þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
New Jersey | 22-2168890 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
40 Wantage Avenue, Branchville, New Jersey | 07890 | |
(Address of Principal Executive Office) | (Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, par value $2 per share | NASDAQ Global Select Market | |
7.5% Junior Subordinated Notes due September 27, 2066 | New York Stock Exchange |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company)
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Exhibit 99.1 |
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Insurance Operations, which sells property and casualty insurance products and services
primarily in 22 states in the Eastern and Midwestern U.S.;
Investments; and
Diversified Insurance Services, which provides human resource administration outsourcing
(HR Outsourcing) products and services, and federal flood insurance administrative
services (Flood).
Insurance Subsidiaries
A.M. Best Rating
1
Domiciliary State
A+ (Superior)
New Jersey
A+ (Superior)
New Jersey
A+ (Superior)
Indiana
A+ (Superior)
Indiana
A+ (Superior)
New York
A+ (Superior)
Maine
A+ (Superior)
New Jersey
1
With regard to an A+ rating, A.M. Best uses its highest Financial Strength
Rating of Secure, and a descriptor of Superior, which it defines as,
Assigned to companies that have, in our opinion, a superior ability to meet
their ongoing obligations to policyholders. Approximately 10% of commercial
and personal insurance companies carry an A+ or better rating from A.M. Best.
2
Effective June 30, 2008, two of the Insurance Subsidiaries, SICSE
and SICSC, changed their regulatory state of domicile from North Carolina and
South Carolina, respectively, to Indiana.
Table of Contents
1)
Loss and loss expense ratio, which is calculated by dividing incurred loss and loss
expenses by NPE;
2)
Underwriting expense ratio, which is calculated by dividing all expenses related to
the issuance of insurance policies by NPW;
3)
Dividend ratio, which is calculated by dividing policyholder dividends by NPE; and
4)
Combined ratio, which is the sum of the loss and loss expense ratio, the underwriting
expense ratio, and the dividend ratio.
Under SAP, Insurance Operations underwriting expenses are recognized when incurred;
whereas under GAAP, underwriting expenses are deferred and amortized to expense over the
life of the policy;
Under SAP, deferred taxes are recorded directly to surplus; whereas under GAAP, deferred
taxes are recognized in our Consolidated Statements of Income as either a deferred tax
expense or a deferred tax benefit;
Under SAP, changes in the fair value of our alternative investments, which are part of
our other investment portfolio on our Consolidated Balance Sheets, are recorded directly to
surplus; whereas under GAAP, these fluctuations are recognized in income; and
Under SAP, the results of our flood line of business are included in the income of the
Insurance Operations segment, whereas under GAAP, these results are included within the
income of Diversified Insurance Services segment on our Consolidated Statements of Income.
The Insurance Operations underwriting expense item above results in a difference in
statutory surplus and GAAP equity as a difference in expense recognition timing exists
between SAP and GAAP;
Under SAP, fixed maturity securities are carried at cost with no recognition of
unrealized gains or losses in statutory surplus; whereas under GAAP, these securities are
carried at market value with unrealized gains or losses recognized in equity;
Under SAP, the recognition of deferred tax assets are limited to those that are expected
to be realized within one year, or to the extent that we have a deferred tax liability or
available carryback capabilities; whereas under GAAP, deferred tax assets are recognized
based on a qualitative analysis of the temporary differences, past financial history, and
future earning projections. A GAAP valuation allowance is required when it is determined
that a gross deferred tax asset cannot be realized based on the more likely than not
criteria.
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Under SAP, a liability is recognized in an amount equal to the excess of the vested
accumulated benefit obligation over the fair value of the pension plan assets with any
changes in this balance not recognized in income being recognized in statutory surplus;
whereas under GAAP, a liability is recognized in an amount equal to the excess of the
projected benefit obligation over the fair value of the pension assets with any changes in
this balance not recognized through income being recognized in equity as a component of
other comprehensive income.
Year Ended December 31,
($ in thousands)
2008
2007
2006
$
1,492,938
1,562,728
1,540,901
$
1,504,387
1,525,163
1,504,632
1,011,700
997,230
958,741
471,629
494,944
482,657
5,211
7,202
5,927
$
15,847
25,787
57,307
67.2
%
65.4
63.7
31.7
%
31.6
31.3
0.3
%
0.5
0.4
99.2
%
97.5
95.4
101.0
%
98.9
96.1
1
The GAAP combined ratio excludes the flood line of business, which is included in the
Diversified Insurance
Services segment on a GAAP basis. The total statutory combined ratio excluding flood was 99.9% in 2008,
98.2% in 2007, and 96.1% in 2006.
Simple
Average of
All Periods
Presented
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
69.2
67.2
65.4
63.7
63.5
65.3
70.3
72.3
74.3
75.7
74.4
31.0
31.7
31.6
31.3
30.7
30.3
30.7
30.3
31.5
31.7
30.5
0.6
0.3
0.5
0.4
0.4
0.3
0.5
0.6
0.9
0.9
0.8
100.8
99.2
97.5
95.4
94.6
95.9
101.5
103.2
106.7
108.2
105.7
7.3
(4.5
)
1.4
5.3
6.9
12.0
15.7
13.8
10.5
3.6
8.1
76.4
77.0
67.7
65.4
75.3
73.5
75.0
81.5
88.4
81.5
78.8
26.2
27.1
27.1
26.1
25.4
24.9
24.6
25.1
26.5
27.4
27.9
0.8
0.7
0.7
0.9
0.5
0.5
0.5
0.6
0.8
1.4
1.3
103.4
104.7
95.6
92.4
101.2
98.9
100.1
107.3
115.7
110.4
108.1
4.7
(0.8
)
(0.8
)
4.0
0.0
4.4
9.7
15.1
8.5
4.7
1.9
2.6
5.5
(1.9
)
(3.0
)
6.6
3.0
(1.4
)
4.1
9.0
2.2
2.4
2.6
(3.7
)
2.2
1.3
6.9
7.6
6.0
(1.3
)
2.0
(1.1
)
6.2
1
The ratios and percentages are based on SAP prescribed or permitted by state
insurance departments in the states in which each company is domiciled. Effective January 1,
2001, we adopted a codified set of statutory accounting principles, as required by the NAIC.
These principles were not retroactively applied, but would not have had a material effect on
the ratios presented above.
2
Source: A.M. Best. The industry ratios for 2008 have been estimated by A.M. Best.
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Year Ended December 31,
Net Premiums Written
2008
2007
2006
28.6
%
30.0
32.6
14.5
14.1
14.3
10.2
10.8
11.1
7.4
7.6
7.5
5.7
6.0
5.9
4.8
4.4
3.9
4.0
4.0
3.8
3.7
3.5
3.2
3.7
3.5
3.1
2.7
2.8
2.5
2.3
2.0
1.9
2.0
1.8
1.6
1.7
1.7
1.4
1.4
1.3
1.3
1.1
1.2
1.3
1.1
1.2
1.1
1.0
0.2
0.0
1.0
0.8
0.7
3.1
3.1
2.8
100.0
%
100.0
100.0
1
Other states and districts include, among others, Florida, Kentucky,
Minnesota, Missouri, Tennessee and
Washington D.C.
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Region
Office Location
Carmel, Indiana
Hamilton, New Jersey
Branchville, New Jersey
Allentown, Pennsylvania and Hunt Valley, Maryland
Charlotte, North Carolina
97 Commercial Lines field underwriters, known as agency management specialists
(AMSs). AMSs live and work in the geographic vicinity of our appointed agents and
generally work from offices in their homes. As a result of this close proximity and
direct and regular interaction, AMSs are able to build strong relationships with agents.
14 Personal Lines territory managers (TMs) that work with AMSs and independent agents
to advance production. TMs build strong relationships with agents through direct and
regular interaction, which better positions them to evaluate new business opportunities.
12 SRM account managers who, like AMSs, live and work in the geographic vicinity of
their coverage territories.
15 field technology employees. These employees work directly with agents, training and
marketing our technology systems such as xSELerate
®
and SelectPLUS
®
.
They also gather feedback from the agents to help improve our technology to meet the
agents needs.
75 safety management specialists (SMSs). SMSs are located in the Regions and are
responsible for surveying and assessing insured and prospective risks from a risk/safety
standpoint, and for providing ongoing safety management services to certain insureds.
140 field claims adjusters, known as claim management specialists (CMSs). Like AMSs,
CMSs live in the geographic vicinity of our appointed agents and generally work from
offices in their homes. CMSs, because of their geographic location, are able to conduct
on-site inspections of losses and resolve claims faster, more accurately, and with higher
levels of customer satisfaction. As a result, CMSs also obtain knowledge about potential
exposures that they can share with AMSs.
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Small business accounts with premiums less than $25,000 represent 56% of total direct
premium written. During 2008, 33% of new small business was written through our
Internet-based One & Done
®
systems automated underwriting templates;
Middle market business accounts with premiums greater than $25,000 but less than
$250,000 represent 39% of total direct premium written. This business is the primary
focus of the AMSs; and
Large business accounts with annual premiums of approximately $250,000 or greater
represent 5% of our total direct premium written and are supported by both our regional
offices, who underwrite and issue these policies, and a specialized management group,
Selective Risk Managers (SRM), that is charged with handling account-specific issues, as
well as developing strategic plans for enhancing our alternative risk transfer
capabilities. Approximately 22% of the SRM premium includes alternative risk transfer
mechanisms such as retrospective rating plans, self-insured group retention programs, or
individual self-insured accounts.
The independent agents and the AMSs, who identify product and market needs;
Our strategic business units (SBUs), located in the home office, which are organized
by customer and product type, and develop our pricing and underwriting guidelines in
conjunction with regions;
The Regions, which work with the SBUs to establish annual premium and pricing goals; and
The Actuarial Department, located in the home office, which assists in the determination
of rate and pricing levels while also monitoring pricing and profitability.
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The workers compensation line of business experienced favorable prior year loss and loss
expense reserve development of approximately $24 million, which was primarily driven by
favorable development in accident years 2004 to 2006 as a result of the implementation of
our multi-faceted underwriting strategy, higher budgeted medical trends, and the redesign
and re-contracting of our managed care process, partially offset by adverse prior year
development in accident year 2007 from higher severity.
The general liability line of business experienced adverse prior year loss and loss
expense reserve development of approximately $3 million reflecting normal volatility in
this line of business.
The remaining lines of business, which collectively contributed approximately $2 million
of adverse development, do not individually reflect any significant trends related to prior
year development.
The commercial automobile line of business experienced favorable prior year loss and
loss expense reserve development of approximately $19 million, which was primarily driven
by lower than expected severity in accident years 2004 through 2006.
The personal automobile line of business experienced favorable prior year development of
approximately $10 million, due to lower than expected loss emergence for accident years
2005 and prior based on a revaluation of the impact of an adverse judicial ruling by the
New Jersey Supreme Court to eliminate the application of the serious life impact standard
to personal automobile cases under the verbal tort threshold of New Jerseys Automobile
Insurance Cost Reduction Act in 2005. This was partially offset by higher severity in
accident year 2006.
The workers compensation line of business experienced favorable prior year development
of approximately $4 million reflecting the implementation of a series of improvement
strategies for this line in recent accident years partially offset by an increase in the
tail factor related to medical inflation and general development trends.
The homeowners line of business experienced adverse prior year loss and loss expense
reserve development of approximately $6 million driven by unfavorable trends in claims for
groundwater contamination caused by the leakage of certain underground oil storage tanks.
The personal excess line of business experienced adverse prior year loss and loss
expense reserve development of approximately $4 million in 2007, which was due to the
impact of several significant losses on this small line.
The remaining lines of business, which collectively contributed approximately $4 million
of adverse development, do not individually reflect any significant trends related to prior
year development.
The commercial automobile line of business experienced favorable prior year loss and
loss expense reserve development of approximately $15 million, which was primarily driven
by lower than expected severity in accident years 2004 and 2005.
The workers compensation line of business experienced favorable prior year development
of approximately $4 million, which was driven, in part, by savings realized from changing
medical and pharmacy networks outside New Jersey and re-contracting our medical bill review
services.
The personal automobile line of business experienced favorable prior year development of
approximately $9 million, due to lower than expected frequency.
The general liability line of business experienced adverse prior year loss and loss
expense reserve development of approximately $15 million in 2006, which was largely driven
by our contractor completed operations business and an increase in reserves for legal
expenses.
The remaining lines of business, which collectively contributed approximately $6 million
of adverse development, do not individually reflect significant prior year development.
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($ in thousands)
2008
2007
$
2,414,743
2,312,086
2,470
2,750
(432
)
(90
)
2,416,781
2,314,746
224,192
227,801
$
2,640,973
2,542,547
1
Statutory losses and loss expense reserves are presented net of reinsurance recoverables on unpaid losses and loss expenses.
Table of Contents
Treaty reinsurance, in which certain types of policies are automatically reinsured
without the need for approval by the reinsurer of the individual risks covered;
Facultative reinsurance, in which an individual insurance policy or a specific risk is
reinsured with the prior approval of the reinsurer. Facultative reinsurance is primarily
used for policies with limits greater than the limits available under the reinsurance
treaties; and
Protection provided under the Terrorism Risk Insurance Act of 2002, which was modified
and extended through December 31, 2014 via the Terrorism Risk Insurance Program
Reauthorization Act of 2007 (collectively referred to as TRIA). For further information
regarding TRIA, see Item 1A. Risk Factors of this Form 10-K.
As of: 12/31/08
As of: 12/31/07
Recoverables
% of
Recoverables
% of
on Paid and
Stockholders
on Paid and
Stockholders
($ in thousands)
Unpaid
Equity
Unpaid
Equity
$
230,705
26
%
$
235,230
22
%
51,790
6
%
44,233
4
%
178,915
20
%
190,997
18
%
60,716
7
%
64,498
6
%
23,291
3
%
12,583
1
%
5,994
1
%
6,154
1
%
90,001
10
%
83,235
8
%
$
88,914
10
%
$
107,762
10
%
$
21,354
2
%
$
34,620
3
%
17,347
2
%
18,014
2
%
17,572
2
%
14,434
1
%
32,641
4
%
40,694
4
%
$
88,914
10
%
$
107,762
10
%
1
Includes letters of credit, trust funds, and funds withheld.
2
Considered to have minimal risk of default.
Note:
Some amounts may not foot due to rounding.
Table of Contents
Treaty
Reinsurance Coverage
Terrorism Coverage
See Item 1A. Risk Factors of this
Form 10-K for the description of
TRIA. 85% of all TRIA certified
losses above the retention. Our
retention for 2009 is approximately
$201 million. Current program
covers both domestic and foreign
terrorism. Terrorism acts related
to the use of nuclear, biological,
chemical or radioactive (NBCR)
weapons are covered by TRIA provided
that the Secretary of the Treasury
certifies the event.
Current program is set to expire on December
31, 2014. For further information regarding
TRIA and our risks concerning terrorism
exposure, see Item 1A. Risk Factors of this
Form 10-K.
$28 million above $2 million
retention in two layers. Losses
other than TRIA certified losses are
subject to the following
reinstatements and annual aggregate
limits:
All NBCR losses are excluded regardless of
whether or not they are certified under TRIA.
For non-NBCR losses, the treaty distinguishes
between acts certified under TRIA and those
that are not.
The treaty provides annual aggregate limits for
TRIA certified (other than NBCR) acts of $24
million for the first layer and $40 million for
the second layer. Non-certified terrorism
losses (other than NBCR) are subject to the
normal limits under the treaty.
95% of $310 million above $40
million retention in three layers:
The treaty provides one
reinstatement per layer, $589.0
million in annual aggregate limit,
net of the Insurance Subsidiaries
co-participation.
All nuclear, biological and chemical (NBC)
losses are excluded regardless of whether or
not they are certified under TRIA. TRIA losses
related to foreign acts of terrorism are
excluded from the treaty. Domestic terrorism
is included regardless of whether it is
certified under TRIA or not. Please see Item
1A. Risk Factors of this Form 10-K for
further discussion regarding changes in TRIA.
The 1
st
layer of $3
million in excess of $2 million is
covered at 65%. The 2
nd
through 5
th
layers are covered at 100% and the
6
th
layer of $40 million
in excess of $50 million is covered
at 75%. Losses other than terrorism
losses are subject to the following
reinstatements and annual aggregate
limits:
All NBCR losses are excluded. All other losses
stemming from the acts of terrorism are subject
to the following reinstatements and annual
aggregate limits:
National Workers Compensation Reinsurance Pool (NWCRP)
100% quota share up to a maximum
ceded combined ratio cap of 152%.
