Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Investor Day (2012)
97 slides from Selective Insurance's investor day presentation, 2012
Slide 1: Welcome ―2012 Investor Day
Welcome ―2012 Investor Day Jennifer DiBerardino SVP, Investor Relations & Treasurer
Slide 2: Agenda
Agenda • 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 B
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
Slide 5: Selective: Super-Regional Carrier Positioned for Success
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
Slide 7: 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 8: Selective: Regional with National Capabilities
Selective: Regional with National Capabilities
Slide 9: Our strong relationships and nimbleness drive success
Selective: Super-Regional Carrier Positioned for Success Our strong relationships and nimbleness drive success in the marketplace
Slide 10: Relationships Drive Pricing Through the Cycle
Relationships Drive Pricing Through the Cycle 7.0% 100% 6.0% 95% Quarterly Retention 5.0% 90% 85% 4.0% Price 80% 3.0% 75% 2.0% 70% 1.0% 65% 0.0% 60% Three Years of Positive Price
Slide 11: Diversification Leads to Profit Opportunities
Diversification Leads to Profit Opportunities Net Premiums Written % Projected 2011 5-Year View 2% 10-15% 18% 20% 80% 65-70% Commercial Personal Excess & Surplus
Slide 12: A Growth Company When the Time is Right
A Growth Company When the Time is Right 1,600 1,400 Net Premiums Written 1,200 ($ in Millions) 1,000 800 600 400 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Slide 13: Focused on Continuous Improvement
Focused on Continuous Improvement 12% ROE Expense Management Claims 3 pts improvement U/W Improvements P/L Price +5 to +8% C/L Increases Price
Slide 14: Why Invest in Selective?
Why Invest in Selective? • Strong balance sheet limits downside • Proven ability to manage the market cycle • Growth at the right time • Attractive valuation
Slide 15: Foundation for Success
Foundation for Success Dale Thatcher EVP, Chief Financial Officer
Slide 16: Financial Strength is Foundation for Success
Financial Strength is Foundation for Success • Underwriting stability • Disciplined reserving • Focused expense management • Conservative investments • Benefits of leverage
Slide 17: Underwriting Stability
Underwriting Stability % Statutory Combined Ratio – SIGI vs. Industry 115 SIGI (STD. DEV 3.8) 110 Industry (STD. DEV 4.7) 105 100 95 90 85 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: A.M. Best, III Note: Industry excluding Mortgage and Financial Guaranty Segments since 2007
Slide 18: Impact of CATs on Combined Ratio
Impact of CATs on Combined Ratio pts SIGI Avg = 2.3 pts 12 Ind. Avg. = 4.5 pts 10 8 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: AM Best SIGI Industry
Slide 19: Calendar Year Development
Calendar Year Development 8% 6% (Favorable)/Adverse Points 4% 2% 0% -2% -4% 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011 Industry SIGI Source: AM Best, III Note: Industry excluding Mortgage and Financial Guaranty Segments *2010 Industry development includes $4B charge from AIG
Slide 20: Selective vs Peers Modeled Reserve Risk
Selective vs Peers Modeled Reserve Risk
Slide 21: Conservative Reinsurance Program
Conservative Reinsurance Program 25% % of Equity at Risk Blended Model Results (RMS v11 & AIR v13) 20% Long Term Near Term 21% 15% 16% 10% 5% 3% 4% 0% 1% Probability 0.4% Probability CAT cover: $435M in excess of $40M Percentages are after tax and include applicable reinstatement premium. Data as of
Slide 22: Focused Expense Management
Focused Expense Management 36 35 34 33 32 31 30 29 28 27 26 2007 2008 2009 2010 2011 Source: SNL Financial Peers include CINF, CNA, HIG, STFC , THG, TRV, UFCS, and WRB
