A month has gone by since the last earnings report for Selective Insurance (
SIGI Quick Quote SIGI - Free Report) . Shares have added about 3.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Selective Insurance due for a pullback? 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 drivers.
Selective Insurance Q2 Earnings Top, Premiums Rise Y/Y Selective Insurance Group, Inc. reported second-quarter 2021 operating income of $1.85 per share, which beat the Zacks Consensus Estimate by 36%. The bottom line improved more than fourfold from the year-ago period. The reported quarter witnessed higher premiums written and improved net investment income, offset by higher expenses. Behind the Headlines
Total revenues of $840.5 million were up 23% from the year-ago quarter’s figure. Moreover, the top line beat the Zacks Consensus Estimate by 4.1%.
Net premiums written increased 15% year over year to $833.2 million driven by strong new business growth of 16%, renewal pure price increases of 5.1%, and continued solid retention. Net investment income more than doubled year over year to $67 million, driven by alternative investment gains of $16 million after-tax, which are reported on a one-quarter lag. Total expenses increased 7.2% year over year to $687.3 million, primarily due to higher loss and loss expense incurred, amortization of deferred policy acquisition costs, other insurance expense and corporate expenses. Combined ratio improved 860 basis points (bps) on a year-over-year basis to 89.8%. Segmental Results
Standard Commercial Lines net premiums written were up 16% year over year to $677.1 million, driven by renewal pure price increases that averaged 5.5%, new business growth of 17%, and retention of 85%.
Combined ratio improved 800 bps to 88.7% from the prior-year quarter’s level due to lower catastrophe losses as well as non-catastrophe property losses and loss expenses. Standard Personal Lines net premiums written were $78.6 million, flat year over year as renewal pure price increases and solid retention were offset by lower new business. Combined ratio improved 1650 bps to 89.6 from the year-ago period’s count due to lower catastrophe losses. Excess & Surplus Lines net premiums written grew 23% year over year to $77.5 million, driven by new business growth of 19% and renewal pure price increases that averaged 6.9%. Combined ratio improved 430 bps to 96.6 from the prior-year quarter’s level due to lower catastrophe losses. Financial Update
Selective Insurance exited the second quarter with total assets of $10.2 billion, which climbed 5% above the level at the end of December 2020. Debt to total capitalization improved 70 bps to 16% from 2020 end level.
As of Jun 30, 2021, book value per share was $44.78, up 6% from the level as of 2020 end. Annualized operating return on equity was 17.1% in the quarter under review, up 1270 points year over year. 2021 Guidance
The company estimates catastrophe loss of 4 points on the combined ratio. The company projects an after-tax net investment income of approximately $220 million, up from the previous guidance of $195 million. It includes $55 million in after-tax net investment income from alternative investments, up from $31 million guided earlier.
The company expects an overall effective tax rate of approximately 20.5% that includes an effective tax rate of 19% for net investment income and 21% for all other items. The company expects GAAP combined ratio, excluding catastrophe losses, of 89% (prior guidance 90%) that assumes no additional prior year casualty reserve development. How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 62.3% due to these changes.
At this time, Selective Insurance has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Selective Insurance has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.