Selective Insurance (SIGI) Down 2.6% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Selective Insurance (SIGI). Shares have lost about 2.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Selective Insurance due for a breakout? 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 get a better handle on the important drivers.
Selective Insurance Q2 Earnings Meet, Revenues Rise Y/Y
Selective Insurance Group, Inc. reported second-quarter 2023 operating income of 99 cents per share, which matched the Zacks Consensus Estimate. The bottom line declined 15% from the year-ago quarter. The quarter witnessed renewal pure price increases, exposure growth, stable retention and strong new business. Higher catastrophe losses and escalating costs were offsets.
Behind the Headlines
Total revenues of $1 billion increased 15.2% from the year-ago quarter’s figure, primarily due to higher premiums earned, net investment income and net premiums written. The top line outpaced the Zacks Consensus Estimate by 0.8%.
On a year-over-year basis, NPW increased 17% to $1 billion, driven by renewal pure price increases, exposure growth, stable retention and strong new business. The figure matched our estimate.
After-tax net investment income increased 37% year over year to $77.8 million. The increase was due to higher pre-tax investment income from fixed income securities portfolio, driven by higher book yields and the investment of operating and investing cash flows over the past year and higher pre-tax alternative investment income.
After-tax net underwriting loss were $1.2 million against the year-ago underwriting income of $29.8 million. Pre-tax catastrophe losses doubled year over year to $100 million. Non-catastrophe property loss and loss expenses of $138.6 million increased 13.4% year over year.
The combined ratio deteriorated 470 basis points (bps) on a year-over-year basis to 100.2, driven principally by higher catastrophe losses and lower prior year favorable casualty reserve development.
Total expenses increased 18.6% year over year to $966.4 million, primarily due to higher loss and loss expenses incurred, other insurance expenses, amortization of deferred policy acquisition costs and corporate expenses. The figure was higher than our estimate of $882.9 million.
Segmental Results
Standard Commercial Lines’ NPW was up 14% year over year to $870.1 million. Average renewal pure price increases of 6.7%, new business growth of 23%, strong exposure growth and consistent retention of 85% drove the improvement in NPW. The figure was higher than our estimate of $852.9 million. The combined ratio deteriorated 400 bps to 97.1. The Zacks Consensus Estimate was pegged at 95, while our estimate was 94.9.
Standard Personal Lines’ NPW increased 32% year over year to $109.1 million. Renewal pure price increases averaged 3.4%, retention was 88% and new business was up $19.0 million, which drove the improvement in NPW. The figure was higher than our estimate of $84.9 million. The combined ratio deteriorated 960 bps on a year-over-year basis to 126.5. The Zacks Consensus Estimate was pegged at 110, while our estimate was 109.6.
Excess & Surplus Lines’ NPW was up 20% year over year to $105.7 million, driven by average renewal pure price increases of 7.5% and new business growth of 27%. The figure was higher than our estimate of $103.7 million.
The combined ratio deteriorated 490 bps to 100.7. The Zacks Consensus Estimate was pegged at 96, while our estimate was 96.2.
Financial Update
Selective Insurance exited second-quarter 2023 with total assets of $11.2 billion, which was 4% below the level at December 2022 end. Long-term debt of $503.6 million was flat with the 2022 level. Debt-to-total capitalization improved 70 bps to 15.9% from the level as of 2022 end.
As of Jun 30, 2023, book value per share was $40.81, up 2.8% year over year.
Annualized non-GAAP operating return on equity was 9.8% in the second quarter of 2023, which contracted 160 bps year over year.
In the first half of 2023, Selective Insurance did not repurchase any shares. It had $84.2 million remaining under authorization as of Jun 30, 2023.
2023 Guidance
SIGI estimates GAAP combined ratio of 96.5%, including net catastrophe losses of 6.0 points, up from prior guidance of 4.5 points. The combined ratio estimate assumes no additional prior year casualty reserve development. Selective Insurance estimates after-tax net investment income of $300 million that includes $30 million of after-tax net investment income from alternative investments.
The overall effective tax rate is expected to be around 21%, which assumes an effective tax rate of 20% for net investment income and 21% for all other items.
Weighted average shares were 61 million on a fully diluted basis.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 5.47% due to these changes.
VGM Scores
At this time, Selective Insurance has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Selective Insurance has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Selective Insurance Group, Inc. (SIGI) : Free Stock Analysis Report
