Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Bank of America Merrill Lynch 2013 Insurance Conference
39 slides from Selective Insurance's conference presentation, Feb 11, 2013
Slide 1: Bank of America Merrill Lynch 2013 Insurance Conference
Bank of America Merrill Lynch 2013 Insurance Conference February 13, 2013 4y SELECTIVE
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 Dale Thatcher EVP, Chief Financial Officer 4y SELECTIVE"
Slide 4: Who We Are
Who We Are 4 e $1.7B 2012 NPW ¢ Super-regional carrier ¢ Standard lines distributed through independent agents ¢ Excess & Surplus (E&S) lines distributed through wholesale agents ¢ 76% standard commercial lines ca | ¢ History of financial strength Ay SELECTIVE”
Slide 5: Business Diversification
Business Diversification & sevective’ Personal Lines * 13 state footprint * 620 independent agents * Agents want joint C/L & P/L markets * Flood 2012 net income of $19M E&S Contract Binding Authority *Right time to enter business *Wholesale agents have controlled binding authority and no claims auth
Slide 6: Diversification Leads to Profit Opportunities
Diversification Leads to Profit Opportunities Net Premiums Written % Projected 5-Year View 2012 < = i Standard Commercial te Personal bed Excess & Surplus Ay SELECTIVE”
Slide 7: Access to capital markets
¢ Access to capital markets — February 8, 2013 issued $175 million 5.875% senior notes Financial Strength is our Foundation for Success due 2043 — Use of proceeds: | * Call $100 million 7.5% junior subordinated notes due 2066 — * Balance to fund growth —— SST & sevective’
Slide 8: Underwriting Stability
Underwriting Stability ae % Statutory Combined Ratio — SIGI vs. Industry 115 5 <@SIGI (STD. DEV 3.7) 110 ~ @Industry (STD. DEV 4.1) 105 100 + 95 + 90 + 85 , , , T T 2003 2004 2005 2006 2007 2008 2009 2010 2011 =—.2012* 2012 AM Best Industry Estimate Source: AIM, Best and surance information Institut
Slide 9: Impact of CATs on Combined Ratio
Impact of CATs on Combined Ratio 12Pts be SIGI Avg = 2.6 pts 10 + 2003 2004 2005 2006 2007 2008 2009 2010 12012 AM Best Industry Estimate Best Fr & sevective’ 2011 2012*
Slide 10: Managing Increased Catastrophes
Managing Increased Catastrophes ¢ Hurricane Sandy Pre-tax gross losses estimated to be $136 million Pre-tax net catastrophe losses of $47 million Reinsurance reinstatement premium of $9 million Flood claims handling fees offset of $16 million Pre-tax net loss of $40 million, or $0.46 per diluted sha
Slide 11: Conservative Reinsurance Program
Conservative Reinsurance Program _. % of Equity at Risk 12% 4 Blended Model Results (RMS v11 & AIR v13) 10% + 3% 4 6% 4 4% 4 2% 4 3% 0% + 1% Probability 0.4% Probability CAT Cover: $585M in excess of $40M Percentages are ofter tox and include applicable reinstatement premium. Data as of 7/12; Equity
Slide 12: Calendar Year Development
Calendar Year Development _ 1% 0% (Favorable)/Adverse Points NX x = Wi sici Wi Industry 2003 2004 2005 2006 2007 2008 2009 2010* 2011 212" 2010 industry development icudes $48 charge from AIG "2012 AM Best Industry Extinate & seuective’ Tiny cha Morano cl ary een
Slide 13: Conservative Investment Portfolio
Conservative Investment Portfolio SS, ° Well diversified, laddered $4.3B Invested Assets portfolio December 31, 2012 * Only 1.7% of bond portfolio rated “BB” & below “AA-” Avg Rating * 3.6 year average duration, excluding short-term * Investment leverage of 3.97 x 2.4% yield = ~ 9.5% ROE J BN) short
Slide 14: Premium to Surplus Ratio
Premium to Surplus Ratio Selective’s Use of Underwriting Leverage 1.9 17 1.5 1.3 11 0.9 0.7 0.5 418 bei sici Wi Industry aE 1.7 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 12012 AM Best Industry Estimate Sources: 180, AM Best and Inurance Information Institute Note: industry exuding Mertgage
Slide 15: Impact of Leverage
Impact of Leverage Combined Ratio Required for 12% ROE 100 ¥ ~95% SIGI 90 Investment Leverage 4.0x U/W Leverage 1.6x Industry Investment Leverage 2.3x 80 U/W Leverage 0.8x 70 + 2012 Industry Source: AM Best Ay SELECTIVE”
Slide 16: Combined Ratio Improvement Plan
Combined Ratio Improvement Plan 115% 110 Bs 105 7 100.9 | 100 penmarveererrnreneeee nn 95 (12.5) | Company expectation for 3 points of CAT losses in 2013 & 2014 "Excluding CATS and reserve development SELECTIVE”
Slide 17: Strategic Overview
Strategic Overview Greg Murphy Chairman, President & CEO 4y SELECTIVE=
Slide 18: What Makes Us Unique
What Makes Us Unique ~ Empowered decision makers g 8 Arn Superior agency relationships ¢ Sophisticated tools ¢ Focus on customer experience e Excellent risk management | Culture of Continuous Improvement 4y SELECTIVE®
Slide 19: Relationships with the Highest Caliber Agents
Relationships with the Highest Caliber Agents ¢ Franchise value * Greater share of wallet * Strong feedback loop 2012 Cr ¢ $1.4M NPW per agency * 8.3/10 on agency survey Fi
