UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

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o Soliciting Material Pursuant to §240.14a-12

SELECTIVE INSURANCE GROUP, INC.

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 

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		Selective Insurance Group, Inc. 40 Wantage Avenue Branchville, New Jersey 07890 (973) 948-3000

March 26, 2008

NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT

April 24, 2008

The 2008 Annual Meeting of Stockholders of Selective Insurance Group, Inc. (“Selective”) will be held at 9:00 AM on Thursday, April 24, 2008, in the Auditorium at Selective’s principal offices, which have both a physical and mailing address of 40 Wantage Avenue, Branchville, New Jersey 07890.

At the meeting, we will ask stockholders to:

	1.		Elect five (5) Class III directors for a term expiring in 2011; and
	2.		Ratify the appointment of KPMG LLP as independent public accountants for the fiscal year ending December 31, 2008.

We plan a brief business meeting focused on these items and we will attend to any other business as may properly come before the meeting and at any adjournments or postponements of the meeting. The Board of Directors recommends that you vote in favor of Items 1 and 2. These proposals are further described in the proxy statement.

Also enclosed is Selective’s 2007 Annual Report to Stockholders. At the meeting, we will be making a brief presentation on operations and we will offer time for your comments and questions.

Selective stockholders of record at the close of business on March 5, 2008 are entitled to notice of and to vote at the meeting and any adjournment of it. A quorum is a majority of outstanding shares. YOUR VOTE IS IMPORTANT. WE URGE YOU TO VOTE YOUR SHARES BY (1) CALLING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD; (2) ACCESSING THE INTERNET WEBSITE LISTED ON THE PROXY CARD; OR (3) COMPLETING, DATING, AND SIGNING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME, AS DESCRIBED IN THE PROXY STATEMENT, PRIOR TO THE TIME IT IS VOTED AT THE 2008 ANNUAL MEETING.

Very truly yours,

Gregory E. Murphy
Chairman of the Board, President and Chief Executive Officer

By Order of the Board of Directors:

Michael H. Lanza
Executive Vice President, General Counsel and Corporate Secretary

TABLE OF CONTENTS

PROXY STATEMENT			1
GENERAL INFORMATION ABOUT SELECTIVE’S ANNUAL MEETING			1
PROPOSALS FOR STOCKHOLDER VOTE AND APPROVAL REQUIREMENTS			2
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING			2
VOTING AND PROXY PROCEDURE			3
INFORMATION ABOUT PROPOSAL 1			5
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS			10
EXECUTIVE OFFICERS			11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			11
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			13
CORPORATE GOVERNANCE			13
BOARD MEETINGS AND COMMITTEES			14
STOCKHOLDER COMMUNICATIONS			17
EXECUTIVE COMPENSATION			18
Compensation Discussion and Analysis			18
Summary Compensation Table			28
Grants of Plan Based Awards			29
Outstanding Equity Awards at Fiscal Year End			31
Option Exercises and Stock Vested			32
Pension Benefits			32
Nonqualified Deferred Compensation			33
Employment Agreements and Potential Payments			35
DIRECTOR COMPENSATION			37
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION			39
COMPENSATION COMMITTEE REPORT			39
INFORMATION ABOUT PROPOSAL 2			40
FEES OF INDEPENDENT PUBLIC ACCOUNTANTS			40
AUDIT COMMITTEE REPORT			41
STOCKHOLDER PROPOSALS AND NOMINATIONS			42
DOCUMENTS INCORPORATED BY REFERENCE			43

PROXY STATEMENT

FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 24, 2008

GENERAL INFORMATION ABOUT SELECTIVE’S ANNUAL MEETING

WHEN AND WHERE IS THE ANNUAL MEETING?

The 2008 Annual Meeting of Stockholders (the “Annual Meeting”) of Selective Insurance Group, Inc. (“Selective”) will be held on Thursday, April 24, 2008, at 9:00 AM in the Auditorium at Selective’s principal offices at 40 Wantage Avenue, Branchville, New Jersey 07890. Directions are on the back of the proxy statement.

WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?

Anyone who owned Selective common stock as of the close of business on March 5, 2008, is entitled to one vote per share owned. There were 53,356,487 shares outstanding at the close of business on that date.

WHO IS SOLICITING MY PROXY TO VOTE MY SHARES AND WHEN?

Selective’s Board of Directors (“Board of Directors” or the “Board”) is soliciting your “proxy,” or your authorization for our named proxies, W. Marston Becker and William M. Rue, to vote your shares. Unless revoked by you, your proxy will be effective for the Annual Meeting and for any adjournments or continuations of that meeting.

WHAT IS THE COST OF SOLICITING PROXIES AND WHO IS PAYING FOR THE COST?

Selective is bearing the entire cost of soliciting proxies. Proxies will be solicited principally through the mail, but may also be solicited personally or by telephone, telegraph, or special letter by directors, officers, and regular Selective employees for no additional compensation. Selective has engaged Georgeson Shareholder Communications Inc. (“Georgeson”), a proxy solicitation firm, to assist in the solicitation of proxies and the distribution of proxy materials, including reviewing Selective’s proxy materials, disseminating broker search cards, soliciting a proxy service company, brokers, banks, and institutional holders, and delivering executed proxies. Georgeson will provide such services for an estimated fee of approximately $7,500 plus expenses. Selective will reimburse banks, brokerage firms, and other custodians, nominees, and fiduciaries for reasonable expenses incurred by them in sending proxy materials to their customers or principals who are the beneficial owners of shares of Selective common stock.

WHAT ARE THE REQUIREMENTS FOR BUSINESS TO BE CONDUCTED AT THE ANNUAL MEETING?

For business to be conducted at the Annual Meeting, owners of 26,678,245 shares of Selective common stock (a majority of the issued and outstanding shares entitled to vote) constitute a quorum and must be in attendance or represented by proxy.

PROPOSALS FOR STOCKHOLDER VOTE AND APPROVAL REQUIREMENTS

Management is presenting two (2) proposals for a stockholder vote.

PROPOSAL 1. ELECTION OF DIRECTORS

THE BOARD RECOMMENDS THAT YOU VOTE FOR THE FIVE NOMINATED CLASS III DIRECTORS: PAUL D. BAUER, JOHN C. BURVILLE, JOAN M. LAMM-TENNANT, MICHAEL J. MORRISSEY, AND RONALD L. O’KELLEY.

You can find information about these nominees, as well as information about Selective’s Board of Directors, its committees, compensation for directors, and other related matters beginning on page 5.

New Jersey law and Selective’s By-laws govern the vote on Proposal 1, on which you may:

	§		Vote in favor of all the nominees;
	§		Withhold your votes as to all nominees; or
	§		Withhold your votes as to specific nominees.

Assuming a quorum is present, to be elected, a candidate must receive a plurality of the votes cast at the Annual Meeting in person or by proxy. Stockholders may not cumulate their votes. Abstentions and broker non-votes will have no effect on the outcome of the vote.

PROPOSAL 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

THE BOARD RECOMMENDS THAT YOU VOTE TO RATIFY THE APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2008.

You can find information about Selective’s relationship with KPMG LLP beginning on page 40.

New Jersey law and Selective’s By-laws govern the vote on Proposal 2, on which you may:

	§		Vote in favor of Proposal 2;
	§		Vote against Proposal 2; or
	§		Abstain from voting.

Assuming a quorum is present, Proposal 2 will pass if approved by owners of a majority of the shares of stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Abstentions will have the same effect as votes against Proposal 2 and broker non-votes will have no effect on the outcome of the vote.

OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING

The Board of Directors is not aware of any other business to be presented for a vote of the stockholders at the Annual Meeting. If any other matters are properly presented for a vote, the people named as proxies will have discretionary authority, to the extent permitted by applicable law and NASDAQ Stock Market (“NASDAQ”) and United States Securities and Exchange Commission (“SEC”) rules and regulations, to vote on such matters according to their best judgment.

The Chairman of the Annual Meeting may refuse to allow presentation of a proposal or nominee for the Board of Directors if the proposal or nominee is not properly submitted. The requirements for submitting proposals and nominations for this year’s meeting were the same as those described on page 42 for next year’s meeting.

