to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or(2)(ii) payments and benefits due to the executive officer, plus an amount in cash equal to (x) the amount of such"excess“excess parachutepayments"payments” multiplied by (y) twenty (20%) percent.The CompanySelective has guaranteedSICA'sSICA’s performance of all its obligations under the termination agreements.PENSION PLANS The Company maintains a noncontributory Retirement Income Plan. This pension plan covers substantially all employees, including officers. Compensation covered underPage 25
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
During 2005, the
plan consists only of basic wages and salaries, not including overtime and bonuses, i.e., only the "Salary" columnfollowing directors served as members of theSummary Compensation Table. IfSalary and Employee Benefits Committee: A. David Brown, Paul D. Bauer, John C. Burville, C. Edward Herder, and J. Brian Thebault. Mr. Herder retired from theemployee is married, the normal formBoard ofbenefit is a joint and survivor annuity for the employee and spouse. If the employee elects against such annuity with the spouse's consent, a single life annuity may be paid. The Company has a nonqualified supplemental pension plan to provide benefits that would have been paid by the qualified plan, but for the limitations imposed by the Internal Revenue Code on the maximum benefits payable and the compensation upon which qualified plan benefits may be calculated. As ofSelective, effective December 31,2002 the Chairman, President2005, andChief Executive Officer and the other executive officers named in the Summary Compensation Table had the following credited years of service under the pension plans: Mr. Murphy, 21 years; Mr. Ochiltree, 7 years; Mr. Connell, 1 year; Mr. Coleman, 19 years; and Mr. Zaleski, 2 years. The planJohn C. Burville wasamended as of July 1, 2002 and provides for different calculations based on service with the company as of the date of the amendment. Two of the four calculations applyappointed to theexecutive officers namedSalary and Employee Benefits Committee, effective January 1, 2006.None of these individuals was employed in
the Summary Compensation Table. 12Table 1 illustrates annual pension benefits, including supplemental benefits, at normal retirement (age 65) for various years2005 as an officer or an employee ofcredited service in the formSelective or one ofa single life annuity and prior toits subsidiaries or was formerly an officer of Selective or anyoffset for Social Security benefits for participants that were deemed to be in the Transition Group. Employees whoof its subsidiaries. None of these individuals hadat least five years of vestingany relationship with Selective other than service asof July 1, 2002, and whose age plus years of vesting service equaleda director orexceeded 55 as of July 1, 2002 qualifiedreceived compensation from Selective other than forthis group. Monthly plan benefits at normal retirement age are computed by adding two calculations. The first is the former plan calculation which provides for 2% of "average monthly compensation" (based on the monthly average of the member's compensation for the 60 months out of the most recent 120 months of employment preceding the member's termination of employment for which the employee's compensation is the highest) less 1 3/7% of a social security benefit multiplied by the number of years of benefit service through June 30, 2002 (up to a maximum of 35 years). The second calculation provides for 1.2% of average monthly compensation (as defined herein) multiplied by the number of years of benefit service after June 30, 2002. Calculations in this table apply to Mr. Murphy, Mr. Ochiltree and Mr. Coleman. Table 1 Years of Service ------------------------------------------------------------------ Remuneration 5 10 15 20 25 30 35 - -------------------------------------------------------------------------------- 200,000 19,200 39,200 59,200 79,200 99,200 119,200 139,200 225,000 21,600 44,100 66,600 89,100 111,600 134,100 156,600 250,000 24,000 49,000 74,000 99,000 124,000 149,000 174,000 275,000 26,400 53,900 81,400 108,900 136,400 163,900 191,400 300,000 28,800 58,800 88,800 118,800 148,800 178,800 208,800 325,000 31,200 63,700 96,200 128,700 161,200 193,700 226,200 350,000 33,600 68,600 103,600 138,600 173,600 208,600 243,600 375,000 36,000 73,500 111,000 148,500 186,000 223,500 261,000 400,000 38,400 78,400 118,400 158,400 198,400 238,400 278,400 425,000 40,800 83,300 125,800 168,300 210,800 253,300 295,800 450,000 43,200 88,200 133,200 178,200 223,200 268,200 313,200 475,000 45,600 93,100 140,600 188,100 235,600 283,100 330,600 500,000 48,000 98,000 148,000 198,000 248,000 298,000 348,000 525,000 50,400 102,900 155,400 207,900 260,400 312,900 365,400 550,000 52,800 107,800 162,800 217,800 272,800 327,800 382,800 575,000 55,200 112,700 170,200 227,700 285,200 342,700 400,200 600,000 57,600 117,600 177,600 237,600 297,600 357,600 417,600 625,000 60,000 122,500 185,000 247,500 310,000 372,500 435,000 650,000 62,400 127,400 192,400 257,400 322,400 387,400 452,400 675,000 64,800 132,300 199,800 267,300 334,800 402,300 469,800 700,000 67,200 137,200 207,200 277,200 347,200 417,200 487,200 725,000 69,600 142,100 214,600 287,100 359,600 432,100 504,600 750,000 72,000 147,000 222,000 297,000 372,000 447,000 522,000 775,000 74,400 151,900 229,400 306,900 384,400 461,900 539,400 800,000 76,800 156,800 236,800 316,800 396,800 476,800 556,800 13Table 2 illustrates annual pension benefits, including supplemental benefits, at normal retirement (age 65) for various years of benefit service in the form of a single life annuity and prior to any offset for Social Security benefits for participants that were deemed to be in the Other Group, which means that they were hired by the Company before July 1, 2001 and as of July 1, 2002, had neither (1) attained age 50 and completed 5 years of vesting service, nor (2) completed 25 years of vesting service. Monthly plan benefits at normal retirement age are computed by comparing two calculations and providing the benefit which is the greater of the two. The first is the former plan calculation which provides for 2% of "average monthly compensation" (based on the monthly average of the member's compensation for the 60 months out of the most recent 120 months of employment preceding the member's termination of employment for which the employee's compensation is the highest) less 1 3/7% of a social security benefit multiplied by the number of years of benefit service through June 30, 2002 (up to a maximum of 35 years). The second calculation provides for 1.2% of average monthly compensation (as defined herein) multiplied by all years of benefit service. Calculations in this table apply to Mr. Connell and Mr. Zaleski. Table 2 Years of Service ------------------------------------------------------------------ Remuneration 5 10 15 20 25 30 35 - -------------------------------------------------------------------------------- 200,000 18,000 38,000 58,000 78,000 98,000 118,000 138,000 225,000 20,250 42,750 65,250 87,750 110,250 132,750 155,250 250,000 22,500 47,500 72,500 97,500 122,500 147,500 172,500 275,000 24,750 52,250 79,750 107,250 134,750 162,250 189,750 300,000 27,000 57,000 87,000 117,000 147,000 177,000 207,000 325,000 29,250 61,750 94,250 126,750 159,250 191,750 224,250 350,000 31,500 66,500 101,500 136,500 171,500 206,500 241,500 375,000 33,750 71,250 108,750 146,250 183,750 221,250 258,750 400,000 36,000 76,000 116,000 156,000 196,000 236,000 276,000 425,000 38,250 80,750 123,250 165,750 208,250 250,750 293,250 450,000 40,500 85,500 130,500 175,500 220,500 265,500 310,500 475,000 42,750 90,250 137,750 185,250 232,750 280,250 327,750 500,000 45,000 95,000 145,000 195,000 245,000 295,000 345,000 525,000 47,250 99,750 152,250 204,750 257,250 309,750 362,250 550,000 49,500 104,500 159,500 214,500 269,500 324,500 379,500 575,000 51,750 109,250 166,750 224,250 281,750 339,250 396,750 600,000 54,000 114,000 174,000 234,000 294,000 354,000 414,000 625,000 56,250 118,750 181,250 243,750 306,250 368,750 431,250 650,000 58,500 123,500 188,500 253,500 318,500 383,500 448,500 675,000 60,750 128,250 195,750 263,250 330,750 398,250 465,750 700,000 63,000 133,000 203,000 273,000 343,000 413,000 483,000 725,000 65,250 137,750 210,250 282,750 355,250 427,750 500,250 750,000 67,500 142,500 217,500 292,500 367,500 442,500 517,500 775,000 69,750 147,250 224,750 302,250 379,750 457,250 534,750 800,000 72,000 152,000 232,000 312,000 392,000 472,000 552,000 14EQUITY COMPENSATION PLAN INFORMATION The following table sets forth certain information as of December 31, 2002 with respect to compensation plans under which shares of the Company's common stock may be issued.
(c) Number of securities remaining available (a) for future issuance Number of securities to (b) under equity be issued upon exercise of Weighted-average compensation plans outstanding options, exercise price of outstanding (excluding securities Plan Category warrants and rights options, warrants and rights reflected in column (a)) - ------------- -------------------------- ----------------------------- --------------------------Equity Compensation plans 1,320,304 $19.31 2,811,297(1) approved by security holders Equity Compensation 0 N/A 801,283(2) plans not approved by security holders Total 1,320,304 $19.31 3,612,580(1) Includes 384,525 shares available for issuance under shares available for issuance under Selective's Employee Stock Purchase Plan and 425,872 shares available for issuance of Selective's Stock Compensation Plan for Non-Employee Directors and 1,984,000 shares available under Stock Option Plan III, which can be issued either as stock options or in the form of restricted stock awards. (2) This is the number of shares available for issuance under Selective's Stock Purchase Plan for Independent Insurance Agents. Stock Purchase Plan For Independent Insurance Agents The Plan The Company'sBoard of Directorsadopted theservice in 2005.No Selective
Insurance Group Stock Purchase Plan for Independent Insurance Agents (the "Plan") to motivate persons performing independent insurance agency services for us by enabling them to participate in our long-term growth and success by purchasing sharesexecutive officer served as a member of theCompany's common stock atcompensation committee of another entity, or as adiscounted price. The Plan was originally adopted in May 1989 and was most recently amended on July 24, 2000. The purchase price for shares offered under the Plan is the averagedirector ofthe high and low sale pricesanother entity, one ofthe Company's common stock quotedwhose executive officers served on theNASDAQ National Market on the dateSalary and Employee Benefits Committee or as a director ofpurchase, less a discount of 10%. Eligibility Each independent insurance agency which is under contract with us to promote and sell our insurance products is eligible to participate in the Plan and to purchase shares of our common stock under the Plan. Also eligible to purchase shares under the Plan are: the principals, general partners, officers and stockholders of eligible insurance agencies, key employees of eligible insurance agencies designated by the principals, general partners or officers of the agencies, their individual retirement plans, their Keogh plans, and employee benefit plans of eligible insurance agencies. Restrictions on Shares Purchased under the Plan Shares purchased under the Plan on or after August 3, 1999, are restricted for a period of one-year beginning on the date of the day after the purchase. During this one-year period, shares purchased under this plan cannot be sold, transferred, pledged, assigned or disposed of in any way.Selective.Page 26
REPORT OF THE
SELECTIVE INSURANCE GROUP, INC.SALARY AND EMPLOYEE BENEFITS COMMITTEETheSelective’s Salary and Employee Benefits Committee
(the "Committee"(“SEBC”) establishes general executive compensation policies and establishes the salaries and bonuses of Selective’s executive officers, including the Chief Executive Officer. The Board of Directorsis responsible for settingdid not modify any action or recommendation made by the SEBC with respect to executive compensation in 2005.The following table summarizes the key policies,
offactors, and other compensation information that theCompany and evaluating the level ofSEBC used in determining executive compensationof the executive officers of the Company and its subsidiaries relative to the positions and performancesin 2005:
Policies
• Provide competitive compensation packages to attract and retain qualified executives.
