Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Q3 2014 Earnings Presentation
34 slides from Selective Insurance's earnings presentation, Oct 30, 2014
Slide 1: Selective Insurance Group, Inc. 4th Quarter Investor Presentation
Selective Insurance Group, Inc. 4th Quarter Investor Presentation Current as of October 30, 2014
Slide 2: Forward Looking Statements
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 and the Securities Exchang
Slide 3: Financial Overview
A, SELECTIVE ® Financial Overview
Slide 4: History of Success as a Super-Regional
Small commercial, 44th largest History of Field-based E&S and U.S. P&C financial operating personal carrier* strength model lines business *Source: A.M. Best, based on 2013 Net Premiums Written History of Success as a Super-Regional
Slide 5: Standard Commercial Lines
September 30, 2014 Standard Commercial Lines % Net Premiums Written • “Main street” account underwriter • Average account size $10,000 • ~1,100 agents • Field underwriters supported by regional and corporate expertise 76% YTD Ex-CAT Statutory Combined Ratio = 91.5% Standard Commercial Lines
Slide 6: Personal Lines
September 30, 2014 Personal Lines % Net Premiums Written • Focus on account customers • ~690 agents in 13 states • By-peril rating capabilities 16% YTD Ex-CAT Statutory Combined Ratio = 89.8% Personal Lines
Slide 7: Excess and Surplus Lines
Excess & Surplus Lines September 30, 2014 • Tightly controlled binding % Net Premiums Written authority, no claims authority • ~85 wholesale general agencies • Average policy size of $2,700 • ~70% general liability • 98% $1M or lower limits 8% YTD Ex-CAT Statutory Combined Ratio = 98.0% Excess and S
Slide 8: Key Takeaways
Strong balance sheet provides a foundation for success Lower volatility allows for greater operational leverage Effective cycle management Path to a 92% ex-catastrophes combined ratio in 2014 Key Takeaways
Slide 9: Conservative Investment Portfolio
Net Operating Cash Flows 20% as % of NPW 19% September 30, 2014 16% $4.8B in Invested Assets 15% 14% Alternatives 2% Short-Term 11% 4% Equities 4% 10% 8% 5% 0% 2009 2010 2011 2012 2013 Bonds SIGI Industry* 90% • “AA-” average credit quality • 3.8 year duration, excluding short-term • Investment leve
Slide 10: Conservative Catastrophe Reinsurance
% of Equity at Risk – 1 in 250 Event Blended Model Results (RMS & AIR) 2014 Property Catastrophe Treaty 11% • $685M in excess of $40M retention • Increased top layer by $100M • Flat premium despite additional limit • Exhausts at approximately 1-in- 250 year event 4% • Average reinsurer rating “A+” 2
Slide 11: Impact of CATs on Combined Ratio
10 pts SIGI Avg = 3.2 pts 9 Ind. Avg. = 5.0 pts 8 7 6 5 4 3 2 1 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 6/30/14 YTD Industry Source: A.M. Best Impact of CATs on Combined Ratio
Slide 12: Lower Volatility of Results
Standard Deviation (2004-2013) Reserve Development Combined Ratio (Points on Combined Ratio) 6.4 3.9 3.9 1.2 SIGI Peer Average* SIGI Peer Average* “Ground-up” quarterly reserve review and focus on “main street” accounts *Source: SNL Financial, Statutory Data Peers include CINF, THG, STFC, UFCS, CNA,
Slide 13: Combined Ratio Improvement Plan
2014 Ex-CAT Statutory Combined Ratio Plan 2.0% 96.5% (4.0)% 92% (2.0)% (0.5)% 2013 Accident Loss Trend Earned Rate Underwriting / Expense 2014 Year Ex-CAT Claims Projected* *Excluding CATS and additional reserve development May not foot due to rounding Expectation for 4 to 4.5 points of CAT losses i
Slide 14: Impact of Leverage
Investment Leverage Underwriting Leverage ROE Generated at a (Invested Assets/ (Premiums-to-Surplus) 96.5% Combined Ratio Stockholders’ Equity) 10.0% 1.4x 4.0x 7.5% 2.3x 0.7x SIGI Industry SIGI Industry SIGI Industry Industry Source: A.M. Best 2013E Impact of Leverage (as of December 31, 2013)
Slide 15: Strategic Overview
A, SELECTIVE ® Strategic Overview
Slide 16: Competitive Advantages
Field Model Superior Based On Sophisticated Agency Empowered Underwriting/ Relationships Decision Claims Tools Makers Focus On Broad Appetite Effective Customer and Strong Manager of Experience Product Leverage Portfolio Capabilities of a National…Relationships of a Regional Competitive Advantages
Slide 17: Net Premiums Written ($ in millions)
2,000 Net Premiums Written ($ in millions) 1,800 Managed Growth Through Cycle 1,600 1,400 1,200 1,000 800 600 400 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Effective Cycle Management
Slide 18: Growth Opportunities
Increase Market Addition of Share Within Expansion Agents and Existing New E&S of Product Storefronts Footprint Operations Offerings Growth Opportunities
Slide 19: Retention
8% 90% 7% 85% 6% Renewal Pure Price 80% 5% Retention 4% 75% 3% 70% 2% 65% 1% 0% 60% 3Q:09 1Q:10 3Q:10 1Q:11 3Q:11 1Q:12 3Q:12 1Q:13 3Q:13 1Q:14 3Q:14 • 22 consecutive quarters of renewal pure price increases • In 2014, anticipate overall renewal pure price increases of 5.5%* Standard Commercial Line
Slide 20: Point of Renewal Retention
September 2014 YTD Pricing by Retention Group Standard Commercial Lines 18% 88.6% 90% Point of Renewal Retention 16% 85% 14% Renewal Pure Price 12% 80% 10% 75% 8% 71.1% 6% 70% 4% 65% 2% 0% 60% Above Average Average Below Average Low Very Low Dynamic Portfolio Manager allows underwriters to drive mix
Slide 21: Workers Compensation Plan
Renewal Pure Price Balance of 7.5% in 2013; Underwriting 5.2% September Initiatives with Claims Initiatives YTD Compared to Overall Account 4% Loss Trend Profitability 3 Year Average Statutory Combined Ratio = 117.1% Workers Compensation Plan
Slide 22: Claims Initiatives
Strategic Case Unit (WC) Escalation Model Medical Cost Management Fraud Detection and Recovery Models Complex Claims Unit Litigation Management Claims Initiatives
Slide 23: Why Invest in Selective?