VOTING AND PROXY PROCEDURE

HOW DO I VOTE?

You can vote four (4) ways:

	1.		BY MAIL. Mark your voting instructions on, then sign and date the proxy card. Then return the proxy card in the postage-paid envelope provided. If you mail your proxy card, we must receive it before the beginning of the meeting.
			If we receive your signed proxy card, but you do not give voting instructions, the named proxies will vote your shares FOR Proposals 1 and 2. If any other matters arise during the meeting which require a vote, the named proxies will exercise their discretion, to the extent permitted by applicable law and NASDAQ and SEC rules and regulations.
	2.		BY TELEPHONE. Call the toll-free number on your proxy card to vote by telephone. Follow the instructions on your proxy card and the voice prompts. IF YOU VOTE BY TELEPHONE, YOU DO NOT NEED TO RETURN YOUR PROXY CARD.
	3.		BY INTERNET. Go to the website listed on your proxy card to vote through the Internet. Follow the instructions on your proxy card and the website. If you vote through the Internet, you may incur telephone and/or Internet access charges from your service providers. IF YOU VOTE BY INTERNET, YOU DO NOT NEED TO RETURN YOUR PROXY CARD.
	4.		IN PERSON. Attend the Annual Meeting, or send a personal representative with an appropriate proxy, in order to vote.

HOW DO I REVOKE MY PROXY OR CHANGE MY VOTING INSTRUCTIONS?

You may revoke your proxy before the proxy is exercised by writing to Selective’s Corporate Secretary, Michael H. Lanza, at the address in the meeting notice on the cover of this Proxy Statement. You may also change your vote before the proxy is exercised by entering a new vote via the Internet, by telephone, or by returning a properly executed proxy bearing a later date. Any subsequent timely and valid vote by any means will change your prior vote. For example, if you voted by telephone, a subsequent Internet vote will change your vote. The last vote received before noon central time on April 23, 2008 will be the vote that is counted, except that you may also change your vote by voting in person at the Annual Meeting.

HOW WILL PROXIES BE VOTED IF I GIVE MY AUTHORIZATION?

If you properly execute your proxy on the accompanying form, return it to Selective, or submit your proxy by telephone or Internet as described above, and do not subsequently revoke your proxy, your shares of common stock will be voted at the Annual Meeting in accordance with your instructions. In the absence of instructions, the named proxies will vote your shares “FOR” the election of each director nominee and “FOR” the ratification of the appointment of KPMG LLP as Selective’s independent public accountants for the fiscal year ending December 31, 2008. If other matters should properly come before the meeting, the named proxies will vote on such matters, to the extent permitted by applicable law and NASDAQ and SEC rules and regulations, in accordance with their best judgment.

HOW WILL VOTES BE COUNTED?

The inspector of elections appointed by the Board of Directors for the Annual Meeting will separately tabulate affirmative and negative votes, abstentions and broker non-votes (shares held by a broker, bank or other nominee that does not have authority, either express or discretionary, to vote on a particular matter). Shares represented by proxies that reflect abstentions and broker non-votes are counted for determining whether there is a quorum. Abstentions and broker non-votes will not be considered in determining whether director nominees have received the requisite number of affirmative votes. For Proposal 2, approval will require the affirmative votes of the holders of a majority of the total number of the votes of the stockholders present at the Annual Meeting or represented by proxy and entitled to vote on the proposal. Abstentions will have the effect of a vote “Against” Proposal 2, and broker non-votes, although counted for purposes of determining the presence of a quorum, will have the effect of a vote neither for nor against such proposal.

WHAT IF MY SHARES ARE NOT REGISTERED IN MY NAME?

If you own your shares in “street name,” meaning that your broker is actually the record owner, you should contact your broker. When a broker does not have voting instructions and withholds its vote on one of these matters, it is called a “broker non-vote.” Broker non-votes count toward a quorum, but otherwise do not affect the outcome of any proposal.

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 24, 2008

This Proxy Statement is available on Selective’s internet website at www.selective.com.

INFORMATION ABOUT PROPOSAL 1

Selective’s Board of Directors currently has twelve (12) directors and is divided into three (3) classes designated Class I, Class II, and Class III. Pursuant to Selective’s Restated Certificate of Incorporation, as amended, and its By-laws, Selective may have a minimum of seven (7) and a maximum of twenty (20) directors. By majority vote, the Board of Directors may set the number of directors within this range at any time. The Board has set the number of members of the Board at twelve (12). John F. Rockart, having surpassed the eligibility age for election as a director, will retire from the Board on April 24, 2008, following the election of directors at the 2008 Annual Meeting of Stockholders. The Board thanks Mr. Rockart for his many years of service.

Under Selective’s By-laws, directors are elected at the Annual Meeting for terms of three (3) years, unless a director is being elected to fill a vacant, unexpired term. No family relationships exist between any of Selective’s current directors, executive officers, and persons nominated by Selective to become a director. At present, the Board has authorized twelve (12) directors.

The Board has ratified the Corporate Governance and Nominating Committee’s nomination of the following four (4) incumbent Class III directors and one additional nominee to stand for election at the Annual Meeting for terms expiring at the 2011 Annual Meeting or until a successor has been duly elected and qualified: Paul D. Bauer, John C. Burville, Joan M. Lamm-Tennant and Ronald L. O’Kelley (the incumbent directors) and Michael J. Morrissey. Mr. Morrissey was recommended to the Corporate Governance and Nominating Committee by non-management directors of Selective.

All five (5) nominees have consented to being named in this Proxy Statement and to serve if elected and the Board does not know of any reason why any of these nominees would decline or be unable to serve if elected. If a nominee becomes unavailable or unable to serve before the Annual Meeting, the Board can either reduce its size or designate a substitute nominee. If the Board designates a substitute nominee, proxies that would have been cast for the original nominee will be cast for the substitute nominee unless instructions are given to the contrary.

NOMINEES OF THE BOARD OF DIRECTORS

Paul D. Bauer, 64		• Retired Financial Executive.
Independent Director, 1998		• Executive Vice President and Chief Financial Officer of Tops Markets, Inc., 1970 to 1993.
		• Director, Rosina Holdings Inc., since 2002.
		• Director, R.P. Adams Co., 1991 to 2004.
		• Director, IMC, Inc., 1995 to 2000.
		• Director, Catholic Health System of Western New York, since 1998.
		• Co-founder and President, Buffalo Inner-City Scholarship Opportunity Network.
		• Trustee, Holy Angels Academy, since 2005.
		• Graduate of Boston College (B.S. in Accounting).
John C. Burville, 60		• Insurance Consultant to the Bermuda Government, 2003 to 2007.
Independent Director, 2006		• Bermuda Insurance Advisory Committee, 1985 to 2003.
		• Chief Actuary and Senior Rating Agency Manager of ACE Limited, 1992 to 2003.
		• Graduate of Leicester University in the United Kingdom (BSc and Ph.D.).
		• Fellow of the Institute of Actuaries.

Joan M. Lamm-Tennant, 55 Independent Director, 1993		• Global Chief Economist & Risk Strategist, Guy Carpenter & Company, LLC, since May 2007.
		• Senior Vice President, General Re Corporation, 1997 to April, 2007.
		• Adjunct Professor, the Wharton School of the University of Pennsylvania, since 2006.
		• Professor of Finance, Villanova University, 1988 to 2000.
		• Director, IVANS, Inc., since 2004.
		• Member, American Risk and Insurance Association.
		• Member, International Insurance Society.
		• Member, Association for Investment Management and Research.
		• Graduate of St. Mary’s University (B.B.A. and M.B.A.).
		• Graduate of the University of Texas (Ph.D.).
Ronald L. O’Kelley, 63		• Chairman and CEO, Atlantic Coast Venture Investments Inc., since 2003.
Independent Director, 2005		• Executive Vice President, CFO and Treasurer, State Street Corporation, 1995 to 2002.
		• Director, U. S. Shipping Partners L.P., since 2004.
		• Director, Refco Inc., 2005 to 2006.
		• Advisory Director, Donald H. Jones Center for Entrepreneurship, Tepper School of Business, Carnegie Mellon University, since 2003.
		• Member, National Association of Corporate Directors.
		• Graduate of Duke University (A.B.).
		• Graduate of Carnegie Mellon University (M.B.A.).