Slide 23: Conservative Investment Portfolio
Conservative Investment Portfolio $4.2B Invested Assets • Well diversified, laddered March 31, 2012 portfolio • Deployed high dividend yield Bonds 89% equities strategy in 2011 “AA-” Avg Rating • Only 1% of bond portfolio rated “BB” & below • 3.3 year average duration Short-Term 4% • Investment leve
Slide 24: Premium to Surplus Ratio
Selective’s Use of Underwriting Leverage 1.9 1.9 1.8 1.7 1.7 1.7 1.6 Premium to Surplus Ratio 1.5 1.5 1.5 1.5 1.4 1.3 1.3 1.3 1.2 1.1 1.1 1.0 0.9 0.9 0.9 0.9 0.8 0.8 0.7 0.7 0.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 SIGI Industry Sources: ISO, AM Best, III Note: Industry excluding Mortga
Slide 25: Impact of Leverage
Impact of Leverage % Combined Ratio Required for 12% ROE 100 SIGI Industry ~95% 90 Investment Leverage 3.7x ~87% U/W Leverage 1.4x 80 Investment Leverage 2.3x U/W Leverage 0.8x 70 2011 Industry Source: AM Best Estimates
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 Acquisitions Organic Growth 2011: E&S 1998-2006: Doubled Acquisitions in Size Return Capital Liquidity 2006-2008: Share 2009: Preserve Repurchases Capital 2008: Dividend Increase
Slide 28: 3-Year Standard Lines Combined Ratio Improvement
3-Year Standard Lines Combined Ratio Improvement % 115 6.5 110 105 103.3 100 ` (12.5) 1.0 ~95.0 95 (1.5) (2.0) 90 85 *Adjusted for excess CATS and favorable reserve development
Slide 29: Example of Effects of Pricing on Combined Ratio
Example of Effects of Pricing on Combined Ratio (Data is illustrative, not actual data) Base Assumptions Future Assumptions: 2011 Written Premium = $1,000,000 Policy Count Growth of 3% per year 2011 Earned Premium = $1,000,000 Rate Changes of 10% per year for 3 years 2011 AY Loss & LAE Ratio = $700,
Slide 30: What Drives Our Success
What Drives Our Success John Marchioni EVP, Insurance Operations
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
Slide 32: Local Decision Makers Supported by Centralized Expertise
Local Decision Makers Supported by Centralized Expertise Underwriting Claims Field Field Underwriter Adjuster Regional Line of Business Litigation Line of Business Management Experts SIU Experts Regional Segment Experts Management
Slide 33: Relationships with the Highest Caliber Agents
Relationships with the Highest Caliber Agents • Franchise value • Greater share of wallet • 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
Slide 35: Pricing Sophistication – Predictive Modeling
Pricing Sophistication – Predictive Modeling Pricing by Diamond 10% 8% 6% 4% 2% 0% 1&2 Diamond 3 Diamond 4&5 Diamond -2% 2009 2010 2011 Q1:2012
Slide 36: Pricing Sophistication – Dynamic Portfolio Manager
Pricing Sophistication – Dynamic Portfolio Manager 1st Quarter 2012 Pricing by Retention Group 12% 90% 10% 8% 80% Retention Price 6% 4% 70% 2% 0% 60% Low Below Average Average Above Average
Slide 37: Pricing Distribution
Pricing Distribution 1st Quarter 2012 25% 20% % of Premium 15% 10% 5% 0% < -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% >= -10.0% to to to to to to to to to to to to to to to 20.0% -8.1% -6.1% -4.1% -2.1% -0.1% 1.9% 3.9% 5.9% 7.9% 9.9% 11.9% 13.9% 15.9% 17.9%
Slide 38: Equation for Success
Equation for Success 7.0% 100% 6.0% 95% Quarterly Retention 5.0% 90% 85% 4.0% Price 80% 3.0% 75% 2.0% 70% 1.0% 65% 0.0% 60% Three Years of Positive Price
Slide 39: Claims Sophistication
Claims Sophistication • People • Process • Tools
Slide 40: Key Success Factors: Personal Lines / Small Commercial
Key Success Factors Personal Lines / Small Commercial Lines • Broad appetite • Ease of doing business • Operational efficiency • Pricing sophistication
