PAGE 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended ..........March 31, 1998............ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from.................to.................. Commission file number: 0-8641 SELECTIVE INSURANCE GROUP, INC. (Exact name of registrant as specified in its charter) New Jersey 22-2168890 - - --------------------------- ---------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 40 Wantage Avenue, Branchville, New Jersey 07890 ------------------------------------------ ----- (Address of principal executive offices) (Zip Code) 973-948-3000 ------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Common stock, par value $2 per share, outstanding as of April 30, 1998: 29,554,543 PAGE 2 PART I FINANCIAL INFORMATION ============================== Item 1. Financial Statements. - - ------------------------------ SELECTIVE INSURANCE GROUP, INC. ------------------------------- Consolidated Balance Sheets ------------------------------- (dollars in thousands) (unaudited) ASSETS March 31 December 31 - - ------ 1998 1997 Investments: ------------ ---------- Debt securities, held-to-maturity - at amortized cost (fair value of $423,641-1998; $426,251-1997)......... $ 409,165 410,169 Debt securities, available-for-sale - at fair value (amortized cost of $1,010,436-1998; $1,009,060-1997)..... 1,045,618 1,044,390 Equity securities, available-for-sale - at fair value (cost of $129,877-1998; $120,602-1997)......... 254,822 222,273 Short-term investments (at cost which approximates fair value) 16,105 28,781 Other investments - at fair value......... 20,665 20,077 --------- --------- Total investments ...................... 1,746,375 1,725,690 Cash....................................... 6,373 5,017 Interest and dividends due or accrued ..... 22,565 23,474 Premiums and other receivables............. 210,110 196,786 Reinsurance recoverable on paid losses and loss expenses..................... 9,781 11,088 Reinsurance recoverable on unpaid losses and loss expenses......................... 136,788 124,197 Prepaid reinsurance premiums............... 25,425 31,189 Deferred Federal income tax................ - 6,489 Real estate, furniture and equipment....... 47,092 45,465 Deferred policy acquisition costs.......... 103,500 98,110 Excess of cost over fair value of net assets acquired....................... 17,001 17,337 Other assets............................... 28,080 21,349 --------- --------- Total assets............................ $ 2,353,090 2,306,191 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - - ------------------------------------ Liabilities: - - ----------- Reserve for losses......................... $ 997,753 984,393 Reserve for loss expenses.................. 177,161 176,776 Unearned premiums.......................... 383,910 373,766 Convertible subordinated debentures........ 6,819 6,845 Short-term debt ........................... 15,500 17,400 Notes payable.............................. 89,714 89,714 Current Federal income tax................. 4,361 1,747 Deferred Federal income tax................ 2,321 - Other liabilities ......................... 80,823 90,234 --------- --------- Total liabilities....................... 1,758,362 1,740,875 --------- --------- Stockholders' Equity: - - -------------------- Common stock of $2 par value per share: Authorized shares-180,000,000 Issued: 36,655,379-1998; 36,363,856-1997 .. 73,311 72,728 Additional paid-in capital................. 35,618 30,450 Accumulated other comprehensive income - net unrealized gains on available-for-sale securities, net of deferred income tax effect............................ 104,083 89,051 Retained earnings.......................... 451,640 439,811 Treasury stock - at cost (shares: 7,115,075-1998; 7,097,462-1997) (60,245) (59,785) Deferred compensation expense and notes receivable from stock sales................ (9,679) (6,939) --------- --------- Total stockholders' equity ............. 594,728 565,316 --------- --------- Total liabilities and stockholders' equity $ 2,353,090 2,306,191 ========= ========= See accompanying notes to unaudited consolidated financial statements. PAGE 3 SELECTIVE INSURANCE GROUP, INC. ================================ Consolidated Statements of Income (unaudited) (in thousands, except per share data) Three months ended March 31 1998 1997 ------ ------ Revenues: - - -------- Net premiums written.................... $ 188,464 175,184 Net increase in unearned premiums and prepaid reinsurance premiums ...... (15,908) (4,603) ------- ------- Net premiums earned .................... 172,556 170,581 Net investment income earned............ 25,108 24,432 Net realized gains...................... 1,081 978 Other income............................ 2,191 1,175 ------- ------- Total revenues....................... 200,936 197,166 ------- ------- Expenses: - - -------- Losses incurred ........................ 104,206 99,541 Loss expenses incurred.................. 17,333 19,063 Policy acquisition costs................ 54,614 51,653 Dividends to policyholders.............. 1,014 1,205 Interest expense........................ 2,276 2,286 Other expenses.......................... 1,553 1,888 ------- ------- Total expenses....................... 