Good day, everyone. Welcome to the Selective Insurance Group’s Third Quarter 2015 Earnings Call. At this time, all -- for opening remarks and introductions, I would like to turn the call over to Senior Vice President, Investor Relations and Treasurer, Ms. Jennifer DiBerardino. Ma’am, you may begin.

Thank you. Good morning. And welcome to Selective Insurance Group's third quarter 2015 conference call. This call is being simulcast on our website and a replay will be available through December 1, 2015. A supplemental investor package, which includes GAAP reconciliations of non-GAAP financial measures referred to on this call, is available on the Investors page of our website www.selective.com. We use operating income, a non-GAAP measure, to analyze trends and operations. Operating income is net income excluding the after-tax impact of both net realized investment gains or losses and discontinued operations. We believe that providing this non-GAAP measure makes it easier for investors to evaluate our insurance business. As a reminder, some of the statements and projections made during this call are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We refer you to Selective's annual report on Form 10-K and any subsequent Form 10-Q filed with the U.S. Securities and Exchange Commission for a detailed discussion of these risks and uncertainties. Please note that Selective undertakes no obligation to update or revise any forward-looking statements. Joining me today on the call are the following members of Selective's executive management team, Greg Murphy, CEO; John Marchioni, President and Chief Operating Officer; Dale Thatcher, CFO; and Ron Zaleski, Chief Actuary. Now, I'll turn the call over to Greg for introductory remarks.

Thanks, Jen. Good morning. Strong third quarter, year-to-date results, reflect the successful execution of our strategy. We’ve achieved rate increases that outpace the industry to improve underwriting mix and to enhance claim outcomes. We have strong track record achieving our goals and this quarter was no exception. Based on our strong results, I am happy to announce that the Board has approved the 7% increase in our quarterly dividend -- in our quarterly stockholders dividend to $0.15 per share. It will be paid December 1, 2015 to shareholders of record on November 13, 2015. As I have said before, we thrive in this microeconomic environment of low interest rates and overcapitalized industry with premiums to Surplus leverage of 0.7 to 1 and a slowly recovering economic, as it forces the industry to focus on underwriting returns that make up for the declining investment portfolio yields. The three key advantages we have in this environment include, underwriting leverage, investment leverage and superior underwriting and pricing tools we use to manage and monitor profitability at a very granular level. Our underwriting leverage of 1.5 times is twice the industries premium to Surplus and each 1 point of combined ratio generates 1 point of return on equity versus the industries 0.5 point return on equity. As a result, the industry must price its Commercial Lines product higher in order to generate the same ROE at Selective. We expect that interest rates will continue to remain low for the next several years and consequently expect our leverage advantage to drive outperformance relative to the industry. We believe that pressure to increase prices will remain for the next several years, because it will take many years to increase industry-wide book yield, given the four-year average fixed income portfolio duration and the negative impact on combined…

Thanks, Greg, and good morning. For the quarter we reported operating income per diluted share of $0.81, up from $0.76 a year ago. Our statutory combined ratio in the quarter was 90.5% improving a point from a year ago. The underlying combined ratio excluding catastrophes and prior year casualty development was 92.2%. Cat losses for the quarter were 1.3 points, lower than our third quarter expectations and in line with the 1.2 points we reported a year ago. Non-cat property losses were in line with expectations and essentially flat with third quarter 2014. Favorable prior year casualty reserve development in the quarter was $15 million, or 3 statutory combined ratio points, compared to $8 million or 1.7 points a year ago. A favorable development is related to the benefits we have realized from our underwriting in claims initiatives over the past several years. Our overall reserve position remains very strong. For the quarter, overall statutory net premiums written grew by 10%, driven by improving retention levels, higher new business written and renewal pure price increases. Standard Commercial Lines premiums were up 10%, benefiting from improved retention of 84%, an 18% increase in new business and renewal pure price of 2.8%. For the quarter this segment generated a statutory combined ratio of 88.4%, compared to 90.9% a year ago. The improvement was driven by earned rate exceeding expected loss inflation and favorable reserve development. Including 18.8 points of favorable development, workers compensation reported an 84% statutory combined ratio in the quarter, improving approximately 27 points from a year ago. The favorable development is largely attributable to the continued lower than expected frequencies. We also continue to see a decrease in severity, resulting from the claims initiatives we have instituted to address workers' comp results. The accident year combined ratio for workers’…

