10-Q

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:  March 31, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____________________________to________________________________

Commission File Number:  001-33067

SELECTIVE INSURANCE GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

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 Offices)	(Zip Code)

(973) 948-3000

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.

Yesx                       No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yesx                       No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer ¨
Non-accelerated filer   ¨	Smaller reporting company ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                     No x

As of March 31, 2011, there were 54,017,474 shares of common stock, par value $2.00 per share, outstanding.

SELECTIVE INSURANCE GROUP, INC.

Table of Contents

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010	1
	Unaudited Consolidated Statements of Income for the Quarter Ended March 31, 2011 and 2010	2
	Unaudited Consolidated Statements of Stockholders’ Equity for the Quarter Ended March 31, 2011 and 2010	3
	Unaudited Consolidated Statements of Cash Flow for the Quarter Ended March 31, 2011 and 2010	4
	Notes to Unaudited Interim Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Forward-Looking Statements	22
	Introduction	22
	Critical Accounting Policies and Estimates	22
	Financial Highlights of Results for First Quarter 2011 and 2010	23
	Results of Operations and Related Information by Segment	25
	Federal Income Taxes	44
	Financial Condition, Liquidity, Short-term Borrowings, and Capital Resources	44
	Ratings	46
	Pending Accounting Pronouncements	47
	Off-Balance Sheet Arrangements	47
	Contractual Obligations, Contingent Liabilities, and Commitments	47
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 5.	Other Information	49
Item 6.	Exhibits	50

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
SELECTIVE INSURANCE GROUP, INC.	Unaudited
CONSOLIDATED BALANCE SHEETS	March 31,			December 31,
($ in thousands, except share amounts)	2011			2010
ASSETS
Investments:
Fixed maturity securities, held-to-maturity – at carrying value
(fair value:  $1,192,423 – 2011; $1,256,294 – 2010)	$	1,153,859			1,214,324
Fixed maturity securities, available-for-sale – at fair value
(amortized cost:  $2,382,976 – 2011; $2,285,988 – 2010)		2,436,764			2,342,742
Equity securities, available-for-sale – at fair value
(cost of:  $68,104 – 2011; $58,039 – 2010)		77,138			69,636
Short-term investments (at cost which approximates fair value)		156,437			161,155
Other investments		136,148			137,865
Total investments		3,960,346			3,925,722
Cash		496			645
Interest and dividends due or accrued		36,651			37,007
Premiums receivable, net of allowance for uncollectible accounts of:  $4,608 – 2011; $4,691 – 2010		430,063			414,105
Reinsurance recoverables, net		331,387			318,752
Prepaid reinsurance premiums		110,061			110,327
Current federal income tax		6,919			11,200
Deferred federal income tax		93,574			93,234
Property and equipment – at cost, net of accumulated depreciation and amortization of:  $153,961 – 2011; $151,704 – 2010		40,780			41,775
Deferred policy acquisition costs		210,245			209,627
Goodwill		7,849			7,849
Other assets		46,855			61,529
Total assets	$	5,275,226			5,231,772
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Reserve for losses and loss expenses	$	2,864,889			2,830,058
Unearned premiums		833,823			823,596
Notes payable		262,339			262,333
Accrued salaries and benefits		95,957			100,933
Other liabilities		134,565			143,743
Total liabilities	$	4,191,573			4,160,663
Stockholders’ Equity:
Preferred stock of $0 par value per share:
Authorized shares 5,000,000; no shares issued or outstanding	$	-			-
Common stock of $2 par value per share
Authorized shares 360,000,000
Issued:  96,838,773 – 2011; 96,362,667 – 2010		193,678			192,725
Additional paid-in capital		248,575			244,613
Retained earnings		1,190,528			1,176,155
Accumulated other comprehensive income		2,776			7,024
Treasury stock – at cost (shares:  42,821,299 – 2011; 42,686,204 – 2010)		(551,904	)		(549,408	)
Total stockholders’ equity		1,083,653			1,071,109
Commitments and contingencies
Total liabilities and stockholders’ equity	$	5,275,226			5,231,772

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

1

SELECTIVE INSURANCE GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME	Quarter ended
	March 31,
($ in thousands, except per share amounts)	2011			2010
Revenues:
Net premiums earned	$	351,343			356,202
Net investment income earned		43,473			34,706
Net realized gains (losses):
Net realized investment gains		6,390			8,176
Other-than-temporary impairments		(532	)		(6,073	)
Other-than-temporary impairments on fixed maturity securities recognized in other comprehensive income		(98	)		(2,167	)
Total net realized gains (losses)		5,760			(64	)
Other income		2,880			2,268
Total revenues		403,456			393,112
Expenses:
Losses and loss expenses incurred		249,206			254,143
Policy acquisition costs		113,430			116,002
Interest expense		4,557			4,842
Other expenses		8,491			10,478
Total expenses		375,684			385,465
Income from continuing operations, before federal income tax		27,772			7,647
Federal income tax expense (benefit):
Current		4,276			8,844
Deferred		1,947			(7,790	)
Total federal income tax expense		6,223			1,054
Net income from continuing operations		21,549			6,593
Loss on disposal of discontinued operations, net of tax of $(426) – 2010		-			(790	)
Net income	$	21,549			5,803
Earnings per share:
Basic net income from continuing operations	$	0.40			0.12
Basic net loss from disposal of discontinued operations		-			(0.01	)
Basic net income	$	0.40			0.11
Diluted net income from continuing operations	$	0.39			0.12
Diluted net loss from disposal of discontinued operations		-			(0.01	)
Diluted net income	$	0.39			0.11
Dividends to stockholders	$	0.13			0.13

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

2

SELECTIVE INSURANCE GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

	Quarter ended March 31,
($ in thousands, except per share amounts)	2011					2010
Common stock:
Beginning of year	$	192,725					191,646
Dividend reinvestment plan
(shares:  22,697 – 2011; 25,759 – 2010)		46					51
Stock purchase and compensation plans
(shares:  453,409 – 2011; 79,289 – 2010)		907					159
End of period		193,678					191,856
Additional paid-in capital:
Beginning of year		244,613					231,933
Dividend reinvestment plan		360					368
Stock purchase and compensation plans		3,602					3,309
End of period		248,575					235,610
Retained earnings:
Beginning of year		1,176,155					1,138,978
Net income		21,549		21,549			5,803		5,803
Dividends to stockholders ($0.13 per share – 2011 and 2010)		(7,176	)				(7,077	)
End of period		1,190,528					1,137,704
Accumulated other comprehensive income (loss):
Beginning of year		7,024					(12,460	)
Other comprehensive income (loss), increase (decrease) in:
Unrealized (losses) gains on investment securities:
Non-credit portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax		117					1,478
Other net unrealized (losses) gains on investment securities, net of deferred income tax		(5,107	)				4,583
Total unrealized (losses) gains on investment securities		(4,990	)	(4,990	)		6,061		6,061
Defined benefit pension plans, net of deferred income tax		742		742			626		626
End of period		2,776					(5,773	)
Comprehensive income				17,301					12,490
Treasury stock:
Beginning of year		(549,408	)				(547,722	)
Acquisition of treasury stock
(shares:  135,095 – 2011; 97,493 – 2010)		(2,496	)				(1,513	)
End of period		(551,904	)				(549,235	)
Total stockholders’ equity	$	1,083,653					1,010,162

Selective Insurance Group, Inc. also has authorized, but not issued, 5,000,000 shares of preferred stock, without par value, of which 300,000 shares have been designated Series A junior preferred stock, without par value.

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

3

SELECTIVE INSURANCE GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW	Quarter ended
	March 31,
($ in thousands)	2011			2010
Operating Activities
Net income	$	21,549			5,803
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,001			7,451
Loss on disposal of discontinued operations		-			790
Stock-based compensation expense		4,625			6,169
Undistributed income of equity method investments		(2,482	)		(3,895	)
Net realized (gains) losses		(5,760	)		64
Deferred income tax expense (benefit)		1,947			(7,790	)
Changes in assets and liabilities:
Increase in reserves for losses and loss expenses, net of reinsurance recoverables		22,196			34,518
Increase in unearned premiums, net of prepaid reinsurance and advance premiums		11,297			11,647
Decrease in net federal income tax recoverable		4,281			7,698
Increase in premiums receivable		(15,958	)		(10,543	)
(Increase) decrease in deferred policy acquisition costs		(618	)		1,024
Decrease (increase) in interest and dividends due or accrued		355			(730	)
Decrease in accrued salaries and benefits		(6,466	)		(7,100	)
Decrease in accrued insurance expenses		(17,082	)		(17,187	)
Other-net		2,105			5,176
Net adjustments		6,441			27,292
Net cash provided by operating activities		27,990			33,095
Investing Activities
Purchase of fixed maturity securities, available-for-sale		(114,320	)		(142,067	)
Purchase of equity securities, available-for-sale		(59,780	)		(23,915	)
Purchase of other investments		(5,008	)		(7,714	)
Purchase of short-term investments		(316,769	)		(303,668	)
Sale of subsidiary		415			844
Sale of fixed maturity securities, available-for-sale		14,907			39,632
Sale of short-term investments		321,487			235,386
Redemption and maturities of fixed maturity securities, held-to-maturity		38,483			80,963
Redemption and maturities of fixed maturity securities, available-for-sale		19,771			66,122
Sale of equity securities, available-for-sale		56,836			16,419
Distributions from other investments		9,122			-
Sale of other investments		16,357			13,337
Purchase of property and equipment		(1,366	)		(866	)
Net cash used in investing activities		(19,865	)		(25,527	)
Financing Activities
Dividends to stockholders		(6,605	)		(6,492	)
Acquisition of treasury stock		(2,496	)		(1,513	)
Net proceeds from stock purchase and compensation plans		1,008			625
Excess tax benefits from share-based payment arrangements		(181	)		(856	)
Net cash used in financing activities		(8,274	)		(8,236	)
Net decrease in cash		(149	)		(668	)
Cash, beginning of year		645			811
Cash, end of period	$	496			143

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

4

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.              Organization

Selective Insurance Group, Inc., through its subsidiaries, (collectively referred to as “we,” “us,” or “our”) offers property and casualty insurance products.  Selective Insurance Group, Inc. (referred to as the “Parent”) was incorporated in New Jersey in 1977 and its main offices are located in Branchville, New Jersey.  The Parent’s common stock is publicly traded on the NASDAQ Global Select Market under the symbol “SIGI.”

We classify our business into two operating segments:

· Insurance Operations, which sells property and casualty insurance products and services primarily in 22 states in the Eastern and Midwestern U.S.; and

· Investments.

NOTE 2.              Basis of Presentation

These interim unaudited consolidated financial statements (“Financial Statements”) include the accounts of the Parent and its subsidiaries, and have been prepared in conformity with:  (i) U.S. generally accepted accounting principles (“GAAP”); and (ii) the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting.  The preparation of the Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported financial statement balances, as well as the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.  All significant intercompany accounts and transactions between the Parent and its subsidiaries are eliminated in consolidation.

These Financial Statements reflect all adjustments that, in our opinion, are normal, recurring, and necessary for a fair presentation of our results of operations and financial condition.  The Financial Statements cover the first quarters ended March 31, 2011 (“First Quarter 2011”) and March 31, 2010 (“First Quarter 2010”).  The Financial Statements do not include all of the information and disclosures required by GAAP and the SEC for audited financial statements.  Results of operations for any interim period are not necessarily indicative of results for a full year.  Consequently, the Financial Statements should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Annual Report”).

NOTE 3.              Reclassification

Certain prior year amounts in these Financial Statements and related footnotes have been reclassified to conform to the current year presentation.  Such reclassifications had no effect on our net income, stockholders’ equity, or cash flows.

NOTE 4.              Adoption of Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.  This guidance requires:  (i) separate disclosure of significant transfers between Level 1 and Level 2 of the fair value hierarchy and reasons for the transfers; (ii) disclosure, on a gross basis, of purchases, sales, issuances, and net settlements within Level 3 of the fair value hierarchy; (iii) disclosures by class of assets and liabilities; and (iv) a description of the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.  This guidance is effective for reporting periods beginning after December 15, 2009, except for the Level 3 disclosure requirements, which is effective for fiscal years beginning after December 15, 2010 and interim periods within those fiscal years.  We have included the disclosures required by this guidance in our notes to the consolidated financial statements, where appropriate.

5

In December 2010, the FASB issued ASU 2010-28 Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.  This guidance modifies Step 1 of the goodwill impairment test, which assesses whether the carrying amount of a reporting unit exceeds its fair value, for reporting units with zero or negative carrying amounts.  It requires that an entity perform Step 2 of the goodwill impairment test, which determines if goodwill has been impaired and measures the amount of impairment, if it is more likely than not that a goodwill impairment exists.  In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider the qualitative factors within existing guidance that would require goodwill of a reporting unit to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  This guidance is effective for interim and annual periods beginning after December 15, 2010.  The adoption of this guidance did not impact our financial condition or results of operations.

In December 2010, the FASB issued ASU 2010-29 Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.  This guidance relates to disclosure of pro forma information for business combinations that have occurred in the current reporting period.  It requires that an entity presenting comparative financial statements include revenue and earnings of the combined entity as though the combination had occurred as of the beginning of the comparable prior annual period only.  This guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  The adoption of this guidance did not impact our financial condition or results of operations.

Pronouncements to be effective in the future

In October 2010, the FASB issued ASU Update 2010-26,Financial Services-Insurance (Topic 944): – Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.  This guidance requires that only costs that are incremental or directly related to the successful acquisition of new or renewal insurance contracts are to be capitalized as a deferred acquisition cost.  This would include, among other items, sales commissions paid to agents, premium taxes, and the portion of employee salaries and benefits directly related to time spent on acquired contracts.  This guidance is effective, either with a prospective or retrospective application, for interim and annual periods beginning after December 15, 2011, with early adoption permitted.  Although we are currently evaluating the impact of this guidance, we anticipate that a significant portion of our deferred policy acquisition costs balance may be eliminated under the newly issued guidance, resulting in a reduction to GAAP equity.  Deferred policy acquisition costs totaled $210.2 million as of March 31, 2011.

NOTE 5.              Statements of Cash Flow

Cash paid during the period for interest and federal income taxes was as follows:

	Quarter ended March 31,
($ in thousands)	2011		2010
Cash paid during the period for:
Interest	$	1,969		1,969
Federal income tax		173		2,000

6

NOTE 6.              Investments

(a) The amortized cost, carrying value, unrecognized holding gains and losses, and fair values of held-to-maturity (“HTM”) fixed maturity securities were as follows:

March 31, 2011			Net
			Unrealized					Unrecognized		Unrecognized
	Amortized		Gains			Carrying		Holding		Holding			Fair
($ in thousands)	Cost		(Losses)			Value		Gains		Losses			Value
U.S. government and government agencies	$	89,687		4,499			94,186		3,620		-			97,806
Foreign government		5,292		350			5,642		-		(276	)		5,366
Obligations of state and political subdivisions		840,600		19,254			859,854		16,445		(1,467	)		874,832
Corporate securities		76,482		(3,656	)		72,826		9,118		(454	)		81,490
Asset-backed securities (“ABS”)		11,848		(2,303	)		9,545		1,819		(484	)		10,880
Commercial mortgage-backed securities (“CMBS”)1		47,122		(6,762	)		40,360		7,991		(146	)		48,205
Residential mortgage-backed securities (“RMBS”)2		70,453		993			71,446		2,413		(15	)		73,844
Total HTM fixed maturity securities	$	1,141,484		12,375			1,153,859		41,406		(2,842	)		1,192,423

December 31, 2010			Net
			Unrealized					Unrecognized		Unrecognized
	Amortized		Gains			Carrying		Holding		Holding			Fair
($ in thousands)	Cost		(Losses)			Value		Gains		Losses			Value
U.S. government and government agencies	$	93,411		4,695			98,106		5,023		-			103,129
Foreign government		5,292		368			5,660		-		(30	)		5,630
Obligations of state and political subdivisions		874,388		22,183			896,571		16,845		(1,132	)		912,284
Corporate securities		76,663		(3,990	)		72,673		9,705		(313	)		82,065
ABS		12,947		(2,422	)		10,525		1,847		(444	)		11,928
CMBS1		54,909		(7,354	)		47,555		7,483		(109	)		54,929
RMBS2		82,191		1,043			83,234		3,095		-			86,329
Total HTM fixed maturity securities	$	1,199,801		14,523			1,214,324		43,998		(2,028	)		1,256,294

1 CMBS includes government guaranteed agency securities with a carrying value of $7.8 million at March 31, 2011 and $8.9 million at December 31, 2010.

2 RMBS includes government guaranteed agency securities with a carrying value of $4.0 million at March 31, 2011 and $4.0 million at December 31, 2010.

Unrecognized holding gains/losses of HTM securities are not reflected in the consolidated Financial Statements, as they represent fair value fluctuations from the later of:  (i) the date a security is designated as HTM; or (ii) the date that an other-than-temporary impairment (“OTTI”) charge is recognized on an HTM security, through the date of the balance sheet.  Our HTM securities had an average duration of 3.3 years as of March 31, 2011 and 3.4 years as of December 31, 2010.

7

 (b) The cost/amortized cost, unrealized gains (losses), and fair value of available-for-sale (“AFS”) securities were as follows:

March 31, 2011
	Cost/
	Amortized		Unrealized		Unrealized			Fair
($ in thousands)	Cost		Gains		Losses			Value
U.S. government and government agencies1	$	316,251		7,109		(208	)		323,152
Foreign government		20,563		223		(349	)		20,437
Obligations of states and political subdivisions		521,573		22,405		(375	)		543,603
Corporate securities		1,022,673		27,644		(9,740	)		1,040,577
ABS		58,775		418		(367	)		58,826
CMBS2		101,527		3,259		(2,147	)		102,639
RMBS3		341,614		7,966		(2,050	)		347,530
AFS fixed maturity securities		2,382,976		69,024		(15,236	)		2,436,764
AFS equity securities		68,104		9,127		(93	)		77,138
Total AFS securities	$	2,451,080		78,151		(15,329	)		2,513,902

December 31, 2010
	Cost/
	Amortized		Unrealized		Unrealized			Fair
($ in thousands)	Cost		Gains		Losses			Value
U.S. government and government agencies1	$	312,384		8,292		(147	)		320,529
Foreign government		19,035		280		(349	)		18,966
Obligations of states and political subdivisions		512,013		22,534		(650	)		533,897
Corporate securities		973,835		28,674		(8,784	)		993,725
ABS		48,558		514		(339	)		48,733
CMBS2		103,374		4,024		(2,923	)		104,475
RMBS3		316,789		7,871		(2,243	)		322,417
AFS fixed maturity securities		2,285,988		72,189		(15,435	)		2,342,742
AFS equity securities		58,039		11,597		-			69,636
Total AFS securities	$	2,344,027		83,786		(15,435	)		2,412,378

1 U.S. government includes corporate securities fully guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) with a fair value of $120.6 million at March 31, 2011 and $121.0 million at December 31, 2010.

2 CMBS includes government guaranteed agency securities with a fair value of $69.7 million at March 31, 2011 and $71.9 million at December 31, 2010.

3 RMBS includes government guaranteed agency securities with a fair value of $89.5 million at March 31, 2011 and $91.1 million at December 31, 2010.

Unrealized gains/losses of AFS securities represent fair value fluctuations from the later of:  (i) the date a security is designated as AFS; or (ii) the date that an OTTI charge is recognized on an AFS security, through the date of the balance sheet.  These unrealized gains and losses are recorded in accumulated other comprehensive income (“AOCI”) on the Consolidated Balance Sheets.

During First Quarter 2011, 11 securities, with a carrying value of $27.5 million in a net unrecognized gain position of $0.2 million, were reclassified from the HTM category to AFS due to recent credit rating downgrades by either Moody’s Investors Service (“Moody’s”), Standard and Poor’s Financial Services (“S&P”), or Fitch Ratings.  These unexpected rating downgrades raised significant concerns about the issuers’ credit worthiness, which changed our intention to hold these securities to maturity.

8

(c) The following tables summarize, for all securities in a net unrealized/unrecognized loss position at March 31, 2011 and December 31, 2010, the fair value and gross pre-tax net unrealized/unrecognized loss by asset class and by length of time those securities have been in a net loss position:

March 31, 2011	Less than 12 months					12 months or longer
($ in thousands)	Fair Value		Unrealized Losses1			Fair Value		Unrealized Losses1
AFS securities
U.S. government and government agencies2	$	24,503		(208	)		-		-
Foreign government		12,302		(349	)		-		-
Obligations of states and political subdivisions		48,319		(375	)		-		-
Corporate securities		387,556		(9,740	)		-		-
ABS		34,040		(308	)		823		(59	)
CMBS		5,337		(57	)		9,443		(2,090	)
RMBS		92,567		(1,490	)		7,848		(560	)
Total fixed maturity securities		604,624		(12,527	)		18,114		(2,709	)
Equity securities		6,202		(93	)		-		-
Subtotal	$	610,826		(12,620	)		18,114		(2,709	)

	Less than 12 months								12 months or longer
($ in thousands)	Fair Value		Unrealized Losses1			Unrecognized Gains (Losses)3			Fair Value		Unrealized Losses1			Unrecognized Gains3
HTM securities
Obligations of states and political subdivisions	$	36,349		(819	)		437			25,772		(1,821	)		521
ABS		467		(546	)		(479	)		2,947		(1,053	)		775
CMBS		-		-			-			6,567		(3,750	)		1,467
RMBS		2,956		-			(16	)		94		(38	)		1
Subtotal	$	39,772		(1,365	)		(58	)		35,380		(6,662	)		2,764
Total AFS and HTM	$	650,598		(13,985	)		(58	)		53,494		(9,371	)		2,764

December 31, 2010	Less than 12 months					12 months or longer
($ in thousands)	Fair Value		Unrealized Losses1			Fair Value		Unrealized Losses1
AFS securities
U.S. government and government agencies2	$	3,956		(147	)		-		-
Foreign government		10,776		(349	)		-		-
Obligations of states and political subdivisions		40,410		(650	)		-		-
Corporate securities		362,502		(8,784	)		-		-
ABS		30,297		(273	)		880		(66	)
CMBS		5,453		(271	)		11,115		(2,652	)
RMBS		70,934		(1,098	)		20,910		(1,145	)
Total fixed maturity securities		524,328		(11,572	)		32,905		(3,863	)
Equity securities		-		-			-		-
Subtotal	$	524,328		(11,572	)		32,905		(3,863	)

9

	Less than 12 months								12 months or longer
			Unrealized			Unrecognized
($ in thousands)	Fair Value		(Losses) Gains1			Gains (Losses)3			Fair Value		Unrealized Losses1			Unrecognized Gains3
HTM securities
Obligations of states and political subdivisions	$	21,036		(381	)		45			27,855		(1,969	)		670
Corporate securities		1,985		(434	)		420			-		-			-
ABS		507		(546	)		(440	)		2,931		(1,095	)		747
CMBS		3,621		15			(17	)		5,745		(3,933	)		833
RMBS		-		-			-			95		(38	)		1
Subtotal	$	27,149		(1,346	)		8			36,626		(7,035	)		2,251
Total AFS and HTM	$	551,477		(12,918	)		8			69,531		(10,898	)		2,251

1 Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI.  In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to an HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position.

