SIGI - Earnings call transcript Q4 2018 | Selective Insurance Group, Inc.

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Operator

Good day, everyone. Welcome to Selective Insurance Group’s Fourth Quarter 2018 Earnings Call. At this time for opening remarks and introductions, I would like to turn the call over to Senior Vice President, Investor Relations and Treasurer, Rohan Pai.

Rohan Pai

Thank and good morning. This call is being simulcast on our website, and the replay will be available through March 1, 2019. which this reconciliations the call, of website, package, measures non-GAAP Investors investor our on referenced is www.selective.com. supplemental includes of GAAP financial page A available on included in Form on and Quarterly call stated Annual reports. XX-K measures XX-Q financial previously filed GAAP are Certain also in Form our Report today’s indicated. are otherwise numbers All unless GAAP or realized is excluding the gains after-tax analyze our we on operations, and income To losses losses use non-GAAP investments of net net gains securities. trends in operating or on income, which equity impact unrealized And fourth of the tax asset quarter in impact of of our due XXXX write-down reform. tax the net deferred to believe to non-GAAP evaluate We measure investors business. insurance easier for this providing our makes that it

as of statements Litigation of reminder, As defined projections XXXX. a the statements, the and Reform Private Securities during this Act made some by call forward-looking are

filed future XX-K Please Forward-looking uncertainties. turn and of no call Murphy, executive Officer; update Report refer obligation any members revise to statements. management the Greg. are guarantees note statements today’s any Wilcox, a and and not Chief and detailed and that and Mark of undertakes subsequent the on are subject and with call John these following Selective’s I’ll the over uncertainties. team: discussion risks And performance XX-Qs risks or Exchange On Commission Greg you Marchioni, Officer; that, Chief are with Operating Executive Annual forward-looking President to Form Selective’s U.S. Chief Officer. for to Selective Securities We of Form Financial to

Gregory Murphy

providing on and review some discuss color Mark discuss on performance underwriting themes morning. our I'll to and detail will first strategy. you, key additional our in some those financial drive good remarks continue and make Thank level more operations will results, Rohan focusing our introductory initiatives. insurance John high then that will and

quarter XXXX results. of extremely and excellent fourth are We proud year our

operating annualized share or return XX.X%. $X.XX For record a $XX or superior million, at the the quarter, and ROE non-GAAP was operating non-GAAP per on income established equity

exceptional For of X.X ratio the each and produced quarter, our points. the annualized of segments an contributed XX.X% combined to underwriting ROE

income a performance. pricing In in in a interest growth. past points ability elite three, strategy This strong addition, performance. non-GAAP $XX select of is of of level that extremely of the the of, track industry to digit off The context one, to company fifth disciplined net capped testament an two-year XX% us this period. after exceptional to impressive group among placing very strong the tax overall insurance million, we was consecutive XXXX reported Two, material This contributing over commercial financial environment. of have particularly a up annualized competitive track investment execute our achieved also year launch companies operating quarter ROE. marks XX record that record ROEs, catastrophe rate year losses depressed [ph] and our is environment; double

non-GAAP For financial XX.X% the XX% ROE year, operating and our ahead of was target.

The US addition, likely will from of year during the net ratio. points. the XX the industry reminder Property a costly Claim go billion occurred of or that the catastrophic as insurance losses, combined Florence painful risk catastrophe Hurricanes as The Michael as of and the points another income for US about investment our major California serving ratio down the generated points most industry included estimates events. of combined for contributed industry's overall X.X third as $XX wildfire. X.X after-tax Services ROE, In year at Verisk’s losses on events standpoint XXXX well of catastrophes X while severe

each homeowner property to a new as in nothing have consistent performer, weather related the grapple of suggest almost has with of through an ratio pressure XXXX, XX led -- of coupled results. home X% pressure about Industry-wide workers' weather one an with volatile. well as This rather improvement. that also ROE. losses or combined a fact placed an has had line XX the to severe industry's compensation poor non-catastrophe In each hoping results The commercial commercial actions the losses addition, on that about. pricing XXXX strong commercial capital, elevated in pricing must [ph] mprovement ongoing than been barely auto which cost be been over underwriting level for underwriting property the addressed norm quarters have matches within performance of and And write however, to industry expected past the industry

that of reinsurance As exceeds purchases. a drive trend. not And loss strong of that pricing prudent when record XXXX appetite, or high that to I thing performance, expected and losses the risk only really severe the we claim We’ve and rate matters mitigate you risk track into look results. renewal, is quality earned, said underwriting before, underwriting, have a will discipline product and strategy pure is inflation hope strive often improved established underwriting XXXX through

a successfully our that In outstanding also number year, during the addition to will sustained financial assist initiatives on strategic we've performance executed outperformance.

renewal pure expected price for First, with increases X.X% line achieved year, the our overall inflation standard of our levels. renewal claim commercial in underwriters lines

the has superior. with our improvement Second, added a services XXX and strategy product of last development we customer review toward enhanced for and customer The as achieved discussed value overall goal allowing digital degree personal quarter, in to been customer traction lines gain of us continues experience our manner adding engagement. make to platform to allows their of considerable continued commercial improving across our that customers choosing, engage

available In and addition, commercial Selective to our fleet Mobile Technology customers. are Drive Sensor making we

adoption expect term. behaviors and longer the influence loss fleet over experience addition the In this driving improve management, of technology we to to

added for period and $XX include track our implementing geographic improving new year. Third, well our we've steps segments, been taking challenged the business of that in profitability increases, million and business claim past targeted processes. two-year remains active over E&S segment meaningful price to exiting expansion Fourthly, on address the

the New as in Colorado, well opened to presence our and Arizona, years, states. total two presence Southwest as lines This Hampshire Utah, Mexico. commercial XX past brings region the Over we've

to improving provides growth as opportunities, our diversification access capability expanded Our as well of business. regional

team investment our for rise within to excellent overall in the job rates. a the rates after The the interest investment advantage the lower growth short-term in investment has a increasing of tax tax repositioning risk portfolio, superior interest Finally, year income and profile. portfolio alternative take reflects XX% the advantage moves higher taking of without rising in rate, benefit the tactical of contributions, the done

