PROSPECTUS Filed Pursuant to Rule 424(b)(3)
Registration No. 333-129927
[SELECTIVE GRAPHIC OMITTED]
Selective Insurance Group, Inc.
Offer to Exchange
$100,000,000 aggregate principal amount of 6.70% Senior Notes due 2035
(CUSIP No. 816300 AE 7)
for
$100,000,000 aggregate principal amount of 6.70% Senior Notes due 2035
(CUSIP No. 816300 AG 2)
that have been registered under the Securities Act of 1933
The exchange offer will expire at 5:00 p.m.,
New York City time, on January 9, 2006, unless extended.
__________________
Terms of the exchange offer:
o The exchange notes are being registered with the Securities and Exchange
Commission and are being offered in exchange for the original notes that
were previously issued in an offering exempt from the Securities and
Exchange Commission's registration requirements. The terms of the exchange
offer are summarized below and more fully described in this prospectus.
o We will exchange all original notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
o You may withdraw tenders of original notes at any time prior to the
expiration of the exchange offer.
o The exchange of original notes for exchange notes generally will not be a
taxable event for U.S. federal income tax purposes.
o We will not receive any proceeds from the exchange offer.
o The terms of the exchange notes are substantially identical to the original
notes, except that the exchange notes are registered under the Securities
Act of 1933 and the transfer restrictions and registration rights
applicable to the original notes do not apply to the exchange notes.
o The exchange notes will not be listed on any national securities exchange
or the Nasdaq Stock Market.
__________________
See "Risk Factors" beginning on page 13 to read about important factors
you should consider before tendering your original notes.
__________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
__________________
The date of this prospectus is December 2, 2005.
TABLE OF CONTENTS
Page
----
Special Note Regarding Forward-Looking Statements.............................ii
Summary........................................................................1
Risk Factors..................................................................13
Use of Proceeds...............................................................25
Ratio of Earnings to Fixed Charges............................................26
The Exchange Offer............................................................27
Description of Other Indebtedness.............................................36
Description of the Notes......................................................38
Plan of Distribution..........................................................49
Legal Matters.................................................................50
Experts .....................................................................50
Where You Can Find More Information...........................................50
---------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information different from that contained or incorporated by reference in this
prospectus. This prospectus is an offer to exchange only the notes offered by
this prospectus and only under circumstances and in jurisdictions where it is
lawful to do so. The information contained in this prospectus is accurate only
as of the date of this prospectus.
---------
This prospectus incorporates important business and financial
information about us that is not included in or delivered with this prospectus.
This information is available to security holders without charge upon written or
oral request to:
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, NJ 07890
(973) 948-3000
Attention: Corporate Secretary
To obtain timely delivery, security holders must request the
information incorporated by reference no later than five business days prior to
the expiration date of the exchange offer.
---------
References in this prospectus to "we," "us," "our" and "Selective"
refer to Selective Insurance Group, Inc., an insurance holding company
incorporated in New Jersey, and its subsidiaries, unless the context otherwise
requires.
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934. These statements
relate to our intentions, beliefs, current expectations and projections
regarding our 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 in
"Item 7 --Management's Discussion and Analysis of Financial Condition and
Results of Operations" and its section entitled "Risk Factors" in our Annual
Report on Form 10-K for the year ended December 31, 2004. Those portions of the
Annual Report are incorporated by reference into this report. 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.
Factors which could cause our actual results to differ materially from
those projected, forecasted or estimated by us in forward-looking statements,
include, but are not limited to:
o the frequency and severity of catastrophic events, including, but not
limited to, hurricanes, tornadoes, windstorms, earthquakes, hail,
severe winter weather, fires, explosions and terrorism;
o adverse economic, market, regulatory, legal or judicial conditions;
o the concentration of our business in a number of Eastern region states;
o the adequacy of our loss reserves;
o the adequacy of our loss expense reserves;
o the cost and availability of reinsurance;
o our ability to collect on reinsurance and the solvency of our
reinsurers;
o uncertainties related to insurance premium rate increases and business
retention;
o changes in insurance regulations that impact our ability to write
and/or cease writing insurance policies in one or more states
particularly changes in New Jersey automobile insurance laws and
regulations;
o our ability to maintain favorable ratings from ratings agencies,
including A.M. Best Company, Standard & Poor's Ratings Services,
Moody's Investor Services and Fitch Ratings;
o fluctuations in interest rates and the performance of the financial
markets;
o our entry into new markets and businesses; and
o other risks and uncertainties we identify in this prospectus and other
documents incorporated by reference.
We undertake no obligation, other than as may be required
under the federal securities laws, to publicly update or revise any
forward-looking statements, whether as a result of new information,
ii
future events or otherwise. We do not assume responsibility for the accuracy and
completeness of the forward-looking statements. All of the forward-looking
statements are qualified in their entirety by reference to the factors discussed
under "Risk Factors."
We caution you that these risk factors may not be exhaustive. We
operate in a continually changing business environment, and new risk factors
emerge from time to time. We cannot 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 by any forward-looking
statements. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
For these statements, we claim the protection of the safe harbor for
forward-looking statements contained in Section 27A of the Securities Act.
You should carefully read this prospectus and the documents
incorporated by reference in their entirety. They contain information that you
should consider when making your investment decision.
iii
SUMMARY
The following summary highlights selected information contained or
incorporated by reference in this prospectus and does not contain all the
information that you should consider before participating in the exchange offer.
The following summary is qualified in its entirety by the more detailed
information included elsewhere or incorporated by reference in this prospectus.
You should read the entire prospectus, as well as the information incorporated
by reference, before participating in this exchange offer.
Selective Insurance Group, Inc.
We are a holding company that, through our subsidiaries, offers
property and casualty insurance products and diversified insurance services
products. Through our six property and casualty insurance subsidiaries, which we
refer to collectively as the Insurance Subsidiaries, Selective Insurance Company
of America, Selective Way Insurance Company, Selective Insurance Company of New
England, Selective Insurance Company of New York, Selective Insurance Company of
the Southeast and Selective Insurance Company of South Carolina, we offer
primary and alternative market property and casualty insurance for commercial
and personal risks. We primarily write business in the following states:
Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Kentucky, Maryland,
Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, South Carolina, Virginia and Wisconsin.
We offer a broad range of commercial insurance and alternative risk
management products to small and medium-sized businesses and state and local
government entities. Our commercial insurance products represented approximately
86% of our net premiums written for the nine month-period ended September 30,
2005. In approximately ten states, we also provide personal insurance products
to individuals and families, which represented approximately 14% of our net
premiums written for the nine month-period ended September 30, 2005.
Since our inception in 1926, we have distributed almost all of our
insurance products through non-exclusive independent agents. We have agency
agreements with approximately 750 independent insurance agencies. Pursuant to
our agency agreements, we pay commissions for the business written with us. The
commission structure paid on each policy is disclosed as part of our rate
filings made in the states in which we write insurance business. We also pay
additional compensation to our independent agents.
Our flood insurance, human resource administration outsourcing and
managed care ("Diversified Insurance Services") products are sold by: Alta
Services LLC, a New Jersey-based managed care company that provides claims
handling services to our Insurance Subsidiaries and other insurers, Consumer
Health Network Plus, LLC, a New Jersey-based preferred provider organization,
Northeast Health Direct, LLC, a New England-based preferred provider
organization, and Selective Technical Administrative Resources, Inc., a New
Jersey-based third party administrator, Selective HR Solutions, Inc. and its
subsidiaries ("SHRS"), a Florida-based human resource administration outsourcing
organization, and a division of Selective Insurance Company of America that
provides flood insurance and flood claim administration services to homeowners
and commercial customers. The flood insurance that we write is 100% reinsured by
the federal government.
Corporate Strategy
Our corporate strategy is to create profitable growth and long-term
shareholder value. Our goal is to establish ourselves as the market of choice
for each of the independent agents who distribute our products and services. We
intend to achieve this goal by focusing on our customers' needs and tailoring
our products and services to meet and exceed those needs.
1
We place a high value on the quality of the independent agents selling
our products and services. The strength of our relationships with our agents is
the foundation of our success. As insurance counselors, independent agents help
their customers determine the coverages and services they need to protect their
assets and help us analyze potential exposures to loss.
Our agency management specialists (field underwriters) work closely
with agents in their offices. This on-site approach, supported by six regional
offices and technology links to automated systems, enables a quick response to
business opportunities. A parallel program puts claim management specialists
(field claim adjustors) in the field working with agents, insureds and
claimants.
Behind the risk management products and services we offer are a strong
underwriting tradition and knowledge of our regional markets. The field and
regional staffs are backed by customer-focused strategic business units that
quickly develop and market products designed to meet customers' developing
needs.
Our long-standing service ethic is strengthened by the use of new
technology tools. By using Internet technology to remove friction and redundant
work from both the sales and service processes, we are significantly increasing
both our effectiveness and efficiency. We have created a straight-through
processing environment -- empowering agents and employees to spend more time
attending to customer needs and less on administrative tasks.
Headquarters
Our principal executive offices are located at 40 Wantage Avenue,
Branchville, New Jersey 07890. Our telephone number at that address is (973)
948-3000. Our Web site address is www.selective.com. We do not intend the
information on our Web site to constitute part of this prospectus.
2
Summary of the Exchange Offer
On November 3, 2005, we completed the private placement of
$100,000,000 aggregate principal amount of 6.70% senior notes due 2035. As part
of that offering, we entered into a registration rights agreement with Keefe,
Bruyette & Woods, Inc., the initial purchaser of the original notes, dated as of
November 3, 2005, in which we agreed, among other things, to deliver this
prospectus to you and to complete an exchange offer for the original notes.
Below is a summary of the exchange offer.
Securities offered.................Up to $100,000,000 aggregate principal amount
of new 6.70% senior notes due 2035, which
have been registered under the Securities
Act. The form and terms of these exchange
notes are identical in all material respects
to those of the original notes except that
(i) interest thereon shall accrue from the
last date to which interest has been paid on
the original notes or, if no such interest
has been paid, from November 3, 2005, (ii)
provisions relating to an increase in the
stated rate of interest thereon upon the
occurrence of a registration default shall be
eliminated and (iii) the transfer
restrictions, minimum purchase requirements
and legends relating to restrictions on
ownership and transfer thereof as a result of
the issuance of the original notes without
registration under the Securities Act shall
be eliminated other than requiring transfers
in multiples of $1,000.
The exchange offer.................We are offering to exchange up to
$100,000,000 principal amount of our 6.70%
senior notes due 2035 that have been
registered under the Securities Act for a
like principal amount of the original notes
outstanding. You may tender original notes
only in integral multiples of $1,000
principal amount. We will issue exchange
notes as soon as practicable after the
expiration of the exchange offer.
In order to be exchanged, an original note
must be properly tendered and accepted. All
original notes that are validly tendered and
not withdrawn will be exchanged. As of the
date of this prospectus, there are
$100,000,000 aggregate principal amount of
original notes outstanding.
The $100,000,000 aggregate principal amount
of our original 6.70% senior notes due 2035
were offered under an indenture dated
November 3, 2005.
Expiration date; Tenders...........The exchange offer will expire at 5:00 p.m.,
New York City time, on January 9, 2006,
unless we extend the exchange offer in our
sole and absolute discretion. By tendering
your original notes, you represent that:
o you are neither our "affiliate" (as
defined in Rule 405 under the Securities Act)
nor a broker-dealer tendering
3
notes acquired directly from us for our own
account;
o any exchange notes you receive in the
exchange offer are being acquired by you in
the ordinary course of business;
o at the time of commencement of the
exchange offer, neither you nor, to your
knowledge, anyone receiving exchange notes
from you, has any arrangement or
understanding with any person to participate
in the distribution, as defined in the
Securities Act, of the original notes or the
exchange notes in violation of the Securities
Act;
o if you are not a participating
broker-dealer, you are not engaged in, and do
not intend to engage in, the distribution, as
defined in the Securities Act, of the
original notes or the exchange notes; and
o if you are a broker-dealer, you will
receive the exchange notes for your own
account in exchange for the original notes
that you acquired as a result of your
market-making or other trading activities and
you will deliver a prospectus in connection
with any resale of the exchange notes that
you receive. For further information
regarding resales of the exchange notes by
participating broker-dealers, see the
discussion under the caption "Plan of
Distribution."
Accrued interest on the exchange
notes and original notes...........The exchange notes will bear interest from
the most recent date to which interest has
been paid on the original notes or, if no
such interest has been paid, from November 3,
2005. If your original notes are accepted for
exchange, you will receive interest on the
exchange notes and not on the original notes.
Any original notes not tendered will remain
outstanding and continue to accrue interest
according to their terms.
Conditions to the exchange offer...The exchange offer is subject to customary
conditions. We may assert or waive these
conditions in our sole discretion. If we
materially change the terms of the exchange
offer, we will resolicit tenders of the
original notes. See "The Exchange
Offer--Conditions to the Exchange Offer" for
more information regarding conditions to the
exchange offer.
Procedures for tendering original
notes..............................Except as described in the section titled
"The Exchange Offer--Guaranteed Delivery
Procedures," a tendering holder must, on or
prior to the expiration date:
o transmit a properly completed and duly
executed letter of transmittal, including all
other documents
4
required by the letter of transmittal, to the
exchange agent at the address listed in this
prospectus; or
o if original notes are tendered in
accordance with the book-entry procedures
described in this prospectus, the tendering
holder must transmit an agent's message to
the exchange agent at the address listed in
this prospectus. See "The Exchange
Offer--Procedures for Tendering."
Special procedures for beneficial
holders............................If you are a beneficial holder of original
notes that are registered in the name of your
broker, dealer, commercial bank, trust
company or other nominee, and you wish to
tender in the exchange offer, you should
promptly contact the person in whose name
your original notes are registered and
instruct that person to tender on your
behalf. See "The Exchange Offer--Procedures
for Tendering."
Guaranteed delivery procedures.....If you wish to tender your original notes and
you cannot deliver your original notes, the
letter of transmittal or any other required
documents to the exchange agent before the
expiration date, you may tender your original
notes by following the guaranteed delivery
procedures under the heading "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal rights..................Tenders may be withdrawn at any time before
5:00 p.m., New York City time, on the
expiration date.
Acceptance of original notes and
delivery of exchange notes.........Subject to the conditions stated in the
section "The Exchange Offer--Conditions to
the Exchange Offer" of this prospectus, we
will accept for exchange any and all original
notes which are properly tendered in the
exchange offer before 5:00 p.m., New York
City time, on the expiration date. The
exchange notes will be delivered as soon as
practicable after the expiration date. See
"The Exchange Offer--Terms of the Exchange
Offer."
Material U.S. federal tax
consequences.......................Your exchange of original notes for exchange
notes pursuant to the exchange offer
generally will not be a taxable event for
U.S. federal income tax purposes.
Regulatory requirements............Following the effectiveness of the
registration statement covering the exchange
offer with the SEC, no other material federal
regulatory requirement must be complied with
in connection with this exchange offer.
Exchange agent.....................Wachovia Bank, National Association is
serving as exchange agent in connection with
the exchange offer. The address and telephone
number of the exchange agent are listed under
the heading "The Exchange
5
Offer--Exchange Agent."
Use of proceeds....................We will not receive any proceeds from the
issuance of exchange notes in the exchange
offer. We have agreed to pay all expenses
incidental to the exchange offer other than
commissions and concessions of any broker or
dealer and certain transfer taxes and will
indemnify holders of the notes, including any
broker-dealers, against certain liabilities,
including liabilities under the Securities
Act.
