Executive Officers of the Registrant

The following table sets forth biographical information about Selective's Chief Executive Officer, Executive Officers, and senior management, as of March 1, 2006:

Information regarding Selective's directors is included in the definitive Proxy Statement for the 2005 Annual Meeting of Stockholders to be held on April 26, 2006 in "Information About Proposal 1, Election of Directors," and is also incorporated by reference into Part III of this Form 10-K.

Available Information

Selective files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and other required information with the SEC.  The public may read and copy any materials on file with the SEC at the SEC's Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers, including Selective, that file electronically with the SEC.

Selective has a website, www.selective.com , through which its SEC reports, filings, and materials under Section 13(a) of 15(d) of the Exchange Act are available free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to the SEC.

Item 1A.     Risk Factors

Certain risk factors exist that can have a significant impact on Selective's business, results of operations, and financial condition.  The impact of these risk factors could also impact certain actions that Selective takes as part of its long-term capital strategy including, but not limited to, contributing capital to subsidiaries in its Insurance Operations and Diversified Insurance Services segments, issuing additional debt and/or equity securities, repurchasing shares of the Company's common stock, or increasing stockholders' dividends. The following list of risk factors is not exhaustive and others may exist.  Selective operates in a continually changing business environment, and new risk factors emerge from time to time.  Consequently, Selective can neither predict such new risk factors nor assess the impact, if any, they might have on its business in the future.

The property and casualty insurance industry is cyclical .

Historically, the results of the property and casualty insurance industry have experienced significant fluctuations due to high levels of competition, economic conditions, interest rates, and other factors.  During 2005, Commercial Lines premium pricing, excluding exposure, was flat compared to 2004, while Commercial Lines premium pricing increased from 2001 to 2004; and decreased for several years before 2000.  The industry's profitability also is affected by unpredictable developments, including:

•          Natural and man-made disasters;

•          Fluctuations in interest rates and other changes in the investment environment that affect investment returns;

•          Inflationary pressures (medical and economic) that affect the size of losses;

•          Judicial decisions that affect insurers' liabilities;

•          Pricing and availability of reinsurance in the marketplace; and

•          Weather-related impacts due to the effects of global warming trends.

Catastrophic events

Results of property and casualty insurers are subject to weather and other conditions.  While one year may be relatively free of major weather or other disasters, another year may have numerous such events causing results to be materially worse than other years.  Selective's Insurance Subsidiaries have experienced catastrophe losses and the Company expects them to experience such losses in the future. 

Various natural and man-made events can cause catastrophes, including, but not limited to hurricanes, tornadoes, windstorms, earthquakes, hail, terrorism, explosions, severe winter weather, and fires.  The frequency and severity of these catastrophes are inherently unpredictable.  The extent of losses from a catastrophe is determined by the severity of the event and the total amount of insured exposures in the area affected by the event.  Although catastrophes can cause losses in a variety of property and casualty lines, most of the catastrophe-related claims of Selective's Insurance Subsidiaries historically have been related to commercial property and homeowners coverages.  Selective's property and casualty insurance business is concentrated geographically in the Eastern and Midwestern regions of the United States.  New Jersey accounts for 34% of the Company's total net premiums written. 

Selective's Insurance Subsidiaries seek to reduce its exposure to catastrophe losses through the purchase of catastrophe reinsurance.  Reinsurance, however, may prove inadequate if:

•          The modeling software used to analyze the Insurance Subsidiaries' risk proves inadequate; or

•          A major catastrophic loss exceeds the reinsurance limit or the reinsurers' financial capacity; or

•          The frequency of catastrophe losses result in Selective exceeding its one reinstatement.

Acts of terrorism not covered by, or exceeding, reinsurance limits.

On November 26, 2002, the Terrorism Risk Insurance Act of 2002 ("TRIA") legislation was signed into law.  TRIA was amended in December 2005 to be in effect through December 31, 2007.  TRIA requires sharing the risk of future losses from terrorism between private insurers and the federal government, and is applicable to almost all commercial lines of insurance.  Insurance companies with direct commercial insurance exposure in the United States are required to participate in this program.  TRIA rescinded all previously approved exclusions for terrorism.  Policyholders for non-workers compensation policies have the option to accept or decline the terrorism coverage Selective offers in its policies, or negotiate other terms.  In 2005, approximately 90% of Selective's commercial non-workers compensation policyholders purchased terrorism coverage.  The terrorism coverage is mandatory for all workers compensation primary policies.  In addition, ten of the twenty primary states in which Selective writes commercial property coverage mandate the coverage of fire following an act of terrorism.  These provisions apply to new policies written after enactment of TRIA.  A terrorism act must be certified by the Secretary of Treasury in order to be covered by TRIA.  TRIA limits the certified losses to "international terrorism" defined as an act committed on behalf of any foreign person or foreign interest in which the damage from the event is in excess of $50 million in 2006 and $100 million in 2007, and the event was not committed in the course of a war declared by the United States.  Each participating insurance company will be responsible for paying out a certain amount in claims (a deductible) before federal assistance becomes available.  This deductible, which is equal to $160 million in 2006, is based on a percentage of commercial lines direct earned premiums for lines subject to TRIA from the prior calendar year.  For losses above an insurer's deductible, the federal government will cover 90%, while the insurer contributes 10%.  Although the provisions of TRIA will serve to mitigate Selective's exposure in the event of a large-scale terrorist attack, the Company's deductible is substantial.  In addition, it is uncertain whether TRIA will be extended past its current termination date of December 2007 and, therefore, it may not be a permanent solution.  Selective continues to monitor concentrations of risk and has purchased a separate terrorism treaty to supplement its protection to this highly unknown exposure.

Selective's reserves may not be adequate to cover actual losses and expenses .

