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Selective Insurance Stock Down 31.5% in a Year: Here's Why

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Selective Insurance Group, Inc. SIGI continues to be adversely impacted by escalating costs, higher catastrophe losses and high debt level. These have been weighing on the company’s overall results.

Shares of this Zacks Rank #4 (Sell) multi-line insurer have lost 31.5% in the past year, compared with the industry's decline of 15.4%.

The company reported negative surprise of 12.50% in the last reported quarter.

The Zacks Consensus Estimate for earnings for the current quarter has been revised 18% downward over the past 60 days.

The Zacks Consensus Estimate for 2020 earnings per share is pegged at $3.41, indicating a decline of 22.5% on 1.8% lower revenues.

Factors Affecting Selective Insurance

Selective Insurance, being a property and casualty insurer, remains exposed to catastrophe losses, which, in turn, impact underwriting results. In the first quarter of 2020, combined ratio deteriorated 200 basis points on a year-over-year basis to 96.7%.

Moreover, the company estimates combined ratio between 92% and 93% for 2020, a deterioration from the prior guidance of 91.5%, primarily due to expense ratio pressure from the estimated full-year impact of COVID-19 and 450 bps from catastrophe losses, reflecting higher-than-expected cat losses through April and lower earned premium. Catastrophe losses surged 58.8% in the first quarter to $33.2 million. Such higher losses were driven by a tornado and subsequent hail that impacted Tennessee in early-March 2020.

Selective Insurance has been witnessing escalating expenses owing to increase in loss and loss expense, higher amortization of deferred policy acquisition costs and other insurance expenses. In the first quarter of 2020, total expenses increased 3.7% year over year to $648.8 million. Expenses increased at a two-year CAGR (2017-2019) of 6.6%. Such increase in expenses weighs on margins.

The pandemic affected the net premium written of the company in the first quarter to some extent. It decreased 4% year over year to $647 million, indicating $75 million accrual for estimated return audit and mid-term endorsement premiums related to the COVID-19 pandemic.

Furthermore, the company’s debt levels have been increasing over the past many years. As of Mar 31, 2020, its total debt-to-total capital of 28.9% was higher than 2019-end level of 20.1% and compared unfavorably with the industry average of 21.8. The P&C insurer’s interest coverage ratio of 10.4 was poor when compared with 2019-end level of 11.1, which implies that its earnings are not sufficient to cover interest obligations.

Additionally, Selective Insurance’s trailing 12-month return on assets of 2.9% is lower than the industry’s 3.1%. This highlights the company's inefficiency to utilize its assets to generate earnings.

Stocks to Consider

Some better-ranked insurance stocks include National General Holdings Corp. NGHC, The Allstate Corporation ALL and Palomar Holdings Inc. PLMR. While National General Holdings carries a Zacks Rank #1 (Strong Buy), Allstate and Palomar carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

National General is a specialty personal lines insurance holding company, providing various insurance products and services in the United States, Bermuda, Luxembourg, and Sweden. Its earnings beat estimates in two of the last four quarters and missed in the other two, the average positive surprise being 5.68%.

Allstate provides property and casualty, and other insurance products in the United States and Canada. It surpassed estimates in each of the last four quarters, with the average positive surprise being 18.45%.

Palomar offers personal and commercial specialty property insurance products, including residential and commercial earthquake. It surpassed estimates in two of the last four quarters, with the average positive surprise being 10.93%.
 
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The Allstate Corporation (ALL) : Free Stock Analysis Report
 
Selective Insurance Group, Inc. (SIGI) : Free Stock Analysis Report
 
National General Holdings Corp (NGHC) : Free Stock Analysis Report
 
Palomar Holdings, Inc. (PLMR) : Free Stock Analysis Report
 
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