Selective Insurance Group, Inc.

Good day, everyone. Welcome to Selective Insurance Group's fourth 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.

Good morning, everyone, and thank you. We're simulcasting this call on our website, selective.com. The replay is available until March 6th. We use three measures to discuss our results and business operations. First, we use GAAP financial measures reported in our annual, quarterly, and current report filed with the SEC. Second, we use non-GAAP operating income and non-GAAP operating return on common equity to analyze trends in our operations. We believe these measures 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 non-GAAP operating income divided by average common stockholder's equity. And GAAP reconciliations to any reference non-GAAP financial measures are in our supplemental investors package found on our website investors page. Third, we make statements and projections about our future performance. These forward-looking statements under the Private Securities Litigation Reform Act of 1995, they're not guarantees of future performance and are subject to risk and uncertainties. We discussed three risks and uncertainties, including supplemental disclosures about the COVID-19 pandemic in detail in our annual, quarterly, and current reports filed with the SEC, and we undertake no obligation to update or revise any forward-looking statement. Now I'll turn the call over to John Marcioni, our President and Chief Executive Officer, who will be followed by Mark Wilcox, our EVP and Chief Financial Officer. John?

Thank you, Rohan, and good morning. I'll focus my opening remarks on our strong financial operating results, then turn to key industry trends and how we're responding to them. Mark will then provide additional details on our results for the fourth quarter of the year, and I'll return with a few closing comments before opening the call up to questions. 2021 marks our eighth consecutive year of double-digit operating ROEs. This track record of consistently strong performance is matched by very few in our industry. We're proud of this achievement and we're pleased by AMBEST's upgrade of our financial strength rating to A+. This upgrade is a testament to our excellent financial position and consistent superior operating performance. As proud as we are of our performance, we're even more enthusiastic about the opportunities that lie before us. We've built a unique franchise with a strong foundation of great people, sophisticated tools and technologies, and deep relationships with a top-notch group of distribution partners. We generated solid financial results in the fourth quarter with a 13.8% annualized non-GAAP operating ROE. For the full year, our 14.3% non-GAAP operating ROE was extremely strong and well above our target of 11%. Underwriting profitability and investment performance were both meaningful contributors to our financial results for the quarter and the year. For the quarter, drivers of our net premiums rate of growth included overall renewal pure price increases averaging 4.7%, which were driven by 5% in commercial lines and 5.9% in E&S. Exposure growth were approximately 3.6% on our renewal book for commercial lines, strong retentions across all three segments, and overall new business growth of 11%, including 8% in commercial lines and 30% in E&S. Our 93.1% combined ratio for the quarter included 4.5 points of net catastrophe losses, partially offset by 1.9 points of net favorable prior year casualty reserve development. The underlying combined ratio is 90.5, reinforcing the high quality of our book of business. Net investment income after tax was $65 million in the quarter, benefiting again from the exceptional performance of our alternative investments, particularly unrealized gains on our private equity limited partnership portfolio. In addition to delivering excellent results, I want to highlight some of our other key achievements for the year. We continued our decade-long track record of achieving renewal pure price increases that have been in line with or above expected loss trends. This track record gives us confidence to effectively navigate through all market cycles. We executed several strategic initiatives that will drive ongoing profitable growth, such as expanding utilization of Market Next, our agency-facing platform that helps identify new business opportunities, upgrading our technology platforms for small commercial and E&S business, and repositioning our personalized products and services to compete in the mass affluent market. We also laid the foundation to expand our commercial lines footprint by three additional states in the latter half of this year. And we made significant progress on our ESG initiatives and disclosures, including taking a number of steps to enhance employee diversity at all levels within the organization. We also ensured our employees were supported throughout the pandemic as we maintained excellent employee engagement and alignment despite the largely remote work environment. Our success on this front is best demonstrated by Selective being certified as a great place to work for the second consecutive year. The achievement I am most proud of is the unwavering dedication of our employees in serving our customers and distribution partners and helping them navigate through the pandemic-related challenges and the various catastrophic events they've experienced. Their efforts over the past two years have further strengthened our reputation in the market with customers and distribution partners. The excellent performance we delivered in 2021 is the direct result of our ability to successfully execute the fundamentals of our business, risk selection, pricing, and claims adjudication. Our strategic competitive advantages in our core commercial lines business have us well positioned for the future. Those key advantages are a unique field model, placing empowered underwriting staff in proximity to our distribution partners and customers, a franchise value distribution model defined by meaningful and close business relationships with a group of top-notch independent agents, our ability to develop and integrate sophisticated tools for risk selection, pricing, and claims management, delivering a superior omnichannel customer experience enhanced by digital platforms and value-added services, and a highly engaged and aligned team of extremely talented employees. I'll close by highlighting two key market dynamics and how we are managing through this environment. First, there is less certainty in forward loss trends as we emerge from a pandemic influenced economy. Every company in the market faces this reality. This uncertainty is driven primarily by three factors, economic inflation, social inflation, and in two most recent accident years, presenting unusual frequency and severity patterns. With regard to economic inflation, the impact continues to be largely on the shorter tailed property lines, and these trends have persisted longer than originally anticipated. On the cash fee lines, the social inflationary trends that were evident pre-pandemic are expected to persist. Medical trends, which impact workers' compensation and bodily injury coverages, have been more stable. Finally, we use prior accident years as a basis to estimate future year loss ratio selections, and accident years 20 and 21 show meaningful decreases in frequency, largely offset by increases in severities. These patterns create additional uncertainty in projecting frequencies and severities in a post-pandemic environment. Taken together, these additional uncertainties have led us to increase the expected loss trend contained in our 2022 loss ratio estimates from approximately 4 percent to 5 percent. Second, given these loss trends, combined with continued pressure on investment income from historically low interest rates, elevated catastrophe losses, and a firming reinsurance market, we expect the commercialized pricing environment, other than workers' compensation, to remain favorable. We have demonstrated for over a decade our ability to consistently obtain renewal pure price increases that are in line with or above expected loss trends, an approach we will maintain. We also pride ourselves on maintaining a similar level of underwriting and pricing discipline when evaluating new business opportunities. We will continue to leverage our sophisticated underwriting and pricing tools, franchise distribution relationships, and superior customer servicing capabilities to achieve our top and bottom line targets. In our commercialized portfolio, renewal pure price increases, net of any exposure change, remain relatively stable throughout the year. Our fourth quarter pure renewal rate was 5% compared to 5.3% for the full year. While pure price is the primary lever to maintain pace with loss trends and improve loss ratios, we take other actions to improve our loss experience. These include underwriting actions to improve mix of business and claims initiative to improve outcomes while maintaining fair settlements for our claimants. On business mix, we have long focused on administering renewal pricing in a very granular fashion based on expected future profitability of an account. Our underwriters managed the renewal pricing and retention based on profitability cohorts to achieve a favorable shift in portfolio mix. In 2021, the cohort of accounts with the lowest expected future profitability, which represent about 11% of our portfolio, had renewal pure rate increases seven points higher than our top performing cohort. and were retained at six points lower than our top performing cohort, which represent 25% of our book. This favorable shift in mix of business will benefit future loss ratios. On the claims front, we are focused on improving outcomes, efficiencies, and customer experience through initiatives such as centralization of complex claims, incorporation of robotic process automation for persons of loss, virtual appraisals, and digital fast tracking of certain low-complexity claims. Overall, I'm very pleased with our strong execution, consistent track record of excellent results, and plans to generate consistent and profitable growth. Now I'll turn the call to Mark to review the results for the quarter.