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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

For the transition period from                                     to                        

Commission file number:  0-8641

SELECTIVE INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)

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

Yes [X]         No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes [X]         No [  ]

As of March 31, 2005, there were 28,361,962 shares of common stock, par value $2 per share, outstanding.

See accompanying notes to unaudited interim consolidated financial statements.

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See accompanying notes to unaudited interim consolidated financial statements.

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

See accompanying notes to unaudited interim consolidated financial statements.

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See accompanying notes to unaudited interim consolidated financial statements.

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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.            Basis of Presentation
Selective Insurance Group, Inc., (Selective) offers property and casualty insurance products and diversified insurance services and products through its various subsidiaries. Selective was incorporated in New Jersey in 1977 and its main offices are located in Branchville, New Jersey. Its common stock is publicly traded on the NASDAQ National Market® under the symbol, "SIGI." Selective classifies its business into three operating segments:

• Insurance Operations, which write commercial lines and personal lines property and casualty insurance through independent insurance agents, mainly in 20 states in the Eastern region of the United States;

• Investments; and

• Diversified Insurance Services, which provide managed care services, human resource administration outsourcing products and services, and federal flood insurance administrative services.

2.            Basis of Presentation
These interim consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting.  Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements.  However, they reflect all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the interim periods presented.  These interim consolidated financial statements cover the first quarters ended March 31, 2005 (First Quarter 2005) and March 31, 2004 (First Quarter 2004).  The results of operations for any interim period are not necessarily indicative of results for a full year.  Consequently, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in Selective's Annual Report on Form 10-K for the year ended December 31, 2004.

3.            Reclassifications
Certain amounts in Selective's prior year interim consolidated financial statements and related footnotes have been reclassified to conform to the 2005 presentation.  Such reclassification had no effect on Selective's net income or stockholders' equity.

4.            Adoption of Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" (FAS 123R), which requires public companies to measure compensation expense on the income statement for all share-based payments (including employee stock options) at the grant date fair value of the equity instruments. Implementation is required for fiscal years beginning after June 15, 2005, however, Selective adopted FAS 123R as of January 1, 2005. See Note 6 for further information regarding the adoption of FAS 123R.

5.            Reinsurance
Selective's consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the acceptance of certain insurance risks that other insurance entities have underwritten. Ceded reinsurance involves transferring certain insurance risks (along with the related written and earned premiums) Selective has underwritten to other insurance companies who agree to share these risks. The primary purpose of ceded reinsurance is to protect Selective from potential losses in excess of the amount it is prepared to accept.

A trust fund in the amount of $30.4 million as of March 31, 2005 and $29.3 million as of December 31, 2004, securing a portion of the liabilities ceded to American Re-Insurance Company, is held for the benefit of Selective. Amounts ceded to American Re-Insurance Company, exceeding the available trust fund, represent 14% or $32.6 million as of March 31, 2005 and 13% or $32.9 million as of December 31, 2004 of Selective's consolidated prepaid reinsurance premiums and loss recoverable balances not secured by trust funds, letters of credit, or funds withheld (collateral). In addition, about 55% of Selective's consolidated prepaid reinsurance premiums and net reinsurance recoverable balances not secured by collateral are ceded to two states or federally sponsored pools. Selective ceded $67.7 million in incurred losses through March 31, 2005 and $69.2 million in incurred losses through December 31, 2004 to the New Jersey Unsatisfied Claim Judgment Fund. Selective also ceded $60.5 million in incurred losses through March 31, 2005 and $78.9 million in incurred losses through December 31, 2004 to the National Flood Insurance Program.

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Selective's insurance subsidiaries are contingently liable to the extent that any reinsurer becomes unable to meet its contractual obligations.  Selective evaluates and monitors the financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its exposure to significant losses from reinsurer insolvencies. On an ongoing basis, Selective reviews amounts outstanding, length of collection period, changes in reinsurance credit standing, and other relevant factors to determine collectibility of reinsurance recoverables.  Under Selective's reinsurance arrangements, which are all prospective in nature, reinsurance premiums ceded are recorded as prepaid reinsurance and amortized over the remaining contract period in proportion to the reinsurance protection provided, or recorded periodically, as per terms of the contract, in a direct relationship to the gross premium recording. Reinsurance recoveries are recognized as gross losses are incurred. The following table is a listing of direct, assumed, and ceded amounts by income statement caption.

Flood business, which we cede 100% to the federal government's National Flood Insurance Program (NFIP), is included in the above amounts as follows:

Ceded premiums increased primarily due to an increase in our flood business.

6.            Share-Based Payments
Selective has several share-based compensation plans. Historically, Selective has used the accounting method prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees," (APB 25) as was permitted by FASB Statement No. 123 "Accounting for Stock Based Compensation" (FAS 123), to account for its share-based compensation plans.  Effective January 1, 2005, Selective early-adopted the FASB Statement of Financial Accounting Standards No. 123 (Revised 2004), "Share-Based Payments" (FAS 123R), which replaces FAS 123 and supercedes APB 25 using the modified prospective application provisions. FAS 123R applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments.  FAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements.