2 U.S. government includes corporate securities fully guaranteed by the FDIC.

3 Unrecognized holding gains/(losses) represent fair value fluctuations from the later of:  (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security.

The number of securities in an unrealized/unrecognized loss position increased from 199 to 244, with an associated fair value of $704.1 million at March 31, 2011 compared to $621.0 million at December 31, 2010.  Despite the increase in the number of securities and the associated fair value, the corresponding unrealized/unrecognized position in total declined by $0.9 million, reflecting smaller loss positions.  This is further illustrated in the following table wherein the number of issues in the 80% – 99% market/book category showed an increase with no material change to the overall loss position:

($ in thousands) March 31, 2011				December 31, 2010
Number of Issues	% of Market/Book	Unrealized Unrecognized Loss		Number of Issues	% of Market/Book	Unrealized Unrecognized Loss
238	80% - 99%	$	16,720	193	80% - 99%	$	16,310
2	60% - 79%		41	2	60% - 79%		1,125
1	40% - 59%		1,997	2	40% - 59%		2,160
1	20% - 39%		1,025	1	20% - 39%		986
2	0% - 19%		867	1	0% - 19%		976
		$	20,650			$	21,557

We have reviewed the securities in the tables above in accordance with our OTTI policy, as described in Note 2. “Summary of Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.” of our 2010 Annual Report.  At March 31, 2011, unrealized/unrecognized losses on securities that were in a loss position for more than 12 months amounted to $6.6 million.  Each of these securities are current with their interest and principal payments other than one security discussed below.  The unrealized/unrecognized losses were primarily driven by $4.4 million in our CMBS portfolio which was comprised of the following:  (i) $2.8 million of unrealized/unrecognized losses on two securities that had been previously impaired for which the current discounted cash flow analyses did not indicate further impairment for First Quarter 2011; (ii) $0.9 million of unrealized/unrecognized losses on one security, representing non-credit OTTI charges recognized in AOCI that were generated concurrently with credit-related charges in First Quarter 2011 due to a recent shortfall in scheduled interest payments; and (iii) $0.7 million of unrealized/unrecognized losses on securities with an average decline in fair value of 7% of their amortized cost.  The remaining $2.2 million of unrealized/unrecognized losses are comprised of 33 securities, 21 of which are municipal securities and 12 of which are either RMBS or ABS.  Declines in the fair value of these municipal, RMBS, and ABS securities averaged 6% of their amortized cost.  For further discussion regarding the credit quality of our investment portfolio, see the “Investments” section of Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” of this Form 10-Q.

10

We do not have the intent to sell any securities in an unrealized/unrecognized loss position nor do we believe we will be required to sell these securities, and therefore we have concluded that they are temporarily impaired as of March 31, 2011.  This conclusion reflects our current judgment as to the financial position and future prospects of the entity that issued the investment security and underlying collateral.  If our judgment about an individual security changes in the future, we may ultimately record a credit loss after having originally concluded that one did not exist, which could have a material impact on our net income and financial position in future periods.

(d) Fixed maturity securities at March 31, 2011, by contractual maturity, are shown below.  Mortgage-backed securities are included in the maturity tables using the estimated average life of each security.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Listed below are HTM fixed maturity securities at March 31, 2011:

($ in thousands)	Carrying Value		Fair Value
Due in one year or less	$	142,978		143,897
Due after one year through five years		670,588		696,378
Due after five years through 10 years		322,824		333,394
Due after 10 years		17,469		18,754
Total HTM fixed maturity securities	$	1,153,859		1,192,423

Listed below are AFS fixed maturity securities at March 31, 2011:

($ in thousands)	Fair Value
Due in one year or less	$	148,416
Due after one year through five years		1,564,734
Due after five years through 10 years		700,671
Due after 10 years		22,943
Total AFS fixed maturity securities	$	2,436,764

(e) The following table outlines a summary of our other investment portfolio by strategy and the remaining commitment amount associated with each strategy:

Other Investments	Carrying Value				March 31, 2011
	March 31,		December 31,		Remaining
($ in thousands)	2011		2010		Commitment
Alternative Investments
Energy/power generation	$	32,309		35,560		10,627
Secondary private equity		26,799		26,709		12,742
Private equity		22,302		21,601		7,918
Distressed debt		21,097		20,432		3,549
Real estate		14,960		14,192		10,706
Mezzanine financing		8,926		10,230		15,123
Venture capital		7,084		6,386		1,200
Total alternative investments		133,477		135,110		61,865
Other securities		2,671		2,755		-
Total other investments	$	136,148		137,865		61,865

The carrying value of our other investments remained relatively flat compared to year end 2010.  The carrying value was impacted in First Quarter 2011 by distributions of $18.3 million partially offset by income of $11.6 million and additional contributions of $5.1 million under our existing commitments.

For a description of our seven alternative investment strategies outlined above, as well as redemption, restrictions, and fund liquidations, refer to Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of our 2010 Annual Report.

11

The following table sets forth aggregated summarized financial information for the partnerships in our alternative investment portfolio.  The last line of the table below reflects our share of the aggregate income, which is the portion included in our consolidated Financial Statements.  As the majority of these investments report results to us on a quarter lag, the summarized financial statement information for the three-month periods ended December 31 is as follows:

Income Statement Information
Quarter ended December 31,
($ in millions)	2010			2009
Net investment income	$	154.2			148.8
Realized losses		(192.3	)		(89.8	)
Net change in unrealized appreciation		1,464.2			438.5
Net income	$	1,426.1			497.5
Selective’s insurance subsidiaries’ net income	$	11.6			3.9

(f) At March 31, 2011, we had one fixed maturity security, with a carrying value of $15.5 million, pledged as collateral for our outstanding borrowing with the Federal Home Loan Bank of Indianapolis (“FHLBI”).  This borrowing, which has an outstanding principal balance of $13.0 million, is included in “Notes payable” on our Consolidated Balance Sheets.  In accordance with the terms of our agreement with the FHLBI, we retain all rights regarding this security, which is included in the “U.S. government and government agencies” classification of our AFS fixed maturity securities portfolio.

(g) The components of net investment income earned were as follows:

	Quarter ended March 31,
($ in thousands)	2011			2010
Fixed maturity securities	$	33,123			33,196
Equity securities		317			452
Short-term investments		62			100
Other investments		11,666			3,932
Investment expenses		(1,695	)		(2,974	)
Net investment income earned	$	43,473			34,706

Net investment income earned, before tax, increased by $8.8 million for First Quarter 2011 compared to First Quarter 2010, primarily driven by income from our alternative investments within our investment portfolio.  Our alternative investments, which are accounted for under the equity method, primarily consist of investments in limited partnerships, the majority of which report results to us on a one quarter lag.  The following table illustrates income by strategy for these partnerships:

	Quarter ended March 31,
($ in thousands)	2011		2010			Change
Energy/power generation	$	4,555		2,066			2,489
Private equity		2,577		708			1,869
Secondary private equity		1,649		1,019			630
Distressed debt		973		764			209
Real estate		769		(1,865	)		2,634
Venture capital		758		266			492
Mezzanine financing		360		937			(577	)
Other		25		37			(12	)
Total other investment income	$	11,666		3,932			7,734

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(h) The following tables summarize OTTI by asset type for the periods indicated:

First Quarter 2011 ($ in thousands)	Gross		Included in Other Comprehensive Income (“OCI”)			Recognized in Earnings
Fixed maturity securities
Obligations of state and political subdivisions	$	17		-			17
Corporate securities		244		-			244
CMBS		74		(256	)		330
RMBS		197		158			39
OTTI losses	$	532		(98	)		630

First Quarter 2010 ($ in thousands)	Gross		Included in OCI			Recognized in Earnings
Fixed maturity securities
ABS	$	158		127			31
CMBS		40		(2,621	)		2,661
RMBS		5,875		327			5,548
OTTI losses	$	6,073		(2,167	)		8,240

OTTI charges recognized in earnings were immaterial at $0.6 million in First Quarter 2011.

OTTI charges recognized in earnings in First Quarter 2010 included the following:

· $5.5 million of RMBS credit-related OTTI charges.  Our intention to sell two securities in a loss position accounted for $5.2 million of this charge.

· $2.7 million of CMBS credit-related OTTI charges related to reductions in the related cash flows of the underlying collateral of these securities.  This charge was associated with securities that had been previously impaired but over time have shown little, if any, improvement in valuations, poor net operating income performance of the underlying properties, and, in some cases, an increase in over 60-day delinquency rates.  Based on our analysis, we do not believe it is probable that we will receive all contractual cash flows for these securities.

The following tables set forth, for the periods indicated, credit loss impairments on fixed maturity securities for which a portion of the OTTI charge was recognized in OCI, and the corresponding changes in such amounts:

First Quarter 2011 ($ in thousands)	Gross
Balance, December 31, 2010	$	17,723
Addition for the amount related to credit loss for which an OTTI was not previously recognized		-
Reductions for securities sold during the period		-
Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost		-
Reductions for securities for which the entire amount previously recognized in OCI was recognized in earnings due to a decrease in cash flows expected		(3,582	)
Additional increases to the amount related to credit loss for which an OTTI was previously recognized		227
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		-
Balance, March 31, 2011	$	14,368

13

First Quarter 2010 ($ in thousands)	Gross
Balance, December 31, 2009	$	22,189
Addition for the amount related to credit loss for which an OTTI was not previously recognized		130
Reductions for securities sold during the period		-
Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost		-
Reductions for securities for which the entire amount previously recognized in OCI was recognized in earnings due to a decrease in cash flows expected		(294	)
Additional increases to the amount related to credit loss for which an OTTI was previously recognized		2,712
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		-
Balance, March 31, 2010	$	24,737

(i) The components of net realized gains, excluding OTTI charges, were as follows:

	Quarter ended March 31,
($ in thousands)	2011			2010
HTM fixed maturity securities
Gains	$	1			44
Losses		(214	)		(240	)
AFS fixed maturity securities
Gains		407			4,457
Losses		(7	)		(31	)
AFS equity securities
Gains		6,203			4,179
Losses		-			(233	)
Total other net realized investment gains		6,390			8,176
Total OTTI charges recognized in earnings		(630	)		(8,240	)
Total net realized gains (losses)	$	5,760			(64	)

Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold.  Proceeds from the sale of AFS securities were $71.7 million in First Quarter 2011.  In addition to calls and maturities, the net realized gain, excluding OTTI charges, in First Quarter 2011 was driven by the sale of AFS equity securities for proceeds of $56.8 million and realized gains of $6.2 million due to a reallocation of the equity portfolio to a high dividend yield equities strategy.  In First Quarter 2010, proceeds from the sale of AFS securities were $56.1 million with associated net realized gains of $8.4 million.  The sale of these securities was predominantly associated with tax planning purposes.

14

 NOTE 7.             Fair Value Measurements

The following table presents the carrying amounts and estimated fair values of our financial instruments as of March 31, 2011 and December 31, 2010:

	March 31, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
($ in thousands)	Amount		Value		Amount		Value
Financial Assets
Fixed maturity securities:
HTM	$	1,153,859		1,192,423		1,214,324		1,256,294
AFS		2,436,764		2,436,764		2,342,742		2,342,742
Equity securities, AFS		77,138		77,138		69,636		69,636
Short-term investments		156,437		156,437		161,155		161,155
Receivable for proceeds related to sale of Selective
HR Solutions (“Selective HR”)		4,689		4,689		5,002		5,002
Financial Liabilities
Notes payable:
7.25% Senior Notes		49,905		55,687		49,904		55,190
6.70% Senior Notes		99,434		89,000		99,429		90,097
7.50% Junior Notes		100,000		100,080		100,000		99,840
2.90% borrowings from FHLBI		13,000		13,370		13,000		13,389
Total notes payable	$	262,339		258,137		262,333		258,516

There have been no significant changes to the techniques used to value our financial instruments during First Quarter 2011.  For a discussion regarding these techniques, refer to Note 2. “Summary of Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.” in our 2010 Annual Report.  For discussion of the sale of Selective HR, refer to Note 14. “Discontinued Operations” of this Form 10-Q.

The following tables provide quantitative disclosures of our financial assets that were measured at fair value at March 31, 2011 and December 31, 2010:

March 31, 2011			Fair Value Measurements Using
			Quoted Prices in
	Assets		Active Markets for		Significant Other		Significant
	Measured at		Identical Assets/		Observable		Unobservable
	Fair Value		Liabilities		Inputs		Inputs
($ in thousands)	at 3/31/11		(Level 1)		(Level 2)		(Level 3)
Description
Measured on a recurring basis:
U.S. government and government agencies1	$	323,152		106,825		216,327		-
Foreign government		20,437		-		20,437		-
Obligations of states and political subdivisions		543,603		-		543,603		-
Corporate securities		1,040,577		-		1,040,577		-
ABS		58,826		-		58,826		-
CMBS		102,639		-		102,537		102
RMBS		347,530		-		347,530		-
Total AFS fixed maturity securities		2,436,764		106,825		2,329,837		102
Equity securities		77,138		77,138		-		-
Short-term investments		156,437		156,437		-		-
Receivable for proceeds related to sale of Selective HR		4,689		-		-		4,689
Total financial assets measured on a recurring basis	$	2,675,028		340,400		2,329,837		4,791

15

December 31, 2010			Fair Value Measurements Using
			Quoted Prices in
	Assets		Active Markets for		Significant Other		Significant
	Measured at		Identical Assets/		Observable		Unobservable
	Fair Value		Liabilities		Inputs		Inputs
($ in thousands)	at 12/31/10		(Level 1)		(Level 2)		(Level 3)
Description
Measured on a recurring basis:
U.S. government and government agencies1	$	320,529		105,317		215,212		-
Foreign government		18,966		-		18,966		-
Obligations of states and political subdivisions		533,897		-		533,897		-
Corporate securities		993,725		-		993,725		-
ABS		48,733		-		48,733		-
CMBS		104,475		-		104,290		185
RMBS		322,417		-		322,417		-
Total AFS fixed maturity securities		2,342,742		105,317		2,237,240		185
Equity securities		69,636		69,636		-		-
Short-term investments		161,155		161,155		-		-
Receivable for proceeds related to sale of Selective HR		5,002		-		-		5,002
Total financial assets measured on a recurring basis	$	2,578,535		336,108		2,237,240		5,187

1 U.S. government includes corporate securities fully guaranteed by the FDIC.

The following tables provide a summary of the changes in fair value of securities using Level 3 inputs.  The transfers of the CMBS, AFS securities in 2010 between levels in the fair value hierarchy were driven primarily by the availability and nature of the broker quotes used at the valuation dates:
 

First Quarter 2011				Receivable for
				Proceeds
				Related to Sale
($ in thousands)	CMBS, AFS2			of Selective HR3			Total
Fair value, December 31, 2010	$	185			5,002			5,187
Total net gains (losses) for the period included in:
OCI1		111			-			111
Net income		(186	)		-			(186	)
Purchases		-			-			-
Sales		-			-			-
Issuances		-			-			-
Settlements		(8	)		(313	)		(321	)
Net transfers in and/or out of Level 3		-			-			-
Fair value, March 31, 2011	$	102			4,689			4,791

2010							Receivable for Proceeds Related
							to Sale of
($ in thousands)	ABS, AFS2			CMBS, AFS2			Selective HR3			Total
Fair value, December 31, 2009	$	-			-			12,300			12,300
Total net (losses) gains for the period included in:
OCI1		(22	)		1,862			-			1,840
Net income		-			41			(5,460	)		(5,419	)
Purchases, sales, issuances, and settlements (net)		2,737			(148	)		(1,838	)		751
Net transfers in and/or out of Level 3		(2,715	)		(1,570	)		-			(4,285	)
Fair value, December 31, 2010	$	-			185			5,002			5,187

1 Amounts are reported in “Other net unrealized gains (losses) on investment securities, net of deferred income tax” on the Consolidated Statements of Stockholders’ Equity.

2 Amounts are reported in “Net realized investment gains” on the Consolidated Statements of Income.

3 Amounts are reported in “Loss on disposal of discontinued operations, net of tax” for the receivable related to sale of Selective HR on the Consolidated Statements of Income.

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NOTE 8.              Reinsurance

The following table contains a listing of direct, assumed, and ceded reinsurance amounts for premiums written, premiums earned, and losses and loss expenses incurred.  For more information concerning reinsurance, refer to Note 8. “Reinsurance” in Item 8. “Financial Statements and Supplementary Data.” in our 2010 Annual Report.

	Quarter ended
	March 31,
($ in thousands)	2011			2010
Premiums written:
Direct	$	423,342			427,836
Assumed		5,653			5,242
Ceded		(67,160	)		(64,987	)
Net	$	361,835			368,091
Premiums earned:
Direct	$	412,879			413,558
Assumed		5,889			7,018
Ceded		(67,425	)		(64,374	)
Net	$	351,343			356,202
Losses and loss expenses incurred:
Direct	$	269,404			300,361
Assumed		3,833			1,900
Ceded		(24,031	)		(48,118	)
Net	$	249,206			254,143

The ceded premiums and losses related to our involvement with the National Flood Insurance Program (“NFIP”), in which all of our Flood premiums, losses, and loss expenses are ceded to the NFIP, are as follows:

National Flood Insurance Program	Quarter ended
	March 31,
($ in thousands)	2011			2010
Ceded premiums written	$	(48,314	)		(45,892	)
Ceded premiums earned		(47,948	)		(44,485	)
Ceded losses and loss expenses incurred	$	(14,540	)		(34,954	)

NOTE 9.               Segment Information

We have classified our operations into two segments, the disaggregated results of which are reported to and used by senior management to manage our operations:

· Insurance Operations, which is 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; and

· Investments, which is evaluated based on net investment income and net realized gains and losses.

In computing the results of each segment, we do not make adjustments for interest expense, net general corporate expenses, or federal income taxes.  We do not maintain separate investment portfolios for the segments and therefore, do not allocate assets to the segments.  In addition, we do not aggregate any of our operating segments.

17

The following summaries present revenue from continuing operations (net investment income and net realized gain (loss) on investments in the case of the Investments segment) and pre-tax income from continuing operations for the individual segments:

Revenue from Continuing Operations by Segment	Quarter ended
	March 31,
($ in thousands)	2011		2010
Insurance Operations:
Net premiums earned:
Commercial automobile	$	69,670		74,316
Workers compensation		62,526		64,641
General liability		82,566		85,221
Commercial property		48,193		50,336
Business owners’ policies		16,485		16,286
Bonds		4,767		4,603
Other		2,556		2,505
Total commercial lines		286,763		297,908
Personal automobile		36,962		34,320
Homeowners		24,555		20,493
Other		3,063		3,481
Total personal lines		64,580		58,294
Total net premiums earned		351,343		356,202
Miscellaneous income		2,770		2,266
Total Insurance Operations revenues		354,113		358,468
Investments:
Net investment income1		43,473		34,706
Net realized gain (loss) on investments		5,760		(64	)
Total investment revenues		49,233		34,642
Total all segments		403,346		393,110
Other income		110		2
Total revenues from continuing operations	$	403,456		393,112

Income from Continuing Operations, Before Federal Income Tax	Quarter ended
	March 31,
($ in thousands)	2011			2010
Insurance Operations:
Commercial lines underwriting	$	(4,834	)		(10,972	)
Personal lines underwriting		(6,250	)		(3,633	)
Underwriting loss, before federal income tax		(11,084	)		(14,605	)
GAAP combined ratio		103.2	%		104.1
Statutory combined ratio		102.6	%		102.8
Investments:
Net investment income1	$	43,473			34,706
Net realized gain (loss) on investments		5,760			(64	)
Total investment income, before federal income tax		49,233			34,642
Total all segments		38,149			20,037
Interest expense		(4,557	)		(4,842	)
General corporate and other expenses		(5,820	)		(7,548	)
Income from continuing operations, before federal income tax	$	27,772			7,647

1 Net investment income includes income from our alternative investments, which are accounted for under the equity method, of $11.6 million at March 31, 2011 and $3.9 million at March 31, 2010.

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NOTE 10.            Retirement Plans

The following tables show the costs of the Retirement Income Plan for Selective Insurance Company of America (“Retirement Income Plan”) and the retirement life insurance component (“Retirement Life Plan”) of the Selective Insurance Company of America Welfare Benefits Plan.  For more information concerning these plans, refer to Note 15. “Retirement Plans” in Item 8. “Financial Statements and Supplementary Data.” of our 2010 Annual Report.

