Selective Insurance Group, Inc. 2 nd Quarter Investor Presentation - - PowerPoint PPT Presentation

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Selective Insurance Group, Inc. 2 nd Quarter Investor Presentation - - PowerPoint PPT Presentation

Selective Insurance Group, Inc. 2 nd Quarter Investor Presentation Current as of May 27, 2014 Certain statements in this report, including information incorporated by reference, are forward-looking statements as that term is defined in


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SLIDE 1

Selective Insurance Group, Inc.

2nd Quarter Investor Presentation

Current as of May 27, 2014

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SLIDE 2

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 S ecurities Litigation Reform Act of 1995 (“ PS LRA” ). The PS LRA provides a safe harbor under the S ecurities Act of 1933 and the S ecurities Exchange Act of 1934 for forward-looking statements. These statements relate to our intentions, beliefs, proj ections, estimations or forecasts of future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, or performance to be materially different from those expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by use of words such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "proj ect," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely" or "continue" or other comparable terminology. These statements are

  • nly predictions, and we can give no assurance that such expectations will prove to be correct . We undertake no
  • bligation, other than as may be required under the federal securities laws, to publicly update or revise any forward-

looking statements, whether as a result of new information, future events or otherwise. Factors, that could cause our actual results to differ materially from those proj ected, forecasted or estimated by us in forward-looking statements are discussed in further detail in S elective’s public filings with the United S tates S ecurities and Exchange Commission. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time-to-time. We can neither predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied in any forward-looking statements in this report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

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SLIDE 3

Financial Overview

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SLIDE 4

History of Success as a Super-Regional

Field-based

  • perating

model 44th largest U.S. P&C carrier* History of financial strength Small commercial, E&S and personal lines business

*S

  • urce: A.M. Best , based on 2012 Net Premiums Writ t en
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SLIDE 5

Standard Commercial Lines

Standard Commercial Lines

  • “ Main street” account underwriter
  • Average account size $10,000
  • ~1,100 agents
  • Field underwriters supported by

regional and corporate expertise

2013 S tatutory Combined Ratio = 97.1% 76%

2013 % Net Premiums Written

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SLIDE 6

Personal Lines

17%

2013 % Net Premiums Written

Personal Lines

  • Focus on account customers
  • ~690 agents in 13 states
  • By-peril rating capabilities

2013 S tatutory Combined Ratio = 96.9%

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SLIDE 7

Excess and Surplus Lines

Excess & Surplus Lines

  • Tightly controlled binding

authority, no claims authority

  • ~90 wholesale general agencies
  • Average policy size of $2,700
  • ~70%

general liability

  • 98%

$1M or lower limits

2013 S tatutory Combined Ratio = 102.9%

2013 % Net Premiums Written

7%

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SLIDE 8

Strong balance sheet provides a foundation for success Lower volatility allows for greater operational leverage Effective cycle management Path to a 92% ex-catastrophes combined ratio in 2014

Key Takeaways

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SLIDE 9

Conservative Investment Portfolio

Bonds 91% Equities 4% Alternatives 2% S hort-Term 3%

March 31, 2014 $4.6B in Invested Assets

  • “ AA-” average credit quality
  • 3.6 year duration, excluding short-term
  • Investment leverage of 3.9x

16% 11% 8% 14% 19% 0% 5% 10% 15% 20%

2009 2010 2011 2012 2013

SIGI Industry*

Net Operating Cash Flows as %

  • f NPW

*S

  • urce: Conning, Inc. and A.M. Best
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SLIDE 10

2014 Property Catastrophe Treaty

  • $685M in excess of $40M retention
  • Increased top layer by $100M
  • Flat premium despite additional

limit

  • Exhausts at approximately 1-in-

250 year event

  • Average reinsurer rating “ A+”

Conservative Catastrophe Reinsurance

11% 4%

2012 2013

%

  • f Equity at Risk –

1 in 250 Event Blended Model Results (RMS & AIR)

Losses are after tax and include applicable reinstatement premium.