• Reflect Selective’s performance and the value created for Selective’s stockholders.
• Tie personal performance and contribution to Selective’s operational and financial performance.
• Support the short-term and long-term strategic goals and values of Selective and reward individual contribution to Selective’s success.
Executive Compensation
Elements
• Annual base salary, tied to the SEBC’s evaluation of personal executive performance, including managerial ability and development of personnel, the competitive marketplace for comparable executives, and internal alignment considerations.
• Variable incentive awards tied to Selective’s achievement of corporate operational and financial performance targets established at the beginning of the fiscal year and personal executive objectives also established at the beginning of the year.
• Long-term, equity-based incentive awards of stock options (with or without tandem stock appreciation rights) and stock grants, tied to aligning the interests of executive officers with those of stockholders and ensuring that officers have an equity-stake management view.
• In 2005, the CEO and each of Selective’s executive officers met or exceeded all but one (growth in worksite lives for Selective HR Solutions) of the goals established for them at the beginning of the year. This achievement is reflected in the awards granted to them for 2005.
CEO-Specific Compensation Elements
Detailed performance evaluation that considered:
• The CEO’s qualifications.
• Level of experience brought to the position and gained while in the position.
• Selective’s performance implementing or completing critical projects or processes.
• Selective’s underwriting performance as measured by the statutory combined ratio relative to the industry.
• The importance of the CEO’s contribution to the achievement of Selective’s strategic initiatives and financial performance. Specifically, under Mr. Murphy’s leadership in 2005, Selective achieved the following:
o Net premiums written growth of 7%;
o Statutory combined ratio of 94.6% compares to 95.9% in 2004;
o Operating earnings per share of $4.36 compared to $3.58 in 2004;
o Return on average equity of 15.9%;
o Total return to shareholders of 21.9%;
o Named to Forbes Magazine “Platinum 400” list and also named one of America’s Best Managed Companies by Forbes – ranking in the “top 10” for insurance;
o Named to “Ward’s 50 Benchmark Group” listing of top performing companies in the property-casualty insurance sector;
o Named to the Forbes list of “The 100 Best Mid-Cap Stocks”; and
o Ranked #897 on overall FORTUNE 1000 list of America’s largest corporations and #31 in insurance property and casualty stock company sector.
• Specific accomplishments.
• The importance of the CEO’s individual contributions to the achievement of Selective’s goals and objectives set for 2005.
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2005 Factors
• Successful completion of Strategic Initiatives aimed at:
o Growth in worksite lives for Selective HR Solutions;
o Strategic market planning for the insurance business;
o Overall expense reduction;
o Increased efficiency in claims handling;
o Implementation of various knowledge management initiatives; and
o Various technology initiatives related to Selective’s agents.
• Selective’s financial performance compared to its performance in the prior year, including its combined ratio (both overall and by lines of insurance), return on equity, results of operations, and overall financial condition.
In 2005, the SEBC retained an independent compensation consultant to provide advice on executive compensation matters, including the base salary and incentive compensation levels for executive officers. The
Committee's decisions onconsulting firm furnished the SEBC with compensation surveys and data for purposes of comparing Selective’s executive compensationare subject tolevels with those at companies within and outside theapproval ofindustry with which Selective competes for executive talent and is providing theBoard of Directors, exceptSEBC with specific recommendations forgrants under certain ofmaintaining Selective’s executive compensation at a level competitive with theCompany's employee benefit plans, which are made solely by the Committee in order for such plans to satisfy the administration requirements of Rule 16b-3 under the Securities Exchange Act of 1934, andmarketplace.Section 162(m) of the Internal Revenue
Code. The Committee consists of Messrs. Brown (Chairman), Bauer, Dolan, Herder, McClellan and Thebault, all of whom are nonemployee directors, within the meaning of Rule 16b-3 and "outside directors" within the meaning of Section 162(m). For purposes of this report, the term "Company" means Selective Insurance Group, Inc. and its subsidiaries unless the context otherwise requires. 15The Committee's executive compensation policies are intendedCode disallows a tax deduction toenable the Company to attract and retain qualified executives and compensate them in direct relationship to their accomplishments and levels of responsibility by combining a base salary component with annual bonus and long-term incentive components. The levels of annual total compensationpublicly held companies forexecutive officers are generally intended to be comparable to the levels of annual totalcompensation paid toexecutives with comparable responsibilities in a groupcertain ofother companies in the insurance industry, while providing for annual and long-term incentives which are subject to the achievement of performance-related goals. The comparison group of companies are identified by the Company as being similar in size and scope to Selective using external surveys. This comparison group of companies in the insurance industry is smaller and more diverse than the group comprising the Company's peer group for purposes of the performance graph set forth on page 19 in this Proxy Statement. After determining the levels of compensation for each executive officer as compared with his or her counterparts in the identified industry group, the Committee weighs the executive officer's performance and level of responsibility and considers such executive officer's contributions to the achievement of financial and other goals of the Company. These goals are established in advance and may relate to the executive officer's performance, the Company's performance, or both. Among the criteria used in determining base salaries are: (i) the Company's financial performance compared to its performance in the prior year, including the Company's combined ratio (both overall and by lines of insurance), return on equity, results of operations and overall financial condition; (ii) the managerial ability of such executive officer as evaluated by the Committee, taking into account the evaluation of such person by the Chief Executive Officer; and (iii) such officer's ability to develop personnel within the areas of his or her responsibility for the future operation of the Company. These criteria are the more significant factors used by the Committee in reaching its decisions on executive compensation. As a result of the individual evaluations, for any particular year the compensation level of each executive officer may be higher or lower than that of comparable executives in the comparison group and may vary each year depending upon the achievement of the individual. The Committee meets a minimum of four times a year. Changes in the base salary component of executive compensation do not necessarily occur annually, but may occur after a longer period of time. In addition to the base salary component of executive officers' compensation, cash payments under the Company's Annual Cash Incentive Plan (the "ACIP" Plan) may be earned. Individual cash incentive awards under the ACIP Plan are subject to two separate and distinct criteria related to the Company's performance as established by the Committee at the beginning of the year. The criteria established by the Committee for 2002 was as follows: (1) If the Company met certain strategic initiatives which were aimed at commercial lines and personal lines price increases, introduction of new technology for agents, the rollout of the Claims Service Center, and the expansion of business opportunities through the growth of the Company's Diversified Insurance Services businesses, then all employees, including the executive officers, could earn a portion of his/her target incentive percentage as specified in the ACIP Plan; and (2) If the Company also achieved financial targets related to operating income and combined ratio, then all employees, including the executive officers, could earn an additional portion of his/her target incentive percentage as specified in the ACIP Plan. In February 2003, the Committee reviewed each executive officer's performance evaluation by the Chief Executive Officer, the strategic initiatives and the recommendations of the Chief Executive Officer as to the executive's achievement and the Company's achievement of the strategic initiatives and financial targets for 2002 using the criteria described above. Based upon the Company's performance in 2002 and the ACIP Plan percentage guidelines, the Committee determined that the Company achieved both the strategic initiatives, financial targets and that annual cash incentives would be awarded for to the Company's executive officers for the year ended December 31, 2002, in accordance with the ACIP Plan. The two forms of executive officers' long-term incentive compensation are stock options (with or without tandem stock appreciation rights) and stock grants under the Company's Stock Option Plan II (which is no longer issuing new options) and the Company's Stock Option Plan III, which went into effect upon stockholder approval in May 2002 (the "Plans"). The Committee believes that stock ownership by management encourages management to enhance stockholder value. Under the current Plan, stock options (with or without tandem stock appreciation rights) granted to executive officers and other employees give optionees the right to purchase shares of the Company's Common Stock over a ten-year period at the fair market value per share on the date of grant. Generally, the Committee grants options to executive officers based ontheirassessment of individual merit, taking into account, among other things the performance evaluations of such executive officers by the Chief Executive Officer. The number of options granted at any given time is also determined, in part, by the executive officer's level of responsibility (i.e., more options are given to employees and executives in positions of greater responsibility), and the date of the last option grant to such person. In recent years, the Company has generally granted options on an annual basis, but options are not necessarily granted annually to each executive officer. Grants of stock also provide incentive to theexecutive officers, toenhance stockholder value. UnderthePlan, the Committee,extent that compensation exceeds $1 million per covered officer inits discretion, may make restricted or unrestricted grants of Common Stock, or grant rights to receive Common Stock, to executive officers and other employees, in addition to or in substitution for stock options or stock appreciation rights. Grants made to executive officers are subject to the attainment of one or more performance-related objectives and other terms and conditions as may be determined by the Committee in its discretion. In 2002, grants of restricted stock under the Plans were made to all executive officers. All restricted stock grants to executive officers vest after a period of four years and are subject to the attainment of various predetermined corporate financial goals, such as return on equity or cumulative earnings or premium growth during the vesting period. 16On February 5, 2002, the Committee granted Mr. Murphy 10,000 restricted shares of the Company's Common Stock under the Plan. The shares vest four years after the grant and are subject to the achievement of predetermined corporate performance goals, includingany fiscal yearreturn on average equity during the vesting period. On the same date, the Committee granted Mr. Murphyand is not under anon-qualified stock optionstockholder approved plan. The limitation applies only topurchase 5,181 shares of the Company's common stock at an exercise price of grant of $20.75 per share, and an incentive stock optioncompensation that is not considered topurchase 4,819 shares of the Company's common stock at an exercise price at the fair market value on the date of grant of $20.75 per share.be performance-based. TheCompanySEBC intends, to the extent practicable, to preserve deductibility under the Internal Revenue Code for compensation paid to its executive officers while maintaining compensation programs to attract and retain highly qualified executives in a competitive environment.The Committee's basis for determining the compensation of the Chief Executive Officer has been substantially the same as those referred to above with respect to the Company's other executive officers. The Committee seeks to maintain the base salary of the Chief Executive Officer at a level competitive with the mid-range of the base salaries of the chief executive officers of other insurance companies in the Company's identified comparison group. Mr. Murphy is also eligible to participate in the same employee benefit plans available to the other executive officers of the Company. No Compensation Committee interlocks or insider participation in compensation decisions occurred during the fiscal year ended December 31, 2002.Submitted by the Salary and Employee Benefits Committee of
the Company'sSelective’s Board ofDirectors:DirectorsA. David Brown,
(Chairman),ChairpersonPaul D. Bauer
William A. Dolan, II,John C.
