Selective Insurance Group, Inc.

Good day, everyone. Welcome to Selective Insurance Group's third quarter 2022 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. We're simulcasting this call on our website, selective.com. The replay is available until December 4th. We used three measures to discuss our results and business operations. First, we use GAAP financial measures reported in our annual, quarterly, and current reports filed with the SEC. Second, we use non-GAAP operating measures, which we believe make it easier for investors to evaluate our insurance business. Non-GAAP operating income is net income available to common stockholders, excluding the asset 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. Adjusted book value for common share differs from book value for common share by the exclusion of total after-tax unrealized gains and losses on investments included in accumulated other comprehensive income. And GAAP reconciliations to any reference non-GAAP financial measures are in our supplemental investor package found on the investors page of our website. Third, we make statements and projections about our future performance. These are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They are not guarantees of future performance and are subject to risks and uncertainties. We discuss these risks and uncertainties 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 statements. Now I'll turn the call over to John Marcioni, our chairperson of the board, president and chief executive officer, who will be followed by Mark Wilcox, our EVP and chief financial officer. John.

Thank you, Rohan. Good morning and thank you for joining us today. Before getting into the details of our performance for the third quarter and year to date, I think it's important to put these results in the proper context. We are operating in a very challenging environment defined by historically high levels of economic inflation, elevated catastrophe losses, and capital market volatility. Despite this challenging backdrop, Selective continues to deliver consistently strong top and bottom line results. Through the first nine months, net premiums were up 11 percent, and our non-GAAP operating ROE was 11.6 percent. Based on our updated 2022 guidance, we expect to produce a full-year operating ROE of 12 percent. marking our ninth consecutive year of double-digit ROEs for our shareholders. While pleased with our overall results, our underlying combined ratio has been under pressure due to higher severities in the property and auto physical damage lines of business. We remain disciplined in addressing this through a combination of pure price and exposure increases. On the flip side, higher inflation is also the impetus for the higher interest rate environment. This has allowed us to pick up significant book yield in our investment portfolio and boost overall returns now and into the future. Moving on to results in the quarter, growth in net ratings rate of 11 percent was driven by strong renewal pricing in standard commercial lines and access and surplus lines, strong retention rates and new business growth in standard commercial and personal lines, and positive exposure change. Our combined ratio was 96.8 in the third quarter and 95.2 for the first nine months. Catastrophe losses accounted for four points during the quarter, which was in line with our expectations and included a $10 million estimate for the ultimate net loss related to Hurricane Ian. However, non-catastrophe property losses were 3.3 points above our expectations. For the first nine months of the year, non-cat property losses were 1.8 points above our initial expectations with approximately 60 percent of the excess losses attributable to the auto physical damage lines. While we've been highlighting this the past few quarters, this increase primarily relates to economic inflationary pressures. Across all property lines, current year severities were up approximately 12.5 percent year to date. While frequencies were up slightly in the third quarter, they are generally in line with our expectations for the year to date We continue to be diligent about adjusting building and contents values to reflect these higher repair and replacement costs. Year-to-date renewal premium change was 12% for our commercial property book and 10% for our E&S property and homeowners portfolios. For the commercial auto physical damage line, loss of areas continue to reflect inflationary pressures for factors such as repair parts, used vehicles, and labor. Our efforts to address the ongoing profitability challenge in the commercial law online have centered on price increases, which averaged 8.7 percent in the third quarter and 8 percent for the first nine months of the year. On the casualty side, we remain confident in our current year loss ratio selections, which included a 5.5 percent assumed loss trend. In addition, we continue to see favorable casualty emergence from the prior accident years. In the current accident year, reported casualty claim frequencies continue to emerge better than expected and remain below pre-pandemic levels. Renewal pure price increases for the commercial line segment averaged 5.8 percent in the third quarter, which was 100 basis points higher than the first quarter and 50 basis points above the second quarter. Our retention rate of 86 percent remains strong. Exposure growth during the third quarter was 3.8 percent and total premium change in our commercial lines renewal book was approximately 10 percent. We intend to remain disciplined and consistent in seeking price increases that over time match our forward loss trend expectations. This long-term approach to obtaining the appropriate price across the market cycle has defined our strategy for the past decade. As we look towards 2023, we expect the commercial lines pricing environment to remain constructive as industry-wide loss trends remain elevated and the reinsurance market continues to firm. I also want to share a few thoughts on catastrophe losses, which have been well above expectations for the industry over the past five years. While Hurricane Ina was not a significant loss event for Selective, this catastrophic loss of life and property reinforced the importance of understanding and managing exposure to large events. Over the past 20 years, our actual catastrophe losses have been below the industry average, as measured by points on the combined ratio. Our catastrophe risk management efforts are centered on being disciplined around modeling catastrophe losses on both expected and extreme event basis, establishing clear guidelines around underwriting coastal properties, aggressively managing our aggregate limits exposed in markets that present the highest exposure, and prudently purchasing reinsurance to protect the balance sheet. Turning to investments. The higher interest rates so far this year have negatively impacted the value of our investment portfolio and reported gap of value. However, we have managed the portfolio to take advantage of the higher rates and enhance investment portfolio yield. As of September 30th, yield on the fixed income and short-term investment portfolio was approximately 80 basis points higher than at the start of the year. With a 3.4 times investments to equity ratio, Every 100 basis points of higher return on the investment portfolio translates to over 260 basis points of additional ROE. We are an underwriting company, first and foremost. We view an increase in investment ROE contribution as an opportunity to exceed our ROE targets, not as an opportunity to forfeit underwriting margins. I'll close with a few quick business updates. We continue to execute on our major strategic priorities. Our commercial lines geographic expansion plans discussed on recent calls remain well on track. Geographic expansion is a lower risk way of leveraging our skills and infrastructure to grow the business in lines that we understand well. In October, we began writing new commercial lines business in Alabama and Idaho. We had previously opened Vermont in the second quarter. We will continue to open additional states over the next few years. While our personalized results were again marred by catastrophe losses, We continue to make solid progress in migrating our business towards the mass affluent market. Our new business growth in this segment largely reflects the ongoing migration. Heading into 2023, we expect to obtain additional rate and exposure changes to further offset higher loss of earnings. Filed rate increases in the third quarter average 6 percent. Our E&S business remains a strong contributor to our financial results. It is a segment continues to offer attractive business flow opportunities and margins. Although we are seeing heightened competition for casualty-driven classes, such as construction, we are well positioned to deliver on continued growth in this segment. However, we will not do so at the expense of profitability. As I look to the remainder of the year and into 2023, we are well positioned to navigate this challenging environment and continue to produce the strong and consistent results we have delivered over the past several years. With that, I will turn the call over to Mark.