Selective Insurance Group, Inc.

Good day, everyone, and welcome to Selective Insurance Group's first quarter 2021 earnings call. At this time, for opening remarks and introductions, I would like to turn the call over to our Senior Vice President, Investor Relations and Treasurer, Rohan Pai. Please begin.

Good morning, everyone. We're simulcasting this call on our website, selective.com, and the replay will be available until May 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 measures that are also included in our annual, quarterly, and current report filed with the U.S. Securities and Exchange Commission. Non-GAAP operating income and non-GAAP operating return on common equity, which we use to analyze trends in operations and believe make 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. A non-GAAP operating return on common equity is measured as non-GAAP operating income divided by average common shareholder's equity. 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 reports filed with the U.S. Securities and Exchange Commission, which includes supplemental disclosures related to COVID-19 pandemics. 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 Marcioni, 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 on our first quarter financial performance and outlook, and then turn it over to Mark to provide the details on our results. I'll return to provide an update on some of our strategic growth initiatives before opening the call up to questions. We're off to an excellent start in 2021 with a 16.2% annualized non-GAAP operating ROE. This was an exceptional result in the context of a challenging economic backdrop, continued overall low interest rate environment, and elevated catastrophe losses for the industry. It is also well above our operating ROE target of 11%. continuing our strong track record of consistent and superior results. Our first quarter results reflected strong contributions from both underwriting and investment operations. Our solid premium growth of 11% when adjusted for the prior year COVID-19 related audit premium accrual was driven by overall renewal pure price increases averaging 5.4% and strong retention rates. Our continued ability to generate solid premium growth in the current economic climate is driven in large part by our extremely strong distribution partner relationships, sophisticated and granular pricing and underwriting tools, and superior customer service and capabilities. Our 89.3% combined ratio for the quarter benefited from catastrophe losses that were in line with our expectations and 4.8 points of favorable prior year casualty reserve development. our solid underlying combined ratio of 90% is a testament to the quality of our book of business. While we have seen early signs of a return towards normal economic activity, depending on geography and class of business, overall claim frequencies in the quarter have remained below pre-COVID levels. That said, much uncertainty remains regarding the impact of late reported claims and increased severities. Therefore, our 2021 accident-year casualty loss ratios remain on plan, and our 2020 casualty loss ratios remain at the levels booked at year-end 2020. I'd like to highlight a few key themes. First, we continue to execute extremely well against our objectives of balancing growth and profitability. While it is easy to grow in our industry, generating consistent and profitable growth is far more difficult. The tailwind of higher market pricing has certainly helped our execution over the past year, but what often gets overlooked is our consistent and disciplined approach over the long term. We've established a decade-long track record of obtaining renewal pure price increases that are in line with or above expected loss trend. This approach positions us with a lower rate need than some of our competitors who have needed to make up for several years of renewal pure pricing well below expected loss trend. Having confidence in the quality of our overall book and strength of our reserve position enables us to grow as we see additional business opportunities that meet our profitability expectations. For the first quarter, Commercial Line's renewal pure price increased 5.7%, while renewal retention rate remained extremely strong at 86% of 100 basis points from a year ago. For smaller accounts with policy premium of less than $10,000, renewal pure price increased 5% in the quarter, while larger accounts in excess of $100,000 in premium generated renewal pure price increases of 6%. Across all size cohorts, our highest quality accounts based on future profitability expectations, which constitute 25% of renewal premiums, produced 3.3% pure rate and point of renewal retention of 93%. Our lowest quality accounts comprising 10% of our renewal premium generated 10 percent pure rate and point of renewal retention of 83 percent. By understanding the risk and return characteristics of each basket of policies, we were able to administer our pricing and retention strategies on an extremely granular basis. This has allowed us to increase retention while generating loss ratio improvement through an improved mix of business. Second, while long-term interest rates are up so far this year, they still remain extremely low from an historical perspective. The low interest rate environment will lower book yields on the investment portfolio and the related ROE contribution from investments over time. Our investment strategy is designed to be conservative with a goal of supporting our underwriting operations from a capital and liquidity standpoint. We do not intend to materially change investment allocations as a means of generating higher yield, and our focus will remain on increasing underwriting margins to offset the impact of lower interest rates to generate adequate returns. This is an industry-wide issue, putting greater pressure on companies that are not generating target returns to further improve underwriting performance. Third, industry-wide pricing for the property lines should increase to better reflect continued elevated losses from catastrophe and non-catastrophe weather-related events. The elevated industry catastrophe losses in the quarter particularly for winter storms Uri and Viola, reflect a continuation of the increasing trend in frequency and severity of weather-related events. We booked a $17 million net loss in aggregate for both events. We manage our catastrophe risk through a disciplined underwriting process and a conservative reinsurance program that attaches at $40 million per occurrence within our primary footprint states. This retention falls to $5 million for states that are outside our standard lines footprint. Climate-related loss activity, including those from hurricanes, convective storms, tail storms, wildfires, direct shows, and winter storms, have resulted in substantial losses for the industry in recent years and remains a major risk going forward. Climate change poses a longer-term risk for our industry, our business, and our customers, resulting in higher frequency and severity of catastrophic losses. Our climate risk mitigation strategy is focused on understanding and mitigating catastrophe risk on our business and helping our customers mitigate their risk and recover quickly after experiencing loss. Finally, I wanted to highlight the extremely strong capital and liquidity positions at our holding company and insurance subsidiaries, which remain at record levels. We have more than adequate capital to support our strong organic growth while also evaluating other attractive capital deployment options. Late in 2020, our board authorized a $100 million share repurchase program which we have begun deploying opportunistically at price points that we believe generate attractive returns for our shareholders. I'll come back to provide additional commentary, but now I'll turn the call over to Mark to review the results for the quarter.