Here's Why You Should Retain Selective Insurance (SIGI) Stock
Selective Insurance Group, Inc. SIGI has been gaining momentum on renewal pure price increases, solid retention rates, new business growth and a sturdy financial position.
Growth Projections
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $6.10, indicating an increase of 46.9% from the year-ago reported figure. The expected long-term earnings growth rate is pegged at 12.4%, which betters the industry average of 9.4%.
Estimate Revision
The Zacks Consensus Estimate for 2021 and 2022 has moved 0.8% and 0.4% north, respectively, in the past 30 days, reflecting analysts’ optimism.
Earnings Surprise History
Selective Insurance has a decent earnings surprise history. Its bottom line beat estimates in three of the last four quarters and missed in one, the average being 42.1%.
Zacks Rank & Price Performance
Selective Insurance currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 44.3%, outperforming the industry’s increase of 21.4%.
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Style Score
The company is well poised for progress, as is evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.
Return on Equity (ROE)
The company’s ROE for the trailing 12 months is 15.4%, better than the industry average of 5.7%. This reflects its efficiency in utilizing its shareholders’ funds.
Business Tailwinds
Renewal pure price increases, solid retention rates and new business growth in the Commercial Lines and Excess and Surplus Lines (E&S) segments are likely to drive the top-line growth of Selective Insurance.
The insurer expects strong performance in the E&S segment in the long run with the ongoing rollout of a new agency automation platform that will further enhance its competitive position. This segment continues to benefit from higher pricing and increased deal flow into the non-emitted space.
For 2021, Selective Insurance projects an after-tax net investment income of approximately $220 million, up from the previous guidance of $195 million. It includes $55 million in after-tax net investment income from alternative investments, up from $31 million guided earlier.
The expense ratio is likely to improve owing to lower-than-expected travel and entertainment, overhead and general and administrative expenses. The company expects ongoing improvement to expense ratio over the next two years.
Moderate catastrophe losses, favorable prior year casualty reserve development, better-than-expected non-cat property losses and lower-than-expected expense ratio are likely to improve the combined ratio.
The company expects GAAP combined ratio, excluding catastrophe losses, of 89% (prior guidance 90%) that assumes no additional prior year casualty reserve development.
Selective Insurance’s capital position remains solid with $2.9 billion of GAAP equity. It has built significant financial flexibility with $505 million of cash and investments at its holding company.
Banking on its solid capital position, it has the financial flexibility to grow at rates well above 7% to 9% sustainable growth rate in the long run, which is expected to provide the company with better growth opportunities.
The debt to capital ratio stands at 16%, which compares favorably with the industry average of 19.5%. This provides it with the flexibility to raise additional debt.
Courtesy of solid financial strength, it raised dividends at a eight-year (2013-2021) CAGR of 8.5%. The current dividend yield is 1.3%, which is better than the industry average of 0.4%. At present, it has $96.6 million of remaining capacity under the share repurchase program. Thus, the stock is an attractive pick for yield-seeking investors.
Stocks to Consider
Some better-ranked property and casualty insurers include American Financial Group, Inc. AFG, Berkshire Hathaway Inc. (BRK.B) and Fidelity National Financial, Inc. FNF, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The bottom line of American Financial surpassed estimates in each of the last four quarters, the average being 52.82%.
Berkshire Hathaway surpassed estimates in three of the last four quarters and missed in one, the average earnings surprise being 6.8%.
Fidelity National’s earnings surpassed estimates in each of the last four quarters, the average being 37.32%.
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