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The following is a pro forma application of FAS 123 for the quarter ended March 31, 2004. The Consolidated Statements of Income were originally prepared in accordance with APB 25.

In determining the expense to be recorded for stock options within Selective's various plans, the fair value of each option award is estimated on the date of grant using the Black Scholes option valuation model. The significant assumptions utilized in applying the Black Scholes option valuation model are the risk-free interest rate, expected term, dividend yield, and expected volatility. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model. The expected term of an option award is based on historical experience of similar awards. The dividend yield is determined by dividing the expected per share dividend during the coming year by the grant date stock price. The expected volatility is based on the volatility of Selective's stock price over a historical period comparable to the expected term. The weighted average assumptions used by Selective in applying the Black Scholes valuation model are illustrated in the following table:

The expense to be recorded for restricted stock awards and stock compensation for nonemployee directors described below is determined utilizing the number of awards granted and the grant date market value.

Under FAS 123R the compensation expense for the various share-based compensation plans that has been charged against income before cumulative effect of change in accounting principle before tax was $2.2 million in First Quarter 2005 with a corresponding income tax benefit of $0.7 million.  In accordance with APB 25, Selective had compensation expense that was charged against income before tax of $1.8 million with a corresponding income tax benefit of $0.6 million for First Quarter 2004.

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During the vesting period, dividends are earned and held in escrow on the restricted shares subject to the same vesting period and conditions as set forth in the award agreement. Effective September 3, 1996, dividends earned on the restricted shares are reinvested in Selective's common stock at fair value. Selective issued through the dividend reinvestment feature (net of forfeitures), restricted shares of 877 in First Quarter 2005 and 1,805 in First Quarter 2004, from the dividend reinvestment plan reserves.

Stock Option Plan III
In May 2002, the stockholders approved Selective's Stock Option Plan III, which has 1,035,669 shares of Selective's common stock available for issuance at March 31, 2005.  The plan permits the granting of qualified and nonqualified stock options with or without stock appreciation rights (SARs), and restricted or unrestricted stock at not less than fair value on the date of the grant and may be subject to certain vesting periods and performance requirements as determined by the SEBC in its sole discretion.  Each option grant must be exercised within ten years from the date of the grant.  Under this plan, Selective granted options for 105,663 shares in First Quarter 2005 and 104,600 shares in First Quarter 2004.

Selective also granted total restricted shares of 312,876 in First Quarter 2005 and 314,984 for First Quarter 2004 and experienced forfeitures of 1,670 shares for First Quarter 2005 and 13,137 shares for First Quarter 2004.    Dividends earned on the restricted shares are reinvested in Selective's common stock at fair value.  Selective issued through the dividend reinvestment feature (net of forfeitures) 3,639 restricted shares in First Quarter 2005 and 2,364 restricted shares in First Quarter 2004, from the dividend reinvestment plan reserves.

Employee Stock Purchase Plan
Under Selective's Employee Stock Purchase Plan, there are 268,282 shares of common stock available for purchase. This plan is available to all employees who meet the eligibility requirements and provides for the issuance of options to purchase shares of common stock. The purchase price is the lower of: (i) 85% of the closing market price at the time the option is granted or (ii) 85% of the closing price at the time the option is exercised. Selective did not issue shares to employees in First Quarter 2005 or First Quarter 2004. Shares are generally issued on June 30 and December 31 of each year.

Stock Option Plan for Directors
Under Selective's Stock Option Plan for Directors, 631,000 shares of Selective's common stock are available for issuance. Each director who is not a full-time employee of Selective participates in the plan and automatically receives a nonqualified option to purchase 3,000 shares of common stock at not less than fair value on March 1 of each year. Each option becomes exercisable one year after the option was granted and expires no more than ten years from the date the option is granted. Under this plan, Selective granted 33,000 options in First Quarter 2005 and 30,000 options in First Quarter 2004.

Stock Compensation Plan for Nonemployee Directors
In May 1996, the stockholders approved the Stock Compensation Plan for Nonemployee directors, effective January 1, 1997. The purpose of this plan is to provide for the payment of the annual compensation for the directors' services in shares of Selective's common stock. The amount of common shares available for issuance under the plan is 322,794. Selective issued 1,082 shares during First Quarter 2005 and 1,342 shares during First Quarter 2004. The plan was amended, effective January 1, 2001, to permit the directors to elect to receive up to 50% of their compensation under the plan in cash for each calendar year. Each non-employee director must elect on or before December 20th of each year how compensation for the following year will be paid.

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A summary of the option transactions under Selective's stock option plans is as follows:

The total intrinsic value of options exercised was $3.2 million during the First Quarter 2005 and $2.9 million during the First Quarter 2004.