Resales............................Based on interpretations by the staff of the
SEC as detailed in a series of no-action
letters issued to third parties, we believe
that the exchange notes issued in the
exchange offer may be offered for resale,
resold or otherwise transferred by you
without compliance with the registration and
prospectus delivery requirements of the
Securities Act as long as:
o you are acquiring the exchange notes in
the ordinary course of your business;
o you are not participating, do not intend
to participate and have no arrangement or
understanding with any person to participate,
in a distribution of the exchange notes; and
o you are neither an affiliate of ours nor
a broker-dealer tendering notes acquired
directly from us for your own account.
If you are an affiliate of ours, are engaged
in or intend to engage in or have any
arrangement or understanding with any person
to participate in the distribution of the
exchange notes:
o you cannot rely on the applicable
interpretations of the staff of the SEC; and
o you must comply with the registration
requirements of the Securities Act in
connection with any resale transaction.
Each broker or dealer that receives exchange
notes for its own account in exchange for
original notes that were acquired as a result
of market-making or other trading activities
must acknowledge that it will comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any offer to resell, resale,
or other transfer of the exchange notes
issued in the exchange offer, including the
delivery of a prospectus that contains
information with respect to any
6
selling holder required by the Securities Act
in connection with any resale of the exchange
notes.
Furthermore, any broker-dealer that acquired
any of its original notes directly from us:
o may not rely on the applicable
interpretation of the staff of the SEC's
position contained in Exxon Capital Holdings
Corp., SEC no-action letter (April 13, 1988),
Morgan, Stanley & Co. Inc., SEC no-action
letter (June 5, 1991), and Shearman &
Sterling, SEC no-action letter (July 2,
1993); and
o must also be named as a selling holder in
connection with the registration and
prospectus delivery requirements of the
Securities Act relating to any resale
transaction.
As a condition to participation in the
exchange offer, each holder will be required
to represent that it is not our affiliate or
a broker-dealer that acquired the original
notes directly from us.
Consequences of not exchanging
original notes.....................
If you do not exchange your original notes in
the exchange offer, you will continue to be
subject to the restrictions on transfer
described in the legend on your original
notes. In general, you may offer or sell your
original notes only:
o if they are registered under the
Securities Act and applicable state
securities laws;
o if they are offered or sold under an
exemption from registration under the
Securities Act and applicable state
securities laws; or
o if they are offered or sold in a
transaction not subject to the Securities Act
and applicable state securities laws.
Although your original notes will continue to
accrue interest, they will retain no rights
under the registration rights agreement.
We currently do not intend to register the
original notes under the Securities Act.
Under some circumstances, holders of the
original notes, including holders who are not
permitted to participate in the exchange
offer or who may not freely sell exchange
notes received in the exchange offer,
however, may require us to file, and to cause
to become effective, a shelf registration
statement covering resales of the original
notes by these holders. For more information
regarding the consequences of not
7
tendering your original notes and our
obligations to file a shelf registration
statement, see "The Exchange
Offer--Consequences of Exchanging or Failing
to Exchange the Original Notes" and
"Description of the Notes--Registration
Rights Agreement."
Risk factors.......................See "Risk Factors" and the other information
in this prospectus for a discussion of
factors you should consider carefully before
deciding to invest in the exchange notes.
8
Summary of the Terms of the Exchange Notes
The following is a summary of the terms of the exchange notes. The form
and terms of these exchange notes are identical in all material respects to
those of the original notes except that (i) interest thereon shall accrue from
the last date to which interest has been paid on the original notes or, if no
such interest has been paid, from November 3, 2005, (ii) provisions relating to
an increase in the stated rate of interest thereon upon the occurrence of a
registration default shall be eliminated and (iii) the transfer restrictions,
minimum purchase requirements and legends relating to restrictions on ownership
and transfer thereof as a result of the issuance of the original notes without
registration under the Securities Act shall be eliminated other than requiring
transfers in multiples of $1,000. The exchange notes will evidence the same debt
as the original notes and will be governed by the same indenture. When we refer
to the terms of "note" or "notes" in this prospectus, we are referring to the
original notes and the exchange notes. For a more complete description of the
terms of the exchange notes, see "Description of the Notes" in this prospectus.
Issuer.............................Selective Insurance Group, Inc.
Exchange notes offered.............$100,000,000 aggregate principal amount of
6.70% Senior Notes due 2035
Maturity date......................November 1, 2035
Interest payment dates.............May 1 and November 1, commencing on May 1,
2006
Ranking............................The notes will be unsecured senior
obligations and will rank equally with our
other unsecured senior indebtedness. The
notes will be effectively subordinated to any
of our future secured indebtedness as to the
assets securing such indebtedness. As of
September 30, 2005, we had outstanding
approximately $240.1 million of unsecured
indebtedness, including approximately (1)
$115.9 million of senior convertible notes,
(2) $123.4 million of senior notes and (3)
$0.8 million of convertible subordinated
debentures. The notes will rank equally with
the senior convertible notes and the senior
notes. The notes will be senior to the
convertible subordinated debentures. As of
September 30, 2005, we had no secured
indebtedness outstanding.
We are structured as a holding company, and
we conduct most of our business operations
through our subsidiaries. The notes will be
effectively subordinated to all existing and
future indebtedness and other liabilities and
commitments of our subsidiaries. As of
September 30, 2005, our subsidiaries had an
aggregate of approximately $278.8 million of
liabilities (excluding $2.0 billion of
reserves for losses and loss expenses and
$808.1 million of unearned premium reserves).
Optional redemption................The notes may not be redeemed at our option
or at the option of any noteholder.
9
Sinking fund.......................There is no provision for a sinking fund.
Governing law......................The notes will be governed by New York law.
Covenants..........................Except for certain limitations on liens on
stock of Restricted Subsidiaries (see
"Description of the Notes--Limitation on
Liens on Stock of Restricted Subsidiaries"),
the indenture does not contain any provisions
restricting us or any of our subsidiaries
from incurring, assuming or becoming liable
with respect to any indebtedness or other
obligations, whether secured or unsecured, or
any financial covenants or provisions
restricting us or our subsidiaries from
paying dividends or making other
distributions on capital stock or from
purchasing or redeeming capital stock. In
addition, we are not required to repurchase,
redeem or modify the terms of any of the
notes upon a change of control or other event
involving us, which may adversely affect the
value of the notes.
Listing............................The notes will not be listed on any exchange,
PORTAL or any quotation system.
Clearance and settlement...........The notes will be cleared through DTC,
Euroclear Bank S.A./N.V., as operator of the
Euroclear system (Euroclear), or Clearstream
Banking, S.A. (Clearstream Banking).
10
Summary Historical Consolidated Financial and Other Data
The following table sets forth our summary historical consolidated
financial data. The statement of operations data and balance sheet data as of
and for each of the years in the five-year period ended December 31, 2004 have
been derived from our audited financial statements. The statements of operations
data and balance sheet data as of and for each of the nine-month periods that
ended September 30, 2005 and 2004 have been derived from our unaudited financial
statements, and in the opinion of management, (i) reflect all adjustments
consisting of normal recurring adjustments necessary for a fair presentation of
our financial condition and results of operations for the relevant periods and
(ii) have been prepared on the same basis as our audited consolidated financial
statements. Results for the nine months that ended September 30, 2005 are not
necessarily indicative of results of operations for the full fiscal year.
Unaudited
Nine Months Ended
September 30, Year Ended December 31,
--------------------------- -------------------------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
------------ ------------- ----------- ------------ ------------ ------------ ------------
(In thousands)
Statement of Operations
Data:
Net premiums written ....... $ 1,149,801 $ 1,080,963 $ 1,365,148 $ 1,219,159 $ 1,053,487 $ 925,420 $ 843,604
Net premiums earned ........ 1,054,254 978,366 1,318,390 1,133,070 988,268 883,048 821,265
Net investment income
earned ................... 97,864 87,268 120,540 114,748 103,067 96,767 99,495
Net realized gains ......... 9,536 7,131 24,587 12,842 3,294 6,816 4,191
Diversified Insurance
Services revenue(1, 2) ... 88,766 78,274 104,396 91,840 80,796 69,626 57,527
Total revenues ............. 1,253,231 1,153,444 1,571,536 1,356,116 1,178,950 1,059,020 986,217
Underwriting gain (loss).... 48,777 27,147 40,768 (25,252) (38,743) (60,638) (65,122)
Diversified Insurance
Services net income (loss)
from continuing
operations(1, 2) ......... 14,742 10,382 14,170 9,223 5,914 (427) 5,509
Net income from continuing
operations(2) ............ 107,455 84,730 128,639 66,344 42,138 26,318 26,686
Loss from discontinued
operations(2) ............ -- -- -- -- (169) (625) (151)
Net income ................. 107,455 84,730 128,639 66,344 41,969 25,693 26,535
Comprehensive income........ 84,216 89,318 134,723 99,362 59,366 24,405 49,166
Unaudited
Nine Months Ended
September 30, Year Ended December 31,
--------------------------- -------------------------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
------------ ------------- ----------- ------------ ------------ ------------ ------------
(In thousands)
Balance Sheet Data:
Total cash and investments.. $ 3,070,020 $ 2,729,904 $ 2,841,543 $ 2,437,656 $ 2,128,779 $ 1,820,604 $ 1,785,822
Total assets ............... 4,288,555 3,869,505 3,929,400 3,438,782 3,029,847 2,684,344 2,590,903
Total liabilities .......... 3,335,183 3,035,282 3,047,382 2,688,998 2,377,745 2,093,184 2,013,106
Total stockholders' equity.. 953,372 834,223 882,018 749,784 652,102 591,160 577,797
Senior convertible notes.... 115,937 115,937 115,937 115,937 115,937 -- --
Notes payable(3) ........... 123,383 97,500 147,380 121,500 145,500 152,643 159,786
Convertible subordinated
debentures ............... 785 1,033 1,033 1,184 1,331 3,790 3,848
Short-term debt ............ -- -- -- -- -- -- --
------------ ------------- ----------- ------------ ------------ ------------ ------------
Total debt ................. 240,105 214,470 264,350 238,621 262,768 156,433 163,634
11
Unaudited
Nine Months
Ended
September 30, Year Ended December 31,
--------------------- ----------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
---------- --------- --------- --------- --------- --------- --------
(In thousands)
Selected Ratios:
Ratio of debt to capitalization ............. 20.1% 20.5% 23.1% 24.1% 28.7% 21.0% 22.1%
Return on average equity .................... 15.6% 14.3% 15.8% 9.5% 6.8% 4.4% 4.6%
Yield on investment ......................... 4.4% 4.6% 4.7% 5.1% 5.4% 5.4% 5.8%
Statutory premiums to surplus(4, 5) ......... 1.6:1 1.9:1 1.7:1 1.8:1 1.9:1 1.8:1 1.7:1
Ratio of earnings to fixed charges .......... 10.8x 9.3x 10.5x 5.4x 4.0x 2.4x 2.5x
Statutory combined ratio(1, 4, 6) ........... 94.2% 95.6% 95.9% 101.5% 103.2% 106.7% 108.2%
Combined ratio(1, 4, 6) ..................... 95.4% 97.2% 96.9% 102.2% 103.9% 106.9% 107.9%
---------------------
(1) Flood business is included in statutory underwriting results in accordance
with prescribed statutory accounting practices. On a basis in accordance
with GAAP only, flood servicing revenue and expense has been reclassified
from underwriting results to Diversified Insurance Services. Prior years
have been restated to reflect the exclusion of results from discontinued
operations.
(2) See Item 8, "Financial Statements and Supplementary Data," Note 14 to the
consolidated financial statements, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the section
entitled "Results of Operations" for a discussion of discontinued
operations, and Item 8, "Financial Statements and Supplementary Data," Note
11 for components of income (loss), in each case included in our annual
report on Form 10-K for the year ended December 31, 2004 incorporated by
reference herein.
(3) See Item 8, "Financial Statements and Supplementary Data," Note 8 to the
consolidated financial statements, in each case included in our annual
report on Form 10-K for the year ended December 31, 2004 incorporated by
reference herein, for a discussion of senior convertible notes issued
during 2002.
(4) "Combined ratio" means a measure of underwriting profitability determined
by dividing the sum of all GAAP expenses (losses, loss expenses,
underwriting expenses, and dividends to policyholders) by GAAP net premiums
earned for the period. "Ratio of earnings to fixed charges" indicates how
many times interest charges have been earned by us on a pretax basis. Since
failure to meet interest payments would be a default under the terms of
indenture agreements, this coverage ratio measures a margin of safety.
"Statutory combined ratio" means a measurement commonly used within the
property and casualty insurance industry to measure underwriting profit or
loss. It is a combination of an underwriting expense ratio, a loss and loss
expense ratio and dividends to policyholders ratio. "Statutory premiums to
surplus ratio" means a statutory measure of solvency risk that is
calculated by dividing the net statutory premiums written for the year by
the ending statutory surplus. For example, a ratio of 1.5:1 means that for
every dollar of surplus, we wrote $1.50 in premiums.
(5) Regulatory and rating agencies use the statutory premiums to surplus ratio
as a measure of solvency, viewing an increase in the ratio as a possible
increase in solvency risk. Management and analysts also view this ratio as
a measure of the effective use of capital since, as the ratio increases,
revenue per dollar of invested capital increases, indicating the possible
opportunity for an increased return.
(6) Changes in both the GAAP and statutory combined ratios are viewed by
management and analysts as indicative of changes in the profitability of
underwriting operations. A ratio over 100% is indicative of an underwriting
loss, and a ratio below 100% is indicative of an underwriting profit.
12
RISK FACTORS
You should carefully consider the following risk factors in addition to
the other information included, or incorporated by reference, in this prospectus
before investing in the exchange notes. If any of the following risk factors
actually occur, our business, financial condition or results of operations could
likely suffer which, in turn, could materially and adversely affect the price of
the exchange notes.
Risks Relating to the Exchange Offer
You may have difficulty selling the original notes that you do not exchange.
If you do not exchange your original notes for exchange notes pursuant
to the exchange offer, the original notes you hold will continue to be subject
to the existing transfer restrictions. The original notes may not be offered,
sold or otherwise transferred, except in compliance with the registration
requirements of the Securities Act, pursuant to an exemption from registration
under the Securities Act or in a transaction not subject to the registration
requirements of the Securities Act, and in compliance with applicable state
securities laws. We do not anticipate that we will register the original notes
under the Securities Act. After the exchange offer is consummated, the trading
market for the remaining untendered original notes may be small and inactive.
Consequently, you may find it difficult to sell any original notes you continue
to hold because there will be fewer original notes of such series outstanding.
Some noteholders may be required to comply with the registration and prospectus
delivery requirements of the Securities Act.
If you exchange your original notes in the exchange offer for the
purpose of participating in a distribution of the exchange notes, you may be
deemed to have received restricted securities and, if so, you will be required
to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
In addition, a broker-dealer that purchased original notes for its own
account as part of market-making or trading activities must deliver a prospectus
when it sells the exchange notes it received in the exchange offer. Our
obligation to make this prospectus available to broker-dealers is limited. We
cannot guarantee that a proper prospectus will be available to broker-dealers
wishing to resell their exchange notes.
Late deliveries of original notes or any other failure to comply with the
exchange offer procedures could prevent a holder from exchanging its old notes.
Noteholders are responsible for complying with all exchange offer
procedures. The issuance of exchange notes in exchange for original notes will
only occur upon completion of the procedures described in this prospectus under
"The Exchange Offer." Therefore, holders of original notes who wish to exchange
them for exchange notes should allow sufficient time for timely completion of
the exchange procedure. Neither we nor the exchange agent are obligated to
extend the offer or notify you of any failure to follow the proper procedure.
