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Selective Insurance Group, Inc.
4th Quarter Investor Presentation
Current as of October 30, 2014
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 and the Securities Exchange Act of 1934 for forward-looking statements. These statements relate to our intentions, beliefs, projections, 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," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely" or "continue" or other comparable terminology. These statements are only predictions, and we can give no assurance that such expectations will prove to be correct. We undertake no obligation, 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 projected, forecasted or estimated by us in forward-looking statements are discussed in further detail in Selective’s public filings with the United States Securities 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 operating
model
44th largest U.S. P&C carrier*
History of financial strength
Small commercial,
E&S and personal
lines business
*Source: A.M. Best, based on 2013 Net Premiums Written
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
YTD Ex-CAT Statutory Combined Ratio = 91.5%
76%
September 30, 2014 % Net Premiums Written
Personal Lines
16%
September 30, 2014 % Net Premiums Written Personal Lines
• Focus on account customers • ~690 agents in 13 states • By-peril rating capabilities
YTD Ex-CAT Statutory Combined Ratio = 89.8%
Excess and Surplus Lines
Excess & Surplus Lines • Tightly controlled binding
authority, no claims authority • ~85 wholesale general agencies • Average policy size of $2,700 • ~70% general liability • 98% $1M or lower limits
YTD Ex-CAT Statutory Combined Ratio = 98.0%
September 30, 2014 % Net Premiums Written
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
Conservative Investment Portfolio
Bonds 90%
Equities 4%
Alternatives 2% Short-Term
4%
September 30, 2014 $4.8B in Invested Assets
• “AA-” average credit quality • 3.8 year duration, excluding short-term • Investment leverage of 3.8x
16%
11% 8%
14%
19%
0%
5%
10%
15%
20%
2009 2010 2011 2012 2013SIGI Industry*
Net Operating Cash Flows as % of NPW
*Source: 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
% of 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
0
1
2
3
4
5
6
7
8
9
10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 6/30/14YTD
pts SIGI Avg = 3.2 pts Ind. Avg. = 5.0 pts
Industry Source: A.M. Best
3.9
6.4
SIGI Peer Average*
Combined Ratio
1.2
3.9
SIGI 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)
*Source: SNL Financial, Statutory Data Peers include CINF, THG, STFC, UFCS, CNA, HIG, TRV, and WRB
Combined Ratio Improvement Plan
2013 Accident Year Ex-CAT
Loss Trend Earned Rate Underwriting / Claims
Expense 2014 Projected*
96.5%
2.0%
(4.0)%
(2.0)% (0.5)%
92%
2014 Ex-CAT Statutory Combined Ratio Plan
Expectation for 4 to 4.5 points of CAT losses in 2014
Guidance provided as of October 30, 2014
*Excluding CATS and additional reserve development May not foot due to rounding
1.4x
0.7x
SIGI Industry
4.0x
2.3x
SIGI Industry SIGI Industry
Underwriting Leverage (Premiums-to-Surplus)
Investment Leverage (Invested Assets/
Stockholders’ Equity)
ROE Generated at a 96.5% Combined Ratio
Impact of Leverage (as of December 31, 2013)
10.0%
7.5%
Industry Source: 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 Growth Through Cycle
Net
Pre
miu
ms
Wri
tten
($
in m
illio
ns)
Growth Opportunities
Increase Market
Share Within Existing
Footprint Expansion of 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 3Q:14
Rete
ntio
n
Rene
wal
Pur
e Pr
ice