X.X, an a our strong positioned Our of for to for XXXX. overall and yield the performance contributor equity investment conservatively assets year. X.XXx ratio after tax investment from ROE was a to portfolio duration is With standpoint. of and invested liquidity credit Initiatives an

liquidity continued laser-like require in to our order One, expected two-year forward delivering by strategy agents, commercial on match Three, and the maintain geographic five, after managing pricing auto while in our growth enhance of true for achieving others actions. E&S number portfolio, loss Drive added pure experience commercial enhanced investment and actively underwriting the disciplined that lines addition to standard risk. inflation risk Selective and differentiation to next hit improve exceed And or Looking and the new creating such and will financial expansion. services marketplace. yield there of Four, of in areas managing as our a remain trends. position. improving technologies continuing value via that Two, a the tax price written and period, profitability including targeting ratios, increases driven focus greater and retention customer share that renewal wallet, strategy credit

ratio, after rate XX% of which investment current tax X.XX tax effective investment of on for municipal rate and alternative tax our to no a XX for million items. year products. year XXXX rate tax expectations, of following. of our which losses the shares million of catastrophe excluding for XX. on approximately the incorporates prior all and diluted based effective of after GAAP of basis. catastrophe the $XXX other income guidance from combined Weighted This million view development. includes a reflecting a And rate income includes XX is points, investment XX average tax of $X The losses X.X the on advantage tax marketplace an Turning of overall tax investment of excludes One,

over the I'll Now call Mark. turn to

Mark Wilcox

good Greg Thank and you, morning.

per diluted For per of realized new $XX operating to losses equities. to related Net the sales we money income share public securities reported tax optimize our tax $X.XX share unrealized earnings of including and from earnings the record well investment yields as non-GAAP $X.XX. quarter, losses from million net fully of as after our after

was ROE non-GAAP annualized annualized was our a the quarter, fourth XX.X% XX.X%. strong and the very operating For ROE

were three challenging on losses. first For a quarters. with strong property expected note the than extremely quarter's non-CAT higher year Results a subsequent in the began

ended We capital feel long-term ROE position. about of operating levels For our target the for record year, XX.X% positive year our of liquidity financial XX% XXXX. our exceeded of with and extremely financial non-GAAP the

which a including of to written the appropriate lines have the For the commercial and rough insurance in XXXX, E&S our Consolidated average Each X% market the in established XX%, X% our for in X% current shareholders current we target cost growth top lines, premiums X% we standing operating for segment. increased for growth X% fourth conditions. believe net a is rate return weighted interest non-GAAP on and capital, P&C estimated our based environment, for ROE of year. segments XXXX quarter, personal to full line contributed growth growth

lines. stable and drove the renewal, written in pure strong retention Continued growth standard increases rates price

capacity enjoyed in quarter standing was the our consolidated business basis solid growth causality the was in and reserve an On XX.X% new commercial underlying adjusting also development, for a combined the prior in We quarter. ratio for The year year. combined lines XX.X%. or ratio in losses fourth

For was the XX%. ratio consolidated our year, combined

was guidance most going XX.X% Our above XX% of for XX% Ex our ratio combined recent our XXXX. better than guidance but original of year into the of -CAT

losses from a was accounted guidance basis a on or for the percentage on million catastrophe combined which added that percentage pretax ratio, ratio. points line with combined prior quarter, for for our the Hurricane For points in Losses $XX X.X event. X.X Michael

which in the the E&S We $X.X about impacted of operations also wildfires quarter. related losses our million to incurred California

ratio, of from for in catastrophe point. X.X line For -term losses the which with year, accounted the percentage was expectations X.X longer our point combined

are with level to combined losses this pleased Non-catastrophe XX.X insurance catastrophe from equated line of in We the quarter high in in the XXXX. with the property in relatively given activity expectations. our ratio, outcome the US loss

points combined points X.X for added property non-GAAP than XXXX, in the year, to XX.X expectations. ratio, the period elevated higher relative is which the and losses comparative For

million reduced by experienced During which the fourth of point. quarter, year causality reserve prior ratio net $XX.X development, the combined percentage quarter's favorable we X.X

or the development reduced compared pick million our totaled this offsetting X.X the and combined current increase Partially year, year, the impacted or the casualty quarter, an line by net was X.X combined $XX.X ratio loss ratio auto points. $XX casualty which in $XX.X principally by fourth by driven expectations, million, million commercial For percentage year business. the to of favorable reserve accident overall X.X and our in points for

quarter, ratio XX.X% point expense a X for sequentially, Our at in down fourth which but up year is the ago. compared came with

Corporate initiatives remain the on year, continuing The X.X points profit which expenses. XXXX, XX.X% XXXX, and our savings, about seeking XXXX year. efficiency the in in in benefit upward XXXX, is us These commissions out are long-term cost of efforts geographic compensation, quarter. million as driven resulting totaled relative points to by the in for for while ratio customer expense, in in supplementary which base and long-term principally and $X.X XXXX, which in price a ratio areas portion down from position of put technology position company marketplace. quarter, key performance-based totaled stock fourth expense the the comparative reflecting pressure down is We for holding points share exceeding X.X savings this employees continued on build $X.X combined the higher at relative lower and quarter expenses, of compared long-term which in well to expense reduction ratio, XXXX. capabilities was million the million the compensation million primary the $XX.X reason in decline our tools and that ratio our underwriting compensation, XXXX, experience. our in to includes expenses during part investments and For our from the expense our ongoing the invest some million our our The expansion, which we and we Corporate XXXX expected year down comprised enhancing to costs was to $XX reversal to strategic $XX.X manage stock fourth the in was and modest around highlighted X.X will of future, compared focused quarter.