Name, Age, Year Elected To Board of Directors		Occupation And Background
Michael J. Morrissey, 60		• Chairman and Chief Executive Officer, Firemark Investments, since 1983.
Independent Director		• Director, CGA Group, Ltd., since 1998.
		• President, Chief Operating Officer, Chief Investment Officer and Director, Manhattan Life Insurance Company, 1985 to 1987; Chief Executive Officer, Manhattan Capital Management, 1985.
		• Senior Vice President, Crum & Forster Insurance Group, 1978 to 1983.
		• Chartered Financial Analyst.
		• Graduate of Boston College (B.A.).
		• Graduate of Dartmouth College (M.B.A.).

CONTINUING DIRECTORS

Name, Age, Year Elected To Board of Directors		Occupation And Background
A. David Brown, 65		•   Senior Vice President, Human Resources, Linens and Things, `Inc., since 2006.
Independent Director, 1996		•   Managing Partner, Bridge Partners, LLC, an executive recruiting firm, 2003 to 2006.
		•   Partner, Whitehead Mann, executive recruiters, 1997 to 2003.
		•   Director, Hanover Direct, 2003 to 2006.
		•   Director, Zale Corporation, 1997 to 2006.
		•   Director, The Sports Authority, Inc., 1998 to 2003.
		•   Trustee, Jackie Robinson Foundation.
		•   Graduate of Monmouth University (B.S.).
William M. Kearns, Jr., 72		•   Chairman and Co-CEO and other executive positions of Keefe Managers, LLC, a money management firm, since 1998.
Independent Director, 1975		•   President, W.M. Kearns & Co., Inc., a private investment company, since 1994.
Lead Director		•   Trustee of EQ Advisors Trust (Equitable Life Assurance Society of the U.S.), AXA Financial, since 1997.
		•   Trustee, AXA Enterprise Funds, since 2004.
		•   Director, Transistor Devices, Inc., 1991 to 2006; Lead Director, since 2007.
		•   Director, U. S. Shipping Partners L.P., 2002 to 2006; Lead Director, since 2007.
		•   Advisory Director, Gridley and Company LLC, since 2001.
		•   Advisory Director, Proudfoot Consulting, PLC, since 1997.
		•   Advisory Director, Private Client Resources LLC, since 2004.
		•   Executive Vice President, Greater NY Councils, Boy Scouts of America, since 1985.
		•   Member, Oncology Philanthropic Leadership Council, Carol G. Simon Cancer Center, Morristown Memorial Health Foundation, since 2005.
		•   Honorary LLD, Gonzaga University.
		•   Graduate of the University of Maine (B.A.).
		•   Graduate of New York University (M.A.).
S. Griffin McClellan III, 70		•   Retired Banking Executive.
Independent Director, 1980		•   Self-employed Consultant, 1994 to 2001.
		•   Graduate of Harvard University (B.A.).
J. Brian Thebault, 56		•   Chairman, Earth-Thebault, since July 2007.
Independent Director, 1996		•   Chairman and Chief Executive Officer, L.P. Thebault Company, 1998 to July 2007.
		•   President and Chief Executive Officer, L.P. Thebault Company, 1984 to 1998.
		•   Trustee, The Peck School, since 1994.
		•   Trustee, The Delbarton School, 1990 to 2007.
		•   Graduate of University of Southern California (B.S.).

Name, Age, Year Elected To Board of Directors		Occupation And Background
W. Marston Becker, 55		•   Chairman and CEO, Max Capital Group Ltd., since October 2006; Director, since 2004.
Independent Director, 2006		•   Chairman and CEO of LaSalle Re Ltd., since 2002.
		•   Chairman and General Partner of West Virginia Media Holdings, since 2001.
		•   Chairman and Chief Executive Officer, 2002 to 2005; Director, 1997-2003, Trenwick Group, Ltd., 1997-2003. In August 2003, Trenwick Group, Ltd. filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
		•   Director, Mountain Companies, since 2007.
		•   Director, Beazley Group plc, since 2006.
		•   Director, West Virginia University, United Hospital System, since 2004.
		•   CEO, McDonough-Caperton Insurance Group, 1986 to 1994.
		•   Advisory Board Member, Conning Funds, since 1997.
		•   Advisory Board Member, American Securities Funds, since 1997.
		•   Graduate of West Virginia University (B.S. and J.D.).
Gregory E. Murphy, 52		•   Chairman, President and Chief Executive Officer of Selective, since May 2000.
Employee Director, 1997		•   President and Chief Executive Officer of Selective, May 1999 to May 2000.
		•   President and Chief Operating Officer of Selective, 1997 to May 1999.
		•   Other senior executive, management, and operational positions at Selective, since 1980.
		•   Director, Newton Memorial Hospital Foundation, Inc., since 1999.
		•   Director, Insurance Information Institute, since June 2000.
		•   Director, American Insurance Association (AIA), 2002 to 2006.
		•   Certified Public Accountant (New Jersey) (Inactive).
		•   Trustee, the American Institute for CPCU (AICPCU) and the Insurance Institute of America (IIA), since June 2001.
		•   Graduate of Boston College (B.S.).
		•   Harvard University (Advanced Management Program).

Name, Age, Year Elected To Board of Directors		Occupation And Background
William M. Rue, 60		•   President, Rue Insurance, general insurance agency, since 1969.
Non-Independent Director, 1977		•   President, Rue Financial Services, Inc., 2002 to 2006.
		•   Director, 1st Constitution Bank, since 1989, Secretary of the Board, since 2005.
		•   Director, 1st Constitution Bancorp, since 1999, Secretary of the Board, since 2005.
		•   Director, Robert Wood Johnson University Hospital at Hamilton, since 1994.
		•   Trustee, Rider University, since 1993.
		•   Director, Robert Wood Johnson University Hospital Foundation, since 1999.
		•   Member, National Association of Securities Dealers.
		•   Member, Council of Insurance Agents & Brokers.
		•   Member, Society of CPCU.
		•   Member, Professional Insurance Agents Association.
		•   Graduate of Rider College (B.A.).

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

     The following table shows as of February 29, 2008:

	§		The number of shares of Selective common stock beneficially owned by each nominee for director, director, the Chairman of the Board, President and Chief Executive Officer (the “CEO”), the Chief Financial Officer (the “CFO”), and the three most highly compensated executive officers other than the CEO and CFO (collectively, with the CEO and CFO, referred to as the “named executive officers”).
	§		The number of shares of Selective common stock beneficially owned by the directors (and nominee for director) and executive officers of Selective as a group.

The following table lists the only persons or groups known to Selective to be the beneficial owner of more than 5% of any class of Selective’s voting securities as of December 31, 2007, based on Schedules 13G filed by the beneficial owners on January 10, 2008 and February 6, 2008, respectively with the SEC.

EXECUTIVE OFFICERS

Information regarding Executive Officers is incorporated by reference to the section entitled “Executive Officers of the Registrant” in Part I, Item 1. Business of Selective’s Annual Report on Form 10-K for the year ended December 31, 2007.

Transactions with Related Persons

William M. Rue, a Selective director, is President and owns more than 10% of the equity of Rue Insurance, a general independent insurance agency. Rue Insurance is an appointed independent agent of Selective’s insurance subsidiaries and Selective HR Solutions, Inc., Selective’s human resources administration subsidiary (together with its subsidiaries, “Selective HR Solutions”), on terms and conditions similar to those of other Selective agents, including the right to participate in the Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies. Rue Insurance also places insurance for Selective’s business operations. Selective’s relationship with Rue Insurance has existed since 1928 and Selective expects that its relationship with Rue Insurance will continue in 2008. In 2007:

	•		Rue Insurance placed insurance policies with Selective’s insurance subsidiaries. Direct premiums written associated with these polices was $9.9 million in 2007, $9.5 million in 2006, and $10.2 million in 2005. In return, Selective’s insurance subsidiaries paid commissions to Rue Insurance of $1.7 million in 2007 and $1.9 million in 2006 and 2005.
	•		Rue Insurance placed human resource outsourcing contracts with Selective HR Solutions resulting in revenues to Selective HR Solutions of $69,000 in 2007, $62,000 in 2006, and $64,000 in 2005. In return, Selective HR Solutions paid commissions to Rue Insurance of $15,000 in 2007, $14,000 in 2006, and $15,000 in 2005.
	•		Rue Insurance placed insurance coverage for Selective with non-Selective insurance companies for which Rue Insurance was paid commission pursuant to its agreements with those carriers. Selective paid premiums for such insurance coverage of $0.5 million in 2007, $0.5 million in 2006, and $0.6 million in 2005.
	•		Selective paid reinsurance commissions of $0.2 million in 2007, 2006, and 2005 to PL, LLC. PL, LLC is an insurance fund administrator of which Rue Insurance owns 26.67% and which places reinsurance through a Selective insurance subsidiary.

