Selective Insurance Group, Inc.

Welcome to Selective Insurance Group's second quarter 2021 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. Thank you. You may begin.

Thanks, and good morning, everyone. We're time forecasting this call on our website, selective.com, and the replay will be available until August 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 and non-GAAP operating income and non-GAAP operating return on common equity, which we use to analyze trends in operation 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. Non-GAAP operating return on common equity is measured as non-GAAP operating income divided by average common stockholder's equity. We also use 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 uncertainty. 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 statement. 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 introductory comments on the results and then highlight some of the higher-level themes impacting the industry and our company. Mark then will discuss our financial results, and I'll return to provide an update on some of our strategic initiatives that position us for sustained financial and operating outperformance. We generated excellent financial results in the second quarter with a 17.1% annualized non-GAAP operating ROE. Both our underwriting and investment operations were strong contributors to the financial results for the quarter. For the first half of the year, Our annualized non-GAAP operating ROE of 16.4% was well above our full-year operating ROE target of 11%, continuing on our strong track record of excellent results. Similar to the first quarter, favorable prior-year casualty reserve development and strong alternative investment income drove the outperformance, while underlying underwriting and investment performance are in line with our ROE target for the year. For the quarter, our solid net premiums written growth of 12% after adjusting for the prior year COVID-19 related personal and commercial auto credits was driven by overall renewal pure price increases averaging 5.1%, strong new business growth and stable retention rates. Our 89.8 combined ratio for the quarter benefited from moderate catastrophe losses and 2.3 points of favorable prior year casualty reserve development. The underlying combined ratio of 89% reflects our superior underwriting capabilities and the quality of our book of business. Net investment income after tax totaled $67 million in the quarter, benefiting from the exceptional performance from our alternative investment portfolio. While alternative investments, particularly private equity, have generated outsized returns so far this year, we expect performance to normalize in the coming quarters. I'd like to highlight a few key themes. First, our ability to consistently execute on our objectives around profitable growth is a testament to our strong distribution partner relationships, sophisticated and granular pricing capabilities, underwriting tools, and superior customer servicing capabilities. We have a unique franchise built on a foundation of customer centricity and operational excellence. While economic resurgence and strong market pricing are positive tailwinds that have helped our growth, our continued discipline underwriting and focus on obtaining renewal pure price increases at or above expected loss trends have been equally important. Our sophisticated underwriting tools provide us with a deeper understanding of the profitability and risk characteristics of our book and give us confidence to generate higher growth rates when market opportunities arise. For the first half of the year, commercial lines renewal pure price increases averaged 5.5%, new business was up 8%, and the renewal retention rate was 85%, in line with the year-ago period. For smaller commercial lines accounts, with policy premium of less than $10,000, renewal pure price increased 4.8% in the first half of the year. while larger accounts in excess of $100,000 in premium generated renewal pure price increases of 6.2%. Across all size cohorts, our highest quality accounts based on future profitability expectations, which constituted 25% of our renewal premiums for the first half of the year, produced 3.1% pure rate and point of renewal retention of 93%. Our most challenged accounts comprising 11% of our renewal premium generated 10% pure rate and point of renewal retention of 84%. Our granular approach to understanding risk and administering the appropriate price has allowed us to maintain strong retention while generating loss ratio improvement through an improved mix of business. second the lower for longer interest rate environment is poised to result in a multi-year decline in after-tax book yields on investment portfolios resulting in reduced contribution of investment income to roes while alternative investments have been a strong contributor to overall investment performance during the equity market rally over the past decade consistently replicating that level of performance will be difficult Maintaining discipline to deliver higher returns from underwriting will be increasingly important. We are well positioned to do so. From an investment allocation standpoint, we intend to remain conservative, maintaining a high-quality portfolio with adequate liquidity, with a goal toward supporting our underwriting operations and strong capital position. The third key theme is inflation. Current inflationary pressures on the short tail lines are largely being offset by continued lower than expected loss frequencies on those same lines. To the extent these inflationary pressures persist, they will need to be reflected in forward loss trend expectations. This impact could be exacerbated by severe catastrophe losses that create additional demand surge for building materials, putting greater stress on supply chains and labor shortages. Medical CPI, a significant driver of workers' compensation loss trend, has remained fairly benign. As courts continue to reopen and backlogs are addressed, we expect social inflation trends to reemerge. Over the longer term, sustained higher-than-expected inflation would need to be factored into how companies build expected trend into their loss picks, a process for which we have always been diligent and transparent. Our disciplined planning process, along with our 10-year track record of obtaining Renewal Pure price increases at or above loss trend has us well positioned. Finally, I'd like to highlight that Selective remains in the strongest position in our history from an operating and financial standpoint. We are executing extremely well on our plans to generate consistent and profitable growth. Our strong capital position provides us with the flexibility to invest in the most attractive opportunities. 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.