Risks Relating to the Notes
Your right to receive payments on the notes will be effectively subordinated to
the rights of any future secured creditors. The notes will be effectively
subordinated to any existing and future liabilities of our subsidiaries.
The notes represent unsecured obligations for Selective. Accordingly,
holders of any future secured indebtedness will have claims that are superior to
your claims as holders of the notes to the extent of the value of the assets
securing that other indebtedness. In the event of any distribution or
13
payment of our assets in any foreclosure, dissolution, winding-up, liquidation,
reorganization, or other bankruptcy proceeding, holders of secured indebtedness
will have superior claim to those of our assets that constitute their
collateral. In any of the foregoing events, we cannot assure you that there will
be sufficient assets to pay amounts due on the notes. Holders of the notes will
participate ratably with all holders of our unsecured indebtedness that ranks
equally in right of payment with the notes, and potentially with all our other
general creditors, based upon the respective amounts owed to each holder or
creditor, in our remaining assets. As a result, holders of notes may receive
less, ratably, than holders of secured indebtedness.
In addition, we are a holding company and conduct substantially all our
operations through our subsidiaries. As a result, holders of the notes are
effectively subordinated to the debt and other liabilities of our subsidiaries.
Therefore, in the event of the insolvency or liquidation of a subsidiary,
following payment by such subsidiary of its liabilities, such subsidiary may not
have sufficient remaining assets to make payments to us as a shareholder or
otherwise. In the event of a default by a subsidiary under any credit
arrangement or other indebtedness, its creditors could accelerate such debt,
prior to such subsidiary distributing amounts to us that we could have used to
make payments on the notes. In addition, if we caused a subsidiary to pay a
dividend to us to make payment on the notes, and such dividend were determined
to be a fraudulent transfer, holders of the notes would be required to return
the payment to the subsidiary's creditors.
Except for certain limitations on liens of stock of Restricted Subsidiaries, the
indenture does not contain restrictive covenants. Therefore, holders of the
notes may not be protected in the event we are involved in a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction in the
future.
The indenture under which the notes will be issued may not sufficiently
protect holders of notes in the event we are involved in a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction. The
indenture does not contain:
o any provision restricting us or any of our subsidiaries from incurring,
assuming or being liable with respect to any indebtedness or other
obligations, whether secured or unsecured, or from paying dividends or
making other distributions on capital stock or from purchasing or
redeeming capital stock;
o any restrictions on the ability of our subsidiaries to issue securities
that would be senior to the common stock of the subsidiary held by us;
o any financial ratios or specified level of net worth to which we or our
subsidiaries must adhere;
o any restrictions on our ability to pledge our assets as collateral or
otherwise encumber our assets, except for a limitation on liens on the
capital stock of our Restricted Subsidiaries (see "Description of the
Notes--Limitation on Liens on Stock of Restricted Subsidiaries"); or
o any restrictions on our ability to contribute our assets to our
subsidiaries.
There is no public market for the exchange notes.
The exchange notes are a new issue of securities and there is no
existing trading market for the exchange notes. Although the initial purchaser
of the original notes has informed us that it intends to make a market in the
exchange notes, it has no obligation to do so and may discontinue making a
market at any time without notice. Accordingly, we cannot assure you that a
liquid market will develop for the exchange notes, that you will be able to sell
your exchange notes at a particular time or that the prices that you receive
when you sell the exchange notes will be favorable.
14
We do not intend to apply for listing or quotation of the exchange
notes on any securities exchange or stock market or for inclusion of the notes
in any automated quotation system. The liquidity of any market for the exchange
notes will depend on a number of factors, including:
o the number of holders of exchange notes;
o our operating performance and financial condition;
o our ability to complete the offer to exchange the original notes for
the exchange notes;
o the market for similar securities;
o the interest of securities dealers in making a market in the exchange
notes; and
o prevailing interest rates.
Risks Relating to Our Business
Catastrophic events can have a significant impact on our financial and
operational condition.
Results of property and casualty insurers are subject to weather and
other conditions. While one year may be relatively free of major weather or
other disasters, another year may have numerous such events causing results for
such a year to be materially worse than for other years.
Our Insurance Subsidiaries have experienced, and are expected in the
future to experience, catastrophe losses. It is possible that a catastrophic
event or a series of multiple catastrophic events could have a material adverse
effect on the operating results and financial condition of the Insurance
Subsidiaries, thereby limiting the ability of the Insurance Subsidiaries to pay
dividends to us.
Various natural and man-made events can cause catastrophes, including,
but not limited to hurricanes, tornadoes, windstorms, earthquakes, hail,
explosions, severe winter weather and fires. The frequency and severity of these
catastrophes are inherently unpredictable. The extent of losses from a
catastrophe is determined by the severity of the event and the total amount of
insured exposures in the area affected by the event. Although catastrophes can
cause losses in a variety of property and casualty lines, most of the
catastrophe-related claims of our Insurance Subsidiaries historically have been
related to commercial property and homeowners' coverages.
Our Insurance Subsidiaries seek to reduce their exposure to catastrophe
losses through the purchase of catastrophe reinsurance. Reinsurance may prove
inadequate if:
o a major catastrophic loss exceeds the reinsurance limit or the
reinsurers' financial capacity,
o an Insurance Subsidiary pays a number of smaller catastrophic loss
claims, which individually fall below the subsidiary's retention level,
or
o the modeling software used to analyze the Insurance Subsidiaries' risk
proves inadequate.
Acts of terrorism could have a significant impact on our financial and
operational condition.
On November 26, 2002, the Terrorism Risk Insurance Act of 2002, or
TRIA, was signed into law. It is currently scheduled to expire on December 31,
2005. TRIA requires sharing the risk of future losses from terrorism between
private insurers and the federal government, and is applicable to almost all
commercial lines of insurance. Insurance companies with direct commercial
insurance exposure in the United States are required to participate in this
program. TRIA rescinded all previously approved exclusions for terrorism.
Policyholders for non-workers' compensation policies have the option to accept
15
or decline the terrorism coverage we offer in our policies, or negotiate other
terms. In 2004, approximately 90% of our commercial non-workers' compensation
policyholders purchased terrorism coverage. The terrorism coverage is mandatory
for all workers' compensation primary policies. In addition, ten of the twenty
primary states in which we write commercial property coverage mandate the
coverage of fire following an act of terrorism. These provisions apply to new
policies written after enactment of TRIA. A terrorism act has to be certified by
the Secretary of Treasury in order to be covered by TRIA. TRIA limits the
certified losses to "international terrorism" defined as an act committed on
behalf of any foreign person or foreign interest where the damage from the event
is in excess of $5 million and the event was not committed in the course of a
war declared by the United States. Terrorism acts related to the use of nuclear,
biological or chemical weapons are covered by TRIA provided that the Secretary
of the Treasury certifies the loss. Each participating insurance company will be
responsible for paying out a certain amount in claims (a deductible) before
federal assistance becomes available. This deductible is based on a percentage
of commercial lines direct earned premiums from the prior calendar year. For
losses above an insurer's deductible, the federal government will cover 90%,
while the insurer contributes 10%. Although the provisions of TRIA will serve to
mitigate our exposure in the event of a large-scale terrorist attack, our
deductible is substantial. In addition, it is uncertain whether TRIA will be
extended past its current termination date. The characteristics of terrorism
risks make their insurability by the private sector alone problematic. Given the
demand for terrorism insurance, the cancellation of TRIA without arrangements
for addressing terrorism risks could significantly impact the insurance market.
We continue to monitor concentrations of risk and have purchased a separate
terrorism treaty to supplement our protection to this highly unknown exposure.
Our geographic concentration ties our performance to the economic and regulatory
conditions and weather-related events in the Eastern region of the United
States.
Our property and casualty insurance business is concentrated
geographically in the Eastern region of the United States. New Jersey accounted
for thirty-seven percent of our total net premiums written for the year ended
December 31, 2004. Substantially all of our remaining business is written in
other Eastern region jurisdictions (Connecticut, Delaware, District of Columbia,
Georgia, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota,
Missouri, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South
Carolina, Virginia and Wisconsin). Unusually severe storms or other natural or
man-made disasters that destroy property in these states could adversely affect
our operations. Our revenues and profitability are also subject to prevailing
economic and regulatory conditions in the states in which we write insurance.
Because our business is concentrated in a limited number of geographic markets,
we may be exposed to risks of adverse developments that are greater than the
risks of having business in a greater number of geographic markets.
We face significant competition from other regional and national insurance
companies, agents and from self-insurance.
We compete with regional and national insurance companies, including
direct writers of insurance coverage. Many of these competitors are larger than
we are and have greater financial, technical and operating resources. In
addition, most of the insurance agencies that sell our insurance represent more
than one insurance company. We face competition within each of these agencies.
The property and casualty insurance industry is highly competitive on
the basis of both price and service. If our competitors price their products
more aggressively, our ability to grow or renew our business and our
profitability may be adversely impacted. There are many companies competing for
the same insurance customers in the geographic areas in which we operate. The
Internet may also emerge as a significant source of new competition, both from
existing competitors using their brand name and resources to write business
through this distribution channel and from new competitors.
We also face competition, primarily in the commercial insurance market,
from entities that self-insure their own risks. Many of our customers and
potential customers are examining the benefits and risks of self-insuring as an
alternative to traditional insurance.
16
A number of new, proposed, potential or enacted legislative or industry
developments could further increase competition in the property and casualty
insurance industry. These developments include:
o the Gramm-Leach-Bliley Act, which could result in increased competition
from new entrants to the insurance market, including banks and other
financial service companies;
o programs in which state-sponsored entities provide property insurance
in catastrophe-prone areas or other alternative market types of
coverage; and
o changing practices caused by the Internet, which has led to greater
competition in the insurance business and, in some cases, greater
expectations for customer service.
New competition from these developments could cause the supply or
demand for insurance to change, which could adversely affect our results of
operations and financial condition.
Legal actions and regulatory investigations are increasingly common in the
insurance business and may result in financial losses and harm our reputation.
We face a significant risk of litigation in the ordinary course of
operating our businesses, including the risk of class action lawsuits and
regulatory actions. In connection with our insurance operations, we may face
individual and class action claims alleging inappropriate business practices
relating to agency compensation and underwriting practices, claims payments and
procedures, product design, disclosure, administration, installment charges,
denial or delay of payment of benefits and breaches of fiduciary duties or
contractual and extra-contractual obligations to our insureds or claimants
against our insureds. The damages claimed in these actions may be very large or
indeterminate, including punitive and treble damages. Given the claims made in
these cases and the litigation process, it may be difficult and take us a long
period of time to disprove the allegations or quantify damages.
We could be subject to various state and federal regulatory inquiries,
including information requests, subpoenas, and books and records examinations.
Recently, the insurance industry has become the focus of increased scrutiny by
law enforcement authorities, particularly related to allegations of improper
conduct in connection with the payment of and disclosure of commissions,
antitrust and unfair trade practices issues, and the sales of financial
insurance products that have been inappropriately used by publicly traded
companies to remove liabilities from their balance sheets. Due to the adverse
impact that such an investigation could have on our reputation and our ability
to attract and retain customers and employees, a significant regulatory action
against us could have a materially adverse effect on our business, financial
condition, and results of operations.
One possible result of lawsuits and investigations is that many
insurance industry practices and customs may change, including, but not limited
to, the manner in which insurance is marketed and distributed through
independent insurance agents, who are the primary distributors of our insurance
products and services. We cannot predict at this time the effect that any
current or future regulatory activity, investigations or litigation will have on
our business. Given the current regulatory environment, and the number of our
subsidiaries operating in local markets throughout the country, it is possible
that we will become subject to governmental inquiries and subpoenas and that
lawsuits may be filed against us. Our involvement in any investigations and
lawsuits would cause us to incur additional costs and, if we were found to have
violated any laws, we could be required to pay fines, damages and other costs,
perhaps in material amounts. Our ultimate liability, if any, in connection with
these matters and any which may arise in the future, is uncertain and subject to
contingencies that are not yet known.
We are heavily regulated in the states in which we operate.
We are subject to extensive supervision and regulation in the states in
which our Insurance Subsidiaries transact insurance business. The primary
purpose of insurance regulation is to
17
protect individual policyholders and not shareholders or other investors. Our
business can be adversely affected by regulations affecting property and
casualty insurance companies. For example, laws and regulations can lead to
mandated reductions in rates to levels that we do not believe are adequate for
the risks we insure. Other laws and regulations limit our ability to cancel or
refuse to renew policies and require us to offer coverage to all consumers.
Changes in laws and regulations, or their interpretations, pertaining to
insurance, including workers' compensation, healthcare or managed care,
preferred provider organizations, and human resource administration outsourcing
organizations may also have an adverse effect on our business. Although the
federal government does not directly regulate the insurance industry, federal
initiatives, from time to time, can also impact the insurance industry.
Proposals intended to control the cost and availability of healthcare
services have been debated in the U.S. Congress and state legislatures. Although
we neither write health insurance in our managed care business nor assume any
healthcare risk, rules affecting healthcare services can affect workers'
compensation, commercial and personal automobile, liability, and other insurance
that we do write. We cannot determine whether, or in what form, healthcare
reform legislation may be adopted by the U.S. Congress or any state legislature.
We also cannot determine the nature and effect, if any, that the adoption of
healthcare legislation or regulations, or changing interpretations, at the
federal or state level would have on us.
Examples of regulatory risks include:
Automobile Insurance Regulation
The New Jersey Urban Enterprise Zone, or UEZ, Program requires New
Jersey auto insurers, including us, to have a market share in certain urban
territories which is in proportion to their statewide market share. Due to
mandated urban rate caps, the premiums on these urban policies are typically
insufficient to cover losses. While the law was repealed in 1998 to eliminate
the rate caps, rate caps are still required through the state's regulatory
scheme.
We are periodically subject to potential legislation that, if passed,
could adversely affect our results of operations. In May 2003, legislation was
introduced to allow claimants to file lawsuits for non-economic damages without
proving that the injuries sustained had a serious impact on their life. While
this legislation ultimately was not passed, in June 2005, the New Jersey Supreme
Court rendered a decision which eliminated the serious life impact test in
personal injury claims under personal automobile policies under the verbal tort
threshold of New Jersey's Automobile Insurance Cost Reduction Act of 1998. As a
result, we increased our New Jersey personal automobile reserves in the second
quarter of 2005.
We are also potentially subject to unfair competition based on uneven
application of regulatory requirements by state regulators.
Workers' Compensation Insurance Regulation
Because we voluntarily write workers' compensation insurance, we are
required by state law to support the involuntary market. Insurance companies
that underwrite voluntary workers' compensation insurance can either directly
write involuntary coverage, which is assigned by state regulatory authorities,
or participate in a sharing arrangement, where the business is written by a
servicing carrier and the profits or losses of that serviced business are shared
among the participating insurers. In all states other than New Jersey, where we
directly write involuntary coverage, we participate through a sharing
arrangement. Historically, this business has been unprofitable; whether written
directly or handled through a sharing arrangement. Additionally, we are required
to provide workers' compensation benefits for losses arising from acts of
terrorism under our workers' compensation policies. The impact of any terrorist
act is unpredictable, and the ultimate impact on us will depend upon the nature,
extent, location and timing of such an act. Any such impact on us could be
material.
