2011 Annual Report
Standing Strong for 85 Years
S
e
l
e
c
t
i
v
e
—
2
0
1
1
A
n
n
u
a
l
R
e
p
o
r
t
2 0 1 1
Table of ConTenTs
2
Financial Highlights
3
To Our Shareholders
4
Our Business
7
Initiatives
10
Creating Long-Term
Value for Our Shareholders
11
Form 10-K
Directors
Officers
Investor Information
About Selective Insurance Group, Inc.
Selective Insurance Group, Inc. is a holding company for eight customer-focused
property and casualty insurance companies and is ranked as the 50th largest P&C
insurance group in the United States by A.M. Best. The companies offer a range
of insurance including commercial lines, personal lines and excess and surplus
lines. Selective provides value-added products and services to businesses, public
entities and individuals through approximately 1,000 independent retail agents
and 100 wholesale agents throughout the country. Our employees create the
competitive advantages that make Selective one of the best regional insurance
organizations in the marketplace.
2 0 1 0
2 0 1 1 G A A P F i n a n c i a l H i g h l i g h t s
($ in millions, except per share data)
2 0 1 1
2 0 1 0
% or point change
better (worse)
Insurance Operations
Net premiums written
Net premiums earned
Underwriting loss
Combined ratio
Statutory combined ratio
Investments
Net investment income before tax
Net realized gain (loss)
Invested assets per dollar of stockholders’ equity
Summary Data
Total revenues
Net income
Net income from continuing operations
Total assets
Stockholders’ equity
Per Share Data
Diluted net income from continuing operations
Diluted net income
Dividends
Stockholders’ equity
1,485.3
1,439.3
(106.9)
107.4%
106.7%
147.4
2.2
3.71
1,597.5
19.9
20.5
5,736.4
1,109.2
0.37
0.36
0.52
20.39
1,390.5
1,416.6
(22.2)
101.6%
101.6%
145.7
(7.1)
3.67
1,564.6
65.5
69.3
5,231.8
1,071.1
1.27
1.20
0.52
19.95
7%
2%
(382)%
(5.8) pts
(5.1) pts
1%
NM
1%
2%
(70)%
(70)%
10%
4%
(71)%
(70)%
–
2%
Refer to Glossary of Terms attached as Exhibit 99.1 to the Company’s
Form 10-K for definitions of specific measures.
GAAP: U.S. Generally Accepted Accounting Principles
A v e r a g e A n n u a l R e t u r n
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
0
2001
Growth of a $10,000 investment (year-end 2001-2011)
2002
2003
2004
2
S E L E C T I V E 2 0 1 1
Selective
S&P Property & Casualty Index
S&P 500 Index
2005
2006
2007
2008
2009
2010
2011
Dear Shareholders,
2011 marked Selective’s 85th year
in business, and it was a year like
none other in the company’s long
history. It was a year of extreme
weather, market volatility, historically
low interest rates and continuing
worldwide economic woes. Property
and casualty insurers experienced
an estimated $44 billion in U.S.
insured catastrophe losses. Worldwide
cumulative industry losses may
exceed $100 billion.
For Selective, the severe weather
resulted in the worst catastrophe
year in the existence of the company
contributing 8.3 points to our 2011
statutory combined ratio of 106.7%.
Excluding catastrophe losses, our
combined ratio was a solid 98.4%.
Hurricane Irene alone generated gross
losses for Selective of more than $46
million, by far the largest hurricane
loss in our history.
In addition, the floods in the
Northeast and Mid-Atlantic states
resulted in approximately 10,000
flood claims, several times our usual
volume for an entire year. Selective is
a participating carrier in the National
Flood Insurance Program’s (NFIP)
Write Your Own (WYO) program,
and as a result our Flood operation
receives an allowance for policies
written and claims processed while
the Federal Government retains
100% responsibility for underwriting
T o O u r S h a r e h o l d e r s
losses. In 2011, our Flood operation
generated a record after-tax profit of
$11.4 million.
One of the most important things
that we do as an industry—and as a
company—is help people put their
lives back together after tragedy
strikes. We were very proud of the
way our employees responded to a
record number of extreme weather
claims and provided excellent
customer service to those who
suffered losses. Our response to these
events served as a real reminder of an
important mission.
Gregory E. Murphy
Chairman, President
and Chief Executive Officer
By executing our sophisticated
underwriting strategies in 2011,
Insurance Operations achieved 7%
growth in net premiums written
(NPW). We had strong growth in
commercial lines which can be
directly attributed to our relentless
efforts to drive rate. In a market
where others were willing to forgo
strict underwriting discipline, we
maintained consistent discipline and
sound judgment that resulted in 11
consecutive quarters of commercial
lines renewal pure price increases.
