Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Bank of America Merrill Lynch 2012 Insurance Conference
35 slides from Selective Insurance's conference presentation, Feb 15, 2012
Slide 1: Bank of America Merrill Lynch 2012 Insurance Conference
Bank of America Merrill Lynch 2012 Insurance Conference February 15, 2012
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 Overview
Financial Overview Dale Thatcher Chief Financial Officer
Slide 4: Who We Are
Who We Are • $1.5B 2011 NPW • Super-regional carrier • Distribution through independent agents • Small to mid-sized suburban and rural risks • 80% standard commercial lines • History of financial strength Rated “A+” by A.M. Best for 50 consecutive years
Slide 5: Standard Commercial Lines
Standard Commercial Lines • 22 state footprint • 1,000 independent agency relationships • Average account size of $9,000 • 80% of NPW General Liability Auto 24% 30% BOP 6% Other 2% Workers Compensation Commercial 22% Property 16%
Slide 6: Personal Lines
Personal Lines • 13 state footprint • 580 independent agents • Agents want joint C/L & P/L markets • Homeowners improvement plan • Expect 11.5% in-force rate in 2012 • By-peril rating capabilities • Flood 2011 net income $11M • 18% of NPW Other 5% Homeowners 40% Personal Auto 55%
Slide 7: Contract Binding Authority E&S Business
Contract Binding Authority E&S Business • Right time to enter business • 90 wholesale agents with controlled binding authority and no claims authority • Lower hazard and dollar limits • Average account size $2,200 • Similar to Selective’s small business model • 2010: $120M GPW Property 22% Casualty
Slide 8: High Quality Investment Portfolio
High Quality Investment Portfolio • Well diversified, laddered portfolio $4.1B Invested Assets December 31, 2011 • Deployed high dividend yield equity strategy in 2011 • 1% of bond portfolio rated Bonds 88% “BB” & below Avg Rating AA- • 3.2 year average duration • Investment leverage = 3.71x Short-T
Slide 9: Selective's Use of Underwriting Leverage
Selective’s Use of Underwriting Leverage 1.9 1.9 1.8 1.7 1.7 1.7 1.6 1.5 1.5 1.5 1.5 1.4 1.3 1.3 1.3 1.2 1.1 1.1 1.0 1.0 0.9 0.9 0.9 0.8 0.8 0.7 0.7 0.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 SIGI P&C Sources: ISO, AM Best, III
Slide 10: Impact of Leverage
Impact of Leverage Combined Ratio Required for 12% ROE Reported Investment Portfolio Yield Versus New Money Rates 100 ~95% SIGI Industry ~93% 90 ~87% ~84% 80 70 2011 (Reported Portfolio Yield) 2011 (Applying New Money Rates) Leverage Investment Underwriting SIGI 3.7x 1.4x Industry Source: AM Best Es
Slide 11: Strategically Deploying Capital
Strategically Deploying Capital Acquisitions Organic Growth 2011: E&S 1998-2006: Doubled Acquisitions in Size Financial Strength Required for Operations Liquidity Return Capital 2006-2008: Share 2009: Preservation Repurchases of Capital 2008: Dividend Increase
Slide 12: Road to 12% ROE
Road to 12% ROE 12% ROE Ongoing expense management Claims initiatives 3 points over 3 years Personal Lines underwriting improvements Personal Lines price increases Commercial Lines underwriting improvements Commercial Lines price increases between 5-8% over 3 years
Slide 13: Strategic Overview
Strategic Overview Greg Murphy Chairman, President & CEO
Slide 14: Driving Success with Franchise Relationships
Driving Success with Franchise Relationships High-tech, high-touch business model Agent Touchpoints Participative management team Technology connectivity Annual surveys highlight areas of Agent road shows improvement Field model built around Agency Management Specialists (AMS)
Slide 15: Relationships Drive Business
Relationships Drive Business Key Agent Agency Management Touchpoint Specialist (AMS) • 100 field underwriters focusing on middle market accounts • Responsible for agent growth and profitability • Expect $2.5M in new business per AMS/year
Slide 16: Agent Touchpoints with Selective
Agent Touchpoints with Selective • Primary Relationship • Small Business Field Marketing Manager C/L Agency Management • New Business • Personal Lines Specialist (FMS) Specialist (AMS) Middle Market Underwriting Agent Touchpoints • Marketing • Increases Opportunity Retention Claims Management Safety
Slide 17: End-Customer Relationships
End-Customer Relationships Improves Retention Customer Experience Touchpoint Audit Lowers Acquisition Costs Voice of The CUSTOMER POSITIVE Customer INITIATIVES FINANCIAL Surveys EXPERIENCE IMPACT Improves Profitability Launch of Redesigned Customer Bill Direct Access to Consumers Customer Satisfacti
