Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Investor Presentation (November 2011)
39 slides from Selective Insurance's investor presentation, November 2011
Slide 1: Investor Presentation November 2011
– SELECTIVE INSURANCE GROUP, INC. – INVESTOR PRESENTATION NOVEMBER 2011 Financial Pricing Commercial Personal Prepared for Strength Success Lines Lines Tomorrow
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
– SELECTIVE INSURANCE GROUP, INC. – FINANCIAL STRENGTH Financial Prepared for Growth Pricing Long-Term Strength Tomorrow Opportunity Success Value Creation
Slide 4: Who We Are
Who We Are • 22-state super-regional MN MI • 2010: $1.4B NPW WI MI NY MA CT RI • 82% commercial lines IA PA NJ OH MD DE IL IN • 18% personal lines MO VA KY • High-tech, high-touch business model NC TN • Partner of choice – 990 independent SC agents GA • Sophisticated underwriting tools • Rated A+ by
Slide 5: Focus on Enterprise Risk Management
Focus on Enterprise Risk Management • Business model generates more earnings stability • Sophisticated underwriting and granular pricing • Strong reserving practices • Conservative reinsurance program • Historically strong capital position • Deep investment management talent Financial Financial Prep
Slide 6: More Earnings Stability
More Earnings Stability Combined Ratio – SIGI vs. Industry 125 SIGI (STD. DEV 4.1) 120 Industry (STD. DEV 6.5) 115 110 105 100 95 90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: A.M. Best, III, ISO *June 30, 2011 YTD Financial Financial Prepared for Growth Pricing Long-Term Streng
Slide 7: More Earnings Stability
More Earnings Stability Combined Ratio – SIGI vs. National Peers 125 SIGI (STD. DEV 4.1) 120 National Peers (STD. DEV 9.7) 115 110 105 100 95 90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: SNL Financial Note: National Peers include CNA, CB, HIG, TRV and WRB *June 30, 2011 YTD Fin
Slide 8: More Earnings Stability
More Earnings Stability Combined Ratio – SIGI vs. Regional Peers 125 SIGI (STD. DEV 4.1) 120 Regional Peers (STD. DEV 7.3) 115 110 105 100 95 90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: SNL Financial Note: Regional Peers include CINF, THG, HGIC, STFC and UFCS *June 30, 2011 YT
Slide 9: Catastrophe Losses
Catastrophe Losses Points on Combined Ratio 15% 10% 5% 0% 2010 9/30/11 YTD* SIGI Peer Average Source: SNL Financial, Company Reports Note: Peers include CB, CINF, CNA, HIG, HGIC (not included in 2011 YTD), STFC, THG, TRV, WRB and UFCS *3rd Quarter Peer Average based on reported results or pre-announ
Slide 10: Strong Natural Catastrophe Reinsurance Program
Strong Natural Catastrophe Reinsurance Program % of Equity at Risk (Near-term basis) 30% Blended RMS v11.0 and AIR RMS v11.0 25% 1% Probability = 5% 0.4% Probability = 18% 24% 20% 15% AIR v12 10% 12% RMS v11.0 RMS v9.0 5% RMS v9.0 AIR v12 5% 6% 4% 4% 0% 1% Probability 0.4% Probability CAT cover: $43
Slide 11: Adverse/(Favorable) Points of Calendar Year Development
Adverse/ (Favorable) Points of Calendar Year Development 8% 6% 4% AIG takes $4B charge 2% 0% -2% -4% -6% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: AM Best U.S. P&C Industry SIGI *June 30, 2011 YTD Financial Financial Prepared for Growth Pricing Long-Term Strength Strength Tomor
Slide 12: Premium-to-Surplus
Premium-to-Surplus 1.9 SIGI P&C 1.9X 1.8 1.8 1.7 1.7 1.7 1.7X 1.6 1.5 1.5 1.5 1.5X 1.3 1.3 1.3 1.3X 1.2 1.1 1.1 1.1X 1.0 1.0 1.0 0.9 0.9X 0.9 0.8 0.8 0.7 0.7X 0.5X 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 1 point of Combined Ratio = 1 point of ROE Sources: ISO, AM Best, III *6/30
Slide 13: Focus on Expense Management: Regional Peers
Focus on Expense Management Regional Peers 36 35 34 33 32 31 30 29 28 27 26 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: SNL Financial SIGI Median Note: GAAP Expense Ratio including Dividends for regional peers (CINF, THG, HGIC, STFC and UFCS) *June 30, 2011 YTD Financial Financia
Slide 14: Focus on Expense Management: National Peers