Edward Herder, S. Griffin McClellan III, andBurvilleJ. Brian
Thebault. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 2002,ThebaultPage 28
Performance Graph
The following chart, produced by the
SalaryCenter for Research in Security Prices, depicts Selective’s performance for the period beginning January 1, 2000 andEmployee Benefits Committee was composed of A. David Brown, Paul D. Bauer, William A. Dolan, II, C. Edward Herder, S. Griffin McClellan III, and J. Brian Thebault. None of these individuals were employedending December 31, 2005, asofficers or employeesmeasured by total stockholder return on the common stock compared with the total return of theCompany. No executive officerNASDAQ Stock Market (U.S.) Index and the NASDAQ Fire, Marine and Casualty Index (68 NASDAQ Company stocks in SIC Major Group 633 (SIC 6330-6339 U.S. fire, marine and casualty insurance). Upon request, Selective will furnish stockholders a list of theCompany servedcomponent companies of such indices.Notwithstanding anything to the contrary set forth in any of Selective’s previous filings under the Securities Act of 1933 or the Exchange Act that might incorporate future filings made by Selective under those statutes, the preceding Report of the Compensation Committee of the Board of Directors on Executive Compensation and Selective’s Stock Performance Graph will not be incorporated by reference into any of those prior filings, nor will such report or graph be incorporated by reference into any future filings made by Selective under those statutes.
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INFORMATION ABOUT PROPOSAL 2
Approval of the
compensation committeeSelective Insurance Group, Inc. Stock Purchase Plan forIndependent Insurance Agencies
Selective’ stockholders are being asked to approve the Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies (the “Agencies Stock Purchase Plan”). The purpose of
another entity orthe Agencies Stock Purchase Plan is to motivate independent insurance agencies that sell products and services for the insurance company subsidiaries of Selective, by enabling them to participate in Selective’s long-term growth and success and to help align their success with those interests of Selective’s stockholders.After approval and effective as of July 1, 2006, the Agencies Stock Purchase Plan will replace the
Selective Insurance Group Stock Purchase Plan for Independent Insurance Agents (the “Original Independent Agents Plan”) currently in effect and stock purchases will no longer be available under the Original Independent Agents Plan. If the Agencies Stock Purchase Plan is not approved by stockholders, the Original Independent Agents Plan will remain in effect.
The following table provides a
directorsummary ofanother entity, onethe Agencies Stock Purchase Plan, which is qualified in its entirety by the text ofwhose executive officers served onthe Agencies Stock Purchase Plan, a copy of which is attached to this proxy statement as Appendix A.
Plan Administrator
•Salary and Employee Benefits Committee
Authority of Plan Administrator
• Administer the Agencies Stock Purchase Plan and exercise all of the powers and authorities either specifically granted to it under the Agencies Stock Purchase Plan or necessary or advisable in the administration of the Agencies Stock Purchase Plan, including, without limitation, the authority to:
o Construe and interpret the Agencies Stock Purchase Plan;
o Make adjustments in response to changes in applicable laws, regulations, or accounting principles, or for any other reason, in accordance with the section of the Agencies Stock Purchase Plan entitled, Amendment or Termination of the Plan;
o Prescribe, amend, or rescind rules and regulations relating to the Agencies Stock Purchase Plan and appoint such agents as it shall deem appropriate for the proper administration of the Agencies Stock Purchase Plan; and
o Make all other determinations deemed necessary or advisable for the administration of the Agencies Stock Purchase Plan.
Eligibility
• Each independent insurance agency that is under contract with any of the insurance subsidiaries of Selective to promote and sell Selective’s subsidiaries’ insurance products (approximately 750 agencies), other than such agencies that promote and sell only Selective’s subsidiaries’ flood insurance products (each, an “Eligible Agency”).
• “Eligible Persons” designated by an Eligible Agency, including principals, general partners, officers, and stockholders of an Eligible Agency (“Principals”); key employees of an Eligible Agency (“Key Employees”); and individual retirement plans of Principals and Key Employees, Keogh plans of Principals and Key Employees, and employee benefit plans of an Eligible Agency.
Page 30
Purchases
• The Agencies Stock Purchase Plan allows each Eligible Agency and those Eligible Persons designated by the Eligible Agency to purchase shares of the common stock of Selective, par value $2.00 per share (“Common Stock”), at a 10% discount from fair market value (closing selling price for the Common Stock reported on the NASDAQ on the applicable purchase date).
• Under the Agencies Stock Purchase Plan, each Eligible Agency, together with its designated Eligible Persons, may invest up to the applicable Maximum Contribution Amount (as described below) per calendar quarter on certain purchase dates, based upon the amount of Written Premiums (as defined below) by such Eligible Agency during the previous calendar year with one or more of Selective’s insurance subsidiaries, as follows:
Written Premiums
Maximum Contribution Amounts
Less than $2,000,000
$30,000
$2,000,000 or more but
less than $5,000,000
$50,000
$5,000,000 or more
$75,000
• “Written Premiums” include all written premiums, less cancellations and returns, recorded by Selective and its insurance subsidiaries, but do not include:
o Premiums for policies written through pools, associations, or syndicates;
o Premiums for insurance written in any reinsurance facility, joint underwriting association, or other insurance program required by law;
o Policyholder dividends, expense fees, surcharges, and other like charges;
o Premiums from any accident and health, systems breakdown, and flood policies;
o Premiums for alternative market business, including, but not limited to, retrospectively rated policies and assumed business; and
o Premiums for policies, coverages, or plans that the Salary and Employee Benefits Committee may exclude from the Agencies Stock Purchase Plan.
• There is a $100 minimum for purchases by a participant in the Agencies Stock Purchase Plan per calendar quarter. If a participant does not purchase $100 per a calendar quarter, any amounts below such minimum will be refunded to the participant.
• An Eligible Agency or Eligible Person may elect to apply all or a portion of its earned cash commissions (as defined in the Agencies Stock Purchase Plan) and its distributions from Selective’s profit sharing commitment to the purchase of shares of Common Stock under the Agencies Stock Purchase Plan.
• Participants pay no brokerage commissions or administrative or other charges for purchases of shares of Common Stock under the Agencies Stock Purchase Plan.
Restrictions on Shares
• Shares of Common Stock purchased under the Agencies Stock Purchase Plan shall be restricted for a period of one year beginning on the purchase date and expiring upon the first anniversary of the purchase date. During this restricted period, the participant may not sell, transfer, pledge, assign, or dispose of his or her shares of Common Stock in any way.
Shares Reserved for Issuance
• The maximum number of shares of Common Stock reserved for issuance is 1,500,000 (one million five hundred thousand), with adjustments based on stock splits, dividends, recapitalizations or other changes or transactions. The shares may be authorized but unissued Common Stock or authorized and issued Common Stock held in Selective’s treasury.
• Included in the 1,500,000shares (subject to adjustment) that may be delivered under the Agencies Stock Purchase Plan are 537,526 shares previously reserved under the Original Independent Agents Plan would be available for delivery under the Agencies Stock Purchase Plan.
Non-Transferability of Rights
• Rights under the Agencies Stock Purchase Plan are not transferable other than by will or the laws of descent and distribution and are exercisable during the Participant’s lifetime only by the Participant.
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Amendment or Termination
• The Board or the Salary and Employee Benefits Committee may amend, revise, suspend, or terminate the Agencies Stock Purchase Plan at any time and in any respect whatsoever; provided, however, that stockholder approval shall be required for any such amendment if and to the extent such approval is required in order to comply with applicable law or any stock exchange listing requirement.
Federal Income Tax Consequences of the Agencies Stock Purchase Plan
• The following discussion summarizes certain United States federal income tax consequences of the purchase of stock under the Agencies Stock Purchase Plan. The summary does not purport to cover federal employment tax or other federal tax consequences, or state, local, or foreign tax consequences that may be associated with the Agencies Stock Purchase Plan. Further, the summary is based on the law as in effect on the date of this proxy statement.
o A participant does not realize taxable income when such participant’s participation in the plan begins (i.e., the first day of the enrollment period in the plan). However, a participant will, at the time shares are purchased, recognize as ordinary income (determined without reduction for brokerage fees or other costs paid in connection with the disposition) an amount equal to the excess of the fair market value of the shares on the date of purchase over the purchase price.
o When a participant disposes of shares acquired through the plan, he or she will recognize either a capital gain or loss, depending upon whether the shares or disposed of for more or less than the fair market value of the shares on the date of purchase. Special rules apply in the case of death.
o Capital gain is short-term if the shares have been held one year or less, and long-term if held more than one year. The holding period for a share acquired under the plan begins on the purchase date.