	Retirement Income Plan						Retirement Life Plan
	Quarter ended March 31,						Quarter ended March 31,
($ in thousands)	2011			2010			2011			2010
Components of Net Periodic Benefit Cost:
Service cost	$	2,173			1,997			-			-
Interest cost		3,155			2,925			77			79
Expected return on plan assets		(3,482	)		(2,816	)		-			-
Amortization of unrecognized prior service cost		37			37			-			-
Amortization of unrecognized net loss		1,101			924			4			2
Net periodic cost	$	2,984			3,067			81			81
Weighted-Average Expense Assumptions
for the years ended December 31:
Discount rate		5.55	%		5.93			5.55	%		5.93
Expected return on plan assets		8.00	%		8.00			-	%		-
Rate of compensation increase		4.00	%		4.00			-	%		4.00

We presently anticipate contributing $8.4 million to the Retirement Income Plan in 2011, $2.4 million of which has been funded as of March 31, 2011.

NOTE 11.            Comprehensive Income

The components of comprehensive income, both gross and net of tax, for First Quarter 2011 and 2010 are as follows:

First Quarter 2011
($ in thousands)	Gross			Tax			Net
Net income	$	27,772			6,223			21,549
Components of OCI:
Unrealized losses on securities:
Unrealized holding losses during the period		(933	)		(327	)		(606	)
Portion of OTTI recognized in OCI		180			63			117
Amortization of net unrealized gains on HTM securities		(1,175	)		(411	)		(764	)
Reclassification adjustment for gains included in net income		(5,749	)		(2,012	)		(3,737	)
Net unrealized losses		(7,677	)		(2,687	)		(4,990	)
Defined benefit pension and post-retirement plans:
Reversal of amortization items:
Net actuarial loss		1,105			387			718
Prior service cost		37			13			24
Defined benefit pension and post-retirement plans		1,142			400			742
Comprehensive income	$	21,237			3,936			17,301

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First Quarter 2010
($ in thousands)	Gross			Tax			Net
Net income	$	6,431			628			5,803
Components of OCI:
Unrealized gains on securities:
Unrealized holding gains during the period		15,200			5,320			9,880
Portion of OTTI recognized in OCI		2,275			797			1,478
Amortization of net unrealized gains on HTM securities		(5,753	)		(2,014	)		(3,739	)
Reclassification adjustment for gains included in net income		(2,397	)		(839	)		(1,558	)
Net unrealized gains		9,325			3,264			6,061
Defined benefit pension and post-retirement plans:
Reversal of amortization items:
Net actuarial loss		926			324			602
Prior service cost		37			13			24
Defined benefit pension and post-retirement plans		963			337			626
Comprehensive income	$	16,719			4,229			12,490

The balances of, and changes in, each component of AOCI (net of taxes) as of March 31, 2011 are as follows:

March 31, 2011										Defined
	Net Unrealized Gain (Loss)									Benefit
										Pension
										and Post-			Total
	OTTI			HTM			All			Retirement			Accumulated
($ in thousands)	Related			Related			Other			Plans			OCI
Balance, December 31, 2010	$	(4,593	)		11,144			47,316			(46,843	)		7,024
Changes in component during period		117			(1,449	)		(3,658	)		742			(4,248	)
Balance, March 31, 2011	$	(4,476	)		9,695			43,658			(46,101	)		2,776

NOTE 12.            Commitments and Contingencies

At March 31, 2011, we had contractual obligations that expire at various dates through 2022 to invest up to an additional $61.9 million in alternative investments.  There is no certainty that any such additional investment will be required.

NOTE 13.            Litigation

In the ordinary course of conducting business, we are named as defendants in various legal proceedings.  Most of these proceedings are claims litigation involving our seven insurance subsidiaries (the “Insurance Subsidiaries”) as either:  (i) liability insurers defending or providing indemnity for third-party claims brought against insureds; or (ii) insurers defending first-party coverage claims brought against them.  We account for such activity through the establishment of unpaid loss and loss adjustment expense reserves.  We expect that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to our consolidated financial condition, results of operations, or cash flows.

Our Insurance Subsidiaries also are involved from time-to-time in other legal actions, some of which assert claims for substantial amounts.  These actions include, among others, putative state class actions seeking certification of a state or national class.  Such putative class actions have alleged, for example, improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance policies.  Our Insurance Subsidiaries also are involved from time-to-time in individual actions in which extra-contractual damages, punitive damages, or penalties are sought, such as claims alleging bad faith in the handling of insurance claims.  We believe that we have valid defenses to these cases.  We expect that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to our consolidated financial condition.  Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, an adverse outcome in certain matters could, from time-to-time, have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

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NOTE 14.            Discontinued Operations

In 2009, we sold 100% of our interest in Selective HR, which had historically comprised the human resource administration outsourcing segment of our operations.  We sold our interest for proceeds scheduled to be received over a 10-year period based on the ability of the purchaser to retain and generate new worksite lives though our independent agency distribution channel.  We have concluded that these proceeds are not directly related to the operations of Selective HR since we have no continuing involvement with the operations of this company and have no continuing cash flows other than these proceeds.  In First Quarter 2010, we recorded an after-tax charge of $0.8 million, primarily due to our revaluation of the contingent proceeds, including assumptions regarding worksite life generation and retention.  As of March 31, 2011, our estimated sales price was approximately $6.9 million, of which $2.2 million has been received to date.

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In this Quarterly Report on Form 10-Q, we discuss and make statements regarding our intentions, beliefs, current expectations, and projections regarding our company’s future operations and performance.  Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are often identified by words such as “anticipates,” “believes,” “expects,” “will,” “should,” and “intends” and their negatives.  We caution prospective investors that such forward-looking statements are not guarantees of future performance.  Risks and uncertainties are inherent in our future performance.  Factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, those discussed under Item 1A. “Risk Factors” below.  These risk factors may not be exhaustive.  We operate in a continually changing business environment and new risk factors may emerge from time to time.  We can neither predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied in any forward-looking statements in this report.  In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this report might not occur.  We make forward-looking statements based on currently available information and assume no obligation to update these statements due to changes in underlying factors, new information, future developments, or otherwise.

Introduction

We offer property and casualty insurance products through our various subsidiaries.  We classify our business into two operating segments:  (i) Insurance Operations, which consists of commercial lines (“Commercial Lines”) and personal lines (“Personal Lines”), including our flood lines of business; and (ii) Investments.

The purpose of the Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of the consolidated results of operations and financial condition and known trends and uncertainties that may have a material impact in future periods.  Consequently, investors should read the MD&A in conjunction with the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2010 (“2010 Annual Report”).

In the MD&A, we will discuss and analyze the following:

· Critical Accounting Policies and Estimates;

· Financial Highlights of Results for First Quarter 2011 and 2010;

· Results of Operations and Related Information by Segment;

· Federal Income Taxes;

· Financial Condition, Liquidity, Short-term Borrowings, and Capital Resources;

· Ratings;

· Pending Accounting Pronouncements;

· Off-Balance Sheet Arrangements; and

· Contractual Obligations, Contingent Liabilities, and Commitments.

Critical Accounting Policies and Estimates

These unaudited interim consolidated financial statements include amounts based on our informed estimates and judgments for those transactions that are not yet complete.  Such estimates and judgments affect the reported amounts in the consolidated financial statements.  Those estimates and judgments most critical to the preparation of the consolidated financial statements involved the following:  (i) reserves for losses and loss expenses; (ii) deferred policy acquisition costs; (iii) premium audit; (iv) pension and post-retirement benefit plan actuarial assumptions; (v) other-than-temporary investment impairments; and (vi) reinsurance.  These estimates and judgments require the use of assumptions about matters that are highly uncertain and, therefore, are subject to change as facts and circumstances develop.  If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.  For additional information regarding our critical accounting policies, refer to our 2010 Annual Report, pages 44 through 54.

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Financial Highlights of Results for First Quarter 2011 and 20101

	Unaudited
	Quarter Ended
	March 31,
($ and shares in thousands)	2011			2010		Change
GAAP measures:
Revenues	$	403,456			393,112		3	%
Pre-tax net investment income		43,473			34,706		25
Pre-tax net income		27,772			6,431		332
Net income		21,549			5,803		271
Diluted net income per share		0.39			0.11		255
Diluted weighted-average outstanding shares		55,054			54,217		2
GAAP combined ratio		103.2	%		104.1	(0.9		)pts
Statutory combined ratio		102.6	%		102.8		(0.2	)
Return on average equity		8.0	%		2.3		5.7
Non-GAAP measures:
Operating income2	$	17,805			6,635		168	%
Diluted operating income per share2		0.32			0.12		167
Operating return on average equity2		6.6	%		2.6	4.0		pts

1 Refer to the Glossary of Terms attached to our 2010 Annual Report as Exhibit 99.1 for definitions of terms used in this Form 10-Q.

2 Operating income is used as an important financial measure by us, analysts, and investors, because the realization of investment gains and losses on sales in any given period is largely discretionary as to timing.  In addition, these realized investment gains and losses, as well as other-than-temporary impairments (“OTTI”) that are charged to earnings, and the results of discontinued operations, could distort the analysis of trends.  See below for a reconciliation of operating income to net income in accordance with U.S. generally accepted accounting principles (“GAAP”).

Pre-tax net income increased by $21.3 million in First Quarter 2011 compared to the same period last year.  The increase was driven by:

· Pre-tax net investment income earned, which increased $8.8 million, to $43.5 million, due to higher alternative investment income of $7.7 million, to $11.6 million.  Our alternative investments, which are accounted for under the equity method, primarily consist of investments in limited partnerships, the majority of which report results to us on a one quarter lag.  See Note 6. “Investments” in Item 1. “Financial Statements” of this Form 10-Q for additional information regarding our alternative investment portfolio.

· Pre-tax net realized gains, which increased $5.9 million from a realized loss of $0.1 million to a realized gain of $5.8 million.  This improvement was primarily due to lower pre-tax non-cash OTTI charges of $7.6 million, the specifics of which are outlined in Note 6. “Investments” in Item 1. “Financial Statements” of this Form 10-Q.

· Pre-tax underwriting losses, which decreased by $3.5 million, to $11.1 million, reflecting:

· Catastrophe losses that decreased by $17.4 million compared to First Quarter 2010 and included approximately $5 million of favorable prior year catastrophe development from 2010 hail losses that did not materialize;

· Favorable prior year casualty development of $4 million, partially offset by $1 million of unfavorable other property development, compared to $9 million in First Quarter 2010; and

· An increase in non-catastrophe losses of $10.0 million driven by non-weather related fire damages.

Tax expense from continuing operations increased by $5.2 million, to $6.2 million, primarily driven by the increase in pre-tax investment income and net realized gains as discussed above.

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The following table reconciles operating income and net income for the periods presented above:

	Quarter ended  March 31,
($ in thousands, except per share amounts)	2011		2010
Operating income	$	17,805		6,635
Net realized gains (losses), net of tax		3,744		(42	)
Loss on disposal of discontinued operations, net of tax		-		(790	)
Net income	$	21,549		5,803
Diluted operating income per share	$	0.32		0.12
Diluted net realized gains per share		0.07		-
Diluted net loss on discontinued operations per share		-		(0.01	)
Diluted net income per share	$	0.39		0.11

Operating income increased in First Quarter 2011 compared to the same period last year reflecting the improvements in net investment income and underwriting results mentioned above.

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Results of Operations and Related Information by Segment

Insurance Operations

Our Insurance Operations segment writes property and casualty insurance business through seven insurance subsidiaries (the “Insurance Subsidiaries”).  Our Insurance Operations segment sells property and casualty insurance products and services primarily in 22 states in the Eastern and Midwestern U.S. through approximately 980 independent insurance agencies.  Our Insurance Operations segment consists of two components:  (i) Commercial Lines, which markets primarily to businesses and represents approximately 81% of net premium written (“NPW”); and (ii) Personal Lines, which markets primarily to individuals and represents approximately 19% of NPW.  The underwriting performance of these lines is generally measured by four different statutory ratios:  (i) loss and loss expense ratio; (ii) underwriting expense ratio; (iii) dividend ratio; and (iv) combined ratio.  For further details regarding these ratios, see the discussion in the “Insurance Operations” section of Item 1. “Business.” of our 2010 Annual Report.

Summary of Insurance Operations

All Lines	Quarter ended						Change
	March 31,						% or
($ in thousands)	2011			2010			Points
GAAP Insurance Operations Results:
NPW	$	361,835			368,091			(2	) %
Net premiums earned (“NPE”)		351,343			356,202			(1	)
Less:
Losses and loss expenses incurred		249,206			254,143			(2	)
Net underwriting expenses incurred		111,935			115,169			(3	)
Dividends to policyholders		1,286			1,495			(14	)
Underwriting loss	$	(11,084	)		(14,605	)		24	%
GAAP Ratios:
Loss and loss expense ratio		70.9	%		71.3		(0.4		)pts
Underwriting expense ratio		31.9			32.4			(0.5	)
Dividends to policyholders ratio		0.4			0.4			-
Combined ratio		103.2			104.1			(0.9	)
Statutory Ratios:
Loss and loss expense ratio		70.9			71.3			(0.4	)
Underwriting expense ratio		31.3			31.1			0.2
Dividends to policyholders ratio		0.4			0.4			-
Combined ratio		102.6	%		102.8		(0.2		)pts

· NPW decreased in First Quarter 2011 compared to First Quarter 2010 primarily due to a highly competitive commercial lines marketplace coupled with a slow economic recovery.  We have experienced a decrease in exposure given the reduction in payroll and sales consistent with the soft economy and the fact that our contractors business, one of the most affected industries in the economic downturn, accounted for 36% of our Commercial Lines business in First Quarter 2011 and 37% in First Quarter 2010.  These factors are reflected in the following:

o Reductions in new business premiums of $16.4 million, to $60.1 million;

o Audit return premium of $3.7 million in First Quarter 2011 compared to $11.3 million in First Quarter 2010;

o Endorsement return premium of $0.4 million in First Quarter 2011 compared to $4.7 million in First Quarter 2010; and

o Reductions in net renewals of $3.5 million, to $317.3 million, partially offset by Commercial Lines renewal pure price increases of 2.8% in First Quarter 2011.

· NPE decreases in First Quarter 2011 were consistent with the fluctuation in NPW for the twelve-month period ended March 31, 2011 as compared to the twelve-month period ended March 31, 2010.

25

· The GAAP loss and loss expense ratio decreased in First Quarter 2011 compared to the prior year reflecting:

o A decrease in catastrophe losses of $17.4 million, or 4.9 points, to $6.8 million.  The First Quarter 2011 catastrophe losses include approximately $5 million, or 1.3 points, of favorable prior year property development from 2010 hail losses that did not materialize;

o Favorable prior year casualty development of approximately $4 million, or 1.1 points, partially offset by $1 million of unfavorable other property development compared to approximately $9 million, or 2.4 points, in First Quarter 2010; and

o An increase in non-catastrophe losses of $10.0 million, or 3.1 points, to $61.1 million driven by non-weather related fire damages.

The GAAP underwriting expense ratio in First Quarter 2011 decreased by 0.5 points compared to First Quarter 2010 primarily driven by lower payments of profitability-based incentives to our agents.

Insurance Operations Outlook

Our Insurance Operations segment reported a statutory combined ratio of 102.6% for First Quarter 2011, which includes a statutory combined ratio of 100.6% for Commercial Lines and 111.5% for Personal Lines.  The commercial lines industry remains very competitive and market dynamics have not led to broad-based renewal price increases.  In an effort to write profitable business in the current commercial and personal lines environment, we continue to implement a defined plan of improving risk selection and mitigating higher frequency trends to complement our strong agency relationships and unique field-based model.

In addition, we continue to focus our pricing efforts to improve profitability on our worst performing business while focusing on retention of our best performing business.  A recent report from the Commercial Lines Insurance Pricing Survey showed that industry pricing declined by 0.6% during the fourth quarter of 2010.  The price increases that we have obtained demonstrate the overall strength of the relationships that we have with our independent agents, even in difficult economic and competitive times.  Commercial Lines renewal pure price increased 2.8% in First Quarter 2011, while retention increased one point, to 80%, compared to the prior year.  It remains to be seen if the environment will become more conducive to better pricing considering:  (i) the low interest rate environment that has continued to put pressure on investment yields; (ii) an A.M. Best Commercial Lines industry statutory combined ratio projection for 2011 of 110.0%; (iii) higher anticipated reinsurance costs (see the “Reinsurance” section below for more detail); and (iv) declining industry profitability.

The personal lines market has been more receptive to price increases and our Personal Lines operations continue to experience NPW growth driven by ongoing rate increases that went into effect in 2010 and 2011, which are expected to generate an additional $21.7 million in annual premium.  We were able to obtain increased Personal Lines renewal pure pricing of 6.6% in First Quarter 2011 while retention increased one point, to 86%.

In January 2011, A.M. Best revised its outlook for the commercial lines industry from stable to negative, reflecting:  (i) continued competitive market conditions; (ii) gradual price deterioration; and (iii) reduced levels of favorable loss reserve development.  Combined with loss cost inflation, they believe the pricing trend will continue to compress margins for the commercial lines industry, and they project a 2011 combined ratio of 110.0% for this line.  However, A.M. Best is maintaining a stable outlook for the personal lines industry, and they project a 2011 combined ratio of 98.5% for this line, as operating performance is expected to remain adequate during 2011 while capitalization will continue to be strong.  A.M. Best expects continued strain on operating performance and capital levels because of economic uncertainty, pricing pressure, and low investment returns; however they believe that the industry is sufficiently capitalized to withstand these challenges.  A.M. Best is projecting a combined ratio of 103.5% in 2011, which includes 4.5 points of catastrophe losses.  Fitch expressed a similar combined ratio projection, stating a 103.6% in its report entitled “2011 Outlook: U.S. Property/Casualty Insurance.”  Their outlook for next year, however, remains stable for both commercial and personal lines.

Given the rate increases we were able to achieve in 2010 that will be earned in 2011, we are expecting to generate overall full year statutory and GAAP combined ratios of between 101% and 102%, which include an elevated catastrophe loss assumption of two points.  Combined ratios do not include any assumptions for additional reserve development, favorable or unfavorable.  Weighted average shares at year-end 2011 are expected to be approximately 55 million.

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Review of Underwriting Results by Line of Business

Commercial Lines

Commercial Lines	Quarter ended March 31,						Change % or
($ in thousands)	2011			2010			Points
GAAP Insurance Operations Results:
NPW	$	300,334			311,909			(4	)	%
NPE		286,763			297,908			(4	)
Less:
Losses and loss expenses incurred		196,022			208,221			(6	)
Net underwriting expenses incurred		94,289			99,164			(5	)
Dividends to policyholders		1,286			1,495			(14	)
Underwriting loss	$	(4,834	)		(10,972	)		56		%
GAAP Ratios:
Loss and loss expense ratio		68.4	%		69.9			(1.5	)	pts
Underwriting expense ratio		32.9			33.3			(0.4	)
Dividends to policyholders ratio		0.4			0.5			(0.1	)
Combined ratio		101.7			103.7			(2.0	)
Statutory Ratios:
Loss and loss expense ratio		68.4			69.9			(1.5	)
Underwriting expense ratio		31.8			31.5			0.3
Dividends to policyholders ratio		0.4			0.5			(0.1	)
Combined ratio		100.6	%		101.9			(1.3	)	pts

· NPW decreased in First Quarter 2011 compared to the same period last year due to the continued competitive insurance marketplace and economic conditions, particularly in the contractors class, which accounted for 36% of our total Commercial Lines business.  We have experienced the most significant NPW decreases in our workers compensation and commercial automobile lines of business due to reduced levels of exposure consistent with the unemployment level.  The impact of the competitive marketplace and economic conditions are evidenced by the following:

o Reductions in new business of $15.4 million, to $47.2 million;

o Audit return premium of $3.7 million in First Quarter 2011, compared to $11.3 million in First Quarter 2010;

o Endorsement return premium of $0.5 million in First Quarter 2011, compared to $4.8 million in First Quarter 2010; and

o Reductions in net renewals of $9.9 million, or 4%, to $267.2 million.  Retention was up one point to 80%, compared to the same period last year; however, this was driven by accounts that have a lower average policy size.  Renewal pure price increases were 2.8% in First Quarter 2011, compared to 3.4% in First Quarter 2010.

· NPE decreases in First Quarter 2011 compared to the First Quarter 2010 are consistent with the fluctuation in NPW for the twelve-month period ended March 31, 2011 as compared to the twelve-month period ended March 31, 2010.

· The 1.5-point decrease in the GAAP loss and loss expense ratio from First Quarter 2010 reflects:

o A reduction in catastrophe losses of $12.7 million, or 4.2 points, in First Quarter 2011 due in part to favorable prior year property development of approximately $4 million, or 1.4 points, from 2010 hail storms as mentioned above; and

o Approximately $4 million, or 1.4 points, of favorable casualty prior year development in First Quarter 2011 compared to approximately $9 million, or 3.1 points, in First Quarter 2010.  For further detail regarding the development in First Quarter 2011 and 2010 see the following lines of business discussions.

The reduction in the GAAP underwriting expense ratio is primarily driven by lower payments of profitability-based incentives to our agents in First Quarter 2011.

27

The following is a discussion of our most significant commercial lines of business:

General Liability

	Quarter ended					Change
	March 31,					% or
($ in thousands)	2011			2010		Points
Statutory NPW	$	88,772			89,534		(1	)%
Statutory NPE		82,566			85,221		(3	)
Statutory combined ratio		100.3	%		92.8		7.5	pts
% of total statutory commercial NPW		30	%		29

We continue to see improvements in pricing in this line as our renewal pure price increase was 4.1% in First Quarter 2011.  However, despite our ability to achieve price increases, slow economic recovery and the competitive nature of the insurance marketplace have impacted NPW on this line compared to First Quarter 2010 as evidenced by the following:

o New business down 21%, or $3.4 million, to $12.9 million;

o Net renewals down 3%, or $2.9 million, to $80.9 million;

o Audit return premium of $3.3 million in First Quarter 2011, compared to $6.8 million in First Quarter 2010; and

o Endorsement premium of $0.3 million in First Quarter 2011, compared to return premium of $1.6 million in First Quarter 2010.

As of March 31, 2011, approximately 56% of our premium in this line is subject to audit.  At the end of the policy period, actual exposure units (usually sales or payroll) on policies with premium subject to audit are compared to beginning of period estimates and a return premium or additional premium transaction occurs.