Thanks Dale. Our insurance operations continued to perform extremely well. For the first nine months, we had an overall statutory combined ratio of 92.3%, an ex-catastrophe combined ratio of 88.5% and net premiums written growth of 10%. We continue to leverage our strong marketplace position to profitably grow our business. Standard Commercial Lines and E&S growth is strong and we are confident that the business we are renewing and putting on, of course, new has significant profitability potential due to our granular pricing and superior underwriting tools. Our strong Commercial Lines new business growth of 28% to $262 million this year is the product of our talented field underwriting staff working alongside the best distribution partners in the industry. We are pleased with the success of our efforts to build additional capacity by increasing the number of our agency management specialists or AMS’ to 103. These efforts have provided increased growth capacity as AMS has continued to work with our agents to grow our share wallet and win new business. On ROE portfolio, we continue to balance rate and retention by providing our underwriters the tools they need to make informed decisions. Year-to-date Standard Commercial Lines retention remains strong at 83% and renewal pure price was 3.1% on a written basis. For the highest quality Standard Commercial Lines accounts which represent 55% of our premium, we achieve renewal pure rate of 2% and point of renewal retention of 91%. On our lower quality accounts which represent 9% of our premium, we achieved pure rate of 7.9% and point of renewal retention of 80%, allowing us the opportunity to push further for additional rate, even if retention levels decline. This level of pricing sophistication is critical to our success in a competitive market. Overall renewal pure price increases year-to-date were 3.5%,…

Thanks, John. While weather was not a factor in the quarter, hurricane Joaquin caused losses in the South earlier in the fourth quarter. Our thoughts go out to the families of businesses devastated by the flooding that occurred. While claims continued to be reported, our total loss estimate for Personal and Commercial Lines appears to be very manageable at approximately $5 million. As Dale and John outlined, results for 2015 year-to-date are strong. With that in mind, I provide the following refinements to our 2015 full year guidance. The statutory combined ratio excluding catastrophes in any further prior year casualty reserve development of an 89, an improvement from our original guidance of 91, catastrophe losses of 4 times. Overall, renewal pure pricing between 3% and 3.5%. After-tax investment income of approximately $95 million at the lower end of the range provided in July and weighted averages shares of $58 million. Now, I will turn the call over to the operator for your questions.

Thank you, speakers. [Operator Instructions] Our first question is from Scott Heleniak from RBC Capital Markets. Your line is now open.

Hi. Good morning.

Good morning, Scott.

Just wondering if you could talk a little about the excellent results in workers’ comp and I know you went over a little bit of detail. Just wondering if you can talk a little bit more about the turnaround there. I know you guys had some initiatives you laid out about three or four years ago. What are the areas where you are -- what's really developing a lot more favorably than you expected? I know you’ve talked about controlling medical costs and fraud and claims management. If you can touch on that, just how you are seeing that significant improvement?

Yeah. Thanks, Scott. Great question. This is John. Let me just take you through our view on how we made some of that improvement and why we feel good about where we stand in that line of business. And really it’s divided into two pieces. The first is a focus on improving our underwriting mix of business and I would say really two drivers behind that. One is we had with tax, certain pieces of our renewal inventory that were driving our higher frequency in severities in terms of both pricing and in certain cases, targeted non-renewals. And then the other big move for us, which impacted both the renewal inventory but more so new was a shift towards smaller lower hazard mix of business. So when you think about the hazard grades, which are A-G on the workers’ comp side. A-G are really the lower hazard classes of business that’s been our focus and we started to really see an uptick in new business in those areas, which is driving our in force both towards or lower frequency and lower severity book. So that’s the underwriting focus that we really started to realize and benefits from. The second part of this and we think we are now starting realize some of the benefits and see a lot more opportunity for us are going forward is what we found on the claim side. So, we’ve consolidated our claims operations, which allows us to be much more specialized now and better position ourselves from a management perspective. But then have also introduced workers’ comp escalation modeling, which allows us very early in the lifecycle of a claim and then reviewing multiple time story in that lifecycle, identify those claims that have the potential to develop into much more severe or harder to manage claims and we get to all of those early. And then we move them to our newly formed strategic case management unit, which is a group of experts who are well positioned to manage those claims more aggressively out of the gate and improve work, return to work outcomes on that side of the business. We’ve also done a lot more in terms of modeling on the fraud and recovery sides but we think all of those will continue to contribute to results on a go-forward basis. So, as you said, we’ve laid this strategy out. I think we really focused on execution on both the underwriting and the claim side over the last couple of years and we are seeing the results.

