Selective Insurance ((SIGI)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Selective Insurance’s recent earnings call painted a picture of balanced sentiment, highlighting both strengths and challenges. The company reported strong investment income and growth in its Excess and Surplus Lines segment, alongside strategic geographic expansion and shareholder returns through dividends and share repurchases. However, these positives were tempered by elevated combined ratios, reserve development challenges, and specific issues in New Jersey’s commercial auto segment.
Strong Investment Income
Investment income saw a significant increase of 18% year-over-year, contributing to an operating return on equity of 13.2%. This growth in investment income underscores the company’s effective asset management strategies and its ability to generate substantial returns for its shareholders.
Excess and Surplus Lines Growth
The Excess and Surplus Lines segment experienced a robust 14% growth in the quarter, achieving a combined ratio of 76.2%. This was largely driven by average renewal pure price increases of 8.3%, indicating strong market positioning and effective pricing strategies.
Record Dividend Increase
Selective Insurance announced a 13% increase in its quarterly dividend, marking the 12th consecutive annual increase. This move reflects the company’s commitment to returning value to shareholders and confidence in its financial stability.
New Share Repurchase Authorization
The company authorized a new $200 million share repurchase program, replacing the previous one. This decision highlights Selective’s strategy to enhance shareholder value and its confidence in the company’s future prospects.
Geographic Expansion
Selective continues to expand its Standard Commercial Lines footprint, having added 14 states since 2017, with plans to add two more by 2026. This expansion strategy is aimed at capturing new markets and driving long-term growth.
Elevated Combined Ratio
The combined ratio for the quarter was 98.6%, surpassing the company’s long-term target of 95%. This increase was driven by unfavorable prior year casualty reserve development, indicating areas that require strategic attention.
Unfavorable Prior Year Reserve Development
The company recorded an unfavorable prior year casualty reserve development of $40 million, with $35 million attributed to commercial auto and $5 million to personal auto. This development highlights ongoing challenges in managing reserve adequacy.
Challenges in New Jersey
Higher severity trends in New Jersey significantly impacted commercial auto results, necessitating updated rating plans and tighter underwriting guidelines. These challenges underscore the need for strategic adjustments in this key market.
Pressure on Casualty Lines
Current year casualty loss costs were higher, adding 6.2 points to the combined ratio. This was primarily due to increasing paid severities in commercial auto, indicating pressure on profitability in this segment.
Decline in Personal Lines Premiums
Personal Lines net premiums written declined by 6%, driven by reserving actions and competitive market conditions. This decline reflects the challenges faced in maintaining premium growth amidst a competitive landscape.
Forward-Looking Guidance
Looking ahead, Selective Insurance provided several key metrics and guidance for investors. The company delivered an operating return on equity (ROE) of 13.2%, with a combined ratio guidance of 97% to 98%, exceeding their long-term target of 95%. Despite these challenges, Selective maintains a full-year operating ROE target in the 14% range and an underlying combined ratio guidance of 91% to 92%. The company is focused on profit improvement and moderating premium growth, leveraging data, analytics, and technology to enhance underwriting and claims outcomes. Management also emphasized the expansion of their Standard Commercial Lines footprint and announced a new $200 million share repurchase authorization, indicating confidence in their valuation and growth strategy.
In summary, Selective Insurance’s earnings call reflected a balanced sentiment, with strong investment income and strategic growth initiatives countered by challenges in reserve development and specific market segments. The company’s forward-looking guidance suggests a focus on profit improvement and strategic expansion, positioning it for future growth.