The son of S. Griffin McClellan III, a Selective director, Samuel G. McClellan IV, is an Assistant Vice President of Selective’s insurance subsidiaries. In 2007, Mr. McClellan IV received $139,346 in cash compensation, primarily comprised of salary and an annual cash incentive payment. He also received long-term incentive awards, consistent with awards granted to other Selective employees. Mr. McClellan IV’s compensation was determined in accordance with the standard employee compensation practices of Selective Insurance Company of America (“SICA”). Mr. McClellan III is not a member of the Audit Committee, the Corporate Governance and Nominating Committee, or the Salary and Employee Benefits Committee.

The daughter of Gregory E. Murphy, the Chairman, President and Chief Executive Officer of Selective, Kelly Murphy, is employed as an actuarial analyst by Guy Carpenter & Company, LLC (“Guy Carpenter”), one of Selective’s reinsurance brokers. Guy Carpenter receives commissions from Selective’s reinsurers for business that Guy Carpenter places with such reinsurers on Selective’s behalf. Mr. Murphy’s daughter has no involvement in the relationship between Selective and Guy Carpenter.

In 2007, The Selective Group Foundation, a private foundation established by Selective under Section 501(c)(3) of the Internal Revenue Code (the “Selective Foundation”), made approximately $95,000 in grants to the Newton Memorial Hospital Foundation (“NMHF”), a charitable organization affiliated with Newton Memorial Hospital (“NMH”). Both NMH and NMHF are located in Sussex County, New Jersey, where Selective is headquartered. At the end of 2007, there were outstanding annually renewable pledges totaling $395,000 to NMHF. Mr. Murphy serves on the Board of Directors of NMHF. In 2007, the Selective Foundation also made $112,500 in grants to Project Self-Sufficiency of Sussex County (“PSS”), a non-profit, community-based organization dedicated to empowering low-income adults and their children to achieve personal and economic self-sufficiency. During 2007, Selective donated to PSS certain items of personalty with de minimis current fair value. At the end of 2007, there were outstanding annually renewable pledges totaling of $145,000 to PSS. Susan Murphy, Mr. Murphy’s wife, serves on the Board of Directors of PSS. In 2007, the Selective Foundation provided a grant to the Morristown Memorial Heart Center of $20,000, along with a pledge of $80,000 to be paid over the next four years. Mr. Kearns is a member of the Oncology Philanthropic Leadership Council, Carol G. Simon Cancer Center, Morristown Memorial Health Foundation. In 2007, the Selective Foundation made approximately $30,000 in grants to the United Way of Sussex County. Richard F. Connell, Senior Executive Vice President and Chief Administrative Officer of Selective, is a member of the Board of Trustees of the United Way of Sussex County. From time to time, the Selective Foundation makes grants to these and other charitable organizations in accordance with the Selective Foundation’s By-laws.

Review, Approval, or Ratification of Transactions with Related Persons

Selective’s Board of Directors adopted a written Related Person Transactions Policy and Procedures (the “Related Person Policy”) on January 30, 2007. The Related Person Policy defines “Related Person Transactions” as any transaction, arrangement or relationship in which Selective or its subsidiaries was, is, or will be a participant and the amount involved exceeds $20,000, and in which any “Related Person” had, has, or will have a direct or indirect interest. A “Related Person” under the Related Person Policy is generally (i) any director, executive officer, or nominee to become director of Selective or an immediate family member of such person; (ii) a beneficial owner of more than 5% of Selective’s common stock or an immediate family member of such beneficial owner; and (iii) any firm, corporation, or other entity in which any person included in (i) or (ii) is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.

Under the Related Person Policy, “Related Person Transactions” must be approved by the Audit Committee (or Chair of the Committee if between meetings). The Audit Committee considers all of the relevant facts and circumstances of the proposed transaction available to it, including (i) the benefits to Selective; (ii) the impact on a director’s independence; (iii) the availability of other sources for comparable products and services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally.

No member of the Audit Committee may participate in any review, consideration, or approval of any Related Person Transaction with respect to which such member or any of his or her immediate family members is the Related Person. The Audit Committee only approves those Related Person Transactions that are in, or are not inconsistent with, the best interests of Selective and its stockholders. Prior to the adoption of the Related Person Policy, Related Person Transactions, including those described above, were reported to, and considered by, the Board of Directors pursuant to Selective’s Conflict of Interest Policy.

Director Independence

The Board of Directors has determined that all directors, except Messrs. Murphy and Rue, are independent as defined by the applicable NASDAQ and SEC rules and regulations. In making its determination, the Board considered various transactions, relationships, or arrangements that relate to the Directors. For a description of the transactions, relationships, or arrangements related to Messrs. Rue and McClellan, see the section entitled “Transactions with Related Persons” beginning on page 11. The Board determined that the employment of Mr. McClellan’s son by Selective does not affect Mr. McClellan’s independence under applicable NASDAQ and SEC rules and regulations.

The Board reviewed the circumstances surrounding Selective’s reinsurance treaties with General Re Corporation (“Gen Re”), of which company Ms. Lamm-Tennant served as a Senior Vice President through April 2007. Selective ceded $1.1 million in premium to Gen Re in 2007. Gen Re’s total revenue for 2007 was $6.1 billion, and as such, the transactions with Selective amounted to less than 0.02% of Gen Re’s total revenue for the year. The Board determined that because the amount of the transactions is immaterial to the business of Gen Re, the transactions between Selective and Gen Re do not affect the independence of Ms. Lamm-Tennant under applicable NASDAQ and SEC rules and regulations.

In May 2007, Ms. Lamm-Tennant became employed by Guy Carpenter as Global Chief Economist & Risk Strategist. The Board reviewed the broker service agreement with Guy Carpenter under which the company’s insurance subsidiaries placed reinsurance through Guy Carpenter, for which Guy Carpenter earned approximately $2.0 million. Guy Carpenter’s total revenue for 2007 was approximately $916 million and, as such, the transactions with Selective companies was less than 0.22% of Guy Carpenter’s total revenue for the year. As Ms. Lamm-Tennant had no involvement in these transactions and the amount of the transactions is immaterial to the business of Guy Carpenter, the Board determined that the placement of the reinsurance through Guy Carpenter does not affect the independence of Ms. Lamm-Tennant under applicable NASDAQ and SEC rules and regulations.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires Selective’s directors and executive officers, and persons who own more than 10% of a registered class of Selective’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Selective’s equity securities. Such executive officers, directors, and greater than 10% stockholders are required by SEC regulation to furnish Selective with copies of all of the Section 16(a) Exchange Act reports that they file. Other than as set forth above, based solely on its review of the copies of Forms 3, 4, and 5 or written representations from certain reporting persons that no Forms 5 were required for those persons, Selective believes that all reporting requirements under Section 16(a) for the fiscal year ended December 31, 2007, were met in a timely manner by its directors, executive officers, and greater than 10% beneficial owners.

CORPORATE GOVERNANCE

Corporate Governance Guidelines

Selective has established Corporate Governance Guidelines that are available for review in the Corporate Governance section of Selective’s website, www.selective.com. These guidelines provide for the election of a Lead Independent Director, who supervises meetings of Selective’s independent directors that occur at least semi-annually. Mr. Kearns is presently the Lead Independent Director. In 2007, Selective’s independent directors met four (4) times outside the presence of management.