As industry-wide commercial lines
pricing power strengthened, we
generated a 2.8% increase for the
entire year, with increases of 3.4% in
the fourth quarter followed by 4.5%
in January and 5.3% in February of
2012. The steps we have taken over
“
One of the most
important things
that we do as an
industry—and as a
company—is help
people put their lives
back together after
tragedy strikes.
”
a n n u aL r Ep o r T
3
1
1
0
2
N e t P r e m i u m s
W r i t t e n
( i n m i l l i o n s )
2
6
5
,
1
$
3
9
4
,
1
$
3
2
4
,
1
$
1
9
3
,
1
$
5
8
4
,
1
$
2007 2008 2009 2010 2011
4
S E L E C T I V E 2 0 1 1
the past three years better position us
to capitalize on achieving even higher
levels of renewal price increases.
Our personal lines grew in 2011
with a 6% increase in NPW primarily
due to rate increases and improved
retention. We continued to drive
rate for the fourth consecutive year
and took action to improve both
pricing and underwriting on our
homeowners book of business.
In a continuing effort to grow
profitably, we took aggressive steps
to further our organic growth by
appointing 100 independent retail
agents, bringing our total to 1,000.
Our product portfolio was enhanced
by adding more than 50 new and
expanded products that will enable
our agents to strengthen client
retention. We diversified into the
excess and surplus (E&S) contract
binding authority business with
two key acquisitions. The new E&S
operations, Stonecreek Specialty
Underwriters and Mesa Underwriters
Specialty Insurance Company, or
MUSIC, allow Selective to write
this business in all 50 states and
the District of Columbia. Our retail
agents write $300-$400 million
of this business and they tell us
they are excited about the broader
opportunity to serve their clients
through this newly expanded product
offering and our new wholesale
agency partners.
Our employees made tremendous
progress on a variety of important
initiatives that included a series
of claims improvements, the
implementation of a customer
experience program and the
enhancement of our first-class field
model by the addition of a Field
Marketing Specialist role. What makes
these accomplishments even more
impressive is the fact that this all
happened during a time when our
employees were doing such hard
work to help our customers in the
wake of historically severe weather.
Selective built a strong foundation
with the very best employees,
solid technology and the human
touch–which was critical to our
company when it began in 1926
and remains paramount in our 85th
year. Our excellent relationships
with agents and customers ensure
our success in any market cycle, in
a severe catastrophe year or under
difficult economic conditions. It
is our commitment to provide an
unparalleled customer experience
and an ease of doing business that
makes Selective stand above the rest.
Our Business
At Selective, we classify our business
into two operating segments:
• Insurance Operations, which sells
property and casualty insurance
products and services; and
• Investments, which invests the
premiums collected by our
insurance operations.
Insurance Operations
In 2011, Insurance Operations
generated $1.5 billion in NPW, which
was up 7% over 2010, and produced
a generally accepted accounting
principles (GAAP) combined ratio
of 107.4% and a statutory combined
ratio of 106.7% that included 8.3
points of catastrophe losses. With
catastrophe losses of $119 million, this
was by far the worst catastrophe year
in our history. The historically high
catastrophe losses were only partially
offset by favorable statutory prior year
casualty development of $29 million
or 2.0 points.
Our Insurance Operations encompass
commercial lines and personal
lines. Commercial lines include
insurance for businesses, non-profit
organizations, local government
entities and our E&S operations.
Commercial lines generated
approximately 82% of our NPW for
the year. Personal lines products for
home and auto, which includes our
flood insurance operations, generated
approximately 18% of the company’s
NPW for the year.
Commercial Lines
We continued to manage the pricing
cycle instead of the cycle managing
us. We have been one of the only
companies increasing commercial
lines renewal pure price for the past
three years. In fact, the fourth quarter
of 2011 marked our 11th consecutive
quarter of commercial lines renewal
pure price increases at a strong 3.4%
along with a three point increase
in commercial lines retention. We
believe the price increases that we
have obtained demonstrate the
strength of the relationships with our
1,000 independent agency partners.
Our commercial lines rate increases
are facilitated by the significant efforts
of our regional renewal underwriters.