18
Homeowners Insurance Regulation
We are subject to regulatory provisions that are designed to address
potential availability and/or affordability problems in the homeowners property
insurance marketplace. Involuntary market mechanisms, such as the New Jersey
Insurance Underwriting Association (the "New Jersey FAIR Plan"), generally
result in assessments to us. The New Jersey FAIR Plan writes fire and extended
coverage on homeowners for those individuals unable to secure insurance
elsewhere. Insurance companies who voluntarily write homeowners insurance in New
Jersey are assessed a portion of any deficit from the New Jersey FAIR Plan based
on their share of the voluntary market. Similar involuntary plans exist in most
other states where we operate. In addition, ten of the twenty primary states in
which we write commercial property coverage mandate the coverage of fire
following an act of terrorism.
A change in our market share in New Jersey could adversely impact the results in
our private passenger automobile business.
New Jersey insurance regulations require New Jersey auto insurers to
involuntarily write private passenger automobile insurance for individuals who
are unable to obtain insurance in the voluntary market. These policies are
priced according to a separate rating scheme, which is established by the
assigned risk plan and subject to approval by the New Jersey Department of
Banking of Insurance ("DOBI"). The amount of involuntary insurance which an
insurer must write in New Jersey depends on the insurer's statewide market share
-- the greater the market share the more involuntary coverage the insurer is
required to write. The underwriting of involuntary personal automobile insurance
in New Jersey has been historically unprofitable.
During 2002, the DOBI issued an order exempting State Farm Indemnity
Company, which had approximately 17% of the market share for New Jersey private
passenger automobile insurance, from the state's "take-all-comers" law, assigned
risk program, and UEZ program. As a result of State Farm's exemption from the
assigned risk program, in 2003 every other participating insurer's share of the
program, including ours, was increased to offset the unapplied State Farm share.
In 2004, the DOBI issued an order which will transition State Farm back into the
assigned risk and UEZ programs; however, State Farm will not be required to meet
its full share of these programs during 2005.
The property and casualty insurance industry is cyclical
Historically, the results of the property and casualty insurance
industry have been subject to significant fluctuations due to competition,
economic conditions, interest rates and other factors. For example, commercial
lines premium pricing increased from 2001 to 2004, but it decreased for several
years before 2000. Furthermore, the industry's profitability is affected by
unpredictable developments, including:
o natural and man-made disasters;
o fluctuations in interest rates and other changes in the investment
environment that affect returns on our investments;
o inflationary pressures that affect the size of losses;
o medical losses; and
o judicial decisions that affect insurers' liabilities.
The demand for property and casualty insurance, particularly commercial
lines, can also vary with the overall level of economic activity.
19
We are a holding company, and our subsidiaries may be restricted in declaring
dividends, and thus we may not have access to the cash that is needed to meet
our cash needs.
Substantially all of our operations are conducted through our
subsidiaries. Restrictions on our subsidiaries' ability to pay dividends or to
make other cash payments to us may materially affect our ability to pay
principal and interest on our indebtedness and dividends on our common stock.
Our subsidiaries are permitted under the terms of our debt agreements
to incur indebtedness up to certain levels that may restrict or prohibit the
making of distributions, the payment of dividends or the making of loans by our
subsidiaries to us. We cannot assure you that the agreements governing the
current and future indebtedness of our subsidiaries will permit our subsidiaries
to provide us with sufficient dividends or other permissible payments to meet
our financial needs.
The Insurance Subsidiaries' sources of funds consist primarily of
premiums, investment income and proceeds from sales and redemption of
investments. Such funds are applied primarily to payment of claims, insurance
operating expenses, income taxes and the purchase of investments, as well as
dividends and other payments.
The Insurance Subsidiaries may declare and pay dividends to us only if
they are permitted to do so under the insurance regulations of their respective
domiciliary state. All of the states in which our Insurance Subsidiaries are
domiciled regulate the payment of dividends. Some states, including New Jersey,
North Carolina and South Carolina, require that we give notice to the relevant
state insurance commissioner prior to our Insurance Subsidiaries declaring any
dividends and distributions payable to us. During the notice period, the state
insurance commissioner may disallow all or part of the proposed dividend upon
determination that (i) the insurer's surplus is not reasonable in relation to
its liabilities and adequate to its financial needs and those of its
policyholders, or (ii) in the case of New Jersey, if the regulatory authority
determines that the insurer is otherwise in a hazardous financial condition.
Notwithstanding the foregoing, if insurance regulators otherwise
determine that payment of a dividend or any other payment to an affiliate would
be detrimental to an Insurance Subsidiary's policyholders or creditors, because
of the financial condition of the Insurance Subsidiary or otherwise, the
regulators may block dividends or other payments to affiliates that would
otherwise be permitted without prior approval.
The Diversified Insurance Services subsidiaries may also declare and
pay dividends. The potential dividends are restricted only by the operating
needs of the subsidiaries, with the exception of our flood insurance operation,
which is restricted by the same limitations as our Insurance Subsidiaries noted
above. The Diversified Insurance Services subsidiaries' sources of funds consist
primarily of fees for services rendered. Such funds are applied primarily to
payment of operating expenses as well as dividends and other payments.
Our reserves may not be adequate to cover actual losses and expenses.
We are required to maintain loss reserves for our estimated liability
for losses and loss expenses associated with reported and unreported claims for
each accounting period. From time to time we adjust reserves and, if our
reserves are inadequate, we will be required to increase reserves. An increase
in reserves: (i) increases losses in the income statement, (ii) reduces net
income and stockholders' equity for the period in which the deficiency in
reserves is identified, and (iii) could have a material adverse effect on our
results of operations, liquidity, financial condition and financial strength
ratings. Our estimates of reserve amounts are based on facts and circumstances
of which we are aware, including our expectations of the ultimate settlement and
claim administration expenses, predictions of future events, trends in claims
severity and frequency, and other subjective factors. There is no method for
precisely estimating our ultimate liability for settlement and claims.
20
We regularly review our reserving techniques and our overall amount of
reserves. We also review:
o information regarding each claim for losses;
o our loss history and the industry's loss history;
o legislative enactments, judicial decisions and legal developments
regarding damages;
o changes in political attitudes; and
o trends in general economic conditions, including inflation.
We cannot be certain that the reserves we establish are adequate or
will be adequate in the future.
Our ability to reduce our exposure to risks depends on the availability and cost
of reinsurance.
We transfer our risk exposure to other insurance and reinsurance
companies through reinsurance arrangements. In these arrangements, another
insurer assumes a specified portion of our losses and loss adjustment expenses
in exchange for a specified portion of the insurance policy premiums. The
availability, amount, and cost of reinsurance depend on market conditions, which
may vary significantly. Any decrease in the amount of our reinsurance will
increase our risk of loss.
We also face credit risk with respect to reinsurance. The inability of
any of our reinsurers to meet their financial obligations could materially and
adversely affect our operations, as we remain primarily liable to our customers
under the policies that we have reinsured.
In the Fall of 2005, Hurricanes Katrina, Rita, and Wilma caused
significant insured losses in the Southeastern United States for the insurance
industry. Many reinsurers have taken reserving actions in response to
anticipated claims. We are uncertain what effect these hurricane-related damages
will have on the reinsurance industry, but it is conceivable that we will face
reduced availability of reinsurance, higher reinsurance premiums, tighter terms
and conditions for reinsurance and greater reinsurance credit risk in the
future.
Our investments support our operations and provide a significant portion of our
revenues and earnings.
We, like many other property and casualty insurance companies, depend
on income from our investment portfolio for a significant portion of our
revenues and earnings. Any significant decline in our investment income as a
result of falling interest rates, decreased dividend payment rates or general
market conditions would have an adverse effect on our results. Fluctuations in
interest rates cause inverse fluctuations in the market value of our debt
portfolio. Any significant decline in the market value of our investments would
reduce our stockholders' equity and our policyholders' surplus which could
impact our ability to write additional premiums. In addition, certain of our
notes payable are subject to certain debt-to-capitalization restrictions which
could also be impacted by a significant decline in investment values.
We depend on our independent insurance agents.
We market and sell almost all of our insurance products through
independent, non-exclusive insurance agencies and brokers. Agencies and brokers
are not obligated to promote our insurance products, and they may also sell our
competitors' insurance products. As a result, our business depends in part on
the marketing and sales efforts of these agencies and brokers. As we diversify
and expand our business geographically, we may need to expand our network of
agencies and brokers to successfully market our products. If these agencies and
brokers fail to market our products successfully, our business
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may be adversely impacted. Also, independent agents may decide to sell their
businesses to banks, other insurance agencies or other businesses. Agents with a
Selective appointment may decide to buy other agents. Changes in ownership of
agencies or expansion of agencies through acquisition could adversely affect an
agency's ability to control growth and profitability, thereby adversely
affecting our business.
We may be adversely impacted by a change in our ratings.
Insurance companies are subject to financial strength ratings produced
by external rating agencies. Higher ratings generally indicate financial
stability and a strong ability to pay claims. Ratings are assigned by rating
agencies to insurers based upon factors relevant to policyholders. Ratings are
not recommendations to buy, hold or sell any of our securities.
The principal agencies that cover the property and casualty industry
are A.M. Best Company ("A.M. Best"), Standard & Poor's Ratings Services ("S&P"),
Moody's Investors Service ("Moody's") and Fitch Ratings ("Fitch"). We believe
our ability to write insurance business is most influenced by our rating from
A.M. Best. We are currently rated "A+" (Superior) by A.M. Best, which is their
second highest of fifteen ratings. A significant downgrade from A.M. Best could
materially adversely affect the business we write. We believe that ratings from
S&P, Moody's or Fitch, although important, have less of an impact on our
business. We are currently rated "A" by S&P, "A2" by Moody's and "A+" by Fitch.
An unfavorable change in any of these ratings could (i) affect our ability to
write new business with customers, some of which are required (under various
third-party agreements) to maintain insurance with a carrier that maintains a
specified minimum rating; (ii) be an event of default under our current lines of
credit, under which we had no outstanding borrowings at September, 30, 2005 or
December 31, 2004, 2003 or 2002; (iii) result in an increase in the interest
rate charged under those lines of credit; or (iv) make it more expensive for us
to access capital markets.
We depend on key personnel.
The success of our business is dependent, to a large extent, on our
ability to attract and retain key employees, in particular our senior officers,
key management, sales, information systems, underwriting, claims, managed care,
human resource outsourcing and corporate personnel. Competition to attract and
retain key personnel is intense. While we have employment agreements with a
number of key managers, in general, we do not have employment contracts with our
employees and cannot ensure that we will be able to attract and retain key
personnel.
We face risks from technology-related failures.
Our businesses are increasingly dependent on computer and
Internet-enabled technology. Our inability to anticipate or manage problems with
technology associated with scalability, security, functionality or reliability
could adversely affect our ability to write business and service accounts and
could adversely impact our results of operations and financial conditions.
Emerging claim and coverage issues could adversely affect our business.
Unanticipated developments in the law as well as changes in social and
environmental conditions could result in unexpected claims for coverage under
our insurance contracts. These developments and changes may adversely affect us,
perhaps materially. For example, we could be subject to developments that impose
additional coverage obligations on us beyond our underwriting intent, or to
increases in the number or size of claims to which we are subject. With respect
to our casualty coverage, these legal, social and environmental changes may not
become apparent until some time after their occurrence. Our exposure to these
uncertainties could be exacerbated by the increased willingness of some market
participants to dispute insurance contract and policy wordings.
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We face risks in the human resource administration outsourcing business.
Regulatory
The operations of SHRS are affected by numerous federal and state laws
and regulations relating to employment matters, benefits plans and taxes. In
addition, there is an increasing trend for states to require licensing of
companies engaged in the professional employee organization business. In
performing services for its clients, SHRS assumes some obligations of an
employer under these laws and regulations. If these federal or state laws are
ultimately applied in a manner unfavorable to SHRS, it could have a material
adverse effect on our operations and financial condition. Regulation in the
human resource administration outsourcing business is constantly evolving. We
are unable to predict what additional government initiatives, if any, affecting
SHRS's business may be promulgated in the future. Consequently, we are also
unable to predict whether SHRS will be able to adapt to new or modified
regulatory requirements or obtain necessary licenses and government approvals.
Liability for worksite employee payroll and payroll taxes
When providing co-employment services, SHRS assumes the obligations to
pay the salaries, wages and related benefit costs and payroll taxes of its
clients' worksite employees. Clients are required to fund these obligations for
us. If clients fail to fund these obligations, and if these obligations are
significant, it could have a material adverse effect on our results of
operations or financial condition. As a co-employer, SHRS is also responsible
for calculating and remitting state unemployment taxes to those states in which
its co-employees work.
Liabilities for client and employee actions
SHRS establishes, by contract, a division of responsibility with its
client for various personnel management matters, including compliance with and
liability under various governmental regulations. Because of this relationship,
however, SHRS may be subject to liability for its clients' violations of laws
and regulations. Although the agreements with clients generally obligate them to
indemnify SHRS for any liability attributable to the conduct of the clients,
SHRS may not be able to collect on the contractual indemnification claim. In
addition, worksite employees may be deemed to be agents of SHRS subjecting SHRS
to liability for the actions of those worksite employees which could have a
material adverse effect on our results of operations or financial condition.
SHRS maintains professional liability insurance and such other coverages that it
believes are reasonable in light of its experiences to date. There can be no
assurance, however, that such insurance will be sufficient or available in the
future at reasonable cost to protect SHRS from liability which might adversely
affect its business, financial condition, or results of operations.
Class action litigation could affect our business practices and financial
results.
Our industries have been the target of class action litigation in areas
including the following:
o after-market automobile crash parts;
o urban homeowner underwriting practices;
o health maintenance organization practices; and
o discounting and payment of personal injury protection claims.
It is possible that future class action litigation could adversely
affect results of our insurance and Diversified Insurance Services businesses
and our financial condition.
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We face risks in our managed care operations.
Regulation
Our subsidiaries, which comprise our CHN Solutions operations, build
medical provider networks and leases networks to insurers, medical management
companies, third-party administrators and other medical claim payors. Some
states in which CHN Solutions transacts business have licensing and other
statutory or regulatory requirements, particularly for medical review services.
Some of these requirements apply to medical review of care covered by workers'
compensation. Typically, these laws establish minimum standards for
qualifications of personnel, confidentiality, internal quality control, and
dispute resolution procedures. In addition, some states regulate the operation
of managed care provider networks. If additional statutory or regulatory
requirements are imposed, CHN Solutions might encounter increased costs of
operations.
Regulation in the healthcare, automobile personal injury protection and
workers' compensation fields is constantly evolving. We are unable to predict
what additional government initiatives, if any, affecting CHN Solutions'
business may be promulgated in the future. Consequently, we are also unable to
predict whether CHN Solutions will be able to adapt to new or modified
regulatory requirements or obtain necessary licenses and government approvals.
Litigation
Healthcare providers have become more active in their efforts to
minimize the use of certain cost containment techniques and are litigating to
prevent application of certain cost containment practices. Their success in
these efforts could limit the scope of certain cost containment services that we
provide and revenue, accordingly, could decline. Although CHN Solutions does not
grant or deny claims for payment of benefits and does not engage in the practice
of medicine or deliver medical services, it does make recommendations concerning
the appropriateness of providers' medical treatment plans of patients.
Consequently, there can be no assurance that CHN Solutions will not be subject
to claims for adverse medical consequences, including being joined in suits
brought against its customers. Such litigation might adversely affect its
business, financial condition, or results of operations. CHN Solutions maintains
professional liability insurance and such other coverages that it believes are
reasonable in light of its experiences to date. There can be no assurance,
however, that such insurance will be sufficient or available in the future at
reasonable cost to protect CHN Solutions from liability which might adversely
affect its business, financial condition, or results of operations.
Unionization of medical providers could impact our operations.