Provides up to 5 points in pool
participant insolvency assessment
protection.
Provides full terrorism coverage including NBCR.
100% reinsurance by the federal governments WYO Program.
None
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Pool or share proportionately the underwriting profit and loss results of property and
casualty underwriting operations through reinsurance;
Prevent any Insurance Subsidiary from suffering undue loss;
Reduce administration expenses; and
Permit all of the Insurance Subsidiaries to obtain a uniform rating from A.M. Best.
Insurance Subsidiary
Respective Percentage
49.5
%
21.0
%
9.0
%
7.0
%
7.0
%
6.0
%
0.5
%
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Name, Age, Title
Occupation and Background
Executive Vice
President and
Chief
Actuary
Executive Vice President,
Human
Resources
Executive Vice
President,
General
Counsel, and
Chief
Compliance Officer
Executive Vice
President,
Chief
Claims Officer
Executive Vice
President,
Chief
Underwriting and
Field Operations
Officer
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Information regarding each claim for losses, including potential extra-contractual
liabilities, or amounts paid in excess of the policy limits, which may not be covered by
our contracts with reinsurers;
Our loss history and the industrys loss history;
Legislative enactments, judicial decisions and legal developments regarding damages;
Changes in political attitudes; and
Trends in general economic conditions, including inflation.
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The modeling software we use to analyze the Insurance Subsidiaries risk results in an
inadequate purchase of reinsurance by us;
A major catastrophic loss exceeds the reinsurance limit or the reinsurers financial
capacity; or
The frequency of catastrophe losses result in the Insurance Subsidiaries exceeding
their one reinstatement.
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Year
Percentage Increase (Decrease) from Year to Year
(3.1)%
(3.9)%
(1.7)%
0%
Increases ranging from 4.3% to 12.6%
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, regulatory, legislative, and legal decisions that affect insurers
liabilities;
Changes in the frequency and severity of losses;
Pricing and availability of reinsurance in the marketplace; and
Weather-related impacts due to the effects of climate changes.
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Insurer solvency standards;
Insurer and agent licensing;
Investment restrictions;
Payment of dividends and distributions;
Provisions for current losses and future liabilities;
Deposit of securities for the benefit of policyholders;
Restrictions on policy terminations;
Unfair trade practices; and
Approval of premium rates and policy forms.
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After-market parts;
Urban homeowner insurance underwriting practices;
Credit scoring and predictive modeling pricing;
Investment disclosure;
Health maintenance organization practices;
Discounting and payment of personal injury protection claims; and
Shareholder class action suits.
Table of Contents
Supermajority voting and fair price to our business combinations;
Supermajority voting requirements to amend the foregoing provisions; and
The ability of the Board to issue blank check preferred stock.
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39
40
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42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
The Parents common stock is traded on the NASDAQ Global Select Market under the symbol SIGI.
The following table sets forth the high and low sales prices, as reported on the NASDAQ Global
Select Market, for the Parents common stock for each full quarterly period within the two most
recent fiscal years:
2008
2007
High
Low
High
Low
$
27.03
20.78
29.07
23.25
26.22
18.74
27.87
25.27
30.40
17.81
27.33
19.04
26.49
16.33
25.41
20.84
Dividend per share
2008
2007
$
0.13
$
0.12
0.13
0.12
0.13
0.12
0.13
0.13
(c)
Number of
(a)
securities remaining
Number of
available for
securities to be
(b)
future issuance under
issued upon
Weighted-average
equity compensation
exercise of
exercise price of
plans (excluding
outstanding options,
outstanding options,
securities reflected in
Plan Category
warrants and rights
warrants and rights
column (a))
1,158,847
$
18.73
5,041,512
1
1
Includes 116,873 shares available for issuance under the Employee Stock Purchase Savings Plan, 2,641,471 shares available for issuance
under the Stock Purchase Plan for Independent Insurance Agencies, and 2,283,168 shares available for issuance under the 2005 Omnibus
Stock Plan. Future grants under this plan can be made, among other things, as stock options, restricted stock units, or restricted stock.
Table of Contents
Total Number of
Maximum Number
Shares Purchased
of Shares that May Yet Be
Average Price
as Part of Publicly
Purchased Under the
Total Number of
Paid
Announced Plans
Announced Plans
Period
Shares Purchased
1
per Share
or Programs
2
or Programs
2
46,429
$
23.46
1,748,766
1,180
21.04
1,748,766
12,375
21.76
1,748,766
59,984
$
23.06
1,748,766
1
During the fourth quarter of 2008,
52,836 shares were purchased from
employees in connection with the
vesting of restricted stock and
7,148 shares were purchased
from employees in connection with
stock option exercises. These
repurchases were made in connection
with satisfying tax withholding
obligations with respect to those
employees. These shares were not
purchased as part of the publicly
announced program. The shares that
were purchased in connection with
the vesting of restricted stock were
purchased at the closing price on
the dates of purchase. The shares
purchased in connection with the
option exercises were purchased at
the current market prices of the
Parents common stock on the dates
of the options were exercised.
2
On July 24, 2007, the Board
authorized a share repurchase
program for up to 4 million shares,
which expires on July 26, 2009.
During the fourth quarter of 2008,
no shares were repurchased, leaving
1,748,766 shares remaining to be
purchased under the authorized
program.
Table of Contents
(All presentations are in accordance with
GAAP unless noted otherwise, number of
weighted average shares and dollars in
thousands, except per share amounts)
2008
2007
2006
2005
2004
$
1,484,041
1,554,867
1,535,961
1,459,474
1,365,148
1,495,490
1,517,306
1,499,664
1,418,013
1,318,390
131,032
174,144
156,802
135,950
120,540
(49,452
)
33,354
35,479
14,464
24,587
116,346
115,566
110,526
98,711
86,484
1,695,979
1,846,228
1,807,867
1,671,012
1,553,624
(15,226
)
15,957
57,978
69,728
40,768
14,527
18,623
17,808
14,793
11,921
43,758
146,498
163,574
147,452
127,177
546
1,462
495
43,758
146,498
163,574
148,493
128,639
(136,741
)
131,940
159,802
112,078
134,723
4,941,332
5,001,992
4,767,705
4,375,625
3,912,411
273,878
295,067
362,602
339,409
264,350
890,493
1,076,043
1,077,227
981,124
882,018
1.7
1.5
1.5
1.6
1.7
99.2
97.5
95.4
94.6
95.9
101.0
98.9
96.1
95.1
96.9
3.6
4.8
4.6
4.6
4.7
23.5
21.5
25.2
25.7
23.1
4.5
13.6
15.9
15.9
15.8
$
0.84
2.80
2.98
2.72
2.38
0.82
2.59
2.65
2.33
2.01
$
0.84
2.80
2.98
2.74
2.41
0.82
2.59
2.65
2.35
2.04
$
0.52
0.49
0.44
0.40
0.35
$
16.84
19.81
18.81
17.34
15.79
$
30.40
29.07
29.18
29.64
22.98
16.33
19.04
24.89
20.88
15.86
22.93
22.99
28.65
26.55
22.12
52,104
52,382
54,986
54,342
53,462
53,319
57,165
62,542
64,708
64,756
1
See the Glossary of Terms attached to this Form 10-K as Exhibit 99.1.
2
Flood business is included in statutory underwriting results in accordance with prescribed statutory accounting practices. On a
GAAP basis
only, flood servicing revenue and expense has been reclassified from underwriting results to Diversified Insurance Services.
3
See Item 8. Financial Statements and Supplementary Data, Note 12 to the consolidated financial statements for the components of
of income. In 2002, we sold our ownership interest in PDA Software Services, Inc. and in 2005, we sold our ownership interest in CHN
Solutions (Alta Services, LLC and Consumer Health Network Plus, LLC), both of which had historically been reported as components of
the Diversified Insurance Services segment.
Table of Contents
2003
2002
2001
2000
1999
1998
1,219,159
1,053,487
925,420
843,604
811,677
748,873
1,133,070
988,268
883,048
821,265
799,065
722,992
114,748
103,067
96,767
99,495
96,531
99,196
12,842
3,294
6,816
4,191
29,377
(2,139
)
70,780
59,399
51,783
43,463
22,554
8,562
1,335,056
1,157,553
1,041,177
972,153
950,669
831,791
(25,252
)
(38,743
)
(60,638
)
(65,122
)
(54,147
)
(24,986
)
6,194
3,103
(3,819
)
2,112
4,257
1,765
64,375
40,310
24,112
24,487
53,483
53,277
1,969
1,659
1,581
2,048
234
293
66,344
41,969
25,693
26,535
53,717
53,570
99,362
59,366
24,405
49,166
16,088
78,842
3,423,925
3,016,335
2,673,721
2,590,903
2,507,545
2,432,168
238,621
262,768
156,433
163,634
81,585
88,791
749,784
652,102
591,160
577,797
569,964
607,583
1.8
1.9
1.8
1.7
1.6
1.5
101.5
103.2
106.7
108.2
105.7
103.2
102.2
103.9
106.9
107.9
106.8
103.6
5.1
5.4
5.4
5.8
5.6
5.7
24.1
28.7
21.0
22.1
12.5
13.2
9.5
6.8
4.4
4.6
9.1
9.1
1.23
0.80
0.50
0.50
0.99
0.94
1.07
0.74
0.46
0.47
0.93
0.87
1.27
0.83
0.53
0.54
0.99
0.94
1.10
0.77
0.49
0.51
0.94
0.87
0.31
0.30
0.30
0.30
0.30
0.28
13.74
12.26
11.58
11.46
10.73
10.65
16.50
15.74
14.11
12.94
11.25
14.63
10.91
9.68
9.97
7.32
8.25
8.35
16.18
12.59
10.87
12.13
8.60
10.07
52,262
50,602
49,166
49,814
54,162
56,960
63,206
55,990
52,848
53,144
57,754
60,824
4
Regulatory and rating agencies use the statutory premiums to surplus ratio as a measure of solvency, viewing an
increase in
the ratio as a possible increase in solvency risk. Management and analysts also view this ratio as a measure of the effective
use of capital because, as the ratio increases, revenue per dollar of capital increases, indicating the possibility of increased
returns or increased losses due to the effects of leverage.
5
Changes in both the GAAP and statutory combined ratios are viewed by management and analysts as indicative of changes
in the profitability of underwriting operations. A ratio over 100% is indicative of an underwriting loss, and a ratio below
100% is indicative of an underwriting profit.
6
See Item 8. Financial Statements and Supplementary Data, Note 9 to the consolidated financial statements for a
discussion
of notes payable and debentures.
Table of Contents
Critical Accounting Policies and Estimates;
Financial Highlights of Results for years ended December 31, 2008, 2007, and 2006;
Results of Operations and Related Information by Segment;
Federal Income Taxes;
Financial Condition, Liquidity, and Capital Resources;
Off-Balance Sheet Arrangements;
Contractual Obligations and Contingent Liabilities and Commitments; and
Adoption of Accounting Pronouncements.
Table of Contents
Table of Contents
Table of Contents
Reinsurance
Recoverable
on Unpaid
Loss Reserves
Loss
Losses and
As of December 31, 2008
Case
IBNR
Expense
Loss
($ in thousands)
Reserves
Reserves
Total
Reserves
Expenses
Net Reserves
$
131,038
187,804
318,842
36,868
9,351
346,359
396,345
431,549
827,894
103,952
81,556
850,290
203,487
538,591
742,078
185,434
36,978
890,534
39,570
1,978
41,548
3,669
2,214
43,003
25,988
35,309
61,297
10,073
5,256
66,114
2,135
4,314
6,449
2,215
387
8,277
719
1,323
2,042
686
1,356
799,282
1,200,868
2,000,150
342,211
136,428
2,205,933
123,964
62,141
186,105
35,239
62,699
158,645
18,589
22,729
41,318
4,628
883
45,063
13,730
15,026
28,756
2,566
24,182
7,140
156,283
99,896
256,179
42,433
87,764
210,848
$
955,565
1,300,764
2,256,329
384,644
224,192
2,416,781
Reinsurance
Recoverable
on Unpaid
Loss Reserves
Loss
Losses and
As of December 31, 2007
Case
IBNR
Expense
Loss
($ in thousands)
Reserves
Reserves
Total
Reserves
Expenses
Net Reserves
$
117,299
188,294
305,593
36,236
12,255
329,574
382,364
424,528
806,892
102,315
76,747
832,460
198,636
500,806
699,442
162,098
46,434
815,106
44,520
2,030
46,550
3,572
5,895
44,227
23,469
30,967
54,436
8,604
5,281
57,759
4,008
3,509
7,517
2,217
296
9,438
907
1,601
2,508
863
1,645
771,203
1,151,735
1,922,938
315,042
147,771
2,090,209
127,646
70,989
198,635
38,221
65,541
171,315
17,889
21,227
39,116
4,511
944
42,683
7,479
14,404
21,883
2,201
13,545
10,539
153,014
106,620
259,634
44,933
80,030
224,537
$
924,217
1,258,355
2,182,572
359,975
227,801
2,314,746
Table of Contents
The selection of loss development factors;
The weight to be applied to each individual actuarial indication;
Projected future loss trend; and
Expected ultimate loss ratios for the current accident year.
Table of Contents
If Assumption Was
If Assumption Was
($in millions)
Reduced by 7%
Raised by 7%
(21
)
21
(28
)
28
(17
)
17
(7
)
7
Table of Contents
2008
2007
2006
2,177
2,273
2,089
124
114
358
(264
)
(210
)
(174
)
2,037
2,177
2,273
$
32
81
914
$
110,582
51,868
66,710
15
16
20
271
302
293
269
108
111
(215
)
(139
)
(102
)
325
271
302
$
14,803
4,149
555
$
115,562
62,874
26,321
6
14
9
1
The number of environmental claims includes all multiple claimants who are associated with the same site or incident.
2
Includes claims dismissed, settled, or otherwise resolved.
3
The net survival ratio was calculated using a three-year average for net losses and expenses paid.
Table of Contents
Whether the decline appears to be issuer or industry specific;
The degree to which an issuer is current or in arrears in making principal and interest
payments on the fixed maturity security;
The issuers current financial condition and ability to make future scheduled principal and
interest payments on a timely basis;
Stress testing of projected cash flows under various economic and default scenarios.
Buy/hold/sell recommendations published by outside investment advisors and analysts;
Relevant rating history, analysis and guidance provided by rating agencies and analysts;
and
Our ability and intent to hold a security to maturity given interest rate fluctuations.
Whether the decline appears to be issuer or industry specific;
The relationship of market prices per share to book value per share at the date of
acquisition and date of evaluation;
The price-earnings ratio at the time of acquisition and date of evaluation;
The financial condition and near-term prospects of the issuer, including any specific
events that may influence the issuers operations;
The recent income or loss of the issuer;
The independent auditors report on the issuers recent financial statements;
The dividend policy of the issuer at the date of acquisition and the date of evaluation;
Any buy/hold/sell recommendations or price projections published by outside investment
advisors;
Any rating agency announcements; and
The length of time and the extent to which the fair value has been less than the carrying
value.
Table of Contents
The current investment strategy;
Changes made or future changes to be made to the investment strategy;
Emerging issues that may affect the success of the strategy; and
The appropriateness of the valuation methodology used regarding the underlying investments.
Table of Contents
2008
2007
($ in thousands, except per share amounts)
2008
2007
vs. 2007
2006
vs. 2006
$
1,695,979
1,846,228
(8
)%
1,807,867
2
%
43,758
146,498
(70
)
163,574
(10
)
0.82
2.59
(68
)
2.65
(2
)
53,319
57,165
(7
)
62,542
(9
)
101.0
%
98.9
2.1
pts
96.1
2.8
pts
99.2
%
97.5
1.7
95.4
2.1
4.5
%
13.6
(9.1
)
15.9
(2.3
)
1
Refer to the Glossary of Terms attached to this Form 10-K as
Exhibit 99.1 for definitions of terms used in this financial review, which
exhibit is incorporated by reference.
