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Selective Insurance (SIGI) Up 21% in a Year: More Room to Run?

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Shares of Selective Insurance Group, Inc. (SIGI - Free Report) have rallied 21% in a year compared with the industry's increase of 14.6%. The Zacks S&P 500 composite has rallied 14.4% in the said time frame. With a market capitalization of $4.9 billion, the average volume of shares traded in the last three months was 0.2 million.

Zacks Investment Research
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The rally was largely driven by renewal pure price increases, higher retention and sufficient liquidity.

The insurer has decent earnings surprise history. Its bottom line beat estimates in each of the last four quarters, the average being 29.93%.

Selective Insurance has a favorable VGM Score of B. VGM Score helps to identify stocks with the most attractive value, the best growth and the most promising momentum.

Will the Bull Run Continue?

Estimates for 2022 and 2023 have moved up nearly 0.5% and 1.6%, respectively, in the past 30 days, reflecting investors’ optimism.

The Zacks Consensus Estimate for 2023 earnings per share is pegged at $6.33, indicating a year-over-year increase of nearly 10.1%.

Riding on renewal pure price increases, higher retention, exposure growth and increased direct new business, the Standard Commercial Lines segment of Selective Insurance is expected to improve.

For 2022, Selective Insurance will remain focused on expanding Standard Commercial Lines’ market share by increasing share toward the 12% target of agents' premiums and by appointing new agents. SIGI also expects to widen the geographic reach by writing the Standard Commercial Lines business in other states and maximizing new business growth in the small business market through the utilization of an enhanced small business platform.

The Excess and Surplus Lines (E&S) segment of Selective Insurance is likely to improve due to the higher direct new business, renewal pure price, and exposure growth, which is driven by favorable market conditions in E&S lines.

For 2022, Selective Insurance estimates an after-tax net investment income of $200 million, including $20 million in the net investment income from alternative investments. Higher alternative investments gain in the other investment portfolio, driven by strong corporate earnings and solid valuations, is likely to drive the net investment income of the insurer.

Selective Insurance’s trailing 12-month return on equity (ROE) was 14.5%, which expanded 380 basis points year over year. ROE reflects its efficiency in using its shareholders’ funds.

This Zacks Rank #2 (Buy) insurer expects the 2022 expense ratio to remain unchanged from 2021. Cost-cutting initiatives, lower-than-expected travel, and entertainment and overhead expenses should lower the expense ratio and enable the insurer to achieve the long-term expense ratio target in 2023.

Cash flow remains solid in 2021, with $771 million of operating cash flow. A solid financial position provides the insurer with the significant financial flexibility to execute its strategic objectives.

Due to the solid financial strength, the property and casualty insurer raised dividends at an eight-year (2015-2022) CAGR of 9.1%. The current dividend yield is 1.3%, which is better than the industry average of 0.3%. At present, it has $96.6 million of remaining capacity under the share repurchase program. Thus, the stock is an attractive pick for yield-seeking investors.

Selective Insurance has an impressive Value Score of A, reflecting an attractive valuation of the stock. The back-tested results show that stocks with a Value 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.

Other Stocks to Consider

Some other top-ranked insurers include Kinsale Capital Group (KNSL - Free Report) , United Fire Group (UFCS - Free Report) and Arch Capital Group (ACGL - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average beat being 32.04%. In the past year, Kinsale Capital has rallied 36.4%.

The Zacks Consensus Estimate for KNSL’s 2022 and 2023 earnings has moved 3.8% and 3.5% north, respectively, in the past seven days.

United Fire’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 275.45%. In the past year, United Fire has declined 11.8%.

The Zacks Consensus Estimate for UFCS’ 2022 and 2023 earnings has moved 122.2% and 76.9% north, respectively, in the past 30 days.

Arch Capital’s earnings surpassed estimates in each of the last four quarters, the average beat being 35.84%. In the past year, Arch Capital has rallied 31.6%.

The Zacks Consensus Estimate for ACGL’s 2022 and 2023 earnings has moved 2.9% and 1.6% north, respectively, in the past seven days. Arch Capital’s expected long-term earnings growth rate is pegged at 10%.