Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Keefe, Bruyette & Woods 2013 Insurance Conference
35 slides from Selective Insurance's conference presentation, Sep 25, 2013
Slide 1: Keefe, Bruyette & Woods 2013 Insurance Conference
Keefe, Bruyette & Woods 2013 Insurance Conference September 25, 2013
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: Foundation for Success
Foundation for Success Dale Thatcher EVP, Chief Financial Officer
Slide 4: Who We Are
Who We Are • $1.7B 2012 NPW • Super‐regional carrier • Unique field model • Standard lines distributed through independent agents • Excess & Surplus (E&S) lines distributed through wholesale agents • History of financial strength
Slide 5: Business Diversification
Business Diversification Standard Commercial Lines • 22 state footprint 2012 • 1,100 independent agency relationships Net Premiums Written % • Average account size of $9,000 7% Personal Lines • 13 state footprint • 620 independent agents 17% • Agents want joint C/L & P/L markets • Flood 2012 net inc
Slide 6: Financial Strength is our Foundation for Success
Financial Strength is our Foundation for Success • Access to capital markets – February 2013 issued $185 million 5.875% senior notes due 2043 – Use of proceeds: • Called $100 million 7.5% junior subordinated notes due 2066 • Balance to fund growth • Underwriting stability • Disciplined reserving • C
Slide 7: Underwriting Stability
Underwriting Stability Statutory Combined Ratio – SIGI vs. Peers 115 % 110 105 100 Standard 95 Deviation SIGI 3.7 90 Peer Average 7.7 85 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 6/30/13 Source: SNL Financial YTD Peers include CINF, THG, STFC, UFCS, CNA, HIG, TRV, WRB Deviation calculated by
Slide 8: Impact of CATs on Combined Ratio
Impact of CATs on Combined Ratio 12 pts SIGI Avg = 2.6 pts 10 Ind. Avg. = 4.7 pts 8 6 4 2 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q2013 Source: AM Best
Slide 9: Conservative Reinsurance Program
Conservative Reinsurance Program % of Equity at Risk 12% Blended Model Results (RMS v11 & AIR v13) 10% 11% 8% 6% 4% 2% 3% 0% 1% Probability 0.4% Probability CAT Cover: $585M in excess of $40M Percentages are after tax and include applicable reinstatement premium. Data as of 7/12; Equity data as of D
Slide 10: Calendar Year Development
Calendar Year Development 5% 4% SIGI Industry (Favorable)/Adverse Points 3% 2% 1% 0% ‐1% ‐2% ‐3% ‐4% 2003 2004 2005 2006 2007 2008 2009 2010* 2011 2012 1Q2013 *2010 Industry development includes $4B charge from AIG Source: AM Best and Insurance Information Institute Note: Industry excluding Mortgage
Slide 11: Conservative Investment Portfolio
Conservative Investment Portfolio • Well diversified, laddered $4.4B Invested Assets portfolio June 30, 2013 • Only 1.5% of bond portfolio Bonds 89% rated “BB” & below “AA‐” Avg Rating • 3.7 year average duration, excluding short‐term • Investment leverage of 3.97 x 2.3% yield = ~9% ROE Equities Sho
Slide 12: Premium to Surplus Ratio
Selective’s Use of Underwriting Leverage SIGI Industry 1.9 1.8 Premium to Surplus Ratio 1.7 1.7 1.7 1.6 1.6 1.5 1.5 1.5 1.5 1.5 1.4 1.3 1.3 1.2 1.1 1.1 1.0 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.7 0.7 0.5 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 6/30/13 Sources: ISO, AM Best and Insurance Inform
Slide 13: Impact of Leverage
Impact of Leverage Combined Ratio Required for ~12% ROE 100 % ~95% SIGI 90 Investment Leverage 4.0x U/W Leverage 1.6x ~87% Industry Investment Leverage 2.3x 80 U/W Leverage 0.8x 70 Industry Source: AM Best 2012
Slide 14: Combined Ratio Improvement Plan – On Track to Achieve Goal
Combined Ratio Improvement Plan – On Track to Achieve Goal 115 % 110 6.5 105 100.9 100 95 1.0 ~92.0 (12.5) (1.5) 90 (2.0) 85 Company expectation for 3 points of CAT losses in 2013 & 2014 *Excluding CATS and reserve development
Slide 15: Strategic Overview
Strategic Overview Greg Murphy Chairman & CEO
Slide 16: 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
Slide 17: Relationships with the Highest Caliber Agents
Relationships with the Highest Caliber Agents • $1.4M NPW per agency in 2012 • 8.6/10 on agency survey • Franchise value • Greater share of wallet • Strong feedback loop
Slide 18: A Regional with National Capabilities
A Regional with National Capabilities Capabilities of a National Nimbleness of a Regional • Sophisticated pricing • Relationships • Fraud and recovery models • Local decision making • Advanced data and technology Selective: A Unique Super‐Regional
Slide 19: Pricing Sophistication – Dynamic Portfolio Manager