The lessees of our medical provider network receive medical fee
discounts from network providers in exchange for potential patient volume
commitments, where permitted under state law, from CHN Solutions' client and
payor base. If medical providers, such as physicians, decided to unionize, that
might impair CHN Solutions' ability to maintain and grow networks, negotiate fee
discount arrangements and lease networks to their customers. These events would
have an adverse impact not only on CHN Solutions, but also on our business as a
whole because we rely, in part, on provider networks and discounts to manage our
claim medical expenses. Those events could also have an adverse effect on our
results of operations and financial condition.
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USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In
consideration for issuing the exchange notes, we will receive in exchange the
original notes of like principal amount. The original notes surrendered in
exchange for exchange notes will be retired and canceled and cannot be reissued.
Accordingly, the issuance of exchange notes will not result in any change in our
indebtedness. We have agreed to bear the expenses of the exchange offer other
than commissions and concessions of any broker or dealer and certain transfer
taxes and will indemnify holders of the notes, including any broker-dealers,
against certain liabilities under the Securities Act. No underwriter is being
used in connection with the exchange offer.
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RATIO OF EARNINGS TO FIXED CHARGES
The table below sets forth our ratio of earnings to fixed charges on a
consolidated basis for each of the time periods indicated. This ratio shows the
extent to which our business generates enough earnings after the payment of all
expenses other than interest to make required interest payments on our debt.
Unaudited
Nine Months
Ended
September 30, Year Ended December 31,
--------------------------------------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
----------- ----------- ---------- ---------- ---------- ---------- ----------
10.8x 9.3x 10.5x 5.4x 4.0x 2.4x 2.5x
For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of pretax income from continuing operations and fixed charges.
Fixed charges consist of interest whether expensed or capitalized, amortization
of expenses related to indebtedness and the portion of rental expense that is
considered to be representative of the interest factors in our leases.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
When we sold the original notes on November 3, 2005, we entered into a
registration rights agreement with the initial purchaser of the original notes.
Under the registration rights agreement, we agreed to file a registration
statement regarding the exchange of the original notes for exchange notes which
are registered under the Securities Act. We also agreed to use our reasonable
best efforts to cause the registration statement to become effective with the
SEC and to conduct this exchange offer after the registration statement is
declared effective. The registration rights agreement provides that we will be
required to pay additional interest to the holders of the original notes if:
o the registration statement is not filed by March 3, 2006,
o the registration statement is not declared effective by May 2, 2006, or
o the exchange offer has not been consummated within 45 days of being
declared effective.
See "Description of the Notes--Registration Rights" for more information on
additional interest we will owe if we do not complete the exchange offer within
a specified timeline.
The exchange offer is not being made to holders of original notes in
any jurisdiction where the exchange would not comply with the securities or blue
sky laws of such jurisdiction. A copy of the registration rights agreement is
being filed as an exhibit to the registration statement of which this prospectus
forms a part.
Terms of the Exchange Offer
Upon the terms and conditions described in this prospectus and in the
accompanying letter of transmittal, which together constitute the exchange
offer, we will accept for exchange original notes that are properly tendered on
or before the expiration date and not withdrawn as permitted below. As used in
this prospectus, the term "expiration date" means 5:00 p.m., New York City time,
on January 9, 2006. However, if we, in our sole discretion, have extended the
period of time for which the exchange offer is open, the term "expiration date"
means the latest time and date to which we extend the exchange offer.
As of the date of this prospectus, $100,000,000 aggregate principal
amount of the original notes is outstanding. The original notes were offered
under an indenture dated November 3, 2005. This prospectus, together with the
letter of transmittal, is first being sent on or about December 6, 2005 to all
holders of original notes known to us. Our obligation to accept original notes
for exchange in the exchange offer is subject to the conditions described below
under "Conditions to the Exchange Offer." We reserve the right to extend the
period of time during which the exchange offer is open. We would then delay
acceptance for exchange of any original notes by giving oral or written notice
of an extension to the holders of original notes as described below. During any
extension period, all original notes previously tendered will remain subject to
the exchange offer and may be accepted for exchange by us. Any original notes
not accepted for exchange will be returned to the tendering holder after the
expiration or termination of the exchange offer.
Original notes tendered in the exchange offer must be in denominations
of principal amount of $1,000 and any integral multiple of $1,000.
We reserve the right to amend or terminate the exchange offer, and not
to accept for exchange any original notes not previously accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
below under "--Conditions to the Exchange Offer." We will give oral or written
notice of any extension, amendment, non-acceptance or termination to the holders
of the original notes as promptly as practicable. If we materially change the
terms of the exchange offer, we
27
will resolicit tenders of the original notes, file a post-effective amendment to
the prospectus and provide notice to the noteholders. If the change is made less
than five business days before the expiration of the exchange offer, we will
extend the offer so that the noteholders have at least five business days to
tender or withdraw. We will notify you of any extension by means of a press
release or other public announcement no later than 9:00 a.m., New York City time
on that date.
Our acceptance of the tender of original notes by a tendering holder
will form a binding agreement upon the terms and subject to the conditions
provided in this prospectus.
Procedures for Tendering
Except as described below, a tendering holder must, on or prior to the
expiration date:
o transmit a properly completed and duly executed letter of transmittal,
including all other documents required by the letter of transmittal, to
Wachovia Bank, National Association, as the exchange agent, at the
address listed below under the heading "--Exchange Agent;" or
o if original notes are tendered in accordance with the book-entry
procedures listed below, the tendering holder must transmit an agent's
message to the exchange agent at the address listed below under the
heading "--Exchange Agent."
In addition:
o the exchange agent must receive, on or before the expiration date,
certificates for the original notes, if any;
o a timely confirmation of book-entry transfer of the original notes into
the exchange agent's account at the Depository Trust Company, the
book-entry transfer facility, along with the letter of transmittal or
an agent's message; or
o the holder must comply with the guaranteed delivery procedures
described below.
The Depository Trust Company will be referred to as DTC in this
prospectus.
The term "agent's message" means a message, transmitted to DTC and
received by the exchange agent and forming a part of a book-entry transfer, that
states that DTC has received an express acknowledgment that the tendering holder
agrees to be bound by the letter of transmittal and that we may enforce the
letter of transmittal against this holder.
The method of delivery of original notes, letters of transmittal and
all other required documents is at your election and risk. If the delivery is by
mail, we recommend that you use registered mail, properly insured, with return
receipt requested. In all cases, you should allow sufficient time to assure
timely delivery. You should not send letters of transmittal or original notes to
us.
If you are a beneficial owner whose original notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee,
and wish to tender, you should promptly instruct the registered holder to tender
on your behalf. Any registered holder that is a participant in DTC's book-entry
transfer facility system may make book-entry delivery of the original notes by
causing DTC to transfer the original notes into the exchange agent's account.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the original notes surrendered for exchange are tendered:
o by a registered holder of the original notes who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or
28
o for the account of an "eligible institution."
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantees must be by an "eligible institution."
An "eligible institution" is a financial institution, including most banks,
savings and loan associations and brokerage houses, that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program.
We will determine in our sole discretion all questions as to the
validity, form and eligibility of original notes tendered for exchange. This
discretion extends to the determination of all questions concerning the timing
of receipts and acceptance of tenders. These determinations will be final and
binding.
We reserve the right to reject any particular original note not
properly tendered, or any acceptance that might, in our judgment or our
counsel's judgment, be unlawful. We also reserve the right to waive any
conditions of the exchange offer as applicable to all original notes prior to
the expiration date. We also reserve the right to waive any defects or
irregularities or conditions of the exchange offer as to any particular original
note prior to the expiration date. Our interpretation of the terms and
conditions of the exchange offer as to any particular original note either
before or after the expiration date, including the letter of transmittal and the
instructions to the letter of transmittal, shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of original notes must be cured within a reasonable period of time. None of we,
the exchange agent or any other person will be under any duty to give
notification of any defect or irregularity in any tender of original notes. Nor
will we, the exchange agent or any other person incur any liability for failing
to give notification of any defect or irregularity.
If the letter of transmittal is signed by a person other than the
registered holder of original notes, the letter of transmittal must be
accompanied by a written instrument of transfer or exchange in satisfactory form
duly executed by the registered holder with the signature guaranteed by an
eligible institution. The original notes must be endorsed or accompanied by
appropriate powers of attorney. In either case, the original notes must be
signed exactly as the name of any registered holder appears on the original
notes.
If the letter of transmittal or any original notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, these persons should so indicate when signing. Unless
waived by us, proper evidence satisfactory to us of their authority to so act
must be submitted.
By tendering, each holder will represent to us that, among other
things:
o the holder is not an affiliate of ours (as defined in Rule 405 under
the Securities Act) or a broker-dealer tendering notes acquired
directly from us for its own account,
o the exchange notes are being acquired in the ordinary course of
business of the person receiving the exchange notes, whether or not
that person is the holder, and
o neither the holder nor the other person has any arrangement or
understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the exchange notes.
In the case of a holder that is not a broker-dealer, that holder, by
tendering, will also represent to us that the holder is not engaged in, and does
not intend to engage in, a distribution of the exchange notes.
29
However, any purchaser of original notes who is our "affiliate" (within
the meaning of the Securities Act) who intends to participate in the exchange
offer for the purpose of distributing the exchange notes or a broker-dealer
(within the meaning of the Securities Act) that acquired original notes in a
transaction other than as part of its trading or market-making activities and
who has arranged or has an understanding with any person to participate in the
distribution of the exchange notes: (1) will not be able to rely on the
interpretation by the staff of the SEC set forth in the applicable no-action
letters; (2) will not be able to tender its original notes in the exchange
offer; and (3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the notes unless such sale or transfer is made pursuant to an exemption from
such requirements.
Each broker or dealer that receives exchange notes for its own account
in exchange for original notes, where the original notes were acquired by it as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus that meets the requirements of the
Securities Act in connection with any resale of the exchange notes. The letter
of transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. However, a broker-dealer may be a statutory
underwriter. See "Plan of Distribution."
Acceptance of Original Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date, all original notes
properly tendered, unless we terminate the exchange offer because of the
non-satisfaction of conditions. We will issue the exchange notes as soon as
practicable after acceptance of the original notes. See "--Conditions to the
Exchange Offer" below. For purposes of the exchange offer, we will be deemed to
have accepted properly tendered original notes for exchange when, as and if we
have given oral or written notice to the exchange agent, with prompt written
confirmation of any oral notice.
For each original note accepted for exchange, the holder of the
original note will receive an exchange note having a principal amount equal to
that of the surrendered original note. The exchange notes will bear interest
from the most recent date to which interest has been paid on the original notes.
Accordingly, registered holders of exchange notes on the relevant record date
for the first interest payment date following the completion of the exchange
offer will receive interest accruing from the most recent date to which interest
has been paid. Original notes accepted for exchange will cease to accrue
interest from and after the date of completion of the exchange offer. Holders of
original notes whose original notes are accepted for exchange will not receive
any payment for accrued interest on the original notes otherwise payable on any
interest payment date, the record date for which occurs on or after completion
of the exchange offer and will be deemed to have waived their rights to receive
the accrued interest on the original notes.
In all cases, issuance of exchange notes for original notes will be
made only after timely receipt by the exchange agent of:
o certificates for the original notes, or a timely book-entry
confirmation of the original notes into the exchange agent's account at
the book-entry transfer facility;
o a properly completed and duly executed letter of transmittal; and
o all other required documents.
Unaccepted or non-exchanged original notes will be returned without
expense to the tendering holder of the original notes. In the case of original
notes tendered by book-entry transfer in accordance with the book-entry
procedures described below, the non-exchanged original notes will be returned or
recredited promptly.
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Book-Entry Transfer
The exchange agent will make a request to establish an account for the
original notes at DTC for purposes of the exchange offer within two business
days after the date of this prospectus. Any financial institution that is a
participant in DTC's systems must make book-entry delivery of original notes by
causing DTC to transfer those original notes into the exchange agent's account
at DTC in accordance with DTC's procedure for transfer. This participant should
transmit its acceptance to DTC on or prior to the expiration date or comply with
the guaranteed delivery procedures described below. DTC will verify this
acceptance, execute a book-entry transfer of the tendered original notes into
the exchange agent's account at DTC and then send to the exchange agent
confirmation of this book-entry transfer. The confirmation of this book-entry
transfer will include an agent's message confirming that DTC has received an
express acknowledgment from this participant that this participant has received
and agrees to be bound by the letter of transmittal and that we may enforce the
letter of transmittal against this participant. Delivery of exchange notes
issued in the exchange offer may be effected through book-entry transfer at DTC.
However, the letter of transmittal or facsimile of it or an agent's message,
with any required signature guarantees and any other required documents, must:
o be transmitted to and received by the exchange agent at the address
listed below under "--Exchange Agent" on or prior to the expiration
date; or
o comply with the guaranteed delivery procedures described below.
Exchanging Book-Entry Notes
The exchange agent and the book-entry transfer facility have confirmed
that any financial institution that is a participant in the book-entry transfer
facility may utilize the book-entry transfer facility Automated Tender Offer
Program, or ATOP, procedures to tender original notes. Any participant in the
book-entry transfer facility may make book-entry delivery of original notes by
causing the book-entry transfer facility to transfer such original notes into
the exchange agent's account in accordance with the book-entry transfer
facility's ATOP procedures for transfer. However, the exchange for the original
notes so tendered will only be made after a book-entry confirmation of the
book-entry transfer of original notes into the exchange agent's account, and
timely receipt by the exchange agent of an agent's message and any other
documents required by the letter of transmittal. The term "agent's message"
means a message, transmitted by the book-entry transfer facility and received by
the exchange agent and forming part of a book-entry confirmation, which states
that the book-entry transfer facility has received an express acknowledgment
from a participant tendering original notes that are the subject of such
book-entry confirmation that such participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce such
agreement against such participant.
Guaranteed Delivery Procedures
If a registered holder of original notes desires to tender the original
notes, and the original notes are not immediately available, or time will not
permit the holder's original notes or other required documents to reach the
exchange agent before the expiration date, or the procedure for book-entry
transfer described above cannot be completed on a timely basis, a tender may
nonetheless be made if:
o the tender is made through an eligible institution;
o prior to the expiration date, the exchange agent received from an
eligible institution a properly completed and duly executed letter of
transmittal, or a facsimile of the letter of transmittal, and notice of
guaranteed delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery;
(1) stating the name and address of the holder of original notes
and the amount of original notes tendered;
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(2) stating that the tender is being made; and
(3) guaranteeing that within three New York Stock Exchange
trading days after the expiration date, the certificates for
all physically tendered original notes, in proper form for
transfer, or a book-entry confirmation, as the case may be,
and any other documents required by the letter of transmittal
will be deposited by the eligible institution with the
exchange agent; and
o the certificates for all physically tendered original notes, in proper
form for transfer, or a book-entry confirmation, as the case may be,
and all other documents required by the letter of transmittal, are
received by the exchange agent within three New York Stock Exchange
trading days after the expiration date.
Withdrawal Rights
Tenders of original notes may be withdrawn at any time before 5:00
p.m., New York City time, on the expiration date.
For a withdrawal to be effective, the exchange agent must receive a
written notice of withdrawal at the address or, in the case of eligible
institutions, at the facsimile number, indicated below under "--Exchange Agent"
before 5:00 p.m., New York City time, on the expiration date. Any notice of
withdrawal must:
o specify the name of the person, referred to as the depositor, having
tendered the original notes to be withdrawn;
o identify the original notes to be withdrawn, including the certificate
number or numbers and principal amount of the original notes;
o in the case of original notes tendered by book-entry transfer, specify
the number of the account at the book-entry transfer facility from
which the original notes were tendered and specify the name and number
of the account at the book-entry transfer facility to be credited with
the withdrawn original notes and otherwise comply with the procedures
of such facility;
o contain a statement that the holder is withdrawing his election to have
the original notes exchanged;
o be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the original notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the original
notes register the transfer of the original notes in the name of the
person withdrawing the tender; and
o specify the name in which the original notes are registered, if
different from that of the depositor.