They are key decision makers who
benefit from sophisticated underwriting
and granular pricing tools. These
tools give renewal underwriters
the ability to analyze the impact of
pricing and retention decisions on
their entire policy inventory—directly
from their desktops, which allows
them to efficiently generate better
results. Because we operated in a
highly competitive market for most
of the year, our underwriters targeted
our most significant rate increases
and underwriting efforts towards
the worst-performing business and
carefully managed the delicate balance
between rate and retention on our
best business.
a n n u aL r Ep o r T
5
1
1
0
2
6
S E L E C T I V E 2 0 1 1
Net premiums written for Commercial
Lines were up 7% over 2010 to $1.2
billion, the first increase since 2007.
This increase reflects renewal pure
price of 2.8%, a slight increase in
retention, $24.1 million from the new
E&S lines and an improvement in
audit and endorsement premiums.
For Commercial Lines, the GAAP
combined ratio was 105.1% and the
statutory combined ratio was 104.3%.
This result reflects catastrophe losses
that totaled more than $75 million
and added 6.4 points to the loss ratio.
Contributing to the overall catastrophe
loss was Hurricane Irene, which had
a $21.7 million or 1.8 point impact on
this line, net of reinsurance.
We introduced many new and
expanded products including para-
transit, technology and religious
entities. These additions to the
product portfolio allow us to diversify
into more profitable niches, engage
in new markets and provide agents
with more opportunities to fill their
customers’ needs.
Excess & Surplus Added to
Commercial Lines
As market conditions started to
improve, we acquired two contract
binding authority excess and surplus
operations. These acquisitions added
new higher margin products to our
portfolio. Providing the E&S product
gives our retail agents, who write
approximately $300-$400 million of
this business, the ability to further
meet the needs of their customers.
In August, Selective entered the E&S
contract binding authority business
with a renewal rights transaction with
Alterra Capital Holdings Limited. This
business is now called Stonecreek
Specialty Underwriters. In December,
Selective purchased MUSIC, now
called Mesa Underwriters Specialty
Insurance Company, the contract
binding authority E&S subsidiary of
Montpelier Re Ltd., which gave us
the platform required to write E&S
business in all 50 states and the
District of Columbia.
Personal Lines
Personal Lines grew 6% in NPW, to
$273 million, primarily due to rate
increases and improved retention
across Selective’s 13-state personal
lines footprint. In this line, we
continued to drive rate for the fourth
consecutive year, filing for more than
46 rate increases for home and auto
that added $18 million in annual
premium to our in-force book of
business. We were able to increase
retention by one point, to 86%,
despite the pressure on rates. We also
took steps to improve the quality of
the book and will continue to do so
in 2012.
Extreme weather events impacted
Personal Lines, adding 16.5 points
to the combined ratio, which was
118.0% on a GAAP basis and 117.3%
on a statutory basis. Hurricane Irene
contributed $17.9 million in losses for
the year. We are a participating carrier
in the NFIP’s WYO program, in which
losses are paid 100% by the Federal
Government. We wrote approximately
$200 million in flood premium in
2011. Since we experienced an
extraordinary number of flood claims
this year due to flooding throughout
the Northeast and Mid-Atlantic states,
the claims handling fees from the
increased volume earned on our
flood book of business increased $4.4
million, or 158%, over 2010.
Investments
We invest the premiums collected
by Insurance Operations to pay
expenses and generate investment
income. In conjunction with our
internal expertise, we engage third-
party investment firms to take
advantage of their greater flexibility
in trade execution, broader sector
specific knowledge and advanced
risk management tools. At year-end,
Selective’s invested assets totaled $4.1
billion, an increase of 5% over 2010.
For the year, pre-tax net investment
income was up 1% to $147 million.
Selective’s overall portfolio is
conservative with an investment
strategy focused on asset
diversification, investment quality
and the liquidity necessary to
meet the needs of our Insurance
Operations segment, with additional
consideration given to capital
preservation and tax implications.
We have a high-quality (AA-) average
rating for fixed maturity securities and
a liquid investment portfolio that is
weighted as follows:
• Total fixed maturity securities: 88%
(average duration-3.2 years)
• Short-term investments: 5%
• Equity securities: 4%
• Other investments: 3%
We implemented a high dividend
yield equities strategy in 2011
designed to generate consistent
dividend income while tracking
closely with the S&P 500 index.
The return objective of the other
investments, which include
alternative investments, is to exceed
the S&P 500 index.
Initiatives
Fortifying a Best-in-Class
Field Model
Selective’s unique field model
remains the hallmark of our
success. The model supports strong
relationships with Selective’s 1,000
independent retail agents. Each
agency is supported by an Agency
Management Specialist (AMS), who
serves as a field underwriter with
a focus on middle market accounts
and is responsible for agent growth
and profitability. While the AMS is
the primary relationship manager, a
Claims Management Specialist (CMS),
a Safety Management Specialist (SMS)
and a Field Marketing Specialist
(FMS) complete the support team.
