Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Investor Day (May 2012)
97 slides from Selective Insurance's investor day presentation, May 14, 2012
Slide 1: Welcome — 2012 Investor Day
Welcome —2012 Investor Day Jennifer DiBerardino SVP, Investor Relations & Treasurer SUCCESS THROUGH DIFFERENTIATION
Slide 2: Welcome
Welcome Jennifer DiBerardino Strategic Overview Greg Murphy Financial Overview: Foundation for Success Dale Thatcher Insurance Operations: What Drives Our Success John Marchioni Personal Lines: Sustainable Profitability Allen Anderson + Commercial Lines: Key Success Factors Dennis Barger a + Field M
Slide 3: 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 4: Strategic Overview
Strategic Overview Greg Murphy Chairman, President & CEO SUCCESS THROUGH DIFFERENTIATION
Slide 5: Selective: Super-Regional Carrier
Selective: Super-Regional Carrier Positioned for Success ¢ Unique super-regional ¢ History of financial strength ¢ Focused on delivering shareholder value
Slide 6: 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 ay SELECTIVE”
Slide 7: A Regional with National Capabilities
A Regional with National Capabilities Capabilities of a National * Sophisticated pricing ¢ Fraud and recovery models ¢ Advanced data and technology Nimbleness of a Regional * Relationships * Local decision making Selective: @ A Unique Super-Regional 4y SELECTIVE
Slide 8: Selective: Regional with National Capabilities
Selective: Regional with National Capabiliti ~ ® q SELECTIVE Response is everything. 4y SELECTIVE
Slide 9: Selective: Super-Regional Carrier
Selective: Super-Regional Carrier Positioned for Success : Our strong relationships and nimbleness drive success in the marketplace ay SELECTIVE®
Slide 10: Relationships Drive Pricing Through Three Years of Positive Price
Relationships Drive Pricing Through Three Years of Positive Price
Slide 11: Diversification Leads to Profit Opportunity
Diversification Leads to Profit Oppo: Net Premiums Written % Projected 5-Year View 10-15% Commercial jj Personal jj Excess & Surplus ® stuctive’
Slide 12: A Growth Company When the Time Is Right
A Growth Company When the Time 1,600 » 1,400 1,200 1,000 (Sin Millions) 800 Net Premiums Written 600 400 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4y SELECTIVE"
Slide 13: Focused on Continuous Improvement
Focused on Continuous Improvemer ® stuctive’
Slide 14: Why Invest in Selective?
Why Invest in Selective? ¢ Strong balance sheet limits downside ¢ Proven ability to manage the market cycle Vy * Growth at the right time / ¢ Attractive valuation ®& seuective
Slide 15: Foundation for Success
Foundation for Success Dale Thatcher EVP, Chief Financial Officer SUCCESS THROUGH DIFFERENTIATION
Slide 16: Financial Strength is Foundation for Success
Financial Strength is Foundation for Su ¢ Underwriting stability ¢ Disciplined reserving ¢ Focused expense management ¢ Conservative investments ¢ Benefits of leverage 4y SELECTIVE”
Slide 17: Underwriting Stability
Underwriting Stability Statutory Combined Ratio — SIGI vs. Industry <@-SIGI (STD. DEV 3.8) i110 + Industry (STD. DEV 4.7) 85 T T T T , T T T T 1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: A.M. Best, II Note: Industry excluding Mortgage and Financial Guaranty Segments since 2007 ay SEL
Slide 18: Impact of CATs on Combined Ratio
Impact of CATs on Combined Ratio 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: AM Best. @SIGI mi Industry
Slide 19: Calendar Year Development
Calendar Year Development 4% (Favorable)/Adverse Points -4% 2002 2003 «2004 «=. 2005 2006 «= 2007-2008 )3= 2009 2010* = 2011 Industry asiGl Source: AM Bes, I Note: Industry excluding Mortgage and Financial Guaranty Segments #2010 Industry development includes $48 charge from AIG ay SELECTIVE"
Slide 20: Selective vs Peers Modeled Reserve Volatility
Selective vs Peers Modeled Rese 13.0% 12.0% 11.0% 10.0% 9.0% 80% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Ultimate Reserve Volatility (CV - Mack Method with Tail Adjustment) 00% SELECTIVE” SIGI Historical 1-¥¢ PY Development Volatility = 1.1% (1993-2003) oe 00% 10% 2.0% 30% 40% Q-Year Reserve Volatility (
