Selective Insurance Group, Inc.

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Selective Insurance Group first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, press star 1 again. I would now like to turn the conference over to Brad Wilson, Senior Vice President, Investor Relations, and Treasurer. Please go ahead.

Good morning, and thank you for joining Selective's first quarter 2024 earnings conference call. Yesterday, we posted our earnings press release and financial supplement on the Investors section of our website, Selective.com. A replay of this webcast will be posted there shortly after this call. Today, we will discuss our financial performance, market conditions, and expectations for the next three quarters of 2024. John Marcioni, our Chairman of the Board, President and Chief Executive Officer, and Tony Harnett, our Senior Vice President, Chief Accounting Officer, and Interim Chief Financial Officer, will make remarks before we move to our question and answer session. Our commentary today references non-GAAP measures, which we believe make it easier for investors to evaluate our insurance business. These non-GAAP measures include operating income, operating return on common equity, and adjusted book value per common share. We include GAAP reconciliations to any reference non-GAAP financial measures in the financial supplements posted on our website. We will also make statements and projections about our future performance. These are forward-looking statements under the Private Securities Litigation Reform Act of 1995 and not guarantees of future performance. They are subject to risks and uncertainties that we disclose in our annual, quarterly, and current reports filed with the SEC. We undertake no obligation to update or revise any forward-looking statements. With those introductory remarks, I'll now turn the call to John.

Thanks, Brad, and good morning, everyone. In the first quarter, we generated an operating ROE of 11.7% and grew net premiums rate in 16%. Our growth was driven by strong pricing, continued exposure increases, and stable retention. The combined ratio was elevated at 98.2% and well above our 95% target due to the reserving actions we took in the quarter. We pride ourselves on maintaining a consistent and disciplined posture relative to planning, underwriting, pricing, and reserving. When we see adverse trends emerge, we respond. We reported $35 million of net unfavorable prior year casualty reserve development during the quarter. The main driver was $50 million of unfavorable standard commercial lines general liability development, partially offset by $15 million of favorable workers' compensation development. The net adverse development added 3.3 points to our overall combined ratio and 4.2 points to the standard commercial lines combined ratio in the quarter. Consequently, our insurance segments produced a 2.2 points of operating ROE in the quarter, below our expectations. We previously discussed how we increased our expected casualty loss trend in recent years. Entering this year, our 2024 combined ratio guidance reflected an overall expected loss trend of approximately 7%, consisting of 4% for property and 8% for casualty. Excluding workers' compensation, expected casualty loss trend was closer to 9% for 2024. For context, our forward casualty loss trend assumptions excluding workers' compensation were approximately 5% for 2021, 6.5% for 2022, and 7% for 2023. The ex-workers' compensation number is approximately half a point to a point higher than the expected loss trend we typically discuss for all casualty lines. Despite these higher underlying assumptions, we have strengthened our reserves and general liability for the years 2020 through 2023 in response to further emergence of average paid severities. We also increased our general liability loss ratio pick for the 2024 accident year by about one point. Our trend assumptions for the commercial auto and workers' compensation lines held up well. Every quarter, we undertake an in-depth reserve review and book our best estimates. Our portfolio has remained relatively stable in terms of hazard mix, limits profile, and industry segment, and pricing of our book relative to indicated levels has remained stable. Therefore, we believe the increased severities relate to elevated social inflation, which we consider widespread and evidenced by a higher propensity for claimants to retain attorneys and litigate, longer settlement times, and higher settlement values. Certain jurisdictions pose heightened challenges, evidenced by expanded liability theories and higher, sometimes extraordinarily higher, damage awards. We are closely monitoring these jurisdictions and the broader trends across our book. We think the social inflation and elevated loss trends we are seeing are industry-wide and will lead to an acceleration of rate increases in general liability. During the quarter, general liability and umbrella renewal pure price was 6.5%. up from 5.7% last quarter and 5.4% for full year 2023. We expect our general liability pricing will accelerate further in the coming months. To understand the quality and pricing of our book, we regularly monitor our mix of business by industry classification, hazard grade, limits profile, jurisdiction, and other individual risk attributes. Our sophisticated tools and highly talented employees allow us to identify the areas of our book most in need of action. With our unique operating model and strong distribution partner relationships, we have a proven track record of executing rate and underwriting actions in a disciplined and targeted manner. We remain comfortable with our ability to continue doing so in this dynamic environment. Consistently achieving our 95 combined ratio target across our three insurance segments remains our primary goal. We continue to prioritize achieving renewal pure price that matches or exceeds our expected future loss trends. Overall renewal pure price was 8.1% in the quarter, up from 7.4% in fourth quarter 2023 and 6.8% for full year 2023. Renewal pure price for standard commercial lines increased to 7.6%, accelerating each month within the quarter. Excluding workers' compensation, commercial lines pricing increased 8.8%. Exposure growth added 4.2 points, contributing to total renewal premium change of 12.3%. At the line level, property renewal pure rate was up 13.3%, with exposure increasing 4%, and total renewal premium up 17.8%. In commercial auto, renewal pure rate was up 10.4%, with exposure increasing 5.1% and total renewal premium up 16%. Even with accelerating pricing, retention remains stable as our regional teams manage our renewal book in a targeted and granular fashion. Excess and surplus lines continue this excellent performance with 24% net premiums written growth and an 87.6% combined ratio. Despite strong underwriting results and prior year reserve stability, we increased our current year loss pick by approximately one point based on the severity dynamics impacting recent prior accident years and standard lines general liability. The ENS market continues to present profitable growth opportunities, and we expect to continue to grow this book. We are beginning to see signs of improved performance in personal lines as we continue our transition to the mass affluent market and execute profit improvement plans. The combined ratio in the quarter was 105.1, a 10.9-point improvement from the first quarter of 2023. The underlying combined ratio improved in the quarter by two points to 93.7. Personalized net premiums increased 17% in the quarter due to strong rate increases and larger average policy size. Renewal pure pricing in the quarter was 14.3%. We continue to expect full year 2024 personalized renewal pure pricing to be in excess of 20%. As expected, retention decreased from the strategic profit improvement actions and was 83% at the end of the first quarter, approximately four points below last year's run rate. Retention is higher for target business. New business premiums and personal lines declined 19%. with new policy counts down 37% as we took deliberate steps to curtail production of non-target business. For the quarter, nearly 90% of new home business had coverage A values of $500,000 or greater. On the strategic front, we often speak of our competitive advantage of a unique field model that places empowered underwriting staff near our distribution partners and customers. We just wrapped up our annual agency council meeting. we continue to receive feedback that our operating model is a meaningful differentiator. Staying close to the market and having strong relationships with our distribution partners serves us well. Our customers and distribution partners value consistency, clarity, and transparency in our communication as we navigate the challenging environment. Our methodical geographic expansion continues to represent an attractive long-term growth opportunity and further diversifies our portfolio. We have a repeatable process and successful approach that has allowed us to accelerate this important strategic initiative in recent years. In April, we added Maine and West Virginia to our standard commercial lines footprint, now covering 32 states. We expect to launch Oregon, Washington, and Nevada later in 2024, and Kansas, Montana, and Wyoming in 2025. Our revised guidance, which Tony will discuss in more detail, implies an ROE exceeding our 12% target for the full year. With that, I'll turn the call over to Tony.