Selective Insurance (SIGI) Q3 Earnings Lag on Higher Expenses
Selective Insurance Group, Inc. SIGI reported third-quarter 2023 operating income of $1.51 per share, which missed the Zacks Consensus Estimate by 9%. The bottom line increased 52.5% from the year-ago quarter.
The quarter witnessed average renewal pure price increases, new business growth and net investment income. Higher catastrophe losses and escalating costs were offsets.
Selective Insurance Group, Inc. Price, Consensus and EPS Surprise
Selective Insurance Group, Inc. price-consensus-eps-surprise-chart | Selective Insurance Group, Inc. Quote
Behind the Headlines
Total revenues of $1 billion increased 18.1% from the year-ago quarter’s figure, primarily due to higher premiums earned, net investment income and net premiums written (NPW). The top line outpaced the Zacks Consensus Estimate by 1.7%.
On a year-over-year basis, NPW increased 17% to $1.05 billion, driven by renewal pure price increases, exposure growth, stable retention and strong new business. The figure was higher than our estimate of $996.2 million.
After-tax net investment income increased 56% year over year to $80 million. The figure was higher than our estimate of $48.3 million. The Zacks Consensus Estimate was pegged at $72 million.
After-tax net underwriting income was $25 million, which increased 16.8% year over year. Pre-tax catastrophe losses increased 89.4% year over year to $64.6 million. Non-catastrophe property loss and loss expenses of $172.8 million increased 3.1% year over year.
The combined ratio of 96.8 remained unchanged year over year, with improvement in the underlying combined ratio, offset by higher catastrophe losses and no net prior year casualty reserve development.
Total expenses increased 15% year over year to $968.6 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 $938.5 million.
Segmental Results
Standard Commercial Lines’ NPW was up 15% year over year to $833.6 million. The premium growth reflected average renewal pure price increases of 7.1%, new business growth of 13%, strong exposure growth and consistent retention of 86%. The figure was higher than our estimate of $798.1 million.
The combined ratio improved 210 basis points (bps) to 94.7. The Zacks Consensus Estimate and our estimate were both pegged at 97.
Standard Personal Lines’ NPW increased 30% year over year to $113.2 million. Renewal pure price increases averaged 6.1%, retention was 88% and new business was up $14.3 million, which drove the improvement in NPW. The figure was higher than our estimate of $90.8 million.
The combined ratio deteriorated 2,560 bps on a year-over-year basis to 127.4. The Zacks Consensus Estimate was pegged at 112, while our estimate was 111.5.
Excess & Surplus Lines’ NPW was up 25% year over year to $111.6 million, driven by average renewal pure price increases of 6.6% and new business growth of 43%. The figure was higher than our estimate of $107.3 million.
The combined ratio improved 910 bps to 83.9. The Zacks Consensus Estimate was pegged at 88, while our estimate was 88.4.
Financial Update
Selective Insurance exited third-quarter 2023 with total assets of $11.4 billion, which was 6% below the level at December 2022 end. Long-term debt of $504.6 million was flat with the 2022 level.
Debt-to-total capitalization improved 60 bps to 16% from the level as of 2022 end.
As of Sep 30, 2023, book value per share was $40.35, up 9% year over year.
Annualized non-GAAP operating return on equity was 15% in the third quarter of 2023, which expanded 450 bps year over year.
Share Repurchase and Dividend Update
In the first nine months of 2023, Selective Insurance did not repurchase any shares. It had $84.2 million remaining under authorization as of Sep 30, 2023.
The board of directors authorized a 17% increase in the quarterly cash dividend to 35 cents per share. The dividend will be paid out on Dec 1 to shareholders of record at the close of business as of Nov 15, 2023.
2023 Guidance
SIGI estimates a GAAP combined ratio of 96.5%, unchanged from last quarter, including net catastrophe losses of 6.5 points, up from prior guidance of 6 points. The combined ratio estimate assumes no additional prior-year casualty reserve development.
Selective Insurance estimates after-tax net investment income of $310 million, up from prior guidance of $300 million. It includes $20 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.
Zacks Rank
Selective Insurance currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Property & Casualty Insurers
CNA Financial Corporation CNA reported third-quarter 2023 core earnings of $1.06 per share, which beat the Zacks Consensus Estimate by 15.2%. The bottom line increased 35.9% year over year. Total operating revenues of CNA were $3 billion, up 11.8% year over year due to higher premiums and net investment income. The top line beat the Zacks Consensus Estimate by 3.1%.
Net written premiums of Property & Casualty Operations increased 6% year over year to $2.2 billion, driven by a retention rate of 83% and renewal premium change of 6%, with a written rate of 6%, exposure change of 1% and new business increase of 4%. Pretax net investment income increased 31% to $553 million pretax, including a $72 million increase from limited partnerships and common stock to $28 million and a $59 million increase from fixed-income securities and other investments to $525 million.
Total claims, benefits and expenses remained almost flat year over year at $3 billion and came in line with our estimate. Catastrophe losses were $94 million, narrower than a loss of $114 million in the year-ago quarter. Underwriting income increased 56% year over year to $131 million. The combined ratio improved 150 bps year over year to 94.3. The Zacks Consensus Estimate was pegged at 95.
Arch Capital Group Ltd. ACGL reported third-quarter 2023 operating income of $2.31 per share, beating the Zacks Consensus Estimate by 50%. The bottom line increased more than eightfold year over year. Gross premiums written improved 17.2% year over year to $4.5 billion. Net premiums written climbed 35.8% year over year to $3.4 billion. Net premiums beat our estimate of $3 billion.
Net investment income increased 108.5% year over year to $269 million and beat our estimate of $265.3 million. The Zacks Consensus Estimate was pegged at $261 million. Operating revenues of $3.5 billion rose 32.6% year over year, driven by higher net premiums earned and net investment income. It beat the Zacks Consensus Estimate by 1.5%. Pre-tax current accident year catastrophic losses, net of reinsurance and reinstatement premiums, were $180 million. Arch Capital’s underwriting income increased more than tenfold year over year to $721 million.
Cincinnati Financial Corporation CINF reported third-quarter 2023 operating income of $1.66 per share, which surpassed the Zacks Consensus Estimate by 55%. The bottom line more than doubled year over year. Total operating revenues in the quarter under review were $2.3 billion, which improved 8.7% year over year. Also, the top line beat the consensus mark by 1.2%. Net written premiums climbed 12% year over year to $1.9 billion and matched our estimate.
Investment income, net of expenses increased 17% year over year to $225 million and beat our estimate of $210.8 million. The growth was driven by an increase in bond interest income and a rise in stock portfolio dividends. The Zacks Consensus Estimate was pegged at $216 million. Total benefits and expenses of Cincinnati Financial decreased 1.4% year over year to $1.9 billion. Our estimate was $2 billion. In its property & casualty insurance business, CINF witnessed an underwriting income of $112 million against an underwriting loss of $66 million in the year-earlier period. Our estimate of underwriting income was pegged at $2.1 million.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report
CNA Financial Corporation (CNA) : Free Stock Analysis Report
Selective Insurance Group, Inc. (SIGI) : Free Stock Analysis Report
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
