See the Glossary of Terms attached to this Form 10-K as Exhibit 99.1.
NPW increased in 2007 compared to 2006 and in 2006 compared to 2005. Premium growth in 2007 compared to 2006 is attributable to increases in direct new business written, excluding flood, of 14% to $352.3 million for 2007 compared to 2006 partially offset by (i) commercial lines renewal pricing, including exposure, which decreased by 0.3% in 2007; (ii) a slight reduction in commercial lines retention in 2007 compared to 2006 and 2005; (iii) an $17.9 million reduction in audit and endorsement premium activity in 2007 compared to 2006 and a $7.6 million reduction in 2006 compared to 2005 as a result of economic changes, especially in the construction industry; and, (iv) a decline in NPW for our New Jersey personal automobile business of $12.6 million to $80.1 million for 2007 compared to 2006 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® pricing system.
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:
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Selective Insurance Group, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Other investments are comprised of alternative investments and other miscellaneous securities. Alternative investments are accounted for using the equity method. Selective’s share of distributed and undistributed net income from alternative investments is included in “Net investment income earned.” Investments in other miscellaneous securities are generally carried at estimated fair value, because Selective’s interests are so minor that it exercises virtually no influence over operating and financial policies. Selective’s distributed share of net income from other miscellaneous investments is included in “Net investment income earned.” Any changes in estimated fair value associated with these investments are recorded as an unrealized gain or loss, of which these items net of tax are included in AOCI.
The maximum number of shares that may yet be purchased under Selective’s authorized stock repurchase program is 3.5 million. This program is scheduled to expire on July 26, 2009.
Employer contributions for all the plans amounted to $5.4 million in 2007, $4.4 million in 2006, and $4.0 million in 2005.
As of December 31, 2007, there were 95,250 shares of the Common Stock available for issuance pursuant to outstanding stock option awards under the Stock Compensation Plan for Non-employee Directors, under which future grants ceased being available with the approval of the Stock Plan. Under the Stock Compensation Plan for Non-employee Directors, Directors could elect to receive a portion of their annual compensation in shares of Selective’s Common Stock. Selective issued 21,838 shares during 2005 under this plan.