Strong balance sheet provides a foundation for success Lower volatility allows for greater operational leverage Effective cycle management Path to a 92% ex-catastrophes combined ratio in 2014 Why Invest in Selective?
Slide 24: Additional Information
Additional Information
Slide 25: Financial Highlights 2010 – Q3 2014
Financial Highlights 2010 – Q3 2014 Q1 Q2 Q3 2010 2011 2012 2013 2014 2014 2014 Statutory NPW Growth (2.4)% 7.0% 12.2% 8.7% 5.9% 3.8% 0.5% Operating EPS* $1.38 $0.38 $0.58 $1.65 $0.23 $0.46 $0.76 Net Income per Share* $1.23 $0.40 $0.68 $1.87 $0.31 $0.51 $0.93 Dividend per Share $0.52 $0.52 $0.52 $0.
Slide 26: Net Operating Cash Flow
Net Operating Cash Flow ($ in millions) Cash Flow as % of NPW 336 340 19% 290 240 228 227 16% 14% 190 159 140 11% 123 8% 90 40 2009 2010 2011 2012 2013 YTD September 2014: $158M
Slide 27: Investment Income – After-tax
Investment Income – After-tax ($ in millions) 120 111 111 110 100 101 100 96 90 80 70 60 50 40 2009 2010 2011 2012 2013 YTD September 2014: $80M
Slide 28: Focus on Expense Management
Focus on Expense Management Source: SNL Financial Note: Expense Ratio including Dividends Peers include CINF, CNA, HIG, STFC , THG, TRV, UFCS, and WRB *Excludes self-insured group sale
Slide 29: Insurance Operations Productivity
Insurance Operations Productivity ($ in 000s) NPW per Employee Statutory Expense Ratio 33.0 % 900 % 908 896 32.5 842 32.0 766 761 791 700 31.5 31.0 30.5 500 30.0 29.5 300 29.0 2009 2010 2011* 2012 2013 9/30/14YTD** *Excludes Excess & Surplus Lines **Expense ratio excludes 0.6 point benefit from self
Slide 30: Renewal Pure Price
Standard Commercial Lines Pricing Selective CLIPS 7.5% 6.5% 5.5% Renewal Pure Price 4.5% 3.5% 2.5% 1.5% 0.5% -0.5% -1.5% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2009 2010 2011 2012 2013 2014 Industry Source: Towers Watson Commercial Lines Insurance Pricing Survey
Slide 31: Standard Commercial Lines Profitability
Standard Commercial Lines Profitability Statutory Combined Ratios 110 % 105 103.9 103.0 99.8 100.8 0.5 6.4 5.0 100 3.3 98.5 99.3 97.1 95.9 2.1 97.5 97.5 98.0 95.5 95.4 95.0 0.9 1.7 95 93.6 96.4 1.5 1.2 95.3 0.3 95.0 4.0 93.9 93.8 93.3 90 91.5 85 Impact of Catastrophe Losses Combined Ratio excluding
Slide 32: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2013 Standard Commercial Lines Direct Premium Written Bonds Community and 2% Public Services Contractors 23% 33% Manufacturing & Mercantile 42%
Slide 33: Premium by Line of Business
Premium by Line of Business 2013 Standard Commercial Lines Net Premium Written Workers Compensation General Liability 20% 31% Commercial Property 17% Other 1% Bonds BOP Auto 1% 6% 24%
Slide 34: Long-Term Shareholder Value Creation Per Share
Long-Term Shareholder Value Creation $25 0.56 * 0.52 22.45 0.52 0.52 $20 0.49 0.52 20.63 0.44 0.52 19.77 18.97 19.45 0.40 18.82 17.87 0.52 17.80 0.35 $15 16.44 15.81 Per Share 14.96 $10 $5 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sept 2014 Book Value Dividend *Annualized indicated divide
Selective Insurance Group — Q3 2014 Earnings Presentation on 6ix