Selective Insurance Group, Inc. 2 nd Quarter Investor Presentation - - PowerPoint PPT Presentation
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
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.
Financial Overview
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
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
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%
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%
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
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
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.
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
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
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
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
Strategic Overview
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
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)
Growth Opportunities
Increase Market Share Within Existing Footprint Expansion
- f Product
Offerings Addition of Agents and Storefronts New E&S Operations
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
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
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
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
Claims Initiatives
S trategic Case Unit (WC) Escalation Model Medical Cost Management Fraud Detection and Recovery Models Complex Claims Unit Litigation Management
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
Additional Information
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 $21.09 Return on Average Equity* 6.8% 2.1% 3.5% 9.5% 6.1% Operating Return on Average Equity* 7.7% 2.0% 3.0% 8.4% 4.5% Statutory Combined Ratio - Total 101.6% 106.7% 103.5% 97.5% 100.8%
- Standard Commercial Lines
100.8% 103.9% 103.0% 97.1% 100.3%
- Standard Personal Lines
106.4% 117.3% 100.7% 96.9% 104.5%
- Excess and Surplus Lines
NA 131.3% 118.8% 102.9% 97.9% GAAP Combined Ratio - Total* 101.4% 107.2% 104.0% 97.8% 101.1%
- Standard Commercial Lines*
100.0% 104.3% 103.3% 97.4% 101.0%
- Standard Personal Lines*
108.3% 117.8% 101.3% 97.1% 103.2%
- Excess and Surplus Lines*
NA 270.2% 124.7% 103.0% 97.0%
*Historical values (2010-2011) have been restated to reflect impact of deferred policy acquisition cost accounting change
228 159 123 227 336 40 90 140 190 240 290 340 2009 2010 2011 2012 2013
Net Operating Cash Flow
($ in millions)
16% 11% 8% Cash Flow as % of NPW 14% 19%
YTD March 2014: $36M
Investment Income – After-tax
96 111 111 100 101 40 50 60 70 80 90 100 110 120 2009 2010 2011 2012 2013
($ in millions)
YTD March 2014: $26M
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
*
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
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
Contractors 33% Manufacturing & Mercantile 42% Community and Public Services 23% Bonds 2%
Premium by Strategic Business Unit
2013 Standard Commercial Lines Direct Premium Written
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
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)
*