NEW PLAN BENEFITS
There have been no awards granted under the Agencies Stock Purchase Plan to date. Selective cannot determine at this time the benefits that will be received by the Eligible Agencies and
Employee Benefits Committee. REPORT OF THE SELECTIVE INSURANCE GROUP, INC. AUDIT COMMITTEEEligible Persons if the Agencies Stock Purchase Plan is approved by stockholders because Selective cannot predict how many shares of Common Stock each Eligible Agency and Eligible Person will choose to purchase under the Agencies Stock Purchase Plan.Page 32
INFORMATION ABOUT PROPOSAL 3
Ratification of Appointment ofIndependent Public Accountants
The Audit Committee has appointed KPMG LLP to act as Selective’s independent public accountants for the fiscal year ending December 31, 2006. The Board of Directors has approved the appointment and has directed that such appointment be submitted to Selective’s stockholders for ratification at the Annual Meeting.
Stockholder ratification of the appointment of KPMG LLP as Selective’s independent public accountants is
composednot required. The Board offive independent directorsDirectors, however, is submitting the appointment to the stockholders for ratification as a matter of good corporate practice. If the stockholders do not ratify the appointment, the Audit Committee andacts under a written charter approved bythe Board ofDirectors. The membersDirectors will reconsider whether or not to retain KPMG LLP or another firm. Even if the appointment is ratified, the Board of Directors, in its discretion, may direct theAudit Committeeappointment of a different auditing firm at any time during the 2006 fiscal year if the Board determines that such a change would be in the best interests of Selective and its stockholders.Representatives of KPMG LLP are
Messrs. Bauer, Dolan, Rockartexpected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire andThebault,will be available to respond to appropriate questions. In 2005, Selective paid KPMG LLP $1,212,800 for audit andMs. Lamm-Tennant (Chairperson), each of whom is independent as definedaudit-related services. No non-audit services were provided bythe National Association of Securities Dealers, Inc. listing standards.KPMG LLP to Selective in 2005.AUDIT COMMITTEE REPORT
The Audit Committee oversees
the Company'sSelective’s financial reporting processand internal controlson behalf of the Board of Directors.The Audit Committee supervises the relationship between the Company and its independent auditors, including making decisions with respect to their appointment, retention or removal, reviewing the scope of their audit services, approving significant non-audit services, and confirming the independence of the independent auditors.Management has the primary responsibility for overseeing preparation of theCompany'sfinancial statements and thefinancialoverall reporting process, including thesystemsystems of internal controls.The independent auditors are responsible for performing an independent audit of the Company's consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and issuing a report thereon.In fulfilling its oversight responsibilities, the Audit Committee has periodically met with and held discussions with management regarding theindependent auditorsquality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments andappropriate Companythe clarity of disclosures in Selective’s financialpersonnel.statements. The Audit Committee reviewed theCompany's consolidatedaudited financial statements for the year ended December 31,2002, and2005, included in thereport of the independent auditorsAnnual Report withrespect to such financial statements and has discussed them with management and the independent auditors.management. Management represented to the Audit Committee that (i) the financial statements were prepared in accordance with accounting principles generally accepted in the United States ofAmerica. Management further represented to the Committee that they haveAmerica, and (ii) management had reviewedthe Company'sSelective’s disclosure controls andprocedureprocedures andthat managementbelieves those controls are effective.The Audit Committee
discussedreviewed with KPMG LLP, Selective’s independent public accountants who are responsible for expressing an opinion on theindependent auditorsconformity of those audited financial statements with accounting principles generally accepted in the United States of America, their judgments as to the quality, not just the acceptability, of Selective’s accounting principles and such other matters as are required to be discussedbywith the Audit Committee under generally accepted auditing standards, including the Statement on Auditing Standards No. 61,(Communication with Audit Committees).as may be modified or supplemented. In addition, the Audit Committee hasalso received and reviewed the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and havediscussed with the independent auditorstheir independence. 17Basedthe auditors’ independence from management and Selective, including the matters in the written disclosures delivered to the Audit Committee and required by the Independence Standards Board in Standard No. 1 (Independence Discussion with Audit Committee), as may be modified or supplemented.Page 33
In reliance on the
review,reviews and discussionsand representationsreferred to above, the Audit Committee recommended to the Board of Directorsand(and the Boardhas approved, thatapproved) the inclusion of the auditedconsolidatedfinancial statementsbe includedin theCompany'sAnnual Report on Form 10-K for the year ended December 31,2002, as filed2005, for filing with theSecuritiesSEC. The Committee andExchange Commission.the Board have also recommended, subject to stockholder approval, the selection of KPMG LLP as Selective’s independent public accountants.Submitted by the Audit Committee of
the Company'sSelective’s Board ofDirectors: Joan M. Lamm-Tennant (Chairperson),DirectorsPaul D. Bauer,
William A. Dolan, II,ChairpersonJoan M. Lamm-Tennant
S. Griffin McClellan III
John F. Rockart
andJ. Brian
Thebault. AUDIT FEESThebaultThe
following table showsAudit Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Company filing under theaggregate fees billedSecurities Act of 1933, as amended, or the Exchange Act, except to theCompany forextent that Selective specifically incorporates theyear ended December 31, 2002,Audit Committee Report by reference therein.Fees of Independent Public Accountants
KPMG LLP, Selective’s independent public accountants, provided services in the
Company's independent auditors, KPMG LLP: Audit fees $440,000 Financial information systems designfollowing categories andimplementation fees none All other fees: Audit related fees $213,000(1) Other non-audit fees none ----------- Total all other fees $213,000 (1) Audit related fees consisted primarily of audits on the financial statements of the Company's insurance subsidiariesamounts in 2005 andemployee benefit plans, and the auditors' issuance of their consent in connection with the Company's Senior Convertible Note offering.2004:
Category
2005
2004
Audit Fees
$1,039,800
$1,263,850
Audit-Related Fees(1)
$173,000
$88,750
Tax Fees
$0
$0
All Other Fees
$0
$0
TOTAL
$1,212,800
$1,352,600
(1)
Audit-Related Fees for 2004 and 2005 consisted primarily of the independent actuarial review and reserve opinion related to the Audit. The Audit-Related Fees for 2005 also include audits of the employee benefit plans for 2004 and 2005.
The Audit Committee has
considered whethera Pre-Approval Policy that requires pre-approval of audit and audit-related services on an annual basis and authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted services. In 2005, the Audit Committee pre-approved all audit and audit-related services and concluded that KPMG LLP’s provision ofthesesuch servicesiswas compatible withmaintainingtheprincipal auditors' independence. 18COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS The following graph demonstrates a five-year comparisonmaintenance ofcumulative total returnsKPMG LLP’s independence in the conduct of its auditing functions. KPMG LLP provided no tax services or non-audit related services in 2005. Any such future services also would require Audit Committee pre-approval on an individual engagement basis.Page 34
STOCKHOLDER PROPOSALS AND NOMINATIONS
Proposals for
the Company, the Nasdaq Stock Market (U.S. companies), and the Fire, Marine and Casualty insurers (Nasdaq Market). [THE FOLLWING DATA IS REPRESENTED BY A CHART IN THE PRINTED MATERIAL] NASDAQ Stocks (S1C 6330- 6339 US Companies) Selective Nasdaq Stock Fire, Marine, Insurance Market (US and Casualty Date Group, Inc. Companies) Insurance 12/31/1997 100.000 100.000 100.000 01/30/1998 96.296 103.169 97.265 02/27/1998 102.145 112.863 102.116 03/31/1998 100.051 117.037 102.521 04/30/1998 102.378 119.015 100.485 05/29/1998 98.701 112.403 96.898 06/30/1998 83.849 120.253 91.282 07/31/1998 72.505 118.845 87.394 08/31/1998 67.028 95.281 79.303 09/30/1998 72.094 108.499 78.427 10/30/1998 69.031 113.266 84.010 11/30/1998 71.622 124.779 85.649 12/31/1998 76.365 140.990 85.304 01/29/1999 69.250 161.453 78.199 02/26/1999 69.660 146.991 79.946 03/31/1999 67.390 158.091 79.544 04/30/1999 74.081 163.108 82.580 05/28/1999 72.710 158.531 86.513 06/30/1999 73.433 172.766 83.918 07/30/1999 76.081 169.642 79.469 08/31/1999 69.172 176.797 77.048 09/30/1999 73.298 177.013 70.424 10/29/1999 72.570 191.190 70.032 11/30/1999 68.537 214.363 65.141 12/31/1999 67.313 261.484 64.175 01/31/2000 58.991 251.857 59.997 02/29/2000 61.064 299.872 58.307 03/31/2000 67.492 293.743 70.029 04/28/2000 74.908 247.070 67.874 05/31/2000 73.508 217.289 67.979 06/30/2000 75.751 255.451 59.086 07/31/2000 73.508 241.592 64.876 08/31/2000 72.117 270.174 68.632 09/29/2000 71.866 235.087 68.448 10/31/2000 69.353 215.769 69.081 11/30/2000 81.517 166.241 72.868 12/29/2000 98.225 157.417 83.533 01/31/2001 89.364 176.478 74.249 02/28/2001 88.648 136.619 73.651 03/30/2001 94.698 117.482 77.035 04/30/2001 100.468 135.006 77.794 05/31/2001 102.545 134.812 82.464 06/29/2001 109.436 138.458 84.593 07/31/2001 108.698 129.664 85.751 08/31/2001 103.638 115.548 83.818 09/28/2001 96.253 96.077 84.389 10/31/2001 88.620 108.411 82.073 11/30/2001 96.433 123.846 85.197 12/31/2001 90.245 124.886 85.318 01/31/2002 86.840 123.939 85.758 02/28/2002 93.548 111.047 90.314 03/28/2002 111.655 118.330 94.249 04/30/2002 125.455 108.502 100.548 05/31/2002 113.831 103.716 97.102 06/28/2002 119.085 94.321 98.528 07/31/2002 107.273 85.709 90.763 08/30/2002 99.824 84.801 88.882 09/30/2002 91.914 75.674 82.665 10/31/2002 94.748 86.008 87.244 11/29/2002 109.357 95.598 89.363 12/31/2002 107.144 86.327 87.387
GRSP Total Returns Index for: 12/1997 12/1998 12/1999 12/2000 12/2001 12/2002 - ----------------------------- ------- ------- ------- ------- ------- -------Selective Insurance Group, Inc. 100.0 76.4 67.3 98.2 90.2 107.1 Nasdaq Stock Market (US Companies) 100.0 141.0 261.5 157.4 124.9 86.3 NASDAQ Stocks (SIC 6330-6339 US Companies) 100.0 85.3 64.2 83.5 85.3 87.4 Fire, Marine, and Casualty InsurnaceNotes: A. The lines represent monthly index levels derived from compounded daily returnsInclusion in 2007 ProxyFrom time to time, stockholders present proposals that