Focus on Expense Management National Peers 39 37 35 33 31 29 27 25 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: SNL Financial SIGI Median Note: Expense Ratio including Dividends; National Peers include CNA, CB, HIG, TRV and WRB *June 30, 2011 YTD Financial Financial Prepared for G
Slide 15: High Quality Investment Portfolio
High Quality Investment Portfolio • Average “AA-” bond quality $4.1B Invested Assets • Approximately 3.2 year September 30, 2011 average duration, including short-term Bonds 89% • Laddered maturity schedule – 41% matures within 3 years – 74% matures within 5 years Equities 4% • Outsourcing provides
Slide 16: Prepared for Tomorrow
– SELECTIVE INSURANCE GROUP, INC. – PREPARED FOR TOMORROW Financial Prepared for Growth Pricing Long-Term Strength Tomorrow Opportunity Success Value Creation
Slide 17: A Growth Company When the Time is Right
A Growth Company When the Time is Right $ in millions 1,600 1,400 Net Premiums Written 1,200 1,000 800 600 400 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Financial Prepared for Growth Pricing Long-Term Strength Tomorrow Opportunity Success Value Creation
Slide 18: Selective's Growth Opportunity
Selective’s Growth Opportunity • Growth within current agency plant – Current share of wallet at 6.6% – 12.5% share of wallet would achieve $3B in premium • Commercial Lines product expansion – 33 products over past 2 ½ years • Small Business and Personal Lines strategy – New Field Marketing Special
Slide 19: Field Model Supports Agents
Field Model Supports Agents • Local knowledge of insureds Agency Management • Full claims/underwriting Claims Specialists Management authority Specialists • Supported by sophisticated underwriting tools • Safety management services lower frequency and increase retention • Field Market Specialists Sa
Slide 20: Middle Market Dynamics
Middle Market Dynamics • Agency relationships are key • Agents act as risk manager for insureds • Field underwriting and claims model • Predictive modeling used as a tool Financial Prepared for Growth Pricing Long-Term Strength Tomorrow Opportunity Success Value Creation
Slide 21: Middle Market Product Expansion
Middle Market Product Expansion • Added 20 new and enhanced products in 2009 • Introduced another 13 in past 18 months • New products • Aging Services, Identity Theft, Cyber Security, Technology • Enhanced products • Resort Endorsement, Contractors GL, Property Coverage for Municipalities Financial
Slide 22: Small Business and Personal Lines Opportunity
Small Business and Personal Lines Opportunity • Build scale through expanded capabilities and strategic additions to our agency plant • Predictive modeling is rule based • Small business teams and Field Marketing Specialists improve ease of doing business • Results in greater revenue diversification
Slide 23: Small Business Growth
Small Business Growth $ thousands Average DPW/Day 300 250 200 150 100 2006 2007 2008 2009 2010 Financial Prepared for Growth Pricing Long-Term Strength Tomorrow Opportunity Success Value Creation
Slide 24: E&S Contract Binding Authority Product Expansion
E&S Contract Binding Authority Product Expansion • Renewal rights transaction with Alterra closed August 1st • Contributed $8.4M of net premiums written in the 3rd quarter • MUSIC acquisition provides 50 state licensed E&S company • Expected to close in the 4th quarter of 2011 • Both books approxima
Slide 25: Selective's Commercial Lines Renewal Pricing Success
Selective’s Commercial Lines Renewal Pricing Success 4.0% 3.4% 3.3% 2.7% 2.8% 2.8% 2.8% 2.6% 2.7% 1.5% 2.0% 0.6% 0.0% -2.0% -4.0% -6.0% -8.0% Selective CLIPS CIAB MarketScout -10.0% 2Q:09 3Q:09 4Q:09 1Q:10 2Q:10 3Q:10 4Q:10 1Q:11 2Q:11 3Q:11 10 consecutive quarters of positive price Financial Prepar
Slide 26: Granular Pricing Capabilities