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SLIDE 11

Impact of CATs on Combined Ratio

1 2 3 4 5 6 7 8 9 10 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 pts

SIGI Avg = 2.8 pts

  • Ind. Avg. = 5.0 pts

Indust ry S

  • urce: A.M. Best
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SLIDE 12

3.9 6.4

S IGI Peer Average*

Combined Ratio 1.2 3.9

S IGI Peer Average*

Reserve Development (Points on Combined Ratio)

Lower Volatility of Results

“ Ground-up” quarterly reserve review and focus on “ main street” accounts

Standard Deviation (2004-2013)

*S

  • urce: S

NL Financial, S t at ut ory Dat a Peers include CINF , THG, S TFC, UFCS , CNA, HIG, TR V , and WRB

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SLIDE 13

Combined Ratio Improvement Plan

2013 Accident Year Ex-CAT Loss Trend Earned Rate Underwriting / Claims Expense 2014 Projected*

96.5% 2.0% (4.5)% (2.0)% 0.2% 92%

2014 Ex-CA T Statutory Combined Ratio Plan

Expectation for 4 points of CAT losses in 2014

Guidance provided as of April 24, 2014

*Excluding CATS and addit ional reserve development May not foot due t o rounding

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SLIDE 14

1.4x 0.7x S IGI Industry 4.0x 2.3x S IGI Industry S IGI Industry Underwriting Leverage (Premiums-to-Surplus) Investment Leverage (Invested Assets/ Stockholders’ Equity) ROE Generated at a 96% Combined Ratio

Impact of Leverage

(as of December 31, 2013)

10.5% 8.0%

Indust ry S

  • urce: A.M. Best 2013E
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SLIDE 15

Strategic Overview

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SLIDE 16

Competitive Advantages

Field Model Based On Empowered Decision Makers Sophisticated Underwriting/ Claims Tools Focus On Customer Experience Effective Manager of Leverage Superior Agency Relationships Broad Appetite and Strong Product Portfolio Capabilities of a National… Relationships of a Regional

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SLIDE 17

400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Effective Cycle Management

Managed Growt h Through Cycle

Net Premiums Written ($ in millions)

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SLIDE 18

Growth Opportunities

Increase Market Share Within Existing Footprint Expansion

  • f Product

Offerings Addition of Agents and Storefronts New E&S Operations

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SLIDE 19

60% 65% 70% 75% 80% 85% 90% 0% 1% 2% 3% 4% 5% 6% 7% 8%

3Q:09 1Q:10 3Q:10 1Q:11 3Q:11 1Q:12 3Q:12 1Q:13 3Q:13 1Q:14

Retention

Renewal Pure Price

  • 20 consecutive quarters of renewal pure price increases
  • In 2014, anticipate renewal pure price increases of 6–

7% *

Standard Commercial Lines Pricing

*Guidance provided as of April 24, 2014

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SLIDE 20

Dynamic Portfolio Manager allows underwriters to drive mix improvement

89.4% 72.3%

60% 65% 70% 75% 80% 85% 90% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Above Average Average Below Average Low Very Low

Point of Renewal Retention

Renewal Pure Price

First Quarter 2014 Pricing by Retention Group Standard Commercial Lines

Underwriting

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SLIDE 21

Standard Commercial Lines Profitability

70% 80% 90% 100% 110% 120% 130%

General Liability Commercial Auto Workers Comp Property BOP

2013 Statutory Combined Ratio by Line of Business

Statutory Combined Ratio $426M $82M $238M $277M $326M NPW

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SLIDE 22

Workers Compensation Plan

Renewal Pure Price

  • f 7.5%

in 2013 Compared to 4% Loss Trend Claims Initiatives Balance Underwriting Initiatives with Overall Account Profitability

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SLIDE 23

Claims Initiatives

S trategic Case Unit (WC) Escalation Model Medical Cost Management Fraud Detection and Recovery Models Complex Claims Unit Litigation Management

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SLIDE 24

Why Invest in Selective?