Net realized losses in our investment portfolio of $49.5 million, pre-tax, compared to
net realized gains of $33.4 million in 2007 and $35.5 million in 2006. The losses in 2008
include non-cash OTTI charges of $53.1 million, as well as lower realized gains on our
equity portfolio, due to continuing market volatility and unprecedented collateral
deterioration across credit markets. In addition, certain equity securities were sold at a
loss to take advantage of financial and tax planning strategies. For additional
information on our realized losses, including OTTI charges, refer to the Investments
section below.
Net realized gains in 2007 and 2006 reflect the sale of several equity positions which
resulted in re-weighting various sector exposures. Partially offsetting the 2007 realized
gains were pre-tax OTTI charges of $4.9 million. There were no OTTI charges in 2006.
Net investment income earned of $131.0 million, pre-tax, in 2008 compared to $174.1
million in 2007 and $156.8 million in 2006. Reduced income levels in 2008 were primarily
due to losses on our other investments portfolio, which includes alternative investments,
as well as losses on our externally-managed equity trading portfolio. The lower returns on
our alternative investments, compared to strong returns a year ago, resulted from the
current volatility in the capital markets, the dislocation of the credit markets, and
reduced values of financial assets globally. Although these assets resulted in a negative
return for the year, they outperformed the S&P 500 by approximately 2,700 basis points in
2008. Our equity trading portfolio has experienced a reduction in fair value due to the
continued sell off in the equity markets, as well as the collapse in commodity prices in
the second half of 2008. For additional information on our other investment portfolio,
which includes our alternative investments, as well as for information regarding our
trading portfolio, refer to the Investments section below.
The increase in pre-tax net investment income earned in 2007 compared to 2006 is primarily
attributable to a higher invested asset base, coupled with higher interest rates and strong
returns from our other investment portfolio during the year.
Underwriting losses of $15.2 million, pre-tax, in 2008 compared to underwriting gains of
$16.0 million in 2007 and $58.0 million in 2006. The underwriting loss in 2008 reflects
higher catastrophe losses and reduced NPE. Catastrophe losses increased by $16.8 million,
to $31.7 million in 2008 driven by storm activity in the Southern and Midwestern states.
NPE decreased by $21.8 million, or 1%, to $1.5 billion in 2008 reflecting pricing pressure
stemming from a highly competitive insurance marketplace and the slowing economy. The
following factors also contributed to the decline in NPE:
Direct new business written, excluding flood, decreased $41.7 million to
$310.6 million in 2008 compared to $352.3 million in 2007.
Audit and endorsement activity decreased $38.2 million to a net premium
return to policyholders of $22.3 million in 2008.
As a result of the various expense savings initiatives we implemented in 2008, net
underwriting expenses incurred in 2008 were slightly lower than 2007. We acted early in
2008 to manage expenses with a workforce reduction initiative, changes to our agent
commission programs, and the re-domestication of two of the Insurance Subsidiaries to
Indiana. In addition to helping to manage expenses in 2008, these initiatives will continue
to benefit expenses going forward.
Table of Contents
The decrease in pre-tax underwriting results in 2007 compared to 2006 is the result of lower
pricing and higher claim severity, particularly property losses, partially offset by
profitability improvements in our workers compensation line of business and increases in net
favorable prior year loss and loss expense development within our casualty lines of
business.
A pre-tax goodwill impairment charge of $4.0 million related to Selective HR due to the
fact that our near-term financial projections for this reporting unit were not sufficient
to support its carrying value in light of current economic conditions. We did not record
any goodwill impairments charges during 2007 or 2006.
The aforementioned pre-tax items resulted in a reduction in tax expense of $50.6 million in
2008 compared to 2007, resulting in a 2008 total tax benefit of $4.4 million compared to
expenses of $46.3 million in 2007 and $56.9 million in 2006.
2008
2007
($ in thousands)
2008
2007
vs. 2007
2006
vs. 2006
$
1,484,041
1,554,867
(5
)%
1,535,961
1
%
1,495,490
1,517,306
(1
)
1,499,664
1
1,013,816
999,206
1
959,983
4
491,689
494,941
(1
)
475,776
4
5,211
7,202
(28
)
5,927
22
$
(15,226
)
15,957
(195
)%
57,978
(72
)%
67.8
%
65.9
1.9
pts
64.0
1.9
pts
32.9
32.5
0.4
31.7
0.8
0.3
0.5
(0.2
)
0.4
0.1
101.0
98.9
2.1
96.1
2.8
67.2
65.4
1.8
63.7
1.7
31.7
31.6
0.1
31.3
0.3
0.3
0.5
(0.2
)
0.4
0.1
99.2
%
97.5
1.7
pts
95.4
2.1
pts
1
The statutory ratios include our flood line of business, which is included in the Diversified Insurance Services Segment on a GAAP basis and
therefore excluded from the GAAP ratios. The total statutory combined ratio excluding flood was 99.9% for 2008, 98.2% for 2007, and 96.1% for 2006.
NPW decreased in 2008 compared to 2007 as the result of the highly competitive insurance
marketplace and the slowing economy. These factors were evidenced by: (i) our direct new
business, which decreased $41.7 million to $310.6 million; (ii) a 3.1% decrease in
Commercial Lines renewal pure pricing; and (iii) endorsement and audit activity which
decreased $38.2 million.
As mentioned above, Commercial Lines renewal pure pricing in 2008 decreased 3.1% on renewal
premiums, which we consider an achievement in the current competitive marketplace where many
carriers are taking much larger rate decreases. Several commercial lines pricing studies
indicate that, over the past 15 quarters, we have outperformed the industry, by as much as
6.5 points in the case of one survey. In addition, our Commercial Lines retention has
remained relatively stable at 77% in 2008 compared to 78% in 2007 and 2006. In response to
the highly competitive marketplace, our agents are actively managing our books of business
by renewing accounts as much as 60 days in advance of the policy expiration date.
Table of Contents
Personal lines premiums grew 4% in 2008 compared to 2007 as we successfully received
approval for rate increases during the year and have plans to implement additional rate
increases in 2009. Partially offsetting our rate increases in this book of business was the
disruption caused by the elimination of rate caps that had been in place while our
MATRIX
SM
pricing system was implemented for our personal automobile business in
New Jersey. This disruption was evidenced by car counts in New Jersey, which decreased by
approximately 6,000 to approximately 65,000 at year-end 2008. As we further transition our
entire Personal Lines book into MATRIX
SM
, we could see some modest downward
pressure on retention which currently stands at a strong 81%.
NPW increased in 2007 compared to 2006, driven by increases in direct new business of 14%,
to $352.3 million partially offset by: (i) Commercial Lines renewal pure price decrease of
3.9% in 2007; (ii) a slight reduction in Commercial Lines retention; (iii) a $17.9 million
reduction in audit and endorsement premium activity; and (iv) a decline in NPW for our New
Jersey personal automobile business of $12.6 million, to $80.1 million, driven by a
reduction in the number of New Jersey personal automobiles that we insure, primarily as a
result of repricing at higher levels through our MATRIX
SM
pricing system.
As the result of decreased NPW over the last 12 months, NPE declined in 2008 compared to
2007. There was a slight increase in NPE in 2007 compared to 2006 reflecting the 2007
increases in NPW discussed above.
The increase in the GAAP loss and loss expense ratio in 2008 compared to 2007 reflects
higher catastrophe losses related to 2008 storm activity primarily in our Midwestern and
Southern regions. Total catastrophe losses for the year added $31.7 million, or 2.1
points, to losses in 2008. For 2007, catastrophe losses added $14.9 million, or 1.0 point,
to losses. In 2008, net favorable prior year loss and loss expense development, driven
primarily by our workers compensation line of business, was flat at approximately $19
million, or 1.3 points, compared to approximately $19 million, or 1.2 points, in 2007
driven by our commercial automobile line of business.
The increase in the GAAP loss and loss expense ratio in 2007 compared to 2006 is primarily
attributable to lower pricing on our Commercial and Personal Lines business, as well as
increases in property losses and overall higher loss costs in 2007 compared to 2006. The
increases in property losses were driven by higher non-catastrophe losses and were partially
offset by: (i) improved profitability in our workers compensation line of business; and
(ii) net favorable prior year loss and loss expense development within our casualty lines of
business of approximately $19 million in 2007, compared to approximately $7 million in 2006.
While loss activity is part of the normal volatility in our property lines of business, we
continue to manage our claims process in an effort to reduce our loss and loss expense
ratio. To that end, we have instituted a number of initiatives that are focused on best
practices in the following areas:
Claims automation;
Enhancement of claims quality and control;
Litigation management;
Enhancement of compliance and bill review;
Enhancement of workers compensation review; and
Enhancement of salvage and subrogation review.
As these initiatives are anticipated to accelerate the timing of reserve establishment, we
ultimately expect lower loss costs to be realized through reduced legal and loss adjustment
expenses. This acceleration inflates our severity statistics in the near term, but we
expect the longer-term benefit to be a refined management of the claims process.
The GAAP underwriting expense ratio increased in 2008 compared to 2007 primarily as the
result of the pre-tax restructuring charge of $5.0 million, or 0.3 points, related to
reductions in our workforce during 2008. Absent this charge, the expense ratio remained
relatively flat, reflecting a 1% decrease in NPE partially offset by lower overall
underwriting expenses year over year. These reduced expenses are the result of lower
expected payments of profit-based incentives to our agents and employees, reflecting lower
NPW and underwriting results during 2008, and benefits realized from our cost containment
initiatives including: (i) targeted changes to our agency commission program implemented
in July 2008 and expected to generate annual savings of $7 million, pre-tax; (ii) our
workforce reductions during 2007 and 2008, expected to generate annual savings of $7
million, pre-tax; and (iii) the re-domestication of two of the Insurance Subsidiaries
effective June 30, 2008, to achieve operational efficiencies with an anticipated pre-tax
savings of $2 million annually.
Table of Contents
The increase in the GAAP underwriting expense ratio in 2007 compared to 2006 was
attributable to increases in underwriting expenses that outpaced premium growth. These
underwriting expense increases were driven by higher labor costs.
Efforts to manage expenses with a workforce reduction initiative, changes to our agent
commission programs, and the re-domestication of two of the Insurance Subsidiaries to
Indiana. In addition to helping to manage our expense ratios this year, the ongoing impact
of these initiatives will continue to benefit expenses going forward. While the
cost-savings generated by these efforts are recognized immediately on a statutory basis,
they are recognized on a GAAP basis over a 12-month period, thereby somewhat delaying their
impact.
Claims management initiative with a focus on best practices in the areas of: (i) claims
automation; (ii) enhancement of claims quality and control; (iii) litigation management;
(iv) enhancement of compliance and bill review; (v) enhancement of workers compensation
review; and (vi) enhancement of salvage and subrogation review.
Sales management efforts including our market planning tools and leads program. Our
market planning tools allow us to identify and strategically appoint additional independent
agencies in and hire AMSs for underpenetrated territories. During 2008, the Insurance
Subsidiaries independent agency count grew by approximately 60, bringing our total agency
count to approximately 940. These independent insurance agencies are serviced by
approximately 100 field-based AMSs who make hands-on underwriting decisions on a daily
basis.
Technology that allows agents and our field teams to input business seamlessly into our
systems, including our One & Done
®
small business system and our
xSELerate
®
straight-through processing system. Premiums of approximately
$273,000 per workday were processed through our One & Done
®
small business
system during 2008, up 9% from the same period in 2007.
Organic expansion including entering our 22
nd
state, Tennessee, in June 2008.
In the first seven months of operations in this state, we wrote premium of $5.5 million.
In addition, we wrote $14.6 million of premium in Massachusetts during 2008, our first full
year of operations in this state.
Table of Contents
2008
2007
($ in thousands)
2008
2007
vs. 2007
2006
vs. 2006
$
1,270,856
1,350,798
(6
)%
1,318,873
2
%
1,285,547
1,314,002
(2
)
1,285,876
2
852,697
838,577
2
811,326
3
421,536
426,118
(1
)
405,141
5
5,211
7,202
(28
)
5,927
22
$
6,103
42,105
(86
)%
63,482
(34
)%
66.3
%
63.8
2.5
pts
63.1
0.7
pts
32.8
%
32.5
0.3
31.5
1.0
0.4
%
0.5
(0.1
)
0.5
99.5
%
96.8
2.7
95.1
1.7
65.9
%
63.4
2.5
62.9
0.5
32.2
%
32.0
0.2
31.6
0.4
0.4
%
0.5
(0.1
)
0.5
98.5
%
95.9
2.6
pts
95.0
0.9
pts
NPW decreased in 2008 compared to 2007 and 2006 due to the highly competitive insurance
marketplace and the slowing economy. These factors were evidenced by: (i) Commercial
Lines direct new business that decreased $46.1 million to $267.2 million; (ii) a 3.1%
decrease in renewal pure pricing; and (iii) endorsement and audit activity that decreased
$37.7 million.
As mentioned above, Commercial Lines renewal pure pricing in 2008 decreased 3.1% on renewal
premiums, which we consider an achievement in the current competitive marketplace,
especially when viewed in conjunction with our retention, which remained relatively flat at
77% during the year. In response to the highly competitive marketplace, our agents are
actively managing our books of business by renewing accounts as much as 60 days in advance
of the policy expiration date.
NPW increased in 2007 compared to 2006, driven by increases in direct new business of $36.4
million, to $313.3 million, partially offset by: (i) renewal pure price decreases of 3.9%;
(ii) a slight reduction in retention; and (iii) decreases in audit and endorsement premium
activity of $11.5 million and $6.3 million, respectively.
As the result of decreased NPW over the last 12 months, NPE declined in 2008 compared to
2007. There was a slight increase in NPE in 2007 compared to 2006 reflecting the 2007
increases in NPW discussed above.
The increase in the GAAP loss and loss expense ratio in 2008 compared to 2007 reflects
higher catastrophe losses related to 2008 storm activity primarily in our Midwestern and
Southern regions and a reduction in favorable prior year loss and loss expense development
of approximately $6 million, from approximately $20 million, or 1.5 points in 2007 to
approximately $14 million, or 1.1 points in 2008. Total catastrophe losses for the year
added $27.0 million, or 2.1 points, to losses in 2008. For 2007, catastrophe losses added
$12.0 million, or 0.9 points, to losses. The favorable prior year development in 2008 was
driven by improvement in our workers compensation line of business, while the prior year
development in 2007 was driven by lower than expected severity on our commercial automobile
line of business.
Table of Contents
The increase in the GAAP loss and loss expense ratio in 2007 compared to 2006 is primarily
attributable to lower pricing on our commercial book of business as well as increases in
property losses. Included in property losses were catastrophe losses that decreased $3.6
million, or 0.3 points, to $12.0 million in 2007 compared to $15.6 million in 2006. These
increases were partially offset by net favorable prior year loss and loss expense
development, primarily in our commercial automobile line of business, that amounted to
approximately $20 million, or 1.5 points in 2007, compared to approximately $2 million, or
0.1 points, of net favorable prior year loss and loss expense development in 2006.
The GAAP underwriting expense ratio increased in 2008 compared to 2007 primarily as the
result of the pre-tax restructuring charge of $4.4 million, or 0.3 points, related to
reductions in our workforce during 2008. Absent this charge, the expense ratio remained
flat, reflecting a decrease in NPE partially offset by lower overall underwriting expenses
year over year. These reduced expenses are the result of lower expected payments of
profit-based incentives to our agents and employees, reflecting lower NPW and underwriting
results during 2008, and benefits realized from our cost containment initiatives including:
(i) targeted changes to our agency commission program implemented in July 2008; (ii) our
workforce reductions during 2007 and 2008; and (iii) the re-domestication of two of the
Insurance Subsidiaries effective June 30, 2008, to achieve operational efficiencies.
The increase in the GAAP underwriting expense ratio in 2007 compared to 2006 was
attributable to increases in underwriting expenses that outpaced premium growth. These
underwriting expense increases were driven by higher labor costs.