Slide 18: Strategy for Profitable Growth
Strategy for Profitable Growth Rate Underwriting Profitable New Business Improvements Growth Retention
Slide 19: Successfully Managing the Commercial Lines Cycle
Successfully Managing the Commercial Lines Cycle • 11 consecutive quarters of C/L renewal price increases • Dynamic Portfolio Manager – Consolidates information and increases productivity – Models renewal strategies – Feedback loop to improve inventory management leading to better decisions and bett
Slide 20: Dynamic Portfolio Manager Decision Flow
Dynamic Portfolio Manager Decision Flow Renewal Underwriters Real Time Impact Underwriting Inventory on Inventory Actions 3,000 accounts/ month reviewed Underwriting Goals Rate Dynamic Portfolio Retention Manager Quality “What If” Analysis Profitability
Slide 21: New Business Capacity for Profitable Growth
New Business Capacity for Profitable Growth • Share of wallet 7% • $2.5M in new business per AMS • New FMS role created • Marketing small C/L business and P/L • Adding agency storefronts to increase scale • 50+ new and expanded C/L products • $300-400 million CBA E&S premium potential Premium Profit
Slide 22: New Cycle, New Opportunities
New Cycle, New Opportunities
Slide 23: Bank of America Merrill Lynch 2012 Insurance Conference
Bank of America Merrill Lynch 2012 Insurance Conference February 15, 2012
Slide 24: Financial Highlights 2007 – 2011
Financial Highlights 2007 – 2011 2011 2010 2009 2008 2007 NPW Growth 6.8% (2.3)% (4.7)% (4.5)% 1.4% Operating EPS $0.34 $1.35 $1.39 $1.43 $2.16 Net Income per Share $0.36 $1.20 $0.68 $0.82 $2.59 Dividend per Share $0.52 $0.52 $0.52 $0.52 $0.49 Book Value $20.39 $19.95 $18.83 $16.84 $19.81 Return on
Slide 25: Net Operating Cash Flow
Net Operating Cash Flow ($ in millions) 440 Cash Flow as % of NPW 390 386 340 290 240 241 228 190 25% 140 16% 16% 159 123 90 11% 8% 40 2007 2008 2009 2010 2011
Slide 26: Investment Income – After-tax
Investment Income – After-tax ($ in millions) 140 130 134 120 110 111 111 100 105 90 96 80 70 60 50 40 2007 2008 2009 2010 2011
Slide 27: Insurance Operations Productivity
Insurance Operations Productivity ($ in 000s) NWP per employee Expense ratio % 900 33 797 797 766 791 32 700 761 31 500 30 300 29 2007 2008 2009 2010 2011* *2011 NWP per employee excludes E&S operations
Slide 28: Commercial Lines Profitability
Commercial Lines Profitability Statutory Combined Ratios % 115 110 105 102.2 104.3 1.1 100.9 99.8 100.8 0.5 6.4 100 101.1 2.4 98.5 3.3 95.9 98.5 95.4 95.0 0.9 2.1 99.3 93.6 1.2 97.5 97.9 95 1.5 0.3 96.4 95.0 93.9 93.3 93.8 90 85 Impact of Catastrophe Losses Combined Ratio excluding CATS
Slide 29: Selective's Commercial Lines Renewal Pricing Success
Selective’s Commercial Lines Renewal Pricing Success 4.0% 3.4% 3.3% 3.4% 2.7% 2.8% 2.8% 2.8% 2.7% 2.6% 2.0% 1.5% 0.6% 0.0% Selective CLIPS -2.0% 2Q:09 3Q:09 4Q:09 1Q:10 2Q:10 3Q:10 4Q:10 1Q:11 2Q:11 3Q:11 4Q:11 11 consecutive quarters of positive price
Slide 30: Granular Pricing Capabilities
Granular Pricing Capabilities Pricing by Diamond 10 8 6 4 2 0 1&2 Diamond 3 Diamond 4&5 Diamond -2 2009 2010 2011
Slide 31: Granular Pricing Capabilities
-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2Q:09 6.5% 7.6% 10.3% 10.3% 8.7% 8.6% 1&2 8.0% Diamond 7.7% Lower 8.4% 5.6% 4Q:11 6.3% 2Q:09 1.6% 1.6% 3.8% 4.1% 3.5% 3 3.2% 3.2% Diamond 3.0% 4.0% Quality 2.8% 4Q:11 3.5% 2Q:09 -0.6% 0.3% 0.9% 1.7% Quarterly Pricing by Diamond 2.0% 1.5% Higher 4&5 1.
Slide 32: Retaining our Best Commercial Business
Retaining our Best Commercial Business 92% 90% 90% 88% 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 December 31, 2011
Slide 33: Personal Lines Rate Success
Personal Lines Rate Success Blended In-force Rate 9% 8.3% 8% 7.1% 7% 6.8% 6.3% 6% 5% 4% 3.1% 3% 2.4% 2% 1% 0% 2007 2008 2009 2010 2011 2012E
Slide 34: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2011 Direct Premium Written Bonds Community and 2% Public Services 23% Contractors 34% Manufacturing & Mercantile 41%
Slide 35: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation $26.00 $0.52 $21.00 $0.49 $0.52 $0.44 $0.52 $19.81 $19.95 $20.39 $0.40 $18.81 $18.83 $0.52 $0.35 $17.34 $16.84 $16.00 $15.79 $0.31 $0.30 $13.74 $12.26 $11.00 $6.00 $1.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Book Value Dividend
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