Slide 41: Key Success Factors: Middle-Market / Large Commercial
Key Success Factors Middle-Market / Large Commercial Lines • Strong agency partners • Broad appetite • Underwriting expertise • Local decision-making • Coverage advantages • Outstanding service
Slide 42: E&S Contract Binding Authority (CBA)
E&S Contract Binding Authority (CBA) • 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
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
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 relationships • $70 million 2010 GPW
Slide 45: Personal Lines: Sustainable Profitability
Personal Lines: Sustainable Profitability Allen Anderson SVP, Chief Underwriting Officer, Personal Lines
Slide 46: Personal Lines Opportunity
Personal Lines Opportunity Industry Share of Personal Lines Captive Agency 53% Deepens agency relationships Independent Direct Response Agency 34% 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 Personal Lines Footprint
Slide 48: Achieving Profitability in Personal Lines
Achieving Profitability in Personal Lines • Pricing • Improving mix of business • Increasing operational & model efficiency through scale
Slide 49: Homeowners Profitability
Homeowners Profitability • Maximizing rate • Age of roof restrictions • Deductible changes • By-peril rating
Slide 50: By-Peril Rating
By-Peril Rating Fire Weather Wind Water Theft Liability Other
Slide 51: Homeowners Profitability
Homeowners Profitability 7% 95% 6% 5% 85% Filed Rate Retention 4% 3% 75% 2% 1% 0% 65% 2008 2009 2010 2011 Q1:2012 Total impact of all 2012 rate increases = 11.5%
Slide 52: Auto Profitability
Auto Profitability • Maximizing rate • Continued mix improvements • Underwriting restrictions • Claims initiatives • Age of book
Slide 53: Auto Profitability
Auto Profitability 7% 95% 6% 5% 85% Retention Filed Rate 4% 3% 75% 2% 1% 0% 65% 2008 2009 2010 2011 Q1:2012 Total impact of all 2012 rate increases = 6.0%
Slide 54: Growth Opportunity in Personal Lines
Growth Opportunity in Personal Lines Increase distribution Improving Geographic Mix points to expand Non-NJ NPW 160 geographic footprint and increase scale 120 $ in Millions 80 40 0 2007 2008 2009 2010 2011 2007 2011 Non-NJ % NPW 40% 57%
Slide 55: Personal Lines Sustainable Profitability
Personal Lines Sustainable Profitability • Growth opportunities • Underwriting changes • Improving age of business • Targeted rate increases • Increasing scale
Slide 56: Commercial Lines: Key Success Factors
Commercial Lines: Key Success Factors Dennis Barger SVP, Chief Underwriting Officer, Commercial Lines
Slide 57: Local Decision Makers Supported by Centralized Expertise
Local Decision Makers Supported by Centralized Expertise
Slide 58: High Degree of Sophistication
High Degree of Sophistication Predictive modeling 3rd generation models 3 SBUs Segmentation and 80 segments analytical tools Profit, pricing, production Base rate, company shift, Price monitoring schedule credits, experience modification Desk level renewal Dynamic Portfolio underwriting tool Manager
Slide 59: Middle Market/Large Account Strategy
Middle Market/Large Account Strategy Best in class generalist with strong product niches
Slide 60: Best in Class Generalist…
Best in Class Generalist… Inforce DPW (as of March 2012)
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
Slide 62: Product Development Process
Product Development Process Identify opportunity Conduct market research Develop expertise and forms Roll out product
Slide 63: Developing Products for New Niches
Developing Products for New Niches Paratransit
Slide 64: Developing Add-On Products
Developing Add-On Products CyCuritySM
Slide 65: Breadth of Product
Breadth of Product ~¢ SELECTIVE® Response is everything.