2008
2007
($ in thousands)
2008
2007
vs. 2007
2006
vs. 2006
$
393,012
420,388
(7
)%
413,381
2
%
396,066
410,024
(3
)
402,745
2
102.0
%
98.8
3.2
pts
96.5
2.3
pts
31
%
31
31
Table of Contents
2008
2007
($ in thousands)
2008
2007
vs. 2007
2006
vs. 2006
$
303,783
336,189
(10
)%
325,008
3
%
308,618
325,657
(5
)
314,221
4
96.1
%
101.6
(5.5
)pts
108.4
(6.8
)pts
24
%
25
25
2008
2007
($ in thousands)
2008
2007
vs. 2007
2006
vs. 2006
$
300,391
319,176
(6
)%
319,710
%
307,388
315,259
(2
)
319,921
(1
)
99.7
%
88.1
11.6
pts
88.1
pts
23
%
23
24
Table of Contents
2008
2007
($ in thousands)
2008
2007
vs. 2007
2006
vs. 2006
$
194,550
198,903
(2
)%
188,839
5
%
196,189
190,681
3
182,351
5
92.9
%
92.7
0.2
pts
82.1
10.6
pts
15
%
15
14
Table of Contents
2008
2007
($ in thousands)
2008
2007
vs. 2007
2006
vs. 2006
$
213,185
204,069
4
%
217,088
(6
)%
209,943
203,304
3
213,788
(5
)
161,119
160,629
148,657
8
70,153
68,823
2
70,635
(3
)
$
(21,329
)
(26,148
)
18
%
(5,504
)
(375
)%
76.7
%
79.0
(2.3
)pts
69.5
9.5
pts
33.5
%
33.9
(0.4
)
33.1
0.8
110.2
%
112.9
(2.7
)
102.6
10.3
75.7
%
78.2
(2.5
)
68.5
9.7
28.0
%
29.7
(1.7
)
29.7
103.7
%
107.9
(4.2
)pts
98.2
9.7
pts
1
The statutory ratios include our flood line of business, which is included in the Diversified Insurance Services segment on a GAAP basis and
therefore excluded from the GAAP ratios. The total statutory combined ratio excluding flood was 108.7% for 2008, 113.0% for 2007, and
102.9% for 2006.
The increase in NPW in 2008 compared to 2007 is primarily due to the impact of rate
actions that became effective during the year. These rate actions resulted in an overall
rate increase of 7.7% in Personal Lines, comprised of 11.1% in our personal automobile line
of business and 1.1% in our homeowners line of business. Specific to our New Jersey
personal automobile business, we have received rate increases of 6.8% effective in May 2008
and 6.5% effective in October 2008.
Our rate increases were partially offset by a decline in retention of approximately one
point, to 81%, on our overall Personal Lines book. In addition, the number of automobiles
that we insure in New Jersey decreased by approximately 6,000, to 65,000 cars, at December
31, 2008.
NPW decreased in 2007 compared to 2006. Excluding the impact from the cancellation of the
New Jersey Homeowners Quota Share Treaty, which increased 2006 NPW by $11.3 million, NPW
decreased 1% in 2007 compared to 2006. This modest 1% decrease was driven by the
implementation of our MATRIX
SM
pricing system, which caused a dislocation in our
New Jersey personal automobile line of business as renewal policies were repriced at higher
levels. Partially offsetting this decrease were increases in our personal automobile
business outside of New Jersey of $5.4 million, to $50.0 million, coupled with increases in
our homeowners business of $4.5 million, to $65.4 million, in 2007.
The fluctuations in NPE reflect the fluctuations in NPW as discussed above.
The improvement in the GAAP loss and loss expense ratio in 2008 compared to 2007 is
primarily driven by the 3% increase in NPE, coupled with favorable prior year development
in our casualty lines of approximately $5 million, or 2.2 points, in 2008, compared to
unfavorable prior year development of approximately $1 million, or 0.4 points, in 2007.
The 2008 development reflected a better quality of business being written through our
MATRIX
SM
pricing system, coupled with normal volatility, while the 2007
development included the impact of unfavorable trends in groundwater contamination caused
by the leakage of certain underground oil storage tanks in our homeowners line of business.
This improvement in the loss and loss expense ratio was partially offset by increases in:
(i) catastrophe losses of $1.9 million, to $4.7, million in 2008; and (ii) non-catastrophe
property losses of $4.5 million, to $56.5 million, in 2008.
Table of Contents
The deterioration in the GAAP loss and loss expense ratio in 2007 compared to 2006 was
primarily driven by decreased pricing in our New Jersey personal automobile line of business
coupled with the following:
An increase of $6.7 million in non-catastrophe property losses in 2007 compared
to 2006.
Unfavorable prior year development in our casualty lines of $1 million in 2007
compared to favorable prior year development of $6 million in 2006. The unfavorable
development in 2007 reflects: (i) higher severity in accident year 2006 for our
personal automobile line of business; (ii) adverse prior year development due to
unfavorable trends in claims for groundwater contamination caused by the leakage of
certain underground oil storage tanks in our homeowners line of business; and (iii)
several significant losses in our personal excess line of business, partially offset
by lower than expected loss emergence for accident years prior to 2006. The
favorable prior year development in 2006 primarily related to lower than expected
frequency in personal automobile claims.
The deterioration in the 2007 loss and loss expense ratio was partially offset by a
reduction in catastrophe losses of $2.2 million, to $2.9 million, in 2007.
The GAAP underwriting expense ratio improved in 2008 compared to 2007 primarily due to
costs associated with the reorganization of the Personal Lines department in May of 2007,
which reduced the staffing level by 31 employees and, added 0.6 points to the underwriting
expense ratio in 2007. The deterioration in the GAAP underwriting expense ratio in 2007
compared to 2006 was primarily attributable to overhead costs that have outpaced premiums
earned.
Property Reinsurance
- includes our Property Excess of Loss treaty purchased for
protection against large individual property losses and our Property Catastrophe treaty
purchased to provide protection for the overall property portfolio against severe
catastrophic events. Facultative reinsurance is also used for property risks that are
in excess of our treaty capacity.
Casualty Reinsurance
- purchased to provide protection for both individual large
casualty losses and catastrophic casualty losses involving multiple claimants or
insureds. Facultative reinsurance is also used for casualty risks that are in excess
of our treaty capacity.
Terrorism Reinsurance
- available as a federal backstop related to terrorism losses
as provided under the TRIA. For further information regarding this legislation, see
Item 1A. Risk Factors of this Form 10-K.
Flood Reinsurance
- as a servicing carrier in the WYO Program, we receive a fee for
writing flood business, for which the related premiums and losses are ceded to the
federal government.
Other Reinsurance
- includes smaller treaties, such as our Surety and Fidelity
Excess of Loss and our Equipment Breakdown Coverage treaties, which do not fall within
the categories above.
Table of Contents
Historical Basis
Near Term Basis
Net Losses
Net Losses
($ in thousands)
as a
as a
Occurrence Exceedence
Gross Losses
Net
Percent of
Gross Losses
Net
Percent of
Probability
RMS v.8.0
Losses
1
Equity
2
RMS v.8.0
Losses
1
Equity
2
$
48,695
26,820
3
%
$
68,994
28,733
3
%
99,455
31,604
4
132,327
33,903
4
185,855
37,626
4
235,608
40,537
5
377,497
64,600
7
455,380
115,224
13
1
Losses are after tax and include applicable reinstatement premium.
2
Equity as of December 31, 2008
The per-occurrence cap on the first layer of this treaty was $24.0 million in both
the current and expiring treaty and the per occurrence cap on the second layer was
increased to $40.0 million from $22.5 million, bringing the total per-occurrence limit
for the program to $64.0 million compared to the $46.5 million limit in the expiring
treaty.
The annual aggregate limit for the second $20.0 million in excess of $10.0 million
layer was also increased, by an additional reinstatement, to $80.0 million. The first
layer continues to have unlimited reinstatements.
Consistent with the prior year contract, all NBCR losses are excluded from the
Property Excess of Loss treaty. Terrorism (excluding NBCR) and per-occurrence
aggregate limits were increased to $64.0 million from $46.5 million.
Table of Contents
The first layer was expanded from a workers compensation only layer to now include
all lines, which significantly reduces uncertainty surrounding losses in that layer.
This layer provides coverage up to 65% of $3.0 million in excess of a $2.0 million
retention.
The next four layers provide coverage up to 100% of $45.0 million in excess of a
$5.0 million retention.
The sixth layer provides coverage up to 75% of $40.0 million in excess of a $50.0
million retention.
Consistent with the prior year, the Casualty Treaty excludes nuclear, biological,
chemical, and radiological terrorism losses. Annual aggregate terrorism limits, net of
co-participation including a $40.0 million in excess of $50.0 million layer, is $175.8
million for all losses.
Table of Contents
2008
2007
($ in thousands)
2008
2007
vs. 2007
2006
vs. 2006
$
3,540,309
3,733,029
(5
)%
3,596,102
4
%
131,032
174,144
(25
)
156,802
11
105,039
133,669
(21
)
121,460
10
(49,452
)
33,354
(248
)
35,479
(6
)
(32,144
)
21,680
(248
)
23,061
(6
)
19.8
%
23.2
(3.4
)pts
22.5
0.7
pts
3.6
3.6
3.5
0.1
2.9
3.6
(0.7
)
3.6
Table of Contents
December 31,
December 31,
Rating
2008
2007
52
%
69
%
34
%
16
%
10
%
9
%
4
%
6
%
<1
%
<1
%
100
%
100
%
State Exposures of Municipal Bonds
General
Special
Fair
Credit
($ in thousands)
Obligation
Revenue
Value
Rating
$
100,607
101,638
202,245
AA+
18,085
90,702
108,787
AA
16,195
81,208
97,403
AA+
46,930
47,957
94,887
AA+
90,874
90,874
AA+
35,137
43,930
79,067
AA+
41,244
34,233
75,477
AA+
24,221
44,833
69,054
AA+
41,569
25,820
67,389
AA+
233,149
577,810
810,959
AA+
$
557,137
1,139,005
1,696,142
AA+
62,982
$
1,759,124
Table of Contents
Alternative Investment Strategies
Carrying
Remaining
($ in millions)
Value
Commitment
$
56.9
36.0
29.8
5.2
24.1
27.7
23.4
20.0
23.1
28.1
5.9
2.5
1.8
$
165.0
119.5
($ in thousands)
2008
2007
2006
$
27
16
(2
)
1,777
445
2,460
(55,961
)
(7,150
)
(6,756
)
34,582
50,254
43,542
(21,290
)
(9,359
)
(3,783
)
1,356
847
(9,941
)
(1,683
)
$
(49,452
)
33,354
35,479
Table of Contents
$15.1 million of RMBS and CMBS charges. These charges related to declines in the
related cash flows of the collateral, based on our assumptions of the expected default
rates and the value of the collateral, and accordingly, we do not believe it is probable
that we will receive all contractual cash flows.
$16.4 million of ABS charges. These charges related to issuer-specific credit events
that revolved around the performance of the underlying collateral, which had materially
deteriorated; however, none of which were bankruptcy related. In general, these securities
were experiencing increased conditional default rates and expected loss severities, and as
a result, our stress test scenarios were indicating less of a margin to absorb losses going
forward. Although some of these securities were insured or guaranteed by monoline bond
guarantors, downgrades have reduced our confidence in their ability to perform in the event
of default. In addition, credit support for these securities has also begun to erode,
thereby further increasing the potential for eventual loss.
$10.2 million associated with corporate bond charges. These charges were due to
issuer-specific events, primarily related to two Icelandic bank debt securities, on which
the banks were placed in receivership.
$6.6 million from six equity securities related to the sharp sell off in the global
equity markets stemming from the mortgage and credit crisis, which led to concerns that
both U.S. and global economic growth would slow in the near future.
$4.8 million on two alternative investments directly related to a security held in their
portfolio that had considerable unrealized losses because of the severe volatility in the
current financial markets and the dramatic market sell off, specifically in commodity
prices.
Table of Contents
2008
2007
2006
Period of time in an
Fair
Fair
Fair
Unrealized loss position
Value on
Realized
Value on
Realized
Value on
Realized
($ in millions)
Sale Date
Loss
Sale Date
Loss
Sale Date
Loss
$
40.4
8.3
29.0
0.7
94.9
1.5
11.4
0.6
31.6
0.4
76.6
2.5
9.4
3.6
10.2
0.2
35.8
1.5
61.2
12.5
70.8
1.3
207.3
5.5
30.1
13.4
60.0
8.8
15.5
3.1
3.8
0.6
1.6
0.4
3.2
0.7
1.6
0.7
0.4
0.2
35.5
14.7
62.0
9.4
18.7
3.8
9.0
4.3
5.3
1.7
9.0
4.3
5.3
1.7
$
105.7
31.5
138.1
12.4
226.0
9.3
2008
2007
Period of time in an
Gross
Gross
Unrealized loss position
Fair
Unrealized
Fair
Unrealized
($ in millions)
Value
Loss
Value
Loss
$
402.2
18.1
219.2
8.0
375.8
53.4
188.6
11.6
232.8
88.7
340.5
5.7
1,010.8
160.2
748.3
25.3
53.4
14.3
25.7
1.1
7.7
4.4
1.1
0.4
61.1
18.7
26.8
1.5
4.5
1.5
4.5
1.5
$
1,076.4
180.4
775.1
26.8
Table of Contents
Fair Value as a Percentage of Amortized Cost
Unrealized
Fair
($ in millions)
(Loss) Gain
Value
$
(37.5
)
820.3
(21.9
)
84.4
(100.8
)
106.1
(160.2
)
1,010.8
71.1
2,023.5
$
(89.1
)
3,034.3
75% or more
but less than
Less than
85% of
75% of
Duration of Unrealized Loss Position
Amortized
Amortized
($ in millions)
Cost
Cost
$
(18.4
)
(31.4
)
(2.3
)
(14.2
)
(11.3
)
(1.2
)
(32.6
)
(11.3
)
$
(21.9
)
(100.8
)
Table of Contents
Cost/
2008
Amortized
Fair
Unrealized
($ in thousands)
Cost
Value
Losses
$
10,078
2,096
(7,982
)
9,657
3,516
(6,141
)
9,996
4,122
(5,874
)
9,620
4,378
(5,242
)
11,496
6,424
(5,072
)
Contractual Maturities
Amortized
Fair
($ in millions)
Cost
Value
$
94.5
83.6
554.1
476.0
443.7
395.1
48.6
43.0
30.1
13.1
$
1,171.0
1,010.8
Table of Contents
For the Year Ended December 31,
($ in thousands)
2008
2007
2006
$
53,147
59,109
63,322
(781
)
3,993
4,810
52,943
47,842
41,522
10,646
10,360
10,167
10,256
8,615
5,682
4,662
4,270
2,831
116,346
115,566
110,526
14,527
18,623
17,808
9,606
12,355
11,848
8.3
%
10.7
%
10.7
%
HR Outsourcing revenue declined in 2008 compared to 2007 and 2006, primarily as a
result of the economic downturn as evidenced by reduced payrolls at existing clients,
referred to as client change. In total, new worksite lives decreased more than 30%
in 2008 compared to 2007 and client change decreased four times more in 2008 than in
2007. Also, as a result of the economic downturn, there were fewer new business
start-ups and therefore less opportunity to increase our worksite lives relative to
these businesses. As of December 31, 2008, Selective HRs worksite lives were down 10%
to 22,520 compared to 25,111 as of December 31, 2007 and 26,952 as of December 31,
2006.
Pre-tax profit decreased in our HR Outsourcing business in 2008 compared to 2007
mainly due to a pre-tax goodwill impairment charge of $4.0 million taken in the fourth
quarter of 2008 reflecting near-term financial projections that are not sufficient to
cover the carrying value of this reporting unit, coupled with the reduced level of
worksite lives as mentioned above. Pre-tax profit decreased in 2007 compared to 2006
primarily due to pricing pressure on our workers compensation products as well as a
reduced level of worksite lives.
Our Flood revenues are primarily derived from two activities: (i) fees associated
with servicing policy premium; and (ii) fees associated with handling claims. On June
1, 2008, the NFIP revised their fee structure associated with the handling of claims to
provide for fees of 1% of direct premiums written, which are paid even in
non-catastrophe years, coupled with fees equal to 1.5% of all incurred losses. Prior
to June 1, 2008, we received claims handling fees equal to 3.3% of all incurred losses.
Table of Contents
Revenue increases of 11% in 2008 compared to 2007 and 15% in 2007 compared to 2006 were
mainly attributable to the level of servicing Flood premium in force, which increased
16%, to $165.2 million, at December 31, 2008 compared to 2007 and 19%, to $141.9 million,
at December 31, 2007 compared to 2006. In addition, our revenues associated with
handling Flood claims were $2.5 million in 2008 compared to $1.6 million in 2007 and $1.8
million in 2006, primarily driven by claims associated with Hurricane Ike and the
Midwestern flooding in 2008. The increases in premiums, and as a result the
corresponding fees associated with servicing policy premium, were partially offset by a
reduction in the fee paid to us by the NFIP of 0.5 points, to 29.7% effective June 1,
2008, prior to a 0.1 point increase to 29.8%, effective October 1, 2008.
