Selective Insurance (SIGI) Up 0.1% Since Last Earnings Report: Can It Continue?

It’s been about a month since the last earnings report for Selective Insurance (SIGI). Shares rose about 0.1% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Selective Insurance expected to slow down? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

Selective insurance No profits in the first quarter, premiums increase y/y

Selective Insurance Group, Inc. reported first-quarter 2024 operating income of $1.33 per share, missing the Zacks Consensus Estimate by 29.3%. The financial result decreased by 7.6% compared to the same quarter last year.

The company’s performance in the quarter suffered due to higher costs related to property losses and non-catastrophe losses. However, it witnessed average price growth on renewals, growth in new business, solid net investment income, as well as lower catastrophe losses in the quarter, which limited the drawbacks.

Behind the headlines

Total revenues of $1.2 billion increased 17.2% compared to the prior-year quarter, primarily due to higher earned premiums, net investment income and other income. The top line missed the Zacks Consensus Estimate by 0.1%.

Year-over-year, net written premium (NPW) increased 16% to $991 million, reflecting new business growth and effective management of the renewal portfolio. The average clean renewal price increased by 8.1%, with stable retention and increased exposure. This amount was lower than our estimate of $1.1 billion. Net investment income increased 17% year-over-year to $86 million.

After-tax underwriting net income was $15 million, down 51% year-over-year. Net catastrophe losses of $55.2 million were lower than the year-ago loss of $55.3 million. Non-catastrophe property loss costs amounted to $171.2 million, higher than the year-ago loss of $148.2 million. The combined ratio of 98.2 deteriorated by 250 basis points year-over-year due to prior-year accident provisioning, partially offset by improved expense ratios and lower catastrophe losses. The Zacks Consensus Estimate is 94 and our Estimate is 93.8.

Total costs increased 20% year-over-year to $1.1 billion, primarily due to higher incurred costs and losses, other insurance costs, amortization of deferred policy acquisition costs and corporate expenses. This amount was higher than our estimate of $1 billion.

Segment results

Standard Commercial Lines’ net present value increased 15% year over year to $931.7 million. Premium growth reflected an average renewal-only price increase of 7.6%, new business growth of 17%, strong exposure growth and a stable retention rate of 86%. This amount was higher than our estimate of USD 923.5 million. The combined ratio deteriorated 410 basis points (bps) to 98.8. The Zacks Consensus Estimate is 93 and our Estimate is 93.4.

Standard Personal Lines’ NPW increased 17% year over year to $99.9 million, driven by a 14.3% increase in renewal prices and higher average policy sizes. However, retention dropped to 83%. The number of new transactions decreased by 19%. This amount was higher than our estimate of $98.6 million. The combined ratio improved by 1,090 basis points year-on-year to 105.1. The Zacks Consensus Estimate is 108, while our estimate is 103.5.

Excess & Surplus Lines’ NPW increased 24% year-over-year to $125 million, driven by a 57% increase in new business and a 5.2% average increase in renewal prices alone. This amount was higher than our estimate of $124 million. The combined index deteriorated by 260 bps to 87.6. The Zacks Consensus Estimate is pegged at 87, while our estimate is 87.6.

The story continues

Financial update

Selective Insurance ended the first quarter of 2024 with total assets of $12.1 billion, 2% above the level at the end of December 2023. Long-term debt of $503.3 million was unchanged from the level at the end 2023 Total debt capitalization increased by 30 basis points to 14.3% compared to the level in the first quarter of 2023.

As of March 31, 2024, adjusted book value per share was $50.97, an increase of 9% year over year. SIGI achieved a 10th consecutive year of double-digit operating ROE at 11.7%, down 290 basis points year-over-year.

Share buyback and dividend update

No shares were repurchased in the first quarter of 2024. As of March 31, 2024, SIGI had $84.2 million in authorization. The board of directors approved a quarterly cash dividend of 35 cents per share. The dividend will be paid on June 3 to shareholders at the close of business on May 15, 2024.

Guidelines 2024

SIGI estimates a combined GAAP multiple of 96.5%, up from a prior projection of 95.5. This includes net catastrophe losses of 500 basis points and assumes no additional catastrophe provisioning in the prior year. Selective Insurance estimates after-tax net investment income of $360 million, which includes $32 million of after-tax net investment income from alternative investments.

The overall effective tax rate is expected to be approximately 21%, assuming an effective tax rate of 20.5% for net investment income and 21% for all other items. The fully diluted weighted average share was 61.5 million.

How have estimates changed since then?

It turns out that new estimates have been trending downward over the past month.

Due to these changes, the consensus estimate moved -7.06%.

VGM results

Over this time, Selective Insurance has an average growth rate of C, although it lags slightly behind its Momentum Score of D. Plotting a somewhat similar path, the stock is rated a C on the value side, meaning it is in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. It’s no surprise that Selective Insurance has a Zacks Rank #5 (Strong Sell). We expect a below-average rate of return on stocks in the coming months.

Industry player performance

Selective Insurance is part of the Zacks Insurance – Property & Casualty industry. Another stock in the same industry, Arch Capital Group (ACGL), has gained 6.6% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, Arch Capital reported revenues of $3.76 billion, representing a year-over-year change of +21.7%. EPS of $2.45 in the same period compared to $1.73 a year ago.

For the current quarter, Arch Capital is expected to report earnings per share of $2.21, representing a change of +15.1% from the prior-year quarter. The Zacks Consensus Estimate has changed -0.7% over the past 30 days.

Arch Capital carries a Zacks Rank of #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Rating of A.

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