180,996 175,636 ------- ------- Income before Federal income tax 19,940 21,530 ------- ------- Federal income tax expense: Current................................. 3,268 3,458 Deferred................................ 716 1,371 ------- ------- Total Federal income tax expense............................ 3,984 4,829 ------- ------- Net income.............................. $ 15,956 16,701 ======= ======= Earnings per share: - - ------------------ Basic................................ $ 0.55 0.58 Diluted ............................. $ 0.50 0.55 Dividends to stockholders............... $ 0.14 0.14 See accompanying notes to unaudited consolidated financial statements. PAGE 4 SELECTIVE INSURANCE GROUP, INC. Consolidated Statements of Cash Flows (unaudited) Quarter ended March 31 (in thousands) 1998 1997 ---- ---- Operating Activities - - -------------------- Net income ................................ $ 15,956 16,701 ------ ------ Adjustments to reconcile net income to net cash provided by operating activities: Decrease in interest and dividends due or accrued ................................. 909 1,318 Increase in premiums and other receivables. (13,324) (7,181) Decrease (increase) in reinsurance recoverable on paid losses and expenses ............. 1,307 (2,693) Increase (decrease)in reserves for losses and loss expenses, net of reinsurance recoverable on unpaid losses and loss expenses....... 1,154 (3,982) Increase in unearned premiums and prepaid reinsurance premiums..................... 15,908 4,603 Increase in net Federal income tax payable. 3,330 2,579 Increase in deferred policy acquisition costs (5,390) (2,450) Depreciation and amortization.............. 2,239 1,904 Net realized gains on investments ......... (1,081) (978) Other - net ............................... (17,664) (11,255) ------ ------ Net adjustments ........................... (12,612) (18,135) ------ ------ Net cash provided by (used in) operating activities..................... 3,344 (1,434) ------ ------ Investing Activities - - -------------------- Purchase of debt securities, held-to-maturity (12,682) (8,980) Purchase of debt securities, available-for-sale ...................... (32,913) (59,632) Purchase of equity securities, available-for-sale ...................... (11,056) (2,270) Sale of debt securities, available-for-sale 4,276 16,001 Redemption and maturities of debt securities, held-to-maturity ........................ 13,692 13,479 Redemption and maturities of debt securities, available-for-sale ...................... 27,536 5,173 Sale of equity securities, available-for-sale 2,784 2,257 Proceeds of other investments ............. 11 196 Increase in net payable from security transactions ............................ 904 2,810 Net additions to real estate, furniture and equipment ............................... (3,094) (814) ------ ------ Net cash used in investing activities ..... $ (10,542) (31,780) ------ ------ PAGE 5 Financing Activities - - -------------------- Dividends to stockholders ................. $ (4,127) (4,101) Acquisition of treasury stock ............. (460) (654) Principal (payment) proceeds from short-term debt ......................... (1,900) 35,000 Net proceeds from issuance of common stock. 5,726 5,567 Increase in deferred compensation expense and proceeds received on notes receivable from stock sales ............................. (3,361) (4,258) ------ ------ Net cash (used in) provided by financing activities .............................. (4,122) 31,554 ------ ------ Net decrease in short-term investments and cash (11,320) (1,660) Short-term investments and cash at beginning of year.................................. 33,798 40,022 ------ ------ Short-term investments and cash at end of period ............................... $ 22,478 38,362 ====== ====== Supplemental disclosures of cash flow information - - ------------------------------------------------- Cash paid during the period for: Interest .................................. $ 2,971 2,368 Federal income tax ........................ 654 2,250 Supplemental schedule of non-cash financing activity: - - ---------------------------------------------------- Conversion of convertible subordinated debentures .............................. 26 30 See accompanying notes to unaudited consolidated financial statements. PAGE 6 Notes to Unaudited Consolidated Financial Statements - - ---------------------------------------------------- 1. Basis of Presentation --------------------- The interim financial statements are unaudited but reflect all adjustments which, in the opinion of management, are necessary to provide a fair statement of the results of the Selective Insurance Group, Inc. and its consolidated subsidiaries (collectively, the "Company") for the interim periods presented. References herein to "Selective" are to Selective Insurance Group, Inc. All such adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended December 31, 1997. 2. Adoption of Accounting Policies ------------------------------- During the first quarter of 1998, the Company adopted the following accounting policies: (a) The American Institute of Certified Public Accountants issued Statement of Position No. 