The fluctuations in pre-tax profit, which increased $0.3 million in 2008 compared to
2007 and increased $0.2 million in 2007 compared to 2006, were driven by the revenue
items noted above.
($ in millions)
2008
2007
2006
$
71.2
157.1
151.5
39.4
192.8
220.5
146.8
22.4
15.4
Table of Contents
Table of Contents
Our consolidated net worth, calculated per the syndicated line of credit agreement, must
be equal to or greater than the required minimum consolidated net worth, as calculated per
the syndicated line of credit agreement. In accordance with the calculations in the
agreement, at December 31, 2008 our consolidated net worth was $890.5 million and the
required minimum consolidated net worth was $882.0 million.
Our consolidated debt to total capitalization ratio, as calculated per the syndicated
line of credit agreement, cannot exceed 30.0% at any point in time. At December 31, 2008
our consolidated debt to capitalization ratio was 23.6%.
The Insurance Subsidiaries must maintain a financial strength rating by A.M. Best of at
least A- at all times. Throughout 2008, our A.M. Best financial strength rating was
continuously A+.
In addition to the above requirements, the syndicated line of credit agreement contains
a cross-default provision that provides that the line of credit will be in default if the
Company fails to comply with any condition, covenant or agreement (including payment of
principal and interest when due on any debt with an aggregate principal amount of at least
$5.0 million), which causes, or permits, the acceleration of principal.
Our tangible net worth, as calculated per the note purchase agreement, must be equal to
or greater than the required consolidated tangible net worth minimum as computed per the
note purchase agreement. In accordance with our calculations as of our December 31, 2008,
our tangible net worth was $1.5 billion and the consolidated tangible net worth minimum
equaled $541.2 million.
Our consolidated debt, as computed per the note purchase agreement, must be less than or
equal to 30% of our consolidated capitalization, as calculated per the note purchase
agreement. As of our December 31, 2008, our consolidated debt to consolidated
capitalization ratio was 15.2%.
At any time during the most recent quarter, our consolidated debt, as calculated per the
note purchase agreement, must be less than or equal to 40% of our consolidated
capitalization, as calculated per the note purchase agreement. During the fourth quarter,
our consolidated debt to consolidated capitalization ratio, as calculated per the note
purchase agreement, did not exceed 15.6%.
The aggregate amount of all restricted payments, as defined in the note purchase
agreement, must not exceed the restricted payment limitation as defined in the note
purchase agreement. As of our December 31, 2008 analysis performed, the restricted payment
limitation was calculated to be approximately $869.9 million and our aggregate amount of
all restricted payments through December 31, 2008 was $567.3 million.
Table of Contents
Table of Contents
Payment due by period
Contractual obligations
Less than
1-3
3-5
More than
($ in millions)
Total
1 year
years
years
5 years
$
25.9
9.4
11.5
4.3
0.7
274.6
12.3
12.3
250.0
710.5
19.4
36.2
35.6
619.3
$
1,011.0
41.1
60.0
39.9
870.0
2,641.0
675.4
853.3
419.7
692.6
224.2
46.5
50.2
26.5
101.0
2,416.8
628.9
803.1
393.2
591.6
$
3,427.8
670.0
863.1
433.1
1,461.6
Table of Contents
S&P Insurance Rating Services Our A+ financial strength rating was reaffirmed in the
third quarter of 2008 and our outlook was revised from stable to negative. Our
financial strength rating reflects our strong competitive position in the core Mid-Atlantic
market, coupled with our strong operating performance, capitalization and financial
flexibility. Our outlook was revised due to recent lower underwriting results, including
results in our personal lines operations, our capital management strategy, and our
geographic concentration in the Mid-Atlantic region.
Moodys Our A2 financial strength rating was reaffirmed in the third quarter of
2008, citing our strong regional franchise with good independent agency support, along with
our conservative balance sheet, moderate financial leverage, and consistent profitability.
At the same time, Moodys revised our outlook from positive to stable reflecting an
increasingly competitive commercial lines market and continued weakness in our personal
lines book of business.
Fitch Ratings Our A+ rating was reaffirmed in the second quarter of 2008, citing our
consistently favorable operating results, disciplined underwriting culture, conservative
balance sheet, strong independent agency relationships, and improved diversification
through our continued efforts to reduce our concentration in New Jersey.
Table of Contents
Table of Contents
2008
Interest Rate Shift in Basis Points
($ in millions)
-200
-100
0
100
200
3,361.1
3,193.5
3,035.5
2,892.2
2,761.3
325.6
158.0
(143.3
)
(274.2
)
10.7
%
5.2
%
%
(4.7
)%
(9.0
)%
Table of Contents
December 31, 2008
December 31, 2007
Fair
Unrealized
Credit
Fair
Unrealized
Credit
($ in millions)
Value
Gain (Loss)
Quality
Value
Gain (Loss)
Quality
$
252.2
16.6
AAA
179.7
6.9
AAA
1,758.0
18.6
AA+
1,611.1
17.6
AA+
366.5
(22.9
)
A
487.1
7.9
A
596.2
(86.1
)
AA+
697.9
(7.3
)
AA+
61.4
(15.3
)
AA
97.7
(1.5
)
AA+
$
3,034.3
(89.1
)
AA+
3,073.5
23.6
AA+
$
574.1
16.2
AA+
521.5
7.3
AA+
1,183.9
2.4
AA+
1,089.6
10.3
AA+
$
1,758.0
18.6
AA+
1,611.1
17.6
AA+
$
101.0
(13.1
)
A+
183.6
1.6
A+
67.7
(2.1
)
A-
86.0
2.0
A-
47.6
(0.8
)
A
49.9
1.5
A
33.9
(1.5
)
A-
46.7
1.4
A-
42.0
0.5
A
36.8
0.1
A+
22.7
0.7
A+
26.7
0.7
A+
13.2
(3.7
)
BBB+
17.1
0.1
A-
19.1
(0.2
)
A-
18.1
0.3
A
10.1
(1.9
)
BBB
12.3
0.3
BBB
9.2
(0.8
)
A-
9.9
(0.1
)
A-
$
366.5
(22.9
)
A
487.1
7.9
A
$
72.9
2.8
AAA
50.2
1.2
AAA
154.3
(34.8
)
AAA
234.2
(5.8
)
AA+
245.5
4.2
AAA
221.8
2.2
AAA
74.3
(28.4
)
AA+
119.4
(1.9
)
AA+
49.2
(29.9
)
AA+
72.3
(3.0
)
AAA
$
596.2
(86.1
)
AA+
697.9
(7.3
)
AA+
$
59.3
(15.1
)
AA+
76.5
(1.3
)
AA+
0.9
B
19.2
(0. 2
)
AAA
1.2
(0.2
)
A
2.0
AAA
$
61.4
(15.3
)
AA
97.7
(1.5
)
AA+
1
U.S. government includes corporate securities fully guaranteed by the FDIC.
2
We define sub-prime exposure as exposure to direct and indirect investments in
non-agency residential mortgages with average FICO
®
scores below 650.
Table of Contents
Change in Equity Values in Percent
($ in millions)
-30%
-20%
-10%
0%
10%
20%
30%
92.5
105.7
118.9
132.1
145.3
158.5
171.7
(39.6
)
(26.4
)
(13.2
)
13.2
26.4
39.6
1.7
2.0
2.3
2.6
2.9
3.2
3.5
(0.9
)
(0.6
)
(0.3
)
0.3
0.6
0.9
2008
Year of
Carrying
Fair
($ in thousands)
Maturity
Amount
Value
2010
$
24,600
$
25,592
2034
49,895
42,221
2035
99,383
72,000
2066
100,000
59,680
$
273,878
$
199,493
Table of Contents
New York, New York
February 27, 2009
Table of Contents
Consolidated Balance Sheets
December 31,
($ in thousands, except share amounts)
2008
2007
$
1,163
5,783
3,034,278
3,073,547
132,131
274,705
198,111
190,167
2,569
172,057
188,827
3,540,309
3,733,029
18,643
8,383
36,538
36,141
480,894
496,363
19,461
21,875
6,513
7,429
224,192
227,801
96,617
82,182
26,327
4,235
146,801
22,375
51,697
58,561
212,319
226,434
29,637
33,637
51,384
43,547
$
4,941,332
5,001,992
$
2,256,329
2,182,572
384,644
359,975
844,334
841,348
8,740
273,878
286,151
48,560
60,178
147,050
88,079
96,044
98,906
4,050,839
3,925,949
Issued: 95,263,508 2008; 94,652,930 2007
190,527
189,306
217,195
192,627
1,128,149
1,105,946
(100,666
)
86,043
(544,712
)
(497,879
)
890,493
1,076,043
$
4,941,332
5,001,992
Table of Contents
Consolidated Statements of Income
Years Ended December 31,
($ in thousands, except per share amounts)
2008
2007
2006
$
1,484,041
1,554,867
1,535,961
11,449
(37,561
)
(36,297
)
1,495,490
1,517,306
1,499,664
131,032
174,144
156,802
(49,452
)
33,354
35,479
116,346
115,566
110,526
2,563
5,858
5,396
1,695,979
1,846,228
1,807,867
845,656
829,524
791,955
168,160
169,682
168,028
490,040
497,229
478,339
5,211
7,202
5,927
20,508
23,795
21,411
97,819
96,943
92,718
4,000
25,199
29,095
28,979
1,656,593
1,653,470
1,587,357
39,386
192,758
220,510
22,293
43,046
66,717
(26,665
)
3,214
(9,781
)
(4,372
)
46,260
56,936
43,758
146,498
163,574
$
0.84
2.80
2.98
$
0.82
2.59
2.65
$
0.52
0.49
0.44
Table of Contents
Consolidated Statements of Stockholders Equity
Years Ended December 31,
($ in thousands, except per share amounts)
2008
2007
2006
$
189,306
183,124
173,085
162
158
128
92
4,148
7,998
967
1,876
1,913
190,527
189,306
183,124
192,627
153,246
71,638
1,677
1,708
1,604
645
9,806
51,249
22,246
27,867
28,755
217,195
192,627
153,246
1,105,946
986,017
847,687
6,210
43,758
43,758
146,498
146,498
163,574
163,574
(27,765
)
(26,569
)
(25,244
)
1,128,149
1,105,946
986,017
86,043
100,601
118,121
(6,210
)
(142,685
)
(142,685
)
(20,289
)
(20,289
)
(3,772
)
(3,772
)
(37,814
)
(37,814
)
5,731
5,731
(13,748
)
(100,666
)
86,043
100,601
(136,741
)
131,940
159,802
(497,879
)
(345,761
)
(229,407
)
(46,833
)
(152,118
)
(116,354
)
(544,712
)
(497,879
)
(345,761
)
$
890,493
1,076,043
1,077,227
Table of Contents
Consolidated Statements of Cash Flows
Years Ended December 31,
($ in thousands)
2008
2007
2006
$
43,758
146,498
163,574
28,552
29,139
25,684
17,215
20,992
14,524
13,753
(4,281
)
(3,511
)
49,452
(33,354
)
(35,479
)
(26,665
)
3,214
(9,781
)
8,129
2,117
4,000
102,100
227,749
223,231
(10,766
)
38,346
35,708
(22,092
)
(3,767
)
(2,761
)
15,469
(37,911
)
(11,232
)
2,414
(487
)
(4,835
)
14,115
(8,331
)
(13,271
)
(431
)
(1,331
)
(2,280
)
916
(2,736
)
(144
)
(3,100
)
(3,266
)
5,385
(15,880
)
6,370
(1,566
)
(6,587
)
21,002
5,819
9,444
7,692
197,415
239,790
229,481
241,173
386,288
393,055
(587,430
)
(580,864
)
(801,647
)
(70,651
)
(148,569
)
(52,429
)
(53,089
)
(80,147
)
(71,486
)
(2,204,107
)
(2,198,362
)
(2,290,937
)
376
152,655
102,613
306,044
2,196,162
2,205,194
2,279,055
4,652
4,051
3,635
294,342
319,118
187,608
102,313
187,259
108,382
26,164
40,115
8,350
(8,083
)
(14,511
)
(18,670
)
(147,072
)
(164,103
)
(341,719
)
(25,804
)
(24,464
)
(22,831
)
(46,833
)
(152,118
)
(116,354
)
96,263
(12,300
)
(18,300
)
(18,300
)
8,222
8,609
11,560
1,628
3,484
3,903
6,000
(6,000
)
(2,117
)
(8,754
)
(37,456
)
(83,841
)
(220,245
)
(47,876
)
10,260
1,940
3,460
8,383
6,443
2,983
$
18,643
8,383
6,443
$
20,647
25,311
21,391
42,750
43,809
65,575
169
12,066
58,534
Table of Contents
Insurance Operations, which sells property and casualty insurance products and services
primarily in 22 states in the Eastern and Midwestern U.S.;
Investments; and
Diversified Insurance Services, which provides human resource administration outsourcing
(HR Outsourcing) products and services, and federal flood insurance administrative
services (Flood).
Table of Contents
Whether the decline appears to be issuer or industry specific;
The degree to which an issuer is current or in arrears in making principal and
interest payments on the fixed maturity securities in question;
The issuers current financial condition and its ability to make future scheduled
principal and interest payments on a timely basis;
Stress testing of projected cash flows under various economic and default scenarios;
Buy/hold/sell recommendations published by outside investment advisors and analysts;
Relevant rating history, analysis and guidance provided by rating agencies and
analysts; and
Our ability and intent to hold a security to maturity given interest rate
fluctuations.
Whether the decline appears to be issuer or industry specific;
The relationship of market prices per share to book value per share at the date of
acquisition and date of evaluation;
The price-earnings ratio at the time of acquisition and date of evaluation;
The financial condition and near-term prospects of the issuer, including any
specific events that may influence the issuers operations;
The recent income or loss of the issuer;
The independent auditors report on the issuers recent financial statements;
The dividend policy of the issuer at the date of acquisition and the date of
evaluation;
Any buy/hold/sell recommendations or price projections published by outside
investment advisors;
Any rating agency announcements; and
The length of time and the extent to which the fair value has been less than
carrying value.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
How investment allocation decisions are made (including investment policies and
strategies, as well as the companys strategy for funding the benefit obligations);
The major categories of plan assets, including cash and cash equivalents; equity
securities (segregated by industry type, company size, or investment objective); debt
securities (segregated by those issued by national, state, and local governments);
corporate debt securities; asset-backed securities; structured debt; derivatives
(segregated by the type of underlying risk in the contract); investment funds (segregated
by type of fund); and real estate;
Fair-value measurements, and the fair-value techniques and inputs used to measure plan
assets similar to the requirements set forth under FAS 157 (i.e.: Level 1, 2 & 3); and
Significant concentrations of risk within plan assets.
Table of Contents
($ in thousands)
2008
2007
2006
$
(89,068
)
23,634
20,216
(3,370
)
114,315
149,512
(1,478
)
6,758
6,193
(93,916
)
144,707
175,921
32,871
(50,647
)
(61,572
)
6,210
$
(54,835
)
94,060
114,349
$
(148,895
)
(20,289
)
(3,772
)
2008
Amortized
Unrealized
Unrealized
Fair
($ in thousands)
Cost
Gains
Losses
Value
$
1,146
71
(58
)
1,159
17
2
19
$
1,163
73
(58
)
1,178
2007
Amortized
Unrealized
Unrealized
Fair
($ in thousands)
Cost
Gains
Losses
Value
$
5,759
143
5,902
24
1
25
$
5,783
144
5,927
Cost/
2008
Amortized
Unrealized
Unrealized
Fair
($ in thousands)
Cost
Gains
Losses
Value
$
235,540
16,611
252,151
1,739,349
38,863
(20,247
)
1,757,965
389,386
7,277
(30,127
)
366,536
76,758
6
(15,346
)
61,418
682,313
8,332
(94,437
)
596,208
3,123,346
71,089
(160,157
)
3,034,278
125,947
24,845
(18,661
)
132,131
$
3,249,293
95,934
(178,818
)
3,166,409
Cost/
2007
Amortized
Unrealized
Unrealized
Fair
($ in thousands)
Cost
Gains
Losses
Value
$
156,605
7,092
(397
)
163,300
1,593,587
21,274
(3,646
)
1,611,215
479,169
10,923
(3,017
)
487,075
117,029
395
(2,796
)
114,628
703,523
9,261
(15,455
)
697,329
3,049,913
48,945
(25,311
)
3,073,547
160,390
115,742
(1,427
)
274,705
$
3,210,303
164,687
(26,738
)
3,348,252
1
U.S. government includes corporate securities fully guaranteed by the Federal Deposit
Insurance Corporation (FDIC).