A summary of the restricted stock transactions under Selective's stock option plans is as follows:

As of March 31, 2005, there was $22.5 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under Selective's stock plans.  That cost is expected to be recognized over a weighted-average period of 2.4 years. The total fair value of restricted stock shares vested during the period was $8.6 million for the First Quarter 2005 and $4.6 million for the First Quarter 2004. In connection with the restricted stock vesting, the total fair value of the dividend reinvestment plan shares that also vested during the period was $0.8 million in First Quarter 2005 and $0.5 million in First Quarter 2004.

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7.            Segment Information
Selective has classified its operations into three segments, the disaggregated results of which are reported to and used by Selective's senior management to manage Selective:

• Insurance Operations (commercial lines and personal lines), which are evaluated based on GAAP underwriting results (net premiums earned, incurred losses and loss expenses, policyholders dividends, policy acquisition costs and other underwriting expenses) and statutory combined ratios;

• Investments, which are evaluated based on after-tax net investment income and net realized gains and losses; and

• Diversified Insurance Services (flood insurance, human resource administration outsourcing and managed care), which, because they are not dependent on insurance underwriting cycles, are evaluated based on several measures including, but not limited to, results of operations in accordance with GAAP.

Selective does not aggregate any of its operating segments.

The Insurance Operations and Diversified Insurance Services segments share either complementary (common marketing or distribution system) or vertical (one business uses another's products or services in its own product or supply output) services.  Selective's commercial and personal lines property and casualty insurance products, flood insurance, and HR administration outsourcing products are sold through appointed independent insurance agents.  Selective's managed care business provides services to its property and casualty insurance claims operations and to other insurance carriers.  Selective and its subsidiaries also provide services to each other in the normal course of business.  These transactions totaled $6.8 million in First Quarter 2005 and $6.4 million in First Quarter 2004. These transactions were eliminated in all consolidated statements.

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In computing the results of each segment, no adjustment is made for interest expense, net general corporate expenses or federal income taxes. Selective does not maintain separate investment portfolios for the segments and, therefore, does not allocate assets to the segments.  The following summaries present revenues (net investment income and net realized gains on investments in the case of the Investments segment) and pre-tax income for the individual segments:

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8.            Retirement Plans

Selective disclosed in Note 15 of Item 8. "Financial Statements and Supplementary Data" of its Annual Report on Form 10-K for the year ended December 31, 2004, that it expected to contribute $8.0 million to the retirement income plan in 2005. As of March 31, 2005, $8.0 million was contributed. Selective does not anticipate making any further contributions to the retirement income plan during 2005.

9.            Commitments and Contingencies
Included in Other investments is approximately $45.5 million of investments in limited partnerships as of March 31, 2005, and $44.1 million as of December 31, 2004. At March 31, 2005, Selective has an additional limited partnership investment commitment of up to $44.2 million; but there is no certainty that any such additional investment will be required.

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11.          Subsequent Event
The Omnibus Stock Plan (Stock Plan) and the Cash Incentive Plan were adopted and approved by the Board of Directors effective as of April 1, 2005, which were subsequently approved by stockholders' on April 27, 2005. Under the Stock Plan, the Salary and Employee Benefits Committee (SEBC) may grant stock options, stock appreciation rights, restricted stock, phantom stock, stock bonuses, and other awards in such amounts and with such terms and conditions as the SEBC shall determine, subject to the provisions of the Plan.  Each award granted under the Plan (except unconditional stock bonuses and the cash component of Director compensation) shall be evidenced by an agreement, which shall contain such provisions as the SEBC may in its sole discretion deem necessary or desirable and which are not in conflict with the terms of the Plan.  With the adoption and approval of this Plan, no further grants shall be made under the Selective Stock Option Plan III, the Stock Option Plan for Directors, or the Stock Compensation Plan for Nonemployee Directors, as amended (Prior Plans).  Awards outstanding under each of these Prior Plans as of the date of such stockholder approval shall continue in effect according to the terms of the applicable Prior Plans and any applicable agreements evidencing such Prior Plan Awards.

Effective April 26, 2005, the Board of Directors approved a new stock repurchase plan of 5.0 million shares over the next two years, and cancelled the existing stock repurchase program which had 2.4 million shares remaining and was scheduled to expire on November 30, 2005.

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FORWARD-LOOKING STATEMENTS

In this Quarterly Report on Form 10-Q, Selective and its management discuss and make statements regarding their intentions, beliefs, current expectations, and projections regarding Selective's future operations and performance. Such statements are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are often identified by words such as "anticipates," "believes," "expects," "will," "should" and "intends" and their negatives. Selective and its management caution prospective investors that such forward-looking statements are not guarantees of future performance.  Risks and uncertainties are inherent in Selective's future performance. Factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, those discussed under "Risk Factors" in "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations" in Selective's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (Annual Report).  Those portions of the Annual Report are incorporated by reference into this report.  Selective and its management 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 that 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:

• the frequency and severity of catastrophic events, including, but not limited to, hurricanes, tornadoes, windstorms, earthquakes, hail, severe winter weather, fires, explosions and terrorism;

• adverse economic, market, regulatory, legal or judicial conditions;

• the concentration of our business in a number of east coast and midwestern states;

• the adequacy of our loss reserves;

• the adequacy of our loss expense reserves;

• the cost and availability of reinsurance;

• our ability to collect on reinsurance and the solvency of our reinsurers;

• uncertainties related to insurance premium rate increases and business retention;

• 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;

• our ability to maintain favorable ratings from A.M. Best, Standard & Poor's, Moody's and Fitch;

• fluctuations in interest rates and the performance of the financial markets;

• our entry into new markets and businesses; and

• other risks and uncertainties we identify in this report and other filings with the Securities and Exchange Commission.