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal-Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal-use and when such costs incurred should and should not be capitalized. SOP 98-1 is effective for all fiscal years beginning after December 15, 1998. The provisions of SOP 98-1 should be applied to internal-use software costs incurred in those fiscal years for all projects, including those projects in progress upon initial application of the statement. Earlier application is encouraged in fiscal years for which annual financial statements have not been issued. (b) Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("FASB 130"), was adopted during the first quarter of 1998. FASB 130 requires the Company to report total comprehensive income in condensed financial statements of interim periods. The following is a presentation of the Company's total comprehensive income for the quarters ended March 31, 1998 and 1997. (in thousands) Quarter ended March 31 1998 1997 ---- ---- Net income $ 15,956 16,701 ------ ------ Other comprehensive income (loss), net of tax: Unrealized holding gains (losses) arising during period on available-for- sale securities, net of tax 15,735 (7,929) Less: reclassification adjustment for realized gains, net of tax, included in net income (703) (636) ------ ------ Other comprehensive income (loss), net of tax 15,032 (8,565) ------ ------ Total comprehensive income $ 30,988 8,136 ====== ====== PAGE 7 3. Reinsurance ----------- The following is a table of assumed and ceded amounts by income statement caption: Quarter ended March 31 (in thousands) 1998 1997 - - ------------------------------------------------------------------------- Net premiums written: Assumed $ 6,435 7,687 Ceded (14,663) (18,230) Net premiums earned: Assumed $ 5,474 5,795 Ceded (20,427) (20,526) Losses incurred: Assumed $ 4,826 3,121 Ceded (1) (15,968) (3,423) Loss expenses incurred: Assumed $ 480 489 Ceded (958) (384) (1) The increase in ceded losses incurred for the first quarter of 1998 mainly reflected flood claims, in 1998, which generated reinsurance loss recoveries in the first quarter of 1998 of $7 million. The flood business is ceded 100% to the National Flood Insurance Program and therefore, the Company is a servicer of this type of insurance and bears no risk of policyholder loss. 4. Lines of Credit --------------- At March 31, 1998 and March 31, 1997, there was $15.5 million and $35 million, respectively, of short-term debt outstanding under the two lines of credit that the Company has available; the weighted average interest rate on these borrowings was 5.9% and 5.5% for the respective periods. 5. Stock Split ----------- All per share data presented has been adjusted for the 2 for 1 split of Selective's common stock declared October 28, 1997 and effective December 1, 1997. In addition, all other amounts presented have been adjusted, where applicable, to reflect the 2 for 1 stock split. 6. Reclassifications ----------------- Certain amounts in the Company's prior year consolidated financial statements have been reclassified to conform with the 1998 presentation. Such reclassification had no effect on the Company's net income or stockholders' equity. PAGE 8 Forward-looking statements - - -------------------------- This quarterly report on Form 10-Q contains certain statements that are not historical facts and are considered "forward-looking statements" (as defined in the Private Securities Litigation Act of 1995), which can be identified by terms such as "believes," "expects," "intends," "may," "will," "should," "anticipates," the negatives thereof, or by discussion of strategy, goals and/or future expectations. Such forward-looking statements involve opinions and predictions based on current information and assumptions, and no assurance can be given that the future results will be achieved since events or results may materially differ as a result of risks and uncertainties facing the Company. These include, but are not limited to, economic, market or regulatory conditions, competition, and investment risks, as well as risks associated with the Company's entry into new markets, diversification and catastrophic events. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------- The following discussion relates to the Company's results of operations, financial condition and liquidity for the interim periods indicated. References herein to the "Company" are references to Selective Insurance Group, Inc. and its consolidated subsidiaries, collectively. References herein to "Selective" are to Selective Insurance Group, Inc. Results of Operations - - --------------------- Comparison of First Quarter of 1998 to First Quarter of 1997 - - ------------------------------------------------------------ Revenues - - -------- Net premiums written for the first quarter of 1998 increased 8%, or $13 million, over the same period in 1997. This growth reflected an increase of 10%, or $11 million, of net premiums written in the commercial Strategic Business Units ("SBU"), and a modest increase of 3%, or $2 million, in the personal lines SBU net premiums. The 8% increase in net premiums written recorded for the first quarter of 1998 translated into a modest increase in total net premiums earned of 1%, or $2 million, in the first quarter of 1998 compared to the same period in 1997. The increase in commercial SBUs net premiums written in the first quarter of 