we corporate our long-term expense upward said, XXXX. expenses non-recurring time we changes modestly in expense element, to was in of decline the put the volatility XXXX in component program result this compensation made XXXX. the on modest will savings structural That a ratio, some over profit-based a As of with expect it pressure the early as corporate that for

of Turning new was portfolio net X.X% a the yield money the our tax. quarter average fixed-income tax of book to us quarter year-end at into to a was fourth from yield on average investments. X.X% $XX after Overall, X.X% excellent quarter The year ago. positions going investment million, a X% fixed The very during strong yield XX% weighted average fourth income portfolio ago. after was after-tax well on during portfolio XXXX. Fourth after-tax the the year income compared fixed-income up the

our income points. core During XXXX, able by to basis after-tax we're on our book yield XX portfolio fixed increase pretax

investment without take the or the duration portfolio. risk to position credit expanding tactically portfolio rising to continue increasing of we rates advantage of As

XX% which book As is in of approximately increase book the XX-day on portfolio XX in securities, XX-day XXX XXXX. drove at is on point reset and securities rate income the these of XXXX an yield yield point LIBOR fixed increase basis our in LIBOR. principally in the benefited basis XX floating example, The from

fixed addition, the increase income been we have adjusted core to actively risk In also yield. level security in and our sector managing basis portfolio

level fourth aggressive although trade-off. a particularly which raise than into in quarter in a did the the it result losses, believe good realized our and we book are market volatility was higher good We to opportunities given resulted yield, of normal

accounted short-term X.X credit strong investment our percentage remains points income Our X.X a at the of invested the down year, minus at portfolio income ago. of fixed as AA relatively points effective assets unchanged securities, and include principally assets portfolio of and duration our the fixed Risk year investment rating X.X and alternative from equities end was public average for years. which high-yield of total

of is We will XX% will and assets allocation, be gradually market target risk and our longer-term timing although conditions a portfolio to the diversifying on our depend opportunities. up

portfolio our de-risked we in the allocations high-yield. XXXX, by modestly public During trimming equities to

portfolio, other partnerships of and ago asset credit real of income quarter million limited reports investment quarter and generated the one on equity which million Our private compared $X.X investment, a and primarily period. private in lag with consists $X.X for year pretax the

in pretax to income this $XX.X generated $XX.X year, portfolio million the For in compared million XXXX.

is into vintage going pretax volatility and then loss expectation Yield fourth quarter of down quarter S&P XXXX of we asset million. pre-XXXX and on results a performance An income alternative quarter alternative credit million for capacity return the entered reported our $X.X investment investments $XXX reflect the net of agreements forecast the Recall During reflected X.X%. was asset some the the better marks Barclays of commitments negative will for new XXXX, quarter lag, year, in fourth to portfolio the on performance XXXX which potential one to the of in sell total that XXX our Index after-tax about our manage for XX% a on forward. alternative portfolio downside was in first High down our and for the is this index

we excluded rate in tax Greg a tax XX% from in This benefit are carry we relates back We fourth tax effective operating non-GAAP XX.X%. a help income. statutory as previous a down periods. some benefits this XXXX XX.X% driven tax fourth in it benefit, by carry to XX% rate tax permanent This items and consider As full-year XXXX. was capital resulted quarter. very rate loss our in one-off effective of projecting prior effective quarter, the taxes, had was which the item the to line some low in rate They mentioned, the drive

Turning with for strong for pressure to year was earnings balance very value per Despite book put market sheet dividends. capital, our at of the strong equity the and portfolio, billion rising fixed our X.X% driven by adjusted year-end. remains interest was $X.X income value of that up GAAP our share on rates

investment with adopt management. our managing to processes, to underwriting buying, catastrophe conservative risk continue reinsurance a and stance portfolio risk We respect reserving appetite

end increase ratio the on the top to our of financial of line capital through opportunities if leverage generated sustain capital maintaining to below at XX%, our XX.X% target the leverage us to debt adequate operating We up providing arrive. while is year Our approximately with longer-term the of to of current trending our growth rate -- ratios. X%, earnings flexibility approximately

of premium ROE. means XXX X.Xx to approximately underwriting Our margin of it points that surplus to each point ratio, equates

In leverage yield addition, portfolio investment XXX in investment every basis points of x of from implies XXX points results that X.XX ROE. our basis pretax

successful modestly reinsurance to maintained and our a on program, efforts program renewal increased portfolio in reinsurance a the efforts markets GAAP generate existing for of of one XXX We of equity. our to program the the risk new pricing our call room catastrophe operations. to net loss-free keeps Xst. very that, to participation insurance renewal our and diversify relates GAAP it from of our to X% and renewal our John X% at to January property structure XXX manageable reflected net catastrophe at I'll our enjoyed status We that and US a we at make our program major As pricing continued hurricane exposure. our our turn equity, PML continued in discuss over With PML strong

John Marchioni

of key for Thanks, operations overview strategic insurance morning. an of segment our success. Mark, to then initiatives continued our by position and and with us the good I'll results review begin

growth of increases and combined XX.X% year. price generated pure for the X% X.X%. segment, premiums for Net the in for Line generated renewal the premiums year. the written overall and written XX%, the and of Standard premiums Our which for net of quarter XX.X% retention Commercial of growth year XXXX, represented for This quarter XX% ratio stable by a fourth driven segment was

fourth remains the pure at quarter, at renewal X.X% retentions with price stable remaining For strong XX%. increases