Slide 21: Conservative Reinsurance Program
Conservative Reinsurance Program 25% 4 % of Equity at Risk Blended Model Results (RMS v11 & AIR v13) @LongTerm Near Term 1% Probability 0.4% Probability CAT cover: $435M in excess of $40M Percentages are after tax and include applicable reinstatement premium. Data as of 7/11; Equity data as of Decem
Slide 22: Focused Expense Management — Peer Median
Focused Expense Management — 1 Peer Median @ sic Source: SNL Financial Peers include CINF, CNA, HIG, STEC , THG, TRV, UFCS, and WRB. SELECTIVE”
Slide 23: Conservative Investment Portfolio
Conservative Investment Portfolio $4.2B Invested Assets March 31, 2012 Well diversified, ladde portfolio * Deployed high dividend yield i gy in 2011 “AA-” Avg Rating rated “BB” & below Equities 4%. 4y SELECTIVE®
Slide 24: Selective's Use of Underwriting Leverage
Selective’s Use of Underwriting Lever Premium to Surplus Ratio 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 @SIGI Industry Sources: 1SO, AM Best, Il Note: Industry excluding Mortgage and Financial Guaranty Segments since 2007 SELECTIVE®
Slide 25: Impact of Leverage
Impact of Leverage Combined Ratio Required for 12% ROE @SIGI Industry ~95% Investment Leverage 3.7x U/W Leverage 1.4x Investment Leverage 2.3x U/W Leverage 0.8x Industry Source: AM Best Estimates ay SELECTIVE"
Slide 26: Enterprise Risk Management
Enterprise Risk Management Emerging Risk Committee * 17 VP/SVPs with diverse professional expertise ¢ Identifies emerging risks/opportunities * Researches, monitors and proposes potential actions Meets & reports quarterly Board of Directors * Provides oversight for risk management activities * Revie
Slide 27: Proactive Capital Management
Proactive Capital Management Organic Growth 2011: E&S 1998-2006: Doubl Acquisitions in Size FINA L STRENGTH R D FOR 1 — ~~ Return Capital Liquidity 2006-2008: Share 2009: Preserve Repurchases Capital 2008: Dividend Increase NO” ay SELECTIVE”
Slide 28: 3-Year Standard Lines Combined Ratio
3-Year Standard Lines Combined Rati: “Adjusted for excess CATS and favorable reserve development SELECTIVE®
Slide 29: Example of Effects of Pricing on Combined Ratio
Example of Effects of Pricing on Combi (Data is illustrative, not actual data) Base Assumptions 2011 Written Premium 2011 Premium Tax = $20,000 (2% of WP) 2011 Overhead Expenses = $80,000 (8% of WP) 2011 Rate change = 0% Resulting 2011 Combined Ratio = 70% + 20% + 2% + 8% = 100.0 Future Assumptions:
Slide 30: What Drives Our Success
What Drives Our Success John Marchioni EVP, Insurance Operations SUCCESS THROUGH DIFFERENTIATION
Slide 31: What Drives Our Success
What Drives Our Success Great people— empowered to make decisions Deep relationships with the highest caliber agents High degree of underwriting, pricing and claims sophistication y p SELECTIVE
Slide 32: Local Decision Makers
Local Decision Makers Supported by Centralized Expertise Field Underwriter Field Adjuster Litigation Regional Line of Business Management Experts Line of Business SIU Experts Regional Segment Experts Management 4y SELECTIVE"
Slide 33: Relationships with the Highest Caliber Agents
Relationships with the Highest Caliber Agents ° Franchise value ¢ Greater share Ctrogno feadhack ¢ Strong feedback loop 2011 ¢ $1.5M NPW per agency * 8.3/10 on agency survey
Slide 34: Underwriting Sophistication
Underwriting Sophistication ¢ People ¢ Products/Appetite ¢ Tools 4y SELECTIVE"
Slide 35: Pricing Sophistication — Predictive
Pricing Sophistication — Predictive Pricing by Diamond 1&2 Diamond 3 Diamond 4&5 Diamond 2009 2010 m2011 mQ1:2012 ay SELECTIVE"
Slide 36: Pricing Sophistication — Dynamic Portfolio Manager
Pricing Sophistication — Dynamic Pot 1st Quarter 2012 Pricing by Retention Group Below Average Average Above Average 4y SELECTIVE”
Slide 37: 1st Quarter 2012 Renewal Pure Rate
‘= 15t Quarter 2012 € = £ 2 a 5 1 x 0% Renewal Pure Rate ® stuctive’
Slide 38: Equation for Success
Equation for Success Price PP PX PH FH Hh WW Dy Mh LFF FPP PO PPP Three Years of Positive Price
Slide 39: Claims Sophistication
Claims Sophistication ¢ People ¢ Process * Tools 4y SELECTIVE
