Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Investor Presentation (May 2013)
37 slides from Selective Insurance's investor presentation, May 2013
Slide 1: Investor Presentation
Investor Presentation May 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
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 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 8: Underwriting Stability
Underwriting Stability Statutory Combined Ratio – SIGI vs. Peers 115 % 110 105 100 95 Deviation SIGI 3.9 90 Peer Average 8.0 85 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: SNL Financial Peers include CINF, THG, STFC, UFCS, CNA, HIG, TRV, WRB Deviation calculated by averaging the standa
Slide 9: Impact of CATs on Combined Ratio
Impact of CATs on Combined Ratio 12 pts SIGI Avg = 2.8 pts 10 Ind. Avg. = 5.2 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: 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 11: 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 12: Conservative Investment Portfolio
Conservative Investment Portfolio • Well diversified, laddered $4.4B Invested Assets portfolio March 31, 2013 • Only 1.5% of bond portfolio Bonds 90% rated “BB” & below “AA-” Avg Rating • 3.6 year average duration, excluding short-term • Investment leverage of 3.89 x 2.3% yield = ~ 9% ROE Equities S
Slide 13: 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 14: 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 15: 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 16: Strategic Overview
Strategic Overview
Slide 17: 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 18: 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 19: 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 20: 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 21: Commercial Lines Price
Pricing Sophistication – Dynamic Portfolio Manager 1st Quarter 2013 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 1st Quarter 2013 Price = 7.5%
Slide 22: Standard Commercial Lines Price
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% Commercial lines pricing target of 7.6% for 2013
Slide 23: 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 24: Homeowners Pricing
Homeowners Pricing 12% 95% 10% Renewal Pure Price 8% 85% Retention 6% 4% 75% 2% 0% 65% 2008 2009 2010 2011 2012 1Q:13 Targeting upper-80’s combined ratio in normal CAT year Anticipate pricing of approximately 8.5% in 2013
Slide 25: 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 1Q:13 Anticipate pricing of approximately 5.5% in 2013
Slide 26: 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 27: 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 28: 2013 Guidance
2013 Guidance* • Statutory combined ratio of 96%, excluding catastrophes and any additional prior year development either favorable or unfavorable • 3 point estimate for catastrophe losses • After-tax investment income of approximately $90-95 million • Weighted average shares of approximately 56 mil
Slide 29: Financial Highlights 2009 – Q1 2013
Financial Highlights 2009 – Q1 2013 2009 2010 2011 2012 Q1:2013 Statutory NPW Growth (4.7)% (2.3)% 6.8% 12.2% 7.1% Operating EPS* $1.39 $1.38 $0.38 $0.58 $0.36 Net Income per Share* $0.68 $1.23 $0.40 $0.68 $0.38 Dividend per Share $0.52 $0.52 $0.52 $0.52 $0.13 Book Value per Share* $17.80 $18.97 $19
Slide 30: Net Operating Cash Flow
Net Operating Cash Flow ($ 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 March 2013: $28M
Slide 31: Investment Income – After-tax
Investment Income – After-tax ($ in millions) 120 110 111 111 100 105 100 90 96 80 70 60 50 40 2008 2009 2010 2011 2012 YTD March 2013: $25M
Slide 32: Focused Expense Management
Focused Expense Management 36 SIGI Peer Median 35 34 GAAP Expense Ratio 33 32 31 30 29 28 27 26 2007 2008 2009 2010 2011 2012 Source: SNL Financial; includes Policyholder Dividends Peers include CINF, CNA, HIG, STFC , THG, TRV, UFCS, and WRB
Slide 33: Insurance Operations Productivity
Insurance Operations Productivity % ($ in 000s) 900 NPW per Employee Statutory Expense Ratio 33 864 32.5 842 797 766 791 32 700 761 31.5 31 30.5 500 30 29.5 300 29 2008 2009 2010 2011* 2012 3/31/13 *Excludes Excess & Surplus Lines
Slide 34: Standard Commercial Lines Profitability
Standard Commercial Lines Profitability Statutory Combined Ratios 115 % 110 105 103.9 103.0 100.9 99.8 100.8 6.4 0.5 5.0 97.6 100 2.4 98.5 3.3 95.9 0.3 95.0 2.1 99.3 98.5 0.9 98.0 95.4 93.6 1.2 97.5 97.5 97.3 95 1.5 0.3 96.4 95.0 93.9 93.3 93.8 90 85 Impact of Catastrophe Losses Combined Ratio exclu
Slide 35: 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 36: 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 37: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation $25 0.52 0.52 * 0.52 0.52 $20 0.44 0.49 0.52 20.46 0.40 19.45 19.77 18.82 0.52 18.97 0.35 17.87 17.80 $15 0.31 16.44 15.81 Per Share 14.96 12.96 $10 $5 $0 Book Value Dividend *Annualized indicated dividend Note: Book value restated for change in deferred policy a
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