Lines For for price of X.X% renewal XX% Standard retention achieved the based lines accounts premium. quality commercial our pure the year we on increases of profitability expectations, This represented renewal highest cohort point of of XX%. Commercial future and

for the of renewal administering of premium allows achieve mix a On renewal. at rate approach strategy represented year, accounts XX% retaining ratio lower the This point additional of by business, us loss Drawing down while the achieved the our to quality XX% results granular combined through claims to business which changes, we X.X%, renewal improvement pricing or our rate and XX.X% a equal liability, generated general largest exceed while of Lines, ratio continuing deliver of for line that to the for increases from Commercial inflation. expected XX.X% quarter line year. in of

Excluding umbrella, quarter, for the fourth the of fourth of for prior we a million accident Reserve quarter, modest year. XX% the quarter in fourth severities quarter fourth renewal line pure declined in was This the year. $X.X prices for XXXX for achieved year. the liability the of X.X% million and Workers general and the combined price were in the compensation X.X% years pure development during were and year as releases and ratio for down increases at $XX XX.X% for experienced Workers renewal prior. reserve result favorable X.X% X.X% lower-than-expected compensation quarter.

accident pricing support favorable do reserves, that across profitability seeing the to due our country. While the in current year results emergence knows and not strong year of reported reductions significant remains we're the prior on industry

for remain the marketplace. upward for of for competitive us underwriting were the estimates auto a in an disappointing elevated resulting have and challenge industry. to years, and for pricing are in line, While frequencies our we the discipline recent extremely The adjustments Loss years Commercial remained and combined severities, and quarter, in our face pleased maintaining with this casualty due and performance results was claim year as $XX.X year. frequencies the prior higher casualty auto as million the accident unfavorable accident reserves. prior XXX.X% XXX.X% of for through quarter reserve XXXX. elevated included fourth commercial ratio the development, current Results well to XXXX year in

the pure into the by number frequencies which the of in renewal year. commercial current $XX.X has XXXX, including increases price we the continued Most the a to estimate renewal increased increases of quarter, XXXX. for in address line these addition, million benefit offset in in This X% loss fourth were the of elevated taking to changes work, with In severance. averaged profitability and level in that on top loss of active account take the was averaging X.X% during price increase loss We and by is quarter experience. been steps year at X.X%

should As support such rate the loss trend in additional elevated XXXX.

classes lower resulting We to active pricing introduction improve expect towards taking of of program. also the the expense accounts. accounts Selective we Longer Drive to of in hazard more underwriting a shift performance medium conservative and continue hazard and on mix term, in that higher

quarter non-catastrophe earlier XX.X% year. negatively Our and ratio commercial heightened and losses. for the property combined line losses combined our large ratio catastrophe year, for fourth XXX% the during frequency in book as well were weather generated this the as of impacted a Results by incurred fire

line the for industry adjusted While property earnings having elevated in our pure be appears excluding pricing especially two fourth X.X% trended quarter to price annual XXXX. up throughout it the the remains we Renewal this past years. in X.X% for over basis, commercial and believe risk a for the on increases losses year averaged context inadequate picking business up, with

result into in XXXX. to heading We pressure additional pricing expect industry-wide the an line

premium the XX.X% reported The XX% and represented fourth Lines Lines ratios Personal year, year. produced growth for in the the X% XX.X% segment the flat year. premiums for quarter, in of Personal segment, of profitable volume quarter, combined which Our the and for fourth

of overall losses generated performance results, for the elevated segment, with weather-related this pleased are despite underwriting which solid year. generally We the

The during development, unfavorable quarter to million included generally for of homeowner's progress a for points benefiting X.X% the reserve from for casualty in significant segment, expense with excluding XXXX, ratio Results quarter, benefit footprint. XX.X% XX.X% the benign added for fourth year. line in fourth lowering our year combined prior the flood the weather $X.X combined of of the the generated XX.X% was operation made prior which the compared which ratio have We ratio. the

line homeowners' XX.X% year, the generating a ratio. the combined For

the year with environment prior and the approximately Personal pricing to compared competitive increased premiums been and pure taking fourth picked again year. written premiums exposure. totaling as quarter competition our market have ratio year. to approximately net line rates for in reserve year on personal quarter the Renewal basis, XXX. due were Top was The ratio for period increases we've and for In growth X.X% ratio net auto, up. X.X X% catastrophe added and written for averaged adverse development $X been limit flat X% points year. combined the declining the the efforts For for for and the combined the casualty quarter the million for X.X book the to price combined approximately points XXX.X% auto year has Prior On XXX.X% quarter, an our year. year accident fourth was

continue mix expense increases, focus to ratio price and on performance change the to a plan improve improvements. We through

work actions expect improvement is we ratio line and XXX. these As see this expectation through further book, to our their to margin way approximately combined for XXXX

in ratio for X.X% year. unprofitable premiums as averaged these written E&S which and the segment, X% the rates. see profitability full We've the plan reasonable in with maintain to sacrifice total begun year actions profitability in for in the price quarter the increases half net generated quarter focus price XXX.X% front, year a exited some increases we and and for E&S growth X% first higher of started to and quarter see improvement the XXXX for combined We of as underwriting for XXXX, the The our X.X% classes. fourth fourth we've the addressed represented this substantially and fourth XX.X% Our year. Renewal during to from during growth and classes. targeted on return pure was to growth

underwriting, lead switch outcomes of discuss on some profitability pricing of target book risk-adjusted small next While quarterly to initiatives. our to have us the the I'll some track claim to achieve relatively end our of year. by volatility, major the could segment and this now improved strategic size for

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During a X,XXX including partners, new the over our bringing distribution expansion approximately geographic XXX XXXX, we states appointed to X,XXX partners and opened total newly store fronts.

