Selective Insurance Group, Inc. (SIGI - Free Report) has been in investors' good books on the back of direct new business growth, strong renewal pure price increases and increase in pre-tax income from other investments portfolio.
The stock carries a VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.
The company delivered an earnings surprise in two of the last four reported quarters with the average beat being 2.17%.
Factors Driving Selective Insurance
Selective Insurance has been witnessing a positive trend in net premiums written, driven by solid performance at its Standard Commercial Lines, Standard Personal Lines and Excess and Surplus Lines segments. Higher retention, increase in direct new business growth, mainly in the Standard Commercial Lines, strong renewal pure price increases, net appointment of retail agents, excluding agency consolidations are expected to drive premiums going forward.
Such consistent increase in premiums has been driving the top line of this Zacks Rank #2 (Buy) property and casualty insurer that witnessed four-year CAGR (2015-2019) of 7.5%. The Zacks Consensus Estimate for the company’s 2020 and 2021 revenues is pegged at $2.8 billion and $3.1 billion, respectively, indicating year-over-year increase of nearly 1% and 9.6%.
Moreover, net investment income continues to be another important driver of the company’s top-line growth and has been exhibiting improvement over the last several years. The metric witnessed four-year CAGR (2015-2019) of 16.4%. Despite the current low interest rate environment, increase in pre-tax income from other investments portfolio, increase in private equity strategy investment income will continue to drive net investment income.
The company estimated after-tax net investment income of $160 million in 2020, driven by $10 million - $15 million of expected alternative investment portfolio losses for the year, continued pressure on new money yields for fixed income investments and reinvestment of strong operating cash flows.
Though the company experienced a significant level of catastrophe losses in the first half of 2020, driven by tornado and industry-wide U.S. catastrophe loss activity, the company estimates combined ratio, excluding catastrophe losses, between 90% and 91%, for 2020. It indicates an improvement from the prior guidance range of 92% to 93%.
Its 2020 property catastrophe treaty structure includes coverage of $735 million in excess of $40 million retention, $242 million in collateralized limit, primarily in the top layer of the program and additional earnings volatility protection from its non-footprint $35 million in excess of $5 million layer.
Furthermore, investors should be impressed by its disciplined capital management. The company increased its dividend at a six-year (2014-2020) CAGR of 9.9%. Its current dividend yield of 1.7% is higher than the industry average of 0.4%, which makes the stock an attractive pick for yield-seeking investors.
Moreover, return on equity (ROE), reflecting the company’s efficient utilization of its shareholders’ funds to generate earnings, has been increasing over the past several years. 2019 marked the sixth consecutive year of double-digit operating ROE. Its trailing twelve months ROE of 9.9% betters the industry average of 6.2%.
It has an impressive Value Score of B. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.
However, this property and casualty insurer has lost 15.8% year to date compared with the industry’s decline of 7.3%.
Other Stocks to Consider
Some other top-ranked stocks from the property and casualty insurance space are Donegal Group Incorporation (DGICA - Free Report) , Fidelity National Financial Inc., (FNF - Free Report) and The Allstate Corporation (ALL - Free Report) , each carrying a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Donegal surpassed estimates in each of the last four quarters, with the average being 86.44%.
Fidelity National surpassed estimates in each of the last four quarters, with the average being 32.13%.
Allstate surpassed estimates in each of the last four quarters, with the average being 25.24%.
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