1998 was in all commercial SBUs except for public entities. This increase reflected $41 million of net premiums written from new business in the commercial SBUs for the quarter ended March 31, 1998, a 43% increase compared to the same period in 1997. This growth in new business was primarily due to an increase in staffing of field underwriters (the key contact between the independent agent and the Company) and the Company's Midwestern expansion. The additional new business premiums written were offset primarily by: (i) rate reductions and credits of approximately $6 million due to competition and improving loss trends; (ii) a reduction in renewal premiums of $4 million due to agency terminations; and (iii) a reduction in some existing business due to the current competitive conditions, re-evaluation of certain underwriting risks, and other factors. The $2 million increase in the personal lines SBU net premiums written in the first quarter of 1998 reflected the reduction in the New Jersey Homeowners Quota Share Reinsurance Program from 85% to 75% and the removal of all homeowners liability premium from this program. These changes resulted in a $6 million increase in homeowners net premiums written ($4 million of which was due to a one-time adjustment reflecting the buy out of the ceded Page 9 reinsurance unearned premium reserves from the previous year program). This increase was partially offset by a reduction in personal automobile net premiums written of $4 million mainly in New Jersey due to a reduction in existing business resulting from competition and re-evaluation of certain underwriting risks. Net investment income earned for the first quarter of 1998 increased 3%, or $.7 million, over the same period in 1997. The modest increase was derived primarily from investments which generate income, in part, from changes in market value. In addition, investments acquired from cash provided by operating activities during 1997 generated additional 1998 investment income. The growth in investment income was partially offset by redemptions and maturities of higher yielding debt securities reinvested at lower fixed income yields currently available in the marketplace during the first quarter of 1998 and throughout 1997. These factors reduced the Company's overall annualized investment yield for the quarter to 5.9% for 1998, down from 6.1% for the same period in 1997. Expenses - - -------- The ratio of losses and loss expenses incurred to net premiums earned for the first quarter of 1998 was 70.5%, compared to 69.5% for the first quarter of 1997. The first quarter of 1998 loss and loss expense ratio included 1998 ice storm damage claims which primarily impacted the habitational and recreational, mercantile and service, and personal lines SBUs. These weather-related claims, in excess of $1 million, increased the loss and loss expense ratio by .7 points for the first quarter of 1998. Overall, the commercial SBUs loss and loss expense ratio increased by .9 points. This .9 point increase included .7 points of 1998 ice storm damage claims. Excluding the effects of the 1998 weather-related claims, the commercial SBUs loss and loss expense ratio increased by .2 points. This increase is attributable to unfavorable results in the commercial automobile line of insurance in most of the SBUs, which increased the total commercial SBUs loss and loss expense ratio by 3.4 points. The adverse results in this line of insurance were mainly due to a few severe claims and a slight increase in frequency of claims. The Company has been reviewing this line of insurance, which include pricing analysis, loss control and in some cases re-evaluating risk selection. Partially offsetting the commercial automobile results were improvements in the general liability and commercial property lines of insurance in most of the commercial SBUs. The personal lines SBU loss and loss expense ratio increased by 1.6 points. This 1.6 point increase included .7 points of 1998 ice storm damage claims. Excluding the impact of the 1998 weather-related storms, the personal lines SBU loss and loss expense ratio increased mainly due to a few severe personal automobile claims during the first quarter of 1998. There is an excess profits law in New Jersey, which sets a maximum profit level on personal automobile insurance. Under New Jersey regulations, an insurer's excess profits earned on direct insurance written in New Jersey on private passenger automobiles, as determined pursuant to an actuarial formula PAGE 10 set forth in applicable regulations ("NJ Excess Profits"), are subject to refund or credit to policyholders. A NJ Excess Profits calculation must be made by an insurer for this purpose and submitted to the New Jersey Department of Banking and Insurance each year for the three-year period including the year for which the calculation is done and the two calendar years immediately preceding such year. For the three-year period ended December 31, 1997, the Company does not believe it will incur an obligation to make an excess profit premium refund. However, if the Company's current profitability continues in its New Jersey personal automobile business, it may be possible that the Company will incur an excess profit premium refund obligation in the future. The Company