Slide 1: Selective Insurance Group, Inc. 1st Quarter Investor Presentation
Selective Insurance Group, Inc. 1st Quarter Investor Presentation Current as of January 30, 2015
Slide 2: Forward Looking Statements
Forward Looking Statements 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: Who We Are
Who We Are 44th largest U.S. property & casualty carrier* Rated “A” or higher by A.M. Best for 84 consecutive years Unique “High-tech, High-touch” operating model Higher operating leverage: 1 point of combined ratio = 1 point of ROE N P 76% 16% 8% Standard Standard Personal Excess & W Commercial Lin
Slide 4: Standard Commercial Lines
Standard Commercial Lines Franchise value model with 1,100 independent agents 100 field based underwriters Diversified product portfolio Average account size of $10K 2014 Statutory Combined Ratio = 95.5%
Slide 5: Standard Personal Lines
Standard Personal Lines 700 independent agents Focus on the “Consultative Buyer” The Selective EdgeTM product 2014 Statutory Combined Ratio = 94.5%
Slide 6: Excess & Surplus Lines
Excess & Surplus Lines 80 wholesale general agents 70% general liability 97% with limits of $1M or lower Average policy size of $3,100 2014 Statutory Combined Ratio = 99.2%
Slide 7: Risk and Return Strategy
Risk and Return Strategy Conservative Reinsurance Program Conservative Investment Portfolio Low to Medium Superior Management Information Hazard & Analytical Capabilities Writer Higher than Average Operational Leverage 1.4x NPW to Surplus 3.8x Invested Assets to Equity
Slide 8: Conservative Investment Portfolio
Conservative Investment Portfolio After-Tax Net Investment Income Alternatives Short-term 125 ($ in Millions) 2% 3% 115 Equities 4% 105 GUIDANCE* 95 85 75 2011 2012 2013 2014 2015 “AA-” average credit quality 3.7 year duration (incl. short-term) Investment ROE Fixed Income Yield of 2.2% x Leverage o
Slide 9: Conservative CAT Reinsurance
Conservative CAT Reinsurance % of Equity at Risk Renewed January 1, 2015 1 in 250 Year Event $685M in excess of $40M retention 28% Reduced gross PML Exhausts at through CAT approximately 1-in-273 management actions year event 2015 Property Catastrophe Treaty 6% 5% 4% 2% Average reinsurer rating $196
Slide 10: Reserve Strength
Reserve Strength Reservingpractices Disciplined reserving Practices Quarterly ground-up reserve reviews 3 evaluations per year by independent auditor Standard Deviation (2004 – 2013) of Reserve Development Points on the Combined Ratio Peer Average* 3.9% Selective 1.2% *Source: SNL Financial, Statuto
Slide 11: High-Tech
High-Tech Easy-to-use agency technology Investing in omni-channel customer experience Leader in modeling and business intelligence
Slide 12: Highly Granular Pricing Capability
Highly Granular Pricing Capability Standard Commercial Lines 18% December 2014 YTD 90% 16% 85% 14% Point of Renewal Retention Renewal Pure Price 12% 80% 10% 75% 8% 6% 70% 4% 65% 2% 0% 60% Above Average Below Low Very Low Average Average Retention Group % of Premium 54% 27% 10% 6% 2%
Slide 13: High-Touch Field Model
High-Touch Agency Management Specialists Corporate Underwriters Small Business Team Responsive, field-based model Personal Lines Field Claims Supported by regional Model Management Marketing Reps Specialists & corporate expertise Focus on customer experience Technology/ Regional Systems Support Unde
Slide 14: Balancing Rate and Retention
Balancing Rate and Retention Standard Commercial Lines 8% 90% 7% 6% 85% Renewal Pure Price 5% Retention 4% 80% 3% 2% 75% 1% 0% 70% 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2009 2010 2011 2012 2013 2014
Slide 15: 2014: What We Achieved
2014: What We Achieved 3-Year Plan established in 2012 Measure Target (Time) 2014 Actual Results 1. Combined Ratio • 92% ex-CAT combined ratio (2014) Ex-CAT combined ratio of 92.5% • 3 points of CAT losses (2014) 3.2 points of CAT losses 2. Renewal Pricing 2012: 6.3% • Renewal pure price increase
Slide 16: History of Disciplined Growth
History of Disciplined Growth Managed Growth Pricing & 2,000 NPW Doubled Through Cycle Acquisitions Statutory Net Premiums Written ($ in millions) 1,800 1,600 1,400 1,200 1,000 800 600 2011 - 2014 Cumulative Growth of 27% 400 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Slide 17: Standard Commercial Lines Growth Opportunities
