Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Investor Presentation (November 2010)
29 slides from Selective Insurance's investor presentation, November 2010
Slide 1: Selective Insurance Group, Inc. Investor Presentation November 2010
Selective Insurance Group, Inc. Investor Presentation November 2010
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: Financial Strength
Financial Strength SELECTIVE*® Response is’ everything. E
Slide 4: Who We Are
Who We Are • 22-state super-regional • High tech, high touch business model MN MI NY CTMA • Partner of choice – 980 independent WI CT RI MI agents IA PA NJ OH MD DE IL IN • 2009: $1.4B NPW MO VA KY • 84% commercial lines TN NC SC • 16% personal lines GA • History of financial strength Rated A+ by A.
Slide 5: Selective: A Growth Company
Selective: A Growth Company Commercial Lines Policy Counts 425,000 405,000 385,000 365,000 345,000 325,000 305,000 285,000 265,000 245,000 225,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slide 6: Selective: A Growth Company
Selective: A Growth Company • Return audit and endorsement premium of ($13M) for third quarter 2010 • Recently had been running at ($18M) per quarter due to the state of the economy • Without return premium, NPW would be up 1.6% September YTD compared to the same period in 2009 • Commercial and pers
Slide 7: High Quality Investment Portfolio
High Quality Investment Portfolio • Average “AA” bond quality $4.0B Invested Assets • Approximately 3.5 year September 30, 2010 average duration, including short-term & cash Bonds 88% • Rebalanced to address market risks Equities • Equities and alternative 1% investments 5% of invested Alternative a
Slide 8: Disciplined Reserving Practices
Disciplined Reserving Practices Actuarial Reserve Ranges Carried $2,472M 54.9% 53.9% 57.5% 56.9% 54.8% Calendar Year Reserve Development (p/t) ($5M) $7M $16M $18M $29M Loss Ratio (pts) (0.4) 0.5 1.0 1.2 2.0
Slide 9: Strong Natural Catastrophe Reinsurance Program
Strong Natural Catastrophe Reinsurance Program % of Equity at Risk RMS Model CAT cover: $310M in excess of $40M Percentages are net of tax, reinsurance and reinstatement premium. RMS data as of 7/09; Equity data as of 12/31/09.
Slide 10: Surplus Position Recovery
Surplus Position Recovery ($ in millions) 1,050 $1,030 $1,034 $1,034 1,000 $982 950 $931 900 $884 850 800 2005 2006 2007 2008 2009 September 2010
Slide 11: Premium-to-Surplus
Premium-to-Surplus 2.0X 1.9 1.9X 1.8 1.8 1.8X 1.7 1.7 1.7 1.7X 1.6 1.6X 1.5 1.5 1.5 1.5X 1.4 1.4X 1.3X 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Sept. 2010
Slide 12: Competitively Positioned for the Market Turn
Competitively Positioned for the Market Turn
Slide 13: P&C Industry NPW Growth Reflects Current Economic Situation
P&C Industry NPW Growth Reflects Current Economic Situation Hard Market Hard Market Hard Market 1974-78 1984-87 2000-04 25% 20% 15% 10% 5% 0% 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 -5% -10% 2007 – 1st Industry NPW decline since 1943 Source: A.M. Best; III
Slide 14: P&C Industry Adverse/(Favorable) Calendar Year Development
P&C Industry Adverse/(Favorable) Calendar Year Development Note: GAAP development data includes publicly traded U.S. insurers (does not include AIG or BRK.A). 2010E and 2011E reflect KBW’s coverage universe. Source: KBW Insurance Research and SNL Financial
Slide 15: Declining New Money Rates
Declining New Money Rates Percent Yield 4 point decline in pre-tax yield requires 8 points in combined ratio reduction to maintain ROE Source: U.S. Treasury and SNL Financial
Slide 16: Commercial Lines Industry Pricing Indices
Commercial Lines Industry Pricing Indices 4.0% 2.0% 0.5% 0.3% 0.0% -0.1% -0.2% -0.6% -0.9% -2.0% -2.8% -4.0% -6.0% -8.0% -10.0% 4Q:08 1Q:09 2Q:09 3Q:09 4Q:09 1Q:10 2Q:10 3Q:10 CLIPS Advisen ADVx CIAB MarketScout
Slide 17: Selective's Commercial Lines Pricing Success
Selective’s Commercial Lines Pricing Success 3.4% 4.0% 3.3% 2.7% 2.8% 2.0% 1.5% 0.6% 0.0% -0.8% -2.0% -3.0% -4.0% -6.0% -8.0% Selective CLIPS Advisen ADVx CIAB MarketScout -10.0% 4Q:08 1Q:09 2Q:09 3Q:09 4Q:09 1Q:10 2Q:10 3Q:10 6 quarters of positive price
Slide 18: Why Can Selective Raise Prices?
