Selective Insurance Group, Inc.

Good day, everyone. Welcome to Selective Insurance Group's fourth quarter 2020 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. You may begin.

Good morning, everyone, and welcome. We're simulcasting this call on our website, selective.com, and the replay will be available until February 28, 2021. Our supplemental investor package, which provides GAAP reconciliations of any non-GAAP financial measures referenced today, also is available on the investors' page of our website. Today, we will discuss our results and business operations using GAAP financial metrics that are also included in our annual, quarterly, and current reports filed with the U.S. Securities and Exchange Commission. Non-GAAP operating income, which we use to analyze trends in operations and belief makes it easier for investors to evaluate our insurance business. Non-GAAP operating income is net income available to common stockholders, excluding the after-tax impact of net realized gains or losses on investments and unrealized gains or losses on equity securities. And statements and projections about our future performance. These forward-looking statements under the Private Securities Litigation Reform Act of 1995 are not guarantees of future performance and are subject to risk and uncertainties. For a detailed discussion of these risks and uncertainties, please refer to our annual and quarterly report filed with the U.S. Securities and Exchange Commission, which includes supplemental disclosures related to the COVID-19 pandemic. You should be aware that Selective undertakes no obligation to update or revise any forward-looking statements. On today's call are the following members of Selective's executive management team, John Marchionne, President and Chief Executive Officer, and Mark Wilcox, Chief Financial Officer. Now I'll turn the call over to John.

Thank you, Rohan, and good morning. I'll make some opening remarks and then turn it over to Mark to provide the details on our results for the fourth quarter and the year. Then I'll return with a few closing comments before opening the call up to questions. We generated excellent financial results in the fourth quarter with an 18% annualized non-GAAP operating ROE. For the full year, Our 10.5% non-GAAP operating ROE was strong in the context of the myriad of challenges for the industry, including from COVID-19, record low interest rates, and significantly elevated catastrophe losses. In addition, the decline in interest rates has resulted in $5.09 of after-tax unrealized appreciation in book value per share, which lowered our non-GAAP operating ROE by 1.2 points. 2020 was our seventh consecutive year of double-digit operating ROEs, and while our 2020 operating ROE fell just shy of our 11% target, this long-term track record puts us in an elite group of top-performing property and casualty insurance companies. We are extremely proud of this accomplishment. Before discussing our results further, however, I wanted to highlight what I believe are some of our major accomplishments, which often do not get mentioned. 2020 was in many ways one of the biggest challenges faced by our industry, from both an operational and financial standpoint. I am extremely proud of how we came together as a company to help our customers, distribution partners, and communities navigate the challenges of COVID-19 and help put lives and businesses back together after the severe catastrophic events that affected many parts of our country. Times like these help reinforce our value proposition as an insurance carrier. We also took steps to play our part in the national conversation around race relations, continuing to build a culture that celebrates diversity, equity, and inclusion. These are key elements to developing a highly engaged team of employees and driving innovation and creativity. I firmly believe that by working towards the benefit of all of our stakeholders, we will reward our shareholders with sustained financial and operating performance over time. Our fourth quarter results reflected strong underwriting and investment performance. Our solid premium growth was driven by overall renewal pure price increases averaging 4.8%, strong standardized retention rates, and an increase in new business. Our ability to generate solid profitable growth and a challenging economic backdrop is truly a testament to our excellent franchise distribution partner relationships and sophisticated pricing and underwriting tools. Our 88.1% combined ratio for the quarter benefited from five points of favorable prior year casualty reserve development and 1.4 points of lower current year accident losses. Our fourth quarter underlying combined ratio of 90.3 illustrates the strength of our positioning for continued profitable growth. I'd like to highlight a few key themes. First, we are extremely proud of our ability to consistently balance our growth and profitability objectives. Our commercial lines renewal pure price increased 5.1 percent in the fourth quarter, which was up from earlier this year. We were able to simultaneously achieve a commercial lines renewal retention of 86 percent, 200 basis points higher than last year. For smaller accounts with policy premiums of less than $10,000, renewal pure price increased 4.2 percent in the quarter, while larger accounts in excess of $100,000 in premium generated renewal pure price increases of 6.2%. Across all size cohorts for the year, our highest quality accounts based on future profitability expectations produced 2.9% pure rate and point of renewal retention of 92%, while our lowest quality accounts generated 10.4% pure rate and point of renewal retention of 84%. Our sophisticated pricing and underwriting tools allow us to administer our strategies at an extremely granular level and obtain the appropriate price for the risk we are assuming. It is this ability that has allowed us to consistently generate price increases in line with or above expected loss trend for over a decade without sacrificing our renewal retention or new business goals. This approach also positions us to achieve loss ratio improvement from mix of business changes. The prolonged record low interest rate environment will continue to put downward pressure on industry-wide investment portfolio returns and consequently ROEs in the coming year. We will remain disciplined and conservative in how we manage our investment portfolio. We recognize that we will need to increase underwriting margins to offset challenges, including the impacts of lower investment returns and higher insurance costs. Every one of our competitors face these same issues. Our track record of delivering strong underwriting results position us to thrive in this type of environment. Third, the pandemic and resulting economic impacts reduce claim frequencies in most lines of business, although much uncertainty remains around the ultimate severities for many of those same lines. At the start of 2020, the commercialized pricing environment was reflective of emerging loss trends, and our assumption is that those trends will reemerge as the economy normalizes throughout 2021. We view 2020 as an anomaly in terms of loss frequency and severity, and our guidance for 21 needs to be viewed in that context. Fourth, while fourth quarter catastrophe losses were moderate, the year experienced a significantly elevated frequency of catastrophic events. These included a record number of landfalling hurricanes, as well as convective storms, hailstorms, wildfires, and civil unrest. This serves as a reminder of the catastrophic potential of not just a large single event, but the accumulation of many smaller events. Our combined ratio in 2020 included eight points of catastrophe losses, which was close to our highest level in over 20 years. We manage our catastrophe risk through underwriting discipline and a conservative reinsurance program that attaches at $40 million per occurrence within our primary footprint states. Over the last 15 years, catastrophe losses have averaged a manageable 3.5 points on our combined ratio. That said, we recognize that 2017, 18, and 20 were all close to record years of catastrophe losses for the industry, and as such, we believe it's prudent to expect higher frequency and severity of events going forward. We've increased our own catastrophe loss assumptions slightly to four points for 2021 and continue to view property as aligned in need of additional rate level. Finally, we took steps during the quarter to continue to build capital flexibility while optimizing our capital structure. In early December, we issued $200 million of 4.6% perpetual preferred stock, which is an extremely efficient form of capital for us. In conjunction with this issuance, our board authorized a $100 million share repurchase program, which we intend to deploy opportunistically allowing us to buy back our shares when attractive for our shareholders. I'll come back and provide a bit more commentary on some of our strategic initiatives for 2021, but now I'll turn the call over to Mark to review the results for the quarter.