If certificates for original notes have been delivered or
otherwise identified to the exchange agent, then, prior to the release of these
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an eligible institution unless this holder is an
eligible institution. We will determine all questions as to the validity, form
and eligibility, including time of receipt, of notices of withdrawal. Any
original notes so withdrawn will be deemed not to have been validly tendered for
exchange. No exchange notes will be issued unless the original notes so
withdrawn are validly re-tendered. Any original notes that have been tendered
for exchange, but which are not exchanged for any reason, will be returned to
the tendering holder without cost to the holder. In the case of original notes
tendered by
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book-entry transfer, the original notes will be credited to an account
maintained with the book-entry transfer facility for the original notes.
Properly withdrawn original notes may be re-tendered by following the procedures
described under "--Procedures for Tendering" above at any time on or before 5:00
p.m., New York City time, on the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we shall not
be required to accept for exchange, or to issue exchange notes in exchange for,
any original notes, and may terminate or amend the exchange offer, if at any
time prior to the expiration date any of the following events occurs:
o there is threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree issued by, any court or
governmental agency or other governmental regulatory or administrative
agency or commission;
o a change in applicable law prohibits the consummation of such exchange
offer; or
o any change, or any development involving a prospective change, has
occurred or been threatened in our business, financial condition,
operations or prospects and those of our subsidiaries taken as a whole
that is or may be adverse to us, or we have become aware of facts that
have or may have an adverse impact on the value of the original notes
or the exchange notes, which in our reasonable judgment in any case
makes it inadvisable to proceed with the exchange offer and about which
change or development we make a public announcement.
All conditions will be deemed satisfied or waived prior to the
expiration date, unless we assert them prior to the expiration date. The
foregoing conditions to the exchange offer are for our sole benefit and we may
prior to the expiration date assert them regardless of the circumstances giving
rise to any of these conditions, or we may prior to the expiration date waive
them in whole or in part in our reasonable discretion. If we do so, the exchange
offer will remain open for at least 5 business days following any waiver of the
preceding conditions. Our failure at any time to exercise any of the foregoing
rights will not be deemed a waiver of any right.
In addition, we will not accept for exchange any original notes
tendered, and no exchange notes will be issued in exchange for any original
notes, if at this time any stop order is threatened or in effect relating to the
registration statement of which this prospectus constitutes a part. We are
required to make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment.
Exchange Agent
We have appointed Wachovia Bank, National Association as the exchange
agent for the exchange offer. You should direct all executed letters of
transmittal to the exchange agent at the address indicated below. You should
direct questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery to the exchange agent addressed as follows:
Delivery To:
Wachovia Bank, National Association
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By Hand, Registered or Certified Mail, or Overnight Courier:
Wachovia Bank, National Association
Bond Department-NC11531525
1525 West W. T. Harris Blvd., 3C3
Charlotte, NC 28262-8522
For Information Call:
(704) 590-7413
Attn: Marsha Rice
By Facsimile Transmission
(for eligible Institutions only):
(704) 590-7628
Attn: Marsha Rice
Confirm by Telephone:
(704) 590-7413
Attn: Marsha Rice
All other questions should be addressed to Selective Insurance Group, Inc., 40
Wantage Avenue, Branchville, New Jersey 07890, Attention: Michael H. Lanza, Esq.
If you deliver the letter of transmittal to an address other than any address
indicated above or transmit instructions via facsimile other than to any
facsimile number indicated above, then your delivery or transmission will not
constitute a valid delivery of the letter of transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer. We have agreed to pay all expenses incidental
to the exchange offer other than commissions and concessions of any broker or
dealer and will indemnify holders of the notes, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act. The
estimated cash expenses to be incurred in connection with the exchange offer
will be paid by us. We estimate these expenses in the aggregate to be
approximately $75,000.
Accounting Treatment
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expense of the exchange
offer over the term of the exchange notes in accordance with accounting
principles generally accepted in the United States of America.
Transfer Taxes
Holders who tender their original notes for exchange shall pay transfer
taxes, if any, relating to the sale or disposition of such holder's securities,
including pursuant to a shelf registration statement.
Consequences of Exchanging or Failing to Exchange the Original Notes
Holders of original notes who do not exchange their original notes for
exchange notes in the exchange offer will continue to be subject to the
provisions in the indenture regarding transfer and exchange of the original
notes and the restrictions on transfer of the original notes as described in the
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legend on the original notes as a consequence of the issuance of the original
notes under exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the original notes may not be offered or sold, unless registered under
the Securities Act, except under an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. Original
note holders that do not exchange original notes for exchange notes in the
exchange offer will no longer have any registration rights with respect to such
notes.
Under existing interpretations of the Securities Act by the SEC's staff
contained in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the exchange notes would
generally be freely transferable by holders after the exchange offer without
further registration under the Securities Act, subject to certain
representations required to be made by each holder of exchange notes, as set
forth below. However, any purchaser of exchange notes who is one of our
"affiliates" (as defined in Rule 405 under the Securities Act) or who intends to
participate in the exchange offer for the purpose of distributing the exchange
notes:
o will not be able to rely on the interpretation of the SEC's staff;
o will not be able to tender its original notes in the exchange offer;
and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
notes unless such sale or transfer is made pursuant to an exemption
from such requirements. See "Plan of Distribution."
We do not intend to seek our own interpretation regarding the exchange
offer and there can be no assurance that the SEC's staff would make a similar
determination with respect to the exchange notes as it has in other
interpretations to other parties, although we have no reason to believe
otherwise.
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DESCRIPTION OF OTHER INDEBTEDNESS
8.75% Convertible Subordinated Debentures Due 2008
On December 29, 1982, we issued convertible subordinated debentures in
the principal amount of $25.0 million. The debentures bear interest at a rate of
8.75% per annum, which is payable on the unpaid principal semiannually on
January 1 and July 1 in each year to holders of record at 5:00 p.m., New York
City time, on the preceding December 15 and June 15, respectively. The
debentures are convertible into common stock at an effective conversion price of
$7.08 per share. The remaining principal amount of the debentures, including any
accrued interest, is due on January 1, 2008.
1.6155% Senior Convertible Notes Due 2032
In 2002, we issued $305 million aggregate principal amount of 1.6155%
senior convertible notes due September 24, 2032, at a discount of 61.988%
resulting in an effective yield of 4.25%. Interest on the convertible notes is
payable at a rate of 1.6155% semiannually on March 24 and September 24 in each
year to holders of record at 5:00 p.m., New York City time, on the preceding
March 9 or September 9, respectively. After that date, cash interest will not be
paid on the convertible notes prior to maturity unless contingent cash interest
becomes payable. Contingent cash interest becomes payable if the average market
price of a convertible note for the applicable five-trading day period equals
120% or more of the sum of the convertible note's issue price, accrued original
issue discount and accrued cash interest, if any, for a convertible note to the
day immediately preceding the relevant six-month period. The contingent cash
interest payable per convertible note in respect of any quarterly period within
any six-month period will equal the greater of (a) any regular cash dividends
per share paid by us on our common stock during that quarterly period multiplied
by the then applicable conversion rate or (b) $0.15 multiplied by 12.9783. The
convertible notes will be convertible at the option of the holders, if the
conditions for conversion are satisfied, into shares of our common stock at a
conversion price of $29.29 per share. The convertible notes have a contingent
conversion feature that allows conversion of the convertible notes when the
stock price has maintained a 20% premium to the conversion price of $29.29, or
$35.15, for 20 of 30 consecutive trading days ending on the last trading day of
a calendar quarter. Then, on any business day in the following calendar quarter,
the holders may surrender notes for conversion into shares of common stock, or
cash at our option. Our Board of Directors at their quarterly meeting on October
26, 2004, voted to waive this contingency, and the convertible notes are now,
and will continue to be, convertible into shares of our common stock pursuant to
the terms of the indenture. If all the convertible notes were converted, we
would be required to issue 3.9 million shares of common stock. The 20% premium
trigger is in effect until and including September 30, 2009 and declines
approximately 0.11% per calendar quarter thereafter to 10% on the last day of
the quarter ending June 30, 2032. Holders may also surrender convertible notes
for conversion only during any period in which the credit rating assigned to the
convertible notes is "Ba2" or lower by Moody's or "BB+" or lower by S&P, the
convertible notes are no longer rated by either Moody's or S&P, or the credit
rating assigned to the convertible notes has been suspended or withdrawn by
either Moody's or S&P. The convertible notes will cease to be convertible
pursuant to this credit rating criteria during any period or periods in which
all of the credit ratings are increased above such levels. The convertible notes
are redeemable by us in whole or in part, at any time on or after September 24,
2007, at a price equal to the sum of the issue price, plus the call premium, if
any, plus accrued original issue discount and accrued and unpaid cash interest,
if any, on such convertible notes to the applicable redemption date. The holders
of the convertible notes may require us to purchase all or a portion of their
convertible notes on either September 24, 2009, 2012, 2017, 2022 or 2027 at
stated prices plus accrued cash interest, if any, to the purchase date. The
holders may also require us to purchase all or a portion of their convertible
notes upon a change in control. We may pay the purchase price in cash or shares
of our common stock or in a combination of cash and shares of our common stock.
Notes Payable
Between 2000 and 2004, we entered into two note purchase agreements
with various lenders for three series of senior notes at interest rates ranging
from 7.25% to 8.87%. The aggregate principal amount of these senior notes
outstanding is $123.4 million as of September 30, 2005. Each note
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purchase agreement contains restrictive covenants that limit our ability to
declare dividends or incur additional indebtedness in excess of certain
debt-to-capitalization ratios. At September 30, 2005, the amount available for
dividends to stockholders under said restrictions was $306.7 million for the
8.63% and 8.87% senior notes. After taking into account this offering, we will
be in compliance with the debt-to-capitalization ratios under both note purchase
agreements.
The 8.63% and 8.87% Senior Notes
On May 4, 2000, we entered into a $30.0 million and a $61.5 million
note purchase agreement with various lenders covering the 8.63% and 8.87% senior
notes, respectively.
Commencing on May 4, 2003, we paid $6.0 million in principal, together
with accrued interest thereon, for the 8.63% senior notes. This $6.0 million
principal payment is required annually through May 4, 2007. For the 8.87% senior
notes, we are required to pay $12.3 million principal amount in each year
commencing on May 4, 2006 and ending on May 4, 2010, inclusive, together with
accrued interest thereon. The unpaid principal amount of the 8.63% and 8.87%
senior notes accrues interest and is payable semiannually on May 4 and November
4 of each year, until the principal is paid in full.
The 7.25% Senior Notes
On November 16, 2004, we sold unsecured senior notes with an annual
interest rate of 7.25% and a 2034 maturity date in the aggregate principal
amount of $50.0 million. The senior notes were issued under an indenture between
us and Wachovia Bank, National Association, as trustee, dated November 16, 2004.
The notes were offered in the United States to qualified institutional buyers
pursuant to Rule 144A under the Securities Act and to institutional investors
that are accredited investors within the meaning of the Securities Act and to
non-U.S. persons outside the United States pursuant to Regulation S under the
Securities Act. We received $49.6 million in net proceeds from the transaction,
which we used for general corporate purposes. In May 2005, we completed an
exchange offer in which the privately issued notes were exchanged for publicly
registered notes. The terms of the exchange notes are substantially identical to
the original notes, except that the exchange notes are registered under the
Securities Act and the transfer restrictions and registration rights applicable
to the original notes do not apply to the exchange notes.
Revolving Lines of Credit
As of September 30, 2005, we had revolving lines of credit totaling
$45.0 million with State Street Corporation ($20.0 million) and Wachovia Bank,
National Association ($25.0 million). As of September 30, 2005, there was no
balance outstanding. Interest is determined on a LIBOR, prime rate or money
market rate basis at our option.
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DESCRIPTION OF THE NOTES
The exchange notes will be issued under an indenture between us and
Wachovia Bank, National Association, as trustee, dated as of November 3, 2005.
The indenture contains provisions that define your rights under the notes and
governs our obligations under the notes. The indenture provides for the issuance
of the notes and sets forth the duties of the trustee. The following description
is only a summary of certain provisions of the indenture and the notes, and is
qualified in its entirety by reference to the provisions of the indenture and
the notes, including the definitions therein of certain terms. A copy of the
indenture has been filed as an exhibit to our current report on Form 8-K filed
on November 9, 2005.
When we refer to "we," "our" or "us" in this section, we refer only to
Selective Insurance Group, Inc., not including any of its current or future
subsidiaries.
General
The exchange notes are limited to $100 million aggregate principal
amount. We may, without the consent of the holders, reopen this series of notes
and issue additional notes of the series having the same terms as the notes
offered hereby (except for the issue date and offering price). Additional notes
issued in this manner will be consolidated with, and form a single series with,
the previously outstanding notes.
Except for certain limitations on liens on stock of Restricted
Subsidiaries, as defined below in "--Limitations on Liens on Stock of Restricted
Subsidiaries," the indenture does not contain any provisions restricting us or
any of our subsidiaries from incurring, assuming or becoming liable with respect
to any indebtedness or other obligations, whether secured or unsecured, or from
paying dividends or making other distributions on capital stock or from
purchasing or redeeming capital stock. The indenture also does not contain any
financial covenants or any covenants or other provisions that afford protection
to holders of notes in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction except to the
extent described under "--Other Terms of the Indenture--Consolidation, Merger
and Sale of Assets" below.
Ranking. The exchange notes will be unsecured senior obligations and
will rank equally with our other unsecured senior indebtedness. As of September
30, 2005, we had outstanding approximately $240.1 million of unsecured
indebtedness, including approximately (1) $115.9 million of senior convertible
notes, (2) $123.4 million of senior notes and (3) $0.8 million of convertible
subordinated debentures. The exchange notes will rank equally with the senior
convertible notes and the senior notes. The exchange notes will be senior to the
convertible subordinated debentures. As of September 30, 2005, we had no secured
indebtedness outstanding.
In addition, we are structured as a holding company, and we conduct
most of our business operations through our subsidiaries. The exchange notes
will be effectively subordinated to all existing and future indebtedness and
other liabilities and commitments of our subsidiaries. As of September 30, 2005,
our subsidiaries had an aggregate of approximately $278.8 million of liabilities
(excluding $2.0 billion of reserves for losses and loss expenses and $808.1
million of unearned premium reserves).
Available Information; No Resales of Notes by Us. We file certain
reports and other information with the SEC in accordance with the requirements
of Sections 13 and 15(d) under the Exchange Act. See "Where You Can Find More
Information." In addition, at any time that Sections 13 and 15(d) cease to apply
to us, we will file comparable reports and information with the trustee and the
SEC, and mail such reports and information to holders of notes at their
registered addresses, for so long as any notes remain outstanding. Except as
otherwise provided in the indenture, during the two-year period following the
issuance of the notes, we will not, and will not permit any of our affiliates
to, resell any notes which constitute "restricted securities" under Rule 144
except pursuant to an effective registration statement under the Securities Act.