Standard Commercial Lines Growth Opportunities 1. Middle Market: Addition of agency management specialists throughout the footprint Small Business: Expanded underwriting authority 2. for regional small business teams; straight-through processing 3. Increasing share of wallet within agency plant New
Slide 18: Strategic Business Unit Diversification
Strategic Business Unit Diversification 22% Contractors 24% 34% 43% Community & Public 2008 Services 2014 16% Manufacturing 18% Mercantile Service 19% 23% Improved mix of business Percentages based on Direct Premiums Written
Slide 19: Workers Compensation Results
Workers Compensation Results Improved mix of business by focusing on lower hazard accounts Centralized handling of workers compensation claims Formation of Strategic Case Management Unit and escalation modeling Renewal pure price increases in excess of expected claim inflation 2% 110% (3)% <103% (5)
Slide 20: Standard Personal Lines Growth Opportunities
Standard Personal Lines Growth Opportunities Improved profitability through rate and targeted underwriting actions The Selective EdgeTM product Targets consultative buyers across the wealth spectrum who shop on overall value and service & combine auto and home policies 96.9% 94.5% 90.2% 88.0% 2013
Slide 21: Excess and Surplus Lines Growth Opportunity
Excess and Surplus Lines Growth Opportunity Increase wholesale agent share of wallet New online quoting capability New business incentives to retail partners Statutory Combined Ratio Net Premiums Written ($ in Millions) 19.6 Point 16.0% CAGR Improvement 120% 160 150 110% 140 130 100% 120 110 90% 100
Slide 22: 2015 Ex-CAT Statutory Combined Ratio Plan
2015 Ex-CAT Statutory Combined Ratio Plan 95.3% Net of normalized property losses (1.0)% 1.0% 91% (2.5)% (2.0)% 2014 Accident Year Loss Trend Earned Rate Underwriting / Expense 2015 Ex-CAT Ex-CAT Claims Projection Given current low interest rate environment, a 94% combined ratio = 12% ROE Guidance a
Slide 23: Why Invest?
Why Invest? Long track record of success Unique “High-tech, High-touch” operating model with strong agency relationships Investing in omni-channel customer experience Positioned for growth in Standard Commercial Lines, Standard Personal Lines, and Excess & Surplus Lines Higher operating leverage: 1
Slide 24: Additional Information
Additional Information
Slide 25: Financial Highlights 2010 – 2014
Financial Highlights 2010 – 2014 2010 2011 2012 2013 2014 Statutory NPW Growth (2.4)% 7.0% 12.2% 8.7% 4.1% Operating EPS* $1.38 $0.38 $0.58 $1.65 $2.17 Net Income per Share* $1.23 $0.40 $0.68 $1.87 $2.47 Dividend per Share $0.52 $0.52 $0.52 $0.52 $0.53 Book Value per Share* $18.97 $19.45 $19.77 $20.
Slide 26: Net Operating Cash Flow
Net Operating Cash Flow ($ in millions) Cash Flow as % of NPW 336 340 19% 290 240 227 233 14% 12% 190 159 140 11% 123 8% 90 40 2010 2011 2012 2013 2014
Slide 27: Investment Income – After-tax
Investment Income – After-tax ($ in millions) 120 111 111 110 104 100 101 100 90 80 70 60 50 40 2010 2011 2012 2013 2014
Slide 28: Insurance Operations Productivity
Insurance Operations Productivity ($ in 000s) NPW per Employee Statutory Expense Ratio 950 35 % 908 908 34 842 791 750 761 33 32 550 31 30 350 29 2010 2011* 2012 2013 2014** *Excludes Excess & Surplus Lines **Expense ratio excludes 0.4 point benefit from self-insured group sale
Slide 29: Standard Commercial Lines Pricing
Standard Commercial Lines Pricing Selective CLIPS 7.5% 6.5% 5.5% Renewal Pure Price 4.5% 3.5% 2.5% 1.5% 0.5% -0.5% -1.5% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Industry Source: Towers Watson Commercial Lines Insurance Pricing Survey
Slide 30: Standard Commercial Lines Profitability
Standard Commercial Lines Profitability Statutory Combined Ratios % 110 105 103.9 103.0 99.8 100.8 6.4 5.0 100 0.5 98.5 3.3 99.3 97.1 2.1 95.9 97.5 97.5 98.0 95.5 95.0 1.7 93.6 0.9 95 0.3 1.2 96.4 95.3 2.7 95.0 93.3 93.8 92.8 90 85 Impact of Catastrophe Losses Combined Ratio excluding CATS *Includes
Slide 31: Premium by Line of Business
Premium by Line of Business 2014 Standard Commercial Lines Net Premium Written Workers Compensation General Liability 19% 31% Commercial Property 18% Other 1% Bonds BOP Auto 1% 6% 24%
Slide 32: Long-Term Shareholder Value Creation
Long-Term Shareholder Value Creation $25 0.56 * 0.52 22.54 0.52 0.52 $20 0.49 0.52 20.63 0.44 0.52 19.77 18.97 19.45 0.40 18.82 17.87 0.52 17.80 $15 16.44 15.81 Per Share $10 $5 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Book Value Dividend *Annualized indicated dividend Note: Book value r