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

Introduction
The purpose of the Management's Discussion and Analysis is to provide an understanding of Selective Insurance Group, Inc and subsidiaries' (Collectively, Selective or the Company) consolidated results of operations and financial position.  It begins with an overview of the Company and its First Quarter 2005 results and full year 2005 outlook. This overview is then followed by a more detailed discussion of Selective's results of operations.  This discussion should be read in conjunction with Selective's consolidated financial statements on Form 10-K of our Annual Report for the year-ended December 31, 2004 and Item 1. Financial Statements on this Form 10-Q.

Executive Summary
Selective operates through its three business segments: (i) Insurance Operations (ii) Diversified Insurance Services, and (iii) Investments.  Selective's Insurance Operations segment sells its property and casualty insurance products and services through six insurance subsidiaries.  The insurance subsidiaries were the nation's 54^th largest property and casualty group based on the combined statutory net premiums written, or premiums for all sold policies, of its insurance subsidiaries in A.M. Best's 2003 list of "Top Property/Casualty Writers." The Insurance Operations segment markets its property and casualty insurance products through a select group of approximately 750 independent insurance agencies in 20 states in the Eastern region of the United States.  The Insurance Operations segment is built on a foundation of personal relationships with these local independent insurance agents.  These agents have an informed, front line perspective that benefits policyholders as well as the insurance subsidiaries, helping to create profitability and value for stockholders.  The insurance subsidiaries' primary strategy is to continue to build relationships with well-established, independent insurance agents and carefully monitor each agent's profitability, financial stability, staff, and mix of business against plans that the insurance subsidiaries develop annually with the agent. The insurance subsidiaries have 74 field underwriters, known as agency management specialists (AMS), which live in the geographic vicinity of their appointed independent agents. This enables the AMSs to provide prompt and personalized service, gain firsthand knowledge of the underwriting risks, and are fully authorized decision makers.  The insurance subsidiaries are also differentiated by their commitment to providing exceptional claims service to their policyholders.  The insurance subsidiaries employ approximately 130 field claims adjusters, known as claim management specialists (CMS).  Like AMSs, CMSs live in the geographic vicinity of the appointed independent agents enabling them to conduct on-site inspections of losses, obtain better knowledge about potential exposures, and settle claims faster and more accurately, with higher levels of customer satisfaction.

The Company's overall financial strength also provides a competitive advantage in the marketplace, and directly impacts where agents place their business.  Only 7% of commercial lines companies have "A+" or higher ratings from A.M. Best, and we have been rated  "A+" for 43 consecutive years. This is an important factor as the property and casualty insurance market becomes increasingly more competitive.  Pricing in the Property and Casualty industry is cyclical.  From 2000 through 2004, commercial renewal pricing was increasing, resulting in improved earnings.  In 2004, the rate of increase had significantly diminished and actually declined in some segments of the market. This trend continued during First Quarter 2005 as Selective's commercial renewal pricing increased 6% including exposure and only 2% excluding exposure. Although pricing pressure is an indication of higher levels of competition in the marketplace as companies try to increase market share, industry fundamentals are conducive to sound pricing.  Those fundamentals include the following: (i) a low interest rate environment, (ii) increasing loss cost trends (iii) higher reinsurance costs than historic levels, (iv) rating agency pressures to maintain operating returns, and (v) greater information availability and transparency in the industry.  A GAAP combined ratio of approximately 95% for Selective, equates to a return on average equity of approximately 15%.  As the pricing environment and industry fundamentals continue to change, Selective must continually balance the competitive pressures to reduce prices with preservation of the franchise and providing returns to stockholders.  Ultimately we strive to outperform the industry regardless of the market conditions.

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Selective's Investment segment is designed to preserve capital and generate earnings through the investment of cash flows from the Insurance and Diversified Insurance Services segments.  The Investment segment's philosophy is to maximize after-tax returns over extended periods of time while providing liquidity and preserving assets and stockholders' equity.  Selective's investment portfolio consists primarily of fixed maturity investments, but it also holds short-term investments, equity securities, and other investments.  Selective believes that a prudent level of investment in equity securities and other non-market correlated investments within the portfolio are likely to enhance after-tax returns without significantly increasing the risk profile of the portfolio when considered over long periods of time, and balanced with leverage and insurance risk considerations.