The increase in the statutory combined ratio for First Quarter 2011 compared to the same period last year was driven by favorable prior year development of approximately $3 million, or 3.5 points, in First Quarter 2011 compared to approximately $9 million, or 10.6 points, in First Quarter 2010.  The prior year development was driven by the following:

· 2011:  2008 and prior accident years partially offset by adverse development in the 2010 accident year;

· 2010:  2006 and prior accident years.

Workers Compensation

	Quarter ended					Change
	March 31,					% or
($ in thousands)	2011			2010		Points
Statutory NPW	$	67,768			72,183		(6	)%
Statutory NPE		62,526			64,641		(3	)
Statutory combined ratio		122.8	%		116.7	6.1		pts
% of total statutory commercial NPW		23	%		23

In First Quarter 2011, we continued to experience NPW decreases, despite renewal pure price increases of 3.3%, reflecting reduced levels of exposure consistent with the elevated unemployment rate.  This is evidenced by the following:

o Net renewals down 11%, or $7.7 million, to $60.6 million;

o New business down 24%, or $3.5 million, to $11.3 million;

o Audit return premium of $2.7 million in First Quarter 2011, compared to $6.9 million in First Quarter 2010; and

o Endorsement return premium of $0.2 million in First Quarter 2011, compared to $1.6 million in First Quarter 2010.

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The increase in the statutory combined ratio of this line in First Quarter 2011 compared to First Quarter 2010 reflects increased loss costs, as well as continued unfavorable casualty prior year development, and declining premiums, the trend of which we expect to continue throughout 2011.  The prior year development was driven by severity in the following accident years:

· 2011:  $6 million of unfavorable development related to the 2010 accident year; and

· 2010:  $6 million of unfavorable development related to the 2008 and 2009 accident years.

Commercial Automobile

	Quarter ended					Change
	March 31,					% or
($ in thousands)	2011			2010		Points
Statutory NPW	$	71,729			75,485		(5	)%
Statutory NPE		69,670			74,316		(6	)
Statutory combined ratio		92.3	%		90.9	1.4		pts
% of total statutory commercial NPW		24	%		24

As with our general liability and workers compensation lines of business, economic factors continue to put pressure on NPW for this line as exposure levels are reduced.  This is primarily evidenced in new business, which is down 26% or $3.5 million, to $9.8 million, in First Quarter 2011.

The increase in the statutory combined ratio was primarily driven by lower favorable casualty prior year development in First Quarter 2011 compared to First Quarter 2010.  Prior year casualty development was as follows:

o 2011: $5 million, or 6.5 points, driven by accident years 2006 through 2009; and

o 2010: $7 million, or 8.7 points, due to lower than anticipated severity primarily in the 2008 and prior accident years.

Commercial Property

	Quarter ended					Change
	March 31,					% or
($ in thousands)	2011			2010		Points
Statutory NPW	$	48,331			50,139		(4	)%
Statutory NPE		48,193			50,336		(4	)
Statutory combined ratio		86.8	%		108.4	(21.6		)pts
% of total statutory commercial NPW		16	%		16

NPW for this line of business decreased in First Quarter 2011 compared to First Quarter 2010 primarily due to new business, which was down 31%, or $3.2 million, to $7.4 million.  Partially offsetting this decrease was an increase of net renewals of 2%, or $1.0 million, to $45.0 million in First Quarter 2011.

The decreasein the statutory combined ratio was driven by a decreasein catastrophe losses of $10.3 million, or 20.2 points, to $3.7 million, in First Quarter 2011.  The increased levels of catastrophe losses during First Quarter 2010 were mainly due to several storms impacting the northeast and mid-Atlantic states.  These storms resulted in significant levels of wind and water damage, as well as claims resulting from roof collapses due to the weight of snow.  The decrease in catastrophe losses was also due in part to favorable prior year property development of $3.8 million, or 7.9 points, from 2010 hail storms that did not materialize.

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Personal Lines

Personal Lines	Quarter ended						Change
	March 31,						% or
($ in thousands)	2011			2010			Points
GAAP Insurance Operations Results:
NPW	$	61,501			56,182			9	%
NPE		64,580			58,294			11
Less:
Losses and loss expenses incurred		53,184			45,922			16
Net underwriting expenses incurred		17,646			16,005			10
Underwriting loss	$	(6,250	)		(3,633	)		(72	)%
GAAP Ratios:
Loss and loss expense ratio		82.4	%		78.8		3.6		pts
Underwriting expense ratio		27.3			27.4			(0.1	)
Combined ratio		109.7			106.2			3.5
Statutory Ratios:
Loss and loss expense ratio		82.2			78.8			3.4
Underwriting expense ratio		29.3			28.3			1.0
Combined ratio		111.5	%		107.1		4.4		pts

· NPW increased in First Quarter 2011 compared to First Quarter 2010 primarily due to:

o A renewal pure price increase of 6.6% in First Quarter 2011; and

o Net renewal direct premium written increases of $6.4 million, or 15%, to $50.1 million, for First Quarter 2011.  This increase reflects retention of 86% in First Quarter 2011 compared to 84% in First Quarter 2010.

· NPE increases in First Quarter 2011, compared to the same period last year, are consistent with the fluctuation in NPW for the 12-month period ended March 31, 2011 as compared to the 12-month period ended March 31, 2010.

· The 3.6-point increase in the GAAP loss and loss expense ratio in First Quarter 2011 compared to First Quarter 2010 was primarily attributable to an increase in non-catastrophe property losses of $9.1 million, or 11.4 points.  During First Quarter 2011, large claim property activity (more than $100,000) amounted to $8.4 million from 25 claims compared to $2.5 million from 8 claims for First Quarter 2010.  The increase in non-catastrophe property losses was partially offset by a decrease in catastrophe losses of $4.7 million, or 8.3 points, to $1.8 million in First Quarter 2011.

We continue to work to achieve the necessary rate increases across our footprint states to improve profitability.  In addition, our Personal Lines strategy includes:  (i) continued improvement in quality of new business focusing on low-frequency and high retaining business through the use of our predictive modeling tools and fortifying our relationships with our independent agents; (ii) continued diversification in our territory structure; and (iii) providing the excellent service that our policyholders and agents demand.  The rate increases that we anticipate obtaining in 2011 are expected to generate an additional $16.0 million in annual premium.  Policy retention continues to be positive, despite increases to our rates over the past several years.  We believe that this increase in policy retention reflects the hardening of the personal lines market as well as:  (i) the ability of our pricing tools to comprehensively analyze where rate increases are appropriate; and (ii) our strategy to obtain high retention, low frequency accounts in our core book of business.

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Reinsurance

On February 28, 2011, Risk Management Solutions, Inc. (“RMS”), one of the leaders in catastrophe modeling, launched a new version of its US Hurricane Model.  RMS version 11 model incorporates increased vulnerability of construction assumptions and increases to wind hazards further inland.  Reinsurance brokers indicate that the RMS version change created significant increases in modeled losses across portfolios with different geographic and business mix attributes.  The modeled results of our portfolio indicate increases in losses of between 70%-100% of the RMS version 9 results.  Below is a summary of the largest 3 actual hurricane losses that we experienced in the past 20 years:

Accident Year	Hurricane Name	Actual Loss ($ in millions)
1989	Hurricane Hugo	$	26.0
1999	Hurricane Floyd		14.5
2003	Hurricane Isabel		13.4

We view catastrophe modeling as an important tool in our management of aggregation risk.  The significant shift of the results created by the latest update to the RMS model, as well as the differences in the modeled losses for the same portfolio between RMS and AIR Worldwide (“AIR”) hurricane models, demonstrates the limitations of available models.  We therefore use these models to gauge the general direction of change in our risk profile rather than a precise risk indicator.  Modeling results are an important part of the determination of the amount of reinsurance we seek to purchase to transfer some of our catastrophic risk.  As a result of our blended view of RMS’s v. 11.0 and AIR v. 12, on April 22, 2011 we purchased an additional $75 million layer of catasrophe coverage. This brings the Catastrophe Excess of Loss program to $435 million in excess of $40 million retention.

The following table presents modeled hurricane losses on a near-term basis from:  (i) RMS’s v. 9.0; (ii) RMS’s v. 11.0; and (iii) AIR v. 12.  These projections are based on the Insurance Subsidiaries’ property book of business as of July 2010:

($ in thousands)	RMS v. 9.0							RMS v. 11.0							AIR v. 12
Occurrence Exceedence Probability3	Gross Losses RMS v.9.0		Net Losses1		Net Losses as a Percent of Equity2			Gross Losses RMS v.11.0		Net Losses1		Net Losses as a Percent of Equity2			Gross Losses AIR v.12		Net Losses1		Net Losses as a Percent of Equity2
4.0% (1 in 25 year event)	$	58,201		27,675		3	%	$	113,995		33,038		3	%	$	97,588		31,300		3	%
2.0% (1 in 50 year event)		121,799		33,883		3			230,242		43,926		4			168,590		38,951		4
1.0% (1 in 100 year event)		228,213		43,820		4			412,597		54,642		5			284,973		46,771		4
0.4% (1 in 250 year event)		457,873		61,438		6			784,332		265,074		24			573,510		128,041		12

1 Losses are after tax, based on total reinsurance program of $435 million excess of $40 million and includes applicable reinstatement premium.

2 Equity as of March 31, 2011.

3 Current Catastrophic Excess of Loss program exhaust at 1 in 153 year event with corresponding net loss to equity of 6% based on blended model results.  The blended model results for a 1 in 250 year event corresponds to net losses equal to 18% of equity.

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Investments

Our investment philosophy includes certain return and risk objectives for the fixed maturity, equity, and other investment portfolios.  The primary fixed maturity portfolio return objective is to maximize after-tax investment yield and income while balancing risk.  A secondary objective is to meet or exceed a weighted-average benchmark of public fixed income indices.  The equity portfolio return objective is to meet or exceed a weighted-average benchmark of public equity indices.  Although yield and income generation remain the key drivers to our investment strategy, our overall philosophy is to invest with a long-term horizon along with a “buy-and-hold” principle.  During First Quarter 2011 we began repositioning our equity portfolio into a high dividend yield equities strategy that is benchmarked to the Standards and Poor’s (“S&P”) 500 Index.  The return objective for other investments, which includes alternative investments, is to meet or exceed the S&P 500 Index.

Total Invested Assets

($ in thousands)	March 31, 2011		December 31, 2010		Change %
Total invested assets	$	3,960,346		3,925,722		1	%
Unrealized gain – before tax		75,195		82,872		(9	)
Unrealized gain – after tax		48,877		53,867		(9	)

Our investment portfolio totaled $4.0 billion at March 31, 2011, an increase of 1% compared to December 31, 2010.  This increase was driven primarily by cash flows generated from our Insurance Operations, partially offset by reductions in valuations associated with our available for sale (“AFS”) portfolio resulting in our unrealized gain position declining by $7.7 million on a pre-tax basis, to $75.2 million, as of March 31, 2011.

The breakdown of our investment portfolio, which generally remained unchanged from December 31, 2010, is as follows:

	March 31,			December 31,
	2011			2010
U.S. government obligations		11	%		11	%
Foreign government obligations		1			1
State and municipal obligations		35			36
Corporate securities		28			27
Mortgage-backed securities (“MBS”)		14			14
Asset-backed securities (“ABS”)		2			2
Total fixed maturity securities		91			91
Equity securities		2			2
Short-term investments		4			4
Other investments		3			3
Total		100	%		100	%

We structure our portfolio conservatively with a focus on:  (i) asset diversification; (ii) investment quality; (iii) liquidity, particularly to meet the cash obligations of our Insurance Operations segment; (iv) consideration of taxes; and (v) preservation of capital.  We believe that we have a high quality and liquid investment portfolio.  The duration of the fixed maturity securities portfolio as of March 31, 2011, including short-term investments, was an average of 3.4 years compared to the Insurance Subsidiaries’ liability duration of approximately 3.8 years.  The current duration of the fixed maturity securities portfolio is within our historical range, and is monitored and managed to maximize yield and limit interest rate risk.  We manage liquidity with a laddered maturity structure and an appropriate level of short-term investments to avoid liquidation of AFS fixed maturities in the ordinary course of business.  We typically have a long investment time horizon and every purchase or sale is made with the intent of improving future investment returns while balancing capital preservation.

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Our fixed maturity securities portfolio carries a weighted average credit rating of “AA” despite ratings migration over the past year due to general economic conditions and our recent heavier allocation to investment-grade corporate bonds.  The following table presents the credit ratings of our fixed maturity securities portfolio:

Fixed Maturity	March 31,			December 31,
Security Rating	2011			2010
Aaa/AAA		42	%		42	%
Aa/AA		28	%		28	%
A/A		22	%		21	%
Baa/BBB		7	%		8	%
Ba/BB or below		1	%		1	%
Total		100	%		100	%

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The following table summarizes the fair value, unrealized gain (loss) balances, and the weighted average credit qualities of our AFS fixed maturity securities at March 31, 2011 and December 31, 2010:

	March 31, 2011						December 31, 2010
						Average						Average
	Fair		Unrealized			Credit	Fair		Unrealized			Credit
($ in millions)	Value		Gain (Loss)			Quality	Value		Gain (Loss)			Quality
AFS Fixed Maturity Portfolio:
U.S. government obligations1	$	323.2		6.9		AAA		320.5		8.1		AAA
Foreign government obligations		20.4		(0.1	)	AA		19.0		-		AA
State and municipal obligations		543.6		22.0		AA+		533.9		21.9		AA+
Corporate securities		1,040.6		17.9		A		993.7		19.9		A
MBS		450.2		7.0		AA+		426.9		6.7		AA+
ABS		58.8		0.1		AA+		48.7		0.2		AAA
Total AFS fixed maturity portfolio	$	2,436.8		53.8		AA		2,342.7		56.8		AA
State and Municipal Obligations:
General obligations	$	296.9		11.4		AA+		289.6		11.1		AA+
Special revenue obligations		246.7		10.6		AA		244.3		10.8		AA
Total state and municipal obligations	$	543.6		22.0		AA+		533.9		21.9		AA+
Corporate Securities:
Financial	$	320.9		5.5		A+		289.9		4.5		A+
Industrials		78.0		3.3		A		77.0		3.6		A-
Utilities		62.8		(0.1	)	A-		56.5		0.2		BBB+
Consumer discretion		83.6		0.6		A-		98.9		1.1		A-
Consumer staples		115.3		1.7		A		101.6		2.1		A-
Healthcare		140.1		3.2		AA-		138.0		4.1		AA-
Materials		48.7		0.5		BBB+		57.0		0.8		A-
Energy		54.1		1.3		A		49.5		1.2		A
Information technology		64.4		0.2		A+		51.5		0.4		A+
Telecommunications services		49.6		0.1		A-		50.5		0.2		A-
Other		23.1		1.6		AA+		23.3		1.7		AA+
Total corporate securities	$	1,040.6		17.9		A		993.7		19.9		A
MBS:
Government guaranteed agency commercial MBS (“CMBS”)	$	69.7		2.4		AAA		71.9		3.3		AAA
Non-agency CMBS		33.0		(1.3	)	A		32.6		(2.1	)	A-
Government guaranteed agency residential MBS (“RMBS”)		89.5		3.0		AAA		91.1		3.0		AAA
Other agency RMBS		211.3		3.2		AAA		183.6		3.8		AAA
Non-agency RMBS		37.8		(0.2	)	BBB-		38.3		(1.0	)	BBB
Alternative-A (“Alt-A”) RMBS		8.9		(0.1	)	AA+		9.4		(0.3	)	AAA
Total MBS	$	450.2		7.0		AA+		426.9		6.7		AA+
ABS:
ABS	$	58.0		0.1		AAA		47.8		0.2		AAA
Sub-prime ABS2, 3		0.8		-		D		0.9		-		D
Total ABS	$	58.8		0.1		AA+		48.7		0.2		AAA

1 U.S. government includes corporate securities fully guaranteed by the Federal Deposit Insurance Corporation (“FDIC”).

2We define sub-prime exposure as exposure to direct and indirect investments in non-agency residential mortgages with average FICO® scores below 650.

3Subprime ABS consists of one security that is currently expected by rating agencies to default on its obligations.

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The following tables provide information regarding our held-to-maturity (“HTM”) fixed maturity securities and their credit qualities at March 31, 2011 and December 31, 2010:

March 31, 2011	Fair		Carry		Unrecognized Holding Gain			Unrealized Gain (Loss) in			Total Unrealized/ Unrecognized			Average Credit
($ in millions)	Value		Value		(Loss)			AOCI			Gain (Loss)			Quality
HTM Portfolio:
U.S. government obligations1	$	97.8		94.2		3.6			4.5			8.1		AAA
Foreign government obligations		5.4		5.7		(0.3	)		0.4			0.1		AA+
State and municipal obligations		874.8		859.8		15.0			19.2			34.2		AA
Corporate securities		81.5		72.8		8.7			(3.7	)		5.0		A
MBS		122.0		111.8		10.2			(5.7	)		4.5		AA+
ABS		10.9		9.6		1.3			(2.3	)		(1.0	)	A
Total HTM portfolio	$	1,192.4		1,153.9		38.5			12.4			50.9		AA
State and Municipal Obligations:
General obligations	$	249.3		245.0		4.3			8.9			13.2		AA
Special revenue obligations		625.5		614.8		10.7			10.3			21.0		AA
Total state and municipal obligations	$	874.8		859.8		15.0			19.2			34.2		AA
Corporate Securities:
Financial	$	23.6		20.3		3.3			(2.2	)		1.1		A-
Industrials		22.5		19.3		3.2			(1.2	)		2.0		A
Utilities		16.6		16.0		0.6			(0.1	)		0.5		A
Consumer discretion		7.7		7.0		0.7			0.2			0.9		AA-
Consumer staples		5.3		5.0		0.3			(0.1	)		0.2		A
Materials		2.2		1.9		0.3			(0.1	)		0.2		BBB-
Energy		3.6		3.3		0.3			(0.2	)		0.1		BBB-
Total corporate securities	$	81.5		72.8		8.7			(3.7	)		5.0		A
MBS:
Government guaranteed agency CMBS	$	8.0		7.8		0.2			-			0.2		AAA
Non-agency CMBS		40.2		32.6		7.6			(6.7	)		0.9		AA
Government guaranteed agency RMBS		4.4		3.9		0.5			(0.1	)		0.4		AAA
Other agency RMBS		69.3		67.4		1.9			1.1			3.0		AAA
Non-agency RMBS		0.1		0.1		-			-			-		BBB
Total MBS	$	122.0		111.8		10.2			(5.7	)		4.5		AA+
ABS:
ABS	$	8.0		7.0		1.0			(0.8	)		0.2		A-
Alt-A ABS		2.9		2.6		0.3			(1.5	)		(1.2	)	AA-
Total ABS	$	10.9		9.6		1.3			(2.3	)		(1.0	)	A

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December 31, 2010	Fair		Carry		Unrecognized Holding Gain		Unrealized Gain (Loss) in Accumulated			Total Unrealized/ Unrecognized			Average Credit
($ in millions)	Value		Value		(Loss)		OCI			Gain (Loss)			Quality
HTM Portfolio:
U.S. government obligations1	$	103.1		98.1		5.0		4.7			9.7		AAA
Foreign government obligations		5.6		5.6		-		0.3			0.3		AA+
State and municipal obligations		912.3		896.6		15.7		22.2			37.9		AA
Corporate securities		82.1		72.7		9.4		(4.0	)		5.4		A-
MBS		141.3		130.8		10.5		(6.3	)		4.2		AAA
ABS		11.9		10.5		1.4		(2.4	)		(1.0	)	A
Total HTM portfolio	$	1,256.3		1,214.3		42.0		14.5			56.5		AA
State and Municipal Obligations:
General obligations	$	240.3		236.8		3.5		9.7			13.2		AA
Special revenue obligations		672.0		659.8		12.2		12.5			24.7		AA
Total state and municipal obligations	$	912.3		896.6		15.7		22.2			37.9		AA
Corporate Securities:
Financial	$	23.5		20.0		3.5		(2.5	)		1.0		A-
Industrials		22.8		19.4		3.4		(1.2	)		2.2		A
Utilities		16.9		16.1		0.8		(0.1	)		0.7		BBB
Consumer discretion		7.7		7.1		0.6		0.2			0.8		AA-
Consumer staples		5.4		4.9		0.5		(0.1	)		0.4		A
Materials		2.1		1.9		0.2		(0.1	)		0.1		BBB-
Energy		3.7		3.3		0.4		(0.2	)		0.2		BB+
Total corporate securities	$	82.1		72.7		9.4		(4.0	)		5.4		A-
MBS
Government guaranteed agency CMBS	$	9.2		8.9		0.3		-			0.3		AAA
Other agency CMBS		3.6		3.6		-		-			-		AAA
Non-agency CMBS		42.1		35.0		7.1		(7.4	)		(0.3	)	AA+
Government guaranteed agency RMBS		4.5		4.0		0.5		(0.1	)		0.4		AAA
Other agency RMBS		81.8		79.2		2.6		1.2			3.8		AAA
Non-agency RMBS		0.1		0.1		-		-			-		BBB
Total MBS	$	141.3		130.8		10.5		(6.3	)		4.2		AAA
ABS:
ABS	$	9.1		8.0		1.1		(0.9	)		0.2		A-
Alt-A ABS		2.8		2.5		0.3		(1.5	)		(1.2	)	AA-
Total ABS	$	11.9		10.5		1.4		(2.4	)		(1.0	)	A

1U.S. government includes corporate securities fully guaranteed by the FDIC.