Selective is required to maintain loss reserves for its estimated liability for losses and loss expenses associated with reported and unreported insurance claims for each accounting period.  From time -to time, Selective adjusts reserves and, if the reserves are inadequate, the Company will be required to increase reserves.  An increase in reserves: (i) reduces net income and stockholders' equity for the period in which the deficiency in reserves is identified, and (ii) could have a material adverse effect on Selective's results of operations, liquidity, financial condition and financial strength, and debt ratings.  Selective's estimates of reserve amounts are based on facts and circumstances of which it is aware, including its expectations of the ultimate settlement and claim administration expenses, predictions of future events, trends in claims severity and frequency, and other subjective factors.  There is no method for precisely estimating the Company's ultimate liability for settlement and claims.  Selective regularly reviews its reserving techniques and its overall amount of reserves.  The Company also reviews:

• Information regarding each claim for losses;

• The Company's loss history and the industry's loss history;

• Legislative enactments, judicial decisions and legal developments regarding damages;

• Changes in political attitudes; and

• Trends in general economic conditions, including inflation.

Selective cannot be certain that the reserves it establishes are adequate or will be adequate in the future.

Selective is heavily regulated in the states in which it operates .

Selective is subject to extensive supervision and regulation in the states in which their Insurance Subsidiaries transact insurance business.  The primary purpose of insurance regulation is to protect individual policyholders and not shareholders or other investors.  Selective's business can be adversely affected by regulations affecting property and casualty insurance companies.  For example, laws and regulations can lead to mandated reductions in rates to levels that Selective does not believe are adequate for the risks it insures.  Other laws and regulations limit the Company's ability to cancel or refuse to renew policies and require Selective to offer coverage to all consumers.  Changes in laws and regulations, or their interpretations, pertaining to insurance may also have an impact on Selective's business.  Selective's concentration of business may expose the Company to increased risks of regulatory matters in the states in which it writes insurance that are greater than the risks of having business in a greater number of geographic markets. 

Although the federal government does not directly regulate the insurance industry, federal initiatives, from time to time, can also impact the insurance industry.   Proposals intended to control the cost and availability of healthcare services have been debated in the U.S. Congress and state legislatures.  Although Selective neither writes health insurance nor assumes any healthcare risk, rules affecting healthcare services can affect workers compensation, commercial and personal automobile, liability, and other insurance that it does write.  The Company cannot determine whether, or in what form, healthcare reform legislation may be adopted by the U.S. Congress or any state legislature.  Selective also cannot determine the nature and effect, if any, that the adoption of healthcare legislation or regulations, or changing interpretations, at the federal or state level would have on the Company.

Examples of insurance regulatory risks include:

Automobile Insurance Regulation

In 1998, New Jersey instituted an Urban Enterprise Zone ("UEZ") Program, which requires New Jersey auto insurers to have a market share in certain urban territories that is in proportion to their statewide market share.  Due to mandated urban rate caps, the premiums on these UEZ policies are typically insufficient to cover losses.  Although the law that imposed these urban rate caps was repealed in 1998, the caps continue to be enforced by the New Jersey Department of Banking and Insurance ("DOBI").

From time to time, legislative proposals are passed and judicial decisions are rendered related to automobile insurance regulation, which could adversely affect Selective's results of operation. For example, in 2005 the New Jersey Supreme Court's decision eliminated the application of the serious life impact standard to personal automobile bodily injury liability cases under the verbal tort threshold of New Jersey's Automobile Insurance Cost Reduction Act ("AICRA").  This now allows claimants to file lawsuits for non-economic damages without proving that the injuries sustained had a serious impact on their life.

Workers Compensation Insurance Regulation

Because Selective voluntarily writes workers compensation insurance, it is required by state law to support the involuntary market.  Insurance companies that underwrite voluntary workers compensation insurance can either directly write involuntary coverage, which is assigned by state regulatory authorities, or participate in a sharing arrangement, where the business is written by a servicing carrier and the profits or losses of that serviced business are shared among the participating insurers.  Selective currently participates through a sharing arrangement in all states, except New Jersey, where it currently writes involuntary coverage directly.  Historically, workers compensation business has been unprofitable whether written directly or handled through a sharing arrangement.  Additionally, Selective is required to provide workers compensation benefits for losses arising from acts of terrorism under its workers compensation policies.  The impact of any terrorist act is unpredictable, and the ultimate impact on Selective will depend upon the nature, extent, location and timing of such an act.  Any such impact on Selective could be material.

Homeowners Insurance Regulation

Selective is subject to regulatory provisions that are designed to address potential availability and/or affordability problems in the homeowners property insurance marketplace.  Involuntary market mechanisms, such as the New Jersey Insurance Underwriting Association ("New Jersey FAIR Plan"), generally result in assessments to the Company.  The New Jersey FAIR Plan writes fire and extended coverage on homeowners for those individuals unable to secure insurance elsewhere.  Insurance companies who voluntarily write homeowners insurance in New Jersey are assessed a portion of any deficit from the New Jersey FAIR Plan based on their share of the voluntary market.  Similar involuntary plans exist in most other states where Selective operates.

Flood Insurance Regulation

The Federal Government's NFIP program, currently covers flooding caused by storm surge where water is pushed toward the shore by the force of the winds swirling around a storm.  If this federal program is modified in an unfavorable manner whereby flooding related to storm surge is no longer covered or is required to be covered by homeowners policies, such modification could have a material adverse effect on Selective's Flood and/or Homeowners results.

Selective may be adversely impacted by a change in its ratings .

Insurance companies are subject to financial strength ratings produced by external rating agencies, based upon factors relevant to policyholders.  Ratings are not recommendations to buy, hold, or sell any of Selective's securities.  Higher ratings generally indicate financial stability and a strong ability to pay claims.