Why Can Selective Raise Prices? • Sophisticated underwriting (modeling) • Granular pricing capabilities • Agency relationships Competition continues to cut price
Slide 19: Sophisticated Underwriting Tools
Sophisticated Underwriting Tools • Desktop underwriting tool provides: • Aggregate diamond score by account • Reason code • Pricing range to achieve profitability • Pure rate • Underwriting risk– Multi-year loss ratios and number of claims • Agency risk • Link to CAT management tool
Slide 20: Granular Pricing Capabilities
Granular Pricing Capabilities Selective Pricing by Diamond 12.0% 10.3% 10.3% 2Q:09 3Q:09 4Q:09 10.0% 8.7% 1Q:10 2Q:10 3Q:10 8.6% 8.0% 7.6% 6.5% 6.0% 4.1% 3.8% 3.5% 4.0% 3.2% 2.0% 2.0% 1.6%1.6% 1.7% 1.5% 0.9% 0.3% 0.0% -0.6% -2.0% -4.0% 1&2 3 4&5 Diamond Diamond Diamond
Slide 21: Retaining our Best Commercial Business
Retaining our Best Commercial Business 90% 88% 89% 86% 87% 84% 82% 80% 80% 78% 76% 74% 1 & 2 Diamond 3 Diamond 4 & 5 Diamond Retention at point of renewal as of September 30, 2010
Slide 22: Commercial Lines New Business Quality Improvement
Commercial Lines New Business Quality Improvement Percent of Total New Premium Diamond Distribution WC, BOP, CPP, CA 70% 63% Pre-Modeling 2010 September YTD 60% 53% 50% Percent of Total DPW 40% 30% 28% 30% 20% 17% 9% 10% 0% 5 & 4 Diamond 3 Diamond 2 & 1 Diamond For lines < $50,000
Slide 23: Commercial Lines Growth Opportunity
Commercial Lines Growth Opportunity 980 Agents Avg. Premium/Agent Goal $1.5M $3M per Agent Most Recent Agency Current Commercial Share of Lines Premium State Wallet Volume ($M) NJ 12.5% 2,209 MD 8.6 1,054 18% Share of RI 8.0 257 Wallet Results in PA 8.8 2,011 $3.0 Billion DPW NY 7.4 2,014 NC 9.7 448
Slide 24: Commercial Lines Diversification
Commercial Lines Diversification 3-Year Accident Combined Ratio SBU DPW % of C/L Further diversification results in lower combined ratio
Slide 25: Personal Lines: Why and How We Write It
Personal Lines: Why and How We Write It • Independent agents control 35% of market • 13-state footprint opportunity – $900 million • Has historically reduced earnings volatility • Underwriting and automation improvements reduced operating costs and increased data quality • 67% of total personal line
Slide 26: Personal Lines: New Business Penalty and In-force Rate
Personal Lines: New Business Penalty and In-force Rate • Auto book currently has over a 7 point penalty due to age of policies • Over the next 5 years there is a 4 point improvement solely due to aging of the book In-force Rate and Premium ($ in Blended Potential Premium New millions) In-force Based
Slide 27: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation $22 $0.52 * $0.49 $0.44 $0.52 $0.40 $0.52 $20.41 $18 $0.35 $19.81 $18.83 $16.84 $17.34 $18.81 Per Share $0.31 $14 $0.30 $15.79 $0.30 $0.30 $13.74 $12.26 $11.58 $10 $11.46 $6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Sept. 2010 Dividends Book Value *Indica
Slide 28: Long-Term Shareholder Value Creation: Price-to-Book
Long-Term Shareholder Value Creation $22 1.7 1.53 1.5 1.52 Price-to-Book (x) $18 1.40 1.36 1.3 Per Share $14 1.18 1.16 1.1 1.06 1.03 0.94 0.9 $10 0.87 0.86 0.7 $6 0.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Sept. 2010 Book Value Price/Book (x) Q3 2010: Book value as of 9/30/10, price as of
Slide 29: Why Selective? Why now?
Why Selective? Why now? • Dividend yield at 3.0% • Trading at historically low multiple of 0.86x • Clean capital-minimal intangibles • Best in-class agency relationships • Achieving positive pure price • Sophisticated underwriting and pricing tools Effectively managing the cycle
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