In order to address ongoing changes in the Property and Casualty marketplace, the Company has several key strategies to achieve its performance objectives over the next several years:

• Market Planning - identifies organic growth opportunities by examining business demographics to target opportunities in underserved markets and identify potential growth areas that may require additional agent or field underwriter deployment;

• Knowledge Management - utilizes data mining to gain access to the myriad of business information gathered through the underwriting process, organize it and use that information to enhance underwriting and pricing decisions;

• Expense Management - encourages employees to be more cost conscious, eliminate non value-added work, and eliminate expense creep. The Company is establishing efficiency measurements to drive performance in its underwriting and claims units; and

• Capital Management - focuses on maximizing stockholder returns by operating the Company at an appropriate financial leverage and operating leverage amounts within the confines of market conditions and rating agency tolerance of leverage.  Tools to manage this initiative are debt issuance and retirement, dividends and the share repurchase program.

The table below provides highlights of financial performance of the Company for First Quarter 2005 and First Quarter 2004:

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The Investments segment produced net investment income earned for First Quarter 2005 of $32.4 million compared to $29.5 million for First Quarter 2004. Net investment income earned increased as a result of the higher investment base of $2.9 billion in First Quarter 2005, compared to $2.5 billion in First Quarter 2004. The increased investment base was largely due to strong operating cash flows in both First Quarter 2005 of $46.3 million and full year 2004 of $367.1 million. Lower investment rates available in the marketplace compared to our blended portfolio yield reduced the overall pre-tax investment yield to 4.5% for First Quarter 2005, compared to 4.8% for First Quarter 2004. The Investments segment also included net realized gains of $4.6 million in First Quarter 2005 compared to $5.3 million in First Quarter 2004.

The Diversified Insurance Services segment produced $27.8 million of revenue and $2.1 million of net income for First Quarter 2005, compared to $24.2 million of revenue and $1.5 million of net income for First Quarter 2004.  The Diversified Insurance Services segment's after tax return on revenue increased to 7.4% for First Quarter 2005, compared to 6.1% for First Quarter 2004.  These improved results were fueled by continued strong performance from the flood operation. Improvements in the HR outsourcing operation were driven by 2004 pricing improvements and increased worksite lives.  Improvements in the managed care operation were attributable to expense reduction initiatives that included a 10% reduction in their workforce during 2004.

The overall strong performance in these three segments resulted in an increase in total revenue of 9% to $408.3 million in First Quarter 2005 compared to $375.1 million in First Quarter 2004. Net income increased 31% to $36.1 million in First Quarter 2005 compared to $27.5 million in First Quarter 2004. Given the Company's strong First Quarter 2005 results coupled with the strategies discussed above and barring excessive catastrophe losses, the Company expects continued earnings momentum in 2005, which should result in:

• A GAAP combined ratio below 96%;

• An overall Statutory combined ratio under 95%;

• Increased after-tax investment income by 6% compared to 2004; and

• Diversified Insurance Services revenue growth of 11% and return on revenue of 7%.

Results of Operations

Insurance Operations

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The loss and loss expense ratio decreased 3.0 points to 63.7% for First Quarter 2005 compared to 66.7% for First Quarter 2004. The improvements in the loss and loss expense ratio were primarily due to a reduction in weather-related catastrophe losses coupled with Personal Lines improvements primarily attributable to the personal automobile line of business. For further information, see the discussion of "Commercial Lines Results" and "Personal Lines Results," which follows.  

The underwriting expense ratio increased 0.1 points to 31.0% in First Quarter 2005 compared to 30.9% in First Quarter 2004. Although the underwriting expense ratio remained relatively flat, a detailed discussion of the components of this ratio is further discussed within the "Commercial Lines Results" and "Personal Lines Results" sections that follow.

Commercial Lines Results

Commercial Lines accounted for approximately 84% of our net premiums written for the twelve months ended March 31, 2005 compared with 83% for the same period last year. Net premiums written increased $28.2 million, or 9%, to $348.2 million for First Quarter 2005 compared to $320.0 First Quarter 2004.  First Quarter 2005 net premiums earned were $289.1 million, an increase of 11% over First Quarter 2004 net premiums earned of $259.7 million.  The main factors contributing to this overall improvement were: (i)  $62.5 million in net new business written for First Quarter 2005, a 9% decrease when compared with $69.0 million in net new business written for First Quarter 2004; (ii) year-on-year retention that held steady in excess of 80% for First Quarter 2005; and (iii) renewal premium price increases, including exposure, that averaged 6% in First Quarter 2005 compared with 10% in First Quarter 2004.

As expected, the marketplace is growing increasingly competitive and Selective is experiencing much greater pricing pressure, but the Company believes the commercial marketplace can still provide opportunities for profitable growth.  Regional carriers have increased market share three points over the past four years, and there is no commercial lines market leader.  In an effort to increase Selective's market share, the Company has established certain strategic initiatives including "market planning," which identifies organic growth opportunities by examining business demographics to target opportunities in underserved markets and identify potential growth areas that may require additional agent or field underwriter deployment.  Selective's commercial lines premium of $1 billion in 2004 represents a 1% market share in our 20 primary states, indicating substantial additional opportunity in our current operating territories.

