Selective Insurance Group Reports Second Quarter 2007 Earnings

BRANCHVILLE, N.J., July 26 /PRNewswire-FirstCall/ -- Selective Insurance Group, Inc. (NASDAQ: SIGI) , today reported its financial results for the second quarter ended June 30, 2007.

Selective Chairman, President and CEO Gregory E. Murphy stated, "Selective's strong new business growth in the second quarter, driven by superior agency relationships and our unique field-based business model, helped us to balance industry-wide pricing pressure in an increasingly competitive and volatile commercial lines marketplace. Commercial lines net premiums written grew 3% for the quarter, driven by $83 million of new commercial business, up 13% compared to second quarter 2006. These efforts were supported by predictive models and other tools that enable us to offer the most competitive rates for the best accounts. Commercial renewal pricing was down 0.5%, including exposure, which exerts ongoing pressure on our combined ratio. In addition, policy endorsements were down $2 million compared to the same period last year. As previously reported, second quarter earnings were impacted by higher than expected catastrophe (CAT) and non-CAT property losses, and a one-time after-tax charge for the reorganization of our personal lines operation."

Selective's second quarter 2007 highlights, compared to second quarter 2006:

  -- Net income was $35.9 million, or $0.64 per diluted share, compared to
     $42.0 million, or $0.68 per diluted share;

  -- Operating income(i) was $27.3 million, or $0.49 per diluted share,
     compared to $32.6 million, or $0.53 per diluted share;

  -- Combined ratio: GAAP: 100.0% vs. 96.5%; Statutory: 97.1% vs. 95.6%;

  -- Total net premiums written (NPW) were up 2.4% to $404.9 million;
      -- Commercial lines NPW were up 3% to $351.4 million;
      -- Personal lines NPW were down 3% to $53.5 million;

  -- Catastrophe losses were $4.7 million, after-tax, vs. $3.3 million,
     after-tax; and

  -- Investment Income, after-tax, increased 9% to $31.8 million.

Murphy added: "Selective's organic growth strategy led to our expansion into Massachusetts for commercial lines, our 21st primary operating state, effective July 1, 2007. Our agency count has grown to 845, up from 772 at year-end, serviced by 98 agency management specialists who deliver hands-on underwriting decisions in agents' offices. Selective's state-of-the-art technology powerfully complements this "high-touch" approach, as we seamlessly processed $251,000 of new small commercial business per work day through our automated One & Done system, up 29% from second quarter 2006.

"Revenue at our Diversified Insurance Services was up 11% for the quarter, led by 30% growth in fee-based flood revenue. Personal lines net premiums written, which represent about 13% of total premiums, were down slightly as we continued to transition our New Jersey auto business to Selective's new MATRIX pricing system. MATRIX is favorably impacting new business growth in our other personal lines states, where net premiums written grew 10% and auto quote activity increased 75%, compared to second quarter 2006. Although catastrophe losses and the completion of our Personal Lines reorganization negatively impacted profitability for the quarter, we expect the pricing accuracy of MATRIX and improvements to our renewal business to favorably impact results, long term."

Selective's investment operation delivered another solid performance as after-tax investment income grew 9% to $31.8 million, mainly due to increased fixed maturity income from a larger asset base, and higher dividend and other investment income. At June 30, 2007, Selective's assets reached $4.9 billion, including $3.5 billion in the company's investment portfolio.

For the six months ended June 30, 2007, Selective's net income was $73.1 million, or $1.26 per diluted share. Operating income was $57.3 million, or $0.99 per diluted share. For the comparable period last year, Selective reported net income of $82.0 million, or $1.32 per diluted share, and operating income of $67.8 million, or $1.09 per diluted share. Selective's GAAP combined ratio was 98.7% for the first six months of 2007, compared to 95.4% for the six-month period ended June 30, 2006. For the same period, the statutory combined ratio was 96.4% in 2007, compared to 94.3% in 2006. Catastrophe losses for the first six months of 2007 were $7.9 million, after- tax, compared to $5.3 million, after-tax, for the comparable period in 2006.

The company's Board declared a $0.12 per share quarterly cash dividend on Selective's common stock, payable Sept. 4, 2007, to stockholders of record on Aug. 15, 2007. The Board also approved a stock repurchase program to acquire up to four million shares of Selective's outstanding common stock through July 26, 2009. As announced July 5, 2007, earnings guidance for 2007 is in the range of $2.00 to $2.15.

The supplemental investor packet, including financial information that is not part of this press release, is available on the Investors page of Selective's public website at http://www.selective.com/. Selective's quarterly analyst conference call will be simulcast at 8:30 a.m. EST, on July 27, 2007, at http://www.selective.com/. The webcast will be available for rebroadcast until the close of business on August 24, 2007.