Table of Contents
Less than 12 months
12 months or longer
Total
2008
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
($ in thousands)
Value
Losses
Value
Losses
Value
Losses
$
354,615
(11,565
)
128,130
(8,682
)
482,745
(20,247
)
162,339
(20,109
)
30,087
(10,018
)
192,426
(30,127
)
42,142
(7,769
)
15,336
(7,577
)
57,478
(15,346
)
2,910
(8
)
6,092
(1,241
)
9,002
(1,249
)
178,235
(28,095
)
90,937
(65,093
)
269,172
(93,188
)
740,241
(67,546
)
270,582
(92,611
)
1,010,823
(160,157
)
61,147
(18,661
)
61,147
(18,661
)
4,528
(1,478
)
4,528
(1,478
)
$
805,916
(87,685
)
270,582
(92,611
)
1,076,498
(180,296
)
Less than 12 months
12 months or longer
Total
2007
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
($ in thousands)
Value
Losses
Value
Losses
Value
Losses
$
3,461
(1
)
10,028
(396
)
13,489
(397
)
73,136
(651
)
225,766
(2,995
)
298,902
(3,646
)
82,599
(2,843
)
12,303
(174
)
94,902
(3,017
)
55,222
(2,656
)
13,205
(140
)
68,427
(2,796
)
31,176
(374
)
23,916
(110
)
55,092
(484
)
160,158
(13,098
)
57,282
(1,873
)
217,440
(14,971
)
405,752
(19,623
)
342,500
(5,688
)
748,252
(25,311
)
26,780
(1,427
)
26,780
(1,427
)
$
432,532
(21,050
)
342,500
(5,688
)
775,032
(26,738
)
Table of Contents
Cost/
2008
Amortized
Fair
Unrealized
($ in thousands)
Cost
Value
Losses
$
10,078
2,096
(7,982
)
9,657
3,516
(6,141
)
9,996
4,122
(5,874
)
9,620
4,378
(5,242
)
11,496
6,424
(5,072
)
($ in thousands)
Amortized Cost
Fair Value
$
960
902
17
19
186
257
$
1,163
1,178
($ in thousands)
Amortized Cost
Fair Value
$
307,101
298,473
1,550,191
1,508,154
1,164,534
1,147,842
71,400
66,681
30,120
13,128
$
3,123,346
3,034,278
Table of Contents
($ in thousands)
2008
2007
$
165,017
156,618
7,040
32,209
$
172,057
188,827
($ in thousands)
2008
2007
2006
$
146,555
140,383
128,771
5,603
8,626
9,898
(8,129
)
4,252
8,563
7,806
(12,336
)
21,828
13,746
135,945
179,400
160,221
(4,913
)
(5,256
)
(3,419
)
$
131,032
174,144
156,802
Table of Contents
(in thousands)
2008
2007
2006
$
27
16
(2
)
1,777
445
2,460
(55,961
)
(7,150
)
(6,756
)
34,582
50,254
43,542
(21,290
)
(9,359
)
(3,783
)
1,356
847
(9,941
)
(1,683
)
$
(49,452
)
33,354
35,479
$15.1 million of RMBS and CMBS charges. These charges related to declines in the
related cash flows of the collateral, based on our assumptions of the expected default
rates and the value of the collateral, and accordingly, we do not believe it is probable
that we will receive all contractual cash flows.
$16.4 million of ABS charges. These charges related to issuer-specific credit events
that revolved around the performance of the underlying collateral, which had materially
deteriorated; however, none of which were bankruptcy related. In general, these securities
were experiencing increased conditional default rates and expected loss severities, and as
a result, our stress test scenarios were indicating less of a margin to absorb losses going
forward. Although some of these securities were insured or guaranteed by monoline bond
guarantors, downgrades have reduced our confidence in their ability to perform in the event
of default. In addition, credit support for these securities has also begun to erode,
thereby further increasing the potential for eventual loss.
$10.2 million associated with corporate bond charges. These charges were due to
issuer-specific events, primarily related to two Icelandic bank debt securities, on which
the banks were placed in receivership.
Table of Contents
2008
($ in thousands)
Gross
Tax
Net
$
39,386
(4,372
)
43,758
(268,993
)
(94,148
)
(174,845
)
49,477
17,317
32,160
(219,516
)
(76,831
)
(142,685
)
(60,272
)
(21,095
)
(39,177
)
1,985
695
1,290
136
47
89
(25
)
(9
)
(16
)
(58,176
)
(20,362
)
(37,814
)
$
(238,306
)
(101,565
)
(136,741
)
2007
($ in thousands)
Gross
Tax
Net
$
192,758
46,260
146,498
2,140
749
1,391
(33,354
)
(11,674
)
(21,680
)
(31,214
)
(10,925
)
(20,289
)
8,003
2,801
5,202
696
244
452
118
41
77
8,817
3,086
5,731
$
170,361
38,421
131,940
2006
($ in thousands)
Gross
Tax
Net
$
220,510
56,936
163,574
29,676
10,387
19,289
(35,479
)
(12,418
)
(23,061
)
$
(5,803
)
(2,031
)
(3,772
)
214,707
54,905
159,802
Table of Contents
Pre-Adoption
Impact of
Post-Adoption
Carrying/Fair
Fair Value
Carrying/Fair
Value at
Election
Value at
($ in thousands)
January 1, 2008
Adoption
January 1, 2008
$
274,705
(25,113
)
249,592
25,113
25,113
$
274,705
274,705
Accumulated
Other
Retained
Comprehensive
($ in thousands)
Earnings
Income
Total
$
1,105,946
86,043
1,191,989
9,554
(9,554
)
(3,344
)
3,344
$
1,112,156
79,833
1,191,989
2008
2007
Carrying
Fair
Carrying
Fair
($ in thousands)
Amount
Value
Amount
Value
$
1,163
1,178
5,783
5,927
3,034,278
3,034,278
3,073,547
3,073,547
132,131
132,131
274,705
274,705
2,569
2,569
198,111
198,111
190,167
190,167
7,040
7,040
32,209
32,209
24,600
25,592
36,900
37,990
49,895
42,221
49,891
52,080
99,383
72,000
99,360
90,000
100,000
59,680
100,000
85,000
273,878
199,493
286,151
265,070
8,740
13,853
176
1,143
1
Our notes payable are subject to certain debt covenants which were met in their
entirety in 2008 and 2007. For further discussion regarding the debt covenants, refer to Note 9,
Indebtedness.
Table of Contents
Fair Value Measurements at 12/31/08 Using
Quoted Prices in
Significant
Assets
Active Markets
Other
Significant
Measured at
for Identical
Observable
Unobservable
($ in thousands)
Fair Value at
Assets
Inputs
Inputs
Description
12/31/08
(Level 1)
(Level 2)
(Level 3)
$
2,569
2,569
3,034,278
94,811
2,939,467
132,131
132,131
198,111
198,111
7,040
7,040
$
3,374,129
427,622
2,946,507
Table of Contents
($ in thousands)
2008
2007
2006
$
1,686,742
1,723,083
1,660,177
22,051
29,165
33,916
(224,752
)
(197,381
)
(158,132
)
$
1,484,041
1,554,867
1,535,961
$
1,679,105
1,671,510
1,619,009
26,703
30,930
36,009
(210,318
)
(185,134
)
(155,354
)
$
1,495,490
1,517,306
1,499,664
$
1,112,261
1,083,601
1,021,133
17,852
22,595
28,344
(116,297
)
(106,990
)
(89,494
)
$
1,013,816
999,206
959,983
($ in thousands)
2008
2007
2006
$
(166,649
)
(143,404
)
(120,003
)
(153,883
)
(132,041
)
(106,214
)
(87,829
)
(48,698
)
(56,653
)
Table of Contents
($ in thousands)
2008
2007
2006
$
2,542,547
2,288,770
2,084,049
227,801
199,738
218,248
2,314,746
2,089,032
1,865,801
1,033,124
1,018,050
967,272
(19,308
)
(18,844
)
(7,289
)
1,013,816
999,206
959,983
332,430
304,121
268,173
579,351
469,371
468,579
911,781
773,492
736,752
2,416,781
2,314,746
2,089,032
224,192
227,801
199,738
$
2,640,973
2,542,547
2,288,770
Table of Contents
Table of Contents
2008
($ in millions)
Gross
Net
$
14.3
13.0
20.1
16.2
17.1
14.9
$
51.5
44.1
1
Consists of leaking underground storage tanks, and other latent environmental
exposures.
2008
2007
2006
($ in thousands)
Gross
Net
Gross
Net
Gross
Net
$
14,955
13,655
14,164
12,863
13,113
11,813
672
579
1,943
1,845
2,083
1,327
(1,358
)
(1,265
)
(1,152
)
(1,053
)
(1,032
)
(277
)
$
14,269
12,969
14,955
13,655
14,164
12,863
$
43,741
37,716
36,547
33,615
32,513
30,013
3,222
2,754
10,496
7,128
7,357
6,534
(9,717
)
(9,346
)
(3,302
)
(3,027
)
(3,323
)
(2,932
)
$
37,246
31,124
43,741
37,716
36,547
33,615
$
58,696
51,371
50,711
46,478
45,626
41,826
3,894
3,333
12,439
8,973
9,440
7,861
(11,075
)
(10,611
)
(4,454
)
(4,080
)
(4,355
)
(3,209
)
$
51,515
44,093
58,696
51,371
50,711
46,478
Table of Contents
Our consolidated net worth, as calculated per the syndicated line of credit agreement,
must be equal to or greater than the required minimum consolidated net worth, as calculated
per the syndicated line of credit agreement. In accordance with the calculations in the
agreement, at December 31, 2008 our consolidated net worth was $890.5 million and the
required minimum consolidated net worth was $882 million.
Our consolidated debt to total capitalization ratio, as calculated per the syndicated
line of credit agreement, cannot exceed 30.0% at any point in time. At December 31, 2008
our consolidated debt to capitalization ratio was 23.6%.
The Insurance Subsidiaries must maintain a financial strength rating by A.M. Best of at
least A- at all times. Throughout 2008, our A.M. Best financial strength rating was
continuously A+.
In addition to the above requirements, the syndicated line of credit agreement contains
a cross-default provision that provides that the line of credit will be in default if the
Company fails to comply with any condition, covenant or agreement (including payment of
principal and interest when due on any debt with an aggregate principal amount of at least
$5.0 million), which causes, or permits, the acceleration of principal.
Table of Contents
Shares Purchased
Cost of Shares Purchased
Shares Purchased
Cost of Shares Purchased
in Connection with
in Connection with
as Part of Publicly
as Part of Publicly
($ in thousands)
Restricted stock Vestings
Restricted stock Vestings
Announced Plans
Announced Plans
Period
and Stock Option Exercises
and Stock Option Exercises
or Programs
or Programs
268,493
$
6,290
1,770,534
$
40,543
354,456
$
8,813
5,703,464
$
143,305
228,914
$
6,237
4,106,708
$
110,117
Table of Contents
($ in millions)
$
51.5
20.8
9.4
8.7
6.7
1.3
3.2
$
101.6
Table of Contents
Insurance Operations, which are evaluated based on statutory underwriting results (net
premiums earned, incurred losses and loss expenses, policyholders dividends, policy
acquisition costs, and other underwriting expenses), and statutory combined ratios;
Investments, which are evaluated based on net investment income and net realized gains
and losses; and
Diversified Insurance Services (Flood and HR Outsourcing), which, because they are not
dependent on insurance underwriting cycles, are evaluated based on several measures
including, but not limited to, results of operations in accordance with GAAP, with a focus
on return on revenues (net income divided by revenues).
($ in thousands)
2008
2007
$
21,788
25,788
7,849
7,849
$
29,637
33,637
Table of Contents
Revenue by segment
Years ended December 31,
($ in thousands)
2008
2007
2006
$
307,388
315,259
319,921
308,618
325,636
314,174
396,066
410,024
402,745
196,189
190,681
182,351
57,858
52,677
48,500
18,831
19,036
17,466
597
689
719
1,285,547
1,314,002
1,285,876
132,845
132,944
146,737
68,088
62,280
59,334
9,010
8,080
7,717
209,943
203,304
213,788
1,495,490
1,517,306
1,499,664
2,560
5,795
5,390
1,498,050
1,523,101
1,505,054
131,032
174,144
156,802
(49,452
)
33,354
35,479
81,580
207,498
192,281
53,147
59,109
63,322
52,943
47,842
41,522
10,256
8,615
5,682
116,346
115,566
110,526
1,695,976
1,846,165
1,807,861
3
63
6
$
1,695,979
1,846,228
1,807,867
Income before federal income tax
Years Ended December 31,
($ in thousands)
2008
2007
2006
$
6,103
42,105
63,482
(21,329
)
(26,148
)
(5,504
)
(15,226
)
15,957
57,978
101.0
%
98.9
96.1
99.2
%
97.5
95.4
131,032
174,144
156,802
(49,452
)
33,354
35,479
81,580
207,498
192,281
14,527
18,623
17,808
80,881
242,078
268,067
(20,508
)
(23,795
)
(21,411
)
(20,987
)
(25,525
)
(26,146
)
$
39,386
192,758
220,510
Table of Contents
The following table provides a reconciliation of the numerators and denominators of the basic and
diluted earnings per share (EPS) computations of net income for the year ended:
2008
Income
Shares
Per Share
($ in thousands, except per share amounts)
(Numerator)
(Denominator)
Amount
$
43,758
52,104
0.84
727
53
247
188
$
43,758
53,319
0.82
2007
Income
Shares
Per Share
($ in thousands, except per share amounts)
(Numerator)
(Denominator)
Amount
$
146,498
52,382
2.80
1,158
25
128
1,268
2,931
385
181
$
147,791
57,165
2.59
2006
Income
Shares
Per Share
($ in thousands, except per share amounts)
(Numerator)
(Denominator)
Amount
$
163,574
54,986
2.98
1,264
43
216
2,170
5,334
566
176
$
165,787
62,542
2.65
($ in thousands)
2008
2007
2006
$
13,785
67,465
77,178
(18,946
)
(19,246
)
(17,911
)
(922
)
(1,213
)
(2,019
)
1,563
(351
)
(73
)
148
(395
)
(239
)
$
(4,372
)
46,260
56,936
Table of Contents
($ in thousands)
2008
2007
$
95,444
96,697
52,297
53,158
27,556
8,736
12,347
11,518
29,527
12,811
1,712
9,088
5,308
239,070
177,129
74,156
79,249
50,648
12,777
14,510
5,336
10,347
92,269
154,754
$
146,801
22,375
Table of Contents
Table of Contents
Table of Contents
Retirement Income Plan
Post-retirement Plan
($ in thousands)
2008
2007
2008
2007
$
152,252
149,943
8,986
8,610
6,966
7,454
122
317
10,039
8,963
473
495
(1,985
)
15,352
(11,265
)
364
(275
)
(4,268
)
(3,743
)
(316
)
(261
)
900
100
$
180,341
152,252
7,644
8,986
$
147,995
135,911
(32,689
)
7,555
6,145
8,200
75
72
(4,268
)
(3,743
)
$
117,258
147,995
$
(63,083
)
(4,257
)
(7,644
)
(8,986
)
(63,083
)
(4,257
)
(7,644
)
(8,986
)
$
(63,083
)
(4,257
)
(7,644
)
(8,986
)
$
626
776
(2,045
)
(235
)
71,315
11,543
614
250
$
71,941
12,319
(1,431
)
15
$
152,744
128,524
$
180,341
3,957
152,744
2,771
6.24
%
6.50
6.24
6.50
4.00
%
4.00
4.00
4.00
Table of Contents
Retirement Income Plan
Post-retirement Plan
($ in thousands)
2008
2007
2006
2008
2007
2006
$
6,966
7,454
7,345
122
317
339
10,039
8,963
8,061
473
495
472
(11,867
)
(11,092
)
(9,753
)
150
150
150
(175
)
(32
)
(32
)
136
696
1,682
25
900
100
$
5,424
7,071
7,485
420
880
804
59,908
(7,728
)
364
(275
)
(1,985
)
(136
)
(696
)
(150
)
(150
)
175
32
59,622
(8,574
)
(1,446
)
(243
)
$
65,046
(1,503
)
7,485
(1,026
)
637
804
Retirement Income Plan
Post-retirement Plan
($ in thousands)
2008
2007
2006
2008
2007
2006
6.50
%
5.90
5.50
6.50
5.90
5.50
8.00
%
8.00
8.00
4.00
%
4.00
4.00
4.00
4.00
4.00
($ in thousands)
Retirement Income Plan
Post-retirement Plan
$
5,493
324
5,936
355
6,523
372
7,179
390
7,965
409
53,681
2,316
Table of Contents
Investment Category
Target
Range
44
%
35-53
%
27
%
20-34
%
29
%
21-37
%
2008
2007
34
%
40
34
28
31
30
1
2
100
%
100
Table of Contents
Table of Contents
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number
Exercise
Contractual
Intrinsic Value
of shares
Price
Life in Years
($ in thousands)
1,241,153
$
16.69
191,568
24.02
233,614
11.24
40,260
24.40
1,158,847
$
18.73
5.50
$
6,047
954,094
$
17.40
4.79
$
6,047
Weighted
Average
Number
Grant Date
of shares
Fair Value
1,409,365
$
23.47
406,454
23.11
605,081
20.77
90,705
25.03
1,120,033
$
24.67
Table of Contents
Employee Stock Purchase Plan
All Other Option Plans
2008
2007
2006
2008
2007
2006
2.77
%
5.11
%
4.78
%
2.97
%
4.67
%
4.55
%
6 months
6 months
6 months
6 years
6 years
6 years
2.5
%
1.7
%
1.6
%
2.2
%
1.8
%
1.5
%
38
%
17
%
19
%
25
%
23
%
25
%
2008
2007
2006
$
5.43
7.02
8.01
23.11
27.30
28.46
22.70
25.57
26.87
2.02
1.47
1.58
2.83
3.72
4.19
4.85
5.19
5.77
$
2.24
2.40
2.71
Table of Contents
Rue Insurance placed insurance policies with the Insurance Subsidiaries. Direct
premiums written associated with these policies were $8.3 million in 2008, $9.9 million in
2007, and $9.5 million in 2006. In return, the Insurance Subsidiaries paid commissions to
Rue Insurance of $1.7 million in 2008 and 2007 and $1.9 million in 2006.