include all dividends. B. The indexes are reweighted daily, using the market capitalization on the previous trading day. C. If the monthly interval, based on the fiscal year--end, is not a tading day, the preceding trading day is used. D. The index level for all series was set to $100.0 on 12/31/1997. 1. The graph was prepared by the Center for Research in Security Prices ("CRSP"). The NASDAQ Stock Market index includes all U.S. Companies in NASDAQ and the published industry index includes 68 NASDAQ Company stocks in SIC Major Group 633 (SIC 6330-6339 U.S. fire, marine and casualty insurance). A complete list of these companiesmay beobtained from CRSP at the University of Chicago Graduate School of Business, 725 South Wells Street, Suite 800, Chicago, Illinois, 60637; (773) 834-4606. CRSP reweighs the indices daily, using the market capitalization on the previous trading day. 19II. SHAREHOLDER PROPOSAL (Item 2 on Proxy Card) We received a notice from John L. Soldoveri that he intends to present a proposal at the Annual Meeting. Mr. Soldoveri's address and stock ownership will be furnished by the Company's Corporate Secretary to any stockholder, either orally or in writing as requested, promptly upon receipt of any oral or written request therefore. The proposal is as follows: WHEREAS, earnings per share and returns on equity were significantly lower during 2000 and 2001 than during the prior five years; and WHEREAS, 2001 compensation of senior executive officers increased substantially over 2000, and the CEO realized significant benefits from exercising stock options and selling Company stock during 2001 and 2002; RESOLVED to recommend that until the Company achieves at least a 12% average return on equity for two successive years, the Board of Directors not approve compensation increases (other than CPI-based cost-of-living increases) above 2000 levels to senior executive officers or directors; and FURTHER RESOLVED to recommend that the Board not award stock, stock options or similar compensation to senior executive officers or directors unless such compensation is performance-based, conditioned upon the Company's achieving at least a 12% average return on equity for two successive years; and FURTHER RESOLVED to recommend that the Board enter into understandings with senior executive officers and directors not to exercise stock options or to sell or otherwise dispose of stock until the Company achieves at least a 12% average return on equity for two successive years. Statement in Support of Proposal 2000 and 2001 diluted earnings per share were $1.01 and $0.98, respectively, compared to $1.90 average diluted earnings per share for the prior five years. Average returns on equity during 2002 and 2001 were 4.6% and 4.4%, respectively, compared to 11.5% for the prior five years. Notwithstanding these decreases: o During 2001 the Company increased the Chief Executive Officer's cash compensation to $610,231, a 29.5% increase over 2000. o During 2001 the Company awarded the CEO restricted stock worth $567,188, 147% higher than the value of his 2000 stock awards. o During 2001 the Company granted the CEO options on 15,000 shares, 50% higher than options granted in 2000. o During 2001 the CEO exercised options to buy 11,780 shares, realizing $167,070 profit. o During February 2002 the Company awarded 10,000 shares to the CEO, who sold 7,192 shares, realizing $147,148. o During May 2002 the CEO exercised options to buy 23,100 shares. He immediately resold such shares at $29.00 per share, realizing $324,500 profit. o During June 2002 the CEO exercised options to buy 15,574 shares. He immediately resold such shares at $26.50 per share, realizing $127,000 profit. o During September 2002 the CEO exercised options to buy 12,256 shares. He immediately resold 8,194 shares at $24.40 per share, retaining 4,062 shares having a $97,500 value. o During 2001 the Company significantly increased the direct and indirect compensation of other senior executive officers above 2000 levels. The 2001 Annual Report states that management established a goal of 12% for average return on equity. Senior management's compensation should be directly linked to overall Company financial performance, including achieving that highly important stated return on equity goal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE SHAREHOLDER PROPOSAL FOR THE FOLLOWING REASONS: The Board believes that if it were to implement the recommendations contained in the proposal, Selective's ability to attract and retain qualified management would be significantly impaired. The Board believes that its compensation policies already link overall compensation to both the financial goals of Selective and long-term stock appreciation, and that restricting the compensation paid to executives to levels paid in the year 2000 and restricting the Board's ability to grant stock options would place Selective at a significant competitive disadvantage in attracting and retaining the executive talent necessary for Selective's ongoing success. The Board of Directors believes that this proposal recommending certain actions by the Board is not in the best interests of Selective or its stockholders and recommends that stockholders vote "AGAINST" the proposal. 20As stated above in the Report of the Selective Insurance Group, Inc. Salary and Employee Benefits Committee (the "Report"), Selective's executive compensation policies are intended to attract and retain qualified executives and to compensate them in direct relationship to their accomplishments and levels of responsibility. The levels of annual total compensation for executive officers are generally intended to be comparable to the levels of annual total compensation paid to executives with comparable responsibilities in a group of other companies in the insurance industry, while providing for annual and long-term incentives which are subject to the achievement of performance-related goals. The comparison group of companies are identified by Selective as being similar in size and scope to Selective using external surveys. After determining the levels of compensation for each executive officer as compared with his or her counterparts in the identified insurance industry group, the Salary and Employee Benefits Committee weighs each executive officer's performance and level of responsibility and considers the executive officer's contributions to the achievement of financial and other goals of Selective. Selective's criteria for determining executive compensation is described in more detail in the Report beginning on page 15 in this proxy statement. The Board believes its compensation policies align the interests of executive officers, directors and stockholders and, in fact, encourage executive officers and directors to focus on long-term performance. The Board believes the executives and directors are focused on long-term performance, as Selective's combined ratio has outperformed the property and casualty insurance industry's combined ratio as published by A.M. Best, a leading insurance rating agency, for each year in 14 out of the last 15 years and, in addition, has outperformed the average of the industry combined ratios over the last 15 years by 3.4 points. In addition, the annual average total return of Selective common stock has outperformed the Standard & Poors 500 Stock Index and the Standard & Poors Property and Casualty Index for the ten year period ended December 31, 2002. Restricted stock grants made to executive officers generally vest after four years from the date of grant, subject to the achievement of predetermined performance goals. Stock options are granted at exercise prices equal to the fair market value of a share of Common Stock at the date of grant. Therefore, the value of the options increase only if the value of the Common Stock increases. Consequently, total executive compensation is linked to the achievement of performance goals and appreciation in Selective's stock price thereby aligning the interests of management with your interests as stockholders. FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE SHAREHOLDER PROPOSAL INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS William M. Rue, a director of the Company, is President and owner of more than a 5% equity interest in Chas. E. Rue & Sons, Inc., a general insurance agency, which received $1,316,514 in commissions during 2002 for insurance policies placed with the Company's subsidiaries. During 2002, the Company's insurance subsidiaries purchased insurance coverages with premiums of $1,081,053 through the agency. Chas. Rue & Sons, Inc. owns 20% of PL, LLC, which is an insurance fund administrator that places reinsurance through a subsidiary of the Company. In 2002, $427,489 in reinsurance commissions were paid to PL, LLC. The foregoing relationship has existed during the past fiscal year, and the Company intends to continue its relationship with Chas. E. Rue & Sons, Inc. On December 16, 1994, Messrs. Murphy and Ochiltree, each of whom is an executive officer of the Company, incurred certain indebtedness to the Company in connection with their respective exercises of nonqualified stock options granted on such date under the Company's Stock Option Plan II. Such loans were made by the Company to such officers and certain other employees in order to encourage such employees to exercise their options and thus to align further their interests with those of the stockholders through greater stock ownership. The principal amounts of such loans to Messrs. Murphy and Ochiltree were $105,395 and $197,000, respectively. These loans bear no interest and are due in 2005. Principal amounts outstanding as of February 20, 2003 were $38,993 and $72,890, for Messrs. Murphy and Ochiltree, respectively. On August 7, 1998, Messrs. Murphy, Coleman and Ochiltree incurred certain indebtedness to the Company in connection with the purchase of the Company's Common Stock on the open market. Loans were made by the Company to senior management and certain other officers in order to encourage greater ownership of Common Stock. The principal amounts of such loans to Messrs. Murphy, Coleman and Ochiltree were $162,495, $83,196 and $98,799, respectively. These loans bear an annual interest rate of 2.5% and are due in 2009. Principal amounts outstanding as of February 20, 2003 were $105,621, $54,077 and $64,219 for Messrs. Murphy, Coleman and Ochiltree, respectively. 21STOCKHOLDER PROPOSALS Any stockholder desiring to submit a proposalproper subjects for inclusion in theProxy Statement relatingproxy statement and for consideration at an annual meeting. Under the rules of the SEC (Rule 14a-8 under the Exchange Act), stockholder proposals to be included in the2004proxy statement for the 2007 Annual Meetingof Stockholdersto be held on or aboutMay 5, 2004 must submit the proposal in writing and itApril 26, 2007, must be receivedat the Company's headquarters at Branchville, New Jersey 07890, Attention: Corporate Secretary, on or before December 5, 2003, for determination of eligibility in accordance with the rules and regulations of the Securities and Exchange Commission. Under the Company's By-Laws, if a stockholder wishes to bring a matter before the meeting or if a stockholder wants to nominate a person for election to our board of directors, the stockholder must follow the procedures outlined in Section 3B of the Company's By-Laws. A copy of the By-Laws, which covers those matters, is available without charge to stockholders of record upon written request to theby Selective’s Corporate Secretary at 40 Wantage Avenue, Branchville, NJ07890. These procedures are separate from the Securities07890 no later than November 28, 2006.Other Proposals and
Exchange Commission's requirementsNominationsA stockholder who otherwise intends to present business at Selective’s 2007 Annual Meeting must comply with Selective’s By-laws, which state, among other things, that to properly bring business before an annual meeting, a stockholder must
meetdeliver notice to the Secretary of Selective inorderproper written form not less than ninety (90) days nor more than one hundred twenty (120) days prior tohavethe first anniversary of the preceding year’s Annual Meeting. Thus, a notice of a stockholder proposalincluded in our proxy statement. Onefor the 2007 Annual Meeting, submitted other than pursuant to Rule 14a-8 of theprocedural requirements in the By-Laws is timely notice in writing of the business the stockholder proposes to bring before the meeting and/or the nomination the stockholder proposes to make at the meeting. Notice of business proposed toExchange Act, will bebrought before the 2004 annual meeting and/or director nominations proposed to be made at the 2004 annual meeting must beuntimely if received by the Secretary before December 27, 2006 or after January 26, 2007.Under Section 3B of Selective’s By-laws, stockholders may (i) present proposals that are proper subjects for consideration at an annual meeting, which proposals are not submitted for inclusion in the proxy statement for such annual meeting pursuant to Rule 14a-8 of the Exchange Act, or (ii) nominate a person for election to our Board of Directors at the annual meeting. On written request to Selective’s Corporate Secretary
no earlier than January 8, 2004at 40 Wantage Avenue, Branchville, NJ 07890, stockholders of record may receive a free copy of Selective’s By-laws. Procedures in the By-laws are separate andno later than February 7, 2004. The notice for businessdistinct from those required by the SEC.Selective’s By-laws require that the stockholder
proposes to bring beforeprovide themeeting must be a proper matter for stockholder action and must describe: ofollowing information in writing regarding any proposal:the business proposed to be brought before the annual meeting;
othe reasons for conducting the business at the annual meeting;
oany material interest of the stockholder in the business;
othe beneficial owner, if any, on whose behalf the proposal is made;
othe name and address of the stockholder giving the notice, as they appear on our books, and of the beneficial owner of those shares; and
othe class and number of shares which are owned beneficially and of record by the stockholder and the beneficial owner.