And Scott, if I could add to it then, obviously the third leg, which is obvious as the rate in excess of trend. I guess I want to use this as an opportunity and say whether we are talking about a line of business like comp or commercial auto, or speaking about an unprofitable or less than desirable profitable agent or segmentation in our book that we are looking at. What John’s just articulated is the same process that we use for every element of analyzing our performance. So, we can go in exactly what we just, John just went through with you for an agent of ours. We can go through and analyze their book, segmented it exactly in the same kind of format, which allows us to very gradually go in and make adjustments. And that’s why I think you see our retention be much higher than the industry and that’s why you see our renewal pricing much higher than the industry. It’s because of the very surgically managed process that we’ve gone through no matter what it is we are analyzing.

Okay. Great. That’s very comprehensive. And then just wondering if you could touch on just the loss cost trends. In general, I think you said those are running kind of around 3%. So, is that kind of stable with the last few quarters? Is there any change there as far as frequency or severity?

Before we -- we don’t -- we call it claim inflation is running 3. So, our expected claim inflation -- we always sit down and talk to you. We always talk about expected claim inflation and so that’s different than trend in my mind, just so we get that clear. So, we always kind of prognosticate about the 3 points of expected claim inflation that’s due to higher medical, the impacts of higher medical on liability suits and then there is loss trend, which actually happens. Trend generated by frequency time severity, we’ve seen frequency and severity overall be pretty manageable in total. And I would say that just to give you a sense and again, we are going to put overly high, focus on this because these numbers get pushed around all the time. So, on the liability side for instance. On a fiscal year basis or for the nine months, we are seeing a downtick in overall liability, frequency of 3%. We are seeing a decrease in overall liability, severity of 1%, loss costs down around 4%. On the other hand on personal liability, we see a decrease of frequency of around 5%. We see an increase of severity in around 11.5% and overall of 6%, 5.9%. But I have to say those numbers get pushed around all the time and I don’t know. I mean, directionally, they do tell you something but I wouldn’t get so dialed into that. Those are numbers that will get until we actually see a longer period of time, our actuaries anticipate a number of claim volumes that we expect for every year and then they look at that claim volume to actually what’s reported and that happens over a longer duration and just they are not just pushing buttons every quarter in terms of how they manage that number.

Okay. That’s helpful. I had some good contacts and good examples. And then just wondering on E&S, you had very strong growth for the long time there. Just wondering if you could touch on just where you see the reserve strengthening. I think you’ve seen a couple quarters of that. And just so many actions you’re taking, I know you talked about non-renewals and price actions. But just wondering if you could touch on what you’re seeing there and then specifically the strengthening, where that is coming from, what specific year, and if there is any more detail you can provide on that?

So keep in mind that Scott the E&S operations obviously are very young for us and are very young in general. Both operations were begun in the 2007 timeframe and then obviously we purchased them at the end of 2011. So the data that we have available for examining loss trends or loss history is really not statistically credible. Obviously, we collect the data and we analyze it to the extent that we’re able to, but we end up basing a lot of our loss fix and loss development off of industry data and industry expectations. So we do take a little bit more conservative view over our reserve development on the E&S side just because of that lack of data. So that’s always something that kind of keep in mind there. Clearly that operation is about 75% general liability, and obviously that’s where we’re seeing it. I would say it’s -- since we only held it since the end of '11, you’re basically talking about the '12, '13, '14 kind of years where you’re seeing some development, but again that is based on projecting industry trends upon hour of reported pattern. So it’s tough to tell, but we feel it’s conservatively stated.

This is John. I will just add to that too. Keep in mind, a couple of things. Number one, the retention on that book of business runs in the 50 to 60 range, so at a much lower level than our standard operations on Commercial Lines that run in the low 80s, which the key point there is it allows us to take more significant action to change the in-force book of business and I think that’s what we’ve done. And if you look at the accident year numbers that when you strip out the impact of prior year development, you see performance that’s a lot closer to our expected performance on a run rate basis. In addition to that, when we look at the amount of new business that we’re writing relative to the pricing levels we’re writing at, we are very comfortable that we’re acquiring business at pricing levels that are at or above our target level of adequacy and now taking very targeted actions on a renewal inventory. So we just want to make sure that when you project forward from your current accident year performance, they understand the differences between your in-force book what it is today and what it is in the prior periods and whether or not it was different in those prior period and we look at the actions that have been taken and see a positive moment in that in-force book of business.