considers the potential effect of such excess profits in establishing its reserves. The New Jersey legislature has proposed personal automobile insurance reform legislation which, if enacted, will be effective as of January 1, 1999. The Company presently anticipates the legislative proposal will be adopted substantially in its current form. The proposed legislation is expected to reduce average statewide automobile insurance premiums by 15%, with the greatest reductions being applicable to liability-only policies. The Company anticipates that, if the proposed legislation is enacted, its New Jersey personal automobile direct premiums written will be reduced between 11% and 12%, or approximately $17 million. This is less than the average of 15% because a higher proportion of Selective's policies provide physical damage coverage, on which the rate reduction will be lower. The proposed legislation also contains provisions that are intended to generate savings to the insurance industry. The Company believes that the effect on its overall financial results due to the loss of premiums as a result of rate reductions will be partially offset by proposed changes included in the legislation, including: (i) changes in the state's no-fault law; (ii) increased fraud prosecution initiatives; and (iii) the elimination of unnecessary medical tests and the use of medical fee schedules that should reduce loss and loss expenses. The Company is currently unable to estimate the extent of such savings and believes the new law will not significantly impact its overall after-tax financial results for a number of reasons. These reasons include a concurrent reduction in policy acquisition costs (commissions, premium taxes, etc.) with lower premium volume, and lower costs as a result of the savings provisions included in the proposed legislation. In addition, the reduction in premiums written as a result of the proposed legislation should reduce the possibility of a future NJ Excess Profits premium refund obligation, and no related provision will therefore be required. The ratio of policy acquisition costs to net premiums earned for the first quarter of 1998 increased to 31.7% from 30.3% for the same period in 1997. The ratio primarily reflects an increase in the relationship of commission expense and labor costs expressed as a percentage of net premiums earned, which added approximately .9 points and .5 points, respectively, to the ratio. Labor costs increased primarily due to the Company's focus on net premiums Page 11 written growth which resulted in hiring approximately 30 addtional persons to increase field underwriting and the support for the Company's expansion into the Midwest. Commission expenses increased as a percentage of net premiums earned primarily due to: (i) commission incentives to agents to increase profitable business with the Company which resulted in an increase of .3 points; (ii) an increase in the proportion of commercial premiums as a percentage of total net premiums written which pay a higher commission rate than personal lines and resulted in a .2 point increase; and (iii) a reduction to the New Jersey Homeowners Quota Share Reinsurance Program which reduced the Company's level of commission expense reimbursement, and resulted in a .4 point increase. Total Federal income tax expense decreased by $1 million to $4 million for the first quarter of 1998 compared to $5 million for the first quarter of 1997. The Company's effective tax rate was 20.0% for the first quarter of 1998, compared with 22.4% for the first quarter of 1997. The Company's effective tax rate differs from the Federal corporate rate of 35% primarily as a result of the tax-exempt investment income. The effective tax rate for the first quarter of 1998 was lower than the first quarter of 1997, mainly due to the higher level of underwriting losses in 1998. Income - - ------ The table below shows operating income, net realized gains, and net income, including per diluted share amounts for the quarters ended March 31, 1998 and 1997. - - ----------------------------------------------------------------------------- Quarter ended ($ in thousands, March 31 except for per share data) 1998 1997 - - ----------------------------------------------------------------------------- Operating income, excluding net realized gains (net of tax) $ 15,253 16,065 Net realized gain, net of tax 703 636 Net income 15,956 16,701 Per diluted share: Operating income .48 .53 Net realized gain .02 .02 Net income .50 .55 - - ---------------------------------------------------------------------------- Page 12 Financial Condition, Liquidity and Capital Resources - - ---------------------------------------------------- Selective is an insurance holding company whose principal assets are its investments in its insurance subsidiaries. As an insurance holding company, Selective meets its cash requirements through proceeds from the sales of the Company's common stock and dividends from its insurance subsidiaries, the payments of which are subject to state regulatory requirements. The overall obligations and cash outflow of the Company include: claim settlements; commissions; labor costs; premium taxes; general and administrative expenses; investment purchases; interest expenses; capital