All of the members of the Audit Committee, the Corporate Governance and Nominating Committee, and the Salary and Employee Benefits Committee are independent directors as defined by NASDAQ and SEC rules and regulations.

BOARD MEETINGS AND COMMITTEES

The Board of Directors held seven (7) meetings in 2007. All directors attended 75% or more of the meetings of the Board of Directors and the committees of which they were members in 2007. It is Selective’s policy that all directors are expected to attend the Annual Meeting, and all attended the 2007 Annual Meeting.

The Board has five (5) standing committees:

	•		Audit Committee.
	•		Corporate Governance and Nominating Committee.
	•		Executive Committee.
	•		Finance Committee.
	•		Salary and Employee Benefits.

Audit Committee

The following table provides information on the composition and activities of the Audit Committee:

 

Corporate Governance and Nominating Committee

The following table provides information on the composition and activities of the Corporate Governance and Nominating Committee:

 

Nomination and Review of Director Candidates

The Corporate Governance and Nominating Committee reviews candidates for possible nomination and election to the Board of Directors from any source, including:

	•		Directors and management;
	•		Third party search firms that it may engage from time-to-time; and
	•		Stockholders.

Regardless of source, the Corporate Governance and Nominating Committee evaluates all candidates on the same bases and standards, including:

	•		Personal and professional ethics, integrity, character, and values;
	•		Professional and personal experience;
	•		Subject matter expertise;
	•		Independence;
	•		Diversity;
	•		Business judgment;
	•		Insurance industry knowledge;
	•		Willingness to dedicate and devote sufficient time to Board duties and activities;
	•		Potential or actual conflicts of interest; and
	•		Other appropriate and relevant factors, including the qualification and skills of the current members of the Board.

Stockholders proposing candidates for consideration by the Corporate Governance and Nominating Committee must submit all information relating to such candidates as would be required to be disclosed in a solicitation of proxies for the election of such person as a director pursuant to Regulation 14A under the Exchange Act in writing as follows:

Chairman of the Corporate Governance and Nominating Committee
c/o Corporate Secretary of Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, NJ 07890

Executive Committee

The following table provides information on the composition and activities of the Executive Committee:

 

Finance Committee

The following table provides information on the composition and activities of the Finance Committee:

 

Salary and Employee Benefits Committee

The following table provides information on the composition and activities of the Salary and Employee Benefits Committee:

 

Stockholder Communications

Stockholders so desiring may send communications to the Board of Directors or individual directors in writing c/o Corporate Secretary, Selective Insurance Group, Inc., 40 Wantage Avenue, Branchville, NJ 07890 or by e-mail to corporate.governance@selective.com. The Board has instructed the Corporate Secretary to use discretion in forwarding unsolicited advertisements, invitations to conferences, or other promotional material.

Code of Conduct

Selective has adopted a Code of Conduct which sets forth the guiding principles of business ethics for all Selective personnel, including executive officers. The Code of Conduct can be found under the Corporate Governance section of Selective’s website, www.selective.com. Any amendment to or waiver from the provisions of the Code of Conduct that applies to Selective’s senior executive officers will be posted to Selective’s website, www.selective.com.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Philosophy of our Executive Compensation Program

The Salary and Employee Benefits Committee (“SEBC”) of Selective’s Board of Directors, oversees executive compensation. Selective seeks to attract and retain talented and qualified executives by paying compensation that is generally targeted at the 50^th percentile or greater of compensation paid by comparable companies in the property and casualty insurance industry. A primary purpose of our compensation programs is to motivate executives to achieve our corporate objectives and increase shareholder value. Accordingly, we tie our annual incentive awards to pre-determined strategic and financial business objectives and individual objectives, and we align our long-term compensation to the generation of long-term stockholder value over time.

The SEBC retains an outside executive compensation consultant (the “Compensation Consultant”) whose representative attends SEBC meetings as requested, reviews senior executive compensation, prepares comprehensive competitive compensation analyses for Selective’s named executive officers, and makes recommendations regarding the components of compensation, amounts allocated to those components, and the total compensation opportunities for the CEO and the other named executive officers. Historically, the SEBC had retained Hewitt Associates, LLC (“Hewitt”) as the Compensation Consultant. In April 2007, the SEBC was informed that the principal of the Compensation Consultant with primary responsibility for advising the SEBC would be leaving Hewitt to take a position with EXEQUITY, LLP (“EXEQUITY”). At that time, there was consensus by the SEBC to engage EXEQUITY as the Compensation Consultant, and enter into an agreement with EXEQUITY. In 2007, amounts paid to EXEQUITY and Hewitt for executive compensation consulting services were $7,751 and $20,288, respectively.

Design Considerations of the Executive Compensation Program

Our executive compensation program consists of the following key elements:

	•		Base salary;
	•		Annual cash incentive payments;
	•		Long-term incentive awards in the form of stock options, performance-based restricted stock, and performance-based cash incentive units; and
	•		Retirement and deferred compensation plans.

Each of the above elements was selected to respond to the market-based realities of attracting and retaining quality executives and to align executives’ efforts and results with the interests of Selective’s stockholders.

When making compensation decisions, the SEBC believes that it is important to be informed on compensation practices at publicly traded companies, in general, and property and casualty insurance holding companies, in particular. Accordingly, the Compensation Consultant performs an annual analysis of compensation paid to our named executive officers. This analysis compares base salary, annual cash incentives, total cash compensation, long-term incentives, and total compensation paid by Selective against three external benchmark insurance groups. Compensation data from these three groups is obtained from filed proxy statements, the Property & Casualty Insurance Compensation Survey (the “PCICS”), and an insurance industry compensation survey. Additional information, including a listing of the companies in each of these three groups and details regarding our benchmarking process is contained in the section entitled “Benchmarking.” In making compensation determinations for our Chief Investment Officer, market data is analyzed from both the PCICS and the McLagan Partners Investment Management Survey (the “McLagan Survey”), a recognized source for pay data for investment professionals. Additional information about the McLagan Survey is also provided under the section titled “Benchmarking.”

Tax Treatment and Accounting

To the extent practicable, the SEBC intends to preserve deductibility under the Internal Revenue Code for performance-based compensation paid to its executive officers. Section 162(m) of the Internal Revenue Code prohibits publicly owned companies from deducting compensation paid to certain of its executive officers as expense to the extent that the officer’s compensation in excess of $1 million is not performance-based and not paid pursuant to a stockholder approved plan. Selective has two performance-based stockholder approved plans; the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan (the “Omnibus Stock Plan”) and the Selective Insurance Group, Inc. Cash Incentive Plan (the “Cash Incentive Plan”).

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards 123 (revised 2004), Share-Based Payment (“FAS 123R”), which requires that compensation expense be measured on the income statement for all share-based payments (including employee stock options) at grant date fair value of the equity instruments. Selective adopted this accounting pronouncement on January 1, 2005.

Benchmarking

At least once a year, the SEBC compares the individual targeted compensation and actual paid compensation of our named executive officers with external data from groups of comparator companies. In 2007, Hewitt and EXEQUITY furnished the SEBC with information on the following benchmark insurance groups and the McLagan Survey that contained market data for named executive officer positions. The SEBC believes that these sources provide comprehensive information regarding Selective’s relative compensation position. By considering these multiple market references, the SEBC believes it can be less concerned about potential anomalies which may occur in a single market data point.

	•		Market/Product Group — organizations that compete with Selective in the sale of products and services;
	•		Size Group — companies of similar size;
	•		Property and Casualty Insurance Compensation Survey (PCICS); and
	•		McLagan Partners Investment Management Survey.