Slide 20: A Regional with National Capabilities
A Regional with National Capabilities Capabilities of a National * Sophisticated pricing * Fraud and recovery models * Advanced data and technology Selective: @ A Unique Super-Regional 4y SELECTIVE®
Slide 21: 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 © CAT modeling ¢ Predictive modeling e Agency profitability e Risk characteristics e “What-if” profitability anal
Slide 22: Pricing Sophistication — Dynamic Portfolio Manager
Pricing Sophistication — Dynamic Portfolio Manager 14% 12% 10% 8% Price 6% 4% 2% 2012 Pricing by Retention Group — Standard Commercial Lines 0% - Above Average | Ay SELECTIVE” Average Below Average 2012 Price = 6.2% Low r 90% + 80% + 70% ~ 60% Retention
Slide 23: Relationships Drive Pricing Through the Cycle
Relationships Drive Pricing Through the Cycle Standard Commercial Lines Price 8% 5 r 90% PR | 85% 6% + 5 me F ial 2 4% 4 | 75% o& = 4 = 3% + 70% 2% + a axe | | 65% o% 4 | 60% SP SP Ao A wy wy a so ao oF" oP PP OPO | Anticipate commercial lines pricing between 7.5% and 8% for 2013 4 SELECTIVE
Slide 24: 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 Anticipate personal lines pricing of approximately 7% in 2013 4y SELECTI
Slide 25: Homeowners Pricing
Homeowners Pricing 8% 4 a x L L 5% 4 4% + 3% 4 Renewal Pure Price g f Bb & 1 2008 4 SELECTIVE 2009 2010 2011 2012 Targeting upper-80’s combined ratio in normal CAT year Anticipate pricing of approximately 8.5% in 2013 95% 85% 75% 65% Retention
Slide 26: Personal Auto Pricing
Personal Auto Pricing ; 7% 4 Renewal Pure Price 2008 2009 2010 2011 2012 | Anticipate pricing of approximately 5.5% in 2013 95% 85% 75% 65% 4 SELECTIVE” Retention
Slide 27: Achieving Better Outcomes in Claims
Achieving Better Outcomes in Claims *Medical cost containment *Complex claims *Fraud detection model * Recovery model Litigation management *Comprehensive data management tools 4 SELECTIVE”
Slide 28: 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 ~2.5% dividend yield ¢ SELECTIVpe ! pesponse is everything » 4y SELECTIVE”
Slide 29: 2013 Guidance
2013 Guidance* ¢ Statutory combined ratio of 96%, excluding catastrophes and any prior year development either favorable or unfavorable ¢ A3 point estimate for catastrophe losses ¢ After-tax investment income of approximately $90-95 million ¢ Weighted average shares of approximately 56 million at ye
Slide 30: Additional Information
Additional Information 4 SELECTIVE®
Slide 31: Financial Highlights 2008 — 2012
Financial Highlights 2008 — 2012 2008 2009 2010 2011 2012 Statutory NPW Growth (4.5)% | — (4.7)% (2.3)% 6.8% | 12.2% Operating EPS* $1.43| $1.39 $1.38 $0.38 $0.58 Net Income per Share* $0.82| $0.68 $1.23 $0.40| $0.68 Dividend per Share $0.52| $0.52 $0.52 $0.52 $0.52 Book Value per Share* $15.81| $17
Slide 32: Net Operating Cash Flow
(Sin millions) 290 240 + 190 + 140 + 90 4 Net Operating Cash Flow Cash Flow as % of NPW 241 228 227 159 2008 2009 2010 2012 4y SELECTIVE®
Slide 33: Investment Income — After-tax
(Sin millions) 120 110 100 90 80 70 60 50 40 Investment Income — After-tax | i | 2008 2009 2010 2011 2012 4y SELECTIVE®
Slide 34: Focused Expense Management
Focused Expense Management 36 @sicGi Hi Peer Median 35 34 33 a2 31 30 29 GAAP Expense Ratio 28 27 26 + T T T 2007 2008 2009 2010 2011 9/30/12 YTD Source: SNL Financial includes policyholder dividends Peers include CINF, CNA, HIG, STFC , THG, TRV, UFCS, and WRB 4 SELECTIVE®
Slide 35: Insurance Operations Productivity
Insurance Operations Productivity ($ in 000s) 900 + la NPW per Employee —Statutory Expense Ratio 700 500 300 2007 2008 2009 2010 2011* 2012* “Excludes Excess & Surplus Lines ® seucriver
Slide 36: Standard Commercial Lines Profitability
Standard Commercial Lines Profitability Statutory Combined Ratios 115% 110 9 498g 08g ga gat gaat? at ast” HE impact of Catastrophe Losses [HE Combined Ratio excluding CATS *Includes impact of reinstatement premium on catastrophe reinsurance program as a result of Hurricane Sandy @ strscrive?
Slide 37: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2012 Standard Commercial Lines Direct Premium Written Bonds Community and 1% Public Services Contractors 23% 34% Manufacturing & Mercantile 42% +» SELECTIVE®
Slide 38: Premium by Line of Business
Premium by Line of Business 2012 Standard Commercial Lines Net Premium Written Workers aaa General Liability 21: 31% Commercial Property a y Other 1% Bonds gop a 1% 6% 23% 4y SELECTIVE®
Slide 39: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation $25 5 $20 $15 { $10 $5 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 @ Book Value m Dividend Note: Book value restated for change in deferred policy acquisition costs (2002-2006 Estimated) 4y SELECTIVE®
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