Selective Insurance Group, Inc. · NASDAQ:SIGI
Selective Insurance — Keefe, Bruyette & Woods 2012 Insurance Conference
38 slides from Selective Insurance's conference presentation, Sep 4, 2012
Slide 1: Keefe, Bruyette & Woods 2012 Insurance Conference
Keefe, Bruyette & Woods 2012 Insurance Conference September 5, 2012
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 * $1.5B 2011 NPW ¢ Super-regional carrier * Standard Lines distributed through independent agents ° E&S distributed through wholesale agents * 80% standard commercial lines * History of financial strength eS de on & seuective’ od
Slide 5: Business Diversification
Business Diversification & seucctive’ E&S Contract Binding Authorit Right time to enter business ¢Wholesale agents have controlled binding authority and no claims authority ¢Within E&S, lower hazard and dollar limits *Average account size of $2,200
Slide 6: Diversification Leads to Profit Opportunity
Diversification Leads to Profit Oppo Net Premiums Written % 65-70% tal Commercial tal Personal Wi Excess & Surplus > SELECTIVE”
Slide 7: Financial Strength is our Foundation
Financial Strength is our Foundation ¢ Underwriting stability * Disciplined reserving * Conservative investments * Benefits of leverage
Slide 8: Underwriting Stability
Underwriting Stability Statutory Combined Ratio — SIGI vs. Industry -@-SIGI (STD. DEV 3.8) “Industry (STD. DEV 4.5) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: AM. Best, I Note: Industry excluding Mortgage and Financisl Guaranty Segments since 2007 > SELECTIVE”
Slide 9: Impact of CATs on Combined Ratio
Impact of CATs on Combined Ratio 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: AM Best @SIGI windustry Selective June YTD CAT Losses of 4.8 pts & seucctive’
Slide 10: Managing Increased Catastrophes
Managing Increased Catastrophes ¢ Increased CAT reinsurance program from $360M in excess of S40M to $435M in excess of S40M * Personal Lines ¢ Maximizing rate in homeowners ¢ Age of roof restrictions ¢ Deductible changes
Slide 11: Calendar Year Development
Calendar Year Development iN) & 2 z ) 2 o Fa o $ 2 S 2 a 2 8 & £ 2003 2004 2005 2006 2007 2008 2009 2010* 2011 @ industry @SIGI Source: AM Bea, I + Note Inutry exuding Montage ad Enact GusratySerents @ stusctives TEL Mcthdncosmen ekte bore on
Slide 12: Conservative Investment Portfolio
Conservative Investment Portfolio ® sturcrive’ $4.2B Invested Assets June 30, 2012 Bonds 90%. “DA-” Avg Rating Short-Term 3%
Slide 13: = & e € € £ & 2002 2003 2004 2005 2006 2007 2008
= 3 & 3 e 5 3 2 € 2 € £ & 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 M@SIGI M Industry Sources: 1S0, AM Best, I Note: Industry excluding Mortgage and Financial GusrantySegments sinot 2007 & seuective’
Slide 14: Impact of Leverage
Impact of Leverage Combined Ratio Required for 12% ROE @SIGI w@ Industry 95% Investment Leverage 3.7x U/W Leverage 1.4x Investment Leverage 2.3x U/W Leverage 0.8x Industry Source: AM Best Estimates >o SELECTIVE”
Slide 15: Standard Lines Combined Ratio Improvement
Standard Lines Combined Ratio Impre ‘Adjusted for excess CATS and favorable reserve development & seuective’
Slide 16: Strategic Overview
Strategic Overview Greg Murphy Chairman, President & CEO
Slide 17: What Makes Us Unique
What Makes Us Unique — | a Empowered decision makers Culture of Continuous | Culture of Continuous Improvement _| ® sturcriver Superior agency relationships ¢ Sophisticated tools Focus on customer experience Excellent risk management
Slide 18: Relationships with the Highest Caliber Agents
Relationships with the Highest Calib * Franchise value * Greater share of wallet * Strong feedback loop 2011 *$1.5M NPW per agency * 8.3/10 on agency survey
Slide 19: A Regional with National Capabilities
A Regional with National Capabiliti Capabilities of a National Nimbleness of a Regional * Sophisticated pricing * Relations * Fraud and recovery models * Local decision making * Advanced data and technology Selective: @ A Unique Super-Regional & seucctive’
Slide 20: Pricing Sophistication — Dynamic Portfolio Management
Pricing Sophistication — Dynamic Pot * ~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 analysis of an und