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While the Company is experiencing greater competition and pricing, the past five years of ongoing underwriting, pricing and loss control initiatives have resulted in strong Commercial Lines loss and loss expense ratios of 62.6% in First Quarter 2005 and 64.1% in First Quarter 2004.  The improvement in the loss and loss expense ratio is attributable to lower weather-related catastrophe losses, which accounted for only 0.1 points of the loss and loss expense ratio for First Quarter 2005 compared with 1.6 points in First Quarter 2004.  Additionally, loss trends for the Company's overall commercial lines business were down approximately 1% for the twelve months ending March 31, 2005. Excluding workers' compensation loss trends, which were up approximately 6% for the same period, overall loss trends for commercial lines business were down approximately 4%. For additional information regarding workers' compensation see the discussion below.

The underwriting expense ratio increased 0.6 points to 32.3% in First Quarter 2005 compared to 31.7% in First Quarter 2004. The increase is primarily attributable to increases in profit-based incentive compensation to employees and supplemental commissions to agents of $2.0 million, coupled with the ongoing costs of complying with Section 404 of the Sarbanes-Oxley Act, which increased $0.1 million compared to First Quarter 2004.

        Commercial Automobile
The Company's commercial automobile line of business had $90.5 million of statutory net premiums written in First Quarter 2005, or 26% of total commercial lines net premiums written, compared to $85.7 million and 27% in First Quarter 2004. The statutory combined ratio was 85.3% in First Quarter 2005, compared to 84.9% in First Quarter 2004.  This line continues to be favorably impacted by price increases, stricter underwriting standards, including a changed vehicle mix which reduced the percentage of extra-heavy vehicles covered, and the removal of certain classes of business that we determined to be unprofitable.

        General Liability
The Company's general liability line of business had $104.2 million of statutory net premiums written in First Quarter 2005, or 30% of total commercial lines net premiums written, compared to $90.1 million and 28% in First Quarter 2004. The statutory combined ratio was 95.1% in First Quarter 2005, compared to 90.2% in First Quarter 2004.  First Quarter 2005 had slightly more losses than First Quarter 2004 due to natural volatility in this line of business.  Overall the Company's performance in the line reflects the past five years of ongoing underwriting, pricing and loss control initiatives.

        Workers' Compensation
The Company's workers' compensation line of business had $91.0 million of statutory net premiums written in First Quarter 2005, or 26% of total commercial lines net premiums written, compared to $84.9 million and 26% in First Quarter 2004. The statutory combined ratio was 108.9% in First Quarter 2005, compared to 101.6% in First Quarter 2004.  Over the last six years, loss trends for workers' compensation averaged 4.2%, driven by loss trends of 7.1% for medical losses.  In an attempt to control escalating medical costs, the Company is improving its service networks to achieve greater managed care discounts, and establishing a more aggressive back-to-work program to control claim costs.  Selective continues to implement enhanced loss control efforts, which include OSHA certification training for contractors and the direct involvement of Selective's loss control professionals on insured workplace safety committees.  The Knowledge Management initiative will enable us to segment workers' compensation risks and identify more precisely which risks are profitable and should be grown, and which should be reduced.  As a result, the Company is writing more non-contracting workers' compensation accounts through our One and Done system, which traditionally has performed over 10 points better than our other business. While overall this line is not yet performing at an acceptable level, it remains an important component of the Company's highly profitable commercial account business.  For the First Quarter 2005 compared to First Quarter 2004, workers' compensation policy count was flat, whereas the overall commercial lines policy count increased approximately 6%. Workers' compensation renewal price increases were up just over 10%, including a 9% pure rate increase in New Jersey, which represents 24% of workers' compensation premium.

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Commercial Property

The Company's commercial property line of business had $45.8 million of statutory net premiums written in First Quarter 2005, or 13% of total commercial lines net premiums written, compared to $41.6 million or 13% in First Quarter 2004. The statutory combined ratio was 77.3% in First Quarter 2005, compared to 94.3% in First Quarter 2004.  There were minimal weather-related catastrophe losses during First Quarter 2005 compared to 7.4 points during First Quarter 2004. The additional improvement in the statutory combined ratio is primarily attributable to underwriting improvements that have been made over the past several years, which include better insurance to value estimates across our book of business; a shift to risks of better construction quality and newer buildings; and an overall focus on low-to-medium hazard property exposures.

        Business Owners' Policy (BOP)
The Company's business owners' policy line of business had $12.0 million of statutory net premiums written in First Quarter 2005, or 4% of total commercial lines net premiums written, compared to $13.5 million and 4% in First Quarter 2004. The statutory combined ratio was 105.5% in First Quarter 2005, compared to 109.2% in First Quarter 2004.  The Company is aggressively pursuing profitability for this line of business and continues to implement ongoing pricing and underwriting actions to improve results, including the elimination of certain classes of businesses, which have been consistently unprofitable and focusing growth on more profitable segments.

