Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Southwest IDEAS Conference 2012
37 slides from Selective Insurance's conference presentation, Nov 15, 2012
Slide 1: Southwest IDEAS Conference
Southwest IDEAS Conference November 15, 2012
Slide 2: Forward Looking Statement
Forward Looking Statement Certain statements in this report, including information incorporated by reference, are “forward‐looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a safe harbor under the Securities Act of 1933
Slide 3: Foundation for Success
Foundation for Success Tony Harnett SVP, Corporate Controller
Slide 4: Who We Are
Who We Are • $1.5B 2011 NPW • Super‐regional carrier • Standard lines distributed through independent agents • Excess & Surplus (E&S) lines distributed through wholesale agents • 80% standard commercial lines • History of financial strength
Slide 5: Business Diversification
Business Diversification Standard Commercial Lines • 22 state footprint • 1,100 independent agency relationships • Average account size of $9,000 Personal Lines • 13 state footprint • 600 independent agents • Agents want joint C/L & P/L markets • Flood 2011 net income of $11M E&S Contract Binding Au
Slide 6: Diversification Leads to Profit Opportunities
Diversification Leads to Profit Opportunities Net Premiums Written % Projected 2011 5‐Year View 2% 10‐15% 18% 20% 80% 65‐70% Standard Commercial Personal Excess & Surplus
Slide 7: Financial Strength is our Foundation for Success
Financial Strength is our Foundation for Success • Underwriting stability • Disciplined reserving • Conservative investments • Benefits of leverage
Slide 8: Underwriting Stability
Underwriting Stability % Statutory Combined Ratio – SIGI vs. Industry 115 SIGI (STD. DEV 3.8) 110 Industry (STD. DEV 4.3) 105 100 95 90 85 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 6/30/12 YTD Source: A.M. Best, III Note: Industry excluding Mortgage and Financial Guaranty Segments since 2007
Slide 9: Impact of CATs on Combined Ratio
Impact of CATs on Combined Ratio pts SIGI Avg = 2.5 pts 12 Ind. Avg. = 4.6 pts 10 8 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 6/30/12 YTD SIGI Industry Source: AM Best SIGI September YTD CAT Losses of 4.0 pts
Slide 10: Managing Increased Catastrophes
Managing Increased Catastrophes • In 2011, increased CAT reinsurance program from $360M in excess of $40M to $435M in excess of $40M • Personal Lines • Maximizing rate in homeowners • Age of roof restrictions • Deductible changes
Slide 11: Calendar Year Development
Calendar Year Development 8% 6% (Favorable)/Adverse Points 4% 2% 0% ‐2% ‐4% ‐6% 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011 6/30/12 YTD Industry SIGI Source: AM Best, III Note: Industry excluding Mortgage and Financial Guaranty Segments *2010 Industry development includes $4B charge from AIG
Slide 12: Conservative Investment Portfolio
Conservative Investment Portfolio • Well diversified, laddered $4.3B Invested Assets portfolio September 30, 2012 • Deployed high dividend yield equities strategy in 2011 Bonds 89% “AA‐” Avg Rating • Only 1.7% of bond portfolio rated “BB” & below • 3.5 year average duration, excluding short‐term Sho
Slide 13: Selective's Use of Underwriting Leverage
Selective’s Use of Underwriting Leverage 1.9 1.9 1.8 1.7 1.7 1.7 1.6 Premium to Surplus Ratio 1.5 1.5 1.5 1.5 1.4 1.3 1.3 1.3 1.2 1.1 1.1 1.0 0.9 0.9 0.9 0.9 0.8 0.8 0.7 0.7 0.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 SIGI Industry Sources: ISO, AM Best, III Note: Industry excluding Mortga
Slide 14: Impact of Leverage
Impact of Leverage Combined Ratio Required for 12% ROE 100 % SIGI Industry ~95% 90 Investment Leverage 3.7x ~87% U/W Leverage 1.4x 80 Investment Leverage 2.4x U/W Leverage 0.8x 70 2011 Industry Source: AM Best
Slide 15: Combined Ratio Improvement Plan
Combined Ratio Improvement Plan % 115 6.5 110 105 103.3 100 (12.5) 1.0 ~95.0 95 (1.5) (2.0) 90 85 *Adjusted for excess CATS and favorable reserve development
Slide 16: Strategic Overview
Strategic Overview Jennifer DiBerardino SVP, Investor Relations & Treasurer
Slide 17: What Makes Us Unique
What Makes Us Unique • Empowered decision makers • Superior agency relationships • Sophisticated tools • Focus on customer experience • Excellent risk management Culture of Continuous Improvement
Slide 18: Relationships with the Highest Caliber Agents
Relationships with the Highest Caliber Agents • Franchise value • Greater share of wallet • Strong feedback loop 2011 • $1.5M NPW per agency • 8.3/10 on agency survey
Slide 19: A Regional with National Capabilities
A Regional with National Capabilities Capabilities of a National Nimbleness of a Regional • Sophisticated pricing • Relationships • Fraud and recovery models • Local decision making • Advanced data and technology Selective: A Unique Super‐Regional
Slide 20: Pricing Sophistication – Dynamic Portfolio Manager