A portion of our AFS and HTM municipal bonds contain insurance enhancements.  The following table provides information regarding these insurance-enhanced securities as of March 31, 2011:

Insurers of Municipal Bond Securities			Ratings	Ratings
			with	without
($ in thousands)	Fair Value		Insurance	Insurance
National Public Finance Guarantee Corporation, a subsidiary of MBIA, Inc.	$	372,042	AA-	AA-
Assured Guaranty		233,349	AA+	AA-
Ambac Financial Group, Inc.		99,748	AA-	AA-
Other		20,613	AA	AA
Total	$	725,752	AA	AA-

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To manage and mitigate exposure, we perform analyses on MBS both at the time of purchase and as part of the ongoing portfolio evaluation.  This analysis includes review of average FICO®scores, loan-to-value ratios, geographic spread of the assets securing the bond, delinquencies in payments for the underlying mortgages, gains/losses on sales, evaluations of projected cash flows, as well as other information that aids in determination of the health of the underlying assets.  We also consider the overall credit environment, economic conditions, total projected return on the investment, and overall asset allocation of the portfolio in our decisions to purchase or sell structured securities.

The following table details the top 10 state exposures of the municipal bond portion of our fixed maturity securities portfolio at March 31, 2011:

State Exposures of Municipal Bonds	General Obligation				Special		Fair		Average Credit
($ in thousands)	Local		State		Revenue		Value		Quality
Texas	$	92,224		1,036		71,026		164,286	AA
Washington		45,341		-		45,158		90,499	A+
Arizona		6,693		-		67,982		74,675	AA
Florida		-		504		68,614		69,118	A+
North Carolina		22,844		21,724		22,982		67,550	AA+
New York		-		-		66,439		66,439	AA+
Ohio		13,644		7,315		36,726		57,685	AA+
Illinois		19,653		-		37,241		56,894	AA-
Minnesota		5,211		40,617		6,817		52,645	AAA
Colorado		27,896		1,865		20,726		50,487	A+
Other		121,729		75,830		378,853		576,412	AA-
		355,235		148,891		822,564		1,326,690	AA
Advanced refunded/escrowed to maturity bonds		29,740		12,408		49,596		91,744	AA-
Total	$	384,975		161,299		872,160		1,418,434	AA

There has recently been widespread concern regarding the stress on state and local governments emanating from declining revenues, large unfunded liabilities, and entrenched cost structures.  This has led to speculation about potential fallout on the municipal bond market.  Overall, we are comfortable with the quality, composition, and diversification of our $1.4 billion municipal bond portfolio, but we closely monitor our exposure, particularly in light of the changing landscape for municipalities.  Our municipal bond portfolio is very high quality with an average AA rating and is well laddered with 36% maturing within three years, with another 32% maturing between three and five years.  The weightings of the municipal bond portfolio are: 62% of high-quality revenue bonds that have dedicated revenue streams, 27% of local general obligation bonds, and 11% of state general obligation bonds.  In addition, approximately 6% of the municipal bond portfolio has been refunded in advance.  Our largest state exposure is to Texas, at 12% excluding the impact of advanced refunded bonds.  Of the $92 million in local Texas general obligation bonds, $48 million represents investments in Texas Permanent School Fund bonds, which are considered to be of lower risk.

The sector composition and credit quality of our special revenue bonds did not significantly change from December 31, 2010.  For details regarding our special revenue bond sectors and additional information regarding credit risk associated with our portfolio, see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” of our 2010 Annual Report.

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As of March 31, 2011, alternative investments represented 3% of our total invested assets.  The following table outlines a summary of our other investment portfolio by strategy and the remaining commitment amount associated with each strategy:

Other Investments					March 31, 2011
	Carrying Value				Remaining
($ in thousands)	March 31, 2011		December 31, 2010		Commitment
Alternative Investments:
Energy/power generation	$	32,309		35,560		10,627
Secondary private equity		26,799		26,709		12,742
Private equity		22,302		21,601		7,918
Distressed debt		21,097		20,432		3,549
Real estate		14,960		14,192		10,706
Mezzanine financing		8,926		10,230		15,123
Venture capital		7,084		6,386		1,200
Total alternative investments		133,477		135,110		61,865
Other securities		2,671		2,755		-
Total other investments	$	136,148		137,865		61,865

In addition to the capital that we have already invested to date, we are contractually obligated to invest up to an additional $61.9 million in these alternative investments through commitments that currently expire at various dates through 2022.  For a description of our seven alternative investment strategies outlined above, as well as redemption, restrictions, and fund liquidations, refer to Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of our 2010 Annual Report.

Net Investment Income

The components of net investment income earned were as follows:

	Quarter ended March 31,						Change % or
($ in thousands)	2011			2010			Points
Fixed maturity securities	$	33,123			33,196			-	%
Equity securities		317			452			(30	)
Short-term investments		62			100			(38	)
Other investments		11,666			3,932			197
Investment expenses		(1,695	)		(2,974	)		(43	)
Net investment income earned – before tax		43,473			34,706			25
Net investment income tax expense		(11,348	)		(7,881	)		44
Net investment income earned – after tax	$	32,125			26,825			20
Effective tax rate on net investment income		26.1	%		22.7		3.4		pts
Annual after-tax yield on fixed maturity securities		2.8			2.9			(0.1	)
Annual after-tax yield on investment portfolio		3.3			2.8			0.5

Net investment income earned, before tax, increased by $8.8 million for First Quarter 2011 compared to First Quarter 2010, primarily driven by income from our alternative investments within our investment portfolio.  Our alternative investments, which are accounted for under the equity method, primarily consist of investments in limited partnerships, the majority of which report results to us on a one quarter lag.  The following table illustrates income by strategy for these partnerships:

	Quarter ended March 31,
($ in thousands)	2011		2010			Change
Energy/power generation	$	4,555		2,066			2,489
Private equity		2,577		708			1,869
Secondary private equity		1,649		1,019			630
Distressed debt		973		764			209
Real estate		769		(1,865	)		2,634
Venture capital		758		266			492
Mezzanine financing		360		937			(577	)
Other		25		37			(12	)
Total other investment income	$	11,666		3,932			7,734

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Realized Gains and Losses

Realized Gains and Losses (excluding OTTI)

Realized gains and losses, by type of security excluding OTTI charges, are determined on the basis of the cost of specific investments sold and are credited or charged to income.  The components of net realized gains were as follows:

	Quarter ended
	March 31,
($ in thousands)	2011			2010
HTM fixed maturity securities
Gains	$	1			44
Losses		(214	)		(240	)
AFS fixed maturity securities
Gains		407			4,457
Losses		(7	)		(31	)
AFS equity securities
Gains		6,203			4,179
Losses		-			(233	)
Total other net realized investment gains		6,390			8,176
Total OTTI charges recognized in earnings		(630	)		(8,240	)
Total net realized gains (losses)	$	5,760			(64	)

For a discussion of realized gains and losses, see Note 6. “Investments” in Item 1. “Financial Statements” of this Form 10-Q.

There were no securities sold at a loss during First Quarter 2011.  The following table presents the period of time that securities sold at a loss in First Quarter 2010 were continuously in an unrealized loss position prior to sale:

Period of Time in an	March 31, 2010
Unrealized Loss Position	Fair
	Value on		Realized
($ in thousands)	Sale Date		Loss
Fixed maturities:
0 – 6 months	$	5,059		31
7 – 12 months		-		-
Greater than 12 months		-		-
Total fixed maturities		5,059		31
Equities:
0 – 6 months		4,128		233
7 – 12 months		-		-
Total equity securities		4,128		233
Total	$	9,187		264

In First Quarter 2010, realized losses for securities sold in an unrealized loss position immediately prior to their sale represented either:  (i) the sale of securities that were in an unrealized gain position at December 31, 2009; or (ii) the sale of securities for which we recorded OTTI charges at December 31, 2009 due to our intention to sell.

Our general philosophy for sales of securities is to reduce our exposure to securities and sectors based upon economic evaluations and when the fundamentals for that security or sector have deteriorated.  We typically have a long investment time horizon and every purchase or sale is made with the intent of improving future investment returns while balancing capital preservation.

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Other-than-Temporary Impairments

The following table provides information regarding our OTTI charges recognized in earnings:

	Quarter ended
	March 31,
($ in thousands)	2011		2010
HTM securities
ABS	$	-		31
CMBS		-		2,661
Total HTM securities		-		2,692
AFS securities
Obligations of state and political subdivisions		17		-
Corporate securities		244		-
CMBS		330		-
RMBS		39		5,548
Total AFS securities		630		5,548
Total OTTI charges recognized in earnings	$	630		8,240

We regularly review our entire investment portfolio for declines in fair value.  If we believe that a decline in the value of a particular investment is other than temporary, we record it as an OTTI, through realized losses in earnings for the credit-related portion and through unrealized losses in OCI for the non-credit related portion.  If there is a decline in fair value of an equity security that we do not intend to hold, or if we determine the decline is other than temporary, we write down the cost of the investment to fair value and record the charge through earnings as a component of realized losses.

For discussion of our OTTI methodology, see Note 2. “Summary of Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.” of our 2010 Annual Report.  In addition, for qualitative information regarding these charges, see Note 6. “Investments,” included in Item 1. “Financial Statements” of this Form 10-Q.

Unrealized/Unrecognized Losses

The following table summarizes the aggregate fair value and gross pre-tax unrealized/unrecognized losses recorded, by asset class and by length of time, for all securities that have continuously been in an unrealized/unrecognized loss position at March 31, 2011 and December 31, 2010:

March 31, 2011	Less than 12 months					12 months or longer
($ in thousands)	Fair Value		Unrealized Losses1			Fair Value		Unrealized Losses1
AFS securities
U.S. government and government agencies2	$	24,503		(208	)		-		-
Foreign government		12,302		(349	)		-		-
Obligations of states and political subdivisions		48,319		(375	)		-		-
Corporate securities		387,556		(9,740	)		-		-
ABS		34,040		(308	)		823		(59	)
CMBS		5,337		(57	)		9,443		(2,090	)
RMBS		92,567		(1,490	)		7,848		(560	)
Total fixed maturity securities		604,624		(12,527	)		18,114		(2,709	)
Equity securities		6,202		(93	)		-		-
Subtotal	$	610,826		(12,620	)		18,114		(2,709	)

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	Less than 12 months								12 months or longer
						Unrecognized								Unrecognized
($ in thousands)	Fair Value		Unrealized Losses1			Gains (Losses)3			Fair Value		Unrealized Losses1			Gains (Losses)3
HTM securities
Obligations of states and political subdivisions	$	36,349		(819	)		437			25,772		(1,821	)		521
ABS		467		(546	)		(479	)		2,947		(1,053	)		775
CMBS		-		-			-			6,567		(3,750	)		1,467
RMBS		2,956		-			(16	)		94		(38	)		1
Subtotal	$	39,772		(1,365	)		(58	)		35,380		(6,662	)		2,764
Total AFS and HTM	$	650,598		(13,985	)		(58	)		53,494		(9,371	)		2,764

December 31, 2010	Less than 12 months					12 months or longer
($ in thousands)	Fair Value		Unrealized Losses1			Fair Value		Unrealized Losses1
AFS securities
U.S. government and government agencies2	$	3,956		(147	)		-		-
Foreign government		10,776		(349	)		-		-
Obligations of states and political subdivisions		40,410		(650	)		-		-
Corporate securities		362,502		(8,784	)		-		-
ABS		30,297		(273	)		880		(66	)
CMBS		5,453		(271	)		11,115		(2,652	)
RMBS		70,934		(1,098	)		20,910		(1,145	)
Total fixed maturity securities		524,328		(11,572	)		32,905		(3,863	)
Equity securities		-		-			-		-
Subtotal	$	524,328		(11,572	)		32,905		(3,863	)

	Less than 12 months								12 months or longer
			Unrealized			Unrecognized
($ in thousands)	Fair Value		(Losses) Gains1			Gains (Losses)3			Fair Value		Unrealized Losses1			Unrecognized Gains3
HTM securities
Obligations of states and political subdivisions	$	21,036		(381	)		45			27,855		(1,969	)		670
Corporate securities		1,985		(434	)		420			-		-			-
ABS		507		(546	)		(440	)		2,931		(1,095	)		747
CMBS		3,621		15			(17	)		5,745		(3,933	)		833
RMBS		-		-			-			95		(38	)		1
Subtotal	$	27,149		(1,346	)		8			36,626		(7,035	)		2,251
Total AFS and HTM	$	551,477		(12,918	)		8			69,531		(10,898	)		2,251

1 Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI.  In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to an HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position.

2 U.S. government includes corporate securities fully guaranteed by the FDIC.

3 Unrecognized holding gains/(losses) represent fair value fluctuations from the later of:  (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security.

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The number of securities in an unrealized/unrecognized loss position increased from 199 to 244, with an associated fair value of $704.1 million, at March 31, 2011 compared to $621.0 million at December 31, 2010.  Despite the increase in the number of securities and the associated fair value, the corresponding unrealized/unrecognized position in total declined by $0.9 million, reflecting smaller loss positions.  This is further illustrated in the following table wherein the number of issues that are in the 80% – 99% market/book category showed an increase with no material change to the overall loss position:

($ in thousands) March 31, 2011						December 31, 2010
Number of Issues	% of Market/Book			Unrealized Unrecognized Loss		Number of Issues		% of Market/Book			Unrealized Unrecognized Loss
238		80% - 99	%	$	16,720		193		80% - 99	%	$	16,310
2		60% - 79	%		41		2		60% - 79	%		1,125
1		40% - 59	%		1,997		2		40% - 59	%		2,160
1		20% - 39	%		1,025		1		20% - 39	%		986
2		0% - 19	%		867		1		0% - 19	%		976
				$	20,650						$	21,557

We have reviewed the securities in the tables above in accordance with our OTTI policy, which is discussed in Note 2. “Summary of Significant Accounting Policies” in Item 8. “Financial Statements and Supplementary Data.” of our 2010 Annual Report.  For qualitative information regarding our conclusion as to why these impairments are deemed temporary, see Note 6. “Investments,” in Item 1. “Financial Statements” of this Form 10-Q.

Contractual Maturities

The following table presents amortized cost and fair value regarding our AFS fixed maturities that were in an unrealized loss position at March 31, 2011 by contractual maturity:

Contractual Maturities	Amortized		Fair
($ in thousands)	Cost		Value
One year or less	$	13,338		11,867
Due after one year through five years		406,808		400,065
Due after five years through ten years		206,771		200,240
Due after ten years		11,057		10,566
Total	$	637,974		622,738

The following table presents information regarding our HTM fixed maturities that were in an unrealized/unrecognized loss position at March 31, 2011 by contractual maturity:

Contractual Maturities	Amortized		Fair
($ in thousands)	Cost		Value
One year or less	$	364		362
Due after one year through five years		47,522		43,624
Due after five years through ten years		22,228		21,905
Due after ten years		10,359		9,261
Total	$	80,473		75,152

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Investments Outlook

The first few months of 2011 have continued to show that economic recovery is proceeding at a slow pace.  Continuing a positive trend from last year, the Bureau of Labor Statistics reports that the March 2011 unemployment rate was 8.8%, down nearly a full percentage point from March 2010.  The Federal Reserve continues to maintain an accommodative monetary policy with no indication of an upcoming change.  Despite these positive economic indicators, there are areas of continued concern, namely instability in oil producing countries and the impact on prices, commodity input price inflation, inflation expectations, and the overhang in the domestic housing market.  Inflation and the monetary response to it will have a significant impact on our fixed income portfolio.  As of the March meeting, the Federal Reserve consensus is that the impact of inflation on the recent commodity price increases will be temporary.  This assessment is noted because of its direct impact on monetary policy and our subsequent outlook that does not anticipate a tighter monetary policy in 2011.  Yields have risen slightly over the past few months, but a continuing challenge for the fixed income portfolio is the spread between maturing assets and the reinvestment rate available, while maintaining credit quality.

Our fixed income strategy remains focused on maintaining sufficient liquidity while maximizing yield within acceptable risk tolerances.  We will continue to invest in high quality instruments including additions to investment grade corporate bonds with diversified maturities to manage incremental interest rate risk, and may opportunistically invest in higher yielding fixed income securities to take advantage of risk adjusted return opportunities.

We have adjusted our exposure to equities and are pursuing a more sector-neutral position for this asset class.  As mentioned previously, we have allocated assets to a high dividend yield equities strategy, which is expected to improve diversification of our equity portfolio and provide additional yield while maintaining our allocation to the domestic equities market.

Our current outlook for alternative investments is positive.  Private markets continue to recover from the dislocation of two years ago and the improved merger and acquisition environment is an important driver of exit opportunities for our general partners, which positively impacts the underlying funds’ portfolio values.

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Federal Income Taxes

Federal income taxes from continuing operations increased by $5.2 million for First Quarter 2011, to an expense of $6.2 million, compared to an expense of $1.1 million for First Quarter 2010.  This increase, which is attributable to an increase in net investment income earned and net realized gains, resulted in an effective tax rate of approximately 22% for First Quarter 2011 compared to an effective tax rate of 14% for First Quarter 2010.  Our effective tax rate for continuing operations differs from the federal corporate rate of 35% primarily as a result of tax-advantaged investment income.

Financial Condition, Liquidity, Short-term Borrowings, and Capital Resources

Capital resources and liquidity reflect our ability to generate cash flows from business operations, borrow funds at competitive rates, and raise new capital to meet operating and growth needs.

Liquidity

We manage liquidity with a focus on generating sufficient cash flows to meet both the short-term and long-term cash requirements of our business operations.  Our cash and short-term investment position was $157 million at March 31, 2011, primarily comprised of $40 million at Selective Insurance Group, Inc. (the “Parent”) and $117 million at the Insurance Subsidiaries.  We continually evaluate our liquidity levels and short-term investments are maintained in AAA rated money market funds approved by the National Association of Insurance Commissioners.

Sources of cash for the Parent have historically consisted of dividends from the Insurance Subsidiaries, borrowings under its line of credit, and loan agreements with our Indiana-domiciled Insurance Subsidiaries (“Indiana Subsidiaries”), and the issuance of stock and debt securities.  We continue to monitor these sources, giving consideration to our long-term liquidity and capital preservation strategies.  The Parent had no private or public issuances of stock or debt during 2011 and there were no borrowings under its $30 million line of credit (“Line of Credit”).

We currently anticipate the Insurance Subsidiaries paying approximately $58 million of dividends to the Parent in 2011, of which $14.5 million was paid through First Quarter 2011, compared to our allowable ordinary maximum dividend amount of approximately $110 million.  Any dividends to the Parent continue to be subject to the approval and/or review of the insurance regulators in the respective domiciliary states under insurance holding company acts, and are generally payable only from earned surplus as reported in the statutory annual statements of those subsidiaries as of the preceding December 31.  Although past dividends have historically been met with regulatory approval, there is no assurance that future dividends that may be declared will be approved.  For additional information regarding dividend restrictions, refer to Note 6. “Stockholders’ Equity and Other Comprehensive Income (Loss)” in Item 8. “Financial Statements and Supplementary Data.” of our 2010 Annual Report.

The Indiana Subsidiaries are members in the Federal Home Loan Bank of Indianapolis (“FHLBI”), which provides these companies with access to additional liquidity.  The Indiana Subsidiaries’ aggregate investment of $0.8 million provides them with the ability to borrow up to 20 times the total amount of the FHLBI common stock purchased, at comparatively low borrowing rates.  The Parent’s Line of Credit agreement permits collateralized borrowings by the Indiana Subsidiaries from the FHLBI so long as the aggregate amount borrowed does not exceed 10% of the respective Indiana Subsidiary’s admitted assets from the preceding calendar year.  For additional information regarding the Parent’s Line of Credit, refer to the section below entitled “Short-term Borrowings.”  All borrowings from FHLBI are required to be secured by certain investments.  The Indiana Department of Insurance has approved lending agreements from the Indiana Subsidiaries to the Parent.  At March 31, 2011, the outstanding borrowings of the Indiana Subsidiaries from the FHLBI were $13 million in fixed rate borrowings after pledging the required collateral.  These funds have been loaned to the Parent under the approved lending agreements.  For additional information regarding the required collateral, refer to Note 6. “Investments” of this Form 10-Q.

The Insurance Subsidiaries also generate liquidity through insurance float, which is created by collecting premiums and earning investment income before losses are paid.  The period of the float can extend over many years.  Our investment portfolio consists of maturity dates that are well-laddered to continually provide a source of cash flows for claims payments in the ordinary course of business.  The duration of the fixed maturity securities portfolio, including short-term investments, was 3.4 years as of March 31, 2011, while the liabilities of the Insurance Subsidiaries have a duration of approximately 3.8 years.  In addition, the Insurance Subsidiaries purchase reinsurance coverage for protection against any significantly large claims or catastrophes that may occur during the year.

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The liquidity generated from the sources discussed above is used, among other things, to pay dividends to our shareholders.  Dividends on shares of the Parent’s common stock are declared and paid at the discretion of the Board of Directors (the “Board”) based on our operating results, financial condition, capital requirements, contractual restrictions, and other relevant factors.

Our ability to meet our interest and principal repayment obligations on our debt, as well as our ability to continue to pay dividends to our stockholders is dependent on liquidity at the Parent coupled with the ability of the Insurance Subsidiaries to pay dividends, if necessary, and/or the availability of other sources of liquidity to the Parent.  Our next principal repayment of $13 million is due in 2014, with the next principal repayment occurring beyond that in 2034.  Restrictions on the ability of the Insurance Subsidiaries to declare and pay dividends, without alternative liquidity options, could materially affect the Parent’s ability to service its debt and pay dividends on common stock.

Short-term Borrowings

Our $30 million Line of Credit is with Wachovia Bank National Association, a subsidiary of Wells Fargo & Company, as administrative agent, and Branch Banking and Trust Company (BB&T).  The Line of Credit, which can be increased to $50 million with the approval of both lending parties, provides the Parent with an additional source of liquidity, if needed.  The Line of Credit is not used in our daily cash management but is available if circumstances arise where additional short-term liquidity is necessary.  The interest rate on our Line of Credit varies and is based on the Parent’s debt ratings.  The Line of Credit expires on August 11, 2011.  There were no balances outstanding under this credit facility as of March 31, 2011 or at any time during 2011.