Granular Pricing Capabilities Quarterly Pricing by Diamond 12.0% 10.3% 10.3% 10.0% 8.7% 8.6% 8.4% 8.0% 7.7% 7.6% 8.0% 6.5% 5.6% 6.0% 4.1% 4.0% 3.8% 3.5% 3.2% 3.2% 3.0% 2.8% 4.0% 2.0% 2.0% 1.8% 1.7% 1.7% 1.6% 1.6% 1.5% 1.4% 0.9% 2.0% 0.3% -0.6% 0.0% 2Q:09 3Q:11 2Q:09 2Q:09 3Q:11 3Q:11 -2.0% -4.0% 1&2
Slide 27: Retaining our Best Commercial Business
Retaining our Best Commercial Business 92% 90% 88% 89% 86% 87% 84% 82% 80% 81% 78% 76% 1 & 2 Diamond 3 Diamond 4 & 5 Diamond Lower Quality Higher Retention at point of renewal as of September 30, 2011 Financial Prepared for Growth Pricing Long-Term Strength Tomorrow Opportunity Success Value Creatio
Slide 28: Personal Lines Rate Success
Personal Lines Rate Success Blended In-force Rate 8% 7.1% 6.8% 7% 6.3% 6% 5% Rate 4% 3.1% 3% 2.4% 2% 1% 0% 2007 2008 2009 2010 2011E New Business DPW $39 $43 $55 $62 Financial Prepared for Growth Pricing Long-Term Strength Tomorrow Opportunity Success Value Creation
Slide 29: Driving Down Cost of Goods Sold
Driving Down Cost of Goods Sold • 3 point reduction in loss costs expected over 3 years – Specialized claims handling model – Proactive medical management – Staff counsel expansion – Streamlined management of claims files – Fraud analytics – Subrogation process redesign Already achieved $8M savings
Slide 30: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation $0.52 $0.52 * Book Value Dividends $0.49 $20 $0.44 $0.52 $0.40 $20.04 $19.81 $0.52 $19.95 $0.35 $18.83 $18.81 $16 $16.84 Per Share $17.34 $0.31 $15.79 $0.30 $13.74 $12 $12.26 $8 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sep-11 Current Dividend Yield: 3.4% *Ann
Slide 31: Financial Highlights 2006 – Q3 2011
Financial Highlights 2006 – Q3 2011 Q3:2011 Q2:2011 Q1:2011 2010 2009 2008 2007 2006 NPW Growth 8.1% 5.9% (1.7)% (2.3)% (4.7)% (4.5)% 1.4% 5.3% Operating EPS $(0.34) $0.01 $0.32 $1.35 $1.39 $1.43 $2.16 $2.23 Net Income per Share $(0.37) $0.04 $0.39 $1.20 $0.68 $0.82 $2.59 $2.65 Dividend per Share $0
Slide 32: Net Operating Cash Flow
Net Operating Cash Flow ($ in millions) 440 Cash Flow as % of NPW 390 393 386 340 290 240 241 228 190 26% 25% 140 16% 16% 159 90 11% 40 2006 2007 2008 2009 2010 YTD September 2011: $127M
Slide 33: Investment Income – After-tax
Investment Income – After-tax ($ in millions) 140 130 134 120 121 110 111 100 105 90 96 80 70 60 50 40 2006 2007 2008 2009 2010 YTD September 2011: $89M
Slide 34: Diversified Municipal Portfolio
Diversified Municipal Portfolio Repayment Source September 30, 2011 • $1.3 billion portfolio GO TX-PSF • Average “AA” rated State 3% 12% • 39% of portfolio matures within 3 years • Diversified among 273 issuers • NY, CA, NJ, IL represent $35M or 2.6% of portfolio GO Revenue Local 60% 25%
Slide 35: Insurance Operations Productivity
Insurance Operations Productivity % ($ in 000s) NWP per employee Statutory Expense ratio 900 35 800 827 797 797 32.5 771 766 761 700 30 600 500 27.5 2006 2007 2008 2009 2010 At Sept. 30, 2011
Slide 36: Commercial Lines Profitability
Commercial Lines Profitability Statutory Combined Ratios % 115 110 106.6 105 102.2 1.1 100.9 99.8 100.8 8.1 0.5 100 101.1 2.4 98.5 3.3 95.9 98.5 95.4 95.0 0.9 2.1 99.3 98.5 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 Combined Ratio excluding CATS
Slide 37: Commercial Lines New Business Quality Improvement
Commercial Lines New Business Quality Improvement Percent of Total New Premium Diamond Distribution WC, BOP, CPP, CA 70% Pre-Modeling 2011 September LTM 58% 60% 53% 50% Percent of Total 40% 30% 29% DPW 30% 20% 17% 13% 10% 0% 1 & 2 Diamond 3 Diamond 4 & 5 Diamond Lower Quality Higher For lines < $50,
Slide 38: Commercial Lines Premium by Line of Business
Commercial Lines Premium by Line of Business 2010 Statutory Net Premium Written Commercial BOP Bonds / Other Property 6% 3% Auto 17% 25% Workers Compensation 21% General Liability 28%
Slide 39: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2010 Direct Premium Written Bonds Community and 2% Public Services 22% Contractors 35% Manufacturing & Mercantile 41%
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