The notice for a nominationSelective’s By-laws require that the stockholder
proposes to make atprovide themeeting must describe: ofollowing information in writing regarding any nomination for director:all information relating to each person whom the stockholder proposes to nominate for election as a director as would be required to be disclosed in a solicitation of proxies for the election of such person as a director pursuant to Regulation 14A under the
SecuritiesExchange Actof 1934, as amended(including suchperson'sperson’s written consent to being named in the proxy statement as a nominee and to serving as a director if so elected);othe name and address of the stockholder giving the notice, as they appear on our books, and of the beneficial owner of those shares; and
othe class and number of shares which are owned beneficially and of record by the stockholder and the beneficial owner.
FINANCIAL STATEMENTS AND OTHER INFORMATION Consolidated financial statements for the Company and its subsidiaries and the report thereon of KPMG LLP are included in the 2002 Annual Report to Stockholders. A copy of the Company's Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission, excluding exhibits, will be provided without charge to stockholders upon written requestPage 35
STOCKHOLDER COMMUNICATION WITH THE BOARD
Stockholders so desiring may send communications to the
Executive Vice President and Chief Financial Officer,Board of Directors or individual directors by writing to Selective’s Corporate Secretary, Selective Insurance Group, Inc., 40 Wantage Avenue, Branchville, NJ 07890 or by e-mail to corporate.governance@selective.com. The Board has instructed the Corporate Secretary to use discretion in forwarding unsolicited advertisements, invitations to conferences, or other promotional material.* * * * * * * *
It is important that your shares be represented at the meeting, regardless of the number of shares that you hold. YOU ARE THEREFORE URGED TO PROMPTLY VOTE YOUR SHARES BY (1) CALLING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD; (2) ACCESSING THE INTERNET WEBSITE LISTED ON THE PROXY CARD; OR (3) COMPLETING, DATING, AND SIGNING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED ENVELOPE. Stockholders who are present at the meeting may revoke their proxies and vote in person or, if they prefer, may abstain from voting in person and allow their proxies to be voted.
By Order of the Board of Directors:
Michael H. Lanza
Senior Vice President, General Counsel
and Corporate Secretary
March 28, 2006
Branchville, New Jersey
DOCUMENTS INCORPORATED BY REFERENCE
Information regarding Executive Officers is incorporated by reference to Selective’s Annual Report on Form 10-K in the item in Part I captioned “Executive Officers of the Registrant.”
Page 36
APPENDIX A
SELECTIVE INSURANCE GROUP, INC.
STOCK PURCHASE PLAN FOR INDEPENDENT INSURANCE AGENCIES
(Effective July 1, 2006)
1.
PURPOSE; GENERAL
The purpose of the Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies (the “Plan”) is to motivate independent insurance agencies that sell products and services for the insurance company subsidiaries of Selective Insurance Group, Inc., a New Jersey
07890.corporation (the “Company”), by enabling them to participate in the Company’s long-term growth and success and to help align their success with those interests of the Company’s stockholders.The
Form 10-K providedPlan allows each Eligible Agency (as defined in Section 2(a) below) and those eligible Principals, Key Employees and Benefit Plans (each as defined in Section 2(a) below, and collectively referred tostockholdersas the “Eligible Persons”) designated by the Eligible Agency to purchase shares of the common stock of the Company, par value $2.00 per share (“Common Stock”) at a discount as described below. An Eligible Agency or Eligible Person may elect to apply all or a portion of its Earned Cash Commissions (as defined in Section 2(c) below) and its distributions from the Company’s profit sharing commitment (the “Profit Sharing Plan”) to the purchase of shares of Common Stock under the Plan.Each Eligible Agency, together with its designated Eligible Persons (each such Eligible Agency and its designated Eligible Persons a “Participant”), may invest up to the applicable Maximum Contribution Amount (as described in the chart below) per calendar quarter under the Plan on certain Purchase Dates (as defined in Section 2(c) below), based upon the amount of total Written Premiums (as defined below) by such Eligible Agency during the previous calendar year with one or more of Selective’s insurance subsidiaries, as follows:
Written Premiums
Maximum Contribution
AmountsLess than $2,000,000
$30,000
$2,000,000 or more but less than $5,000,000
$50,000
$5,000,000 or more
$75,000
“Written Premiums” include all written premiums, less cancellations and returns, recorded by the Company and its insurance subsidiaries, but do not include:
1.
Premiums for policies written through pools, associations, or syndicates;
2.
Premiums for insurance written in any reinsurance facility, joint underwriting association, or other insurance program required by law;
3.
Policyholder dividends, expense fees, surcharges, and other like charges;
4.
Premiums from any accident and health, systems breakdown, and flood policies;
5.
Premiums for alternative market business, including, but not limited to, retrospectively rated policies and assumed business; and
6.
Premiums for policies, coverages, or plans that the Committee (as defined in Section 6 hereof) may exclude from this Plan.
There is a $100 (one hundred dollar) minimum for purchases under the Plan by a Participant per calendar quarter. If a Participant does not purchase $100 (one hundred dollars) per a calendar quarter, any amounts below such minimum will
includebe refunded, without interest, to such Participant by check as soon as practicable after the end of the quarter. The Company offers shares of Common Stock under the Plan at a 10% discount from Fair Market Value (as defined below) on the Purchase Date and Participants pay no brokerage commissions or other charges on purchases of such shares under the Plan. Fair Market Value is defined as the closing selling price for the Common Stock reported on the NASDAQ National Market on the applicable Purchase Date.
2.
PARTICIPATION IN THE PLAN
(a)
Eligibility
Each eligible independent insurance agency that is under contract with any of the insurance subsidiaries of the Company to promote and sell Company’s subsidiaries’ insurance products, other than such agencies that promote and sell only the Company’s subsidiaries’ flood insurance products (each, an “Eligible Agency”) is eligible to participate in the Plan and to purchase shares of Common Stock under the Plan. Also eligible to purchase shares under the Plan in conjunction with an Eligible Agency are the following Eligible Persons:
•
principals, general partners, officers, and stockholders of, and designated by, an Eligible Agency (collectively, “Principals”);
•
key employees of an Eligible Agency designated by such Eligible Agency (“Key Employees”); and
•
individual retirement plans of Principals and Key Employees, Keogh plans of Principals and Key Employees, and employee benefit plans of, and designated by, an Eligible Agency (collectively, the “Benefit Plans”).
No later than July 1, or the next business day following such day, of each year, each Eligible Agency shall provide to the Company, at the address contained in Section 2(c) hereof or by e-mail to agentstockplan@selective.com, a list of
exhibitsall Eligible Persons designated by such Eligible Agency as of such date for the next succeeding year. The Eligible Agency shall notify the Company of any deletions from such list no later the next Contribution Date (as defined in Section 2(c) hereof). Eligible Agencies may not add any Principals, Key Employees, or Benefit Plans to theForm 10-K. Exhibitslist of Eligible Persons designated by such Eligible Agency until July 1 of the next succeeding year. The Committee or its designee shall, in its sole discretion, determine whether any Eligible Agency, or Eligible Person designated by an Eligible Agency, is ineligible to be a Participant in the Plan.Eligible Agencies and Eligible Persons are under no obligation to participate in the Plan or to purchase shares of Common Stock under the Plan. If an Eligible Agency and/or its Eligible Persons choose not to participate in the Plan, the Eligible Agency and/or its Eligible Persons, as applicable, shall receive the Earned Cash Commissions (as defined in Section 2(c) below) and the distributions from the Profit Sharing Plan to which they are entitled. The Plan is for the benefit only of the Participants. No other persons shall be direct or indirect beneficiaries or participants in the Plan. The Company shall not be obligated with respect to the Plan under any other arrangements between an Eligible Agency and any other person, including, but not limited to, the Eligible Agency’s Principals, Key Employees, and Benefit Plans.