The Line of Credit agreement contains representations, warranties, and covenants that are customary for credit facilities of this type, including, without limitation, financial covenants under which we are obligated to maintain a minimum consolidated net worth, minimum combined statutory surplus, and maximum ratio of consolidated debt to total capitalization, as well as covenants limiting our ability to:  (i) merge or liquidate; (ii) incur debt or liens; (iii) dispose of assets; (iv) make investments and acquisitions; (v) repurchase common stock; and (vi) engage in transactions with affiliates.

The table below outlines information regarding certain of the covenants in the Line of Credit:

	Required as of March 31, 2011	Actual as of March 31, 2011
Consolidated net worth	$823 million	$1.1 billion
Statutory surplus	Not less than $750 million	$1.1 billion
Debt-to-capitalization ratio	Not to exceed 30%	19.5%
A.M. Best financial strength rating	Minimum of A-	A+

Capital Resources

Capital resources provide protection for policyholders, furnish the financial strength to support the business of underwriting insurance risks, and facilitate continued business growth.  At March 31, 2011, we had statutory surplus and GAAP stockholder’s equity of $1.1 billion.  We had total debt of $262 million at March 31, 2011, which equates to a debt-to-capital ratio of approximately 19.5%.

Our cash requirements include, but are not limited to, principal and interest payments on various notes payable and dividends to stockholders, payment of claims, payment of commitments under limited partnership agreements and capital expenditures, as well as other operating expenses, which include agents’ commissions, labor costs, premium taxes, general and administrative expenses, and income taxes.  For further details regarding our cash requirements, refer to the section below entitled “Contractual Obligations, Contingent Liabilities, and Commitments.”

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We continually monitor our cash requirements and the amount of capital resources that we maintain at the holding company and operating subsidiary levels.  As part of our long-term capital strategy, we strive to maintain capital metrics, relative to the macroeconomic environment, that support an “A+” (Superior) financial strength A.M. Best rating for the Insurance Subsidiaries.  Based on our analysis and market conditions, we may take a variety of actions, including, but not limited to, contributing capital to our subsidiaries in our Insurance Operations, issuing additional debt and/or equity securities, repurchasing shares of the Parent’s common stock, and increasing stockholders’ dividends.

Our capital management strategy is intended to protect the interests of the policyholders of the Insurance Subsidiaries and our stockholders, while enhancing our financial strength and underwriting capacity.

Book value per share increased to $20.06 as of March 31, 2011 from $19.95 as of December 31, 2010, primarily driven by net income, which led to an increase in book value per share of $0.40.  Partially offsetting this increase was:  (i) the impact of dividends paid to our shareholders, which resulted in a decrease in book value per share of $0.13; (ii) a reduction in unrealized gains on our investment portfolio, which led to a decrease in book value of $0.09; and (iii) the issuance of stock under our stock compensation plans, which led to a decrease in book value of $0.08.

Ratings

We are rated by major rating agencies that issue opinions on our financial strength, operating performance, strategic position, and ability to meet policyholder obligations.  We believe that our ability to write insurance business is most influenced by our rating from A.M. Best, which was reaffirmed in the second quarter of 2010 as “A+ (Superior),” their second highest of 15 ratings, with a “negative” outlook.  They cited our strong capitalization, solid level of operating profitability, and established presence within our targeted regional markets.  We have been rated “A” or higher by A.M. Best for the past 80 years, with our current rating of “A+ (Superior)” being in place for the last 49 consecutive years.  The financial strength reflected by our A.M. Best rating is a competitive advantage in the marketplace and influences where independent insurance agents place their business.  A downgrade from A.M. Best to a rating below “A-” could:  (i) affect our ability to write new business with customers and/or agents, some of whom are required (under various third-party agreements) to maintain insurance with a carrier that maintains a specified A.M. Best minimum rating; or (ii) be an event of default under our Line of Credit.

Our ratings by other major rating agencies are as follows:

· S&P Insurance Rating Services – Our “A” financial strength rating was reaffirmed in the third quarter of 2010.  S&P cited our strong competitive position in Mid-Atlantic markets, effective use of well-developed predictive modeling, strong financial flexibility, conservative financial leverage, and strong agency relationships.  At the same time, S&P revised our outlook to “stable” from “negative,” citing strong cycle management, careful risk selection, improved capital adequacy, and continuing price increases across most commercial and personal lines along with strong retention.

· Moody’s – Our financial strength rating of “A2” and outlook of stable, was reaffirmed in the first quarter of 2011.  Moody’s cited our strong regional franchise with established independent agency support, along with good risk adjusted capitalization and moderate financial leverage.  Their outlook reflects the expectation that we will continue to employ our technologically-based risk management process to identify and manage underperforming segments, while maintaining pricing discipline and reserve adequacy.

· Fitch Ratings – Our “A+” rating and outlook of stable was reaffirmed in the second quarter of 2011, citing our disciplined underwriting culture, conservative balance sheet with very good capitalization and reserve strength, strong independent agency relationships, and improved diversification through our continued efforts to reduce our concentration in New Jersey.

Our S&P and Moody’s financial strength ratings affect our ability to access capital markets.  There can be no assurance that our ratings will continue for any given period of time or that they will not be changed.  It is possible that positive or negative ratings actions by one or more of the rating agencies may occur in the future.  We review our financial debt agreements for any potential triggers that could dictate a material change in terms.

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Pending Accounting Pronouncements

In October 2010, the FASB issued Accounting Standards Update 2010-26,Financial Services-Insurance (Topic 944) – Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.  This guidance requires that only costs that are incremental or directly related to the successful acquisition of new or renewal insurance contracts are to be capitalized as a deferred acquisition cost.  This would include, among other items, sales commissions paid to agents, premium taxes, and the portion of employee salaries and benefits directly related to time spent on acquired contracts.  This guidance is effective, either with a prospective or retrospective application, for interim and annual periods beginning after December 15, 2011, with early adoption permitted.  Although we are currently evaluating the impact of this guidance, we anticipate that a significant portion of our deferred policy acquisition costs balance may be eliminated under the newly issued guidance, resulting in a reduction to GAAP equity.  Deferred policy acquisition cost totaled $210.2 million as of March 31, 2011.

Off-Balance Sheet Arrangements

At March 31, 2011 and December 31, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.  As such, we are not exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.

Contractual Obligations, Contingent Liabilities, and Commitments

Our future cash payments associated with loss and loss expense reserves, contractual obligations pursuant to operating leases for office space and equipment, and notes payable have not materially changed since December 31, 2010.  We expect to have the capacity to repay and/or refinance these obligations as they come due.

At March 31, 2011, we had contractual obligations that expire at various dates through 2022 that may require us to invest up to an additional $61.9 million in alternative investments.  There is no certainty that any such additional investment will be required.  We have issued no material guarantees on behalf of others and have no trading activities involving non-exchange traded contracts accounted for at fair value.  We have no material transactions with related parties other than those disclosed in Note 17. “Related Party Transactions” included in Item 8. “Financial Statements and Supplementary Data.” of our 2010 Annual Report.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the information about market risk set forth in our 2010 Annual Report.

ITEM 4.  CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), as of the end of the period covered by this report.  Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are:  (i) effective in recording, processing, summarizing, and reporting information on a timely basis that we are required to disclose in the reports that we file or submit under the Exchange Act; and (ii) effective in ensuring that information that we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  No changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during First Quarter 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

In the ordinary course of conducting business, we are named as defendants in various legal proceedings.  Most of these proceedings are claims litigation involving our Insurance Subsidiaries as either:  (i) liability insurers defending or providing indemnity for third-party claims brought against insureds; or (ii) insurers defending first-party coverage claims brought against them.  We account for such activity through the establishment of unpaid loss and loss adjustment expense reserves.  We expect that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to our consolidated financial condition, results of operations, or cash flows.

Our Insurance Subsidiaries also are involved from time-to-time in other legal actions, some of which assert claims for substantial amounts.  These actions include, among others, putative state class actions seeking certification of a state or national class.  Such putative class actions have alleged, for example, improper reimbursement of medical providers paid under workers compensation and personal and commercial automobile insurance policies.  Our Insurance Subsidiaries also are involved from time-to-time in individual actions in which extra-contractual damages, punitive damages, or penalties are sought, such as claims alleging bad faith in the handling of insurance claims.  We believe that we have valid defenses to these cases.  We expect that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to our consolidated financial condition.  Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, an adverse outcome in certain matters could, from time-to-time, have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

ITEM 1A.  RISK FACTORS

Certain risk factors exist that can have a significant impact on our business, liquidity, capital resources, results of operations, and financial condition.  The impact of these risk factors could also impact certain actions that we take as part of our long-term capital strategy including, but not limited to, contributing capital to our subsidiaries in our Insurance Operations, issuing additional debt and/or equity securities, repurchasing shares of our common stock, or changing stockholders’ dividends.  We operate in a continually changing business environment and new risk factors emerge from time-to-time.  Consequently, we can neither predict such new risk factors nor assess the impact, if any, they might have on our business in the future.  There have been no material changes from the risk factors disclosed in Item 1A. “Risk Factors.” in our 2010 Annual Report.

ITEM 2.           UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding our purchases of our common stock in First Quarter 2011:

					Total Number of		Maximum Number of
					Shares Purchased		Shares that May Yet
	Total Number of		Average Price		as Part of Publicly		Be Purchased Under the
Period	Shares Purchased1		Paid per Share		Announced Programs		Programs
January 1– 31, 2011		3,556	$	18.27		-		-
February 1 – 28, 2011		129,718		18.49		-		-
March 1 – 31, 2011		1,821		17.93		-		-
Total		135,095	$	18.47		-		-

1 During First Quarter 2011, 125,190 shares were purchased from employees in connection with the vesting of restricted stock and restricted stock units and 9,905 shares were purchased from employees in connection with stock option exercises.  These repurchases were made to satisfy tax withholding obligations and/or option costs with respect to those employees.  These shares were not purchased as part of any publicly announced program.  The shares that were purchased in connection with the vesting of restricted stock and restricted stock units were purchased at fair market value as defined in the Parent’s 2005 Omnibus Stock Plan.  The shares purchased in connection with the option exercises were purchased at the current market prices of our common stock on the dates the options were exercised.

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ITEM 5.  OTHER INFORMATION

Our 2011 Annual Meeting of Stockholders was held on April 27, 2011.  Of the 54,017,474 shares outstanding as of the record date, 46,980,072 shares (approximately 87%) were present or represented by proxy at the meeting, and voted as follows:

(a)  Stockholders voted to elect the following eight nominees for a term of one year as follows:

	For		Against		Abstain
Paul D. Bauer		40,464,672		992,271		1,543,456
John C. Burville		41,204,159		978,051		818,189
Joan M. Lamm-Tennant		40,992,644		1,078,194		929,561
Michael J. Morrissey		41,931,753		985,767		82,879
Gregory E. Murphy		41,437,830		361,539		1,201,030
Cynthia S. Nicholson		41,837,350		326,492		836,557
Ronald L. O’Kelley		42,530,084		317,907		152,408
William M. Rue		39,072,721		1,460,324		2,467,354

There were 3,979,673 broker non-votes for each nominee.

(b)  Stockholders voted to approve a non-binding advisory resolution on the compensation of our named executive officers as disclosed in our Proxy Statement for the 2011 Annual Meeting of Stockholders.  The votes were as follows:  39,860,171 shares voted for this proposal; 2,993,033 shares voted against it; and 138,195 shares abstained.  There were 3,988,673 broker non-votes.

(c)  Stockholders voted on a non-binding advisory resolution on the frequency of an advisory resolution on the compensation of our named executive officers.  The Board of Directors recommended that such a vote be held every year.  The votes were as follows:  37,838,190 shares voted for every year; 226,552 shares voted for every two years; 4,553,488 shares voted for every three years; and 382,169 shares abstained.  There were 3,979,673 broker non-votes.  Accordingly, we will include a shareholder vote on the compensation of our named executive officers in our proxy materials every year until the next required vote on the frequency of shareholder votes on the compensation of executives.

(d)  Stockholders voted to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011.  The votes were as follows:  45,202,851 shares voted for this proposal; 857,339 shares voted against it; and 919,882 shares abstained.

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ITEM 6.       EXHIBITS

(a)           Exhibits:

Exhibit No.
*   10.1	Employment Agreement between Selective Insurance Company of America and Ronald E. St. Clair, dated as of April 11, 2011.
*   11	Statement Re: Computation of Per Share Earnings.
*   31.1	Rule 13a-14(a) Certification of the Chief Executive Officer of Selective Insurance Group, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002).
*   31.2	Rule 13a-14(a) Certification of the Chief Financial Officer of Selective Insurance Group, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002).
*   32.1	Certification of Chief Executive Officer of Selective Insurance Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*   32.2	Certification of Chief Financial Officer of Selective Insurance Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
** 101.INS	XBRL Instance Document.
** 101.SCH	XBRL Taxonomy Extension Schema Document.
** 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
** 101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
** 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
** 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

*   Filed herewith

** Furnished and not filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

SELECTIVE INSURANCE GROUP, INC.

Registrant

By:  /s/ Gregory E. Murphy	April 28, 2011
Gregory E. Murphy
Chairman of the Board, President and Chief Executive Officer
By:  /s/ Dale A. Thatcher	April 28, 2011
Dale A. Thatcher
Executive Vice President and Chief Financial Officer
(principal accounting officer and principal financial officer)

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement, (the “Agreement”) is made as of the 11th day of April, 2011, between Selective Insurance Company of America, a New Jersey corporation with a principal place of business at 40 Wantage Avenue, Branchville, New Jersey 07890 (the “Company”) and Ronald E. St. Clair, an individual residing at [Address Intentionally Omitted] (the “Executive”).

SECTION 1.    DEFINITIONS.

1.1.       Definitions.  For purposes of this Agreement, the following terms shall have the meanings set forth below:

“Agreement” has the meaning given to such term in the Preamble hereto.

“Board” means the Board of Directors of the Company’s Parent.

“Cause” means any one or more of the following:

(i)           the Executive shall have been convicted by a court of competent jurisdiction of, or pleaded guilty or nolo contendere to, any felony under, or within the meaning of, applicable United States federal or state law;

(ii)          the Executive shall have breached in any respect any one or more of the material provisions of this Agreement, including, without limitation, any failure to comply with the Code of Conduct, and, to the extent such breach may be cured, such breach shall have continued for a period of thirty (30) days after written notice by the Company’s Chief Executive Officer to the Executive specifying such breach; or

(iii)         the Executive shall have engaged in acts of insubordination, gross negligence or willful misconduct in the performance of the Executive’s duties and obligations to the Company.

For purposes of clauses (ii) and (iii) of this definition of “Cause”, no act, or failure to act, on the part of the Executive shall be considered grounds for “Cause” under such clauses if such act, or such failure to act, was done or omitted to be done based upon authority or express direction given by the Chief Executive Officer or based upon the advice of counsel for the Company.

“Change in Control” means the occurrence of an event of a nature that would be required to be reported by the Company’s Parent in response to Item 5.01 of a Current Report on Form 8-K, as in effect on the date thereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act; provided, however, that a Change in Control shall, in any event, conclusively be deemed to have occurred upon the first to occur of any one of the following events:

(i)           The acquisition by any “person” or “group” (as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act or any successor provisions to either of the foregoing), including, without limitation, any current shareholder or shareholders of the Company’s Parent, of securities of the Company’s Parent resulting in such person or group being a “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act) of twenty-five percent (25%) or more of any class of Voting Securities of the Company’s Parent;

(ii)         The acquisition by any “person” or “group” (as such terms are used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act or any successor provisions to either of the foregoing), including, without limitation, any current shareholder or shareholders of the Company’s Parent, of securities of the Company’s Parent resulting in such person or group being a “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act) of twenty percent (20%) or more, but less than twenty-five percent (25%), of any class of Voting Securities of the Company’s Parent, if the Board adopts a resolution that such acquisition constitutes a Change in Control;

(iii)         The sale or disposition of all or substantially all of the Company’s Parent’s assets, defined as more than seventy-five (75%) percent, on a consolidated basis, as shown in the Company’s Parent’s then most recent audited consolidated balance sheet;

(iv)         The reorganization, recapitalization, merger, consolidation or other business combination involving the Company’s Parent the result of which is the ownership by the shareholders of the Company’s Parent of less than eighty percent (80%) of those Voting Securities of the resulting or acquiring Person having the power to vote in the elections of the board of directors of such Person; or

(v)         A change in the membership in the Board which, taken in conjunction with any other prior or concurrent changes, results in fifty percent (50%) or more of the Board’s membership being persons not nominated by the Company’s Parent’s management or  the Board as set forth in the Company’s Parent’s then most recent proxy statement, excluding changes resulting from substitutions by  the Board because of retirement or death of a director or directors, removal of a director or directors by the Board or resignation of a director or directors due to demonstrated disability or incapacity.

Anything in this definition of Change in Control to the contrary notwithstanding, no Change in Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in the Executive, or a group of Persons which includes the Executive, acquiring, directly or indirectly, Voting Securities of the Company’s Parent.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Code of Conduct” has the meaning given to such term in Section 2.3(a) hereof.

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“Commencement Date” has the meaning given to such term in Section 2.2 hereof.

“Company” has the meaning given to such term in the Preamble hereto and includes any Person which shall succeed to or assume the obligations of the Company hereunder pursuant to Section 5.6 hereof.

“Company’s Parent” means Selective Insurance Group, Inc., a publicly traded New Jersey corporation with a principal office at 40 Wantage Avenue, Branchville, New Jersey 07890.

“Covered Employee” means a covered employee, within the meaning of Section 162(m)(3) of the Code, of the Company.

“Disability” shall mean: (i) a long-term disability entitling the Executive to receive benefits under the Company’s long-term disability plan as then in effect; or (ii) if no such plan is then in effect or the plan does not apply to the Executive, the inability of the Executive, as determined by the Board or its designee, to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months.  At the request of the Executive or his personal representative, determination by the Board or its designee that the Disability of the Executive has occurred shall be certified by two physicians mutually agreed upon by the Executive, or his personal representative, and the Company.  Without such independent certification (if so requested by the Executive), the Executive’s termination shall be deemed a termination by the Company without Cause and not a termination by reason of his Disability

.

“Early Termination” has the meaning given to such term in Section 3.2 hereof.

“Executive” has the meaning given to such term in the Preamble hereto.

“Extended Benefit Period” has the meaning given to such term in Section 3.3(c) hereof.

“Good Reason” means the occurrence of any one or more of the following conditions; provided, however, that no such condition shall be deemed to constitute “Good Reason” unless the Executive provides notice of such condition to the Company within ninety (90) days of its initial existence, and the Company shall have failed to remedy the condition within thirty (30) days of its receipt of such notice:

(i)           any material diminution in the Executive’s Salary below the annualized rate in effect on the date on which a Change in Control shall have occurred, unless such reduction is implemented for the senior executive staff generally, provided, however that such reduction shall constitute Good Reason even if implemented for senior executive staff generally if such reduction occurs within two years after a Change in Control;

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(ii)         any material negative change in the aggregate benefits the Executive receives, other than as a result of the normal expiration of any Plan as to other eligible employees in accordance with its terms as in effect on the date preceding the date on which a Change in Control shall have occurred, or unless such change affects all participants of such Plan generally;

(iii)         without the Executive’s express prior written consent, a material diminution of the Executive’s position, duties, responsibilities and status with the Company immediately prior to a Change in Control, or any material diminution in the Executive’s responsibilities as an executive of the Company as compared with those he had as an executive of the Company immediately prior to a Change in Control, or any material negative change in the Executive’s titles or office as in effect immediately prior to a Change in Control, except in connection with the termination of the Executive’s employment for Cause, Disability or Retirement or as a result of the Executive’s death, or by his termination of his employment other than for Good Reason;

(iv)        without the Executive’s express prior written consent, the Company’s imposition of a requirement within two (2) years of a Change in Control that the Executive be based at any location that increases the Executive’s regular commute fifty (50) miles or more from the date preceding the Change in Control.

(v)         the failure by the Company’s Parent to obtain from any Person with which it may merge or consolidate or to which it may sell all or substantially all of its assets, the agreement of such Person as set forth in the proviso in Section 5.6 hereof; provided that such merger, consolidation or sale constitutes a Change in Control; or

(vi)        within two years after a Change in Control shall have occurred, any action or inaction that constitutes a material breach by the Company of any of the terms and conditions of this Agreement.

“Notice of Termination” means a written notice which shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and, (iii) specify the date of termination in accordance with this Agreement (other than for a termination for Cause).

“Person” means an individual, partnership, corporation, association, limited liability company, trust, joint venture, unincorporated organization, and any government, governmental department or agency or political subdivision thereof.

“Plans” has the meaning given to such term in Section 2.4(b) hereof.

“Rabbi Trust” has the meaning given to such term in Section 3.4(d) hereof.

“Release” has the meaning given to such term in Section 3.5 hereof.

“Restrictive Covenants” has the meaning given to such term in Section 3.5 hereof.

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“Retirement” means a termination of the Executive’s employment by the Company or the Executive (i) at such age as shall be established by the Company’s Board for mandatory or normal retirement of Company executives in general (which age shall be, if the determination of Retirement is made after the occurrence of a Change in Control, the age established by the Company’s Board prior to a Change in Control), which shall not be less than age 65, or (ii) at any other retirement age set by mutual agreement of the Company and the Executive and approved by the Company’s Board.

“Salary” has the meaning given to such term in Section 2.4(a) hereof.

“Section 409A” means Section 409A of the Code and the regulations of the Treasury and other applicable guidance promulgated thereunder.

“Section 409A Tax” has the meaning given to such term in Section 3.6 hereof.

“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Term” has the meaning given to such term in Section 2.2 hereof.

“Termination Date” means the date of the Executive’s termination of employment with the Company and its affiliates.  If the Executive’s employment is to be terminated by the Company for Disability, the Executive’s employment shall terminate thirty (30) days after a Notice of Termination is given; provided that the Executive shall not have returned to the performance of the Executive’s duties on a full-time basis during such thirty (30) day period.

“Triggering Event” has the meaning given to such term in Section 3.4(d) hereof.

“Trustee” has the meaning given to such term in Section 3.4(d) hereof.