Got it. Thanks. And then just one last one, you touched on a little bit about the South Carolina flooding, is that the $5 million number that you gave, does that include, is that a net number that included benefit from flood claims that you might get, is that just a loss number?

That’s just a loss number. There is no current expectations in that estimates for flood claim, processing fees, obviously the number five flood writer will have some of that, but we haven’t projected that at all. And I would say that the $5 million as Greg indicated is not a big number for fourth quarter.

All right. Appreciate the answers. Thanks.

Thanks, Scott.

Thank you, speakers. Our next question is from Jay Cohen from Bank of America Merrill Lynch. Your line is now open.

Thanks. Good morning, everybody. A couple of questions. So first is, I guess in the standard commercial business, in the quarter it looks like the pure price was up about 2.8%, which is a number, which has been trending lower. One might expect that continues to go lower, assuming that the claims trend is in fact 3% number. Does it get tougher as you get into next year to improve the margins in that business, or are there other actions that you can take that will offset that potential pressure between cost and pricing?

Jay, this is John. I will start and then Greg or Dale can certainly follow on. You’re certainly seeing a trend in without pure price coming through, it does get more difficult to improve an underlying loss ratio which is why we feel comfortable that we’re very close to our run rate target and we’re moving into a phase where we can in fact make efforts between pricing and underwriting and claims improvements to max loss trend that continue to perform at a current level. So yes, it gets harder, but then it becomes more important to be able to deliver the kind of underwriting mix and claims improvements that we deliver over the last couple of years and that never stops. You’re always focused on making sure you’re attacking the small portion of your renewal inventory that’s driving your performance and that’s when you get continued underwriting mix improvement, making sure that the quality of the new business that you’re acquiring and the pricing levels at which you are acquiring it bodes well for future performance and then continuing to drive improvement throughout our claims operations. As Greg said earlier, we talked a lot about comp and the changes we made in comp on the claims perspective, but those efforts are holistic across everyone in business and we think that underwriting in claims improvements will contribute to loss ratio improvement in excess of rate over the next couple of years.

And Jay, this is Greg. We have been working hard on rate relative to the industry in raising prices 2009 and it’s hard to find a carrier out there in the marketplace that has been as disciplined as we have and we just don’t want to lose that at this particular point in the market. So the advantage that we have I think is really important as John point out, I mean we worked hard to get our rate, we have three legs on the stool that we’re always managing and also three legs that we articulate relative to the comp and articulated how we attack any problem in the organization. But most importantly, we got our profitability right now where we need to run at, now the question is how do we maintain it at that level? We are working very closely with our agents. The advantage that we have now going into the market, we hope that you see this for other competitors and continue the pressure on reporting renewal price increases because that’s the leading indicator of performance in the future. Many of our competitors still have combined ratio issues. They are going to have to work to lower their combined ratios through rate. You heard us talk about this before. If you want to lower your combined ratio by like say call it like 4 points, you got to increase rate by 10. When you look at the improvement at the margin relative to what it does on the combined ratio. So we’ve got a number of competitors that are still tracking way higher than we are and given our leverage and all the other things we talked about, we feel we’re positioned-well and the thing about this market is there is nothing that I believe that will change in the longer -- in a relative longer term period of time that will take the focus off underwriting. So underwriting is going to be king relative to performance overall.

And Jay, I’ll jump in with kind of a mathematical view of the equation is, that generally speaking our loss trends is tended to run in the call it a 2.6%, 2.7% to 3% range for the last five or six years net loss inflation. We always round that to 3%. We just call it a 3% loss inflation trend. So 2.8% is right in that range also, so we feel pretty good about that. We still have embedded claims and underwriting improvements that we expect to pay dividends in the future. So we still feel very good about the position that we’re in in terms of our ability to deliver results.

Good answer from all three of you. I got the tri-factor. Thank you. And second question in the personal auto side, not a big line of business for you, but we’ve been hearing different stories from different companies about the frequency of personal auto claims? What are you seeing in that business?

Yeah. I would say that that we’ve run a lot, follow a lot on this and you’d see that our book sets us so Jersey centric that frequency hasn’t really been a big deal at Jersey. And we’re seeing in our numbers. I mean, we write outside of Jersey, but just on the liability side, our frequency on a fiscal year basis is down 4.5%. Our severity is up in that line, but that’s again pushed around by this, not a lot of numbers, not a lot of dollars in that area but we haven’t seen this. And I think, the study that I read not that long though I indicated that California we’ve seen an explosion in their frequency numbers and I think it could be more geographic in nature and the fact that so much of our business is in the State of New Jersey is why we’re not seeing that specific trend.