established. two-year Over the the was past period, a regional south-west hub in

markets to profitably top new a small model to four of group agencies. strategy states, XX partner access allowing substantial to positioned these grow appointments business limited with a us we number our through element in gain are distribution notch approximately appointments. By limiting as of of franchise key Our across these a our to

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will building Our in in Southwest operations a coming in on the years focus and be the our deliberate thoughtful out manner.

deploy to efficiencies continue and creating sophisticated that we Second, and to personnel underwriting outcomes. decisions faster, claims improving enable better make tools our greater

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basis in to ability the on clearly a business understand and is differentiator price of appropriate granular market. risk the Our the characteristics obtain return the a

improving Our best even pure XX-year price leading market rates. while demonstrated maintaining on success our renewal track record increases retention and obtaining is simultaneously by

modeling On the advanced continue experience. in better claims at and a to side, analytics incoming our utilize claims to claims resulting segment and we outcomes inventory, improved

ratios continue that position technologies time. over rates customer overall help business increase experience and hit and to in us enhance We retention invest us new to

X XXX developed such in Our provide interact us digital relation our us. We've of a so degree messaging choose potential as their our loss in how the customer with recalls, customers, agents seamless services into by to our platform allows proactive with partner product activity value-added experience on choosing. that manner XX will view ability We customers they to to of a customers policy have environments to or with interact seek regardless experience, changes. of journey, enhancing this our to

fourth logistics commercial was owners phone platform in attributes, on with of program quarter. driving individual is Drive customers safety the This while usage, management charge. introduced the provided scoring Leveraging fleet and telematic this policyholders is in based free to to drivers tracking including and helps motion. by program vehicle Our Selective improved connected sensors,

to into new technologies agents customers, continue should time, remain our is invest which our which and financial sophisticated our positioning history. retention strongest over pleased extremely XXXX, our in we in rates with improve business ratios. leveraging and to believe provide We heading and strategic hit Overall, the we

With leader experience are strategies underwriting, we on years. our customer on call a open maintain omni-channel model, in generate today various us underwriting Operator? our as questions, as tools claims, up in distribution profitable growth. will The the steadfast making the to we in execute overall sophisticated coming that, and We environment a discipline we'll technology, focus investments and position for will enhancing the franchise

Operator

the Mr. Instructions] first of question Our from Credit with is Zaremski Mike line [Operator coming Suisse.

open. now is line Your

MikeZaremski

on I heard if in believe the expense remarks on I if – gentlemen. some, my heard the correctly, pressure prepared looking notes, ratio, if I Good pressure could you Mark mentioned ratio you expense about Great. at morning, elaborate? upward

MarkWilcox

our some, peaked a profit function ratio two terms what that points exactly tenths consider and higher XX.X, improvement of I of we ultimate two ratio was ratio XX.X% there, down a benefit be in expense going we brought XXXX and the of we sort the normalize sort that's point time. last talking XXXX, number will would and within profit When made durable in our back over slightly to would ratio component upward right. element an expense What it's of over based pressure. Yes. Mike, referring XXXX, expense at ratio, will have and expense some reducing XXXX. ratio But the at to I expense a not referring ratio basis the in expense as of was combined and was course XXX We look what a the of of material I years. results expected in be are loss of to. into with modest hope there the than That's you

GregoryMurphy

advanced in we building analytics, Mike, we making doing of safety, management, is obviously doing that what are or and is runway work or we the that that out. a whether When things more technologies, compare expansion, in other at to fact the the product are geo, opportunities. we future you competition Greg. are continue think major station the CX management, out. our touched essential it to of areas are geo to Yes, the safety for doing little roll are drive rolling this of decision growth what some we we that investments in John we bit are about

is side, a systems, so the there sure we've have as lot top based that's the things, and we that reap obviously Are But numerator Mark know continues on No. our organization, profit and on do make front expenses? going On going expense that fresh I to best-in-class are mentioned. success? are things you lots of way to that want on, to we that we focused an and on system Yes. that we got an

for strategic we about future. the mindful invest are how so and And very and manage we

fork we for strike tuning I the that efforts. think best

MikeZaremski

ratio property and was, the Greg, guys Okay, of question you – But prepared you experiencing have that over think Does done job if me now is I that talked My wrong. of elevated next correct I am raise remarks you understood industry in about elevated time. an improving property losses. great levels of can yes, a loss frequency ratio? expectation the your non-catastrophe

GregoryMurphy

separated that I seen Yes. we've you see outlook could would non – exactly obviously is property you which your tell CAT, our question. CAT

our ex-CAT, disclosed so can estimate. always that's us, your combined why you we've put ratio For in

doesn't are numbers. event. We our follow get We PCS included PCS, in disciplined. not so very It a it's

roof pretty pressure be, So and severe our what related related But the again other work. replacing the kind that pure for It's really on a both how and now are not possibly like, property-fire of also are loss absolutely right, there the activity are issue and will it industry of , doesn't you number’s and results. Mike. we’re But the weather down hard to repair and our of we PCS affects polar seeing weather for seem relative would the driven have you’re side, cosmetic in is vortex where what you home insured Whether another home on that seem for that down any it's damage terms which diminishment quarter. versus the you improved Whatever the sharing, These to of and it be middle comes related between commercial and it is significant just in of do where another the deductibles. up ongoing property that. co-participation all hail, going need and doing us issues underwriting that the roofs the cost than whether when some

MarkWilcox

property just level non-catastrophe has Greg XX% for the the ratio if for XXXX. been that our mentioned underlying factored might And elevated expectations losses add, combined I into of

little it's in forecast of XXXX year. factored elevated a that’s XXXX cost bit going loss for going expectations versus the the trend into So for into

