The commercial SBUs' net premiums written increased 13%, or $63 million including $154 million of direct new business. This growth in net premiums written was primarily due to the Company's Midwest and New England expansion and the increase in AMSs. Retention of existing business remained comparable with 1998 at approximately 77%.
The Company's after-tax investment yield was 4.3% in 1999, down slightly from 4.4% in 1998. Although there has been a recent increase in available yields, these yields are still not at the levels of the maturing fixed income securities so investment income will continue to be adversely affected as higher yielding fixed income securities in the Company's portfolio are redeemed or mature.
Effective July 1, 1998, the casualty excess of loss treaty retention was increased from $1 million to $2 million per risk, and the property excess of loss treaty retention was increased from $400,000 to $750,000 per risk. Effective January 1, 1999, the Company revised its property catastrophe program to provide a higher level of protection against catastrophe losses. The new catastrophe program is in six layers and covers: (i) 95% of losses in excess of $15 million up to $25 million; (ii) 95% of losses in excess of $25 million up to $50 million; (iii) 95% of losses in excess of $50 million up to $85 million; (iv) 95% of losses in excess of $95 million up to $130 million; (v) 95% of losses in excess of $130 million up to $165 million. The layer of $10 million in losses in excess of $85 million has been retained in full by the Company, as has the $15 million in losses underlying the 1st layer. The Company believes that the property catastrophe program, coupled with the Homeowners Quota Share Program, which reinsures 75% of New Jersey homeowners' property coverage up to a $1 million limit and contains no per-occurrence limit, provides adequate protection for the Company.
The consolidated financial statements include the accounts of Selective Insurance Group, Inc. ("Selective") and its subsidiaries (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated.
(b) Net unrealized gains on debt securities, held-to-maturity are as follows:
The Company maintained a nonqualified unfunded defined benefit retirement income plan for nonemployee Directors. The estimated accrued costs for this plan were not material. The plan was terminated effective December 31, 1997, and as part of the termination, the present value of each Director's future benefits, as of this date, was converted into units based on the fair value of Selective common stock on that date. The cash value of these units will be distributed to each Director upon retirement, or at each Director's election, over a period of fifteen years after such retirement. The units will accrue amounts equivalent to dividends which will also be converted into units based on the fair market value of Selective common stock on the applicable dividend reinvestment dates.
Under the Company's original stock option plan, 36,000 shares of the Company's common stock are reserved for issuance, upon exercise of stock options outstanding at December 31, 1999. This plan permitted the granting of qualified and nonqualified stock options to key employees, which may or may not have SARs attached. Options and related SARs were granted at not less than fair value on the date of the grant, are required to be exercised within ten years from the date of the grant and are exercisable immediately upon the grant. This plan expired in August 1992 and was replaced with the Company's stock option plan II.
Under the Company's stock option plan II, 2,946,658 shares of the Company's common stock are available for issuance at December 31, 1999. The plan permits the granting of qualified and nonqualified stock options to employees, which may or may not have SARs attached. Options and related SARs may be granted at not less than fair value on the date of the grant and may be subject to certain vesting periods as determined by the Company's Salary and Employee Benefits Committee ("Committee"). Each grant must be exercised within ten years from the date of the grant. Under this plan, the Company granted options of 24,000, 207,700 and 277,400 for 1999, 1998 and 1997, respectively.
(b) The tax effects of the significant temporary differences that give rise to deferred tax liabilities and assets are as follows:
(2.) Operating and net income for the first quarter of 1999 were reduced by $2.8 million, after reinsurance and taxes, due to higher losses incurred from unusual property damages and numerous winter storms.
INCURRED BUT NOT REPORTED ("IBNR") RESERVES -- reserves for estimated losses which have been incurred by insureds but not yet reported to the insurer.
STATUTORY SURPLUS -- the amount left after an insurance company's liabilities are subtracted from assets. Statutory surplus is not a figure based upon "generally accepted accounting principles" (GAAP). Rather, it is based upon "statutory" accounting practices prescribed or permitted by state and foreign insurance regulators.