The companies that are included in each of these benchmark insurance groups are as follows:

Market/Product Group		Peer Size Group
The Chubb Corporation		Arch Capital Group, Ltd.
Cincinnati Financial Corporation		Commerce Group, Inc.
CNA Financial Corporation		Hanover Group
EMC Insurance Group Inc.		MaxCapital Group Ltd.
Hanover Group		Mercury General Corporation
Harleysville Group, Inc.		Ohio Casualty Corporation
Hartford Financial Services Group		Old Republic International Corporation
Ohio Casualty Corporation		Radian Group Inc.
PMA Capital Corporation		Unitrin, Inc.
Safeco Corporation		Zenith National Insurance Corp.
The Travelers Companies, Inc.
State Auto Financial Corporation

Property & Casualty Insurance Compensation Survey

ACE		Great American Insurance Group
Acuity		Hanover Group
Allstate Insurance Company		Harleysville Group, Inc.
American Family Insurance		Hartford Financial Services Group
American International Group		Liberty Mutual Insurance Group
Argonaut Group, Inc.		Main Street America Group
The Auto Club Group		Mercury General Corporation
Automobile Club of Southern California		MetLife
California State Automobile Association		Nationwide
Central Insurance Companies		Ohio Casualty Corporation
The Chubb Corporation		One Beacon Insurance Company
CNA Financial Corporation		PMA Capital Corporation
Country Insurance & Financial Services		Safeco Corporation
Crum & Forster		Sentry Insurance
Erie Indemnity Company		The Travelers Companies, Inc.
Farmers Insurance Group		State Farm Insurance Company
FBL Financial Group, Inc.		USAA
Fireman’s Fund Insurance Company		Utica National Insurance Group
GEICO		Winterthur North America
GE Insurance		Zenith National Insurance Corp.
		Zurich North America

McLagan Partners Investment Management Survey — Insurance Companies

40/86 Advisors, Inc		Mutual of Omaha
Advantus Captial Management, Inc		Nationwide Insurance
AEGON USA		New York Life Investment Management LLC
Aetna, Inc.		Northwestern Mutual Life Insurance Company
AIG Global Investment Group		OneAmerica Financial Partners
Allianz Life Insurance of North America		Opus Investment Management (Hanover Ins)
Allstate Investments, LLC		Pacific Life Insurance Company
Assurant, Inc		PartnerRe Asset Management Company
AVIVA USA (formerly AmerUs)		PPM America, Inc.
AXA Equitable		Principal Global Investors
The Chubb Corporation		Progressive Corporation
CIGNA Investment Management		Prudential Financial
Country Insurance & Financial Services		Security Benefit Corporation
CUNA Mutual Group		Sentinel Asset Management, Inc.
FBL Financial Group		Sentry Insurance
Genworth Financial		Standard Life Investments (USA) Limited
Guardian Life Insurance Company		State Farm Insurance Companies
Hartford Investment Management Company		Sun Life Financial
ING Investment Managment		Swiss Re
Liberty Mutual		TIAA-CREF
MBIA Asset Management		The Travelers Companies, Inc.
MetLife Investments		USAA Investment Management Company
MFC Global Investment Management
Mutual of Omaha
Modern Woodmen of America

For named executive officers other than the CEO, the SEBC takes into account the recommendations made by the CEO based on his assessment of each named executive officer’s performance for the year, continued contributions to the company and potential for advancement. The SEBC gives the CEO’s recommendations significant weight in the evaluation process but final decisions on named executive officer compensation are made by the SEBC. The SEBC also considers the medians of the benchmark groups in addition to pre-established guidelines regarding award amounts, company

performance, retention issues, internal equity, and advancement in abilities, experience, and responsibilities.

Allocation Between Current and Long-Term Compensation

Selective allocates compensation between currently paid components, principally comprised of an established base salary and a variable annual cash incentive, and variable long-term components that link compensation opportunities for executives to both short-term and long-term financial and strategic objectives.

Elements of Current Compensation

Base Salary

Selective’s base salary provides stable, competitive compensation and takes into account scope of responsibility, relevant background, training, and experience. The SEBC also considers competitive market data for similar positions and overall market demand for each position. Generally, the SEBC believes base salaries should be aligned with market trends for executives in similar positions and with similar responsibilities at comparable companies. When establishing the 2007 base salaries of the named executive officers, the SEBC considered a number of additional factors, including:

	•		the functional role of the position;
	•		the level of responsibility;
	•		growth of the executive in the role, including skills and competencies;
	•		the contribution and performance of the executive; and
	•		the organization’s ability to replace the executive.

In determining the 2007 base salary for Mr. Murphy, the SEBC considered the overall performance of the organization and Mr. Murphy’s individual performance, as well as, base pay levels of CEOs in the benchmark groups. This comparison showed that Mr. Murphy’s base salary was slightly higher than the medians of the Market/Product Group and Size Group, but aligned with the median of the PCICS group. Consequently, the SEBC concluded that Mr. Murphy’s base salary was appropriately positioned when compared with competitive norms and no salary increase was provided to him in 2007.

Based on the other named executive officers’ contributions to Selective’s growth, reviews of their comprehensive performance appraisals by Mr. Murphy, the potential for voluntary departures and cost and difficulty of replacement, the SEBC approved increases in the 2007 annual base salary rates for Mr. Thatcher from $350,000 to $415,000; Mr. Ochiltree from $430,000 to $460,000; Mr. Connell from $380,000 to $450,000; and Mr. Guthrie from $352,000 to $400,000. These increases were made in the course of the normal annual performance and salary review process, and for Mr. Connell, also reflects an additional increase in late 2007 provided in connection with his appointment as Chief Administrative Officer.

Annual Cash Incentive Payment

Selective’s annual cash incentive payment program (“ACIP”) is based on near-term strategic and financial organizational goals as well as pre-established individual goals and objectives, and is intended to link a meaningful portion of annual cash compensation to the achievement of these goals. For 2007, most of Selective’s executives, including the named executive officers, other than the Chief Investment Officer, were eligible to be considered for an annual cash incentive payment under the Cash Incentive Plan, which was approved at the 2005 Annual Meeting of Stockholders. Each year, the SEBC approves annual strategic and financial goals, which, if attained, result in the funding of an ACIP award pool. An individual’s ACIP is based on position grade level, achievement of various corporate strategic initiatives and a corporate financial measure established for the ACIP, and individual employee performance. For 2007, corporate goals for the ACIP were based on the achievement of six equally weighted strategic initiatives which could account for the funding of up to

36% of the ACIP award pool, and a range of statutory combined ratios (a measurement commonly used within the property and casualty insurance industry to measure underwriting profit or loss — a statutory combined ratio under 100% generally indicates that an insurance company is generating an underwriting profit and a statutory combined ratio over 100% generally indicates that an insurance company is generating an underwriting loss) from 95.0% to 101.0%, that could result in the funding of between 0% and 78% of the ACIP award pool. If none of the ACIP goals were achieved, no ACIP would be paid.

The six (6) strategic initiatives for 2007 were as follows:

     Market Planning

o

Specified number of new agency appointments

     Premium Growth (2 of 3)

	o		Commercial Lines: Designated percentage of certain agents achieving new business targets
	o		Personal Lines: Increase average monthly auto quote activity to a targeted monthly rate
	o		Targeted increase in designated Business Owner Policy accounts, priced within a specified range

     Profitability

	o		Specified improvement in workers compensation managing price and retention by decile
	o		Specified increase in total commercial lines renewal rate (including exposure)

     Technology

o

Specified amount of new commercial premium entered via xSELerate®

     Claims

o

Specified savings through workers compensation managed care initiatives

     Selective HR Solutions

o

Produce targeted number of worksite lives through Selective agents

Based on the attainment of a statutory combined ratio for 2007 of 97.5% and the achievement of four of the six strategic initiatives, the 2007 ACIP award pool was paid out at 63% of its funding target.

The payment opportunities for 2007 ACIP for the CEO and the other named executive officers (other than the Chief Investment Officer) were based on competitive market levels and set as a percentage of annual base salary relative to corresponding levels of performance against the program’s performance goals. The SEBC can exercise discretion to award incentives in amounts lower than the maximums outlined below or to award no incentives at all.

 

Officer			Title			Maximum ACIP Opportunity
Gregory E. Murphy			Chairman, President & CEO			200% of base salary
Dale A. Thatcher			Executive Vice President & CFO			150% of base salary
Jamie Ochiltree, III			Senior Executive Vice President			175% of base salary
Richard F. Connell			Senior Executive Vice President			175% of base salary

For 2007, Mr. Murphy’s annual cash incentive was $900,000 or 100% of base salary, as compared with $1,500,000 or 166% of base salary paid to him for 2006. In evaluating Mr. Murphy’s performance in 2007, the SEBC utilized a comprehensive written performance review which was compiled from submissions by all non-executive members of the company’s Board of Directors. As CEO, Mr. Murphy had ultimate responsibility for the achievement of the financial and strategic goals described above. Since the company did not meet certain of its stated strategic and financial objectives, the

SEBC felt the reduction in his ACIP was warranted and in keeping with the pay for performance philosophy of the company.