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Interest
The exchange notes will accrue interest at the rate of 6.70% per annum
(based on a 360-day year of twelve 30-day months) from the last interest payment
date on which interest was paid on the original note surrendered in exchange
therefor or, if no interest has been paid on such original note, from November
3, 2005; provided, that if an original note is surrendered for exchange on or
after a record date for an interest payment date that will occur on or after the
date of such exchange and as to which interest will be paid, interest on the
exchange note received in exchange therefor will accrue from the date of such
interest payment date. Interest on the exchange notes is payable on May 1 and
November 1 of each year, commencing May 1, 2006. Interest payments on an
interest payment date will be made to the holder in whose name a note is
registered at 5:00 p.m., New York City time, on the April 15 or October 15
immediately preceding the interest payment date, whether or not a business day.
Except as otherwise specified under "--Payments" below, interest payments will
be made by check mailed or delivered to the registered holder at the address
appearing in the security register. The trustee initially will act as paying
agent for the exchange notes. No additional interest will be paid on original
notes tendered and accepted for exchange.
Maturity; Optional Redemption
The exchange notes will mature on November 1, 2035, the stated maturity
date. The exchange notes will not be redeemable, in whole or in part, at our
option or at the option of any noteholder at any time prior to November 1, 2035.
Payments
We will pay interest on each exchange note on each interest payment
date, and the principal of each exchange note on November 1, 2035 against
presentation and surrender of such exchange note by the registered holder
thereof at the office of the paying agent, which initially will be an office or
agency of the trustee, or an office or agency maintained by us for such a
purpose, as the case may be, by wire transfer of immediately available funds, if
appropriate written wire transfer instructions are received by the paying agent
not less than 15 days prior to the stated maturity date. If those instructions
are not so received, the principal will be paid by check against such
presentation and surrender.
If an interest payment date or the stated maturity date falls on a
Saturday, Sunday or other day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close, the
required payment due on such date will instead be made on the next business day.
No additional interest will accrue as a result of such delayed payment.
Prior to presentment of a note for registration of transfer, we, the
trustee and any other agent of ours or the trustee may treat the registered
holder of each note as the owner of the note for the purpose of receiving
payments of principal of and interest on the note and for all other purposes
whatsoever.
All moneys paid by us to the trustee or a paying agent for the payment
of principal of and any interest on the notes that remain unclaimed two years
after that principal, premium or interest becomes due and payable will, unless
otherwise required by mandatory provisions of applicable escheat, abandoned or
unclaimed property law, be repaid to us and the holder of the notes as an
unsecured general creditor may thereafter look only to us for payment.
Limitation on Liens on Stock of Restricted Subsidiaries
The terms of the notes provide that we and our Restricted Subsidiaries
may not incur any indebtedness secured by a lien on the capital stock of a
Restricted Subsidiary unless the notes are secured equally and ratably with that
indebtedness.
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For purposes of this covenant:
"lien" means any mortgage, deed of trust, pledge, lien, security
interest or other encumbrance (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof, any
filing or agreement to give a lien or file a financing statement as a debtor
under the Uniform Commercial Code or any similar statute other than to reflect
ownership by a third party of property under a lease that is not in the nature
of a conditional sale or title retention agreement); and
"Restricted Subsidiary" means any subsidiary that is incorporated under
the laws of any state of the United States or of the District of Columbia except
a subsidiary (a) that has total assets which are less than 20% of our and our
consolidated subsidiaries' total assets (including that subsidiary) on the most
recent fiscal year-end balance sheets of the subsidiary and our and our
consolidated subsidiaries or (b) that, in the judgment of our Board of
Directors, as evidenced by a Board resolution, is not material to our and our
consolidated subsidiaries' financial condition, taken as a whole. As of the date
of this prospectus, Selective Insurance Company of America meets the definition
of Restricted Subsidiary.
Limitation on Disposition of Stock of Restricted Subsidiaries
As long as any notes are outstanding, we will not issue, sell, transfer
or otherwise dispose of any shares of capital stock of any Restricted
Subsidiary, or any securities convertible into or exercisable or exchangeable
for shares of capital stock of any Restricted Subsidiary, or warrants, rights or
options to subscribe for or purchase shares of capital stock of any Restricted
Subsidiary, unless such issuance, sale, transfer or other disposition is for at
least fair value (as determined by our board of directors or a committee thereof
acting in good faith) ("Fair Value") and we will own, directly or indirectly, at
least 80% of the capital stock of such Restricted Subsidiary after giving effect
to that transaction. Furthermore, we will not permit any Restricted Subsidiary
to:
(1) merge or consolidate with or into any corporation or other
person, unless such merger or consolidation is for at least fair value
and (i) such Restricted Subsidiary is the surviving corporation or
person, or (ii) at least 80% of the surviving corporation's issued and
outstanding voting stock is owned, directly or indirectly, by such
Restricted Subsidiary; or
(2) lease, sell, assign or transfer all or substantially all
of its properties and assets to any corporation or other person (other
than to us), unless such lease, sale, assignment or transfer is for at
least fair value and at least 80% of the issued and outstanding voting
stock of that corporation or other person is owned, directly or
indirectly, by such Restricted Subsidiary following such lease, sale or
assignment.
Notwithstanding the foregoing, we may merge or consolidate any of our
other subsidiaries (including our Insurance Subsidiaries) into or with another
of our wholly owned subsidiaries and we may sell, transfer or otherwise dispose
of our business in accordance with the provisions of "--Other Terms of the
Indenture--Consolidation, Merger and Sale of Assets" below. In addition, the
foregoing covenant will not prohibit any issuance or disposition of securities
by any of our other subsidiaries either (1) to us or any Restricted Subsidiary
in accordance with applicable law or (2) if required by law or any regulation or
order of any governmental or insurance regulatory authority.
Form, Denomination and Registration
The exchange notes will be issued in fully registered form in minimum
denominations of $1,000 and integral multiples of $1,000. Except as described
below, the exchange notes will initially be represented by one or more global
notes, in definitive, fully registered form without interest coupons. The global
notes will be deposited with the trustee as custodian for DTC and registered in
the name of Cede & Co. or another nominee as DTC may designate. All interests in
the global notes will be subject to the operations and procedures of DTC, the
Euroclear and Clearstream Banking.
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DTC
DTC has advised us as follows. DTC is:
o a limited-purpose trust company organized under the laws of the State
of New York;
o a member of the Federal Reserve System;
o a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
o a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934.
DTC was created to hold securities for DTC participants and to
facilitate the clearance and settlement of transactions between DTC participants
through electronic book entry changes in accounts of DTC participants, thereby
eliminating the need for physical movement of certificates. DTC participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and may in the future include certain other organizations, (the
"DTC participants"). Indirect access to the DTC system is also available to
other banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a DTC participant, either directly or indirectly,
(the "indirect DTC participants").
Transfers of ownership or other interests in the notes in DTC may be
made only through DTC participants. Indirect DTC participants are required to
effect transfers through a DTC participant. DTC has no knowledge of the actual
beneficial owners of the notes. DTC's records reflect only the identity of the
DTC participants to whose accounts the notes are credited, which may not be the
beneficial owners. DTC participants will remain responsible for keeping account
of their holdings on behalf of their customers and for forwarding all notices
concerning the notes to their customers.
So long as DTC, or its nominee, is a registered owner of the global
note, payments of principal of and interest on the notes will be made in
immediately available funds to DTC. DTC's practice is to credit DTC
participants' accounts on the applicable payment date in accordance with their
respective holdings shown on its records, unless DTC has reason to believe that
it will not receive payment on that date. Payment to DTC is our responsibility.
Disbursement of payments to DTC participants will be DTC's responsibility.
Disbursement of payments to the beneficial owners will be the responsibility of
DTC participants and indirect DTC participants, will be governed by standing
instructions and customary practices as is the case with securities held for the
accounts of customers in bearer form or registered in "street name," and will
not be the responsibility of DTC or any other party, subject to any statutory or
regulatory requirements as may be in effect from time to time. Because DTC can
only act on behalf of DTC participants, who in turn act on behalf of indirect
DTC participants, and because owners of beneficial interests in the notes
holding through DTC will hold interests in the notes through DTC participants or
indirect DTC participants, the ability of the owners of beneficial interests to
pledge notes to persons or entities that do not participate in DTC, or otherwise
take actions with respect to the notes, may be limited.
Ownership of interests in the global notes will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC, the DTC participants and the indirect DTC participants. All interests in a
global note, including those held through Euroclear or Clearstream Banking, may
be subject to the procedures and requirements of DTC. The laws of some
jurisdictions require that certain persons take physical delivery in definitive
form of securities which they own. Consequently, the ability to transfer
beneficial interests in the global note is limited to such extent.
According to DTC, the foregoing information with respect to DTC has
been provided to the industry for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
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Euroclear
Euroclear has advised us as follows: Euroclear was created in 1968 to
hold securities for its participants and to clear and settle transactions
between its participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear provides various other services, including securities lending
and borrowing, and interfaces with domestic markets in several countries.
Euroclear is operated by the Euroclear Operator, under contract with Euroclear
Clearance Systems, S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear participants. Euroclear participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the initial purchaser.
Indirect access to Euroclear is also available to others that clear through or
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly.
The Euroclear Operator was granted a banking license by the Belgian
Banking and Finance Commission in 2000, authorizing it to carry out banking
activities on a global basis. It took over operation of Euroclear from the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York on
December 31, 2000.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System, and applicable Belgian
law, or the Terms and Conditions. The Terms and Conditions govern transfers of
securities and cash within Euroclear, withdrawals of securities and cash from
Euroclear, and receipts of payments with respect to securities in Euroclear. All
securities in Euroclear are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
participants and has no record of or relationship with persons holding through
Euroclear participants.
Distributions with respect to notes held beneficially through Euroclear
will be credited to the cash accounts of Euroclear participants in accordance
with the Terms and Conditions, to the extent received by Euroclear.
Clearstream Banking
Clearstream Banking has advised us as follows: Clearstream Banking is
incorporated under the laws of The Grand Duchy of Luxembourg as a professional
depository. Clearstream Banking holds securities for its participants and
facilitates the clearance and settlement of securities transactions between its
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Clearstream Banking provides to its participants, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream Banking interfaces with domestic markets in several countries. As a
professional depository, Clearstream Banking is subject to regulation by the
Luxembourg Monetary Institute. Clearstream Banking participants are financial
institutions around the world, including securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations and may
include the initial purchaser. Indirect access to Clearstream Banking is also
available to others that clear through or maintain a custodial relationship with
a Clearstream Banking participant either directly or indirectly.
Distributions with respect to notes held beneficially through
Clearstream Banking will be credited to cash accounts of Clearstream Banking
participants in accordance with its rules and procedures, to the extent received
by Clearstream Banking.
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Transfer and Exchange
Transfers between DTC participants will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Clearstream Banking will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Cross-market transfers between DTC participants, on the one hand, and
Euroclear or Clearstream Banking participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream Banking, as the case may be, by its respective depository; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Clearstream Banking, as the case may be, by the counterparty in
such system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of such system. Euroclear or Clearstream
Banking, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depository to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant global notes in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement on its behalf by delivering
or receiving interests in the relevant global notes in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream Banking
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream Banking.
DTC has advised us that it will take any action permitted to be taken
by a holder of the exchange notes only at the direction of one or more
participants to whose account with DTC interests in the exchange notes are
credited.
Although DTC, Euroclear and Clearstream Banking have agreed to the
foregoing procedures to facilitate transfers of interests in the exchange notes
among participants in DTC, Euroclear and Clearstream Banking, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we nor the trustee will have
any responsibility for the performance by DTC, Euroclear or Clearstream Banking
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Other Terms of the Indenture
Exchange of Notes. Notes are exchangeable for other notes of a like
aggregate principal amount and with like terms and conditions of different
authorized denominations. Notes may be presented for exchange or for
registration of transfer at the office of a paying agent designated by us for
that purpose. We may at any time rescind the designation of a paying agent or
approve a change in the location through which any paying agent acts, except
that we are required to maintain a paying agent in each place of payment for the
notes.
Consolidation, Merger and Sale of Assets. Under the indenture, we may
not consolidate with or merge into any other entity or sell, convey, transfer or
lease all or substantially all of our properties and assets as an entirety to
any entity, unless: (1) either (a) we are the continuing corporation or (b) the
entity (if other than us) formed by the consolidation or into which we are
merged or the entity that acquires all or substantially all of our properties
and assets is a corporation, partnership or trust organized and validly existing
under the laws of United States, any State or the District of Columbia, and
expressly assumes, through a supplemental indenture, payment of the principal of
and any premium and interest on all the debt securities and the performance of
all of our covenants applicable to the indebtedness; (2) immediately thereafter,
no event of default, as defined below, (and no event that, after notice or lapse
of time, or both, would become an event of default) has occurred and is
continuing; (3) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, our properties or assets would become subject to
a mortgage, pledge, lien, security interest or other encumbrance which would not
be permitted by the indenture, we or such successor Person, as the case may be,
shall secure the notes equally and ratably
43
with (or prior to) all indebtedness secured thereby; and (4) we have delivered
to the trustee certificates and opinions stating that the foregoing conditions
have been complied with.
In the event of any transaction (other than a lease) described above in
which we are not the continuing corporation, the successor entity formed or
remaining would be substituted for us under the indenture, and we would be
discharged from all obligations and covenants under the indenture and the notes.
Events of Default. The following are events of default under the
indenture with respect to the notes: (1) default in the payment of any interest
on any note for 30 days after becoming due; (2) default in the payment of the
principal of any note when due; (3) default in the performance of, or breach of,
any covenant or warranty applicable to the notes for 60 days after written
notice of the failure, requiring us to remedy the same, is given to us by the
trustee or to us and the trustee by the holders of 25% in aggregate principal
amount of outstanding notes; (4) default under any bond, debenture, note or
other evidence of indebtedness or any mortgages, indentures or instruments under
which we then have outstanding indebtedness in an aggregate amount of $10
million or more that has not already matured in accordance with its terms, has
become due after the expiration of any applicable grace period or has been
accelerated and the acceleration has not been rescinded or annulled or the
indebtedness has not been discharged within ten days after notice is given to us
by the trustee or to us and the trustee by the holders of at least 25% in
aggregate principal amount of the outstanding notes; or (5) certain events of
bankruptcy, insolvency or reorganization with respect to us occur.
If an event of default occurs and is continuing with respect to a
series of debt securities, either the trustee or the holders of at least 25% in
principal amount of the outstanding notes may declare the entire principal
amount of all the notes to be immediately due and payable.
We are required to furnish the trustee annually a statement by certain
of our officers to the effect that, to the best of their knowledge, we are not
in default of any of our obligations under the indenture or, if there has been a
default, specifying each default.
The trustee must, within 90 days after a default, give the holders of
the notes notice of the default (the term default to mean the events specified
above without grace periods). However, except in the case of a default in the
payment of principal, premium or interest, the trustee may withhold notice if it
in good faith determines that withholding the notice is in the interest of the
holders of the notes.
The holders of a majority in outstanding principal amount of the notes
have the right, subject to certain limitations, to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee, and to waive certain
defaults. The indenture provides that if an event of default occurs and is
continuing, the trustee must exercise such of its rights and powers under the
indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs. Subject to those provisions, the trustee will be under
no obligation to exercise any of its rights or powers under the indenture at the
request of any of the holders of the notes unless (i) they have offered to the
trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with the request and
(ii) the trustee in good faith reasonably determines that such exercise would
involve the trustee in personal liability for which the security and all other
remedies available to the trustee are not sufficient.
Satisfaction and Discharge. The indenture provides that we generally
will be discharged from our obligations under the notes if we deliver to the
trustee for cancellation all outstanding notes or if, within one year prior to
or following the notes having become due or payable, (1) we deposit with the
trustee, in trust, sufficient funds to pay the principal of, premium, if any,
and any interest to stated maturity on the notes, (2) we pay all other sums
payable with respect to the notes and (3) certain other conditions are met. Upon
discharge, the holders of the notes are no longer entitled to the benefits of
the indenture, except for certain rights, including registration of transfer and
exchange of the notes and replacement of mutilated, destroyed, lost or stolen
debt securities, and may look only to the deposited funds.