(b)
Enrollment in the Plan
The Company shall send to each Eligible Agency:
a copy of the Plan;
an enrollment/purchase form;
a copy of a prospectus and any prospectus supplements; and
a copy of the most recent Annual Report of the Company.
If an Eligible Person wishes to participate in the Plan, the Eligible Agency and each participating Eligible Person must complete and sign the enrollment/purchase form and return the form to the Company at the address contained in Section 2(c) hereof. Eligible Agencies may obtain additional forms by written or telephonic request to the Company, attention: “Accounts” at the address contained in Section 2(c) hereof or by calling (973) 948-3000.
An Eligible Person shall become a Participant in the Plan only (i) after the Eligible Agency affiliated with such Eligible Person has received a copy of the Plan, a prospectus, any applicable prospectus supplement or supplements, and the most recent Annual Report of the Company, (ii) after the Company has received a properly
completed enrollment/purchase form signed by such Eligible Agency and such Eligible Person, and (iii) if such Eligible Person has not been determined to be ineligible to become a Participant in the Plan by the Committee or its designee pursuant to Section 2(a) hereof. By returning a properly completed and signed form to the Company, the Eligible Agency and participating Eligible Person each acknowledge the receipt of the documents described in subsection (i) of the previous sentence.
(c)
Purchasing Shares of Common Stock
Shares may generally be purchased by Participants under the Plan on the first day of March, June, September, and December of each year or the next succeeding business day (each a “Purchase Date” and collectively, the “Purchase Dates”), however, the Company does not guarantee that such days will be
furnishedPurchase Dates and may designate other dates as Purchase Dates. The Company does not pay any interest on cash payments received under the Plan.Once each calendar quarter, and prior to a Contribution Date (as defined below), the Company shall provide enrollment/purchase forms to each Eligible Agency. Purchases shall be made under the Plan on the next applicable Purchase Date.
Each Participant shall designate the dollar amount to be invested (the “Contribution Amount”) on the next Purchase Date on the appropriate sections of the enrollment/purchase form. Each Participant shall designate (i) the amount, if any, of the Contribution Amount that is to be paid in cash by check, (ii) the percentage, if any, that is to be deducted from monthly payments of Earned Cash Commissions (as defined below) and applied to the Contribution Amount, and (iii) the percentage, if any, that is to be deducted from the Participant’s distributions under the Profit Sharing Plan and applied to the Contribution Amount. The Contribution Amount designations regarding the Earned Cash Commissions and Profit Sharing Plan shall remain in effect until revoked or modified in writing by such Participant, which revocation or modification will take effect for the next practicable Purchase Date. The Contribution Amount designation regarding cash shall only remain in effect for the next Purchase Date.
“Earned Cash Commissions” means those commissions that are fully earned and are due and payable to a participating Eligible Agency for personal and commercial direct bill policies after all offsetting debits and credits are applied, as determined by and solely from the records of the Company and its subsidiaries.
For each Participant, the enrollment/purchase form must include:
such Participant’s full name and address;
such Participant’s social security or taxpayer identification number; and
the amount of cash, if any, and percentages of Earned Cash Commissions and/or Profit Sharing Plan payments, if any, to be invested in shares of Common Stock for each Eligible Person for whom purchase instructions are submitted.
In addition, each Participant must sign their enrollment/purchase form and certify to the Company receipt of a copy of the Plan, any prospectus or supplements thereto, and a copy of the most recent Annual Report of the Company. The form must be signed by the applicable Eligible Agency and each affiliated Eligible Person listed on the form.
Completed and signed enrollment/purchase forms must be sent to the Company at:
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
Attention: Accounts
Properly completed forms and necessary payments must be received by the Company within 10 business days prior to the applicable Purchase Date (the “Contribution Date”). The Company will perform such necessary ministerial and clerical work regarding the forms as to effect the transaction and promptly forward
enrollment/purchase information to the Plan Agent (as defined in Section 2(d) hereof). If necessary payments are not received by the applicable Contribution Date, the purchase will not be effected and any payments received after the Contribution Date will be returned.
(d)
Purchased Shares and Participants’ Accounts
The Company shall record the ownership of the shares of Common Stock purchased through the Plan in book-entry form. When a Participant makes his or her first purchase of shares of Common Stock under the Plan, the Company shall establish an account for each such Participant with Wells Fargo Shareowner Services, the Company’s transfer agent and registrar (the “Plan Agent”). Each time a Participant purchases shares of Common Stock, the shares shall be credited to the Participant’s account and the Company shall record the shares on its Common Stock records. The Participant shall receive a written account statement following each purchase of shares. A Participant may vote all shares of Common Stock held in his or her account.
(e)
Restrictions on Shares Purchased under the Plan
Shares of Common Stock purchased under the Plan shall be restricted for a period of one year beginning on the Purchase Date and expiring upon the first anniversary of the Purchase Date (the “Restricted Period”). During the Restricted Period, the Participant may not sell, transfer, pledge, assign, or dispose of his or her shares of Common Stock in any way. During this period, the Plan Agent shall hold the Participant’s shares of Common Stock in the Participant’s account, but no share certificates shall be issued. However, a Participant shall be able to vote his or her shares of Common Stock during the Restricted Period and shall receive any dividends declared by the Board of Directors of the Company (the “Board”). The Participant shall own all of the shares in his or her account and none of the Participant’s shares of Common Stock shall be subject to forfeiture.
Following the expiration of the Restricted Period, the Participant’s shares of Common Stock shall remain in his or her account until the Participant requests, in writing to the Plan Agent, that the shares be transferred, that the shares be sold, that certificates be issued to the Participant, or that the Participant’s account be closed.
If an Eligible Agency closes its account, it may re-enroll in the Plan at any time it is eligible to participate by completing a new enrollment/purchase form. An Eligible Person may similarly re-enroll in the Plan, provided the Eligible Person is on the list of Eligible Persons designated by the Eligible Agency.
3.
SHARES AVAILABLE UNDER THE PLAN
The maximum number of shares of Common Stock reserved for issuance under the Plan shall be 1,500,000 (one million five hundred thousand) and subject to adjustment as provided herein. The Company may make the shares available from authorized but unissued shares of Common Stock or authorized and issued shares of Common Stock held in the Company’s treasury, including shares purchased by the Company in the open market.
In the event that the Board determines that any stock dividend or other distribution,
extraordinary cash dividend, stock split or reverse stock split, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants, rights offering to purchase shares of Common Stock at a price substantially below fair market value, or other similar corporate transaction or event affects the Common Stock so that an adjustment is required in order to preserve the benefits or potential benefits intended to be made available under the Plan, then the Board may, in its sole and absolute discretion, adjust any or all of the number and type of shares which may be available under the Plan.
4.
DIVIDENDS; DIVIDEND REINVESTMENT
The Company pays dividends, as and when declared by the Board, to the record holders of shares of Common Stock. As the record holder of shares of Common Stock purchased under the Plan, a Participant shall receive dividends, if any, in cash for all shares registered in the Participant’s name on the record date. Such payment shall be made on the date that such dividend would be paid to the Company’s stockholders generally.
Any dividend payable in Common Stock or any split shares distributed by the Company on shares purchased under the Plan shall be deposited in the Participant’s account with the Plan Agent. Any shares received as the result of a stock split shall be subject to the same restrictions on transfer as the shares purchased under the Plan. Shares received as dividends shall not be subjected to any transfer restrictions.
Participants in the Plan are also eligible to participate in the Company’s dividend reinvestment plan pursuant to the terms and conditions of that plan. If a Participant elects to participate in the Company’s dividend reinvestment plan, the Participant shall be entitled to reinvest his or her dividends to purchase additional shares of Common Stock. There is no discount on the purchase price of shares under the Company’s dividend reinvestment plan. The transfer restrictions applicable to shares purchased under the Plan shall not apply to any shares purchased under the Company’s dividend reinvestment plan. Wells Fargo Shareowner Services is the plan administrator of the Company’s dividend reinvestment plan. Information about the Company’s dividend reinvestment plan may be obtained from the Company or from Wells Fargo Shareowner Services.
5.
OTHER STOCKHOLDER RIGHTS; INFORMATION REPORTING
If the Company has a rights offering, Participants in the Plan shall be entitled to participate based upon their total share holdings. Rights on shares of Common Stock purchased under the Plan and registered in the name of a Participant shall be mailed directly to that Participant in the same manner as to stockholders
upon requestnot participating in the Plan.Each Participant in the Plan shall receive the Company’s annual and
upon paymentother periodic or quarterly reports issued to stockholders, notices ofreproductionstockholder meetings, proxy statements andmailing expenses. ACCOUNTANTSInternal Revenue Service information for reporting dividends paid and income resulting from the discount on the purchase of Common Stock under the Plan.Each Participant shall be entitled to vote the shares purchased under the Plan and registered in that Participant’s name on a record date for a meeting of stockholders. A Participant may vote in person or by proxy at any meeting of stockholders.
6.
ADMINISTRATION OF THE PLAN, INQUIRIES, AND CORRESPONDENCE
The Plan shall be administered by the Salary and Employee Benefits Committee of the Board (the “Committee”) or its designee. The Committee shall have the authority, in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to:
construe and interpret the Plan;
make adjustments in response to changes in applicable laws, regulations, or accounting principles, or for any other reason;
prescribe, amend, and rescind rules and regulations relating to the Plan and appoint such agents as it shall deem appropriate for the proper administration of the Plan, in accordance with Section 7 hereof; and
make all other determinations deemed necessary or advisable for the administration of the Plan.
Determinations of the Committee shall be final, conclusive, and binding on all persons, and the Committee will not be liable for any action or determination made in good faith with respect to the Plan.
The Committee shall engage the Plan Agent to perform custodial and record-keeping functions for the Plan, such as holding record title to the Participants’ shares, maintaining an individual investment account for each Participant, and providing periodic account status reports to each Participant.
All enrollment/purchase forms should be sent to the Company. All other inquiries and correspondence should be sent to:
Wells Fargo Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Telephone inquiries may be directed to the Company at (973) 948-3000 or to Wells Fargo Shareowner Services at (866) 877-6351.