Slide 66: Small Business Strategy
Small Business Strategy Template underwriting and predictive modeling drive increased “low touch” throughput
Slide 67: Small Business Success
Small Business Success • Pricing sophistication • Automated underwriting technology • Small business teams for rapid turnaround • Field marketing resources
Slide 68: Commercial Lines Success
Commercial Lines Success Middle Market / Small Business Large Accounts Delivering profitable growth
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
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
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
Slide 74: Business Intelligence - Confidence to Grow
Business Intelligence - Confidence to Grow 00000000000 SMD Electric 410-114-5555 4324 EAST HIGLAND DRIVE BALTIMORE MD 24374
Slide 75: Empowered Field Model
Empowered Field Model Safety Management Specialists (SMS) • Enables better risk selection • Increases hit ratios • Improves retention • Consultative approach with customers
Slide 76: Empowered Field Model
Empowered Field Model Renewal Underwriters • Manage renewal book by agency • Broad underwriting authority • Measured on: • Rate • Retention
Slide 77: Dynamic Portfolio Manager
Dynamic Portfolio Manager Line of CAT Business Modeling Strategy What if? Risk Segment Characteristics Strategy Predictive Agency Modeling Profitability Policy Guidance & Portfolio Impact
Slide 78: Positioned for Success
Positioned for Success Empowered Field Model Strategy execution Deep relationships Better results
Slide 79: Claims: Managing Information to Achieve Better Outcomes
Claims: Managing Information to Achieve Better Outcomes Douglas Holbrook SVP, Chief Claims Officer
Slide 80: Our Claims Philosophy
Our Claims Philosophy We strive to achieve the best possible claim outcome for all stakeholders Customers Agents Customers Agents Company Company
Slide 81: A Holistic Approach to Claims Management
A Holistic Approach to Claims Management People Process Tools A strategic Integrated Best-in-class alignment of process and tools and talent workflows analytics
Slide 82: Local Decision Makers Supported by Centralized Expertise
Local Decision Makers Supported by Centralized Expertise
Slide 83: Field Claims Management Specialist
Field Claims Management Specialist
Slide 84: Integrating Processes & People
Integrating Processes & People Notice Triage Claim Triage BETTER OUTCOMES Field Adjuster
Slide 85: Process Enhancements
Process Enhancements • Liability Complex Claim Model • Higher exposure claims • Workers Comp Specialization • Investigation • Loss mitigation • Medical management • Resolution • Claims Service Center • Higher frequency/lower severity
Slide 86: Predictive Tools and Analytics
Predictive Tools and Analytics • Fraud detection model • Recovery model • Triage • Comprehensive data management tools
Slide 87: Achieving Better Outcomes
Achieving Better Outcomes 2011 2012 2013 Projected 3 Point Loss Cost Savings
Slide 88: Customer Experience and Branding
Customer Experience and Branding John Marchioni EVP, Insurance Operations
Slide 89: Building the Selective Brand
Building the Selective Brand Increasing awareness through targeted advertising • Tradeshows • Radio • NCAA • G-Tron 89
Slide 90: Customer Satisfaction Drives Long-Term Success
Customer Satisfaction Drives Long-Term Success Initiatives Results Direct Access Customer Experience to Customers touchpoint audit Improves retention Voice of the Customer survey Lowers acquisition Launch of costs redesigned customer bill Improves profitability Improve front-line capabilities
Slide 91: 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
Slide 92: Agency Panel Introduction
Agency Panel Introduction ~¢ SELECTIVE® Response is everything.
Slide 93: Panelists
Panelists YP/Principal, Allied Insurance Managers Le. “Jerry Niewiek n Willen President, Berends Hendricks Stuit Insurance Agency Manager, Georgia & Tennessee, 2 4 y SELECTIVE
Slide 94: Summary
Summary Greg Murphy President, Chairman and CEO
Slide 95: Success Through Differentiation
Success Through Differentiation Our success is driven by empowered people, deep relationships and underwriting, claims and pricing sophistication
Slide 96: Path to 12% ROE
Path to 12% ROE 12% ROE Expense Management Claims 3 pts improvement U/W Improvements P/L Price +5 to +8% C/L Increases Price
Slide 97: Questions?
Questions? Thank You for Attending