Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Q1 2020 Earnings Presentation
32 slides from Selective Insurance's earnings presentation, May 2020
Slide 1: Investor Presentation First Quarter 2020
INVESTOR PRESENTATION FIRST QUARTER 2020 1
Slide 2: Safe Harbor Statement
SAFE HARBOR SAFE HARBORSTATEMENT STATEMENT In this presentation, we make certain statements and reference other information that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a safe harbor under the Securities Act of
Slide 3: Overview
SELECTIVE BE UNIQUELY INSURED™
Slide 4: A Track Record of Superior Execution
A TRACK RECORD OF SUPERIOR EXECUTION STRONG UNDERWRITING PERFORMANCE WITH SIX CONSECUTIVE YEARS OF DOUBLE-DIGIT ROES 2019 Non-GAAP Operating ROE OF 13.3%* 27 $3.0B 90+ $2.7B 93.7% State Footprint** Market Cap Years of Financial 2019 NPW 2019 GAAP (as of 5/18/2020) Strength and (up 7% Y/Y) Combined R
Slide 5: Our Sustainable Competitive Advantages
OUR SUSTAINABLE COMPETITIVE ADVANTAGES Franchise value Unique field model Superior customer distribution model with enabled by sophisticated experience delivered by best-in-class partners tools and technology best-in-class employees • Enables effective • Locally-based • Total attention to customer m
Slide 6: Summary of Our Operations
SUMMARY OF OUR OPERATIONS Commercial Lines Personal Lines Excess & Surplus (80% of NPW) (11% of NPW) (9% of NPW) • Focused on disciplined • Targeting a 90% • Focus on achieving target growth homeowners combined ratio combined ratio; top-line will in a normal CAT year (~14 depend on market conditions
Slide 7: Super Regional Company with National Capabilities
SUPER REGIONAL COMPANY WITH NATIONAL CAPABILITIES Standard Commercial Standard Personal E&S (80% of NPW) (11% of NPW) (9% of NPW) 27 15 50 States & D.C. States States & D.C. ~1,350 ~770 ~90 wholesale distribution partners distribution partners distribution partners 7 Note: NPW breakdown as of full-y
Slide 8: Strong ROE Outperformance Relative to Peers
STRONG ROE OUTPERFORMANCE RELATIVE TO PEERS Historical Non-GAAP Operating ROEs* 15% • Strong underwriting and investment contributions 10.3% 9.4% • Superior 13.3% non-GAAP operating ROE* 10% in 2019 9.6% 8.2% • SIGI non-GAAP operating ROE* in 1Q20 5% includes 3.6 points of COVID-19-related SIGI Peer
Slide 9: Excellent Historical Operating Results
EXCELLENT HISTORICAL OPERATING RESULTS 2020 UPDATED GUIDANCE (INCLUDING Historical GAAP Combined Ratios ESTIMATED COVID-19 IMPACT): 100% 97.0% • Underlying combined ratio between 92% and 93% 95.8% (assuming no prior year casualty reserve 95% 93.7% development) 95.2% • Catastrophe losses of 4.5% 92.9
Slide 10: Major Updates to 2020 Guidance
MAJOR UPDATES TO 2020 GUIDANCE Our 2020 guidance reflects the current estimated full-year impact of COVID-19 on our industry and our insurance and investment operations: • A GAAP combined ratio (excluding catastrophe losses) of 92.0% - 93.0%, an increase from prior guidance of 91.5%, primarily due t
Slide 11: Impact of COVID-19 on 1Q Results
IMPACT OF COVID-19 ON 1Q RESULTS Pre-Tax Combined Income EPS ROE Ratio ($ in M) • Bad Debt Expense $ (10.5) $ (0.14) 1.6 pts (1.6 pts) • Property Incurred but not $ (10.0) $ (0.13) 1.5 pts (1.5 pts) Reported (IBNR) • Return Premium Accrual ($75M) $ (3.9) $ (0.05) 0.5 pts (0.6 pts) TOTAL COVID-19 IMP
Slide 12: Manageable Underwriting COVID-19-Related Exposure
MANAGEABLE UNDERWRITING COVID-19- RELATED EXPOSURE Standard Commercial Reinsurance Excess & Surplus Lines Protection • All property and business owner • Property accounts for ~30% of • Main catastrophe XOL program policies require “direct physical our E&S book, and only ~25% has $735M of coverage in
Slide 13: Our Strategic Initiatives
OUR STRATEGIC INITIATIVES 13
Slide 14: Our Major Strategic Initiatives
OUR MAJOR STRATEGIC INITIATIVES LEVERAGE SOPHISTICATED CONTINUED PROFITABLE EXCELLENT CULTURE FOCUSED ON TOOLS TO ACHIEVE GROWTH CUSTOMER SERVICE INNOVATION AND ADEQUATE PRICING SUSTAINABILITY Expanding “share of Continue to deliver superior Deploy sophisticated underwriting A culture of innovation
Slide 15: Consistently Achieving Price Increases in Alignment with Loss Trend
CONSISTENTLY ACHIEVING PRICE INCREASES IN ALIGNMENT WITH LOSS TREND • Selective’s renewal pure price increases exceeded industry SIGI Pricing CLIPS Pricing SIGI Retention averages between 2009 and 2018 88% • Commercial Lines cumulative Renewal Pure Price (%) 85% renewal pure price between 2015 Reten
Slide 16: A Granular Approach to Pricing and Underwriting
A GRANULAR APPROACH TO PRICING AND UNDERWRITING Commercial Lines Pricing by Retention • Portfolio management approach yields Group higher retention and rate Pure Rate % Premium Renewed Point of Renewal Retention • Account-specific pricing, including: Renewal Pure Price 9% 95% • Predictive modeling 6
Slide 17: Targeting Profitable Growth Over Time