Strong balance sheet provides a foundation for success Lower volatility allows for greater operational leverage Effective cycle management Path to a 92% ex-catastrophes combined ratio in 2014

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SLIDE 25

Additional Information

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SLIDE 26

Financial Highlights 2010 – Q1 2014

2010 2011 2012 2013 Q1 2014

Statutory NPW Growth (2.4)% 7.0% 12.2% 8.7% 5.9% Operating EPS* $1.38 $0.38 $0.58 $1.65 $0.23 Net Income per Share* $1.23 $0.40 $0.68 $1.87 $0.31 Dividend per Share $0.52 $0.52 $0.52 $0.52 $0.13 Book Value per Share* $18.97 $19.45 $19.77 $20.63 $21.09 Return on Average Equity* 6.8% 2.1% 3.5% 9.5% 6.1% Operating Return on Average Equity* 7.7% 2.0% 3.0% 8.4% 4.5% Statutory Combined Ratio - Total 101.6% 106.7% 103.5% 97.5% 100.8%

  • Standard Commercial Lines

100.8% 103.9% 103.0% 97.1% 100.3%

  • Standard Personal Lines

106.4% 117.3% 100.7% 96.9% 104.5%

  • Excess and Surplus Lines

NA 131.3% 118.8% 102.9% 97.9% GAAP Combined Ratio - Total* 101.4% 107.2% 104.0% 97.8% 101.1%

  • Standard Commercial Lines*

100.0% 104.3% 103.3% 97.4% 101.0%

  • Standard Personal Lines*

108.3% 117.8% 101.3% 97.1% 103.2%

  • Excess and Surplus Lines*

NA 270.2% 124.7% 103.0% 97.0%

*Historical values (2010-2011) have been restated to reflect impact of deferred policy acquisition cost accounting change

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SLIDE 27

228 159 123 227 336 40 90 140 190 240 290 340 2009 2010 2011 2012 2013

Net Operating Cash Flow

($ in millions)

16% 11% 8% Cash Flow as % of NPW 14% 19%

YTD March 2014: $36M

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SLIDE 28

Investment Income – After-tax

96 111 111 100 101 40 50 60 70 80 90 100 110 120 2009 2010 2011 2012 2013

($ in millions)

YTD March 2014: $26M

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SLIDE 29

Note: Expense Ratio including Dividends Source: SNL Financial Peers include CINF, CNA, HIG, STFC , THG, TRV, UFCS, and WRB *Excludes self-insured group sale

SIGI Peer Median

Focus on Expense Management

GAAP Expense Ratio

*

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SLIDE 30

Insurance Operations Productivity

( $ in 0 0 0 s) %

*Excludes Excess & Surplus Lines **Expense ratio excludes 1.7 point benefit from self-insured group sale

766 761 791 842 908 925

29.0 29.5 30.0 30.5 31.0 31.5 32.0 32.5 33.0 300 500 700 900 2009 2010 2011* 2012 2013 3/31/14** NPW per Employee Statutory Expense Ratio

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SLIDE 31

93.9 93.3 93.8 95.0 96.4 99.3 97.5 97.5 98.0 95.3 92.9 1.5 0.3 1.2 0.9 2.1 0.5 3.3 6.4 5.0 1.7 7.4

85 90 95 100 105 110 %

103.9

Impact of Catastrophe Losses Combined Ratio excluding CATS

95.4

Statutory Combined Ratios

93.6 95.0 95.9 98.5 99.8 100.8

Standard Commercial Lines Profitability

103.0

*Includes impact of reinstatement premium on catastrophe reinsurance program as a result of Hurricane Sandy Some amounts may not foot due to rounding

97.1 100.3

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SLIDE 32

Contractors 33% Manufacturing & Mercantile 42% Community and Public Services 23% Bonds 2%

Premium by Strategic Business Unit

2013 Standard Commercial Lines Direct Premium Written

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SLIDE 33

General Liability 31% Auto 24% BOP 6% Bonds 1% Other 1% Commercial Property 17% Workers Compensation 20%

Premium by Line of Business

2013 Standard Commercial Lines Net Premium Written

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SLIDE 34

Long-Term Shareholder Value Creation

14.96 16.44 17.87 18.82 15.81 17.80 18.97 19.45 19.77 20.63 21.09 0.35 0.40 0.44 0.49 0.52 0.52 0.52 0.52 0.52 0.52 0.52

$0 $5 $10 $15 $20 $25 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 March 2014 Book Value Dividend

Per Share

*Annualized indicated dividend Note: Book value restated for change in deferred policy acquisition costs (2004-2006 Estimated)

*