        Bonds
Bonds statutory net premiums written were $4.2 million for First Quarter 2005, or 1% of total commercial lines net premiums written, compared to $3.7 million and 1% in First Quarter 2004.  The Bond line of business posted a statutory combined ratio of 76.8% compared to 165.6% in First Quarter 2004. In First Quarter 2004, the Company took a charge of approximately $2.0 million, or 65.7 points, which related to salvage and subrogation recoverables for prior accident years. Additional improvements in our Bond line of business during First Quarter 2005 reflect enhancements to the Bonds underwriting process during 2004. 

Personal Lines Results

Personal Lines accounted for approximately 16% of our net premiums written for the twelve months ended March 31, 2005 compared with 17% for the same period last year.  Net premiums written decreased $6.7 million, or 12%, to $48.6 million for First Quarter 2005 when compared with the same period in 2004.  First Quarter 2005 net premiums earned were $53.6 million, a decrease of approximately 4% over First Quarter 2004 net premiums earned of $55.6 million. The decreases in premiums were primarily due to stiff competition in the New Jersey auto market, which represents 58% of our total Personal Lines net premiums written.  There are many new market entrants in New Jersey and fewer regulatory constraints, which we believe will benefit both carriers and consumers over time.  For further information on the New Jersey auto market see the discussion on the Company's Personal Automobile business below.

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The personal lines underwriting expense ratio decreased 2.2 points to 24.3% for First Quarter 2005 compared to 26.5% in First Quarter 2004.  This is primarily the result of a $0.6 million decrease in New Jersey and New York limited assignment and distributions (LAD) charges due to a reduction in LAD pricing in these states and a $0.4 million increase in New Jersey homeowners' quota share ceded commissions, a contra expense, due to decreased losses for treaty year 2004.  The Company's new automated personal lines system (SelectPlus™) should also continue to drive profitable growth, as it becomes even easier to do business with us.  This leads to greater scale, which reduces underwriting expenses over time as agents process more of the transactions directly into our system. The automation should lead to a more profitable book of Personal Lines business.

        Personal Automobile
Our personal automobile line of business had $39.2 million of statutory net premiums written in First Quarter 2005, or 81% of total personal lines net premiums written, compared to $46.6 million and 84% in First Quarter 2004.  The decreases in premiums were primarily due to stiff competition in the New Jersey auto market, which represents 71% of our total Personal Automobile net premiums written.  There are many new market entrants in New Jersey and fewer regulatory constraints, which the Company believes will benefit both carriers and consumers over time.  But the Company is clearly in a transition period that has independent agents struggling to produce business, after years of attempting to manage growth in an extremely difficult marketplace.  The number of personal automobiles the Company insures in New Jersey was down about 12% in First Quarter 2005 to 93,000 vehicles, as price shoppers switched carriers to get lower prices that may be unsustainable over time.  The Company remains focused on helping agents attract and retain the best risks and has taken many actions over the last few months to target these accounts including: (i) the use of new rating tier and credit history factors; (ii) discounts up to 10% for customers who insure their auto and home with Selective; (iii) a series of rate reductions exceeding 20% for physical damage coverage; and (iv) enhanced policy processing through the Company's new automated personal lines system, SelectPlus™, that makes it much easier to do business with Selective.  While the Company has yet to gain traction from these ongoing competitive actions, Selective is seeing a greater decline in higher-risk, poor credit accounts, and new business growth in targeted customer segments. As a result, New Jersey personal auto remained profitable with a statutory combined ratio of 95.7% in First Quarter 2005, compared to 94.7% in First Quarter 2004. The overall statutory combined ratio for personal auto was 99.1% in First Quarter 2005, compared to 98.9% in First Quarter 2004. Continued profitability in our New Jersey personal automobile business resulting in combined ratios below 96.0% to 98.0% on a long-term basis could result in an excess profits tax and partially offset our profitability.

        Homeowners
Our homeowners line of business had $7.9 million of statutory net premiums written in First Quarter 2005, or 16% of total personal lines net premiums written, compared to $7.2 million and 13% in First Quarter 2004. The statutory combined ratio was 98.9% in First Quarter 2005, compared to 133.2% in First Quarter 2004. There was a 5.1 point improvement from weather-related catastrophe losses, which were 2.0 points in First Quarter 2005 compared to 7.1 points in First Quarter 2004. The remainder of the improvement in this line was related to several large fire losses in First Quarter 2004, coupled with underwriting actions taken over the past several years. 

Investments
Although interest rates have risen, they are still lower than the overall portfolio yield, which puts pressure on investment returns. In spite of this, Selective still generated an increase of $2.9 million in pre-tax investment income to $32.4 million for the First Quarter 2005, compared to $29.5 million for First Quarter 2004.  The increase reflects an increased asset base as the investment portfolio reached $2.9 billion in value at March 31, 2005, an increase of 13%, compared to $2.5 billion at March 31, 2004.  This increase was due to strong operating cash flows of $367.1 million in 2004 and $46.3 million in First Quarter 2005. The Company's debt offering in November 2004 added approximately $50 million in assets. 

