Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Investor Presentation (February 2010)
36 slides from Selective Insurance's investor presentation, Feb 5, 2010
Slide 1: Financial Strength
Financial Strength ~ > SELECTIVE Response ig everthing:
Slide 2: Who we are
Who we are « 22-state super-regional ® High tech, high touch business model « Partner of choice — 960 independent agents © $1.4B NPW * 84% commercial lines « 16% personal lines e History of financial strength Rated A+ by A.M. Best for 48 years rN SELECTIVE v respons
Slide 3: A Foundation of Financial Strength
A Foundation of Financial Strength ¢ Economic impact on growth e Re-balanced investment portfolio e Disciplined reserving practices e Strong reinsurance program e Enterprise risk management
Slide 4: Selective: A Growth Company
Selective: A Growth Company $ in millions 1,600 2M $70M 1,400 NN 1,200 1,000 800 Net Premium Written 600 400 T 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Audit & endorsement return premium
Slide 5: High Quality Investment Portfolio
High Quality Investment Portfolio Average “AA+” bond quality a5 invested Asesis Approximately 3.3 year Dacember.3#,,2008: average duration, including short-term & cash Rebalanced to address market risks Market-to-amortized cost on the fixed income portfolio atterlative improved to 101.8% Investments
Slide 6: Disciplined Reserving Practices
Disciplined Reserving Practices Actuarial Reserve Ranges 2,800 Carried $2,472M 2,600 2,400 2,200 56.9% 2,000 54.8% 1,800 Statutory Net Loss & LAE Reserves ($M) 1,600 2005 2006 2007 2008 2009 Calendar Year Reserve Ee LN SELECTIVE
Slide 7: Strong Natural Catastrophe Reinsurance Program
Strong Natural Catastrophe Reinsurance Program % of Equity at Risk 14% RMS Model 12% 9.0 Historic @ 9.0 Stochastic 10% 8% 5 6% 7 A% A 4% 2% on” T 1% Probability 0.4% Probability CAT cover: $310M in excess of $40M Porcantages are net of tax, reinsurance instatoment premium, > SELECTIVE RMS data as of
Slide 8: Surplus Position
Surplus Position {8 in millions) 1,050 41,000 950 900 850 800 2005 2006 2007 2008 2009
Slide 9: Enterprise Risk Management
Enterprise Risk Management ——— + Investments eAlternatives + Loss due to + Natural Cat * Changein «Pension © Actuarial premium Losses historical Assets Equities Deviation insufficiency practices Reinsurers ¢ Changes in Terrorism External +Other «Interest rate « Reserve Premium Losses events Receivab
Slide 10: 2010 Statutory Combined Ratio Guidance
2010 Statutory Combined Ratio Guidance
Slide 11: Competitively Positioned for the Market Turn
Competitively Positioned for the Market Turn
Slide 12: Industry Has a Long History of Few Profitable Years
Industry Has a Long History of Few Profitable Years P&C Commercial Combined Ratios, 1988-2009E 115 + 110 4 105 + 90 91 92 3 Of HH OF 98 9 OO OO 2 8 O9E oo L Hi Selective [1 Industry ® sriective Vv Response ig everthing:
Slide 13: U.S. Industry vs. Insurance Industry ROE
U.S. Industry vs. Insurance Industry ROE "2 BO 90 '91 ‘92 ‘93 Od "SH OG ‘SF "9B ‘99 00 ‘Ol 02 ‘03 ‘04 OS ‘0G ‘OF ‘08 OE GUS. Industry mlinsurance Industry
Slide 14: Commercial Lines: Is the Market Ready to Turn?
Commercial Lines: Is the Market Ready to Turn? Factor This Signals... —> _ Soft | Ma rket —> _ Soft | Market _
Slide 15: 2009 Industry Reserve Releases
2009 Industry Reserve Releases 2009 Sep YTD Prior Period Development 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0 -7.0 5 -8.0 -7.0 Points on the C/R Primary Regional Large Primary Specialty cL B 2008 B 2009 > SELECTIVE Response ig everthing:
Slide 16: Commercial Lines Industry Pricing Indices
Commercial Lines Industry Pricing Indices 4.0% | 2.0% 4 0.8% 03% 0.0% T = T T Tl T 2.0% | 06% 8 2.2% 4.0% 4 hacry 3.07 BAY 4.99 a 7% 6.0% + e 6.4 6.3% 28% SOR 8.0% | 8.0% -10.0% eal 4Q:08 1:09 2Q:09 3Q:09 4Q:09 CLIPS 1 Advisen ADVx M@ CIAB @ Market Scout
Slide 17: What's the value of relationships?
What’s the value of relationships?