Slide 40: Key Success Factors
Key Success Factors Personal Lini Commercial ¢ Pricing sophistication 4y SELECTIVE®
Slide 41: Key Success Factors
Key Success Factors ¢ Strong agency partners - Broad appetite ¢ Underwriting expertise * Local decision-making * Coverage advantages - Outstanding service SELECTIVE
Slide 42: E&S Contract Binding Authority (CBA)
E&S Contract Binding Authority (CE A) ¢ Higher-margin business ¢ Low-limits profile * Strong underwriting and pricing controls ¢ Franchise-value model * $300-400 million CBA E&S business currently with Selective’s retail agents 4y SELECTIVE”
Slide 43: E&S Contract Binding Authority
E&S Contract Binding Authority ¢ Strict underwriting guidelines ¢ Established pricing by class * Similar to One & Done® process ¢ No claims authority ¢ Written through wholesale agents ¢ $2,200 average account size 4y SELECTIVE”
Slide 44: A Good Fit: Excess and Surplus
A Good Fit: Excess and Surplus Located in Scottsdale, AZ Experienced team ~55 wholesale agency relationships $50 million 2010 GPW Located in Horsham, PA Experienced team ~35 wholesale agency STON NEC REEK” relationships Specialty $70 million 2010 GPW 4y SELECTIVE"
Slide 45: Personal Lines: Sustainable Profitability
Personal Lines: Sustainable Profitability Allen Anderson SVP, Chief Underwriting Officer, Personal Lines SUCCESS THROUGH DIFFERENTIATION
Slide 46: Personal Lines Opportunity
Personal Lines Opportunity Deepens agency relationships 4y SELECTIVE” Industry Share of Personal Lines Captive Agency 53% Independent. ‘Agency 34% Direct Response 13% Source: Independent Insurance Agents & Brokers of America
Slide 47: Personal Lines Opportunity
Personal Lines Opportunity Selective agents control $3.5B of Personal Lines premium _s=Personal Lines Footprint ay SELECTIVE
Slide 48: Achieving Profitability in Personal Lines
Achieving Profitability in Personal a ¢ Pricing ¢ Improving mix of business ¢ Increasing operational & model efficiency through scale 4y SELECTIVE
Slide 49: Homeowners Profitability
Homeowners Profitability ¢ Maximizing rate ¢ Age of roof restrictions ¢ Deductible changes ¢ By-peril rating ay SELECTIVE”
Slide 50: By-Peril Rating
By-Peril Rating ay SELECTIVE”
Slide 51: Homeowners Profitability
Homeowners Profitability a BS 8 & Filed Rate w Ro N & 2010 2011 Q1:2012 2008 2009 Total impact of all 2012 rate increases = 11.5% ay SELECTIVE”
Slide 52: Auto Profitability
Auto Profitability ¢ Maximizing rate ¢ Continued mix improvements ¢ Underwriting restrictions * Claims initiatives ¢ Age of book 4y SELECTIVE
Slide 53: Auto Profitability
Auto Profitability Filed Rate 2011 Q1:2012 2010 2009 Total impact of all 2012 rate increases = 6.0% 2008 4y SELECTIVE”
Slide 54: Growth Opportunity in Personal Lines
Growth Opportunity in Personal Li Increase distribution points to expand geographic footprint and increase scale 4y SELECTIVE" $in Millions 160 120 Non-NJ NPW Improving Geographic Mix 2007 2008 2009 2010 2011 2007 Non-NJ % NPW 40% 2071 57%
Slide 55: Personal Lines Sustainable Profitability
Personal Lines Sustainable Profitabi ¢ Growth opportunities ¢ Underwriting changes ¢ Improving age of business ¢ Targeted rate increases ¢ Increasing scale 4y SELECTIVE"
Slide 56: Commercial Lines: Key Success Factors
Commercial Lines: Key Success Factors Dennis Barger SVP, Chief Underwriting Officer, Commercial Lines SUCCESS THROUGH DIFFERENTIATION
Slide 57: Local Decision Makers
Local Decision Makers Supported by Centralized Expertioal Field Underwriter Regional Line of Business Management Experts Segment Experts ay SELECTIVE"
Slide 58: High Degree of Sophistication
High Degree of Sophistication Predictive modeling Segmentation and analytical tools Price monitoring Dynamic Portfolio Manager 4 . » SELECTIVE 3'4 generation models 3 SBUs 80 segments c Profit, pricing, production Base rate, company shift, schedule credits, experience modification Desk level renewal
Slide 59: Middle Market/Large Account Strategy
Middle Market/Large Account Strategy Best in class generalist with strong product niches 4y SELECTIVE"
Slide 60: Best in Class Generalist...