TARGETING PROFITABLE GROWTH OVER TIME PAGE 17 Historical Net Premiums Written COMMERCIAL LINES GROWTH DRIVERS: LOWER RISK • Target of growing “share of wallet” to 12% $2.8B Managed Premium Volume with existing distribution partners During Soft Market • Target of appointments to represent 25% share i
Slide 18: Deliver a Superior Omni-Channel Experience
DELIVER A SUPERIOR OMNI-CHANNEL EXPERIENCE VALUE-ADDED • Changing expectations from customers, and SERVICES SUCH AS “360-DEGREE” potential disruptive threats from traditional and SELECTIVE® DRIVE VIEW OF non-traditional competitors CUSTOMER • Partnering with agents to provide a seamless customer exp
Slide 19: Strong Focus on Innovation and Sustainability
STRONG FOCUS ON INNOVATION AND SUSTAINABILITY A focus on attracting, developing, and retaining the best talent: • Established an Innovation function, including a lab on our Branchville, NJ campus • Leadership and development programs • Initiatives to increase diversity and inclusion • A focus on sus
Slide 20: Financial Overview
SELECTIVE BE UNIQUELY INSURED™ 20
Slide 21: Lower Risk Profile and Strong Financial Strength
LOWER RISK PROFILE AND STRONG FINANCIAL STRENGTH A LOWER RISK PROFILE • Strong balance sheet underpinned by a conservative approach to: • Managing the investment portfolio • Purchasing reinsurance protection • Loss reserving Low to • Conservative business and balance sheet Medium profile allows for
Slide 22: A Writer of Predominantly Low- to Medium-Hazard Risks
A WRITER OF PREDOMINANTLY LOW- TO MEDIUM- HAZARD RISKS • Manage volatility of underwriting results, in part through Percent of Policies with TIV* maintaining a smaller limit profile or Limits of $1M or Less Property Casualty • Low account sizes (premium per Standard Commercial Lines 79% 87%** policy
Slide 23: Conservative Investment Portfolio
CONSERVATIVE INVESTMENT PORTFOLIO Investment Portfolio at 3/31/20 • Core fixed income and short-term investments $6.8B of Investments comprise 95% of the investment portfolio: • “AA-” average credit quality Fixed Income 87% (3% High Yield) • Effective duration of 3.3 years Short-Term 8% • Risk asset
Slide 24: Active Portfolio Management Drives Investment Results
ACTIVE PORTFOLIO MANAGEMENT DRIVES INVESTMENT RESULTS Historical After-Tax Fixed Income Portfolio • Current fixed income and short-term portfolio Yields duration of 3.3 years 3.0% 2.9% 2.8% 2.7% • AA- average credit rating • Forecasting after-tax net investment income of $160M in 2020, driven by 2.2
Slide 25: Historical Catastrophe Loss Impact Below Industry Average
HISTORICAL CATASTROPHE LOSS IMPACT BELOW INDUSTRY AVERAGE • Catastrophe loss impact over the past 17 Impact of Catastrophe Losses on Combined years has averaged: 12 pts Ratio • 5.1 percentage points for the P&C P&C Industry industry • 2.9 percentage points for Selective 6 • Catastrophe loss mitigati
Slide 26: Conservative Reinsurance Program
CONSERVATIVE REINSURANCE PROGRAM • 2020 property catastrophe treaty structure: Net Single-Event Hurricane Loss* as a % of Equity • Coverage of $735M in excess of $40M retention 24% • $242M in collateralized limit, primarily in 18% the top layer of the program 18% • Additional earnings volatility pro
Slide 27: Strong Reserving Track Record
STRONG RESERVING TRACK RECORD Impact of Casualty Reserve Development on our Combined Ratio • Disciplined reserving practices: 4.0% • Quarterly actuarial reserve reviews • Semi-annual independent review • Independent year-end opinion 2.0% • Favorable reserve development in Workers Compensation was pa
Slide 28: Strong Capital and Liquidity Position, Greater Focus on Expenses
STRONG CAPITAL AND LIQUIDITY POSITION, GREATER FOCUS ON EXPENSES CAPITAL AND LIQUIDITY PLAN EXPENSE MANAGEMENT • Debt-to-capital ratio of 28.9% includes issuance • Upward pressure from COVID-19 related of $302M of short-term debt in 1Q to bolster items in short-term, but greater expense liquidity, a
Slide 29: A Focus on ROE and Growth in Book Value per Share
A FOCUS ON ROE AND GROWTH IN BOOK VALUE PER SHARE Strong Track Record of Book Value per Share Growth Generating non-GAAP operating ROE* in and Shareholder Value Creation Over Time line with our long-term target $50 $2,500 $40 $2,000 ($ in millions) $30 $1,500 Superior growth in book value per share
Slide 30: Total Shareholder Returns Have Outperformed Benchmarks
TOTAL SHAREHOLDER RETURNS HAVE OUTPERFORMED BENCHMARKS Total Shareholder Return SIGI S&P 500 S&P Prop/Cas • Solid long-term outperformance in 40% total shareholder return relative to 30% S&P P&C insurance index and S&P 500 index over the past 5- and 10- 20% 12.9% 13.9% year periods 8.0% 10.5% 11.4%
Slide 31: Our Value Proposition
OUR VALUE PROPOSITION Selective delivers high-tech, high-touch insurance solutions while leveraging a unique distribution model to generate long-term value Leveraging our competitive strengths Excellent growth opportunities to generate sustained financial within footprint and geo-expansion outperfor
Slide 32: Investor Presentation First Quarter 2020
INVESTOR PRESENTATION FIRST QUARTER 2020 32
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