Slide 1: Selective Insurance Group, Inc. - Financial Strength
- SELECTIVE INSURANCE GROUP, INC. - FINANCIAL STRENGTH
Slide 2: Who We Are
Who We Are 22-state super-regional 2010: $1.4B NPW *¢ 82% commercial lines ¢ 18% personal lines High-tech, high-touch business model Partner of choice - 990 independent agents Sophisticated underwriting tools Rated A+ by A.M. Best for 50 years Prepared for 9 Tomorrow Success
Slide 3: Focus on Enterprise Risk Management
Focus on Enterprise Risk Management * Business model generates more earnings stability + Sophisticated underwriting and granular pricing + Strong reserving practices + Conservative reinsurance program * Historically strong capital position + Deep investment management talent Prepared for 9 Tomorrow
Slide 4: More Earnings Stability
More Earnings Stability Combined Ratio — SIGI vs. Industry 1255 OIG] (510. Dev 4.1) 120 - “Be Industry (sto. Dev6.s) ph 110 - 105 + 100 - SE 90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: A.M. Best, Ill, ISO “June 30, 2011 YTD Prepared for Tomorrow
Slide 5: More Earnings Stability
More Earnings Stability 125 120 115 110 105 100 95 90 Combined Ratio — SIGI vs. National Peers OSGI (STD. DEV 4.1) @National Peers (st0. ev9.7) 2001 = 2002 ‘Source: SNL Financial Note: National Peers include CNA, CB, HIG, TRV and WRB “June 30, 2011 YTD. Prepared for 2003 2004 = =—2005 Growth 2006 20
Slide 6: More Earnings Stability
More Earnings Stability Combined Ratio — SIGI vs. Regional Peers 125 =O=SIGI (STD. DEV 4.1) 120 + -®-Regional Peers (stD.DEv7.3) lls) 110 105 4 100 ~ Shs 90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: SNL Financial Note: Regional Peers include CINF, THG, HGIC, STFC and UFCS “June
Slide 7: Catastrophe Losses
Catastrophe Losses Points on Combined Ratio 15% 10% 5% 0% + 2010 9/30/11 YTD* m@SIGI mPeer Average Source: SNL Financial, Company Reports Note: Peers include CB, CINF, CNA, HIG, HGIC (not included in 2011 YTD), STFC, THG, TRV, WRB and UFCS- "31 Quarter Peer Average based on reported results or pre-a
Slide 8: Strong Natural Catastrophe Reinsurance Program
Strong Natural Catastrophe Reinsurance Program % of Equity at Risk (Near-term basis) RMS v11.0 0.4% Probability = 18% 24% RMS v1.0 RMs va. tages are net of tax, and premium, Data as of 7/10; Equity data as of 9/30/11. Prepared for Growth Tomorrow Opportunity Success Value Creation
Slide 9: Adverse/(Favorable) Points of Calendar Year Development
Adverse/ (Favorable) Points of Calendar Year Development 8% 6% 4% 2% 0% -2% “4% -6% Source: AM Best AIG takes $4B charge 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* U.S. P&C Industry mSIGI “June 30, 2011 YTD Prepared for Tomorrow Value Creation
Slide 10: Premium-to-Surplus
Premium-to-Surplus 19 =SIGl @P&C 2000 2001 2002 2003 2004 «2005 ©2008 2007 2008-2008 2010 2011" ( 1 point of Combined Ratio = 1 point of ROE } ‘Sources: ISO, AM Best, Il “6/30/11 YTD. Prepared for Growth Pri io Tomorrow Opportunity Success
Slide 11: Focus on Expense Management
Focus on Expense Management Regional Peers 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: SNL Financial @SIGI @ Median Note: GAAP Expense Ratio including Dividends for regional peers (CINF, THG, HGIC, STFC and UFCS) “June 30, 2011 YTD Prepared for Growth Tomorrow Opportu:
Slide 12: Focus on Expense Management
Focus on Expense Management National Peers 39 ay BS) > bd > = + "6 > > ? ? ™? © ¢ ‘i 29 27 25 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* ‘Source: SNL Financial @SIGl @ Median Note: Expense Ratio including Dividends; National Peers include CNA, CB, HIG, TRV and WRB 2011 YTD Prepared for
