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Selective Insurance's (SIGI) Q2 Earnings Beat, Plunge Y/Y

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Selective Insurance Group, Inc. (SIGI - Free Report) reported second-quarter 2020 operating income of 40 cents per share, beating the Zacks Consensus Estimate by 8.1%. However, the bottom line declined 65.5% from the year-ago period’s number.

Selective Insurance witnessed higher net premium written, offset by higher catastrophe losses and decline in alternative investment income, which is reported on a one-quarter lag.

Selective Insurance Group, Inc. Price, Consensus and EPS Surprise

Selective Insurance Group, Inc. Price, Consensus and EPS Surprise

Behind the Headlines

Total revenues of $670 million were down 4.4% from the year-ago quarter’s figure, primarily due to lower premiums earned and net investment income. Moreover, the same missed the Zacks Consensus Estimate by 3.7%.

Net investment income decreased 40% year over year to $28.5 million due to alternative investment losses of $16 million pre-tax, or $13 million after-tax, which are reported on a one-quarter lag, and reflected the market decline during the first quarter.

Net premiums written increased 3% year over year to $724.8 million attributable to increase in both Commercial Lines and Excess & Surplus Lines.

Total expenses increased 3.5% year over year to $639.8 million primarily due to higher loss and loss expense incurred, amortization of deferred policy acquisition costs and interest expenses.

Catastrophe losses increased 182% year over year to $83.2 million, primarily due to $43 million of losses related to two April storms and $20 million of losses related to civil unrest claims.

Combined ratio deteriorated 530 basis points (bps) on a year-over-year basis to 98.4% in the quarter under review, primarily due to COVID-19-related underwriting items of $9.6 million and higher level of catastrophe losses. It is partially offset by the impact of net prior year favorable casualty reserve development, lower non-catastrophe property losses compared to the prior-year quarter and ongoing expense management initiatives.

Segmental Results

Standard Commercial Lines net premiums written were up 5% year over year to $583.3 million, attributable to increase in retention and solid renewal pure price rise.

Combined ratio deteriorated 400 bps to 96.7% from the prior-year quarter’s level due to higher catastrophe losses.

Standard Personal Lines net premiums written declined 5% year over year to $78.2 million due to COVID-19-related personal automobile premium credits of $4.3 million, which was partially offset by increase in new business, renewal pure price and higher retention.

Combined ratio deteriorated 1470 bps on a year-over-year basis to 108.8% in the quarter under review due to higher catastrophe losses, partially offset by a reduction in non-catastrophe property losses.

Excess & Surplus Lines net premiums written grew 3% year over year to $63.2 million, primarily attributable to increase in renewal pure price and new business. Combined ratio also deteriorated 590 bps to 100.9% due to higher catastrophe losses.

Financial Update

Selective Insurance exited the second quarter with total assets of $9.3 billion, which was 6% above the level at December 2019 end.

As of Jun 30, 2020, book value per share was $38.43, up 4.1% from the level as of 2019 end.

Annualized operating return on equity was 6.2% in the quarter under review, down 830 basis points year over year.

2020 Guidance

The company estimates GAAP combined ratio, excluding catastrophe losses, in the range of 90% to 91%, indicating an improvement from the earlier guidance of 92%-93% provided in the first quarter.

Catastrophe losses of 6.0 points on the combined ratio have been estimated, reflecting higher-than-expected losses through the first half of the year. As COVID-19 has not been designated a catastrophe event by the Insurance Services Office's Property Claims Services unit, such losses are not included in this ratio.

The company projects an after-tax investment income of $170 million, $10 million higher than the first-quarter 2020 guidance of $160 million. It now expects up to $5 million in after-tax net investment income from alternative investments.

Overall effective tax rate is expected to be approximately 18.5%, which includes an effective tax rate of 18.5% for net investment income, indicating a tax rate of 5.25% for tax-advantaged municipal bonds and a tax rate of 21% for all other items.

Zacks Rank

Selective Insurance 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 Insurers

Of the insurance industry players, which have reported second-quarter results so far, earnings of Cincinnati Financial Corporation (CINF - Free Report) , First American Financial Corporation (FAF - Free Report) and AXIS Capital Holdings Limited (AXS - Free Report) beat the respective Zacks Consensus Estimate.

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