Review of Second Quarter 2019 6-Aug-2019 While every effort is made to provide accurate and current information, Protective Insurance Corporation, along with its subsidiaries and affiliates, does not warrant that the information contained herein is free from error or is all inclusive. Protective Insurance Corporation does not guarantee or accept any legal liability arising from or connected to the adequacy, completeness, accuracy, or appropriateness of the material, and is not responsible for any omissions or inaccuracies obtained from other sources or caused by human error. The materials included in this presentation may not be reproduced, quoted, or distributed, in whole or in part, without prior written permission from Protective Insurance Corporation. The appearance of an individual, organization, or third party web address in this video is not intended as, or in any manner serves as, an endorsement of that individual, organization, or website.
Forward Looking Statements Forward-looking statements made during this call, and included in this document, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward- looking statements involve inherent risks and uncertainties. Readers are encouraged to review the Company's annual report for its full statement regarding forward-looking information. Certain statements made during this conference call, in the press release and in this document, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Protective Insurance Corporation believes the expectations reflected in any forward- looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time-to- time, with the Company’s filings with the SEC. Also, the discussions during this call, in the press release and in this document, will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included within the press release, which is available on our website at https://www.protectiveinsurance.com/. 2
Review of Second Quarter 2019 2.6% growth in book value during quarter, supported by investment appreciation Repurchased $6.0m in stock, which is immediately accretive to book value • Book Value increased $0.63 per share during quarter ($ in thousands, Three Months Ended o Supported by investment appreciation except per share data) June 30 2019 2018 o 2.6% book value growth Book value/sh at start of period $ 24.63 $ 27.38 o 3.0% total value creation (1) Book value/sh at end of period 25.26 27.14 Including $0.10 per share dividend Change in book value per share $ 0.63 $ (0.24) Plus: Dividends paid 0.10 0.28 • Combined ratio of 106.4%, improving from 108.0% Change in BV/sh + dvds paid $ 0.73 $ 0.04 during the first quarter of 2019 ÷ Book value/sh at start of period $ 24.63 $ 27.38 o Maintaining current accident-year loss ratios at a level Total value creation (1) (2) 11.9% 0.6% consistent with rising severity expectations in commercial auto Loss and LAE expense $ 90,433 $ 77,488 ÷ Net premiums earned 115,631 111,940 o Attained double-digit rate increases on agency placed Loss and LAE ratio 78.2% 69.2% commercial automobile policies renewing during the Other operating expenses $ 34,615 $ 36,019 quarter Less: Commissions and other 1,978 2,263 • Total return on investment portfolio of 1.9% during Other op ex less comm & other $ 32,637 $ 33,756 the second quarter ÷ Net premiums earned 115,631 111,940 Expense ratio 28.2% 30.2% • $6.0m of repurchases since April 1, 2019 further Combined ratio 106.4% 99.4% support book value growth o 349,123 shares repurchased year to date at 68% of Gross premiums written $ 147,152 $ 142,270 current book value Net premiums written 115,695 114,254 (1) Total Value Creation equals change in book value plus dividends paid, divided by beginning book value. 3 (2) Quarterly amounts are annualized.
What We Do Protective Insurance specializes in providing insurance for the transportation industry. Our products and people help our insureds: enable commerce, provide recovery from the unexpected, and save lives With more than 80 years We offer a comprehensive, Protective’s Workers’ We provide complete of experience in the best-in-class independent Compensation program coverage for public transportation industry, contractor program for offers custom loss transportation fleets, we understand the fleet trucking fleets to protect prevention and safety including charter bus, trucking business like no themselves and their services and expert claims school bus and limousine other insurance company contractors handlers operations 67% Commercial Auto Premiums Written 2018 Gross 33% Workers’ Comp 4
Current Drivers of Value We have important tailwinds supporting our book value per share Favorable Investment Favorable Underwriting Share Repurchases Leverage Leverage 2.55x 1.23x $6.5m (Invested assets/Equity) (Annualized NPE/Equity) Repurchased in first six months of 2019 • Executing current operating • High Quality Portfolio (p.8) • Company intends to continue initiatives to improve repurchasing shares at a • Short Duration: 2.3 years underwriting profit (p.6) discount to book value Affords optionality when market Accretive to book value • A 4% underwriting margin dislocations provide opportunity (96% combined ratio) would for investment • Stock is currently trading at the generate a 4.9% contribution to lower end of historical range • 7.7% contribution to pre-tax pre-tax ROE ROE @ 3.0% total return 5
Q2- ’19 Update on Seven Operating Initiatives Rate Achievement and Creating Strategic Digital Partnerships Revised Pricing Methodologies • Assessing rate need on a granular basis • Proof of concept complete for potential new underwriting system 19% rate increase achieved in Q2- ’19 on $28.5m of policies available for renewal in agency excess and • Pursuing using Artificial Intelligence to better medium fleet leverage our data • Continuing to revise pricing methodologies Enhance and Improve Infrastructure Manage Volatility • Strengthening our infrastructure • Renewed reinsurance treaties at 3-Jul-2019 o Creating a more value driven digital platform Workers’ Compensation Treaties renewed AAD Treaty also renewed with placement reduced Create & Implement a Customer Service Model & Philosophy to 35% Continuing to place facultative reinsurance on • Refining distribution strategy Agency Excess Auto and Public Transportation • Cross-functional customer service team focused on speed-to-quote, billing & policy issuance improvements Expense Discipline Enhance Employee Capabilities • Expense savings initiative introduced Identified specific expense reductions • Continue investing in our people On-going work being done in preparation for 2020 o Both quantitative and qualitative skillsets 6 o Extending training and development
Commercial Auto Reinsurance Treaty Limits Downside Reinsurance protection helps put much of the problem of adverse prior-year development behind us Commercial Auto Aggregate Stop-loss % of Stop-loss Attachment by Treaty Year at Current Loss Picks 119% 120% 114% • Dotted black line is the point in each treaty year 110% 107% 106% that the aggregate stop-loss reinsurance 99.5% % of Attachment Point 100% provision begins o Once this aggregate stop-loss level is reached, 80% the Company retains only 25% of any further 60% adverse loss development 40% • Dollars of gross loss exposure before reaching the stop-loss threshold for each treaty year 20% o Only $0.7m of gross loss exposure remains 0% before all six treaty years are at-or-above 2013 2014 2015 2016 2017 2018 the aggregate stop-loss attachment point - - - - - - - - $0.7m - - $ to stop-loss threshold Premium $74m $96m $106m $174m $264m $132m (to date) (to date) • Table provides the financial impact of a 5% or 2013-2018 Treaty Years 10% increase in ultimate loss picks for each of 5% Increase 10% Increase the six most recent reinsurance treaty years In Ultimate In Ultimate Loss Ratio Loss Ratio o Even if all six years experienced an For All Years For All Years Gross Loss Expense $42.6 $85.2 additional 10% increase in adverse Company's Retention $10.7 $21.3 development, the resulting decrease in book $/share after-tax $0.57 $1.14 value would be only ~$1/share Note: $ in millions. Treaty years are for policies attaching to the reinsurance treaty beginning in July of each year and ending in July of the following year (e.g. the 2017 treaty year covers policies attaching from 3-Jul-2017 to 2-Jul-2018). 7
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