Selective Insurance Group Inc (SIGIP) 2003 Q1 法說會逐字稿

Please stand by.

Good day, everyone.

Welcome to the Selective Insurance Group, Inc. first quarter earnings release conference call.

At this time for opening remarks and introductions, I would like to turn the call over to the vice-president, secretary and corporate governance officer, Michele Schumacher.

Please go ahead, ma'am.

Good morning.

Before I turn the call over to Dale Thatcher, executive vice-president and CFO of Selective Insurance Group, Inc. and Greg Murphy, our chairman, president, and CEO.

I want to remind you some of the statements made during the call are not historical facts and are forward-looking statements as defined in the private securities litigation reform act of 1995.

Such statements are subject to certain risks and uncertainties.

The factors which could cause actual results to differ materially from those suggested by any such statements include but are not limited to those discussed or identified from time to time in the filings we made with the Securities & Exchange Commission, including our annual report on form 10-K and the quarterly report on form 10-Q.

We do not promise to update such forward-looking statements to reflect actual results or changes in assumptions or other factors that could affect these statements.

Management will make every effort to disclose all material information in prepared remarks which are supplemented by of the investor packet and other information on the investor page of our public web site at www.selective.com After the prepared remarks, we will have a question and answer period.

The following corporate executives are on the call along with the speakers, Richard Bernstein, executive vice-president and general counsel;

Jim Ochiltree, executive vice-president, insurance operations;

Jim Coleman, executive vice-president, diversified insurance services;

Kerry Guthrie, senior vice-president and chief investment officer;

Ron Zaleski, executive vice-president and chief actuary;

Sharon Cooper, senior vice-president, director of communications; and John Marchioni, vice-president, government affairs.

As a reminder, this call is being simulcast over the internet at www.selective.com.

A replay will be available at the same site through June 6, 2003.

Please note that in order to comply with the new SEC guidelines, we will now issue the earnings release the night before our conference call.

With that, I'll turn the call over to Mr. Thatcher.

Good morning and welcome to the first quarter conference call.

Today, we will talk about first quarter results and the progress we're making in the implementation of our long-term strategy.

Discussion will focus on our core commercial lines operation, personal lines, and our diversified insurance services.

I'll begin with the financial results.

Yesterday evening we released first quarter results for the period ending March 31, 2003.

Net income was $8 million for the quarter, or 29 cents per diluted share, compared with $10.3 million, or 39 cents per diluted share in the first quarter of 2002.

Operating income from continuing operations for the quarter was 5.5 million, or 20 cents per diluted share, compared with 10.2 million, or 39 cents per diluted share for the same period last year.

Operating income differs from net income by the exclusion of both realized gains or losses on investment sales and net income from our discontinued operation.

As reported last month, net an operating income were affected by catastrophe losses stemming from the worst storms on the east coast in a decade.

Catastrophe losses for first quarter 2003 on an after-tax basis were approximately $7.7 million, or 28 cents per diluted share, compared with $1.1 million, or four cents per diluted share in the first quarter of 2002.

Other weather related property losses were 1.7 million after tax or six cents per diluted share for the quarter, compared with almost no impact in the first quarter of 2002.

Catastrophe losses from these storms added 4.4 points to our statutory combined ratio for the first quarter, which stood at 104.4%.

This compares with a ratio of 102 .7% for the same period last year which included only 7.7 points from catastrophes.

Not withstanding the catastrophe losses, our performance clearly demonstrates significant progress in pricing throughout the business: higher retention and stronger underwriting and our highly successful small business strategy.

Net premiums written for the quarter increased 15% from the same period last year to 323.4 million, including approximately $63 million in new business.

Net premiums written grew 16% for the quarter and our core commercial lines operation which represents over 83% of our total premium volume.

Renewal price increases for commercial lines continued the upward positive trends reaching 15% for the quarter.

We were at $55 million of new commercial lines business which includes about $5 million in premiums generated from our

One & Done small business processing system.

Importantly, retention at point of renewal moved higher to 86% for the quarter, up from 83% for the full year 2002.

Our productivity measure of net premiums written for insurance employee reached $614,000 for the fiscal year ended March 31, 2003, up 11% over the same period last year.

Our commercial lines statutory combined ratio was 104.2% for the quarter, including 4.8 points of catastrophe losses with stable loss trends.

That compares to a statutory combined ratio of 100.8% at this time last year, including less than one point from catastrophe.

You can never exclude catastrophe losses, this does demonstrate our ability to generate a commercial line statutory combined ratio below 100%, barring unusual levels of catastrophes.

We saw continued improvements in all our major casualty lines during the quarter, including a ten-point drop in our commercial auto statutory combined ratio and a seven-point reduction in liability ratio.

Both are well below the statutory combined ratio benchmark.

Our workers compensation statutory combined ratio improved more than a point to 106.7% over first quarter 2002.

We believe our account based strategy enhances our position with this challenging line.

We've always held a conservative underwriting appetite for workers compensation business.

This is neither a mono-line nor a targeted line for Selective but rather an importance piece of our offering to agents and their customers who want a entire package of protection from Selective.

In fact, less than 5% of our workers compensation business is unsupported.

Our appetite is focused on low to medium hazards with close to 60% of this business in the lowest hazard groups as defined by the national council of compensation insurers and less than 1% in the highest hazard group.

We continue to refine our underwriting guidelines to eliminate the most unprofitable classes of business and have made substantial improvements to our book of business.

We also avoid accounts that pose a high potential for catastrophic loss.

One of the most challenging components of this line is price.

We have focused our efforts on increasing price through managed care reductions, shifting business to higher pricing tiers and limiting the use of dividend plans.

We take full advantage of all rate opportunities.

As a result of these initiatives over the last three years, our workers compensation pricing increased 48%, while policy count declined to 8.3% of our total commercial policy count from 9.3%.

In the first quarter 2003, we received an additional overall price increase of 14%, including 17 % in New Jersey, our largest workers compensation market.

New Jersey provides an excellent example of our account based approach.

For the quarter, our workers compensation ratio was 111.6 % in New Jersey, much improved from the 116.9% we recorded in the first quarter last year but still not appropriately profitable by itself.

We don't write this line as a standalone product.

Instead, we offer it only as a companion product to the other more profitable lines.

The overall commercial lines ratio for the first quarter in New Jersey was 94.6%.

And that includes 5.7 points of catastrophe losses.

Taking into account the potential impact of regulatory constraints and general economic conditions on this line, we believe we have the right people and processes in place to effectively manage workers compensation as just one component of the overall commercial account.

As we discussed previously, we now have put in place an action plan for terrorism coverage.

We have purchased a terrorism specific reinsurance treaty for losses not covered by the federal terrorism risk insurance act, or TRIA.

At a cost of $4.8 million, the treaty covers $45 million in the aggregate in excess of $15 million aggregate retention, effective February 1, 2003.

The coverage protects us for both direct losses and indirect losses incurred through our participation in residual markets, an area that does not appear to be generating appropriate attention within the industry.

We have a broad slate of quality re-insurers participating in the program, which we believe will help us manage TRIA deductible, the 10% and 15 % respectively over the next two years.