expenditures with respect to the Company's automation program; principal payments on the senior notes and dividends to policyholders and stockholders. The insurance subsidiaries satisfy their obligations and cash outflow through premium collections, interest and dividend income and maturities. Cash generated by operating activities is historically low during the first quarter due to cash incentives paid to agents and employees, reinsurance program initial deposits and final settlement of previous year state premium taxes and assessments. For the quarter ended March 31, 1998, cash provided by operating activities amounted to $3 million compared to cash used in operating activities of $1 million for the same period in 1997. The Company expects to generate cash from operations over the balance of the year. Total assets increased 2%, or $47 million from December 31, 1997 to March 31, 1998. The growth was due to: (i) an increase in total investments of $21 million which is primarily attributable to a $23 million increase in unrealized gains on available-for-sale securities; (ii) an increase in premiums and other receivables of $13 million and deferred policy acquisition costs (policy acquisition costs which are deferred and amortized over the life of the policy period) of $5 million primarily due to the increased premium volume; and (iii) a $13 million increase in reinsurance recoverable on unpaid losses and loss expenses mainly due to flood loss reserve increases of $6 million. This was offset by a $6 million decrease in the deferred Federal income tax asset which mainly reflected the associated deferred taxes on the increase in unrealized gains on available-for-sale securities. The rise in total liabilities of 1%, or $17 million, from December 31, 1997 to March 31, 1998 was mainly attributable to increases in reserves for losses and loss expenses of $14 million due to an increase in outstanding reserves for first quarter 1998 flood losses of $6 million and normal reserve increases associated with the growth in business. Also contributing to the overall increase in total liabilities was an increase in unearned premiums of $10 million, due to the increase in net premiums written. These increases were partially offset by a $9 million decrease in other liabilities which reflected the payment of 1997 profit sharing incentives to employees and agents during the first quarter of 1998. The Company, like all users of automated information systems, is addressing the potential "Year 2000" issues that could affect a wide variety of its automated information systems, such as mainframe applications, personal computers and communications systems. In 1996, the Company completed an impact analysis and began to convert or modify its applications in 1997. While Page 13 recognizing that some uncertainty exists, the Company anticipates that its automated information systems will be "Year 2000" compliant by mid-to-late 1998. In addition to the potential impact on the Company's own automated information systems, the Company has conducted an external awareness campaign with vendors, agents and others with whom the Company does business. The Company's independent agency force has been consulted on the importance of this issue, and the Company is currently working with its agents to determine their needs, as well as their level of preparedness. At the same time, software vendors are being monitored to ensure "Year 2000" tracking and compliance, while contingency plans are being developed for noncompliance in conjunction with the Company's deadlines. Currently, the Company believes most significant "Year 2000" insurance claims are likely to occur in the information technology business sector, and under the error and omissions ("E&O") insurance coverages and directors and officers liability ("D&O") insurance coverages. The Company does not significantly participate in these markets, nor does it significantly write E&O and D&O coverage types. However, the Company anticipates that there may be "Year 2000" claims by its insureds resulting from malfunctioning technology, which cannot be quantified at this time. The Company does not presently anticipate that costs incurred for the "Year 2000" will be significant or that "Year 2000" issues will have a material impact on its results of operations or financial condition. Page 14 Part II OTHER INFORMATION - - -------------------------- Item 6. Exhibits and Reports on Form 8-K - - ----------------------------------------- (a) Exhibits: The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index, which immediately precedes the exhibits filed with this Form 10-Q. (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the period covered by this report. PAGE 15 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SELECTIVE INSURANCE GROUP, INC. ------------------------------- Registrant Date: May 15, 1998 By: /s/Gregory E. Murphy ------------------------------------- Gregory E. Murphy, President and Chief Operating Officer Date: May 15, 1998 By: /s/David B. Merclean ------------------------------------- David B. Merclean, Senior Vice President and Chief Financial Officer PAGE 16 SELECTIVE INSURANCE GROUP, INC. INDEX TO EXHIBITS Exhibit No. 11 Statement Re Computation of per Share Earnings 27 Financial Data Schedule