Slide 13: High Quality Investment Portfolio
High Quality Investment Portfolio « Average “AA-” bond quality $4.1B Invested Assets + Approximately 3.2 year September 30, 2011 average duration, including short-term « Laddered maturity schedule — 41% matures within 3 years -— 74% matures within 5 years Equities 4% * Outsourcing provides access to
Slide 14: Prepared for Tomorrow
- SELECTIVE INSURANCE GROUP, INC. - PREPARED FOR TOMORROW
Slide 15: A Growth Company
A Growth Company When the Time is Right $in millions 1,600 . 3 8 1,200 1,000 Net Premiums Written 2 g 8 400 Prepared for Tomorrow
Slide 16: Selective's Growth Opportunity
Selective’s Growth Opportunity * Growth within current agency plant — Current share of wallet at 6.6% — 12.5% share of wallet would achieve $3B in premium * Commercial Lines product expansion — 33 products over past 2 2 years + Small Business and Personal Lines strategy — New Field Marketing Special
Slide 17: Field Model Supports Agents
Field Model Supports Agents Local knowledge of insureds Agency Full claims/underwriting cane "Spewaliis, Management authority Spechalists Supported by sophisticated underwriting tools Safety management services lower frequency and increase retention Field Market Specialists come ji F Management. Mar
Slide 18: Middle Market Dynamics
Middle Market Dynamics Agency relationships are key Agents act as risk manager for insureds Field underwriting and claims model Predictive modeling used as a tool Financial _ Prepared for rowt Pricing Long-Term Strength Tomorrow Success
Slide 19: Middle Market Product Expansion
Middle Market Product Expansion + Added 20 new and enhanced products in 2009 « Introduced another 13 in past 18 months « New products + Aging Services, Identity Theft, Cyber Security, Technology « Enhanced products * Resort Endorsement, Contractors GL, Property Coverage for Municipalities Financial
Slide 20: Small Business and Personal Lines Opportunity
Small Business and Personal Lines Opportunity * Build scale through expanded capabilities and strategic additions to our agency plant + Predictive modeling is rule based + Small business teams and Field Marketing Specialists improve ease of doing business + Results in greater revenue diversification
Slide 21: Small Business Growth
Small Business Growth $ thousands Average DPW/Day 300 4 250 4 _ ~ A0lo. 200 4 , 2 P Px 150 4 _w- 100 + T T T T 2006 2007 2008 2009 2010 Financial _ Prepared for Growth Pricing Long-Term Strength Tomorrow Opportunity Success Value Creation » . > SELECTIVE
Slide 22: E&S Contract Binding Authority Product Expansion
E&S Contract Binding Authority Product Expansion + Renewal rights transaction with Alterra closed August 1st * Contributed $8.4M of net premiums written in the 3 quarter * MUSIC acquisition provides 50 state licensed E&S company * Expected to close in the 4‘ quarter of 2011 * Both books approximatel
Slide 23: Selective's Commercial Lines Renewal Pricing Success
Selective’s Commercial Lines Renewal Pricing Success 4.0% 2.0% 0.0% -2.0% -4.0% 6.0% 8.0% 5 MsSelective MCLIPS BCIAB I MarketScout 2Q:09 3Q:09 4Q:09 1Q:10 2Q:10 3Q:10 4Q:10 10:11 2Q:11 3Q:11 -10.0% ( 10 consecutive quarters of positive price } Prepared for Tomorrow
Slide 24: Granular Pricing Capabilities
Granular Pricing Capabilities Quarterly Pricing by Diamond 12.0% 10.0% 5 8.0% | 6.0% + 4.0% + 2.0% 4 0.0% + -2.0% 4 -4.09 a 1&2 3 4&5 Diamond Diamond Diamond Quality nancial _—Prepared for Growth trength Tomorrow Opportuni
Slide 25: Retaining our Best Commercial Business
Retaining our Best Commercial Business 92% 90% + 88% 4 89% 86% | 87% 84% + 82% + 80% 4 81% 78% + 76% T T 1 & 2 Diamond 3 Diamond 4&5 Diamond Lower Quality Higher Retention at point of renewal as of September 30, 2011 Fina Prepared for Long-Term N = Strength Tomorrow Opportunity Value Creation ‘Q> SE
Slide 26: Personal Lines Rate Success
Personal Lines Rate Success Blended In-force Rate 8% 5 a. T% 4 rae 6.8% 6% — 10 5°omm © 4% + 205 3.1% 2% ~ 1% 4 gi 0% T T T T 2007 2008 2009 2010 2011E nen pean sg30)0 |) $43 | $55 $62 | Prepared for an Strength Tomorrow
Slide 27: Driving Down Cost of Goods Sold
Driving Down Cost of Goods Sold * 3 point reduction in loss costs expected over 3 years — Specialized claims handling model — Proactive medical management — Staff counsel expansion — Streamlined management of claims files — Fraud analytics — Subrogation process redesign ( Already achieved $8M saving
Slide 28: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation $0.52 $0.52* $20 $16 $12 Per Share $8 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sep-i1 ( Current Dividend Yield: 3.4% } “Annualized Indicated Dividend 'repared for Growth Tomorrow Opportunity
Slide 29: Financial Highlights 2006 - Q3 2011
Financial Highlights 2006 — Q3 2011 Q3:2011 Q2:2011 Q1:2011 2010 += 2009 «Ss 2008 += 2007-2006 NPW Growth 8.1% 5.9%] (1.7)% | (2.3)%| (4.71% | (4.5% | 1.4%] 5.3% Operating EPS $(0.34) $0.01 $o.32| $1.35| $1.39[ $1.43[ $216] $2.23 Net Income per Share $(0.37) $0.04] $0.39| $1.20] $068] sos2| $259| $2
Slide 30: Net Operating Cash Flow
Net Operating Cash Flow ($ in millions) 440 Cash Flow as % of NPW 390 393 386 340 290 240 241 228 190 140 90 40 2006 2007 2008 2009 2010 D September 2011: $12
Slide 31: Investment Income - After-tax
Investment Income - After-tax ($ in millions) 140 130 120 110 100 90 80 70 60 50 40 134 I 2006 2007 2008 2009 2010 YTD September 2011: $89M 4y SELECTIVE®
Slide 32: Diversified Municipal Portfolio
Diversified Municipal Portfolio $1.3 billion portfolio Average “AA” rated 39% of portfolio matures within 3 years Diversified among 273 issuers NY, CA, NJ, IL represent $35M or 2.6% of portfolio Repayment Source September 30, 2011 Revenue Local 60% & seuective®
Slide 33: Insurance Operations Productivity
Insurance Operations Productivity % ($ in 000s) - ==INWP per employee © =—=Statutory Expense ratio 900 35 2006 2007 2008 2009 2010 At Sept. 30, 2011 4y SELECTIVE®
Slide 34: Commercial Lines Profitability
Commercial Lines Profitability ¥, Statutory Combined Ratios fy 15 110 106.6 Hl Impact of Catastrophe Hy Combined Ratio excluding CATS Ay SELECTIVE®
Slide 35: Commercial Lines New Business Quality Improvement
Commercial Lines New Business Quality Improvement Percent of Total New Premium Diamond Distribution WC, BOP, CPP, CA 70% Pre-Modeling 12011 SeptemberLT™M, 60% 58% weu eee RRS DPW Percent of Total N 8 & 1&2 Diamond 3 Diamond 4&5 Diamond or v2) aD 4y SELECTIVE®
Slide 36: Commercial Lines Premium by Line of Business
Commercial Lines Premium by Line of Business 2010 Statutory Net Premium Written BOP Bonds / Other Eemumistelal 6% 3% Property Auto e 17% 25% Workers Compensation 21% General Liability 28% 4y SELECTIVE®
Slide 37: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2010 Direct Premium Written Bonds Community and 2% Public Services 22% Contractors 35% Manufacturing & Mercantile M% Ay SELECTIVE®