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The following table presents the Moody's and Standard & Poor's ratings of the Company's fixed maturities portfolio:

Selective's investment philosophy is to maximize after-tax returns over extended periods of time. The Company's overall fixed maturity investment strategy is to make security purchases that are attractively priced in relation to perceived credit risks. Selective manages the interest rate risk associated with holding fixed maturity investments by monitoring and maintaining the average duration of the portfolio with a view toward achieving an adequate after-tax return without subjecting the portfolio to an unreasonable level of interest rate risk.  The Company invests its fixed maturities portfolio primarily in intermediate-term securities to limit overall interest rate risk of fixed maturity investments. The average duration of the fixed maturity portfolio, excluding short-term investments at March 31, 2005 was 4.3 years compared with 4.4 years at March 31, 2004.  To provide liquidity while maintaining consistent performance, fixed maturity investments are "laddered" so that some issues are always approaching maturity, thereby providing a source of predictable cash flow. Managing investment risk by adhering to these strategies is intended to protect the interests of our stockholders as well as those of our policyholders and, at the same time, enhance Selective's financial strength and underwriting capacity.

At March 31, 2005, the Company's investment portfolio included one non-investment grade security with an amortized cost of $5.0 million, or 0.2% of the portfolio, and a fair value of $5.2 million. At December 31, 2004, non-investment grade securities in our investment portfolio represented 0.2% of the portfolio, with an amortized cost of $5.0 million, and a fair value of $5.1 million.  The fair value of these securities was determined by independent pricing services or bid prices provided by various broker dealers.  The Company did not have a material investment in non-traded securities at March 31, 2005 or December 31, 2004.

The Company regularly reviews its entire investment portfolio for declines in value.  If management believes a decline in the value of a particular investment is temporary, the Company records the decline as an unrealized loss in accumulated other comprehensive income. If management believes the decline is "other than temporary," the Company writes down the carrying value of the investment and records a realized loss in its Consolidated Statements of Income.  Management's assessment of a decline in value includes current judgment as to the financial position and future prospects of the entity that issued the investment security.  Broad changes in the overall market or interest rate environment generally will not lead to a write-down.  This is a current topic of review for the SEC and Financial Accounting Standards Board (FASB).  We are uncertain what, if any, changes may be made.  If management's judgment about an individual security changes in the future the Company may ultimately record a realized loss after having originally concluded that the decline in value was temporary, which could have a material adverse impact on net income and financial position in future periods.

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In evaluating for other than temporary impairment of fixed maturity securities, management evaluates certain factors, including but not limited to the following:

• Whether the decline appears to be issuer or industry specific;

• The degree to which an issuer is current or in arrears in making principal and interest payments on the fixed maturity securities in question;

• The issuer's current financial condition and its ability to make future scheduled principal and interest payments on a timely basis;

• Buy/hold/sell recommendations published by outside investment advisors and analysts; and

• Relevant rating history, analysis and guidance provided by rating agencies and analysts.

In evaluating for other than temporary impairment of equity securities and other investments, management evaluates certain factors, including but not limited to the following:

• Whether the decline appears to be issuer or industry specific;

• The relationship of market prices per share to book value per share at the date of acquisition and date of evaluation;

• The price-earnings ratio at the time of acquisition and date of evaluation;

• The financial condition and near-term prospects of the issuer, including any specific events that may influence the issuer's operations;

• The recent income or loss of the issuer;

• The independent auditors' report on the issuer's recent financial statements;

• The dividend policy of the issuer at the date of acquisition and the date of evaluation;

• Any buy/hold/sell recommendations or price projections published by outside investment advisors; and

• Any rating agency announcements.

Realized Gains and Losses
Realized gains and losses are determined on the basis of the cost of specific investments sold or written-down, and are credited or charged to income. Our Investments segment included net realized gains before tax of $4.6 million in First Quarter 2005 compared to $5.3 million First Quarter 2004.  The net realized gains were principally from the sale of equity securities.  Selective maintains a high quality and liquid investment portfolio and the sale of the securities that resulted in net realized gains did not change the overall liquidity of the investment portfolio.  The Company's philosophy for sales of securities generally is to reduce our exposure to securities and sectors when economic evaluations or the fundamentals for that security or sector have deteriorated.  The Company generally has a long investment time horizon and the Company's turnover is low, which has resulted in many securities accumulating large unrealized gains.  Every purchase or sale is made with the intent of improving future investment returns.  Realized losses also include impairment charges from investment write-downs for other than temporary declines. There were no impairment charges recorded during First Quarter 2005 or First Quarter 2004. The following table summarizes the Company's net realized gains by investment type:

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The Company realized gains and losses from the sale of available-for-sale debt and equity securities during First Quarter 2005 and First Quarter 2004. The following table presents the period of time that securities, sold at a loss during these quarters, were continuously in an unrealized loss position prior to sale: