Slide 1: Investor Presentation May 2011 - Financial Strength
INVESTOR PRESENTATION MAY 2011 FINANCIAL STRENGTH - SELECTIVE INSURANCE GROUP, INC. -
Slide 2: Forward Looking Statement
Pricing Success Personal Lines Prepared for Tomorrow Financial Strength Commercial Lines 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
Slide 3: Who We Are
Pricing Success Personal Lines Prepared for Tomorrow Commercial Lines MN IA MO WI IL IN MI MI PA NY CT MA TN NJ DE • 22-state super-regional • 2010: $1.4B NPW • 82% commercial lines • 18% personal lines • High tech, high touch business model • Partner of choice - 980 independent agents • Focus on en
Slide 4: Focus on Enterprise Risk Management
Pricing Success Personal Lines Prepared for Tomorrow Commercial Lines Focus on Enterprise Risk Management • Historically strong capital position • Business model generates more earnings stability • Sophisticated underwriting and granular pricing • Strong reserving practices • Conservative reinsuranc
Slide 5: More Earnings Stability
Pricing Success Personal Lines Prepared for Tomorrow Commercial Lines More Earnings Stability Source: A.M. Best, III
Slide 6: More Earnings Stability (National Peers)
Pricing Success Personal Lines Prepared for Tomorrow Commercial Lines More Earnings Stability Note: National Peers include CNA, CB, HIG, TRV and WRB Source: SNL Financial
Slide 7: More Earnings Stability (Regional Peers)
Pricing Success Personal Lines Prepared for Tomorrow Commercial Lines More Earnings Stability Source: SNL Financial Note: Regional Peers include CINF, THG, HGIC, STFC and UFCS (STD. DEV 4.3) (STD. DEV 5.1)
Slide 8: Reserve Development: AIG takes $4B charge
Pricing Success Personal Lines Prepared for Tomorrow Commercial Lines AIG takes $4B charge Source: AM Best, 2010 Estimate Adverse/ (Favorable) Points of Calendar Year Development
Slide 9: Premium-to-Surplus and ROE sensitivity
Pricing Success Personal Lines Prepared for Tomorrow Commercial Lines Premium-to-Surplus 1 point of Combined Ratio = 1 point of ROE Sources: ISO, AM Best, III; 2010 AM Best Estimate
Slide 10: High Quality Investment Portfolio
Pricing Success Personal Lines Prepared for Tomorrow Commercial Lines High Quality Investment Portfolio • Average “AA” bond quality • Approximately 3.4 year average duration, including short-term & cash • Laddered maturity schedule – 34% matures within 3 years – 68% matures within 5 years • Outsourc
Slide 11: Strong Natural Catastrophe Reinsurance Program
Pricing Success Personal Lines Prepared for Tomorrow Commercial Lines CAT cover: $435M in excess of $40M Blended RMS v11.0 and AIR 1% Probability = 5% 0.4% Probability = 18% Strong Natural Catastrophe Reinsurance Program Percentages are net of tax, reinsurance and reinstatement premium. Data as of 7
Slide 12: Prepared for Tomorrow
PREPARED FOR TOMORROW - SELECTIVE INSURANCE GROUP, INC. -
Slide 13: Selective's Commercial Lines Renewal Pricing Success
Personal Lines Prepared for Tomorrow Financial Strength Commercial Lines Selective’s Commercial Lines Renewal Pricing Success 1Q:09 2Q:09 3Q:09 4Q:09 1Q:10 2Q:10 8 consecutive quarters of positive price 3Q:10 4Q:10 1Q:11
Slide 14: Why Are We Successful?
Personal Lines Prepared for Tomorrow Financial Strength Commercial Lines Why Are We Successful? • Agency relationships • Field model • Sophisticated underwriting tools and granular pricing – Aggregate quality score by account – Targeted pricing – Agency profitability – Segment performance – Hazard g
Slide 15: Mix of Business
Pricing Success Personal Lines Prepared for Tomorrow Financial Strength Mix of Business $1.4B Net Premium Written in 2010 Small Business Personal Lines
Slide 16: Middle Market
Pricing Success Personal Lines Prepared for Tomorrow Financial Strength • Agency relationships are key • Agents act as risk manager for insureds • Safety Management • Field underwriting and claims model Middle Market
Slide 17: Field Model
Pricing Success Personal Lines Prepared for Tomorrow Financial Strength Field Model • Local knowledge of insureds • Full claims/underwriting authority • Supported by sophisticated underwriting tools • Safety management services lowers frequency and increases retention Over 300 Field Personnel
Slide 18: Agency Focus
Pricing Success Personal Lines Prepared for Tomorrow Financial Strength Agency Focus • 980 Agents • 2,000 Storefronts • Number 1, 2 or 3 in 60% of agencies appointed for 5 or more years • Ease of doing business • Online agency marketing portal
Slide 19: Middle Market Product Expansion
Pricing Success Personal Lines Prepared for Tomorrow Financial Strength Middle Market Product Expansion • Added 20 new and enhanced products in 2009 • Introduced another 11 in 2010 • New products • Aging Services, Identity Theft, Cyber Security, Technology • Enhanced products • Resort Endorsement, C
Slide 20: Small Business
Pricing Success Personal Lines Prepared for Tomorrow Financial Strength • Less price sensitive • Better profitability • Stronger retention • Straight through processing Small Business
Slide 21: Small Business Growth
Pricing Success Personal Lines Prepared for Tomorrow Financial Strength Small Business Growth $ thousands
Slide 22: Small Business Product Expansion
Pricing Success Personal Lines Prepared for Tomorrow Financial Strength Small Business Product Expansion Expanded Special Contractors & Merchants PRO BOP Special Contractors Merchants PRO BOP 2000 2010
Slide 23: Personal Lines
Pricing Success Prepared for Tomorrow Financial Strength Commercial Lines • Smoothes performance over the long-term • Significant source of agent revenue • Improving mix of business and ability to get rate Personal Lines
Slide 24: Personal Lines Rate Success
Pricing Success Prepared for Tomorrow Financial Strength Commercial Lines Personal Lines Rate Success
Slide 25: Driving Down Cost of Goods Sold
Pricing Success Personal Lines Financial Strength Commercial Lines Driving Down Cost of Goods Sold • 3 point reduction in loss costs expected over 3 years – Specialized claims handling model – Improved workers compensation medical management – Staff counsel expansion – Vendor management – Fraud anal
Slide 26: Customer Focus to Improve Retention
Pricing Success Personal Lines Financial Strength Commercial Lines Customer Focus to Improve Retention • Continue to build relationships with end customers • 24/7 online access for customer service needs • Improving customer experience through high frequency touch points • Online interactive safety
Slide 27: Long-Term Shareholder Value Creation
Pricing Success Personal Lines Financial Strength Commercial Lines Long-Term Shareholder Value Creation Current Dividend Yield: 3.0 % * *Annualized Indicated Dividend
Slide 28: Financial Highlights 2006 - Q1 2011
Q1:2011 2010 2009 2008 2007 2006 NPW Growth (1.7)% (2.3)% (4.7)% (4.5)% 1.4% 5.3% Operating EPS $0.32 $1.35 $1.39 $1.43 $2.16 $2.23 Net Income per Share $0.39 $1.20 $0.68 $0.82 $2.59 $2.65 Dividend per Share $0.13 $0.52 $0.52 $0.52 $0.49 $0.44 Book Value $20.06 $19.95 $18.83 $16.84 $19.81 $18.81 Ret
Slide 29: Net Operating Cash Flow
YTD March 2011: $28M 26% 25% 16% 16% 11% Net Operating Cash Flow ($ in millions) Cash Flow as % of NPW
Slide 30: Investment Income - After-tax
YTD March 2011: $32M Investment Income - After-tax ($ in millions)
Slide 31: Diversified Municipal Portfolio
Diversified Municipal Portfolio • $1.4 billion portfolio • Average “AA” rated • 36% of portfolio matures within 3 years • Diversified among 291 issuers • NY, CA, NJ, IL represent $34M or 2.4% of portfolio
Slide 32: Reported Expense Ratio: SIGI vs. National Peers
Reported Expense Ratio* SIGI vs. National Peers *Expense Ratio including Dividends Note: National Peers include CNA, CB, HIG, TRV and WRB Source: SNL Financial
Slide 33: Reported Expense Ratio: SIGI vs. Regional Peers
Reported Expense Ratio* SIGI vs. Regional Peers *Expense Ratio including Dividends Source: SNL Financial Note: Regional Peers include CINF, THG, HGIC, STFC and UFCS
Slide 34: Insurance Operations Productivity
Insurance Operations Productivity ($ in 000s) %
Slide 35: Commercial Lines Profitability
% 100.6 104.5 102.2 100.9 Impact of Catastrophe Combined Ratio excluding Cats 95.4 Statutory Combined Ratios 93.6 95.0 95.9 98.5 99.8 100.8 Commercial Lines Profitability
Slide 36: Granular Pricing Capabilities & Diamond Quality
Higher Lower Granular Pricing Capabilities 4 & 5 Diamond Diamond 1 & 2 Diamond Quarterly Pricing by Diamond Quality
Slide 37: Commercial Lines New Business Quality Improvement
Higher Lower For lines < $50,000 Percent of Total New Premium Diamond Distribution WC, BOP, CPP, CA Commercial Lines New Business Quality Improvement Quality
Slide 38: Retaining our Best Commercial Business
Higher Lower Retaining our Best Commercial Business 1 & 2 Diamond 3 Diamond 4 & 5 Diamond Retention at point of renewal as of March 31, 2011 Quality
Slide 39: Commercial Lines Premium by Line of Business
Commercial Lines Premium by Line of Business 2010 Statutory Net Premium Written
Slide 40: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2010 Direct Premium Written