Best in Class Generalist... 4y SELECTIVE Inforce DPW (as of March 2012) @ Contractors i Services @ Manufacturing @ Retail Trade @ Public Administration @ Finance, Insurance, and Real Estate @ Wholesale Trade @ Transportation and Communications
Slide 61: ..With Strong Product Niches
..With Strong Product Niches Social Services * $54M 2011 DPW ° 94.4% 5-year AY combined ratio * 14% 5-year CAGR ay SELECTIVE”
Slide 62: Product Development Process
Product Development Process _— Identify opportunity Conduct market research Develop expertise and forms Roll out product 4y SELECTIVE”
Slide 63: Developing Products for New Needs
Developing Products for New Nenes Paratransit 4y SELECTIVE”
Slide 64: Developing Add-On Products
Developing Add-On Products | ay SELECTIVE”
Slide 65: Breadth of Product
Breadth of Product ~~ SELECTIVE’ Response is everything.
Slide 66: Small Business Strategy
Small Business Strategy FF Template underwriting and predictive modeling drive increased “low touch” throughput 4y SELECTIVE”
Slide 67: Small Business Success
Small Business Success Gg ¢ Pricing sophistication ¢ Automated underwriting technology ¢ Small business teams for rapid turnaround ¢ Field marketing resources OBone” 4y SELECTIVE
Slide 68: Commercial Lines Success
Commercial Lines Success Middle Market / Small Business Large Accounts Delivering @ profitable growth 4y SELECTIVE
Slide 69: Break
Break SUCCESS THROUGH DIFFERENTIATION
Slide 70: Field Model: Great People Empowered to Make Decisions
Field Model: Great People Empowered to Make Decisions Brenda Hall SVP, Director of Field Underwriting & Business Intelligence ¢ Jae SUCCESS THROUGH DIFFERENTIATION
Slide 71: Field Model Success
Field Model Success ~~ SELECTIVE’ Response is everything.
Slide 72: Positioned for Success
Positioned for Success Field Model * Regional offices ¢ Empowered team * Integrated tools * Deep relationships 4y SELECTIVE”
Slide 73: Empowered Field Model
Empowered Field Model Agency Management Specialist (AMS) * CEO of their territory * Relationship manager * Broad underwriting authority ¢ Measured on: * New business growth * Profitability 4y SELECTIVE
Slide 74: Business Intelligence - Confidence
Business Intelligence - Confidence : 4y SELECTIVE"
Slide 75: Empowered Field Model
Empowered Field Model ay SELECTIVE”
Slide 76: Empowered Field Model
Empowered Field Model Renewal Underwriters ¢ Manage renewal book by agency ¢ Broad underwriting authority ¢ Measured on: ¢ Rate * Retention 4y SELECTIVE
Slide 77: Dynamic Portfolio Manager
Dynamic Portfolio Manager 4y SELECTIVE
Slide 78: Positioned for Success
Positioned for Success Empowered Field Model @ Strategy execution Deep relationships Better results Ay SELECTIVE
Slide 79: Claims: Managing Information to Achieve Better Outcomes
Claims: Managing Information to Achieve Better Outcomes Douglas Holbrook SVP, Chief Claims Officer 4 SUCCESS THROUGH DIFFERENTIATION
Slide 80: Our Claims Philosophy
Our Claims Philosophy We strive to achieve the best possible claim outcome for all stakeholders 4y SELECTIVE®
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