Pricing Sophistication – Dynamic Portfolio Manager • ~20 factors driven through DPM generate individual policy guidance and portfolio level impact • Line of business and segment strategy What if? • CAT modeling • Predictive modeling • Agency profitability • Risk characteristics • “What‐if” profitabi
Slide 21: Commercial Lines Price by Retention Group
Pricing Sophistication – Dynamic Portfolio Manager September 2012 YTD Pricing by Retention Group 14% 90% Commercial Lines Price 12% 10% 80% 8% Retention 6% 70% 4% 2% 0% 60% Above Average Average Below Average Low September YTD Price = 6.0%
Slide 22: Relationships Drive Pricing Through the Cycle
Relationships Drive Pricing Through the Cycle 8% 90% 7% 85% Commercial Lines Price Quarterly Retention 6% 80% 5% 4% 75% 3% 70% 2% 65% 1% 0% 60% 2Q:09 1Q:10 1Q:11 1Q:12 3Q:12 14 Consecutive Quarters of Positive Price
Slide 23: Personal Lines Sophistication
Personal Lines Sophistication Homeowners • Increasing rate • By‐peril rating • Encourage whole account customers Auto • Increasing rate • Continued mix improvements • Underwriting restrictions • Claims initiatives • Age of book
Slide 24: Homeowners Pricing
Homeowners Pricing 7% 95% 6% Renewal Pure Price 5% 85% Retention 4% 3% 75% 2% 1% 0% 65% 2008 2009 2010 2011 9/30/12 YTD Total impact of all 2012 rate increases ~ 11% Targeting upper‐80’s combined ratio in normal CAT year
Slide 25: Personal Auto Pricing
Personal Auto Pricing 7% 95% 6% Renewal Pure Price 5% 85% Retention 4% 3% 75% 2% 1% 0% 65% 2008 2009 2010 2011 9/30/12 YTD Total impact of all 2012 rate increases ~ 6%
Slide 26: Achieving Better Outcomes in Claims
Achieving Better Outcomes in Claims • Fraud detection model • Recovery model • Triage 2011 • Comprehensive data management tools • Complex claims 2012 • Medical management 2013 Projected 3 Point Loss Cost Savings
Slide 27: Why Invest in Selective?
Why Invest in Selective? • Proven ability to manage the market cycle • Growth at the right time • Grew faster and longer in last hard market • Strong balance sheet limits downside • Attractive valuation with ~3% dividend yield
Slide 28: Financial Highlights 2008 – Q3 2012
Financial Highlights 2008 – Q3 2012 2008 2009 2010 2011 Q1:12 Q2:12 Q3:12 NPW Growth (4.5)% (4.7)% (2.3)% 6.8% 16.1% 13.6% 13.5% Operating EPS* $1.43 $1.39 $1.38 $0.38 $0.28 $0.01 $0.34 Net Income per Share* $0.82 $0.68 $1.23 $0.40 $0.33 $0.01 $0.33 Dividend per Share $0.52 $0.52 $0.52 $0.52 $0.13 $
Slide 29: Net Operating Cash Flow
Net Operating Cash Flow ($ in millions) 440 Cash Flow as % of NPW 390 386 340 290 240 241 190 228 25% 140 16% 16% 159 90 11% 123 8% 40 2007 2008 2009 2010 2011 YTD September 2012: $168M
Slide 30: Investment Income – After-tax
Investment Income – After‐tax ($ in millions) 140 130 134 120 110 111 111 100 105 90 96 80 70 60 50 40 2007 2008 2009 2010 2011 YTD September 2012: $74M
Slide 31: Conservative Reinsurance Program
Conservative Reinsurance Program 25% % of Equity at Risk Blended Model Results (RMS v11 & AIR v13) 20% Long Term Near Term 21% 15% 16% 10% 5% 3% 4% 0% 1% Probability 0.4% Probability CAT cover: $435M in excess of $40M Percentages are after tax and include applicable reinstatement premium. Data as of
Slide 32: Focused Expense Management
Focused Expense Management 36 SIGI Peer Median 35 34 GAAP Expense Ratio 33 32 31 30 29 28 27 26 2007 2008 2009 2010 2011 9/30/12 YTD Source: SNL Financial; includes policyholder dividends Peers include CINF, CNA, HIG, STFC , THG, TRV, UFCS, and WRB
Slide 33: Insurance Operations Productivity
Insurance Operations Productivity % ($ in 000s) NPW per Employee Statutory Expense Ratio 900 33 32.5 797 797 816 766 791 32 761 700 31.5 31 30.5 500 30 29.5 300 29 2007 2008 2009 2010 2011* 9/30/12* *Excludes E&S Operations
Slide 34: Commercial Lines Profitability
Commercial Lines Profitability Statutory Combined Ratios 115 % 110 105 104.3 102.2 101.8 1.1 100.9 99.8 100.8 6.4 0.5 3.1 100 101.1 2.4 98.5 3.3 95.9 95.0 2.1 99.3 98.7 98.5 0.9 97.9 95.4 93.6 1.2 97.5 95 1.5 0.3 96.4 95.0 93.9 93.3 93.8 90 85 Impact of Catastrophe Losses Combined Ratio excluding CA
Slide 35: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2011 Standard Commercial Lines Direct Premium Written Bonds Community and 2% Public Services Contractors 23% 34% Manufacturing & Mercantile 41%
Slide 36: Premium by Line of Business
Premium by Line of Business 2011 Commercial Lines Net Premium Written Workers Compensation General Liability 21% 29% Commercial Property 16% Other Auto 3% Bonds BOP 2% 23% 6%
Slide 37: Long-Term Shareholder Value Creation
Long‐Term Shareholder Value Creation $25 0.52* 0.52 $20 0.44 0.49 0.52 20.44 0.52 0.40 18.82 18.97 19.45 17.87 0.52 17.80 0.35 Per Share $15 0.31 16.44 15.81 14.96 0.30 12.96 $10 11.57 $5 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Sep‐12 Book Value Dividend *Annualized indicated dividend N
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