“Voting Securities” means, with respect to a specified Person, any security of such Person that has, or may have upon an event of default or in respect to any transaction, a right to vote on any matter upon which the holder of any class of common stock of such Person would have a right to vote.

1.2.       Terms Generally.  Unless the context of this Agreement requires otherwise, words importing the singular number shall include the plural and vice versa, and any pronoun shall include the corresponding masculine, feminine and neuter forms.

1.3.       Cross-References.  Unless otherwise specified, references in this Agreement to any Paragraph or Section are references to such Paragraph or Section of this Agreement.

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SECTION 2.   EMPLOYMENT AND COMPENSATION.  The following terms and conditions will govern the Executive’s employment with the Company throughout the Term.

2.1.        Employment.  The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, on the terms and conditions set forth herein.

2.2.        The term of employment of the Executive under this Agreement shall commence as of April 11, 2011 (the “Commencement Date”) and, subject to Section 3.1 hereof, shall terminateonthe third anniversary of the Commencement Date, and shall automatically be extended for additional one (1) year periods thereafter (any such renewal periods, together with the initial period, being referred to as the “Term”) unless terminated by either party by written notice to the other party.

2.3.        Duties.  (a) The Executive agrees to serve as Executive Vice President, Chief Information Officer of the Company during the Term.  In such capacity, the Executive shall have the responsibilities and duties customary for such office(s) and such other executive responsibilities and duties as are assigned by the Company’s Chief Executive Officer which are consistent with the Executive’s position(s).  The Executive agrees to devote substantially all his business time, attention and services to the business and affairs of the Company and its affiliates and to perform his duties to the best of his ability.  At all times during the performance of this Agreement, the Executive will adhere to the Code of Conduct of the Company (the “Code of Conduct”) that has been or may hereafter be established and communicated by the Company to the Executive for the conduct of the position or positions held by the Executive.  The Executive may not accept directorships on the board of directors of for-profit corporations without the prior written consent of the Chief Executive Officer of the Company.  The Executive may accept directorships on the board of directors of not-for-profit corporations without the Chief Executive Officer’s prior, written consent so long as (a) such directorships do not interfere with Executive’s ability to carry out his responsibilities under this Agreement, and (b) Executive promptly notifies the Chief Executive Officer in writing of the fact that he has accepted such a non-profit directorship.

(a)          If the Company and the Executive do not agree in writing to renew the Term pursuant to Section 2.2, the Executive shall continue to be employed under this Agreement only until the expiration of the then current Term (unless earlier terminated pursuant to Section 3.1 hereof), shall cooperate fully with the Chief Executive Officer and shall perform such duties not inconsistent with the provisions hereof as he shall be assigned by the Chief Executive Officer.

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2.4.        Compensation.

(a)          Salary and Annual Incentive.  For all services rendered by the Executive under this Agreement, the Company shall pay the Executive a salary during the Term at a rate of not less than Three Hundred Fifty Thousand Dollars ($350,000) per year, which may be increased but not decreased unless decreased for the senior executive staff generally (the “Salary”), payable in installments in accordance with the Company’s policy from time to time in effect for payment of salary to executives.  The Salary shall be reviewed no less than annually by the Chief Executive Officer and nothing contained herein shall prevent the Board from at any time increasing the Salary or other benefits herein provided to be paid or provided to the Executive or from providing additional or contingent benefits to the Executive as it deems appropriate.

The Executive will also be eligible to participate in the Annual Cash Incentive Program (“ACIP”).  This ACIP will provide the Executive with the opportunity to earn cash based upon the level of Executive’s individual performance and the achievement of annual company targets. The payment range of the annual cash incentive for employees at the Executive’s grade level is 0% to 150% of the Executive’s annual base pay. Any future cash incentive awards will be based on the ACIP design then in effect and the Executive’s performance for that payment period.  The Executive is eligible for an ACIP award for 2011 payable at the time it is paid to all other participants in the first quarter of 2012.

(b)          Benefits.

(i)           Standard Benefits:  During the Term, the Company shall permit the Executive to participate in or receive benefits under the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan, as amended and restated in 2010, the Selective Insurance Group, Inc. Cash Incentive Plan, the Selective Insurance Retirement Savings Plan, the Selective Insurance Company of America Deferred Compensation Plan, and in any other incentive compensation, stock option, stock appreciation right, stock bonus, pension, group insurance, retirement, profit sharing, medical, disability, accident, life insurance plan, relocation plan or policy, or any other plan, program, policy or arrangement of the Company intended to benefit similarly situated employees of the Company generally, if any, in accordance with the respective provisions thereof, from time to time in effect (collectively, the “Plans”).

Executive will be eligible to participate in the Company’s Selections Benefits Program effective the first day of the month following Executive’s start date, which includes medical, dental, vision, prescription drug, life, and accidental death & dismemberment insurance, and flexible spending accounts.  Since this creates a gap in coverage for the Executive, if the Executive elects to enroll in COBRA coverage from the date the Executive is not covered under his current Employer’s plan due to his resignation and termination, Selective will reimburse Executive for his COBRA premiums through the date he becomes eligible under the Company’s Selections Benefits Program.

Participation in the Company’s 401k plan is set to automatically begin 45 days after Executive’s first full payroll period. Initially, 3% of the Executive’s eligible compensation on a pre-tax basis will be automatically invested in the age-appropriate target date fund unless Executive elects to opt out of the plan, choose to contribute a higher percentage, or choose to contribute to other or additional funds within 45 days following Executive’s first full payroll period.

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ii.           Cash Payment Upon Commencement of Employment.  A lump sum payment of Two Hundred Fifty Thousand ($250,000), subject to applicable tax withholding, shall be paid with the first biweekly pay period in May, 2011. If the Executive voluntarily terminates employment with the Company, other than for Good Reason, within twenty-four (24) months of his commencement of employment with the Company, Executive, within thirty (30) days of the Executive’s termination from the Company, shall repay this lump sum payment to the Company, on a prorated basis, based on such twenty-four (24) month period.

iii.          Initial Restricted Stock Unit Award.  The company has agreed to provide the Executive with a grant of Restricted Stock Units (RSUs) under the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan as amended and restated in 2010, having a monetized value on the date of the grant of $325,000 to be formally granted five (5) business days after the Executive’s employment commencement date. Provided the Executive remains employed with the Company, these RSUs will vest three (3) years from the date of the grant.  In addition, in the first quarter of 2012, the Executive will be eligible for long-term incentives based upon individual performance. Long-term incentives are recommended on an annual basis and typically include restricted stock units and 3-year performance awards in the form of cash units.

iv.          Relocation Assistance.  The Executive is eligible to receive relocation assistance pursuant to the Company’s corporate relocation assistance program which may provide for the purchase of the Executives existing home.  As part of the relocation program, the Company agrees to cover the cost of Executive’s airfare and airport parking for up to one roundtrip per week between the Executive’s current home in [Address Intentionally Omitted] and New Jersey, commencing April 11, 2011 and ending September 30, 2011, for those trips that would not normally be considered as normal business trips. The Executive, moreover, must initiate assistance under this plan by December 31, 2011. If Executive voluntarily terminates employment within twenty-four (24) months after having received relocation assistance benefits, Executive, within thirty (30) days of the Executive’s termination from the Company, shall reimburse the Company for such benefits on a prorated basis, based on such twenty-four (24) month period.

(c)          Vacations and Reimbursements.  During the Term, the Executive shall be entitled to vacation time off and reimbursements for ordinary and necessary travel and entertainment expenses in accordance with the Company’s policies on such matters from time to time in effect. Executive will receive a total of 27 days of paid time off in calendar year 2011 (pro-rated based on Executive’s date of hire) and 27 days each year thereafter, until increased in accordance with the company’s bank day policy.

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(d)          Perquisites.  During the Term, the Company shall provide the Executive with suitable offices, secretarial and other services, and other perquisites to which other executives of the Company generally are (or become) entitled, to the extent as are suitable to the character of the Executive’s position with the Company, subject to such specific limits on such perquisites as may from time to time be imposed by the Company’s Board and the Chief Executive Officer.

(e)          Taxable Reimbursements and Perquisites.  Any taxable reimbursement of business or other expenses, or any provision of taxable in-kind perquisites or other benefits to the Executive, as specified under this Agreement, shall be subject to the following conditions: (i) the expenses eligible for reimbursement or the amount of in-kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year; (ii) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

SECTION 3.    TERMINATION AND SEVERANCE.

3.1.       Termination.  The Executive’s employment hereunder shall commence on the Commencement Date and continue until the expiration of the Term, except that the employment of the Executive hereunder shall earlier terminate:

(a)         Death.  Upon the Executive’s death.

(b)         Disability. At the option of the Company, upon the Disability of the Executive.

(c)         For Cause.  At the option of the Company, for Cause.

(d)         Resignation.  At any time at the option of the Executive, by resignation (other than a resignation for Good Reason).

(e)         Without Cause.  At any time at the option of the Company, without Cause; provided, that a termination of the Executive’s employment hereunder by the Company based on Retirement, Death, or Disability shall not be deemed to be a termination without Cause.

(f)         Relocation.  At the option of the Executive at any time prior to a Change in Control and within two years of the Company first imposing a requirement without the consent of the Executive that the Executive be based at any location that increases the Executive’s regular commute fifty (50) miles or more.

(g)         For Good Reason.  At any time at the option of the Executive for Good Reason, provided that such termination occurs (i) within two (2) years following the occurrence of a Change in Control, and (ii) within two (2) years following the initial existence of the condition constituting Good Reason.

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3.2.        Procedure For Termination.  Any termination of the Executive’s employment by the Company or by the Executive prior to the expiration of the Term (an “Early Termination”) shall be communicated by delivery of a Notice of Termination to the other party hereto given in accordance with Section 5.12 hereof.  Any Early Termination shall become effective as of the applicable Termination Date.

3.3.        Rights and Remedies on Termination.  The Executive will be entitled to receive the payments and benefits specified below if there is an Early Termination.

(a)         Accrued Salary.  If the Executive’s employment is terminated pursuant to any of the Paragraphs set forth in Section 3.1 hereof, then the Executive (or his legal representative, as applicable) shall only be entitled to receive his accrued and unpaid Salary through the Termination Date.

(b)         Severance Payments.

(i)          If the Executive’s employment is terminated pursuant to Paragraphs (a) or (b) in Section 3.1 hereof, then the Executive (or his legal representative, as applicable) shall be entitled to receive a severance payment from the Company in an aggregate amount equal to the product of (A) 1.5 times (B) the Executive’s Salary plus an amount (if any) equal to the average of the three (or fewer) most recent annual cash incentive payments (each an “ACIP”), if any, made to the Executive; provided that each payment of any such severance payment shall be reduced, on a pro rata basis, by the amount of payments the Executive receives under any life or disability insurance policies with respect to which the premiums were paid by the Company.

(ii)         If the Executive’s employment is terminated pursuant to Paragraph (e) or (f) in Section 3.1 hereof, then the Executive shall be entitled to receive a severance payment from the Company in an aggregate amount equal to the product of (A) 1.5 times (B) the Executive’s Salary plus an amount (if any) equal to the average of the three (or fewer) most recent ACIP payments (if any) made to the Executive.

(iii)        The severance payment required to be paid by the Company to the Executive pursuant to Paragraph (b)(i) or (b)(ii) above, shall, subject to Section 3.6, be paid in equal monthly installments over the twelve (12) month period following the Termination Date; provided, however, that the first such installment shall be made upon the sixtieth (60th) day following the Termination Date, and shall include all amounts that would have been paid between the Termination Date and such date.

Notwithstanding the foregoing, the Executive shall not be entitled to any ACIP for the year in which the Termination Date occurs.

(c)         Severance Benefits.

(i)          If the Executive’s employment is terminated pursuant to any of the Paragraphs set forth in Section 3.1 hereof, then the Executive (or his legal representative, as applicable) shall be entitled to receive the benefits which the Executive has accrued or earned or which have become payable under the Plans as of the Termination Date, but which have not yet been paid to the Executive.  Payment of any such benefits shall be made in accordance with the terms of such Plans.

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(ii)          If the Executive’s employment is terminated pursuant to Paragraph (e) or (f) in Section 3.1 hereof, and if the Executive is eligible for and timely elects continuation coverage pursuant to Section 601 et seq. of the Employee Retirement Income Security Act of 1974, as amended, , Section 4980B of the Code or similar state continuation coverage law (together, “COBRA”) under any insured or self-insured medical, dental or vision plan maintained by the Company (other than any health and/or dependent care flexible spending account plan or employee assistance plan), then, for a period of eighteen (18) months following the Termination Date, or until the Executive is no longer eligible for COBRA coverage under the particular plan, the Company will reimburse the Executive, on a taxable basis, for the cost of such COBRA coverage less the amount that the Executive would be required to contribute toward health coverage if he had remained an active employee of the Company.  Such reimbursement payments will commence on the first payroll date of the month following the Termination Date and will be paid on the first payroll date of each subsequent month.  The Executive shall not be entitled to reimbursement for the cost of any COBRA coverage elected separately by his current or former spouse or dependent child.   Notwithstanding the foregoing, in the event that any such plan is fully insured, any such reimbursement requirement shall apply to the extent permitted by the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Health Care Law”).

Any portion of the continued or replacement welfare benefits coverage provided for under this Section 3.3(c)(ii) which constitutes deferred compensation subject to Section 409A shall be subject to the following conditions: (i) the expenses eligible for reimbursement or the amount of in-kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year (except with respect to annual, lifetime or similar limits under arrangements providing for the reimbursement of medical expenses under Section 105(b) of the Code); (ii) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

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(d)          Rights Under Plans.  If the Executive’s employment is terminated pursuant to Paragraphs (a), (b), (e), or (f) in Section 3.1 hereof, then, subject to the provisions of Section 3.5, the Executive shall be entitled to the following rights with respect to any stock options, stock appreciation rights, restricted stock grants, restricted stock units, cash incentive units, or stock bonuses theretofore granted by the Company or the Company’s Parent to the Executive under any Plan, whether or not provided for in any agreement with the Company or the Company’s Parent; (i) all unvested stock options, stock appreciation rights, restricted stock grants, restricted stock units, or stock bonuses, shall be vested in full on the Termination Date, notwithstanding any provision to the contrary or any provision requiring any act or acts by the Executive in any agreement with the Company or the Company’s Parent or any Plan; (ii) to the extent that any such stock options or stock appreciation rights shall require by their  terms the exercise thereof by the Executive, the last date to exercise the same shall, notwithstanding any provision to the contrary in any agreement or any Plan, be the earliest of (A) the fifth anniversary of the Termination Date and (B) the original expiration date had the Executive’s employment not so terminated; provided, however, that no such extension of the period in which an incentive stock option, within the meaning of Section 422(b) of the Code, may be exercised shall occur without the consent of the Executive if such extension would result in such incentive stock option failing to continue to qualify for the federal income tax treatment afforded incentive stock options under Section 421 of the Code; and (iii) if the vesting or exercise pursuant hereto of any such stock options, stock appreciation rights, restricted stock grants, restricted stock units, or stock bonuses, shall have the effect of subjecting the Executive to liability under Section 16(b) of the Securities Exchange Act or any similar provision of law, the vesting date thereof shall be deemed to be the first day after the Termination Date on which such vesting may occur without subjecting the Executive to such liability.

(e)          No Double Dipping.

(i)           The severance payments and severance benefits the Executive may be entitled to receive pursuant to this Section 3.3 shall be in lieu of any of the payments and benefits the Executive may be entitled to receive pursuant to any other agreement, plan or arrangement providing for the payment of severance payments or benefits.

(ii)          The Executive expressly disclaims any interest he may have in the Selective Insurance Company of America Severance Plan.

3.4.       Rights and Remedies on Termination After Change in Control.  The Executive will be entitled to receive the severance payments and severance benefits specified below in the event there shall occur a termination of the Executive’s employment pursuant to Paragraph (e) or (g) of Section 3.1 hereof within two (2) years following the occurrence of a Change in Control.  The severance payments and benefits the Executive may be entitled to receive pursuant to this Section 3.4 shall be in lieu of, and not in addition to, any of the payments and benefits the Executive may be entitled to receive pursuant to Section 3.3 hereof.

(a)     Severance Payments.  The Executive shall be entitled to receive a severance payment from the Company in an aggregate amount equal to the product of (i) 1.5; and the sum of the Executive’s Salary in effect as of the Termination Date plus the Executive’s average ACIP (if any) for the three (or fewer) calendar years prior to the calendar year in which the Termination Date occurs.

Notwithstanding the foregoing, the Executive shall not be entitled to any ACIP for the year in which the Termination Date occurs.

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Such payment shall be made, subject to Section 3.6, sixty (60) business days following the Termination Date. provided that the Executive has executed and delivered a Release pursuant to Section 3.5 hereof and such Release has become effective and irrevocable; and further provided that, if and to the extent any portion of the payments under this Section 3.4 constitutes deferred compensation subject to Section 409A, then, unless the Change in Control qualifies as a change in the ownership of the Company’s Parent, a change in effective control of the Company’s Parent, or a change in the ownership of a substantial portion of the assets of the Company’s Parent, as described in Treasury Regulations Section 1.409A-3(i)(5), such portion of the payments shall be paid at the times specified in Section 3.3(b)(iii) of the Employment Agreement for payment of such portion.

(b)         Severance Benefits.  If the Executive’s employment is terminated pursuant to Paragraph (e) or (f) in Section 3.1 hereof, and if the Executive is eligible for and timely elects continuation coverage pursuant to COBRA under any insured or self-insured medical, dental or vision plan maintained by the Company (other than any health and/or dependent care flexible spending account plan or employee assistance plan), then the Company, for a period of eighteen (18) months following the Termination Date, or until the Executive is no longer eligible for COBRA coverage under the particular plan will reimburse the Executive, on a taxable basis, for the cost of such COBRA coverage less the amount that the Executive would be required to contribute toward health coverage if he had remained an active employee of the Company.  Such reimbursement payments will commence on the first payroll date of the month following the Termination Date and will be paid on the first payroll date of each subsequent month.  The Executive shall not be entitled to reimbursement for the cost of any COBRA coverage elected separately by his current or former spouse or dependent child.  Notwithstanding the foregoing, if any such plan is fully insured, any such reimbursement requirement shall apply to the extent permitted by the Health Care Law.

(c)         Rights Under Plans.  Subject to the provisions of Section 3.5, the Executive shall be entitled to the following rights with respect to any stock options, stock appreciation rights, restricted stock grants, restricted stock units, cash incentive units, or stock bonuses theretofore granted by the Company or the Company’s Parent to the Executive under any Plan, whether or not provided for in any agreement with the Company or the Company’s Parent (i) all unvested stock options, stock appreciation rights, restricted stock grants, restricted stock units, or stock bonuses, shall be vested in full on the Termination Date, notwithstanding any provision to the contrary or any provision requiring any act or acts by the Executive in any agreement with the Company or the Company’s Parent or any Plan; (ii) to the extent that any such stock options or stock appreciation rights shall require by their  terms the exercise thereof by the Executive, the last date to exercise the same shall, notwithstanding any provision to the contrary in any agreement or any Plan, be the earliest of (A) the fifth (5th) anniversary of the Termination Date and (B) the original expiration date had the Executive’s employment not so terminated; provided, however, that no such extension of the period in which an incentive stock option, within the meaning of Section 422(b) of the Code, may be exercised shall occur without the consent of the Executive if such extension would result in such incentive stock option failing to continue to qualify for the federal income tax treatment afforded incentive stock options under Section 421 of the Code; and (iii) if the vesting or exercise pursuant hereto of any such stock options, stock appreciation rights, restricted stock grants, restricted stock units, or stock bonuses shall have the effect of subjecting the Executive to liability under Section 16(b) of the Securities Exchange Act or any similar provision of law, the vesting date thereof shall be deemed to be the first day after the Termination Date on which such vesting may occur without subjecting the Executive to such liability.

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(d)           Rabbi Trust.  The Company shall maintain a trust intended to be a grantor trust within the meaning of subpart E, Part I, subchapter J, chapter 1, subtitle A of the Code (the “Rabbi Trust”).  Coincident with the occurrence of a Change in Control, the Company shall promptly deliver to a bank as trustee of the Rabbi Trust (the “Trustee”), an amount of cash or certificates of deposit, treasury bills or irrevocable letters of credit adequate to fully fund the payment obligations of the Company under this Section 3.4.  The Company and Trustee shall enter into a trust agreement that shall provide that barring the insolvency of the Company, amounts payable to the Executive under this Section 3.4 (subject to Section 3.6) shall be paid by the Trustee to the Executive ten (10) days after written demand therefore by the Executive to the Trustee, with a copy to the Company, certifying that such amounts are due and payable under this Section 3.4 because the Executive’s employment has been terminated pursuant to Paragraph (e) or (g) in Section 3.1 hereof at a time which is within two (2) years following the occurrence of a Change in Control (a “Triggering Event”).  Such trust agreement shall also provide that if the Company shall, prior to payment by the Trustee, object in writing to the Trustee, with a copy to the Executive, as to the payment of any amounts demanded by the Executive under this Section 3.4, certifying that such amounts are not due and payable to the Executive because a Triggering Event has not occurred, such dispute shall be resolved by binding arbitration as set forth in Section 5.8 hereof.

3.5.        Conditions to Severance Payments and Benefits.

(a)           The Executive’s right to receive the severance payments and benefits pursuant to Sections 3.3 and 3.4 hereof, is expressly conditioned upon (a) receipt by the Company of a written release (a “Release”) executed by the Executive in the form of Exhibit A hereto, on or before the fiftieth (50th) day following the Termination Date and the expiration of the revocation period described therein without such Release having been revoked, and (b) the compliance by the Executive with the covenants, terms or provisions of Sections 4.1, 4.2 and 4.3 hereof (the “Restrictive Covenants”).  If the Executive shall fail to deliver a Release in accordance with the terms of this Section 3.5 or shall breach any of the Restrictive Covenants, the Company’s obligation to make the severance payments and to provide the severance benefits pursuant to Sections 3.3 and 3.4 hereof shall immediately and irrevocably terminate.

