Selective Insurance Group, Inc.

Good day, everyone. Welcome to Selective Insurance Group's fourth 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. Sir, you may begin.

Thank you, and good morning, everyone. We're broadcasting this call on our website, selective.com. The replay is available until March 5th. We used three measures to discuss our results and business operations. First, we used GAAP measures, reported our annual, quarterly, and current report filed with the SEC. Second, we used 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 after-tax impact of net realized gains or losses on investments and unrealized gains on losses on equity securities. Non-GAAP operating return on common equity is non-GAAP operating income divided by average common stockholders' 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. Gap reconciliations to any reference non-gap financial measures are in our supplemental investor package found in 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're 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 otherwise revise any forward-looking statements. Now, I'll turn the call over to John Marcioni, our Chairman of the Board, President, and Chief Executive Officer, who will be followed by Mark Wilcox, our Executive Vice President and Chief Financial Officer. John?

Thank you, Rohan, and good morning. We're pleased to report strong fourth quarter results, capping off another excellent year for Selective. With an operating ROE of 15.6 percent in the quarter and 12.4 percent for the full year, 2022 marks our ninth consecutive year of double-digit, non-GAAP operating returns on equity. Over that timeframe, our operating ROE averaged approximately 12 percent, exceeding our weighted average cost of capital by about 400 basis points. We delivered these results alongside disciplined net premiums written growth that averaged 8 percent annually nearly doubling the size of the company over that timeframe. Tangible book value per share plus change in accumulated dividends, which we view as the best longer-term indicator of value creation in our industry, increased 10 percent annually over the past nine years, and our annualized total shareholder return over that period was 15.9 percent. Few in our industry can match that track record of consistent growth and profitability. Although we face several industry-wide headwinds as we look out to 2023, we expect to continue to maintain our performance level well into the future. I'll come back to this point shortly, but first I'll review a few highlights of our performance for the quarter and year. Net premiums were up 14% in the quarter and 12% for the full year. All three insurance-operated segments contributed to this result. Growth for the year was driven by overall renewal pure price increases that averaged 5.1%, solid renewal retentions, exposure growth, and strong new business. Our 95.1 percent combined ratio for 22 included 4.3 points of net catastrophe losses, partially offset by 2.5 points of net favorable prior year casualty reserve development. Our net catastrophe losses for the year were only marginally above our expectation of four points, despite winter storm Elliott being a significant loss. reflecting our catastrophe risk management efforts. The underlying combined ratio of 93.3 percent for 2022 reflected elevated non-catastrophe property losses from inflationary cost pressures in our property lines. Underwriting results contributed 5.4 points to our full-year ROE. Net investment income after tax was $232 million for the year. We actively managed our fixed-income portfolio to optimize risk-adjusted returns in a rising interest rate environment. During 2022, we increased the pre-tax embedded book yield in the fixed-income portfolio by approximately 115 basis points while also moving up in credit quality. The overall investment portfolio generated 9.4 points of ROE for 2022. In addition to delivering excellent financial results, I want to highlight some of our other key accomplishments. We have built the organizational muscle and a decade-long track record of effectively managing commercial lines pricing in a dynamic loss trend environment, positioning us favorably coming into 2023. Our long history of underwriting discipline positioned our property portfolio with strong insurance to value ratios and our underwriters have worked hard to maintain ITV against this backdrop of rapid inflation. Our top-line growth was very strong in 2022, a testament to our excellent distribution partner relationships and sophisticated pricing tools. Our unique field underwriting model remains highly valued by our agency partners. Our MarketMax tool, which provides our distribution partners with insights into their overall portfolio and identifies target accounts to grow their business with us, has been instrumental in generating high-quality new business opportunities. We expanded our commercial lines footprint into three additional states in 2022, opening Vermont, Idaho, and Alabama, and we remain on track to open Maine and West Virginia in early 2024. We completed the implementation of our new automation platforms for both standard commercial line small business and E&S, both of which dramatically enhance ease of use for our distribution partners. and we appointed 118 new agencies during the year, bringing the total to approximately 1,500 agencies represented by 2,600 storefronts. While pleased with our overall performance in 2022, our team is steadfast in our focus on addressing the areas in need of improvement. Factoring in our operating leverage, invested asset leverage, and long-term investment return expectations, We target a 95 percent combined ratio to consistently meet or exceed a 12 percent operating ROE hurdle over time. Our 2023 combined ratio guidance is 96.5, or 92 percent, excluding catastrophe losses. Reflected in our combined ratio guidance is an overall loss trend of approximately 6.5 percent, which is up from 5 percent a year ago, largely due to inflationary impacts in the property lines. For property, we are currently incorporating a loss trend projection of about 7 percent compared to 4 percent a year ago, reflecting our increased estimate of inflationary impacts on average claim severities. We increased our casualty loss trend more modestly to 6 percent from 5.5 percent. The 6 percent trend for casualty reflects our view of economic inflation, but more importantly, captures our view of social inflation impacts as well. we will continue to pursue rate changes in line with trends to support our profitability in these lines, along with claims and underwriting initiatives focused on more granular drivers of profitability. In selecting these trends, we consider both frequency and severity impacts within the portfolio. Whereas 2022 continued to benefit from favorable frequencies in certain lines, going forward, we are assuming generally flat frequencies. Therefore, the trends I quoted can be considered largely severity driven. We are very comfortable with the quality of our portfolio, and therefore, we view rate and inflation rate exposure adjustments as the primary tools to address the higher severity trend. In 2022, the combination of pure rate and exposure generated total average renewal premium change of 12 percent in commercial property, 12 percent in commercial auto physical damage, 8% in homeowners and 9% for E&S property. Given our recent success, coupled with the state of the property marketplace, we expect this pace to continue in 2023. Our casualty lines overall continue to produce combined ratios in line with our target. As such, our focus remains on achieving renewal pure rate increases that remain in line with our expected loss trend. However, within casualty, commercial and personal loan liability are producing above-target combined ratios, and we have a series of rate and underwriting actions to address these lines. We believe the pricing environment across all three business segments remains favorable. In standard commercial lines, we achieved strong renewal pricing throughout the year, and the third and fourth quarters were strongest, with renewal pure price increases averaging 5.8 percent and 5.6 percent, respectively. We saw an acceleration of pricing in January with renewal pure rate of 6.5 percent. ENS pricing was also strong throughout the year with fourth quarter renewal pure rate at 7.9 percent and the full year at 7.3 percent. In personal lines, our ongoing transition from the mass market to the mass affluent market caused us to fall behind the market in pricing trends. We expect to close that gap in coming quarters. In the fourth quarter, we filed rate changes in nine of our states, averaging 8.8 percent, and plan to continue that pace over the next several months. We expect investment income to positively impact our financial results in 2023. Through active management of our fixed income portfolio, we have optimized for higher investment yields while maintaining conservative credit and duration positions. Based on the projected investment yields and our investments to equity ratio, we anticipate that investment income will contribute over 200 basis points of additional ROE in 2023. Our updated investment income expectations and combined ratio guidance for 2023 translate to an ROE above our 12 percent target. Our target sets a high bar for our financial performance, challenges us to perform at our best, and aligns our incentive compensation structure with shareholder interests. Overall, I'm pleased with our excellent execution. consistent track record of results, and plans to generate consistent and profitable growth. Now I'll turn the call over to Mark to review the results for the quarter.