A.M. Best Affirms Financial Strength Rating of Selective Insurance Group; Assigns Debt Rating.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Apr. 3, 2001

A.M. Best Co. has affirmed the A+ (Superior) financial strength rating of Selective Insurance Group, Inc., (NYSE: SIGI).

The rating applies to the group's five intercompany pool members led by Selective Insurance Company of America, Branchville, New Jersey. In addition, A.M. Best has assigned a "bbb+" rating to Selective's existing convertible subordinated debentures.

The ratings reflect Selective's solid capitalization, historically favorable operating performance and strong regional market presence within the small account commercial lines business segment. These positive rating factors are derived from the group's strong balance sheet, excellent underwriting and operating results and the benefits gained from its diversification initiatives, field strategies and the leveraging of its agency relationships. The ratings also recognize Selective's disciplined underwriting, conservative investment philosophy and prudent capital management.

Selective maintains modest financial leverage with a debt to total capital ratio of approximately 22% at year-end 2000. In 2000, Selective demonstrated its financial flexibility by successfully issuing a $91 million private placement medium-term debt offering and used the proceeds to retire short-term bank debt. Going forward, A.M. Best does not expect total borrowings to exceed 30% of total capital. The company's diversified earnings profile, supplemented by its growing fee-based business, provides fixed charge coverage that supports the rating. Over the last few years, Selective has been aggressively repurchasing stock. However, significant share repurchase activity is not expected to continue in the near to medium term, which should ultimately enhance the group's operating and financial leverage.

Selective has been successful in executing its regional business strategy, which targets small "mainstreet" commercial accounts and individuals while leveraging its outstanding agency relationships. This strategy is corroborated by the company's formation of strategic business units and regional field offices. Using highly specialized underwriters, agency management specialists and claims specialists, Selective remains focused on developing products and services that are responsive to marketplace dynamics. In recent years, the group's insurance operations also have begun to vertically integrate small business services through its diversified insurance services companies. These fee-based products not only enhance Selective's product diversification and cash flow but also further accentuate Selective's value-added and customer centric approach.

Partially offsetting these positive factors is Selective's relatively high geographic concentration in New Jersey, margin compression from a competitive commercial lines environment and higher than anticipated loss experience in its expanded territories. Despite improvement through management's diversification initiatives, Selective still generates about 40% of its premium in New Jersey. Consequently, the group's operating performance is still heavily conditioned on regulatory and competitive pressures in the state, as evidenced in 1999 and 2000. Recent regulatory actions include the Automobile Insurance Cost Reduction Act (AICRA), which mandated a 15% rate rollback on private passenger automobile business and the assignment of extremely unprofitable Urban Enterprise Zone auto business. In an effort to enhance its geographic profile and reduce its concentration in New Jersey, Selective has expanded into the Midwest and New England markets over the past several years. However, this growth in a competitive marketplace has produced high loss ratios in commercial lines and high expense ratios. As rate changes are subject to formal regulatory approval, Selective will be challenged to markedly enhance the performance of its voluntary and involuntary automobile business in New Jersey. Action plans for improvement in commercial lines business in expansion states include aggressive re-underwriting and increased pricing.

Despite the recent setbacks, A.M. Best believes Selective's underwriting and operating earnings will improve in 2001 due to recent double-digit price increases on its predominant commercial lines book. However, delays in the approval of adequate personal auto rate increases in New Jersey will likely temper the improvement in commercial lines. In addition, management will be challenged to quickly turn around the performance of the group's commercial lines business in expansion states and return this operating segment to profitability.

The A+ (Superior) financial strength rating on the following members of Selective Insurance Group, Inc. has been affirmed:

- Selective Insurance Company of America

- Selective Way Insurance Co.

- Selective Insurance Company of the Southeast

- Selective Insurance Company of New York

- Selective Insurance Company of South Carolina The following rating has been
assigned to existing debt:

- Selective Insurance Group, Inc.--"bbb+" rating on 8.75% convertible
subordinated debentures due January 2008.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.