For each of the other named executive officers other than the Chief Investment Officer (who instead participates in the Investment Compensation Program) annual cash incentive payments were determined by the SEBC based on overall company performance, as well as the achievement of key department initiatives established in the first quarter of the year, and individual performance, and included the following:

Mr. Thatcher — In addition to his general management accountabilities for overall enterprise goal achievement, Mr. Thatcher completed a number of complex capital management transactions including the redemption of senior convertible debt and implementation of various tax strategies. He significantly improved internal mechanisms to manage treasury functions and specific accounting capabilities. Mr. Thatcher was also responsible for managing an expanded investor relations function, was the principal architect of the company’s corporate financial redesign and he created an enterprise risk management function to coordinate and strengthen existing company practices.

Mr. Ochiltree — In his role as head of Insurance Operations, Mr. Ochiltree was responsible for the achievement of revenue growth, the overall management of the company’s branch and diversified insurance services organizations and claims, underwriting, and strategic business units. Under his direction, the company exceeded its 2007 new business goal, expanded the use of its One & Done business process and significantly grew agent adoption and use of the company’s seamless business process, xSELerate^® and completed a two-year plan to reduce the combined ratio for the workers compensation line of business by over seven points. In 2007, operations exceeded the targeted number of new agency appointments by 43%, in addition to meeting specific goals within the diversified insurance services operations, and implementing a series of notable improvements in our claims operations.

Mr. Connell — As Chief Administrative Officer, Mr. Connell led the company’s project management discipline which significantly contributed to the progress of the company’s Knowledge Management and Predictive Modeling processes and the acquisition of new business. Mr. Connell’s 2007 performance evaluation also took into account the successful installation of automated solutions for commercial lines of business in Massachusetts and three additional states for Personal Lines, in addition to the upgrade in systems and systems support for Selective HR Solutions, the company’s affiliated professional employer organization operation. Mr. Connell provided oversight in the implementation of a treasury interface system and provided active leadership and direction for the Strategic Management Office.

The Chief Investment Officer’s annual cash incentive compensation is not paid under the ACIP program but is instead paid under the Investment Compensation Program. This program measures overall investment results against stated benchmarks for both fixed income and equity portfolio performance. For 2007, annual cash incentive payments to the Chief Investment Officer and other company investment professionals were calculated based on results achieved over one-year and two-year performance periods. If investment results are below those benchmarks, the program’s annual incentive cash award pool is reduced. If the investment team exceeds the benchmarks, the pool is increased. A final investment factor (pool modifier) is calculated each year after investment results are calculated. The 2007 pool modifier was approximately 124%. Listed below are the 2007 investment program performance measures:

Equity — Achieve portfolio performance as compared with the S&P 500 Index

Fixed Income — Achieve portfolio performance as compared with the custom blended Lehman weighted average debt indices

Mr. Guthrie — As Chief Investment Officer, Mr. Guthrie’s performance is measured against overall investment results. Investment results for the equity portfolio were significantly higher than the

S&P 500, whereas fixed income results were below expectations. In 2007 after-tax investment income exceeded the budgeted target by 1.4% or approximately $1.8 million. Mr. Guthrie was responsible for the implementation of various state of the art risk measurement and analysis tools utilized to effectively control investment risk. Notably, the company’s fixed income portfolio contained no direct sub-prime exposure. Mr. Guthrie was also responsible for the successful completion of various improvements to the investments of the company’s defined benefit pension plan and defined contribution benefit plan, and for continuing to build investment expertise and research capability within the Investment Department.

Long-Term Incentive Program Award (“LTIP”) Funding

For each eligible employee, including the named executive officers, a dollar denominated target award is established. To determine the amount of the total LTIP award pool, all individual target award amounts are aggregated. For employees below the officer level, participation in the LTIP is limited to a select group of high performers in the company.

Elements of Long-Term Compensation

Selective uses both cash and non-cash vehicles to deliver long-term compensation, which is consistent and competitive with the market practices of Selective’s benchmark insurance groups. This approach also takes into account Selective’s prior commitment made in its 2005 proxy statement to maintain a three-year average annual share utilization “burn-rate” of not greater than two percent (2%) for awards granted under the Omnibus Stock Plan, including awards to the named executive officers (“Burn-Rate Commitment”). The average share utilization burn-rate for the three-year period ended December 31, 2007 for grants under the Omnibus Stock Plan was 1.16%; within the prior Burn-Rate Commitment.

Selective views long-term compensation as a retention tool for Selective’s named executive officers, and as a vehicle to help focus these executives on long-term goals. By granting performance-based restricted stock and performance-based cash incentive units with three-year performance periods and options with three-year ratable vesting periods, Selective encourages executive officers to continue their tenure with Selective, while aligning such executive’s interests with those of Selective stockholders. In determining the amount of long-term compensation awards in 2007, the SEBC looked at several factors, including: (i) the individual executive’s performance during the previous year, including the achievement of department initiatives and other projects and endeavors accomplished throughout the year, as outlined above; (ii) the executive officer’s total compensation in comparison to benchmark data; and (iii) Selective’s desire to encourage long-term retention of high-performing executives. The SEBC compared Selective’s performance, including combined ratios, revenue growth, net premium written growth, and total shareholder return, to the performance of the companies in the benchmark insurance groups to help ensure that Selective’s executive officers are being adequately and competitively compensated for the results they have achieved for Selective.

For certain executives, including the named executive officers, long-term compensation awards are allocated among three components: stock options, performance-based restricted stock and performance-based cash incentive units.

Stock Options

Stock options are allocated to the CEO and other named executive officers on a portion of the monetized value of the executive’s long-term compensation award. As the value delivered by a stock option is dependent on the increase in value of the underlying shares, an award of this nature is also aligned with the interests of stockholders. Options are awarded under the Omnibus Stock Plan at fair market value (the closing price of Selective’s common stock as quoted on NASDAQ on the date of grant) (“Fair Market Value”) and they vest ratably over three years, beginning on the first anniversary of the date of grant. The value of any executive’s stock option grant is limited to a Fair Market Value on date of grant of $100,000, so that the grant would qualify for incentive stock option (“ISO”) tax

treatment. Selective’s use of options has been generally lower than other financial services companies and is consistent with the Burn-Rate Commitment.

Performance-Based Restricted Stock

For 2007, seventy-five percent (75%) of the remaining monetized value of an executive’s long-term compensation is delivered in performance-based restricted stock under the Omnibus Stock Plan. Performance-based restricted stock grants are subject to certain performance measures that are set annually by the SEBC. The 2007 grants are subject to the following conditions:

	•		Three-year vesting period; and
	•		Achievement at any time during the vesting period of either: (i) a cumulative return on equity of twenty percent (20%) (excluding unrealized gain occurring after December 31, 2006), or (ii) a ten percent (10%) cumulative growth in net premiums written.

Cash dividends are paid on performance-based restricted stock at the same dividend rate paid to all Selective stockholders. This use of restricted stock clearly aligns this component of executives’ compensation with overall corporate performance and stockholder interests.

Performance-Based Cash Incentive Units

The remaining twenty-five percent (25%) of the monetized value of an executive’s long-term compensation is delivered through cash incentive units granted under the Cash Incentive Plan. Grants made in 2007 are subject to the following conditions:

	•		Three-year performance period;
	•		The value of each cash incentive unit initially awarded increases or decreases to reflect total shareholder return on Selective common stock over the three-year performance period for the award; and
	•		The number of cash incentive units ultimately earned increases or decreases based on: (i) cumulative three-year statutory net premium written growth relative to a peer index, and (ii) cumulative three-year statutory combined ratio relative to a peer index. Awards are earned at target level if these performance measures are between the 45th and 54.9th percentile of the peer group. If both measures are at or above the 80th percentile, 200% of the units initially awarded are earned. If both measures are below the 35th percentile, 0% of the units initially awarded are earned.