CMSs provide quick and efficient
handling of claims and SMSs promote
increased customer retention and
lower loss frequency through loss
control reviews and programs. The
Investment Mix
Fixed
Maturity
88%
Short-Term
Investments 5%
Other
Investments 3%
Equities 4%
a n n u aL r Ep o r T
7
1
1
0
2
Y o u r a c c o u n t i n f o r m a t i o n
A c c o u n t n a m e : J o h n J a c o b J i n g l e h e i m e r S c h m i d t
A c c o u n t n u m b e r : 1 2 3 - 4 5 6 - 7 8 9
C o n t a c t u s
S e l e c t i v e C u s t o m e r C a r e a t 8 0 0 - 7 3 5 - 3 2 8 4 o r
A B C I n s u r a n c e a t 2 2 2 - 2 2 2 - 2 2 2 2
Y o u r A c c o u n t B i l l
a s o f 1 1 / 0 1 / 2 0 1 1
C u r r e n t a c c o u n t b a l a n c e
M i n i m u m p a y m e n t
D u e d a t e
T o a v o i d a $ 1 0 p e r p o l
$ 1 , 7 2 5 . 0 0
$ 1 7 3 . 0 0
1 1 / 1 5 / 2 0 1 1
i c y l a t e f e e , b e s u r e t o p a y b y t h e d u e d a t e .
W a y s t o p a y
w w w . s e l e c t i v e . c o m
8 0 0 - 7 3 5 - 3 2 8 4
m a i
l i n c h e c k - s e e r e v e r s e f o r i n s t r u c t i o n s
i c y F 1 2 3 4 5 6 7 , E f f e c t i v e 1 1 / 1 5 / 2 0 1 1 , J o h n J a c o b J i n g l e h e i m e r S c h m i d t
Y o u r a c c o u n t d e t a i l s
P e r s o n a l A u t o , P o l
T R A N S A C T I O N D A T E
1 0 / 1 8 / 2 0 1 0
1 1 / 0 6 / 2 0 1 0
0 1 / 0 1 / 2 0 1 1
0 1 / 1 8 / 2 0 1 1
D E S C R I P T I O N
P r i o r a c c o u n t b a l a n c e
P a y m e n t w e r e c e i v e d - t h a n k y o u
i c y r e n e w a l
P o l
C u r r e n t a c c o u n t b a l a n c e
A M O U N T
$ 1 2 6 . 0 0
- $ 1 2 6 . 0 0
$ 1 , 7 2 5 . 0 0
$ 1 , 7 2 5 . 0 0
A B C I N S U R A N C E
1 2 3 4 M A I N S T R E E T
A N Y V I L L E , N J 1 2 3 4 5
A c c o u n t n a m e
A c c o u n t n u m b e r
A c c o u n t b a l a n c e
M i n i m u m p a y m e n t
D u e d a t e
A m o u n t e n c l o s e d :
J o h n J a c o b J i n g l e h e i m e r S c h m i d t
1 2 3 - 4 5 6 - 7 8 9
$ 1 , 7 2 5 . 0 0
$ 1 7 3 . 0 0
0 2 / 0 7 / 2 0 1 1
$
S e e r e v e r s e f o r w a y s t o p a y .
J O H N J A C O B J I N G L E H E I M E R S C H M I D T
1 2 3 M E A D O W L A N E
A N Y V I L L E , N J 0 0 7 1 2 3
1 2 3 4 6 6 8 8 9 0 -
1 1 0 1 1 6 6 2 2 0 0 0 0 0 0 9 0 0 0 0 0 0 0 0 7 8 7 4 2 7 0 0 0 0 0 0 0 0 0 0 7 8 7 4 2 7 0
8
S E L E C T I V E 2 0 1 1
P A G E 1 0 F 2
FMS position was launched in 2011
to market small commercial and
personal lines new business and
allow the AMS to spend more time
acquiring middle market commercial
lines accounts. Our agents tell us that
they appreciate Selective’s strong
combination of high-tech and high-
touch, and share comments such as,
“Selective has all the tools, including
employees that make it easy to do
business with them.”
Enhancing the Customer
Experience
In 2011, Selective took significant
steps toward providing our
policyholders with an even better
customer experience. What started
with a touchpoint audit and
customer survey and continued
with enhancements to our customer
self-service website portal and the
development of new marketing
materials, culminated with the launch
of our redesigned customer bill.