And just to add to that the fact that our growth is coming outside of New Jersey, so therefore our mix is becoming less Jersey centric is part of what we think is contributing to the lower frequency. So we’re not seeing a frequency trend because our mix is changing a little bit more towards lower frequency states and we did our core book of New Jersey has been.

Very helpful answer. I guess, with the traffic of New Jersey you can’t go more than 20 miles an hour anyway, so.

[We’re sitting on bike right] [ph].

That’s right, 90 miles an hour.

And if I squeeze in one more question, your alternative investments, those are reported on a one quarter lag. Do you have any view into the performance in the fourth -- in the third quarter, which will show up in your fourth quarter just given a lot of the noise around the financial markets in the third quarter?

You’re right that most of them report on a one quarter lag. The drag that we’ve seen so far this year is really been the oil centric or the energy centric alternatives. I can’t say that we've got good insight into what you’re going to end up seeing in the fourth quarter for our results out of those. Clearly, oil is still somewhat depressed but, I guess, stabilized at more depressed levels. So remains to be seen how that plays out.

Okay.

Obviously, the M&A environment is a lot more active these days that tends to be a benefit to alternative investments, so there’s a lot of moving parts there. Frankly, it’s a small number at the end of the day. It’s only about $75 million in NAV. So it does move the investment income on the ground a little bit but at the end of the day it’s more of a mark-to-market issue.

Got it. Thanks for the answer.

Thanks, Jay.

Thank you, speakers. [Operator Instructions] Thank you. We have a question again from Mr. Jay Cohen from Bank of America Merrill Lynch. Your line is now open.

I didn’t want to dominate the call but if no one else is asking question, I’ve got one other question and that is relative to the M&A environment in the insurance business. Are you -- so I phrase this, are you seeing more interest, are you getting called more often, whether it is a buyer or a seller to be involved with some sort of transaction?

I would say that we’ve deployed all power to the clocking device so nobody can find Branchville, New Jersey. So clearly, there is a lot of discussion just in general with bankers about what’s available out in the world. But with these kinds of prices, we’re not exactly going to be a buyer generally, speaking less if for something small. Obviously, we recognize that we held performed fantastically well and therefore we’ve identified ourselves as a great company. But what we tell our employees all the time is that we earn our independence by performing to plan and cranking the stock price up as high as it will go.

And Jay, what I would add to that though too is I think the M&A environment provides opportunity for Selective. We find the opportunity really in two tiers one, people obviously as company’s merge, employees get a little unsettled. I think that creates a great opportunity to look at additional talent. I mean, we have a growing operation. We have a great reputation. People want to come, work for Selective and I think that’s a positive. And then the second is obviously, depending on who is merging with whom, it creates a business opportunity as our agents -- you've heard John and several of us talked about share of wallet, talk about where we are and concentration in the different states. We have huge opportunities in most all of our states with the exception of maybe three or four states or you can say that we’re add on our target market share. And as companies merge, there are agents that can get very uncomfortable with high concentrations and exposure to certain carriers, particularity when their minds believing in what that carrier or what the new carriers’ strategy is with respect to the long-term viability of independent agents. And I will tell you, our successes on independent agents. We focus on them. You’ve witnessed some of our programs before. You can see first-hand, how we educate our agents, how we push our agents in multiple fronts to be better sales people, to think about perpetuation, how do you sit there and look at customer experience, how do you look at changing in customer environment down the road. That’s what we’re preparing our agents for. And the fact that we have 1,140 agents, it’s a heck of a lot easier for a carrier like Selective to manage 1,140 agents in 22 states than it is for most of other carriers in the marketplace who have thousands and thousands of agencies. You’ve always heard us say, we got the Ivy League of independent agents. They want to stay in the Ivy League and they know that they need to do more to do that.

Lastly, I would just throw in there Jay, is that we believe an independent path the best way for us to generate long-term shareholder value. But obviously, if there were ever a credible offer that was in access of what we could generate, the Board would do their fiduciary duty. We just want to make that a really hard equation for anybody.

Got it. Well, you delivered this year, that’s for sure. Thanks for the answers. I appreciate them all.

Thanks, Jay. All right. Operator, at this point, are there any more people on the line?

Questions.

And sir, we don’t have any other questions in queue.

Thank you for participating on the call today. If you have any follow-up questions, please contact Jennifer and Dale. Thank you.