Slide 21: Pricing Sophistication — Dynamic Pricing
I Pricing Sophistication — Dynamic | July 2012 YTD Pricing by Retention Group Commercial Lines Price Above Average Average Below Average July YTD Price = 5.9% ay SELECTIVE®
Slide 22: Commercial Lines Price
Commercial Lines Price 20:09 1a :10 13 Consecutive Quarters of Positive Price 4y SELECTIVE®
Slide 23: Maximizing rate
* Maximizing rate Continued mix improvements ing restrictions Claims initiatives Age of book ® sturcriver
Slide 24: Filed Rate
Filed Rate 1ers Pricing z Retention 2009 2010 2011 June YTD 2012 Total impact of all 2012 rate increases ~ 11% Targeting upper-80’s combined ratio in normal CAT year
Slide 25: Personal Auto Pricing
Personal Auto Pricing g o 4 3 a. iz 2009 2010 2011 June YTD 2012 Total impact of all 2012 rate increases ~ 6% > SELECTIVE”
Slide 26: Achieving Better Outcomes in Claims
Achieving Better Outcomes in Clair + Fraud detection model * Recovery model * Triage * Comprehensive data management tools * Complex claims * Medical management Projected 3 Point Loss Cost Savings
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 ¢ Attractive valuation with 3% dividend yield nse is everything » | espe ® sturcrive’
Slide 28: Financial Highlights 2008 — Q2 2012
Financial Highlights 2008 — Q2 2012 2008 2009 2010 2011 NPW Growth (4.5% | (4.7)% | (2.3)% 6.8% | 16.1% | 13.6% Operating EPS* $1.43 $1.39 $1.38 $0.38} $0.28] sac Net Income per Share* $0.82 $0.68 $1.23 $0.40} $0.33] $001 Dividend per Share $052 $052 $0.52 $0.52] $0.13] $0.13 Book Value per Share* $
Slide 29: Net Operating Cash Flow
(Sin millions) 440 5 390 + 340 4 290 4 240 5 190 + 140 + 90 4 Net Operating Cash Flow Cash Flow as % of NPW 40 2011
Slide 30: Investment Income — After-tax
Investment Income — After-tax ($in millions) 140 5 130 + 120 + 110 + 100 + 90 + 30 70 60 50 4 40 2007 2010 2011 YTD June 2012: SSOM &y SELECTIVE®
Slide 31: Conservative Reinsurance Program
Conservative Reinsurance Program 25% 4 % of Equity at Risk Blended Model Results (RMS v11 & AIR v13) 20% @LongTerm Near Term 15% 10% 5% 0% 1% Probal 0.4% Probability CAT cover: $435M in excess of S40M Percentages are after taxand indude applicable reinstatement premium. Dataas of 7/11; Equity data a
Slide 32: Focused Expense Management
Focused Expense Management 36 35 34 33 32 31 30 = 28 27 @ sic (Peer Median 26 2007 2008 Source: SNL Finandal Peersinclude CINF, CNA, HIG, STFC, THG, TRY, UFCS, and WRE 2009 2010 2011
Slide 33: Insurance Operations Productivity
Insurance Operations Productivity ($ in 000s) 900 laa NPW per employee —Expense ratio 700 500 300 29 2007 2008 2009 2010 2011* = 6/30/12* "excludes £85 Operctions &y SELECTIVE®
Slide 34: Price — Pricing Sophistication, Predictive Modeling
Price Pricing Sophistication — Predictive Modeling Pricing by Diamond 12% 4 r 92% 5 10% 4 i= 8% - 2 r 88% ai 6% 4 = 4% 4 . ® L g49 oy, | 84% 5 0% | e i" ; 5 = 2% 1&2 Diamond 3 Diamond 4&5 Diamond | 80% N m2009 2010 m2011 ™Q2:2012 4y SELECTIVE®
Slide 35: Commercial Lines Profitability
Commercial Lines Profitability Statutory Combined Ratios 11s % 110 105 100 95 85 2002 2008 «2004 «2005S 2006 «= 2007, 2008)S 2009 2010. 2011_ YTD June 2012 Impact of Catastrophe Losses [Combined Ratio excluding CATS ty SELECTIVE®
Slide 36: Premium by Strategic Business Unit
Premium by Strategic Business Unit 2011 Standard Commercial Lines Direct Premium Written Bonds Community and 2% Public Services Contractors 23% 34% Manufacturing & Mercantile 41% ty SELECTIVE®
Slide 37: Premium by Line of Business
Premium by Line of Business 2011 Commercial Lines Net Premium Written Workers Compensation General Liability 21% 29% Commercial P ey owe a 3% Bonds ined BOP 23% 2% 6% ty SELECTIVE®
Slide 38: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation $25 4 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Jun-12 @ Book Value m Dividend “annualized indicated dividend Note: Book value restated for change in defersed policy acquistion costs (2002-2006 Estimated) &y SELECTIVE®
Selective Insurance Group — Keefe, Bruyette & Woods 2012 Insurance Conference on 6ix