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Selective Insurance (SIGI) Q3 Earnings Miss, Revenues Up Y/Y

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Selective Insurance Group, Inc. (SIGI - Free Report) reported third-quarter 2020 operating income of $1.06 per share, which missed the Zacks Consensus Estimate by 10.2%. Nevertheless, the bottom line improved 9.3% from the year-ago quarter.

The quarter witnessed higher net premiums written (NPW) and increased net investment income. The benefit was partially mitigated by elevated catastrophe losses and escalating costs.

Behind the Headlines

Total revenues of $769 million increased 7.9% from the year-ago quarter’s figure, primarily due to higher premiums earned and improved net investment income. Moreover, the same outpaced the Zacks Consensus Estimate by 2.7%.

NPW increased 6% year over year to $719.5 million attributable to strength in Standard Commercial Lines segment. Increases in renewal pure price, new business growth and high retention rates aided the segment further.

Net investment income improved 22% year over year to $55.1 million due to alternative investment gains of $15 million. These gains are reported on a one-quarter lag and highlight the market recovery during the second quarter.

Catastrophe losses soared 228.5% year over year to nearly $80 million. The increase can primarily be attributed to $50 million of losses related to the Midwest derecho and Hurricane Isaias. Also, 19 other minor events contributed to the remaining catastrophe losses reported in the quarter.

Combined ratio deteriorated 180 basis points (bps) on a year-over-year basis to 97% in the quarter under review, primarily due to higher level of catastrophe losses. It was partially offset by the impact of favorable casualty reserve development, lower non-catastrophe property losses compared to the prior-year quarter and continuous expense management initiatives.

Total expenses increased 8.2% year over year to $691.3 million primarily due to higher loss and loss expense incurred, amortization of deferred policy acquisition costs, and interest expenses.

Segmental Results

Standard Commercial Lines’ NPW were up 8% year over year to $577.8 million, attributable to increase in retention, new business growth and solid renewal pure price rise.

Combined ratio improved 190 bps to 92.3% from the prior-year quarter’s level.

Standard Personal Lines’ NPW declined 2% year over year to $79.7 million. The decline has been partly limited by increase in new business and renewal pure price, and higher retention.

Combined ratio deteriorated 1820 bps on a year-over-year basis to 119% in the quarter under review due to higher catastrophe losses, partially offset by a decrease in non-catastrophe property losses.

Excess & Surplus Lines’ NPW remained almost flat year over year at $62.1 million. The segment has benefited from increase in renewal pure price and new business partly negated by lower renewal and endorsement activity. Combined ratio also deteriorated 1510 bps to 112% due to higher catastrophe losses.

Financial Update

Selective Insurance exited the third quarter with total assets of $9.5 billion, which was 8% above the level at December 2019 end.

As of Sep 30, 2020, book value per share was $40.00, up 8% from the level as of 2019 end.

Annualized non-GAAP operating return on equity was 10.9% in the quarter under review, down 30 bps year over year.

Dividend Hike

Concurrent with the third-quarter earnings release, the company’s board of directors approved a 9% hike in the quarterly cash dividend. The new dividend of 25 cents per share will be payable on Dec 1, 2020 to shareholders of record as on Nov 13.

2020 Guidance Revised

The company estimates GAAP combined ratio, excluding catastrophe losses, in the range of 88% to 89%, indicating an improvement from the earlier guidance of 90%-91% in the second quarter. The guidance includes catastrophe losses of 800 bps.

The company projects an after-tax investment income of $175 million, $5 million higher than the second-quarter 2020 guidance of $170 million. It now expects after-tax net investment income from alternative investments to be $10-$15 million.

Overall effective tax rate is expected to be around 18.5%, which comprises 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 P&C Insurers

Of the insurance industry players, which have reported third-quarter results so far, earnings of W. R. Berkley Corporation (WRB - Free Report) , The Travelers Companies, Inc. (TRV - Free Report) and RLI Corp. (RLI - Free Report) beat the respective Zacks Consensus Estimate.

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