Pricing Sophistication – Dynamic Portfolio Manager • ~20 factors driven through DPM generate individual policy guidance and portfolio level impact – Line of business and segment strategy – CAT modeling – Predictive modeling – Agency profitability – Risk characteristics – “What‐if” profitability anal
Slide 20: Pricing Sophistication – Commercial Lines Price
Pricing Sophistication – Dynamic Portfolio Manager June 2013 YTD Pricing by Retention Group Standard Commercial Lines 18% 90% 16% Commercial Lines Price 14% 12% 80% Retention 10% 8% 6% 70% 4% 2% 0% 60% Above Average Below Low Very Low Average Average June 2013 YTD Price = 7.3%
Slide 21: Relationships Drive Pricing Through the Cycle
Relationships Drive Pricing Through the Cycle 8% 90% 3rd Quarter through August = 7.8% Standard Commercial Lines Price 7% 85% 6% Quarterly Retention 80% 5% 4% 75% 3% 70% 2% 65% 1% 0% 60% Commercial lines pricing target of 7.6% for 2013
Slide 22: Personal Lines Sophistication
Personal Lines Sophistication Homeowners • Increasing rate • By‐peril rating • Encourage whole account customers Auto • Increasing rate • Continued mix improvements • Underwriting restrictions • Claims initiatives • Age of book Anticipate personal lines pricing of approximately 7% in 2013
Slide 23: Homeowners Pricing and Retention
Homeowners Pricing 12% 95% 10% Renewal Pure Price 8% 85% Retention 6% 4% 75% 2% 0% 65% 2008 2009 2010 2011 2012 6/30/13 YTD Targeting upper‐80’s combined ratio in normal CAT year Anticipate pricing of approximately 8.5% in 2013
Slide 24: Personal Auto Pricing and Retention
Personal Auto Pricing 7% 95% 6% Renewal Pure Price 5% 85% Retention 4% 3% 75% 2% 1% 0% 65% 2008 2009 2010 2011 2012 6/30/13 YTD Anticipate pricing of approximately 5.5% in 2013
Slide 25: Achieving Better Outcomes in Claims
Achieving Better Outcomes in Claims • Medical cost containment Projected • Complex claims unit 3 Point • Fraud detection model Loss & • Recovery model Expense • Litigation management Savings • Comprehensive data management tools
Slide 26: Why Invest in Selective?
Why Invest in Selective? • Proven ability to manage the market cycle • Growth at the right time — Grew faster and longer in last hard market • Strong balance sheet limits downside
Slide 27: Financial Highlights 2009 – Q2 2013
Financial Highlights 2009 – Q2 2013 2009 2010 2011 2012 Q1:2013 Q2:2013 Statutory NPW Growth (4.7)% (2.3)% 6.8% 12.2% 7.1% 8.6% Operating EPS* $1.39 $1.38 $0.38 $0.58 $0.36 $0.42 Net Income per Share* $0.68 $1.23 $0.40 $0.68 $0.38 $0.48 Dividend per Share $0.52 $0.52 $0.52 $0.52 $0.13 $0.13 Book Val
Slide 28: Net Operating Cash Flow
Net Operating Cash Flow ($ in millions) 290 Cash Flow as % of NPW 240 241 228 227 190 16% 16% 14% 140 159 11% 123 90 8% 40 2008 2009 2010 2011 2012 YTD June 2013: $98M
Slide 29: Investment Income – After-tax
Investment Income – After‐tax ($ in millions) 120 110 111 111 100 105 100 90 96 80 70 60 50 40 2008 2009 2010 2011 2012 YTD June 2013: $51M
Slide 30: Focus on Expense Management
Focus on Expense Management 36 35 34 33 32 31 30 29 28 27 26 2007 2008 2009 2010 2011 2012 6/30/2013 YTD SIGI Peer Median Source: SNL Financial Note: Expense Ratio including Dividends
Slide 31: Insurance Operations Productivity
Insurance Operations Productivity % ($ in 000s) 900 NPW per Employee Statutory Expense Ratio 33.0 886 32.5 842 797 766 791 32.0 700 761 31.5 31.0 30.5 500 30.0 29.5 300 29.0 2008 2009 2010 2011* 2012 6/30/13 *Excludes Excess & Surplus Lines
Slide 32: Standard Commercial Lines Profitability
Standard Commercial Lines Profitability Statutory Combined Ratios 115 % 110 105 103.9 103.0 100.9 99.8 100.8 0.5 6.4 5.0 100 2.4 98.5 3.3 95.9 99.3 96.6 98.5 95.0 2.1 95.4 0.9 98.0 93.6 1.2 97.5 97.5 1.6 95 1.5 0.3 96.4 95.0 95.0 93.9 93.3 93.8 90 85 Impact of Catastrophe Losses Combined Ratio exclu
Slide 33: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2012 Standard Commercial Lines Direct Premium Written Bonds Community and 1% Public Services Contractors 23% 34% Manufacturing & Mercantile 42%
Slide 34: Premium by Line of Business
Premium by Line of Business 2012 Standard Commercial Lines Net Premium Written Workers Compensation General Liability 21% 31% Commercial Property Other 17% Auto 1% Bonds BOP 1% 6% 23%
Slide 35: Long-Term Shareholder Value Creation
Long‐Term Shareholder Value Creation $25 0.52 0.52 0.52 * $20 0.44 0.49 0.52 0.52 19.77 19.72 0.40 18.82 18.97 19.45 17.87 0.52 17.80 0.35 Per Share $15 0.31 16.44 15.81 14.96 12.96 $10 $5 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun‐13 Book Value Dividend *Annualized indicated dividend
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