Through the bill redesign project, we
were able to make one of our most
frequent customer touchpoints easier
to understand and more visually
appealing.
Information gathered throughout
the ongoing customer experience
initiative will serve as a basis for
future projects that will allow us
to better identify and understand
customer attributes that contribute to
an enhanced customer experience.
We believe this will ultimately
increase retention, lower acquisition
costs and improve profitability.
Improving Claims Efficiency
The Claims team continued to work
toward reducing our loss and loss
expense ratio by three points by year-
end 2013. Ongoing Claims initiatives
include a specialized workers
compensation claim handling model,
more proactive medical management
practices, an expansion of staff
counsel, streamlined management
of claims files, the introduction
of improved fraud analytics and
a redesign of the subrogation
process. Tangible savings from the
Claims team’s efforts for 2011 were
approximately $9 million, and we
expect our initiatives to deliver
additional savings going forward.
Corporate Social
Responsibility
We are serious about our responsi-
bility to the world outside Selective.
In addition to the company’s
commitment to excellent service to
customers, we meet the needs of
others in our community through The
Selective Group Foundation. In 2011,
the Foundation distributed grants to
a variety of non-profit organizations
that provide health and human
services, promote civic responsibility
and support home, auto and business
safety. In addition, employees are
encouraged to volunteer and are given
one full day off to participate in a
volunteer effort of their choice. Many
departments across the company
have taken advantage of the program
and volunteer as a group to make a
bigger impact.
In addition to the donation of time
and money, Selective and our
employees continue to look for
ways to protect the environment at
our locations by promoting more
paperless transactions, enabling
online bill payment and purchasing
green and recycled products
whenever possible.
With Thanks and
Appreciation
On behalf of Selective’s Board of
Directors and all of our employees, I
would like to extend our thanks and
best wishes to S. Griffin McClellan III
as he retires from Selective’s Board
of Directors after 32 years of service.
During his tenure, Griff offered strong
guidance and oversight, most recently
serving on the Corporate Governance
and Nominating Committee and the
Finance Committee. We will miss
his wisdom, sense of humor and
unwavering dedication to Selective.
It has been my pleasure to serve
with him.
Long-Te rm Sh are holde r Valu e C reatio n
$20
$16
$12
e
r
a
h
S
r
e
P
Dividends
Book Value
$0.31
$13.74
$0.30
$12.26
$0.40
$17.34
$0.35
$15.79
I n t e r n a l
1 0 Y e a r
$0.49
$19.81
$0.44
$18.81
$0.52
$16.84
$0.52
$19.95
$0.52
$20.39
$0.52
$18.83
R a t e o f R e t u r n = 8 . 4 %
$8
2002
2003
2004
2005
2006
2007 2008 2009 2010 2011
a n n u aL r Ep o r T
9
I n v e s t o r I n f o r m a t i o n
Executive Office
40 Wantage Avenue
Branchville, New Jersey 07890
Telephone (973) 948-3000
Shareholder Relations
Robyn P. Turner
Corporate Secretary
Telephone (973) 948-1766
shareholder.relations@selective.com
Common Stock Information
Selective Insurance Group, Inc.’s
common stock trades on the
NASDAQ Global Select Market
under the symbol: SIGI.
At February 15, 2012, there were
approximately 2,322 registered
stockholders.
Form 10-K
Selective’s Form 10-K, as filed with
the U.S. Securities and Exchange
Commission, is provided as part of
this 2011 Annual Report.
Website
Visit us at www.selective.com
for information about Selective,
including our latest financial news.
Annual Meeting
Wednesday, April 25, 2012
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, NJ 07890
Investor Relations
Jennifer W. DiBerardino
Senior Vice President,
Investor Relations and Treasurer
Telephone (973) 948-1364
investor.relations@selective.com
Dividend Reinvestment Plan
Selective Insurance Group, Inc.
makes available to holders of
its common stock an automatic
dividend reinvestment and stock
purchase plan.
For Information Contact:
Wells Fargo Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Telephone (866) 877-6351
Registrar and
Transfer Agent
Wells Fargo Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Telephone (866) 877-6351
Auditors
KPMG LLP
345 Park Avenue
New York, New York 10154-0102
Internal Audit Department
Chief Audit Executive
Bruce B. Monahan
internal.audit@selective.com
2011
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
w w w . s e l e c t i v e . c o m
SS012012AR
S
e
l
e
c
t
i
v
e
—
2
0
1
1
A
n
n
u
a
l
R
e
p
o
r
t