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Selective Insurance (SIGI) Beats on Q3 Earnings & Revenues

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Selective Insurance Group, Inc. (SIGI - Free Report) reported third-quarter 2021 operating income of $1.18 per share, which beat the Zacks Consensus Estimate by 0.8%. The bottom line improved 11.3% from the year-ago quarter.

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

Behind the Headlines

Total revenues of $865 million increased 12.5% 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 3.5%.

On a year-over-year basis, NPW increased 13% to $812.9 million attributable to strength in the Standard Commercial Lines and Excess and Surplus Lines segments. Continued renewal pure price increases averaging 4.9% solid retention rates and strong new business growth of 20% aided the segment further.

Net investment income improved 35.6% year over year to $74.7 million, due to alternative investment gains of $34 million. These gains are reported on a one-quarter lag.

Catastrophe losses declined 4% year over year to nearly $76.3 million.

The combined ratio deteriorated 160 basis points (bps) on a year-over-year basis to 98.6% in the quarter under review, primarily due to higher level of catastrophe losses. Hurricane Ida accounted for $43 million of net catastrophe losses.

Total expenses increased 11.7% year over year to $772.4 million, primarily due to higher loss and loss expense incurred, amortization of deferred policy acquisition costs, other insurance expenses, and corporate expenses.

Segmental Results

Standard Commercial Lines’ NPW were up 13% year over year to $652.6 million. Renewal pure price increases, which averaged 5.3% solid retention rates, and new business growth of 24% drove the improvement in NPW.

The combined ratio deteriorated 490 bps to 97.2% from the prior-year quarter’s level due to higher catastrophe losses.

Standard Personal Lines’ NPW declined 2% year over year to $78.2 million as new business was down 15% year over year. The decline has been partly limited by an increase in renewal pure price and higher retention.

The combined ratio improved 380 bps on a year-over-year basis to 115.2% in the quarter under review due to lower catastrophe losses.

Excess & Surplus Lines’ NPW were up 32% year over year at $82.1 million. The segment has benefited from an increase in renewal pure price, new business, and increased retention rates. The combined ratio also improved 1830 bps to 93.7% due to lower catastrophe losses.

Financial Update

Selective Insurance exited the third quarter with total assets of $10.4 billion, which was 8% above the level at December 2020 end.

As of Sep 30, 2021, book value per share was $45.27, up 6.8% from the level as of 2020 end.

Annualized non-GAAP operating return on equity was 10.6% 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 12% hike in the quarterly cash dividend. The new dividend of 28 cents per share will be payable on Dec 1, 2021, to shareholders of record as on Nov 15.

2021 Guidance Revised

The company estimates GAAP combined ratio, excluding catastrophe losses of 88%, indicating an improvement from the earlier guidance of 89% in the second quarter. The guidance includes catastrophe losses of 500 bps.

The company projects an after-tax investment income of $240 million, $20 million higher than the second-quarter 2021 guidance of $220 million. It now expects after-tax net investment income from alternative investments to be $75 million.

The overall effective tax rate is expected to be around 20.5%, which comprises an effective tax rate of 19.5% for net investment income and tax rate of 21% for all other items.

Zacks Rank

Selective Insurance carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of 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) , Chubb Limited (CB - Free Report) and RLI Corp. (RLI - Free Report) beat the respective Zacks Consensus Estimate.