The Company
has engagedpays all of its administrative expenses related to theservicesPlan. Plan Participants pay no brokers commissions or administrative or other charges for purchases ofKPMG LLP asCommon Stock under the Plan.
7.
AMENDMENT OR TERMINATION OF THE PLAN
Either the Board or the Committee may amend, revise, suspend, or terminate the Plan at any time and in any respect whatsoever; provided, however, that stockholder approval shall be required for any such amendment if and to the extent such approval is required in order to comply with applicable law or any stock exchange listing requirement.
8.
RIGHTS NOT TRANSFERABLE
Rights under the Plan are not transferable by a Participant other than by will or the laws of descent and distribution and are exercisable during the Participant’s lifetime only by the Participant.
9.
RIGHT TO CONTINUED EMPLOYMENT OR AGENCY STATUS
Nothing in the Plan or any enrollment/purchase form shall confer an obligation on the Company or any Eligible Agency to employ or continue the employment or service of any Participant for any specified period of time and shall not lessen, affect, or interfere with the Company’s or any Eligible Agency’s right to terminate the employment or service of any such Participant at any time or for any reason not prohibited by law.
10.
APPLICABLE OR GOVERNING LAW; SEVERABILITY
Except to the extent preempted by any applicable federal law, the Plan shall be construed and administered in accordance with the laws of the State of New Jersey without reference to its
principal independent accountants for 2003. The Company anticipates making no change in its selection and a representativeprinciples ofthat firmconflicts of law.If any provision of the Plan is
expectedheld to beavailableinvalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.Selective Insurance Group, Inc.
Directions to Principal Offices
40 Wantage Avenue
Branchville, NJ 07890-1000
From East:
Route I-80 West to Route 15 North to Route 206 North. Go about 2 miles from Route 15/Route 206 intersection, turn right at
the Annual Meetingtraffic light, then left on Route 630(Broad Street). Turn right at Post Office onto Wantage Avenue(Route 519). 1st entrance on right - Northeast Operations. 2nd entrance on right - Corporate office/ main reception area.From West:
Route I-80 East to Route 94 North to Route 206 North. Right at Branchville traffic light opposite "Our Lady Queen of
StockholdersPeace" Catholic church, then left on Route 630(Broad Street). Right at Post Office onto Wantage Avenue(Route 519), 1st entrance on right - Northeast Operations. 2nd entrance on right - Corporate office/ main reception area.- or -
Route I-78 East to
respondPa. Route 611 North toappropriate questions andRoute 94 North tomake a statement if such representative so desires.PROXYRoute 206 North. Right at Branchville traffic light opposite "Our Lady Queen of Peace" Catholic church, then left on Route 630(Broad Street). Right at Post Office onto Wantage Avenue(Route 519), 1st entrance on right - Northeast Operations. 2nd entrance on right - Corporate office/ main reception area.- or -
Route I-78 East to Route 31 North to Route 46 West to Route 94 North to Route 206 North. Right at Branchville traffic light opposite "Our Lady Queen of Peace" Catholic church, then left on Route 630(Broad Street). Right at Post Office onto Wantage Avenue(Route 519), 1st entrance on right - Northeast Operations. 2nd entrance on right - Corporate office/ main reception area.
From North:
Route I-84 (East or West) to PA Route 209 South to NJ Route 206 South. Left at Branchville traffic light opposite "Our Lady Queen of Peace" Catholic church, then left on Route 630(Broad Street). Right at Post Office onto Wantage Avenue(Route 519), 1st entrance on right - Northeast Operations. 2nd entrance on right - Corporate office/ main reception area.
From South:
Route 206 North or Route I-80 West to Route 15 to Route 206 North. Right at Branchville traffic light opposite "Our Lady Queen of Peace" Catholic church, then left on Route 630(Broad Street). Right at Post Office onto Wantage Avenue(Route 519), 1st entrance on right - Northeast Operations. 2nd entrance on right - Corporate office/ main reception area.
SELECTIVE INSURANCE GROUP, INC.
Proxy Solicited on Behalf ofANNUAL MEETING OF STOCKHOLDERS
Wednesday, April 26, 2006
11:00 a.m.
40 Wantage Avenue
Branchville, New Jersey 07890
----------------------------------------------------------------------------------------------------
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890proxy
This proxy is solicited by the Board of Directors of Selective Insurance Group, Inc. for use at the Annual Meeting of Stockholders
May 7, 2003to be held on April 26, 2006.The undersigned, a stockholder of Selective Insurance Group, Inc. (the
"Company"“Company”) hereby constitutes and appointsC. Edward Herder,Paul D. Bauer and Joan M. Lamm-Tennantand William M. Rueand/or any oneor moreof them (with full power of substitution and the full power to act without theothers orother), proxies to vote all the shares of the Common Stock of Selective Insurance Group, Inc. registered in the name of the undersigned at the Annual Meeting of Stockholders of the Company to be held on Wednesday,May 7, 2003April 26, 2006 at 11:00 a.m. in the auditorium at the headquarters of the Company at 40 Wantage Avenue, Branchville, New Jersey, and at any adjournment thereof.Specify your choices by marking the appropriate box (SEE REVERSE SIDE), but you need not mark any box if you wish to vote in accordance with the Board of
Directors'Directors’ recommendations. The proxies cannot vote your shares unless you sign and return thisProxy,proxy, submit a proxy by telephone or through the Internet, or attend the meeting and vote by ballot.----------- SEE REVERSE SIDE ----------- - -------------------------------------------------------------------------------- FOLD AND DETACH HERE|X|Your vote is important. Please
markvote immediately.See reverse for voting instructions.
COMPANY #
There are three ways to vote your
9061 votes as in this example. This Proxy when properly executed will be voted in the manner directed herein. If no direction is made, thisproxywill be voted FOR the Election of Directors and AGAINST the Shareholder Proposal. - -------------------------------------------------------------------------------- The Board recommends a vote FOR item 1. - -------------------------------------------------------------------------------- 1. Election of FOR WITHHELD Nominees for Terms Expiring in 2006: Directors. |_| |_| 01. A. David Brown 02. William M. Kearns, Jr. 03. S. Griffin McClellan III 04. John F. Rockart, Ph.D. 05. J. Brian Thebault For, except vote withheld from the following nominee(s): - -------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Board recommends a vote AGAINST item 2. - -------------------------------------------------------------------------------- FOR AGAINST ABSTAIN 2. Shareholder Proposal. |_| |_| |_| - -------------------------------------------------------------------------------- 3. In their discretion upon such other matters as may properly come before the meeting. - -------------------------------------------------------------------------------- SIGNATURE(S) _________________________________________________ DATE ____________ NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. If signing as attorney, executor, administrator, trustee or guardian, please give full title as such. --------------------------------------- Please mark, sign, date and return this Proxy promptly using the enclosed envelope. --------------------------------------- - -------------------------------------------------------------------------------- FOLD AND DETACH HERE NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL Call TOLL-FREE using a Access the WEBSITE Return your proxy in the Touch Tone phone and cast your vote POSTAGE-PAID 1-877-PRX-VOTE http://www.eproxyvote.com/sigi envelope provided. 1-877-779-8683Your telephone or Internet vote
must be received by midnight eastern time on May 6, 2003authorizes the named proxies tobe countedvote your shares in thefinal tabulation.same manner as if you marked, signed and returned your proxy card.VOTE BY
TELEPHONE HavePHONE — TOLL FREE — 1-800-560-1965 — QUICK *** EASY *** IMMEDIATEUse any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week, until 12:00 noon (CT) on April 25, 2006.
Please have your proxy card
available when you calland theToll-Free number 1-877-779-8683 using a Touch-Tone phone. You will be prompted to enterlast four digits of yourvoter control number and then you can followSocial Security Number or Tax Identification Number available. Follow theprompts that will be presented to you to record your vote.simple instructions the voice provides you.VOTE BY INTERNET
Have— http://www.eproxy.com/sigi/ — QUICK *** EASY *** IMMEDIATEUse the Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00 noon (CT) on April 25, 2006.
Please have your proxy card
available when you accessand thewebsite http://www.eproxyvote.com/sigi. You will be promptedlast four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions toenterobtain yourvoter control numberrecords andthen you can follow the prompts that will be presented to you to record your vote.create an electronic ballot.VOTE BY MAIL
Please mark,Mark, sign and date your proxy card and return it in the
postage paidpostage-paid envelope we have provided or return itto:to Selective Insurance Group, Inc., c/oEquiServe Trust Company, N.A.Shareowner ServicesSM, P.O. Box8079, Edison NJ 08818-9353.64873, St. Paul, MN 55164-0873.TO CHANGE YOUR VOTE
You may revoke your proxy by giving proper written notice of revocation to the Corporate Secretary of the Company before your proxy is exercised. Any subsequent vote, by any means, will change your prior vote. For example, if you voted by telephone, a subsequent Internet vote will change your vote. The last vote received before
midnight eastern time, May 6, 200312:00 noon (CT), April 25, 2006, will be the one counted. You may also change your vote by voting in person at the Annual Meeting.If you vote by Phone or Internet, please do not mail your Proxy Card
— Please detach here —The Board of Directors Recommends a Vote FOR Items 1, 2 and 3.
1. Election of four (4)
Class II directors for
terms expiring in 2009:
01 A. David Brown
02 William M. Kearns, Jr.
03 S. Griffin McClellan III
04 J. Brian ThebaultElection of two (2)
Class III directors for
terms expiring in 2008:
05 John C. Burville
06 John F. RockartElection of one (1)
Class I director for a
term expiring in 2007:07 W. Marston Becker
o Vote FOR
all nominees
(except as marked)o Vote WITHHELD
from all nominees
(Instructions:To withhold authority to vote for any indicated nominee,write the number(s) of the nominee(s) in the box provided to the right.)
2.
Approve the Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies.
o
For
o
Against
o
Abstain
3.
Ratify the appointment of KPMG LLP as independent public accountants for the fiscal year ending December 31, 2006.
o
For
o
Against
o
Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box o Indicate changes below:
Date
Signature(s) in Box
Please sign exactly as your name(s) appears on the proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.