MikeZaremski

is forecast? for your you And on last Roughly are it. to you year guys again are little the commercial you things loss color auto. in bit XXXX, thinking better my how for then -- the the got XXXX ratio, a and was guys quarter. question Okay, commercial underlying what this get impact the full Thank within

MarkWilcox

again. this Mark is Mike,

current about fourth reference Just very the had numbers. current year -- was XX.X pressure ratio. both think quickly at I -- just about the about was the It results. commercial auto When quarter your the We prior look related XX loss to related to and year the on on to and points the you year. prior points

$XX the period. call the of ratio in just overall auto about pressure the in commercial on points the current cost XX.X it So on it in adding line combined quarter and total, million call

MikeZaremski

about current how for it the quarter. by underlying couple, year, hurt For the know points was the it full a this year -- I X.X XXXX?

by curious full year. Just about the

MarkWilcox

Yes.

about year or X.X So from points. year, it a million perspective the full $XX.X prior was development

more we action we was year So did and took current so the year. than actually in the significant it pretty some prior --

on that about current about or the of combined points the in in full and points or full the terms current ratio and $XX.X full action. in terms prior million action the underlying prior year for So of million year year included you year and loss is dollars XX.X $XX.X that and compares the year X and about points XX.X $XX of last year to on million

GregoryMurphy

me got good to So, Mike, a let try we make thing. sure

So go just let's by accident year.

of of I about take year sum our ins expect commercial our for And XXXX right would XXXX actually is the in XXX think should accident I to all trend some lot auto is a going quarters roughly and outs. improvement to it's now happen and year speaking what's downward XXXX. question because we about XXX, and easier

hard on are can ground John management. are some of mentioned, our we game the expect commercial at do down? very And to XXXX line. their getting wheels the of scoring of better they we we that bit. and the to fleets, of frequency. some get driving. no? BI trend little huge But touched down, our on severity as step more the in mentioned fleet are that just going on John still of XXXX a dry on seeing If leveling terms be you We on in have -- are Is portion levels John it more people as And the years effect, elevated out a We product some seeing in

between to lot like front, rate, a is there the is checks, road. are Mike. whole, tell actions we whole a that, we Nowhere strategy, is are huge tell distracted issue you that John just -- relative activities what underwriting we I radius deal our I'll doing is and on on other, a are not this they And driving that ongoing are that of numerous everything doing is this there whole you doing over

MikeZaremski

Good for color. in the you XXXX. Thank luck

GregoryMurphy

Mike, would looks trouble. on in a even A highest account distribution. am sometimes our Mike I look. as say actuaries

just a humor. little look, though. Sorry, you Thank

Operator

is the KBW. line question next The coming Christopher from Campbell of with

open. now is line Your

ChristopherCampbell

ex be are first that of how why question, it my like guess morning. the would about Is guess with updated ratio terms rate I guess I flat just then how just year-over-year the the versus just CAT I in overall it's mean kind about are to that? you taking think imbalanced loss how the -- Hi, guidance; that -- I we should good combined and think of guidance. just that flat. should guys pure trends? we that's cost we expect basically

MarkWilcox

Mark. is this Chris,

me Let start.

call you of would in I few in conferences up You are what say weeks you the chart, right color versus rate. we XXXX largely expectation call bit trends X-X output bit and in A XXXX, total was is some ratio but the -- more to into do the but loss pressure give lay little little for bit the I detail we rhythm loss trend expense offset mentioned of investor that's by typical a that is the it close trend the bit a on and are tenths basis And a earned we claims out spoke more coming factored drive two about next well. the for walking more and is outcomes little is point XX.X it and year-on-year margin absolutely will have is points remainder call improvement then underlying waterfall in through that's little John have XXX underwriting call of which the really the the XX mix improvement ratio flat. as and improvement margin combined which XXXX the

JohnMarchioni

low trends. hit upward John. built trend obvious Mark I is right that going is why this future seen it our conservative pressure in built bid move the trends Chris, reflected that's more commercial exactly line inflation claim and we add, expected of as the auto past on by commercial in driven of that the thing a think we into And the forward. risk bit would expectation property side terms about only lines how little The we've stating we the and is a

ChristopherCampbell

Okay. on little deeper And of another kind just bit Got it. then I that. a -- mean

script, of opening in loss mentioned guess XX the and mentioned commercial think in quarters I think higher property I property. I like you book. the consecutive core -- the you in ratios

it you under guess telling little feels like bit seeing quarters kind my competitor's think basically are core -- you starting opinion. take losses it's Because how just XX this is about I hitting rates? you're priced So you of seriously? to more for your in I mean And consecutive

JohnMarchioni

John. Chris, this is

I our about think important the talk to industry performance. it's performance versus

elevated have ours. You seen both performance industry and on losses

couple our industry's us rate property direction. start The up the is survey X%. in a just rely industry right are on And rate non rates where over you the industry Ours of and see still for side. seen been moving comments has to line it both of bit the and that business. it seen started movement we CAT CAT the few this has level based But that property we commercial I points detail movement in you also pricing over non driven quarters major and by some last you've on running gave but the a think bit more just on prepared of tick little our direction. by property been little below has a the CAT the and it We in right seen we've

because lift you need we So ratio look focus of at as would than you on, I you out going risk generating because make the about. term to volatility to that investment long run for average nature are are line, performance line. and combined that on we much you of And are that at going adjusted a to actual your the the then to property industry you overlay not margins a ROE talking returns ratio whole target short your when lot a over sure underwriting really that need line because the have lower only the combined would because a the say this view of tail that's are of get the have

combined that line for. that for ratio So a targeted low are we've striving we got

We continue to underwriter. package be

rate So there view is in seeing for say the individual us would are industry marketplace we and right need take a overall than single can't for more that of the we now. we just But line.

