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Why Is Selective Insurance (SIGI) Down 17% Since Last Earnings Report?

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It has been about a month since the last earnings report for Selective Insurance (SIGI). Shares have lost about 17% 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 catalysts.

Selective Insurance Q4 Earnings & Revenues Beat Estimates

Selective Insurance reported fourth-quarter 2019 operating income of $1.37 per share, beating the Zacks Consensus Estimate by 25.7%. Also, the bottom line rose nearly 14.2% from the year-ago period.

The reported quarter benefited from improved performance of Standard Commercial Lines segment, higher net investment income and growth in premiums, partially offset by soft performance of Standard Personal Lines and Excess & Surplus Lines segment.

Full-Year Highlights

For 2019, Selective Insurance came up with operating income of $4.40 per share, which surpassed the Zacks Consensus Estimate by 4% and improved 20% from the year-earlier quarter.

Moreover, total revenues of $2.8 billion grew 7.2% year over year.

Behind the Headlines

Total revenues of $730 million were up 7.2% from the year-ago quarter. Also, the top line beat the Zacks Consensus Estimate by 1%.

Net investment income rose 5.9% year over year to $46.8 million, driven by active portfolio management, stellar operating cash flow (18% of Net premiums written) and $106 million of net proceeds from the 5.375% senior notes issuance in the first quarter of 2019.

Net premiums written increased 8% year over year to $628.2 million. Combined ratio improved 90 basis points (bps) on a year-over-year basis to 91.8%.

Segment Results

Standard Commercial Lines net premiums written were up 11% year over year to $500.1 million on the back of solid renewal pure price improvement as well as retention and strength in new business. Combined ratio deteriorated 290 bps to 90% from the prior-year quarter’s level.

Standard Personal Lines net premiums written were down 3% year over year to $70.9 million, reflecting reduction in new business. Combined ratio deteriorated 670 bps to 98.5% from the year-ago period.

Excess & Surplus Lines net premiums written reduced 6% year over year to $57.2 million, primarily due to decline in new business, partially offset by overall renewal pure price increases of 3.7%. Combined ratio deteriorated 660 bps to 99.5%.

Financial Update

Selective Insurance exited the fourth quarter with total assets of $8.8 billion, which climbed 10.6% from the level as of December 2018 end.

As of Dec 31, 2019, book value per share was $36.91, up 21.4% year over year.

Annualized operating return on equity was 15.2% in the quarter under review, contracting 110 points year over year.

2020 Guidance

Selective Insurance projects a combined ratio (excluding catastrophe loss) of about 91.5% that assumes no prior-year casualty reserve development.

Catastrophe loss of 3.5 points has been estimated.

The company projects an after-tax investment income of $185 million, which comprises $14 million of after-tax net investment income from alternative investments.

The P&C insurer expects an overall effective tax rate of nearly 19.5%, including 18.5% for net investment income, which represents a tax rate of 5.25% for tax-advantaged municipal bonds and a tax rate of approximately 21% for all other items.

Weighted average shares outstanding are expected to  be 60.5 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Selective Insurance has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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