Selective Insurance Group, Inc., is a holding company for seven property and casualty insurance companies rated "A+" (Superior) by A.M. Best. Through independent agents, the insurance companies offer primary and alternative market insurance for commercial and personal risks, and flood insurance underwritten by the National Flood Insurance Program. Other subsidiaries of the company provide claims, human resources and risk management services. Selective maintains a website at http://www.selective.com/.

In this press release, Selective and its management discuss and make statements based on currently available information regarding their intentions, beliefs, current expectations, and projections regarding Selective's future operations and performance. Such statements are "forward- looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995, which provides a safe harbor under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, for forward-looking statements. These forward-looking statements are often identified by words such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," or "continue," or other comparable terminology and their negatives. Selective and its management assume no obligation to update these forward-looking statements due to changes in underlying factors, new information, future developments or otherwise.

Selective and its management caution investors that such forward-looking statements are not guarantees of future performance. Risks and uncertainties are inherent in Selective's future performance. Factors that could cause Selective's actual results to differ materially from those indicated by such forward-looking statements, include, among other things, those discussed or identified from time to time in our public filings with the SEC and those associated with:

  -- the frequency and severity of catastrophic events, including, but not
     limited to, hurricanes, tornadoes, windstorms, earthquakes, hail,
     severe winter weather, fires, explosions and terrorism;

  -- adverse economic, market, regulatory, legal or judicial conditions;

  -- the concentration of our business in a number of Eastern Region states;

  -- the adequacy of our loss reserves and loss expense reserves;

  -- the cost and availability of reinsurance;

  -- our ability to collect on reinsurance and the solvency of our
     reinsurers;

  -- uncertainties related to insurance premium rate increases and business
     retention;

  -- changes in insurance regulations that impact our ability to write
     and/or cease writing insurance policies in one or more states,
     particularly changes in New Jersey automobile insurance laws and
     regulations;

  -- our ability to maintain favorable ratings from rating agencies,
     including A.M. Best, S&P, Moody's and Fitch;

  -- fluctuations in interest rates and the performance of the financial
     markets;

  -- our entry into new markets and businesses; and

  -- other risks and uncertainties we identify in filings with the SEC,
     including, but not limited to, our Annual Report on Form 10-K.

Selective's SEC filings can be accessed through the Investors and Corporate Governance sections of Selective's website, http://www.selective.com/, or through the SEC's EDGAR Database at http://www.sec.gov/ (Selective EDGAR CIK No. 0000230557).

             Selective Insurance Group, Inc.  (NASDAQ: SIGI)  *
  GAAP Highlights and Reconciliation of Non-GAAP Measures to Comparable
                              GAAP Measures

  (in thousands, except per share data)
  3 months ended June 30:                              2007        2006
  Net premiums written                            $    404,923     395,621
  Net premiums earned                                  376,351     374,755
  Net investment income earned                          40,642      37,390
  Diversified insurance services revenue                30,677      27,550
  Total revenues                                       462,038     455,461

  Operating income                                      27,340      32,580
  Net realized gains, net of tax                         8,546       9,416
  Net income                                      $     35,886      41,996

  Statutory combined ratio                               97.1%       95.6%
  GAAP combined ratio                                   100.0%       96.5%

  Operating income per diluted share              $       0.49        0.53
  Net income per diluted share                            0.64        0.68
  Weighted average diluted shares                       56,721      62,474
  Book value per share                            $      18.76       17.21

  6 months ended June 30:                              2007        2006
  Net premiums written                            $    822,108     827,610
  Net premiums earned                                  756,364     744,912
  Net investment income earned                          80,505      73,392
  Diversified insurance services revenue                59,855      54,827
  Total revenues                                       924,147     898,127

  Operating income                                      57,284      67,770
  Net realized gains, net of tax                        15,854      14,205
  Net income                                      $     73,138      81,975

  Statutory combined ratio                               96.4%       94.3%
  GAAP combined ratio                                    98.7%       95.4%

  Operating income per diluted share              $       0.99        1.09
  Net income per diluted share                            1.26        1.32
  Weighted average diluted shares                       58,610      63,186
  Book value per share                            $      18.76       17.21

  *All amounts included in this release exclude inter-company transactions.

  (i) Operating income differs from net income by the exclusion of realized
      gains or losses on investment sales. It is used as an important
      financial measure by management, analysts and investors, because the
      realization of investment gains and losses in any given period is
      largely discretionary as to timing and could distort the analysis of
      trends; however, it is not intended as a substitute for net income
      prepared in accordance with accounting principles generally accepted
      in the United States of America (GAAP). A reconciliation of operating
      income to net income is provided in the GAAP Highlights and
      Reconciliation of Non-GAAP Measures to Comparable GAAP Measures.
      Statutory data is prepared in accordance with statutory accounting
      rules as defined by the National Association of Insurance
      Commissioners Accounting Practices and Procedures Manual and,
      therefore, is not reconciled to GAAP.