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Such a discharge may be treated as a taxable exchange of the debt
securities for an issue of obligations of the trust or a direct interest in the
cash and securities held in the trust. In that case, holders of the debt
securities would recognize gain or loss as if the trust obligations, or the cash
or securities deposited, had actually been received by them in exchange for
their debt securities and might be required to include in income a different
amount than would be includable in the absence of discharge. Prospective
investors are urged to consult their own tax advisors as to the specific
consequences of discharge.
Full Defeasance. If there is a change in U.S. federal tax law, as
described below, we can legally release ourselves from all payment and other
obligations on the notes. This is called full defeasance. To do so, each of the
following must occur:
o We must deposit in trust for the benefit of all holders of the notes a
combination of money and U.S. Government or U.S. Government agency
notes or bonds that will, in the opinion of a nationally recognized
accounting firm, generate enough cash to make interest, principal and
any other payments on the notes we are offering on their various due
dates.
o There must be a change in current U.S. federal tax law or an Internal
Revenue Service ruling that lets us make the above deposit without
causing you to be taxed on your notes any differently as compared to if
we did not make the deposit and just continued to repay the notes
ourselves. Under current federal tax law, the deposit and our legal
release from the notes would be treated as though we took back your
notes and gave you your share of the cash and notes or bonds deposited
in trust. In that event, you could recognize gain or loss on your
notes.
We must deliver to the trustee a legal opinion of our counsel
confirming the tax law change described above. If we ever did accomplish full
defeasance, you would have to rely solely on the trust deposit for payments on
your notes. You could not look to us for payment in the event of any shortfall.
Covenant Defeasance. Under current U.S. federal tax law, we can make
the same type of deposit described above under "--Full Defeasance" and be
released from certain restrictive covenants relating to the notes. This is
called covenant defeasance. In that event, you would lose the protection of
those restrictive covenants. In order to achieve covenant defeasance, we must do
both of the following:
o We must deposit in trust for the benefit of the holders of the notes a
combination of money and U.S. Government or U.S. Government agency
notes or bonds that will, in the opinion of a nationally recognized
accounting firm, generate enough cash to make interest, principal and
any other anticipated payments on the notes we are offering on their
various due dates.
o We must deliver to the trustee a legal opinion of our counsel
confirming that under current U.S. federal income tax law we may make
the above deposit without causing you to be taxed on your notes any
differently than if we did not make the deposit and just continued to
repay the notes ourselves.
If we accomplish covenant defeasance with regard to your note, the
following provisions of the indenture and the notes would no longer apply: the
covenants described under "Limitation on Liens on Stock of Restricted
Subsidiaries" and "Limitation on Disposition of Stock of Restricted
Subsidiaries", the conditions described in clause (3) of "--Consolidation,
Merger and Sales of Assets", covenants to maintain our properties and pay all
taxes and claims for labor, material and supplies and our covenant to provide
information to holders and prospective purchasers of the notes to permit
compliance with Rule 144A in connection with resales of the notes.
If we accomplish covenant defeasance, you can still look to us for
repayment of your notes in the event of any shortfall in the trust deposit. You
should note, however, that if one of the remaining events of default occurred,
such as our bankruptcy or insolvency, and your notes became immediately due and
payable, there may be a shortfall. Depending on the event causing the default,
you may not be able to obtain payment of the shortfall.
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Our obligations under the indenture and the notes, other than our
obligations under the covenants defeased, will remain in full force and effect.
This provision is in addition to the provisions for satisfaction and discharge
described above.
Modification and Waiver. Certain modifications and amendments of the
indenture (which, generally, either benefit or do not affect the holders of
outstanding debt securities) may be made by us and the trustee without the
consent of holders of the notes. Other modifications and amendments of the
indenture require the consent of the holders of more than a majority in
principal amount of the outstanding notes. However, no modification or amendment
may, without the consent of the holder of each affected outstanding note, (1)
change the stated maturity of the principal of, or any installment of principal
of or interest on, the note, (2) reduce the principal amount of or any interest
on the note, (3) change the place of payment, (4) impair the right to institute
suit for the enforcement of any payment on or with respect to the notes on or
after its stated maturity or (5) reduce the percentage in principal amount of
outstanding debt securities of any series, the consent of the holders of which
is required for modification or amendment of the indenture or for waiver of
compliance with certain provisions of such indenture or for waiver of certain
defaults.
The holders of not less than a majority in principal amount of the
outstanding notes may on behalf of the holders of all the notes waive compliance
by us with certain restrictive provisions of the indenture. The holders of not
less than a majority in principal amount of the outstanding notes may on behalf
of the holders of all the notes waive any past default under the indenture,
except a default in the payment of the principal of or interest, if any, on any
note or in respect of a provision which under the indenture cannot be modified
or amended without the consent of the holder of each affected outstanding note.
Notices. Notices to holders of the notes are given by mail to the
addresses of such holders as they appear in the debt security register.
Governing Law. The indenture and the notes are to be governed by and
construed in accordance with the laws of the State of New York.
The Trustee. The trustee is Wachovia Bank, National Association. We
have other commercial dealings in the ordinary course of business with Wachovia
Bank, National Association, and its affiliates.
Registration Rights
The following description is a summary of the material provisions of
the registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the registration rights agreement in its entirety
because it, and not this description, defines the registration rights of holders
of the original notes. A copy of the registration rights agreement is included
as an exhibit of which this prospectus forms a part.
We entered into a registration rights agreement with the initial
purchaser pursuant to which we agreed, for the benefit of the holders of
original notes, at our expense, to (1) no later than March 3, 2006, prepare and
file a registration statement with the SEC with respect to a registered offer to
exchange the notes for exchange notes that will be issued in the same aggregate
principal amount as and with terms that will be substantially identical in all
material respects to the original notes (except that the exchange notes will not
contain terms with respect to the transfer restrictions) and (2) use our
reasonable best efforts to cause the exchange offer registration statement to be
declared effective under the Securities Act no later than May 2, 2006. Promptly
after the exchange offer registration statement being declared effective, we
will offer the exchange notes in exchange for surrender of the original notes.
If we commence the exchange offer, we will be entitled to consummate the
exchange offer 30 days after such commencement (provided that we have accepted
all the original notes theretofore validly tendered in accordance with the terms
of the exchange offer), unless applicable law requires us to keep the offer open
longer. For each original note tendered to us pursuant to the exchange offer and
not validly withdrawn by
46
the holder thereof, the holder of such note will receive an exchange note having
a principal amount equal to the principal amount of such surrendered note.
Based on existing interpretations of the Securities Act by the staff of
the SEC set forth in several no-action letters to third parties, and subject to
the immediately following sentence, we believe that the exchange notes that will
be issued pursuant to the exchange offer may be offered for resale, resold and
otherwise transferred by the holders thereof without further compliance with the
registration and prospectus delivery provisions of the Securities Act except for
certain broker-dealers or affiliates of ours. See "The Exchange
Offer--Procedures for Tendering."
Each holder (other than certain specified holders) who wishes to
exchange its notes for exchange notes in the exchange offer will be required to
make certain representations to us. See "The Exchange Offer-- Procedures for
Tendering." In addition, in connection with any resales of exchange notes, any
broker or dealer who acquired notes for its own account as a result of
market-making activities or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act. The SEC has taken the position
that such broker or dealer may fulfill its prospectus delivery requirements with
respect to the exchange notes (other than a resale of an unsold allotment from
the original sale of the notes) with the prospectus contained in the exchange
offer registration statement. Under the registration rights agreement, we are
required to allow a broker or dealer and other persons, if any, with similar
prospectus delivery requirements to use the prospectus contained in the exchange
offer registration statement in connection with the resale of such exchange
notes for a period of time following the issuance of the exchange notes.
If (1) because of any change in law or in applicable interpretations
thereof by the staff of the SEC, we are not permitted to effect the exchange
offer, (2) the exchange offer is not consummated by May 2, 2006, (3) the
exchange offer is not consummated within 45 days after the date on which the
exchange offer registration statement is declared effective, (4) an initial
purchaser so requests with respect to notes not eligible to be exchanged for
exchange notes in the exchange offer and held by it following consummation of
the exchange offer or (5) any holder (other than a broker or dealer who acquired
the original notes for its own account as a result of trading or market-making
activities) who is not eligible to participate in the exchange offer or, in the
case of any holder (other than a broker or dealer who acquired the original
notes for its own account as a result of trading or market-making activities)
that participates in the exchange offer, such holder does not receive freely
tradeable exchange notes on the date of the exchange and any such holder so
requests for any reason other than the failure by such holder to make a timely
and valid tender in accordance with the exchange offer, we will be required to:
(a) prepare and file with the SEC a shelf registration statement relating to the
offer and sale of the notes or the exchange notes, as the case may be, as
promptly as practicable (but no later than, in the case of clause (1) above,
March 3, 2006 or, in the case of clause (2), (3), (4) or (5) above, 60 days
after the filing obligation arises), and thereafter use our reasonable best
efforts to cause such shelf registration statement to be declared effective as
promptly as practicable (but no later than, in the case of clause (1) above, May
2, 2006 or, in the case of clause (2), (3), (4) or (5) above, 90 days after such
filing obligation arises); and (b) use our reasonable best efforts to keep the
shelf registration statement continuously effective for a period of two years
from the closing date or such shorter period that will terminate when all the
notes covered by the shelf registration statement have been sold pursuant
thereto or are no longer restricted securities (as defined in Rule 144). We
will, in the event of the filing of the shelf registration statement, provide to
each holder covered by the shelf registration statement copies of the prospectus
that is a part of the shelf registration statement, notify each such holder when
the shelf registration statement has become effective, and take certain other
actions as are required to permit unrestricted resales of notes or the exchange
notes, as the case may be. A holder that sells such notes or the exchange notes,
as the case may be, pursuant to the shelf registration statement generally will
be required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to the purchaser, will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
sales and will be bound by the provisions of the registration rights agreement
that are applicable to such holder (including certain indemnification
obligations). In addition, each holder of the notes or the exchange notes to be
registered under the shelf registration statement will be required to deliver
information to be used in connection with the shelf registration statement.
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If (1) the exchange offer registration statement is not filed with the
SEC as described above, (2) the exchange offer registration statement is not
declared effective by May 2, 2006, (3) the exchange offer is not consummated
within 45 days after the exchange offer registration statement is declared
effective, (4) if required, the shelf registration statement is not filed within
60 days after the filing obligation arises, (5) if required, the shelf
registration statement is not declared effective within 90 days after the filing
obligation arises, or (6) after either the exchange offer registration statement
or the shelf registration statement is declared effective, such registration
statement or the related prospectus thereafter ceases to be effective or usable
(subject to certain exceptions) in connection with resales of notes or exchange
notes for the periods specified and in accordance with the registration rights
agreement (each such event referred to in clauses (1) through (6), a
registration default, additional interest will accrue on the notes subject to
such registration default at a rate per year equal to 0.25% for the first 90-day
period after such registration default occurs (from and including the date on
which any such registration default occurs to but excluding the date on which
all such registration defaults have ceased to be continuing) and 0.50%
thereafter of the applicable principal amount of the notes. In each case, such
additional interest is payable in addition to any other interest payable from
time to time with respect to the notes and the exchange notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
under the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of those notes. This prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer for resales of
exchange notes received in exchange for original notes that had been acquired as
a result of market-making or other trading activities. We have agreed that, for
a period of 180 days after the expiration date of the exchange offer, we will
make this prospectus, as it may be amended or supplemented, available to any
broker-dealer for use in connection with any such resale. Any broker-dealers
required to use this prospectus and any amendments or supplements to this
prospectus for resales of the exchange notes must notify us of this fact by
checking the box on the letter of transmittal requesting additional copies of
these documents.
Notwithstanding the foregoing, we are entitled under the registration
rights agreement to suspend the use of this prospectus by broker-dealers under
specified circumstances. For example, we may suspend the use of this prospectus
if:
o the SEC or any state securities authority requests an amendment or
supplement to this prospectus or the related registration statement or
additional information;
o the SEC or any state securities authority issues any stop order
suspending the effectiveness of the registration statement or initiates
proceedings for that purpose;
o we receive notification of the suspension of the qualification of the
new notes for sale in any jurisdiction or the initiation or threatening
of any proceeding for that purpose;
o the suspension is required by law; or
o an event occurs which makes any statement in this prospectus untrue in
any material respect or which constitutes an omission to state a
material fact in this prospectus.
If we suspend the use of this prospectus, the 180-day period referred
to above will be extended by a number of days equal to the period of the
suspension.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
under the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on those notes or a combination of those methods, at
market prices prevailing at the time of resale, at prices related to prevailing
market prices or at negotiated prices. Any resales may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from the selling broker-dealer or the
purchasers of the new notes. Any broker-dealer that resells exchange notes
received by it for its own account under the exchange offer and any broker or
dealer that participates in a distribution of the exchange notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any resale of exchange notes and any commissions or concessions received by
these persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
We will not receive any proceeds from the issuance of exchange notes in
the exchange offer. We have agreed to pay all expenses incidental to the
exchange offer other than commissions and concessions of any broker or dealer
and certain transfer taxes and will indemnify holders of the notes, including
any broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, will pass
upon the validity of the notes offered hereby.
EXPERTS
The consolidated financial statements and schedules of Selective
Insurance Group, Inc. and subsidiaries as of December 31, 2004 and 2003, and for
each of the years in the three-year period ended December 31, 2004, and
management's assessment of the effectiveness of internal control over financial
reporting as of December 31, 2004 have been incorporated by reference in the
registration statement (No. 333-129927) on Form S-4 in reliance upon the reports
of KPMG LLP, an independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy materials that we file
with the SEC at the SEC public reference room located at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available to the public on the SEC's Internet Web site at http://www.sec.gov.
We are "incorporating by reference" into this prospectus certain
information that we file with the SEC, which means that we are disclosing
important information to you by referring you to those documents. The
information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information contained directly in this
prospectus. This prospectus incorporates by reference the documents set forth
below that we have previously filed with the SEC. These documents contain
important information about us and our finances. The documents are:
o Our annual report on Form 10-K for the year ended December 31, 2004;
and
o Our quarterly reports on Form 10-Q for the periods ending March 31,
2005, June 30, 2005 and September 30, 2005; and
o Our definitive proxy statement relating to our 2005 annual meeting of
stockholders; and
o Our current reports on Form 8-K dated May 20, 2005, October 31, 2005
and November 9, 2005.
All documents that we file with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act from the date of this
prospectus to the end of the offering under this prospectus shall also be deemed
to be incorporated herein by reference and will automatically update information
included in or previously incorporated by reference in this prospectus.
You may request a copy of these filings, at no cost, by writing or
calling us at the following address or telephone number:
Corporate Secretary
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
(973) 948-3000
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Exhibits to the filings, however, will not be sent unless those
exhibits have specifically been incorporated by reference in that filing.
Information contained on our Web site is not intended to be
incorporated by reference in this prospectus and you should not consider that
information a part of this prospectus.
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[SELECTIVE GRAPHIC OMITTED]
Selective Insurance Group, Inc.
Offer to Exchange
Any and All Outstanding 6.70% Senior Notes due 2035
Issued on November 3, 2005
for
6.70% Senior Notes due 2035
That Have Been Registered under the Securities Act of 1933
-----------------------------
PROSPECTUS
-----------------------------
December 2, 2005
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