Slide 18: Selective's Commercial Lines Pricing Success
Selective’s Commercial Lines Pricing Success 4.0% 4 2.0% 4 15% 3.5% 0.0% -2.0% 4 4.0% 4 6.0% 4 8.0% 4 13.0% -10.0% 4Q:08 10:09 2009 3Q:09 4Q:09 Jan:10 WSelective BCLIPS DAdvisen ADVx BCIAB MH MarketScout rN SELECTIVE v Response
Slide 19: Granular Pricing Capabilities
Granular Pricing Capabilities 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 40% Selective Pricing by Diamond 103% W4Q:08 810Q:09 020:09 B30:09 B4Q:09 1&2 3 485 Diamond Diamond Diamond
Slide 20: Retaining our Best Commercial Business
Retaining our Best Commercial Business 95% 90% 85% 80% ISh 77% 70% 1&2Diamond | 3 Diamond Retention at point of renewal as of December 31, 2009 485 Diamond pceceny + SELECTIVE Response ig everthing:
Slide 21: Commercial Lines Growth Opportunity
Commercial Lines Growth Opportunity Most Recent Agency Current Commercial Sate Welker voli Cant 18% Share of Wallet Results in $3.0 Billion DPW + Added over 200 agents in 2008-2009 + Tennessee and Massachusetts expansion provides $8.5B CL potential
Slide 22: Commercial Lines Quality Improvement
Commercial Lines Quality Improvement Percent of Total New Premium Diamond Distribution 70% WC, BOP, CPP, CA 60% + 53% w 3 = 40% + 30% + 20% 4 Percent of Total DPW 10% + 0% 59% 66% @ Pre-Modeling @ 2008 02009 30% so 0% 2% 17% 12% BY 5 & 4 Diamond For lines < $50,000 3 Diamond 2 & 1 Diamond
Slide 23: Commercial Lines Diversification
Commercial Lines Diversification 50 105% age 100.2% 2 40 + 3 a @ossy ee > 3 36 4 @026% @ 23.5% g a 304 o = 2 25 + 85% o z g a 20+ 3 2 = a 16+ a ® 7% 107 Pp Bt o 0 : 1 1 65% Contractors MerciSery Manufacturing Specialty 2008 02009 @3-Year Accidert CR Further diversification results in lower combined
Slide 24: Personal Lines Improvement Plan
Personal Lines Improvement Plan Independent agents control 35% of market e 13-state footprint opportunity — $900 million e Underwriting and automation improvements reduced operating costs and increased data quality In-force Rate and Premium ($ in Potential Premium millions) K Based on In-force Book
Slide 25: Personal Lines Improvement Plan
Personal Lines Improvement Plan * Statutory Combined Ratio including flood * 2009: 104.4% * 2010E: 100.0% * Average insurance scores improving or stable 770 759 760 752 750 + 743 742-742 740 + 737 730 4 720 Auto Home 2007 #2008 02009 ® sriective “7 C Response ig everthing:
Slide 26: Ay SELECTIVE
® Ay SELECTIVE Dies > SELECTIVE
Slide 27: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation $22 5 $0.49 $0.44 — me $0.40 aoe $0.35 ‘ qa7a4 fg 91881 $16.84 $14 $0.31 oe $1579 ii = $13.74 $1228 18 : i | $6 + 2000 «2001 2002 2003 2004 2005 2006 2007 2008 2009 Per Share @ Book Value @ Dividends ® sriective v Res
Slide 28: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation 26 > ‘7 18 20 + Ey ie oO 16+ a : e £ iB o i} re 5 107 a a oS rae 07 0 08 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 [5 Book Value —@ Price/Book (x)
Slide 29: Financial Highlights 2005-2009
Financial Highlights 2005 —2009 NPW Growth (4.7)% | (4.5% | 1.4% | 5.3% | 6.9% Operating EPS $1.39| $1.43[ $216] $2.23] $2.15 Net income per share $o.68| $0.82| $259] $265| $2.35 Dividend per Share $0.52| $0.52| $0.49] $0.44] $0.40 Book Value $13.83] $16.84] $1981] $18.81] $17.34 Return on Equity 47
Slide 30: Alternative Investment Strategies
Alternative Investment Strategies BB Market Market Values of $138M and Remaining Commitment of $103M at December 31, 2009 Bl Remaining commitment Mezzanine Financing Secondary Private Equity EnergyiPower Generation Private Equity Real Estate Distressed Debt Venture Capital & sevectiver
Slide 31: Net Operating Cash Flow
Net Operating Cash Flow ($ in millions) 440 2005 2006 2007 2008 2009 ty SELECTIVE®
Slide 32: Investment Income — After-tax
Investment Income — After-tax ($ in millions) 140 130 120 110 100+ 90 2005 2006 2007 2008 2009 ty SELECTIVE®
Slide 33: Commercial Lines Profitability
Commercial Lines Profitability % 110 105 100 95 90 85 Statutory Combined Ratios 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Impact of Catastrophe Bd Combined Ratio Excluding Cats ty SELECTIVE®
Slide 34: Insurance Operations Productivity
Insurance Operations Productivity ($ in 000s) sess NWP per employee 900 800 700 600 500 —Expense ratio % r 35 + 32.5 2003 2004 2005 2006 2007 2008 2009 27.5 4y SELECTIVE®
Slide 35: Commercial Lines Premium by Line of Business
Commercial Lines Premium by Line of Business 2009 Net Premium Written Bonds / Other 2% BOP Workers’ compensation 21% General Liability 30% & seuectives
Slide 36: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2009 Direct Premium Written Spec Programs . 21% i Contractors 38% Mfg/ Dist Serv 16% Merc/Serv 24% & sevectiver
Selective Insurance Group — Investor Presentation (February 2010) on 6ix