Selective Insurance: Strong Sell


On Feb 19, Zacks Investment Research downgraded Selective Insurance Group Inc. (SIGI) by a notch to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Selective Insurance has been experiencing declining earnings estimates on account of soft market reaction attributable to unfavorable reserve environment and anticipation of higher catastrophe losses in 2014. Moreover, consistent low investment yields have impelled management to project lower investment income in the upcoming quarters.

Furthermore, higher level of debt continues to adversely affect the financial leverage, which currently stands at 26%. Higher leverage will further raise risks on cash flow and healthy capital deployment.

Additionally, this property casualty insurer underperformed the one-year Nasdaq index, which posed a growth of 33.9% against Selective Insurance’s 8.8%.

On Jan 30, Selective Insurance reported fourth-quarter 2013 operating earnings per share of 45 cents, which beat the Zacks Consensus Estimate of 41 cents and rebounded from the prior-year quarter loss of 4 cents.

Higher premiums and investment income were partially offset by net realized losses.  Meanwhile, Selective Insurance continues to incur losses in property insurance.

Predictions of higher catastrophe losses ($28—32 million) in first-quarter 2014 have pulled down the quarter’s estimate by 45% to 24 cents a share in the last 30 days. Meanwhile, the Zacks Consensus Estimate for 2014 plunged 9.4% to $1.63 per share over the same period.

Meanwhile, the Most Accurate Estimate for Total System’s first-quarter 2014 and full-year 2014 earnings stands at 13 cents and $1.52 a share, resulting in an Earnings ESP of -45.8% and -6.8%, respectively. No upward revision in estimates was witnessed for both the periods.

Other Stocks to Consider

While we prefer to avoid Selective Insurance for the time being, some better-ranked insurers in the industry are RLI Corp. (RLI), ACE Ltd. (ACE) and AmTrust Financial Services Inc. (AFSI). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on SIGI
Read the Full Research Report on RLI
Read the Full Research Report on ACE
Read the Full Research Report on AFSI

Zacks Investment Research

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