• 22 consecutive quarters of renewal pure price increases • In 2014, anticipate overall renewal pure price increases of 5.5%*
Standard Commercial Lines Pricing *Guidance provided as of October 30, 2014
Dynamic Portfolio Manager allows underwriters to drive mix improvement
88.6%
71.1%
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
Poin
t of
Ren
ewal
Ret
enti
on
Rene
wal
Pur
e Pr
ice
September 2014 YTD Pricing by Retention Group Standard Commercial Lines
Underwriting
Workers Compensation Plan
Renewal Pure Price of 7.5% in 2013; 5.2% September
YTD Compared to 4% Loss Trend
Claims Initiatives
Balance Underwriting
Initiatives with Overall Account
Profitability
3 Year Average Statutory Combined Ratio = 117.1%
Claims Initiatives
Strategic 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 – Q3 2014 2010 2011 2012 2013 Q1
2014 Q2
2014 Q3
2014
Statutory NPW Growth (2.4)% 7.0% 12.2% 8.7% 5.9% 3.8% 0.5%
Operating EPS* $1.38 $0.38 $0.58 $1.65 $0.23 $0.46 $0.76
Net Income per Share* $1.23 $0.40 $0.68 $1.87 $0.31 $0.51 $0.93
Dividend per Share $0.52 $0.52 $0.52 $0.52 $0.13 $0.13 $0.13
Book Value per Share* $18.97 $19.45 $19.77 $20.63 $21.09 $21.96 $22.45
Return on Average Equity* 6.8% 2.1% 3.5% 9.5% 6.1% 9.7% 17.0%
Operating Return on Average Equity* 7.7% 2.0% 3.0% 8.4% 4.5% 8.7% 13.8%
Statutory Combined Ratio - Total 101.6% 106.7% 103.5% 97.5% 100.8% 97.5% 91.5%
- Standard Commercial Lines 100.8% 103.9% 103.0% 97.1% 100.3% 95.5% 90.9%
- Standard Personal Lines 106.4% 117.3% 100.7% 96.9% 104.5% 106.1% 88.9%
- Excess and Surplus Lines NA 131.3% 118.8% 102.9% 97.9% 99.9% 102.9%
GAAP Combined Ratio - Total* 101.4% 107.2% 104.0% 97.8% 101.1% 97.8% 92.6%
- Standard Commercial Lines* 100.0% 104.3% 103.3% 97.4% 101.0% 95.6% 92.1%
- Standard Personal Lines* 108.3% 117.8% 101.3% 97.1% 103.2% 107.5% 89.2%
- Excess and Surplus Lines* NA 270.2% 124.7% 103.0% 97.0% 100.1% 103.8%
*Historical values (2010-2011) have been restated to reflect impact of deferred policy acquisition cost accounting change
228
159
123
227
336
40
90
140
190
240
290
340
2009 2010 2011 2012 2013
Net Operating Cash Flow ($ in millions)
16%
11%
8%
Cash Flow as % of NPW
14%
19%
YTD September 2014: $158M
Investment Income – After-tax
96
111 111
100 101
40
50
60
70
80
90
100
110
120
2009 2010 2011 2012 2013
($ in millions)
YTD September 2014: $80M
Focus on Expense Management
Source: SNL Financial Note: Expense Ratio including Dividends Peers include CINF, CNA, HIG, STFC , THG, TRV, UFCS, and WRB *Excludes self-insured group sale
Insurance Operations Productivity ($ in 000s)
%
*Excludes Excess & Surplus Lines
766 761 791
842
908 896
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 9/30/14YTD**
NPW per Employee Statutory Expense Ratio
**Expense ratio excludes 0.6 point benefit from self-insured group sale
%
Standard Commercial Lines Pricing
-1.5%
-0.5%
0.5%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
7.5%
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010 2011 2012 2013 2014
Ren
ewal
Pur
e Pr
ice
Selective CLIPS
Industry Source: Towers Watson Commercial Lines Insurance Pricing Survey
93.9 93.3 93.8 95.0
96.4
99.3
97.5 97.5 98.0
95.3
91.5
1.5 0.3 1.2
0.9 2.1
0.5 3.3
6.4 5.0
1.7
4.0
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 95.5
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 22.45
0.35 0.40
0.44 0.49
0.52
0.52 0.52 0.52 0.52
0.52 0.56
$0
$5
$10
$15
$20
$25
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sept2014Book Value Dividend
Per S
hare
*Annualized indicated dividend Note: Book value restated for change in deferred policy acquisition costs (2004-2006 Estimated)
*
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