(b)           Except where the Executive’s employment is terminated pursuant to Section 3.1(a) or (b), during any calendar year in which the Executive is a Covered Employee, if any stock-based or cash incentive unit awards of the Executive are intended to qualify as “performance based compensation” within the meaning of Section 162(m) of the Code, then the Executive’s entitlement, if any, to accelerated vesting of his stock-based and cash incentive unit awards pursuant to Section 3.3 or 3.4 of this Agreement shall apply only to the accelerated lapse of any service requirement, and the Executive shall be entitled to such stock-based awards, or to the vesting thereof, only if and to the extent that the applicable performance criteria applicable to such awards are satisfied.

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3.6.        Section 409A Tax.  Notwithstanding anything herein to the contrary, to the extent any payment or provision of benefits under this Agreement upon the Executive’s “separation from service” is subject to Section 409A of the Code, no such payment shall be made, and Executive shall be responsible for the full cost of such benefits, for six (6) months following the Executive's "separation from service" if the Executive is a "specified employee" of the Company on the date of such separation from service.  On the expiration of such six (6) month period, any payments delayed, and an amount sufficient to reimburse the Executive for the cost of benefits met by the Executive, during such period shall be aggregated (the “Make-Up Amount”) and paid in full to the Executive, and any succeeding payments and benefits shall continue as scheduled hereunder.  The Company shall credit the Make-Up Amount with interest at no less than the interest rate it pays for short-term borrowed funds, such interest to accrue from the date on which payments would have been made, or benefits would have been provided, by the Company to the Executive absent the six month delay.  The terms "separation from service" and "specified employee" shall have the meanings set forth under Section 409A and the regulations and rulings issued thereunder.  Furthermore, the Company shall not be required to make, and the Executive shall not be required to receive, any severance or other payment or benefit under Sections 3.3 or 3.4 hereof if the making of such payment or the provision of such benefit or the receipt thereof shall result in a tax to the Executive arising under Section 409A of the Code (a “Section 409A Tax”).  For purposes of Section 409A, any right to a series of installment payments or provision of benefits in installments under Sections 3.3 and 3.4 of this Agreement shall be treated as a right to a series of separate payments.  For purposes of and if and to the extent necessary to comply with Section 409A, any reference in this Agreement to the Executive’s “termination of employment” or words of similar import shall mean the Executive’s “separation from service” from the Company, and the Executive’s Termination Date shall mean the date of his “separation from service” from the Company.

SECTION 4.   RESTRICTIVE COVENANTS.

4.1.        Confidentiality.  The Executive agrees that he will not, either during the Term or at any time after the expiration or termination of the Term, disclose to any other Person any confidential or proprietary information of the Company, the Company’s Parent, or their subsidiaries, except for (a) disclosures to directors, officers, key employees, independent accountants and counsel of the Company, the Company’s Parent and their subsidiaries as may be necessary or appropriate in the performance of the Executive’s duties hereunder, (b) disclosures which do not have a material adverse effect on the business or operations of the Company, the Company’s Parent and their subsidiaries, taken as a whole, (c) disclosures which the Executive is required to make by law or by any court, arbitrator or administrative or legislative body (including any committee thereof) with apparent jurisdiction to order the Executive to disclose or make accessible any information, (d) disclosures with respect to any other litigation, arbitration or mediation involving this Agreement, and (e) disclosures of any such confidential or proprietary information that is, at the time of such disclosure, generally known to and available for use by the public otherwise than by the Executive’s wrongful act or omission.  The Executive agrees not to take with him upon leaving the employ of the Company any document or paper relating to any confidential information or trade secret of the Company, the Company’s Parent and their subsidiaries, except that Executive shall be entitled to retain (i) papers and other materials of a personal nature, including but limited to, photographs, correspondence, personal diaries, calendars and Rolodexes (so long as such Rolodexes do not contain the Company’s only copy of business contact information), personal files and phone books, (ii) information showing his compensation or relating to his reimbursement of expenses, (iii) information that he reasonably believes may be needed for tax purposes, and (iv) copies of plans, programs and agreements relating to his employment, or termination thereof, with the Company.

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4.2.        Non-Solicitation of Employees.  The Executive agrees that, except in the course of performing his duties hereunder, he will not, either during the Term and for a period of two (2) years after the expiration or termination of the Term, directly or indirectly, solicit or induce or attempt to solicit or induce or cause any of the employees of the Company, the Company’s Parent or their subsidiaries to leave the employ of the Company, the Company’s Parent or any of their subsidiaries.

4.3.        Intellectual Property & Company Creations.  

(a)           Definitions.  Included Activitymeans  at the relevant time of determination, any activity conducted by, for or under the Company’s direction, whether or not conducted at the Company’s facilities, during working hours or using the Company’s resources, or which relates directly or indirectly to (i) the Company’s business as then operated or under consideration or development or (ii) any method, program, computer software, apparatus, design, plan, model, specification, formulation, technique, product, process (including, without limitation, any business processes and any operational processes) or device, then purchased, sold, leased, used or under consideration or development by the Company.  Development means any idea, discovery, improvement, invention (including without limitation any discovery of new technology and any improvement to existing technology), Confidential Information, know-how, innovation, writing, work of authorship, compilation and other development or improvement, whether or not patented or patentable, copyrightable, or reduced to practice or writing.  The Company Creation means any Development that arises out of any Included Activity.

(b)             Assignment.  Executive hereby sells, transfers and assigns to (and the following shall be the exclusive property of) the Company, or its designee(s), the entire right, title and interest of Executive in and to all Company Creations made, discovered, invented, authored, created, developed, originated or conceived by Executive, solely or jointly, (i) during the term of Executive’s employment with the Company or (ii) on or before the first anniversary of the date of terminationof Executive’s employment with the Company.  Executive acknowledges that all copyrightable materials developed or produced by Executive within the scope of Executive's employment by the Company constitute works made for hire, as that term is defined in the United States Copyright Act 17 U.S.C. § 101.  Executive shall bear the burden to prove that any Development did not arise out of an Included Activity.

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(c)           Disclosure & Cooperation.  Executive shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any Company Creations, and Executive shall execute and deliver to the Company or its designee(s) such formal transfers and assignments and such other papers and documents and shall give such testimony as may be deemed necessary or required of Executive by the Company or its designee to develop, preserve or extend the Company's rights relating to any Company Creations and to permit the Company or its designee to file and prosecute patent applications and, as to copyrightable material, to obtain copyright registrations thereof.  Executive hereby appoints the Company as Executive's attorney-in-fact to execute on Executive's behalf any assignments or other documents deemed necessary by the Company to protect or perfect its rights to any Creations.

(d)           Exclusion.  If any Company Creation fully qualifies under any applicable state or federal law that (i) restricts the enforcement of the provisions of Sections 4.3(b) or 4.3(c) by the Company against any Company employee and (ii) prohibits the waiver of such employee rights by contract, then as to such qualifying  Company Creations, the provisions of Sections 4.3(b) and 4.3(c) shall only apply to the extent, if any, not prohibited by such law.

(e)           Excluded & Licensed Developments.  Attached is a list of all Developments made by Executive before Executive’s employment with the Company commenced that Executive desires to exclude from this Agreement (Excluded Developments).  Executive represents that if no such list is attached, there are no Excluded Developments.  As to any Development (other than a Company Creation) in which Executive has an interest at any time prior to or during Executive’s employment with the Company, including without limitation, any Excluded Development, any Development not arising from an Included Activity or any Development in which Executive otherwise acquires any interest (a Separate  Development), prior to (i) using such Separate Development in any way in the course of Executive’s employment with the Company or (ii) disclosing the Separate Development to any employee, contractor, customer or agent of the Company, Executive shall inform the Company in writing of Executive’s intention to so use or disclose the Separate Development (the Separate Development Notice) and shall not so use or disclose the Separate Development unless the Company consents in writing to such use or disclosure.  Executive hereby grants to The Company an exclusive, royalty-free, irrevocable, worldwide right and license to exercise any all rights with respect to any Separate Development that Executive so uses or discloses, irrespective of whether such use or disclosure is in accordance with or in breach of this notice requirement, unless the Separate Development Notice expressly makes reference to this Section of this Agreement and specifies the license restrictions or royalties required and the Company agrees in writing to such restrictions or royalties.

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SECTION 5.      MISCELLANEOUS PROVISIONS.

5.1.       No Mitigation; Offsets.  The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise and no future income earned by the Executive from employment or otherwise shall in any way reduce or offset any payments due to the Executive hereunder.  Assuming a payment or otherwise is due Executive under this Agreement, the Company may offset against any amount due Executive under this Agreement only those amounts due Company in respect of any undisputed, liquidated obligation of Executive to the Company.

5.2.       Governing Law.  The provisions of this Agreement will be construed and interpreted under the laws of the State of New Jersey, without regard to principles of conflicts of law.

5.3.       Injunctive Relief and Additional Remedy.  The Executive acknowledges that the injury that would be suffered by the Company, the Company’s Parent, or their subsidiaries as a result of a breach of the provisions of Sections 4.1, 4.2 and 4.3 hereof would be irreparable and that an award of monetary damages to the Company, the Company’s Parent, or their subsidiaries for such a breach would be an inadequate remedy. Consequently, the Company, the Company’s Parent, or their subsidiaries will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Company, the Company’s Parent, or their subsidiaries will not be obligated to post bond or other security in seeking such relief.  Each of the parties hereby irrevocably submits to the exclusive jurisdiction of the federal and state courts of the State of New Jersey for the purpose of injunctive relief.

5.4.       Representations and Warranties by Executive.  The Executive represents and warrants to the best of his knowledge that the execution and delivery by the Executive of this Agreement do not, and the performance by the Executive of the Executive’s obligations hereunder will not, with or without the giving of notice or the passage of time, or both:  (a) violate any judgment, writ, injunction, or order of any court, arbitrator or governmental agency applicable to the Executive or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Executive is a party or by which the Executive is or may be bound.

5.5.       Waiver.  The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (b) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement.

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5.6.       Assignment.  No right or benefit under this Agreement shall be assigned, transferred, pledged or encumbered (a) by the Executive except by a beneficiary designation made by will or the laws of descent and distribution or (b) by the Company except that the Company may assign this Agreement and all of its rights hereunder to any Person with which it may merge or consolidate or to which it may sell all or substantially all of its assets; provided that such Person shall, by agreement in form and substance satisfactory to the Executive, expressly assume and agree to perform this Agreement for the remainder of the Term in the same manner and to the same extent that the Company would be required to perform it if no such merger, consolidation or sale had taken place.  Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Company, the Company’s Parent and each of their successors and assigns, and the Executive, his heirs, legal representatives and any beneficiary or beneficiaries designated hereunder.

5.7.       Entire Agreement; Amendments.  This Agreement contains the entire agreement between the Company (and the Company’s Parent) and Executive with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, between the Company (and the Company’s Parent) and Executive with respect to the subject matter hereof,.  This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto.

5.8.       Arbitration.  Any dispute which may arise between the Executive and the Company with respect to the construction, interpretation or application of any of the terms, provisions, covenants or conditions of this Agreement or any claim arising from or relating to this Agreement will be submitted to final and binding arbitration by three (3) arbitrators in Newark, New Jersey, under the expedited rules of the American Arbitration Association then obtaining.  One such arbitrator shall be selected by each of the Company and the Executive, and the two arbitrators so selected shall select the third arbitrator.  Selection of all three arbitrators shall be made within thirty (30) days after the date the dispute arose.  The written decision of the arbitrators shall be rendered within ninety (90) days after selection of the third arbitrator.  The decision of the arbitrators shall be final and binding on the Company and the Executive and may be entered by either party in any New Jersey federal or state court having jurisdiction.

5.9.       Severability.  In the case that any one or more of the provisions contained in this Agreement shall, for any reason, be held invalid or unenforceable, the other provisions of this Agreement shall remain in full force and effect.  Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.

5.10.     Counterparts; Facsimile.  This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.  This Agreement may be executed via facsimile.

5.11.     Headings; Interpretation.  The various headings contained herein are for reference purposes only and do not limit or otherwise affect any of the provisions of this Agreement.  It is the intent of the parties that this Agreement not be construed more strictly with regard to one party than with regard to any other party.

5.12.     Notices.  (a) All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and sent as follows:

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If to the Company, to:

Selective Insurance Company of America

40 Wantage Avenue

Branchville, New Jersey 07890

Attn:  General Counsel

Fax:   (973) 948-0282

If to the Executive, to:

Ronald E. St. Clair

5035 Pebblehurst Drive

Stow, OH 44224

(a)           All notices and other communications required or permitted under this Agreement which are addressed as provided in Paragraph (a) of this Section 5.12, (i) if delivered personally against proper receipt shall be effective upon delivery, (ii) if sent by facsimile transmission (with evidence supplied by the sender of the facsimile’s receipt at a facsimile number designated for receipt by the other party hereunder, which other party shall be obligated to provide such a facsimile number) shall be effective upon dispatch, and (iii) if sent (A) by certified or registered mail with postage prepaid or (B) by Federal Express or similar courier service with courier fees paid by the sender, shall be effective upon receipt.  The parties hereto may from time to time change their respective addresses and/or facsimile numbers for the purpose of notices to that party by a similar notice specifying a new address and/or facsimile number, but no such change shall be deemed to have been given unless it is sent and received in accordance with this Section 5.12.

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5.13.     Withholding.  All amounts payable by the Company to the Executive hereunder (including, but not limited to, the Salary or any amounts payable pursuant to Sections 3.3 and/or 3.4 hereof) shall be reduced prior to the delivery of such payment to the Executive by an amount sufficient to satisfy any applicable federal, state, local or other withholding tax requirements.

IN WITNESS WHEREOF, the Company and Executive have executed this Agreement as of the Commencement Date.

SELECTIVE INSURANCE COMPANY OF
AMERICA
By:	/s/ Steven B. Woods
	Steven B. Woods
	Its Executive Vice President
EXECUTIVE:
/s/ Ronald E. St. Clair
Ronald E. St. Clair

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EXHIBIT A

FORM OF RELEASE

Reference is hereby made to the Employment Agreement, dated as of __________, 201_ (the “Employment Agreement”), by and between ____________ (the “Executive”) and Selective Insurance Company of America, a New Jersey corporation (the “Company”).  Capitalized terms used but not defined herein shall have the meanings specified in the Employment Agreement.

Pursuant to the terms of the Employment Agreement and in consideration of the payments to be made to the Executive by the Company, which Executive acknowledges are in excess of what Executive would otherwise be entitled to receive, the Executive hereby releases and forever discharges and holds the Company, the Company’s Parent and their subsidiaries (collectively, the “Company Parties” and each a “Company Party”), and the respective officers, directors, employees, partners, stockholders, members, agents, affiliates, successors and assigns and insurers of each Company Party, and any legal and personal representatives of each of the foregoing, harmless from all claims or suits, of any nature whatsoever (whether known or unknown), past, present or future, including those arising from the law, being directly or indirectly related to the Executive’s employment by or the termination of such employment by any Company Party, including, without limiting the foregoing, any claims for notice, pay in lieu of notice, wrongful dismissal, severance pay, bonus, overtime pay, incentive compensation, interest or vacation pay for the Executive’s service as an officer or director to any Company Party through the date hereof.  The Executive also hereby agrees not to file a lawsuit asserting any such claims.  This release (this “Release”) includes, but is not limited to, claims growing out of any legal restriction on any Company Party’s right to terminate its employees and claims or rights under federal, state, and local laws prohibiting employment discrimination (including, but not limited to, claims or rights under Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Uniformed Services Employment and Reemployment Rights Act, the Employee Retirement Income Security Act, the Equal Pay Act, the Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit Protection Act of 1990, and the laws of the State of New Jersey against discrimination, or any other federal or state statutes prohibiting discrimination on the basis of age, sex, race, color, handicap, religion, national origin, and sexual orientation, or any other federal, state or local employment law, regulation or other requirement) which arose before the date this Release is signed, excepting only claims in the nature of workers’ compensation, claims for vested benefits, and claims to enforce this agreement.  The Executive acknowledges that because this Release contains a release of claims and is an important legal document, he has been advised to consult with counsel before executing it, that he may take up to [twenty-one (21)]1 [forty-five (45)]2 days to decide whether to execute it, and that he may revoke this Release by delivering or mailing a signed notice of revocation to the Company at its offices within seven (7) days after executing it.  If Executive executes this Release and does not subsequently revoke the release within seven (7) days after executing it, then this Release shall take effect as a legally binding agreement between Executive and the Company.

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.

2           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 bracketed text in its entirety.

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If Executive does not deliver to the Company an original signed copy of this Release by [insert date], or if Executive signs and revokes this Release within seven (7) days as set forth above, the Company will assume that Executive rejects the Release and Executive will not receive the payments referred to herein.

The Executive acknowledges that there is a risk that after signing this Release he may discover losses or claims that are released under this Release, but that are presently unknown to him.  The Executive assumes this risk and understands that this Release shall apply to any such losses and claims.

The Executive understands that this Release includes a full and final release covering all known and unknown, injuries, debts, claims or damages which have arisen or may have arisen from Executive’s employment by or the termination of such employment by any Company Party.  The Executive acknowledges that by accepting the benefits and payments set forth in the Employment Agreement, he assumes and waives the risks that the facts and the law may be other than as he believes.

Notwithstanding the foregoing, this Release does not release, and the Executive continues to be entitled to, (i) any rights to exculpation or indemnification that the Executive has under contract or law with respect to his service as an officer or director of any Company Party and (ii) receive the payments to be made to him by the Company pursuant to Section 3.3 and/or 3.4 of the Employment Agreement (including any plan, agreement or other arrangement that is referenced in or the subject of the applicable Section), subject to the conditions set forth in Section 3.5 of the Employment Agreement, (iii) any right the Executive may have to obtain contribution as permitted by law in the event of entry of judgment against him as a result of any act or failure to act for which he and any Company Party are jointly liable, and (iv) any claim in respect of any insurance policy with any Company Party entered into outside of the employment relationship.

This Release constitutes the release referenced in Section 3.5 of the Employment Agreement.

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The undersigned Executive, having had the time to reflect, freely accepts and agrees to the above Release.  The Executive acknowledges and agrees that no Company Party representative has made any representation to or agreement with the Executive relating to this Release which is not contained in the express terms of this Release.  The Executive acknowledges and agrees that the execution and delivery of this Release is based upon the Executive’s independent review of this Release, and the Executive hereby expressly waives any and all claims or defenses by the Executive against the enforcement of this Release which are based upon allegations or representations, projections, estimates, understandings or agreements by any Company Party or any of their representatives or any assumptions by the Executive that are not contained in the express terms of this Release.

	Date:
Ronald E. St. Clair

STATE OF_________________:

ss.:

COUNTY OF ______________:

On this _____ day of _______________, 2011, before me, the undersigned officer, personally appeared _________________, personally known to me (or satisfactorily proven to be the same person whose name is subscribed in the foregoing instrument), who acknowledged that he executed the foregoing instrument for the purposes therein contained as his free act and deed.

In witness whereof I hereunto set my hand.

Notary Public

My Commission Expires:

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Attachment to Form of Release

[Attach disclosures required by the Older Workers Benefit Protection Act, if required]

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EX-11

EXHIBIT 11

SELECTIVE INSURANCE GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

COMPUTATION OF EARNINGS PER SHARE

First Quarter 2011	Income		Shares		Per Share
(in thousands, except per share amounts)	(Numerator)		(Denominator)		Amount
Basic EPS:
Net income available to common shareholders	$	21,549		53,863	$	0.40
Effect of dilutive securities:
Restricted stock and restricted stock units		-		858
Employee stock purchase plan		-		4
Stock options		-		141
Deferred shares		-		188
Diluted EPS:
Net income available to common stockholders	$	21,549		55,054	$	0.39

First Quarter 2010	Income			Shares		Per Share
(in thousands, except per share amounts)	(Numerator)			(Denominator)		Amount
Basic EPS:
Net income from continuing operations	$	6,593			53,144	$	0.12
Net loss from discontinued operations		(790	)		53,144		(0.01	)
Net income available to common stockholders	$	5,803			53,144	$	0.11
Effect of dilutive securities:
Restricted stock		-			82
Restricted stock units		-			684
Employee stock purchase plan		-			1
Stock options		-			126
Deferred shares		-			180
Diluted EPS:
Net income from continuing operations	$	6,593			54,217	$	0.12
Net loss from discontinued operations		(790	)		54,217		(0.01	)
Net income available to common stockholders	$	5,803			54,217	$	0.11

EX-31.1

Exhibit 31.1

Certification pursuant to Rule 13a–14(a), as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, GREGORY E. MURPHY, Chairman of the Board, President and Chief Executive Officer of Selective Insurance Group, Inc. (the “Company”), certify, that:

1. I have reviewed this quarterly report on Form 10-Q of the Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(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 registrant’s 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 registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(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 registrant's 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 registrant's internal control over financial reporting.

Date: April 28, 2011	By: /s/ Gregory E. Murphy
	Gregory E. Murphy
	Chairman of the Board, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification pursuant to Rule 13a–14(a), as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, DALE A. THATCHER, Executive Vice President and Chief Financial Officer of Selective Insurance Group, Inc. (the “Company”), certify, that:

1. I have reviewed this quarterly report on Form 10-Q of the Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(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 registrant’s 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 registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(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 registrant's 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 registrant's internal control over financial reporting.

Date: April 28, 2011	By: /s/ Dale A. Thatcher
	Dale A. Thatcher
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I, GREGORY E. MURPHY, the Chairman of the Board, President and Chief Executive Officer of Selective Insurance Group, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2011 (the “Form 10-Q”), which this certification accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 28, 2011	By: /s/ Gregory E. Murphy
	Gregory E. Murphy
	Chairman of the Board, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I, DALE A. THATCHER, the Executive Vice President and Chief Financial Officer of Selective Insurance Group, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2011 (the “Form 10-Q”), which this certification accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 28, 2011	By: /s/ Dale A. Thatcher
	Dale A. Thatcher
	Executive Vice President and Chief Financial Officer