Rue Insurance placed human resource outsourcing contracts with Selective HR resulting in
revenues to Selective HR of approximately $79,000 in 2008, $69,000 in 2007, and $62,000 in
2006. In return, Selective HR paid commissions to Rue Insurance of $12,000 in 2008,
$15,000 in 2007, and $14,000 in 2006.
Rue Insurance placed insurance coverage for us with other insurance companies for which
Rue Insurance was paid commission pursuant to its agreements with those carriers. We paid
premiums for such insurance coverage of $0.5 million in 2008, 2007, and 2006.
We paid reinsurance commissions of $0.2 million in 2008, 2007 and 2006 to PL, LLC. PL,
LLC is an insurance fund administrator of which Rue Insurance owns 33.33% and which places
reinsurance through an Insurance Subsidiary.
($ in millions)
$
9.4
7.0
4.5
2.4
1.9
0.7
$
25.9
Table of Contents
Table of Contents
(unaudited, $ in thousands,
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
except per share data)
2008
2007
2008
2007
2008
2007
2008
2007
$
389,840
417,185
387,229
404,923
400,541
409,523
306,431
323,236
381,273
380,013
375,089
376,351
372,510
378,260
366,618
382,682
37,866
39,863
38,515
40,642
36,134
43,674
18,517
49,965
1,515
11,243
1,923
13,148
(22,577
)
2,814
(30,313
)
6,149
29,799
29,178
30,064
30,677
30,481
29,331
26,002
26,380
(1,452
)
9,717
(3,251
)
(145
)
(5,738
)
5,122
(4,785
)
1,263
4,285
4,367
4,939
6,069
5,687
4,661
(384
)
3,526
20,503
37,252
28,651
35,886
8,992
37,119
(14,388
)
36,240
(26,628
)
(3,139
)
(37,935
)
(23,774
)
(46,289
)
13,534
(69,647
)
(1,178
)
(6,125
)
34,113
(9,284
)
12,112
(37,297
)
50,653
(84,035
)
35,062
0.39
0.68
0.55
0.69
0.17
0.72
(0.28
)
0.70
0.38
0.62
0.54
0.64
0.17
0.66
(0.28
)
0.67
0.13
0.12
0.13
0.12
0.13
0.12
0.13
0.13
27.03
29.07
26.22
27.87
30.40
27.33
26.49
25.41
20.78
23.25
18.74
25.27
17.81
19.04
16.33
20.84
1
Refer to the Glossary of Terms attached to this Form
10-K as Exhibit 99.1.
2
See Note 9(b) and Note 10 to the consolidated
financial statements for a discussion of dividend restrictions.
3
These ranges of high and low prices of the Parents common stock, as reported by the
NASDAQ Global Select Market, represent actual transactions. All price quotations do
not include retail markups, markdowns and commissions. The range of high and low
prices for common stock for the period beginning January 2, 2009 and ending
February 20, 2009 was $23.28 to $12.33.
Table of Contents
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act) is a process designed by, or under the supervision of, a
companys principal executive and principal financial officers and effected by the Board,
management and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect
on the financial statements.
Table of Contents
Selective Insurance Group, Inc.:
New York, New York
February 27, 2009
Table of Contents
Table of Contents
Form 10-K
Page
83
84
85
86
87
Form 10-K
Page
Condensed Financial Information of Registrant at December 31, 2008 and
2007 and for the years ended December 31, 2008, 2007 and 2006.
129
Allowance for Uncollectible Premiums and Other Receivables for the years
ended December 31, 2008, 2007 and 2006.
132
Summary of Investments Other than Investments in Related Parties
at December 31, 2008.
133
Supplementary Insurance Information for the years ended December 31,
2008, 2007 and 2006.
134
Reinsurance for the years ended December 31, 2008, 2007 and 2006.
137
Table of Contents
/s/ Gregory E. Murphy
February 27, 2009
/s/ Dale A. Thatcher
February 27, 2009
/s/ Gregory E. Murphy
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
Table of Contents
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
February 27, 2009
/s/ Michael H. Lanza
February 27, 2009
Table of Contents
(Parent Corporation)
December 31,
($ in thousands, except share amounts)
2008
2007
$
1,535
13,980
60,208
64,492
81
1,081,229
1,271,494
14,225
18,453
14,014
12,347
5,575
5,979
$
1,176,786
1,386,826
$
8,740
273,878
286,151
12,415
15,892
286,293
310,783
Issued: 95,263,508 2008; 94,652,930 2007
190,527
189,306
217,195
192,627
1,128,149
1,105,946
(100,666
)
86,043
(544,712
)
(497,879
)
890,493
1,076,043
$
1,176,786
1,386,826
Table of Contents
(Parent Corporation)
Year ended December 31,
($ in thousands)
2008
2007
2006
$
79,124
142,743
111,829
1,206
3,529
4,652
(164
)
3
63
6
80,333
146,335
116,323
20,508
23,795
21,411
20,990
25,588
26,152
41,498
49,383
47,563
38,835
96,952
68,760
(12,611
)
(14,969
)
(11,433
)
(1,106
)
(861
)
(3,833
)
(13,717
)
(15,830
)
(15,266
)
52,552
112,782
84,026
(341
)
33,716
79,548
(8,453
)
$
43,758
146,498
163,574
Table of Contents
(Parent Corporation)
Year ended December 31,
($ in thousands)
2008
2007
2006
$
43,758
146,498
163,574
341
(33,716
)
(79,548
)
8,453
17,215
20,992
14,524
(1,106
)
(861
)
(3,833
)
2,117
164
269
1,306
(554
)
5,818
4,228
(3,611
)
(3,262
)
(7,105
)
4,208
(4,481
)
22,295
(11,682
)
(69,055
)
66,053
134,816
94,519
(15,000
)
23,167
12,463
33,619
6,009
(363,827
)
(381,775
)
(386,912
)
368,111
432,615
356,771
(32,100
)
960
980
1,493
17,707
85,439
(46,572
)
(25,804
)
(24,464
)
(22,831
)
(46,833
)
(152,118
)
(116,354
)
96,263
(12,300
)
(18,300
)
(18,300
)
8,222
8,609
11,560
1,628
3,484
3,903
6,000
(6,000
)
(2,117
)
(8,754
)
(37,456
)
(83,841
)
(220,245
)
(47,876
)
(81
)
10
71
81
71
$
81
71
Table of Contents
ALLOWANCE FOR UNCOLLECTIBLE PREMIUMS AND OTHER RECEIVABLES
Years ended December 31, 2008, 2007 and 2006
($ in thousands)
2008
2007
2006
$
6,899
6,656
8,085
4,283
3,625
2,955
(4,176
)
(3,382
)
(4,384
)
$
7,006
6,899
6,656
Table of Contents
SUMMARY OF INVESTMENTS-OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2008
Type of investment
Amortized Cost
Fair
Carrying
($ in thousands)
or Cost
Value
Amount
$
1,146
1,159
1,146
17
19
17
1,163
1,178
1,163
235,540
252,151
252,151
1,739,349
1,757,965
1,757,965
389,386
366,536
366,536
76,758
61,418
61,418
682,313
596,208
596,208
3,123,346
3,034,278
3,034,278
3,147
5,658
5,658
122,800
126,473
126,473
125,947
132,131
132,131
2,569
2,569
2,569
128,516
134,700
134,700
198,111
198,111
173,534
172,057
$
3,624,670
3,540,309
Table of Contents
SUPPLEMENTARY INSURANCE INFORMATION
Year ended December 31, 2008
Amortization
Deferred
Reserve
Losses
of deferred
policy
for losses
Net
Net
and loss
policy
Other
Net
acquisition
and loss
Unearned
premiums
investment
expenses
acquisition
operating
premiums
($ in thousands)
costs
expenses
1
premiums
earned
income
2
incurred
3
costs
4
expenses
4
written
$
212,319
2,640,973
844,334
1,495,490
1,013,816
454,826
42,074
1,484,041
81,580
$
212,319
2,640,973
844,334
1,495,490
81,580
1,013,816
454,826
42,074
1,484,041
1
Includes Reserve for losses and Reserve for loss expenses on the Consolidated Balance Sheets.
2
Includes Net investment income earned and Net realized (losses) gains on the Consolidated Statements of Income.
3
Includes Losses incurred and Loss expenses incurred on the Consolidated Statements of Income.
4
The total of Amortization of deferred policy acquisition costs of $454,826, and Other operating expenses of $42,074 reconciles
to the Consolidated Statement of Income as follows:
$
490,040
5,211
(2,560
)
4,209
$
496,900
5
In addition to amounts related to the Insurance Operations segment, Other
income and Other expense on the Consolidated Statements of
Income includes holding company income and expense amounts of $3 and $20,990, respectively.
Table of Contents
SUPPLEMENTARY INSURANCE INFORMATION
Year ended December 31, 2007
Amortization
Deferred
Reserve
Losses
of deferred
policy
for losses
Net
Net
and loss
policy
Other
Net
acquisition
and loss
Unearned
premiums
investment
expenses
acquisition
operating
premiums
(in thousands)
costs
expenses
1
premiums
earned
income
2
incurred
3
costs
4
expenses
4
written
$
226,434
2,542,547
841,348
1,517,306
999,206
460,167
41,976
1,554,867
207,498
$
226,434
2,542,547
841,348
1,517,306
207,498
999,206
460,167
41,976
1,554,867
1
Includes Reserve for losses and Reserve for loss expenses on the Consolidated Balance Sheets.
2
Includes Net investment income earned and Net realized (losses) gains on the Consolidated Statements of Income.
3
Includes Losses incurred and Loss expenses incurred on the Consolidated Statements of Income.
4
The total of Amortization of deferred policy acquisition costs of $460,167, and Other operating expenses of
$41,977 reconciles to the
Consolidated Statements of Income as follows:
$
497,229
7,202
(5,795
)
3,507
$
502,143
5
In addition to amounts related to the Insurance Operations segment,
Other income and Other expense on the Consolidated Statements of Income
includes holding company income and expense amounts of $63 and $25,588, respectively.
Table of Contents
SUPPLEMENTARY INSURANCE INFORMATION
Year ended December 31, 2006
Amortization
Deferred
Reserve
Losses
of deferred
policy
for losses
Net
Net
and loss
policy
Other
Net
acquisition
and loss
Unearned
premiums
investment
expenses
acquisition
operating
premiums
($ in thousands)
costs
expenses
1
premiums
earned
income
2
incurred
3
costs
4
expenses
4
written
$
218,103
2,288,770
791,540
1,499,664
959,983
443,300
38,403
1,535,961
192,281
$
218,103
2,288,770
791,540
1,499,664
192,281
959,983
443,300
38,403
1,535,961
1
Includes Reserve for losses and Reserve for loss expenses on the Consolidated Balance Sheets.
2
Includes Net investment income earned and Net realized (losses) gains on the Consolidated Statements of Income.
3
Includes Losses incurred and Loss expenses incurred on the Consolidated Statements of Income.
4
The total of Amortization of deferred policy acquisition costs of $443,300 and Other operating expenses of
$38,403 reconciles to the
Consolidated Statements of Income as follows:
$
478,339
5,927
(5,390
)
2,827
$
481,703
5
In addition to amounts related to the Insurance Operations segment,
Other income and Other expense on the Consolidated Statements of Income
includes holding company income and expense amounts of $6 and $26,152, respectively.
Table of Contents
REINSURANCE
Years ended December 31, 2008, 2007 and 2006
% of
Assumed
Ceded
Amount
Direct
from Other
to Other
Assumed
($ in thousands)
Amount
Companies
Companies
Net Amount
to Net
$
80
80
1,679,025
26,703
210,238
1,495,490
2
%
1,679,105
26,703
210,318
1,495,490
2
%
$
80
80
1,671,430
30,930
185,054
1,517,306
2
%
$
1,671,510
30,930
185,134
1,517,306
2
%
$
509
476
33
1,618,500
36,009
154,878
1,499,631
2
%
$
1,619,009
36,009
155,354
1,499,664
2
%
Table of Contents
Exhibit
Number
Restated Certificate of Incorporation of Selective Insurance
Group, Inc., dated August 4, 1977, as amended (incorporated by
reference to Exhibit 3.1 of the Companys Annual Report on Form
10-K for the year ended December 31, 2007, File No. 001-33067).
By-Laws of Selective Insurance Group, Inc., effective October 24,
2006 (incorporated by reference herein to Exhibit 3.1 to the
Companys Current Report on Form 8-K filed October 24, 2006, File
No. 001-33067).
Indenture dated as of September 24, 2002, between Selective
Insurance Group, Inc. and National City Bank, as Trustee, relating
to the Companys 1.6155% Senior Convertible Notes due September
24, 2032 (incorporated by reference herein to Exhibit 4.1 of the
Companys Registration Statement on Form S-3 No. 333-101489).
Indenture, dated as of November 16, 2004, between Selective
Insurance Group, Inc. and Wachovia Bank, National Association, as
Trustee, relating to the Companys 7.25% Senior Notes due 2034
(incorporated by reference herein to Exhibit 4.1 of the Companys
Current Report on Form 8-K filed November 18, 2004, File No.
0-8641).
Indenture, dated as of November 3, 2005, between Selective
Insurance Group, Inc. and Wachovia Bank, National Association, as
Trustee, relating to the Companys 6.70% Senior Notes due 2035
(incorporated by reference herein to Exhibit 4.1 of the Companys
Current Report on Form 8-K filed November 9, 2005, File No.
0-8641).
Registration Rights Agreement, dated as of November 16, 2004,
between Selective Insurance Group, Inc. and Keefe, Bruyette &
Woods, Inc. (incorporated by reference herein to Exhibit 4.2 of
the Companys Current Report on Form 8-K filed November 18, 2004,
File No. 001-33067).
Registration Rights Agreement, dated as of November 3, 2005,
between Selective Insurance Group, Inc. and Keefe, Bruyette &
Woods, Inc. (incorporated by reference herein to Exhibit 4.2 of
the Companys Current Report on Form 8-K filed November 9, 2005,
File No. 001-33067).