The group (the “Cash Incentive Unit Peer Group”) established for comparing Selective’s performance for the purposes of determining the ultimate number of performance-based cash incentive units awarded consists of the following companies:

Auto-Owners Insurance Group		CNA Group LLC
Liberty Mutual Group Inc.		The Travelers Companies, Inc.
Hartford Fire Group		Harleysville Group Inc.
Safeco Insurance Company of America		Utica National Insurance Group
Erie Insurance Exchange		Hanover Insurance Group, Inc.
Cincinnati Financial Corporation		W. R. Berkley Corporation
Onebeacon Insurance Group LLC

Use of the cash incentive units in lieu of stock options or restricted stock also conserves share usage consistent with the Burn-Rate Commitment. As the cash incentive unit grants take into account Selective’s three-year performance relative to its peer group and total shareholder return on its common stock, this award is also directly linked to company performance and the interests of stockholders.

Timing of Awards

Generally, stock option, restricted stock, and cash incentive unit awards were granted in January or February of each year in connection with the SEBC’s regularly scheduled first quarter meeting. It was at this time that the SEBC and the Board of Directors, at their respective meetings, reviewed final year-end results for the prior year and the SEBC made final determinations on compensation.

Stock Ownership Requirements

Selective believes that stock ownership by Directors and management encourages the enhancement of stockholder value and, accordingly, has adopted, effective January 31, 2008, the following common stock ownership guidelines for Directors and certain officers as part of its Corporate Governance Guidelines posted on Selective’s public website www.selective.com:

	•		Each director shall, within five (5) years of his or her first election to the Board, beneficially own at least four (4) times the cash value of his or her annual retainer in shares of Selective common stock. Shares of Selective common stock currently owned, awards of restricted stock or restricted stock units not yet vested and shares of Selective common stock held in benefit plan investments (i.e. 401(k) Plan) are considered in determining such ownership. Unexercised stock options are not counted in calculating ownership. Deferred stock units held in the accounts of Directors under the Deferred Compensation Plan for Directors are counted in calculating ownership.
	•		The current requirements for certain officers of Selective are as follows:

Chairman, President & CEO		4 x base salary
Senior Executive Vice Presidents and Executive Vice Presidents		2.5 x base salary
Senior Vice Presidents		1.5 x base salary

The above stock ownership requirements for officers must be met no later than December 31, 2013, or within five (5) years from the attainment of the above officer status, whichever is later. Base salary increases during the five (5) year period will require the ultimate ownership requirements to increase when shares are valued on the December 31 following such increase. Shares of Selective common stock currently owned, awards of restricted stock or restricted stock units not yet vested and shares of Selective common stock held in benefit plan investments (i.e. 401(k) Plan) are considered in determining such ownership. Unexercised stock options are not counted in calculating stock ownership.

Role of Executive Officers in Determining Compensation

The SEBC makes all final determinations with respect to executive officers’ compensation, primarily based on information provided by its independent compensation consultant. Selective’s Chief Executive Officer does make recommendations to the SEBC relating to the compensation of executive officers who directly report to him, but the SEBC has full autonomy in determining executive compensation. As part of their responsibilities, the Executive Vice President of Human Resources, and certain other human resource officers, provide information to the SEBC regarding the overall design of the executive compensation program and its individual components.

Retirement and Deferred Compensation Plans

Selective’s lead insurance subsidiary, SICA, maintains a non-contributory defined benefit pension program consisting of a tax qualified defined benefit pension plan (the “Retirement Income Plan”) and a supplemental employee retirement plan and maintains health and welfare benefit plans in which eligible employees, including the named executive officers, participate. The pension program is more fully described in the section entitled “Pension Benefits” beginning on page 32.

SICA offers a tax qualified defined contribution plan (the “Retirement Savings Plan”) to employees, including the named executive officers, who meet eligibility requirements. Participants, other than highly compensated employees as defined by the Internal Revenue Service, can contribute 50% of their defined compensation to the Retirement Savings Plan, up to $15,500 in 2007. Highly compensated employees are limited to 8% of their defined compensation, up to $15,500 in 2007. Contributions by participants are matched 65% by SICA up to a maximum of 7% of defined compensation. Participants over the age of 50, including certain of the named executive officers, may make an additional $5,000 catch-up contribution to the Retirement Savings Plan, pursuant to the Internal Revenue Code, which contribution is not eligible for a company match. Effective January 1, 2006, the Retirement Savings Plan was amended to include additional enhanced matching contributions and non-elective contributions for otherwise eligible employees who, because of a date of hire after December 31, 2005, are not eligible to participate in the Retirement Income Plan. None of the named executive officers are eligible for the enhanced matching or the additional non-elective contributions.

Under SICA’s Deferred Compensation Plan, executives, including the named executive officers, may defer up to 50% of their base salary and/or up to 100% of their ACIP. To the extent not matched in the Retirement Savings Plan, due to limitations under the Internal Revenue Code, Selective will match 65% of up to 7% of an executive’s base salary contributed to the Deferred Compensation Plan. Additional information regarding the deferred compensation is included under “Nonqualified Deferred Compensation” on page 33.

Employment Agreements

Selective has entered into employment agreements containing change in control provisions. The employment agreements are described under “Employment Agreements and Potential Payments Upon Termination or Change of Control” beginning on page 35.

Summary Compensation Table

The following Summary Compensation Table reflects the compensation earned by or paid to the named executive officers. Other tables that follow provide more detail about the specific types of compensation.

	•		Mr. Murphy: $33,075 of company matching contributions to Mr. Murphy’s Deferred Compensation Plan, $3,000 for tax preparation services, and $6,825 of company matching contributions to Mr. Murphy’s 401(k) plan.
	•		Mr. Thatcher: $13,312 of company matching contributions to Mr. Thatcher’s Deferred Compensation Plan, $1,500 for tax preparation services, and $2,263 of company matching contributions to Mr. Thatcher’s 401(k) plan.
	•		Mr. Ochiltree: $9,535 of company matching contributions to Mr. Ochiltree’s Deferred Compensation Plan, $3,000 for tax preparation services, $9,750 of company matching contributions to Mr. Ochiltree’s 401(k) plan, and $1,442 representing the difference between the market rate of interest and the actual rate of interest on indebtedness to the company.
	•		Mr. Connell: $7,330 of company matching contributions to Mr. Connell’s Deferred Compensation Plan, $675 for tax preparation services, and $9,750 of company matching contributions to Mr. Connell’s 401(k) plan.
	•		Mr. Guthrie: $12,936 of company matching contributions to Mr. Guthrie’s Deferred Compensation Plan, $1,660 for tax preparation services, $2,937 of company matching contributions to Mr. Guthrie’s 401(k) plan, and $730 representing the difference between the market rate of interest and the actual rate of interest on indebtedness to the company.

	•		Mr. Murphy: $30,875 of company matching contributions to Mr. Murphy’s Deferred Compensation Plan, and $10,114 of company matching contributions to Mr. Murphy’s 401(k) plan.
	•		Mr. Thatcher: $15,569 of company matching contributions to Mr. Thatcher’s Deferred Compensation Plan, and $2,859 of company matching contributions to Mr. Thatcher’s 401(k) plan.
	•		Mr. Ochiltree: $10,645 of company matching contributions to Mr. Ochiltree’s Deferred Compensation Plan, $10,075 of company matching contributions to Mr. Ochiltree’s 401(k) plan, and $1,219 representing the difference between the market rate of interest and the actual rate of interest on indebtedness to the company.
	•		Mr. Connell: $8,650 of company matching contributions to Mr. Connell’s Deferred Compensation Plan, $525 for tax preparation services, and $10,075 of company matching contributions to Mr. Connell’s 401(k) plan.
	•		Mr. Guthrie: $14,790 of company matching contributions to Mr. Guthrie’s Deferred Compensation Plan, $2,280 for tax preparation services, $3,075 of company matching contributions to Mr. Guthrie’s 401(k) plan, and $617 representing the difference between the market rate of interest and the actual rate of interest on indebtedness to the company.

Grants of Plan Based Awards

Outstanding Equity Awards at Fiscal Year End

The following table shows the unexercised options and unvested stock awards to our named executive officers as of December 31, 2007: