Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Sidoti & Company 17th Annual Emerging Growth Conference 2013
39 slides from Selective Insurance's conference presentation, Mar 18, 2013
Slide 1: Sidoti's Seventeenth Annual Emerging Growth Conference
Sidoti’s Seventeenth Annual Emerging Growth Conference March 18, 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 • Standard lines distributed through independent agents • Excess & Surplus (E&S) lines distributed through wholesale agents • 76% standard commercial lines • History of financial strength
Slide 5: Business Diversification
Business Diversification Standard Commercial Lines • 22 state footprint • 1,100 independent agency relationships • Average account size of $9,000 Personal Lines • 13 state footprint • 620 independent agents • Agents want joint C/L & P/L markets • Flood 2012 net income of $19M E&S Contract Binding Au
Slide 6: Diversification Leads to Profit Opportunities
Diversification Leads to Profit Opportunities Net Premiums Written % Projected 2012 5‐Year View 7% 10‐15% 17% 15‐20% 76% 65‐70% Standard Commercial Personal Excess & Surplus
Slide 7: Financial Strength is our Foundation for Success
Financial Strength is our Foundation for Success • Access to capital markets – February 8, 2013 issued $185 million 5.875% senior notes due 2043 – Use of proceeds: • Call $100 million 7.5% junior subordinated notes due 2066 • Balance to fund growth • Underwriting stability • Disciplined reserving •
Slide 8: Underwriting Stability
Underwriting Stability Statutory Combined Ratio – SIGI vs. Industry 115 % SIGI (STD. DEV 3.7) 110 Industry (STD. DEV 4.1) 105 100 95 90 85 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* *2012 AM Best Industry Estimate Source: A.M. Best and Insurance Information Institute Note: Industry excluding
Slide 9: Impact of CATs on Combined Ratio
Impact of CATs on Combined Ratio 12 pts SIGI Avg = 2.6 pts 10 Ind. Avg. = 4.9 pts 8 6 4 2 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* *2012 AM Best Industry Estimate Source: AM Best
Slide 10: Managing Increased Catastrophes
Managing Increased Catastrophes • Hurricane Sandy • $136 million pre‐tax gross CAT loss • $47 million pre‐tax net CAT loss • $9 million reinsurance reinstatement premium • $16 million flood claims handling fees • $40 million pre‐tax net loss ($0.46 per diluted share after‐tax) • Added 9.8 points to
Slide 11: 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 12: 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** *2010 Industry development includes $4B charge from AIG **2012 AM Best Industry Estimate Source: AM Best and Insurance Information Institute Note:
Slide 13: Conservative Investment Portfolio
Conservative Investment Portfolio • Well diversified, laddered $4.3B Invested Assets portfolio December 31, 2012 • Only 1.7% of bond portfolio Bonds 89% rated “BB” & below “AA‐” Avg Rating • 3.6 year average duration, excluding short‐term • Investment leverage of 3.97 x 2.4% yield = ~ 9.5% ROE Equit
Slide 14: Premium to Surplus Ratio
Selective’s Use of Underwriting Leverage SIGI Industry 1.9 1.8 1.7 1.7 Premium to Surplus Ratio 1.7 1.6 1.6 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 0.7 0.7 0.5 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* *2012 AM Best Industry Estimate Sources: ISO, AM Best and
Slide 15: 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 2012 Industry Source: AM Best
Slide 16: Combined Ratio Improvement Plan
Combined Ratio Improvement Plan 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 17: Strategic Overview
Strategic Overview Greg Murphy Chairman, President & CEO
Slide 18: 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 19: Relationships with the Highest Caliber Agents
Relationships with the Highest Caliber Agents • Franchise value • Greater share of wallet • Strong feedback loop 2012 • $1.4M NPW per agency • 8.3/10 on agency survey
Slide 20: 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 21: 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 22: Pricing by Retention Group
Pricing Sophistication – Dynamic Portfolio Manager 2012 Pricing by Retention Group – Standard Commercial Lines 14% 90% 12% 10% 80% Retention 8% Price 6% 70% 4% 2% 0% 60% Above Average Average Below Average Low 2012 Price = 6.2%
Slide 23: Relationships Drive Pricing Through the Cycle
Relationships Drive Pricing Through the Cycle 8% 90% Standard Commercial Lines Price 7% 85% 6% Quarterly Retention 80% 5% 4% 75% 3% 70% 2% 65% 1% 0% 60% Anticipate commercial lines pricing between 7.5% and 8% for 2013
Slide 24: 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 25: Homeowners Pricing
Homeowners Pricing 8% 95% 7% Renewal Pure Price 6% 85% 5% Retention 4% 3% 75% 2% 1% 0% 65% 2008 2009 2010 2011 2012 Targeting upper‐80’s combined ratio in normal CAT year Anticipate pricing of approximately 8.5% in 2013
Slide 26: Personal Auto Pricing
Personal Auto Pricing 7% 95% 6% Renewal Pure Price 5% 85% Retention 4% 3% 75% 2% 1% 0% 65% 2008 2009 2010 2011 2012 Anticipate pricing of approximately 5.5% in 2013
Slide 27: Achieving Better Outcomes in Claims
Achieving Better Outcomes in Claims • Medical cost containment Projected • Complex claims 3 Point • Fraud detection model Loss & • Recovery model Expense • Litigation management Savings • Comprehensive data management tools
Slide 28: 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 • Attractive valuation with ~2.3% dividend yield
Slide 29: 2013 Guidance
2013 Guidance* • Statutory combined ratio of 96%, excluding catastrophes and any prior year development either favorable or unfavorable • A 3 point estimate for catastrophe losses • After‐tax investment income of approximately $90‐95 million • Weighted average shares of approximately 56 million at y
Slide 30: Additional Information
Additional Information
Slide 31: Financial Highlights 2008 – 2012
Financial Highlights 2008 – 2012 2008 2009 2010 2011 2012 Statutory NPW Growth (4.5)% (4.7)% (2.3)% 6.8% 12.2% Operating EPS* $1.43 $1.39 $1.38 $0.38 $0.58 Net Income per Share* $0.82 $0.68 $1.23 $0.40 $0.68 Dividend per Share $0.52 $0.52 $0.52 $0.52 $0.52 Book Value per Share* $15.81 $17.80 $18.97
Slide 32: Net Operating Cash Flow
Net Operating Cash Flow ($ 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
Slide 33: 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
Slide 34: GAAP Expense Ratio
Focused Expense Management 36 SIGI Peer Median 35 34 GAAP Expense Ratio 33 32 31 30 29 28 27 26 2007 2008 2009 2010 2011 2012 Source: SNL Financial; includes Policyholder Dividends Peers include CINF, CNA, HIG, STFC , THG, TRV, UFCS, and WRB
Slide 35: Insurance Operations Productivity
Insurance Operations Productivity % ($ in 000s) 900 NPW per Employee Statutory Expense Ratio 33 32.5 797 797 822 766 791 32 761 700 31.5 31 30.5 500 30 29.5 300 29 2007 2008 2009 2010 2011* 2012* *Excludes Excess & Surplus Lines
Slide 36: Standard Commercial Lines Profitability
Standard Commercial Lines Profitability Statutory Combined Ratios 115 % 110 105 103.9 103.0 102.2 1.1 100.9 99.8 100.8 6.4 0.5 5.0 100 101.1 2.4 98.5 3.3 95.9 95.0 2.1 99.3 98.5 0.9 98.0 95.4 93.6 1.2 97.5 97.5 95 1.5 0.3 96.4 95.0 93.9 93.3 93.8 90 85 Impact of Catastrophe Losses Combined Ratio exc
Slide 37: 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 38: 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 39: Long-Term Shareholder Value Creation
Long‐Term Shareholder Value Creation $25 0.52 0.52 $20 0.44 0.49 0.52 0.52 19.77 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 Book Value Dividend Note: Book value restated for change in deferred po
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