Form of Junior Subordinated Debt Indenture between Selective
Insurance Group, Inc. and U.S. Bank National Association
(incorporated by reference herein to Exhibit 4.3 of the Companys
Registration Statement on Form S-3 No. 333-137395).
First Supplemental Indenture, dated as of September 25, 2006,
between Selective Insurance Group, Inc. and U.S. Bank National
Association, as Trustee, relating to the Companys 7.5% Junior
Subordinated Notes due 2066 (incorporated by reference herein to
Exhibit 4.1 of the Companys Current Report on Form 8-K filed
September 27, 2006, File No. 0-8641).
Selective Insurance Supplemental Pension Plan, As Amended and
Restated Effective January 1, 2005 (incorporated by reference
herein to Exhibit 10.1 of the Companys Quarterly Report on 10-Q
for the quarter ended September 30, 2008, File No. 001-33067).
Selective Insurance Company of America Deferred Compensation Plan
(2005) (incorporated by reference herein to Exhibit 10.1 of the
Companys Current Report on Form 8-K filed September 21, 2007,
File No. 001-33067).
Selective Insurance Stock Option Plan II, as amended (incorporated
by reference herein to Exhibit 10.13b to the Companys Annual
Report on Form 10-K for the year ended December 31, 1999, File No.
0-8641).
Table of Contents
Exhibit
Number
Amendment to the Selective Insurance Stock Option Plan II, as
amended, effective as of July 26, 2006 (incorporated by reference
herein to Exhibit 10.4 to the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 2006, File No. 0-8641).
Selective Insurance Stock Option Plan III (incorporated by
reference herein to Exhibit A to the Companys Definitive Proxy
Statement for its 2002 Annual Meeting of Stockholders filed April
1, 2002, File No. 0-8641).
Amendment to the Selective Insurance Stock Option Plan III,
effective as of July 26, 2006 (incorporated by reference herein to
Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q for
the quarter ended June 30, 2006, File No. 0-8641).
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan
(incorporated by reference herein to Appendix A of the Companys
Definitive Proxy Statement for its 2005 Annual Meeting of
Stockholders filed April 6, 2005, File No. 0-8641).
Amendment to the Selective Insurance Group, Inc. 2005 Omnibus
Stock Plan (incorporated by reference herein to Exhibit 10.3 to
the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005, File No. 0-8641).
Amendment No. 2 to the Selective Insurance Group, Inc. 2005
Omnibus Stock Plan (incorporated by reference herein to Exhibit
10.5b of the Companys Annual Report on Form 10-K for the year
ended December 31, 2005, File No. 0-8641).
Amendment No. 3 to the Selective Insurance Group, Inc. 2005
Omnibus Stock Plan (incorporated by reference herein to Exhibit
10.5c of the Companys Annual Report on Form 10-K for the year
ended December 31, 2005, File No. 0-8641).
Amendment No. 4 to the Selective Insurance Group, Inc. 2005
Omnibus Stock Plan Amendment (incorporated by reference herein to
Exhibit 10.5d of the Companys Annual Report on Form 10-K for the
year ended December 31, 2006, File No. 001-33067).
Amendment No. 5 to the Selective Insurance Group, Inc. 2005
Omnibus Stock Plan Amendment (incorporated by reference herein to
Exhibit 10.5e of the Companys Annual Report on Form 10-K for the
year ended December 31, 2007, File No. 001-33067).
Amendment No. 6 to the Selective Insurance Group, Inc. 2005
Omnibus Stock Plan Amendment.
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Stock
Option Agreement (incorporated by reference herein to Exhibit 10.2
to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006, File No. 0-8641).
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Director
Restricted Stock Agreement (incorporated by reference herein to
Exhibit 10.8 of the Companys Annual Report on Form 10-K for the
year ended December 31, 2005, File No. 0-8641).
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Director
Restricted Stock Unit Agreement (incorporated by reference herein
to Exhibit 10.7a of the Companys Annual Report on Form 10-K for
the year ended December 31, 2007, File No. 001-33067).
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Director
Stock Option Agreement (incorporated by reference herein to
Exhibit 10.9 of the Companys Annual Report on Form 10-K for the
year ended December 31, 2005, File No. 0-8641).
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted
Stock Agreement (incorporated by reference herein to Exhibit 10.3
to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006, File No. 0-8641).
Table of Contents
Exhibit
Number
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted
Stock Agreement (incorporated by reference herein to Exhibit 10.4
to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006, File No. 0-8641).
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted
Stock Unit Agreement (incorporated by reference herein to Exhibit
10.1 to the Companys Current Report on Form 8-K filed February 4,
2008, File No. 001-33067).
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted
Stock Unit Agreement (incorporated by reference herein to Exhibit
10.2 to the Companys Current Report on Form 8-K filed February 4,
2008, File No. 001-33067).
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Automatic
Director Stock Option Agreement (incorporated by reference herein
to Exhibit 2 of the Companys Definitive Proxy Statement for its
2005 Annual Meeting of Stockholders filed April 6, 2005, File No.
0-8641).
Deferred Compensation Plan for Directors (incorporated by
reference herein to Exhibit 10.5 to the Companys Annual Report on
Form 10-K for the year ended December 31, 1993, File No. 0-8641).
Selective Insurance Group, Inc. Employee Stock Purchase Savings
Plan (incorporated by reference herein to Exhibit 10.6 to the
Companys Annual Report on Form 10-K for the year ended December
31, 1993, File No. 0-8641).
Amendment to the 1987 Employee Stock Purchase Savings Plan,
effective May 2, 1997, (incorporated by reference herein to
Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, File No. 0-8641).
Selective Insurance Group, Inc. Cash Incentive Plan (incorporated
by reference herein to Appendix B to the Companys Definitive
Proxy Statement for its 2005 Annual Meeting of Stockholders filed
April 6, 2005, File No. 0-8641).
Amendment No. 1 to the Selective Insurance Group, Inc. Cash
Incentive Plan (incorporated by reference herein to Exhibit 10.1
to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006, File No. 0-8641).
Amendment No. 2 to the Selective Insurance Group, Inc. Cash
Incentive Plan (incorporated by reference herein to Exhibit 10.14b
of the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, File No. 001-33067).
Selective Insurance Group, Inc. Cash Incentive Plan Cash Incentive
Unit Award Agreement (incorporated by reference herein to Exhibit
10.14c of the Companys Annual Report on Form 10-K for the year
ended December 31, 2007, File No. 001-33067).
Selective Insurance Group, Inc. Cash Incentive Plan Cash Incentive
Unit Award Agreement (incorporated by reference herein to Exhibit
10.14d of the Companys Annual Report on Form 10-K for the year
ended December 31, 2007, File No. 001-33067).
Selective Insurance Group, Inc. Stock Purchase Plan for
Independent Insurance Agencies, effective July 1, 2006
(incorporated by reference herein to Appendix A of the Companys
Definitive Proxy Statement for its 2006 Annual Meeting of
Stockholders filed March 28, 2006, File No. 0-8641).
Amendment No. 1 to the Selective Insurance Group, Inc. Stock
Purchase Plan for Independent Insurance Agencies (incorporated by
reference to Exhibit 10.15a of the Companys Annual Report on Form
10-K for the year ended December 31, 2006, File No. 001-33067).
Table of Contents
Exhibit
Number
Amendment No. 2 to the Selective Insurance Group, Inc. Stock
Purchase Plan for Independent Insurance Agencies (incorporated by
reference to Exhibit 10.1 of the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2007, File No.
001-33067).
Selective Insurance Group, Inc. Stock Option Plan for Directors
(incorporated by reference herein to Exhibit B of the Companys
Definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders filed March 31, 2000, File No. 0-8641).
Amendment to the Selective Insurance Group, Inc. Stock Option Plan
for Directors, as amended, effective as of July 26, 2006,
(incorporated by reference herein to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006,
File No. 0-8641).
Selective Insurance Group, Inc. Stock Compensation Plan for
Nonemployee Directors, as amended (incorporated by reference
herein to Exhibit A to the Companys Definitive Proxy Statement
for its 2000 Annual Meeting of Stockholders filed March 31, 2000,
File No. 0-8641).
Amendment to Selective Insurance Group, Inc. Stock Compensation
Plan for Nonemployee Directors, as amended.
Employment, Termination and Severance Agreements.
Employment Agreement between Selective Insurance Company of
America and Gregory E. Murphy, dated as of December 23, 2008
(incorporated by reference herein to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed December 30, 2009, File No.
001-33067).
Employment Agreement between Selective Insurance Company of
America and Dale A. Thatcher, dated as of December 23, 2008
(incorporated by reference herein to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed December 30, 2008, File No.
001-33067).
Employment Agreement between Selective Insurance Company of
America and Richard F. Connell, dated as of December 23, 2008
(incorporated by reference herein to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed December 30, 2008, File No.
001-33067).
Employment Agreement between Selective Insurance Company of
America and Kerry A. Guthrie, dated as of December 30, 2008
(incorporated by reference herein to Exhibit 10.4 to the Companys
Current Report on Form 8-K filed December 30, 2008, File No.
001-33067).
Employment Agreement between Selective Insurance Company of
America and Michael H. Lanza, dated as of December 23, 2008.
Employment Agreement between Selective Insurance Company of
America and John J. Marchioni, dated as of December 23, 2008.
Employment Agreement between Selective Insurance Company of
America and Mary T. Porter, dated as of December 23, 2008.
Employment Agreement between Selective Insurance Company of
America and Steven B. Woods, dated as of February 20, 2009.
Employment Agreement between Selective Insurance Company of
America and Ronald J. Zaleski, dated as of December 23, 2008.
Table of Contents
Exhibit
Number
Credit Agreement among Selective Insurance Group, Inc., the
Lenders Named Therein and Wachovia Bank, National Association, as
Administrative Agent, dated as of August 11, 2006 (incorporated by
reference herein to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed August 16, 2006, File No. 001-33067).
Subsidiaries of Selective Insurance Group, Inc.
Consent of KPMG LLP.
Power of Attorney of Paul D. Bauer.
Power of Attorney of W. Marston Becker.
Power of Attorney of A. David Brown.
Power of Attorney of John C. Burville.
Power of Attorney of William M. Kearns, Jr.
Power of Attorney of Joan M. Lamm-Tennant.
Power of Attorney of S. Griffin McClellan III.
Power of Attorney of Michael J. Morrissey.
Power of Attorney of Ronald L. OKelley.
Power of Attorney of William M. Rue.
Power of Attorney of J. Brian Thebault.
Certification of Chief Executive Officer in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer in accordance with
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer in accordance with
Section 906 of the Sarbanes-Oxley Act of 2002.
Glossary of Terms.
*
Filed herewith.
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SELECTIVE INSURANCE COMPANY OF AMERICA
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By: | /s/ Victor N. Daley | |||
Victor N. Daley | ||||
Its Executive Vice President | ||||
EXECUTIVE:
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/s/ Michael H. Lanza | ||||
Michael H. Lanza | ||||
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Delete brackets and use text enclosed therewith if 45
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SELECTIVE INSURANCE COMPANY OF AMERICA
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By: | /s/ Victor N. Daley | |||
Victor N. Daley | ||||
Its Executive Vice President, Human Resources | ||||
EXECUTIVE
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/s/ John J. Marchioni | ||||
John J. Marchioni | ||||
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SELECTIVE INSURANCE COMPANY OF AMERICA
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By: | /s/ Victor N. Daley | |||
Victor N. Daley | ||||
Its Executive Vice President, Human Resources | ||||
EXECUTIVE
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/s/ Mary T. Porter | ||||
Mary T. Porter | ||||
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1 | Delete brackets and use text enclosed therewith if 45 days is not otherwise required by Section 7(f)(1)(F) of the Age Discrimination in Employment Act and/or 29 C.F.R. Part 1625. If 45 days is so required, delete bracketed text in its entirety. |
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SELECTIVE INSURANCE COMPANY OF AMERICA | ||||||
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By: | /s/ Gregory E. Murphy | ||||
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Gregory E. Murphy | |||||
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Its Chairman, President and Chief Executive Officer | |||||
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/s/ Steven B. Woods | |||||
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Steven B. Woods |
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delete bracketed text in its entirety.
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Delete brackets and use text enclosed therewith if 45
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SELECTIVE INSURANCE COMPANY OF AMERICA | ||||||
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By: | /s/ Victor N. Daley | ||||
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Victor N. Daley | |||||
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Its Executive Vice President | |||||
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/s/ Ronald J. Zaleski | |||||
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Ronald J. Zaleski |
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in Employment Act and/or 29 C.F.R. Part 1625. If 45 days is so required,
delete bracketed text in its entirety.
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Delete brackets and use text enclosed therewith if 45
days is required by Section 7(f)(1)(F) of the Age Discrimination in Employment
Act and/or 29 C.F.R. Part 1625. If 45 days is not so required, delete
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Percentage | ||||||||
Jurisdiction | voting | |||||||
in which | securities | |||||||
Name | organized | Parent | owned | |||||
SelecTech, LLC
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New Jersey | Selective Way Insurance Company | 75 | % | ||||
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Selective Insurance Company of the Southeast | 25 | % | |||||
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Selective Auto Insurance Company of New Jersey
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New Jersey | Selective Insurance Group, Inc | 100 | % | ||||
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Selective HR Solutions, Inc.
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Florida | Selective Insurance Group, Inc. | 100 | % | ||||
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Selective Insurance Company of America
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New Jersey | Selective Insurance Group, Inc. | 100 | % | ||||
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Selective Insurance Company of New England
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Maine | Selective Insurance Group, Inc. | 100 | % | ||||
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Selective Insurance Company of New York
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New York | Selective Insurance Group, Inc. | 100 | % | ||||
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Selective Insurance Company of South Carolina
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Indiana | Selective Insurance Group, Inc. | 100 | % | ||||
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Selective Insurance Company of the Southeast
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Indiana | Selective Insurance Group, Inc. | 100 | % | ||||
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Selective Technical Administrative Resources, Inc.
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New Jersey | Selective Insurance Group, Inc. | 100 | % | ||||
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Selective Way Insurance Company
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New Jersey | Selective Insurance Group, Inc. | 100 | % | ||||
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SRM Insurance Brokerage, LLC
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New Jersey | Selective Way Insurance Company | 75 | % | ||||
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Selective Insurance Company of the Southeast | 25 | % | |||||
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Wantage Avenue Holding Company, Inc.
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New Jersey | Selective Insurance Company of America | 100 | % |
Date: February 27, 2009
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/s/ Paul D. Bauer | |||
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Paul D. Bauer |
Date: February 27, 2009
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/s/ W. Marston Becker | |||
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W. Marston Becker |
Date: February 27, 2009
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/s/ A. David Brown | |||
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A. David Brown |
Date: February 24, 2009
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/s/ John C. Burville | |||
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John C. Burville |
Date: February 23, 2009
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/s/ William M. Kearns, Jr. | |||
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William M. Kearns, Jr. |
Date: February 27, 2009
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/s/ Joan M. Lamm-Tennant | |||
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Joan M. Lamm-Tennant |
Date: February 23, 2009
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/s/ S. Griffin McClellan III | |||
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S. Griffin McClellan III |
Date: February 22, 2009
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/s/ Michael J. Morrissey | |||
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Michael J. Morrissey |
Date: February 27, 2009
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/s/ Ronald L. OKelley | |||
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Ronald L. OKelley |
Date: February 27, 2009
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/s/ William M. Rue | |||
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William M. Rue |
Date: February 27, 2009
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/s/ J. Brian Thebault | |||
|
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J. Brian Thebault |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrants internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 27, 2009 | By: | /s/ Gregory E. Murphy | ||
Gregory E. Murphy | ||||
Chairman of the Board, President and
Chief Executive Officer |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrants internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 27, 2009 | By: | /s/ Dale A. Thatcher | ||
Dale A. Thatcher | ||||
Executive Vice President,
Chief Financial Officer and Treasurer |
Date: February 27, 2009 | By: | /s/ Gregory E. Murphy | ||
Gregory E. Murphy | ||||
Chairman of the Board, President and
Chief Executive Officer |
Date: February 27, 2009 | By: | /s/ Dale A. Thatcher | ||
Dale A. Thatcher | ||||
Executive Vice President,
Chief Financial Officer and Treasurer |