ChristopherCampbell

just rate growth I And I on your interest net investment Okay. for guess one guidance? rates larger Got much I guess assumptions? follow Mark. then it. guys I assuming you in XXXX? of how mean how then the is guess versus premium are And this income interest what's move driving

MarkWilcox

question, good Chris. a It's Yes.

given what reflect press average which of X.XX% of investment right X% in all we XXXX. about insight the end and done and yield. XXXX. next gives call million the se that's going a space Greg year principally of good includes and the tax after portfolio in from results guidance a So significantly run into all And investment markets $XXX equity rate is set expect into after quarter it year. And for income that plus and net investment after core as portfolio as net at is that's from that $X would us high the generated metric we tax lag expectations new tax the we million weighted to the And income tax not release, it's the what million mentioned, alternative and down the of to credit to in the a related in yield reporting. $XX saw the sort we in from down a that's be talked the and choppy have I necessarily did after portfolio but per in comments my book first quarter fourth mention for the pretty of

reinvestment sort in a stable repayment of flows is reinvest. runoff interest that of We that have bit principal quite have a of terms can we do There range. anticipate. and coupon cash we We pretty

reinvestment about in LIBOR We bit big in the some a rights. did So jump we little XXXX. talk have

expecting to not ago. just flow interest year even is XXXX. XX into going we that points And --with the investment into It XXXX. investment related a far were for is strong We go. going last always expectation book rate increased then see income. have different And that of they But the lot XXXX. income the year increase that days similar are that. alternative a rate is yield in going today trend very wildcard really forecast basis environment to to flat difficult are things relatively A than where to today, different our interest to XX It's

it there significantly investment like in bit XXXX now -op is quite a We projecting a be alternative down around are to volatility CAT quite projecting income. but of bit business

GregoryMurphy

XXXX premium, on written it's now think rate, our about Chris, of When is you working an too late. from exception the So, XXXX you would maintain done to run property have you losses, standpoint are any and your opinion are because actually moving which already already of Greg. improve out with not your results. say I your in I it. ability unless Companies activity underwriting mean you whether

commented to together the Mark tie on. all So that touched

an in commercial then premium higher this when than the X.X one time. combined just So get point of you about stay love area. for industry. at for we the keep extended to and think kind environment. underwriting relatively, about like company of lines that point more underwritten personal you lines, And of Because straight we we similar a the of rating it period like Xx think return that to than and E&S every one when We for level like excellent on it believe forces equity. underwriting we ratio are That’s

a through that basis walk the and got on high on yield where So significant. core the are income But a we is combined to outperform ratio it; on is and touched renewal fixed Mark the on the Mark based on our what side. you and you product, difference we product investment kind no inventory ability books telling just

and are to that the -- we gives fair and reserve a our that improve with on XXX are alternatives see already tried is Again after reduce the solid going moving Xx lot and We not free of pride to rest that what of ROE year happens way organization. as volatility push are -- going to an some to our are but believe rates profitability. movement. to always which year it's the They we've a ourselves you in something or we've of to into pruned manage coming with another you embedded position there the that's yield we what's an is an And tax. at in looking don't already one out idea then

So when you think happening, about cash exceptional at premium flow XX% an what's of is number.

cash things is started our who they we maturity; started it's I very are but don't And -- that X and strong. focused grow over. February ivy X,XXX in we but yet. hard, the the than on XXXX or performance our want underwriting always true how But a those improvement are extremely XXXX in around to the work combined of are core another event business, say So is in it's organization much the That's X,XXX Yes, more way really one going best to just ratio are new employees XXXX all agents terms our class, XXXX opportunities edges. and new tuning this of year the business event. because work is it profitability pretty of at

Operator

Mr. Newsome next of Sandler is Paul The question from O'Neill.

Your now line is open.

PaulNewsome

not of to why comp. some on And one just what commercial necessarily in I time. quarter other of I underneath speaking the or could auto hood and higher like of I think have necessarily Congratulations the lines on just but of things for through like more Selective just workers the beat guess really year. horse the folks usage liability I hoping spread trend? to dead concerns happening want the insurance is general as was your of And I broadly on you the some -- attorney had thoughts truly the of wouldn't terms these kind moving

JohnMarchioni

is Paul, this John.

question. not track any the very point I'll seen liability litigation We yet. do to our you we've litigation a it's litigation a generation social that a in it a specifically we lesser think believe tell is to that and a are isn't are of to I think rates. risk that's is might mindful great this there little of to and of. to -- harder significant major a in see that just bit this relative Do shift we trend that but it's inflation yet regardless involvement extent And what point. file It's of lines as business that if going pure something is we of forward? attorney or in of keep movement track at

we heavier Do we vehicles? for We us business hazard to and writers. write exposure remember hazard lower tend the Now And do. write some write of classes? all the class we lines. of style hazard on side. Do are some heavier low do classic predominantly our across medium we liability medium But and higher in and

result hazard lines a losses exposure inventory that majority up liability our tend of of the be types as a So base. of less of all make that across the to

by doesn't that So be that's mean it any but consideration. from would we a stretch immune

I'll claims it's other and expense big The Because just our been and a from lowering of outcome thing perspective. on say loss focus don't a focus we operation. adjustment loss

the been early when part benefit and upfront. and is that's can involved on tell everybody's I experience will be good communication have a great team claim think claimants. nothing front. everybody focus clear cases for We a also and that helps which you our a focus to by of that a is solid in on a litigation better communication outcome us communication many with you and And on early claim side big claim focus things. of fair claims And of avoided resolved I and getting And there is

PaulNewsome

some that's such just putting impact on of see I wondering of the the the expect how than severity Do impact technology evenly, technology we of you more and in mean, kind the these of I claim or you that been discussed it are this the process. frequency these trucks might improved some side efforts

JohnMarchioni

Yes. around think more I Selective Drive. I mean space, specifically for speaking

PaulNewsome

Yes.

