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Strong Premiums, Solid Capital Position Aid Selective Insurance

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·3 min read
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Selective Insurance Group, Inc. SIGI has been riding on improved premium growth and strong net investment income, which is aiding its top line.

The company has a decent surprise history. It beat estimates in two of the trailing four quarters, the average beat being 5.9%. The stock has seen the Zacks Consensus Estimate being revised 3.2% downward over the last 60 days for current-quarter earnings.

Let’s delve into the factors that bode well for the company.

The P&C insurer continues to ride on geographic expansion for growth and diversification. Constant premium growth across segments helped the company’s total premiums improve 6.6% year over year in 2019. This upside can be attributed to strong retention and new business in the Standard Commercial Lines segment. As a result, the company’s top line registered 10.1% year-over-year growth in 2019.

Selective Insurance banks on impressive investment results. Its net investment income climbed 13% in 2019, driven by active portfolio management and a stellar operating cash flow. For 2020, the firm projects an after-tax investment income of $185 million, up from the prior guidance of $175 million.

The company also flaunts a sound capital structure, and remains committed toward returning value to its policyholders and shareholders via dividend payments. Riding on a solid capital position, the company has been hiking dividends, which register a five-year CAGR (2014-2019) of nearly 12.1%. Such shareholder-friendly moves make it an attractive pick for yield-seeking investors. Its dividend yield of 1.9% appears attractive compared with the industry’s 0.5%.

However, shares of this Zacks Rank #3 (Hold) company have depreciated 24.5% in a year’s time compared with the industry’s fall of 17.8%. Escalating expenses are likely to strain margin expansion.

Nevertheless, we believe the company’s healthy fundamentals will drive its shares in the days to come.

Stocks to Consider

Some better-ranked stocks in the same space are Axis Capital Holdings Limited AXS, First American Financial Corporation FAF, and RLI Corp. RLI. While First American Financial and RLI sport a Zacks Rank #1 (Strong Buy), Axis Capital carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

All three companies surpassed estimates in the last reported quarter by 150%, 33.33% and 28.57%, respectively.

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