JohnMarchioni

Yes.

less distracted very accidents impact their lot severity. it that is knowing to early that more But scoring improve frequency We they driving. going certainly also that behavior type driving. with the the than should are stages. Frequency severity likely you impact or management driving severity fourth cases in and going in again driving that's because quarter. too distracted to accident collision be basis should their to if sensors head are both drivers higher you that is fact have working People probably But out view drivers rolled vehicles or on the in by on of and their have, falling start are exhibit that That average the when in are is Our of believe in frequencies. caused to technology. because that

up do of But as technology that to a of start it's to We the has book in -- some deployed. process customers benefit that weights think seeing but it we going take of the are time our see increased will portion that, improve take significant before performance.

can't sight favorably these question other distracted in We earlier bit fact I driving this all trends around focused auto think loose frequencies. the frequency and auto. in personal response starts heard applies commercial and of also impact think as And better our to driving relative Even well. to I to of little and of if you to a this severity habits

your It's of You the affects -- do vehicle being on PD severity we weigh it certainly of liability is because into more because still partly liability pressure have the because the physical but there lines cost so, on the the believe also as side higher. front impact of well. also liability repairing aspect. social on inflation But damage

bit So put to normal severity above little going on a pressure could inflation forward. continue of that

GregoryMurphy

some hit product and just kind offering let that is the obviously drive one fuel go handle me for ratio ratio, also And at hit we loss it cases expect third higher we I better it's them of manage really so our party. paying of of and free In this then of fleet, as customers the in better cost. of the to as build And and sale -- service have element manage insurers effect there of a this product. doesn't how are are them that point offering cost, Selective believe is versus this get an our this in and better touched but it lowering the you improving another through some try organization, helping inventory offering. their company we And on, part

well. as will retention it think I improve

what the start road, will about driving, this are on some the to behavior, add Yes. and is road road. then drive another And state that of stay increase to there a that condition when and top of state marijuana -- does ongoing the us? improvement that So cases. to the on worried but poor almost try Does for in how at legalization of we factor you element driving like -- concern problem it's look of road

in So account we have to forward. move we to we business But what are at we write combine all what think all pricing, of manage those factors we as exposure. think our products principally When about do we about on we basis. written about the

to or efforts are underwriter. best our we So whether to auto general we be it's -- comp of full where or liability account try

Operator

next of question the Capital The Markets. is of coming line Dwelle Mark RBC from

Your open. line is now

MarkDwelle

morning, good guys. Yes,

a that fields. hasn't here couple left plowed already thoroughly Just been

GregoryMurphy

count always I can Mark. you, on

MarkDwelle

be question on first had first lot investment probably is to quarter, -- quarter? in the first one you've that's assume in right the and negative a a number The portfolio. to But the the covered already going it alternatives for I appropriate and

MarkWilcox

of difficult that a right. There data but there expectations estimate not are to is that's a there. Mark, mark. out be lot negative will our It's one Yes.

be Clearly, infrastructure a fourth was and have portfolio XX tough those in include assets in lag very, across will significantly and in trends also private down public We estate. equity quarter very reporting QX. real Energy energy, private QX. reflected funds real equity, which diversified about with of credit, the

night. from provide Blackstone data equity strategies last their credit and insight Apollo but into a and their Just bit fee in quarter. and the a little released of portfolio fourth portfolio both points private is to down They there perspective lot how -- them; both from earnings for not did were

the would as mark negative related a So in said, we to expect Greg old. yes, QX

GregoryMurphy

after million that that the into obviously And Mark, drops order. -- tax $X shrink

MarkWilcox

snapped Exxon year, and sized expecting properly bumpiness energy we bit little on of expectation print good for a our morning. a prices -- but back. the So lot this the have good It was number,

gas And the side and of are shortages gas our so things are other. stream suppliers throughout -- and there some country on the some mid is and

So one make all those are again, quarter a year. doesn't --

MarkDwelle

snap yes. back. Sure quarter Yes, thing, be will maybe second

flood -- The in was floods track a somewhere I've and that to lost quarter? that in was of the kind ratio had, there second Mark, your referred of where, number were country impact comments, business, around fourth a of quarter, expense meaningful you question the your in to I the the

MarkWilcox

of material from think expense they which the kind benefit generate general have related fees. line the commissioned flood. Mark, so We We flood fourth in significant fees you but generate $X about -- have year weren't handling was are that is in QX ratio in related full do now claim from the wasn't they I the reference which on flood. that million durable personal more we the Florence. There the so any benefit results. for benefit quarter And to -- of to the it The QX. majority anything drove the

GregoryMurphy

any of Operator, questions other are there Q&A the End on more line?

Operator

Because time are further miss of there questions. no

Gregory Murphy

Great. I dialogue. of level appreciate the

ups. this If Mark is any available. available. follow Rohan you you for your thank participation much have is morning. And very

Operator

call. fourth XXXX Thank This you. quarter you Group's Insurance for earnings Thank concludes participating. Selective

You now may disconnect.

Rohan Pai	Senior Vice President, Investor Relations and Treasurer
Gregory Murphy	Chairman and Chief Executive Officer
Mark Wilcox	Executive Vice President and Chief Financial Officer
John Marchioni	President and Chief Operating Officer
Mike Zaremski	Credit Suisse
Christopher Campbell	Keefe, Bruyette & Woods, Inc.
Paul Newsome	Sandler O'Neill
Mark Dwelle	RBC Capital Markets

Selective Insurance (SIGI) 1 Feb 192018 Q4 Earnings call transcript